WHY ARE LATIN AMERICAN FIRMS GOING GREEN?

Latin America has witnessed a major expansion in the adoption of environmentally responsible behavior over last decade or so. The region annually produces sustainable food products worth over one billion dollars. Brazil, Argentina, Chile, Colombia and Peru are now major global suppliers of organic coffee, soybean, sugar, herbs, fruits and vegetables. However, this behavior is somewhat surprising as there is not much of a demand for organic and sustainable products within the region.

A new study published in the Journal of World Business provides robust evidence suggesting that Latin American firms have adopted sustainability to succeed in export markets. Firms in Latin America have a strong institutional encouragement to look outward. They operate in small home markets with limited potential, and years of falling growth rates have made this environment even more challenging. With some intraregional variations, the IMF report highlights the shrinking prospects of major economies in the region; with the combined expected GDP growth below 1% in 2019. As a result of several interrelated factors such as liberalization and increased competition in domestic markets, currency crises, escaping deficient institutional environment and replicating the success of Asian tigers abroad, firms in the region have been looking for expansion opportunities abroad.

However, unlike their Asian counterparts, Latin American firms faced a very different competitive landscape. By the time they started focusing on international markets, most countries were already heavily promoting international trade. Hence, new entrants could not solely compete on the basis of comparative cost advantages, especially against firms from low cost countries. As a result, they had to use product differentiation strategy. The ascendance of sustainability movement provided an opening to these firms to compete on the basis of their organic, fair-trade and sustainability chops.

However, before they could benefit for their socially responsible investments, these Latin American firms needed to adopt complementary strategies to overcome legitimacy concerns and develop credibility among their stakeholders. Obtaining international quality certifications was one such critical component of their strategy. Firms who obtained such certifications had to invest in improving their processes and procedures, but the benefits of increased consumer acceptance far outweighed these costs.

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If you are a business organization, this study shows you how to succeed in a competitive landscape. If you are a non-profit or consumer organization wanting to make businesses in your jurisdiction act more responsibly, this study provides strong evidence on kickstarting a virtuous cycle that better aligns the interests of firms and their stakeholders.

To know more about this study or to discuss collaboration opportunities, contact us at [email protected].