Beginning with Chile more than twenty years ago, Latin America has experienced a wrenching yet exciting transformation of its predominantly inward-looking, state-driven economies to a robust acceptance and practice of open-market principles. Structural reforms in trade, finance, labor, taxes, and privatization have created unprecedented opportunities for firms of all sizes and varieties to compete in larger markets than ever before.

In the process, a handful of global organizations have risen to replace formerly state-owned enterprises, while scores of previously "protected" firms have transformed themselves into highly competitive organizations.

Although a considerable body of research has traced the macroeconomic reforms of these emerging economies, little post-reform evaluation, other than isolated case studies, had occurred at the firm level before HBS assistant professor Rogelio Oliva and Fernando F. Suarez began to study the effects of these changes three years ago when both were on the faculty of Chile's Universidad Adolfo Ibáñez. Recently published as an HBS working paper titled "The Transformation of Firms in Post-Reform Emerging Economies," their preliminary findings suggest that the profound economic metamorphoses taking place in Latin America's emerging economies have imposed dramatic changes on the competitive environment, compelling firms to develop new strategies and capabilities in order to compete. Moreover, the authors contend, the transformational process hypothesized in their study may also be applicable to companies in newly emerging economies outside Latin America, such as Eastern Europe, northern Africa, China, and India.

Setting out on their research, Oliva and Suarez were both intrigued by the fact that while many Latin American firms simply folded under the pressure of intensified competition, others-such as Mexico's Hylsamex and Argentina's Siderca, both major manufacturers of steel-emerged to become world-class players. They wanted to know what these companies had done to transform themselves so successfully.

Selecting a group of fourteen firms of various sizes from three industries (energy, steel, and food/beverages) in four countries (Argentina, Brazil, Chile, and Mexico), the two scholars set about to find answers through field research. Speaking to senior executives, Oliva and Suarez discovered that all the organizations they studied responded to their post-reform competitive environments in roughly four stages:

• Stage I: Turnaround and Catch-up. Recognizing that their efficiency and quality levels were far below those of world- class competitors, the firms initiated action plans to measure the gap and catch up. Often such change involved significant modifications in the structure, size, scope, and culture of the organization.
• Stage II: Expansion. Realizing that growth was imperative for survival against larger rivals, the companies expanded their operations significantly, usually joining with related businesses in the local market or even in other countries.
• Stage III: Acquisition of New Capabilities. Becoming increasingly sophisticated as they competed with larger foreign rivals, the firms developed new capabilities in areas such as customer service, technological innovation, and brand management.
• Stage IV: Quest for Industry Leadership. Having completed the previous stages, the companies concentrated on becoming dominant in a particular industry. As a result, some were able to compete with the best of their global competitors; others became top-class niche players in the region.