Confronting Transnationalization: the Economic, Environmental and Political Strategies of the Central American Economic Groups

Central America is often viewed as a region governed by small, economic elites that created theirfortunes and the basis for their political power through the control with production and export ofagricultural goods like coffee, sugar, cotton and cattle. Many diversified into industry with theprotection schemes of the 1960s and 1970s and formed thus multisectoral diversified businessgroups (DBGs). This project has investigated the strategies that these groups have appliedto confront competition from transnational companies (TNCs) and pressure to internationalizeactivities with the recent opening of the economies, a process which some have predicted wouldlead to specialization or subordination to transnational capital. We found that the DGBs apply a number of different strategies and that they differ strongly across countries. The DGBs haveentered into a variety of alliances with TNCs; they have transnationalized themselves (mainly atthe Central American level); and they have shifted sector and segment focus in order to confronttransnationalization. The latter has consisted in a move away from agriculture and industry andinto services and construction, although the pattern varies significantly across countries. In generalnational policies, institutions and growth patterns have been more important for their shift instrategies than the process of economic opening. National institutions also explain differencesin political strategies that range from direct participation in politics to campaign financing andbusiness association activity. The political strategies are on the one hand the results of a specificinstitutional infrastructure, and their practices contribute to sustain that. The exception is theenvironmental strategies where pressure from clients and suppliers in foreign markets are more important than national or regional policies. The implications for development in the isthmus of theDGB strategies are complex and vary across countries and sectors. However, a main competitiveadvantage that has been exploited by the DBGs is the existence of pools of low-wage, low-skillworkers, and the local knowledge and networks in which the DBGs are embedded. This mayhinder long term industrial upgrading and economic development.

Central America has traditionally been dominated by strong lcoal economic actors - often economic groups with ownership interests in varoius sectors - in different alliances with states and transnational companies (TNCs). The opening and liberalization o f the Central American economies (most recently through a free trade agreements with the United States and a forthcoming association agreement with the European Union) has changed the political economy of the region signficantly. While it has engendered i ncreased presence of foreign transnational companies it has also induced the Central American companies to internationalize themselves through a variety of strategies: by becoming regional rather than national companies, by entering into alliances with fo reign TNCs and by searching for markets outside of the region. The choice of strategies has clear implications for the economic development of the region. The changing context also demands different environmental and political strategies of the same econo mic groups. This project has joined together a multi-disciplinary team with extensive experience from economic, environmental and political research in the region to study the strategies pursued by the Central American economic groups and their implicatio ns for the sustainable development of the region. It will have three components, each studying one aspect of the strategies of the groups through a combination of quantiative research and comparative case research. The main goal is not only to produce new knowledge about the actual strategies of the Central American economic groups and the implications of these, but also to understand the prospects for a sustainable development in the region and the conditions for development of local firms in developing countries in the context of a transnational economy.