Since the late 1980s, Latin American countries have begun a major shift toward more market-oriented economies. After decades of protectionism, government intervention and high inflation one country after another is following the path of fiscal discipline, deregulation, and privatization. Though labor productivity levels have remained low, many opportunities for improved performance are available to the managers willing to adopt them.
Objectives and Approach
MGI's objective was to find out whether Latin American economies could catch up to the best practices established in the developed world, and thereby consistently improve the standard of living for its populations. Studying the five largest economies across four sectors enabled MGI to dig for the most important and informative data.
Steel Sector
A massive privatization effort and recently reduced import barriers are changing the face of Latin America’s steel industry by bringing about higher levels of productivity and making local firms more internationally competitive.
Processed Food Sector
Persistence of craft-based techniques used by extremely fragmented industries in response to very low labor costs, expensive capital equipment, and weak fiscal and sanitary supervision, has kept labor productivity in this industry in Latin America far below of the US. No major improvements are foreseen for the near future.
Retail Banking Sector
Deregulation and privatization is only starting to introduce more competition to this very concentrated and unproductive sector that serves only a minority of the population in Latin America.
Telecommunications Sector
Privatization and deregulation are transforming once inefficient firms into fast-growing and profitable carriers. At the same time, productivity is rising and customers are being better served. Brazil's slower growth and stagnant labor productivity is the exception to this virtuous cycle.
Synthesis
In at least three of the four industries studied, the way managers organize their labor force largely explains the lower levels of productivity in Latin America versus the US. Another significant factor in two of the industries was the low level of automation.
