The Sustainability Frontier
Edited by Urs P. Jäger and Vijay Sathe
Chapter 7: Financial markets
Many Latin American firms have successfully faced the challenge of the globalization of economies and the internationalization of business. Most of these firms have achieved a sustainable competitive position based mainly on cost efficiency, which enables them to provide products and services as or more effectively and efficiently than their relevant competitors. For some of them, high profitability and a lower risk profile have been the result of business models and practices hard to replicate, which has encouraged local and foreign investment. But the optimization of the financial structure of the company has yet to be fully exploited in most of these and other Latin American companies. This is in part because of their conservative approach to the use of debt, but also the result of the shallowness of their countries’ capital markets. Access to capital markets allows companies not only to increase the availability of equity and to improve the terms of finance, but also to manage and effectively reduce their exposure to market risks. Only when companies and industries are based on true operational and financial efficiency, and not on monopoly rents or government support, can they achieve sustained success and growth in relation to foreign competitors. For companies that have reached the sustainability frontier it would be easier to absorb the trade-offs between economic and environmental/social value creation once they become aware of the gaps.
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