MGI Research

New Horizons: Multinational company investment in developing economies

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Retail banking case study

The limited effect of foreign investment in retail banking in Mexico and Brazil is something of an anomaly in this McKinsey Global Institute study.

In the aftermath of domestic economic crises, both countries encouraged multinational companies to participate in retail banking, hoping foreign funds would build stability and increase capitalization. An increased openness and willingness to deal with foreign banks lured roughly US $ 22 billion in foreign direct investment to both Latin American nations between 1995 and 2002. Despite contributing to stability of the financial systems, that money has not yet led to tangible consumer benefits.

Foreign ownership contributes financial system stability

In Mexico, where FDI was tied to bank restructuring, the influx of foreign funds helped revitalize the previously troubled industry by injecting much-needed capital into the system. International banks are credited with helping preserve a functioning banking system following the 1994 Mexican financial crisis.

Today, foreign banks control 80 percent of Mexico's retail banking sector assets. Their investments foster stability, build capitalization, and enhance professionalism and efficiency within the country's banking industry. Initiatives by foreign banks to streamline processes have cost some jobs, but product offerings and quality have remained unchanged. Foreign funds achieved good returns for investors but improvements for consumers, while positive, have been below expectations.

Status quo in Brazil

Brazil, also emerging from a period of macroeconomic instability, witnessed improvements in productivity and improved professional practices, but investments made little difference to consumers. FDI today accounts for only a small percentage of total investments in Brazilian banking.

Less then 25 percent of the banking industry in Brazil is under foreign control and domestically owned banks are clear leaders. Where multinationals have invested, productivity has improved and capitalization has increased. Still, overall sector output and consumer benefits have remained virtually unchanged. FDI has not created additional private credit, nor has it led to more aggressive price competition or product introductions.


Foreign direct investment, while positive and helpful to the countries receiving funds, has not led to similar consumer benefits as seen aftter MNC entry in other sectors. Although the influx of foreign capital has been advantageous in increasing capitalization and productivity, and in stabilizing sector output, relatively low levels of competitive intensity still characterize the banking markets in Brazil and Mexico.