The Global Marketplace

Latin America and property

I am reading a wonderful three volume history of Mexico by Enrique Krauze, which among other items discusses the issue of land (and who owns it) in Mexican history.  The wars of Emiliano Zapata in the 20th century are one example of this problem.  Why do I find this interesting?  I am always looking for differences between the cultures of Latin America and the U.S., and property rights is a big one.

The history of property and ownership in Latin America is very different from the American experience.  This is not a history lesson; my point here is that the concept of property is fundamentally different in Latin America.  Since property and ownership get to the heart of the market economy you must keep this in mind if you work in the region.  As an example, in the 1990's a thoughtful Peruvian economist asked why Latin countries (among others) could tap residential equity as a source of capital for businesses.  I believe that one of the answers to this question is the different concept of property rights in Latin America.  It is impossible to transfer public policy solutions like this from the U.S. to the region without taking account of cultural differences.  That is the subject for another day.

Hugo Chavez: myth and reality

Sometimes worldwide events impair our judgment on local issues, as we forget to view issues and trends through a local lens.  Through my recent work in Latin America I have learned that the U.S. perception of Hugo Chavez is one such area.  A couple of points.

Why:  After the 9/11 attacks the U.S. had a tendency to view world leaders as either allies or enemies, with no middle ground.  With these two choices it is clear where Chavez would have ended up.  Chavez added to this through his ego and desire to use U.S. policy to expand his own influence.  Both of these tendencies were compounded by our ignoring the region and failing to understand local dynamics.

Reality:  My contacts tell me that most regional leaders do not view Chavez as a threat to their own governments.  He is seen as having his own problems to deal with in Venezuela and I would add that he lacks the infrastructure to spread problems far and wide.  Remember that Cuba had the support of the Soviet Union during the Cold War.

Lesson:  Watch stereotypes; they can lead you to view issues like these with your mind already decided, even if you do not realize it.  You may face investment risks in Latin America but I would not start with Chavez and his regional allies as the key problem.

Latin America and the Baroque

The baroque era, when you speak of architecture, does not get the high praise given the Gothic or renaissance periods.  My interest in the baroque has little to do with the art itself but instead is directed to what it says about Latin America, my favorite part of the world.

Appearances deceive.  Baroque architecture frequently contains connections that are not easily seen, obscured as they are by the abundance of detail which characterizes the style.  The same can be said of personal relationships and organizations in the region.  You cannot judge power by an org chart, nor can relationships be so easily evaluated.  I have touched on this them before, but today I am thinking of images.  Perhaps the connection to the baroque era in colonial Latin America exists, perhaps it is a coincidence.  Does it matter?  Think about it.

Never a straight line.  The other point of the baroque is that complexity of architecture also translates to the shortest distance between two points; it is never a straight line.  Moving from the imagery to Latin America you see this is in personal relationships.  Issues take time to address, conversations endure, and after a while you reach your destination.  Remember the facade of the last baroque church you saw if you are frustrated in a meeting.

State owned enterprises and risk

I recently completed a study on state enterprises in Latin America, PEMEX in Mexico being a large example, from a investment point view.  Specifically, I asked whether or not these firms would be good investments if they are privatized.  As a second issue, I looked at the benefits of doing business with these firms.  While many of my conclusions were obvious and known to most of you who successfully work with these firms, my sources pointed out one thing which had not occurred to me: the importance of employee attitudes.

The post office, not a firm.  Most employees of these companies view themselves as state workers.  This is not to say that they are lazy or inefficient--not at all.  The problem is their mental framework and the pressure points they respond to.  For example, they spend more time worrying about political trends in the ruling party because this drives much of what they do.  Middle and senior managers are also following the same political hot button issues, and are frequently respected by rank and file employees for their political connections and not their ability to deliver results (and consequently more money).  The market indicators we are used to following rarely grab their attention.

Conclusion:  I finished this study thinking that firms who lack this experience with parastatals should tread cautiously when considering business in this area.  My sources told me these firms were surprised, time and again, at the mentality they faced and were not well-equipped to maintain a long-term relationship.  Stick to what you know.

Cultural knowledge

As I reengage in Latin America after a five year absence a few points come to mind.

1.  Language.  I cannot overemphasize the importance of knowing the local language, Spanish and Portuguese in this case.  As I read elsewhere, language is not a like coat one puts on or takes off in different weather.  When you truly understand a language you begin thinking differently.  If your reasoning changes what do you think this says about the culture?  At some point not speaking the language will hurt your business.

2.  History.  The same lesson above applies to learning the local history.  Americans are famous for not learning local history, a stereotype which I believe is exaggerated.  Nevertheless this perception exists and if you can prove otherwise you will raise your stock considerably.

3.  Home truths.  On the other hand knowing what goes on in your own country and explaining it with a local context will also be helpful.  You need to be wired in to your own industry as this will help you sell yourself in foreign lands.  More on this later.

Spanish--needed or not for business?

The global marketplace puts a premium on skills that are not language related.  Examples include knowledge of private banking products, accounting in the Sarbanes-Oxley era, etc.  I have seen in Europe a tendency towards using English as the language of business which means that knowledge of French or German, for example, is not considered a requirement.  While this can be debated you should know that this is NOT true in Latin America--learn Spanish.

1.  Latin America is not Europe.  The large number of local languages is the reason for English becoming a default business language in Europe.  When you have Germans, Swedes and Belgians working together then English is usually the best fall back.  This is not true in Latin America where Spanish is the one and only language (I am leaving out Brazil for this argument).  Thus there is no need for a common second language.

2.  Language is not a coat you put on.  Speaking a second language fluently teaches you that we are not just translation machines.  You actually think differently when you reach that high level of fluency.  Most of your clients and colleagues are thinking differently than you will miss out on key issues if you don't speak the language.

3.  English is not as common.  This is the obvious reason.  If you don't know Spanish then you will have problems sooner rather than later when interacting with a supplier or customer who does not speak good English.

Social relationships in Latin America: business or pleasure?

Social relationships in Latin America play a key role in business relationships, more so than in the U.S. and Europe.  The reasons for this are many and based on culture as opposed to business.  That is not my point here:  I want to tell you how to adjust your business to this reality.

1.  Your always on the clock.  You need to spend time in social situations with those of your business circle.  They will get to know and trust you and you, in turn, will learn how the world works in these situations.

2.  Friends and friends.  Once you are in the social circles your friends will start to pay off.  You will be surprised at the friendships and how they were formed, and these will pay off for you, as friends introduce you to potential clients and partners.

3.  A nonlinear world.  As you have seen me write elsewhere the Baroque era describes Latin America in many ways.  Here, remember that as in baroque architecture things are not as they appear.  Decision making relationships are frequently different then what appears on the organization table.

The one solution to all this:  spend the time to get to integrated in the social networks.  It is no accident that the most successful expats I met in Latin America had years on the ground building these relationships.  Do the same.

Whither Meetings?

In my career as a consultant I have advised American clients on the best ways to run meetings.  Advice I give will be familiar to most of you; for example a key problem in hierarchical organizations is the tendency to defer to the senior person in the room, which turns the meeting into a simple affirmation of his views.  I cite this example because it is familiar to those of you who are Americans, and is typical of what we see in business literature.  But does this advice primarily apply to Americans, and should we take a different look south of the border?  The answer is yes.

1.  The Roman Forum.  A scholar friend of mine once said that the Latin languages and how they are used can be traced back to the Roman Forum.  By this he meant that languages like Spanish were oral and that a greater importance was placed on how things sound as opposed to the substance itself.  Thus Latin Americans will not object to a five minute presentation taking fifteen minutes, provided it sounds good.  Practical effect?  Meetings will be longer as individual speeches will get longer.  Deal with it and accept longer meeting.

2.  Baroque people.  The baroque period explains Latin America in so many ways, but let’s save that for later.  In the personal relationship context baroque means everything is not as it appears.  In a business setting you will see that figuring out relationships is far more complex than what you see in the U.S.  As a longtime expatriate banker once told me Latin Americans don’t have the same transparent rules we have.  This will complicate the dynamics in a meeting–let things roll on until you grasp the subtle undercurrents.

3.  Eliminate the ones you don’t need.  As you can see from the above two points your meetings will drag on.  Solution?  Have fewer of them.  Meetings are not as important in Latin American business circles so cut them down.

Mining Companies in Latin America

I spent extensive time and effort working with the mining industry many years ago, watching the fascinating interaction between large multinationals and Latin governments.  Some points.

1.  Nobody sees the industry.  Mines, especially new ones, are usually a long way–and I mean a very long way–from any major population center.  As a result the level and extent of foreign investment required to set up and run a mine is not known to the general population.  The perception is therefore dependent on local media outlets and the political class.

2.  It is the biggest show in town.  The costs of opening and running a mine almost always make this easily the largest and most expensive business in the country.  This means that foreign capital is usually required to make the business work.

3.  In or out of the political spotlight?  Minerals are like oil–a natural resource which can inflamelocal sensitivities at various points in the political cycle.  These of course do not always match the business cycle.

4.  Foreign government concerns.  The size of the mining investment relative to the local economy can lead to unusual concerns.  For example, a Latin American finance ministry concerned with the foreign exchange markets will closely watch the mining industry to make sure capital flows don’t strain the currency.

My Personal Banker

The amazing growth and increased sophistication of the global financial system runs, in Latin America, straight into an old cultural habit–the importance of personal relationships.   In Europe and the U.S. the financial product and bank reputation reign supreme, with personal relationships counting for less.  To quote a friend of mine, members of the industry are increasingly slaves to the demands of their clients.  Relationships are still important in fields like wealth management, but not like they were ten years ago.

Contrast this with Latin America, where the personal relationships are still key.  The reason is this.  Latin American societies are run by family and social networks.  Consequently relationships built up over time get everything done.  How do you see this in action?  Go to a major Latin American city and ask about the financial industry, and you will be given a list of names, frequently of Americans who have lived their for a decade or longer.  These resemble Pierpoint Morgan and Jay Gould from another era, and the analogy is not far off.  Remember this when you hit the city.