Latin Trade (English Edition) - Mar/Apr 2012 by Latin Trade Group

LATIN TRADE MEXICO

FROM

GALLOP TO TROT

MEXICAN PRESIDENT FELIPE CALDERON’S KEY REFORMS STARTED AT A QUICK PACE AND SLOWED DOWN AS HE ENDS HIS SIX YEAR TERM

MARCH / APRIL 2012

ALSO INSIDE: • WORLD ECONOMIC FORUM • THE TOP FRANCHISERS IN LATIN AMERICA • BEST CSR PROGRAMS YOUR BUSINESS SOURCE FOR LATIN AMERICA » WWW.LATINTRADE.COM

MARCH / APRIL 2012

In Latin America, the best doorway into the job market has a big golden M on it.

www.arcosdorados.com

All you have to do is go to a McDonald’s to see it:

Then there’s the commitment with education.

this is a company made of young people. Of every

For Arcos Dorados, education always comes

10 employees, 9 are between the age of 18 and

ﬁrst. That is why, in order to work at McDonald’s,

25. McDonald’s is the largest employer of young

employees must be attending or have ﬁnished high

men and women in Brazil, according to a survey

school. And the company encourages them

conducted by Great Place to Work in 2011.

to continue to study all the way to college.

And considering there are 86,000 employees throughout Latin America, over 77,000 of them

Arcos Dorados is one of the companies that most

are vibrant young men and women working at their

invests in training. Only in Brazil, the host country of

best at our restaurants.

McDonald’s University, US$ 23 million are dedicated to professional development every year. McDonald’s

What is it that attracts so many young men

University is one of the ﬁrst corporate universities in

and women to McDonald’s? Why is it that young

the world, and a pioneer in the restaurant industry.

employees are our main work force? For Arcos

The University helps develop professionals and

Dorados, the company in charge of McDonald’s Latin

leaders aligned with the company’s culture.

America operations, the answers are crystal clear. And the icing on the cake: social inclusion. Let’s start with opportunities, commitment

Yes, because giving people the chance to achieve

and civic duty.

their ﬁrst jobs, promoting citizenship and continued education, cultural activities, environmental

McDonald’s is attractive to young people because

awareness, community engagement – such as

it represents a doorway into the job market. The fact

through McHappy Day – teaching others to respect

that it does not require previous experience, and

diversity and hiring people with disabilities is the best

provides formal employment, including all government

form of inclusion Arcos Dorados can provide to young

beneﬁts, represents a major opportunity. A person’s

men and women who choose to work at McDonald’s.

very ﬁrst job is a source of pride and comfort, even for family members, who see their children becoming

We look for employees who are always in the pursuit

responsible and independent adults.

of excellence, a desire that shines like a magical sparkle in their eyes. That is why we invest

Another important aspect is the opportunity

so much in the youth: they will create that great and

for career development. Ask any of the company’s

unforgettable experience for you and your family.

executives who started out behind the counter what they think about McDonald’s meritocratic system. In fact, approximately 10,000 employees were promoted in 2010, in Latin America. And let’s not forget all the incentive and award programs. The most prominent of such programs, the All Star, awards the best employees with full college scholarships. Last year, 296 employees earned the right to go to college without having to pay anything.

(Brazil) Innovation A REVOLUTION FOR THE 21ST CENTURY May 10th 2012 PlanetĂĄrio do Rio, Rio de Janeiro

Join provocative debates, be inspired by some of the worldâ&#x20AC;&#x2122;s most progressive thinkers and understand how Brazil is redefining the global economy.

Can the old Brazil support the new start-up culture?

Speaker highlights:

Marco Ant么nio Raupp

David Neeleman

Minister of science, technology and innovation Brazil

Chief executive Azul Airlines

Chief Almir Narayamoga Surui

Nicolas Shea

Lino Bara帽ao

Helen Joyce

Founder Start-Up Chile

Minister of science, technology and productive innovation Argentina

Brazil bureau chief The Economist

Tribal chief Surui people

Phone: 212.541.0577 | E-mail: latam@economist.com Standard registration price US$1,795 Save $400 on the standard registration fee by using offer code BRLT

Platinum sponsor

Red Bull

Silver sponsor

Institutional partner

CONTENTS

M A R CH /A P R IL 2012 V O L. 20 NO . 2

28 Features 28 Cover: Mexico

Calderonâ&#x20AC;&#x2122;s rough ride and what still lies ahead.

The Economic Legacy By John Heath, Research Fellow at INEGI and former Chief Economist for Latam at HSBC Mexico. The Security Legacy By Sergio E. Diaz, Managing Director, FTI Consulting Mexico.

Competitiveness: The Gap to be Reduced

Opportunities Ahead By Juan Pablo del Valle, Chairman, Mexichem

CSR: When Care has its Rewards The best Corporate Social Responsibility programs in Latin America.

The World Economic Forum meets in Puerto Vallarta, Mexico.

64 44

Franchising Boom in Latin America, and the Challenge of Adapting to Local Taste Not every franchise will succeed in the region where markets differ widely in their buying power and ease of doing business.

LATIN TRADE

MARCH-APRIL 2012

The Contrarian Reforms, The Key to Improve Competitiveness, By John Price, Managing Director, Americas Market Intelligence.

Trade Logistics Thriving in Latin America despite obstacles an slower economic growth.

What Do Logistics Companies Do? Here are some examples of the solutions supply chain companies provide to their customers.

ELEMENT OF W E L L- B E I N G

Regular exposure to sunlight is the best natural source of Vitamin D.

M O R E R E A S O N S T O C E L E B R AT E Join us celebrating the opening of The Westin Resort & Spa, Playa Conchal in Costa Rica, The Westin Guadalajara in Mexico, The Westin Playa Bonita in Panama and The Westin Lima Hotel & Convention Center in Peru. Our new hotels in Latin America.

To learn more visit www.westin.com/latinamerica

Cancun (2), Guadalajara, Guatemala, Lima, Los Cabos, Playa Bonita, Playa Conchal, Puerto Vallarta, San Luis Potosi, Santa Fe/Mexico City.

CONTENTS

22 76

72 The Scene

Opinion

16 Milestone For Latin American Businesswomen

24 The Bottom Line

Maria das Graças Foster, Petrobras’s CEO.

18 Advertising What makes an ad a hit tends to be emotion or humor.

20 The Evolution of Hotel Security in Bogota

Alberto Bernal-Leon of Bulltick Capital Markets. What does the euro need to survive?

Made In: Peru

26 Leapfactor

76 Asparagus

Latin-run enterprise develops business apps for burgeoning mobile device market.

On the Road 72 Buenos Aires Insider’s tips for visiting Argentina’s capital.

LATIN TRADE

MARCH-APRIL 2012

Buenos Aires Hilton concierges’ Charles Budden and Sebastian Blaser offer tips for making the most out of a visit to this bustling city.

Tech Trends

It’s not what it used to be.

22 Traders Cautiously Upbeat about MILA’s Year Ahead

74 Ask the Concierge

Year-round sunshine, sophisticated irrigation systems and US trade preferences have helped Peru become the world’s biggest exporter of asparagus.

Editor’s Note 12 Calderon’s Mixed Legacy: Success or Failure?

EDITOR’S NOTE Calderon’s Mixed Legacy: Success or Failure? WHEN FELIPE CALDERON leaves Mexico’s presidency in December, he will leave behind a mixed legacy, as our special report on page 28 shows. That might not seem impressive at first glance, but there’s a case to be made that it actually could represent a certain degree of accomplishment and success for Calderon. After all, he faced an unprecedented “perfect storm” of negative factors, such as the impact of the 2008-09 global crisis that started in the United States and the H1N1 flu epidemic in 2009. The economic crisis weakened Mexico’s exports to the United States (its top market, accounting for 80 percent of exports) while also hurting tourism. That key sector of the economy was again hit by the flu epidemic, causing massive cancellations of previously booked trips to Mexico by U.S. and European operators alike. Calderon decided, bravely and correctly, to quickly react to the flu epidemic, suspending school classes, closing many public spaces and keeping the public informed of every detail (despite advisors who asked him to restrict that information). The result of that double whammy of the U.S. and global meltdown and the H1N1 flu epidemic was a whopping 6.2 percent decline in Mexico’s GDP in 2009 (with a record 10 percent drop in the first quarter). “Without a doubt, Calderon’s legacy was severely damaged by the scale of the great recession of 2008,” renowned economist Jonathan Heath says in a column (page 32). Helping Calderon handle the crisis was his finance minister, Agustin Carstens – a brilliant appointment who has served Mexico well. (Many observers believe Carstens, a former IMF official who became Central Bank Governor in December 2009, should have been elected to the top job at the IMF last year.) In the middle of the economic and flu crises, Calderon continued to wage war against the drug cartels, which quickly yielded some success in terms of arrests but also led to a desperate turf war that has resulted in more than 47,000 deaths since 2006. Although the vast majority of those deaths – about 90 percent, by some estimates – belonged to drug cartels and the majority of the remaining 10 percent were law enforcement officers or soldiers, the drug war has negatively affected

LATIN TRADE MARCH-APRIL 2012

tourism and, in many cases, local businesses. “I have never tried to mislead the Mexican people,” Calderon said during his acceptance speech at the 2009 Bravo Business Awards from Latin Trade. “I told them on the first day in office that this would be a long struggle, that it would take time and resources, and that

it would cost many human lives, but that it was worth it.” Yet Calderon’s drug war gets support from many business leaders. “In terms of public safety, it is essential to continue the struggle that the government has brought against organized crime to prevent it from challenging the state,” Mexichem Chairman Juan Pablo del Valle writes in this issue (page 37). And security experts, such as Sergio Diaz from FTI Consulting, who say organized crime and common crime are on the rise in Mexico, also praise Calderon: “One may or may not be in agreement with (the) president and his strategy against organized crime, but no one doubts his bravery and determination to confront the problem,” Diaz argues. (See page 34.) Although Calderon impressed with major reforms on taxes and pensions during his first year, his ambitious plans on energy and telecoms reforms were either watered down or outright stalled. Part of the problem was Calderon’s loss of a majority in Congress in 2009.

“Mexico’s executive branch has done what it can to improve the country’s business environment,” argues Latin Trade columnist John Price (page 36). Instead, he blames the Mexican Congress for failure to pass the necessary reforms: “Ever since (then-President Ernesto) Zedillo’s PRI lost majority control of Congress following the mid-term elections of 1997, Mexico’s presidents have been stymied by a level of congressional infighting that makes Washington politics seem collegial by comparison.” Several of the reforms that have been passed have helped Mexico improve its ranking in the latest Global Competitiveness Index from the World Economic Forum (from 66th place in 2010-11 to 58th in 2011-12), but the fact is that progress has been erratic during the Calderon presidency. In fact, in the Global Competitiveness Index released in October 2006 – two months before Calderon started his six-year mandate – it also ranked in 58th place. Meanwhile, Mexico has dropped from second place in 2006 to fifth place in 2011 on the Latin Business Index from Latin Business Chronicle, which measures more than two dozen factors affecting macroeconomic, corporate and political environments. Countries such as Panama and Peru have implemented more reforms than Mexico in that period and thus have passed the former No. 2 business country. (Chile remains the top nation on the index). But while Calderon clearly leaves behind a mixed legacy, no one can accuse him of complacency. At the same time, he deserves praise for continuing investor-friendly policies instead of implementing the kind of protectionist policies that have become so popular among policymakers in certain Latin American countries, including Brazil. And that, in the end, is not a bad note on which to end his six-year term.

Joachim Bamrud Executive Editor jbamrud@latintrade.com

Are you losing valuable time looking for data and analysis on Latin America and the Caribbean? Turn to

Page

CHIEF EXECUTIVE ROSEMARY WINTERS EXECUTIVE DIRECTOR & PUBLISHER MARIA LOURDES GALLO EXECUTIVE EDITOR JOACHIM BAMRUD MANAGING EDITOR ELIDA BUSTOS ART & PRODUCTION DIRECTOR MANNY MELO GRAPHIC DESIGNER SUSEL REYNALDO CONTRIBUTING EDITORS GABRIELA CALDERON (research), MARK LUDWIG CORRESPONDENTS Argentina: Charles Newbery, David Haskel, Paula Ancery • Brazil: Thierry Ogier (São Paulo), Taylor Barnes (Rio de Janeiro) • Chile: Gideon Long • China: Ruth Morris • Colombia: John Otis, Anastasia Moloney • France: Ilan Moss Mexico: David Agren • Panama: Sean Mattson • Peru: Lisa K Wing, Sophie Kevany, Naomi Mapstone • Spain: Guy Hedgecoe • US: Joseph Mann Jr. • Venezuela: Jose Orozco CONTRIBUTING PHOTOGRAPHERS Brazil: Paulo Fridman • Chile: Helen Hughes • Costa Rica: Juan Carlos Ulate • USA: Matthew Pace TRANSLATION: Rebecca & Valentin Farro Howard COPY EDITORS: David Wisor, Jude Webber EVENTS & CONFERENCES EVENTS MARKETING EXECUTIVE Natasha Valle SALES & CIRCULATION SALES REPRESENTATIVES Miami/Pan-regional sales: Silvia Clarke, Senior Account Manager Mercedes Fernandez, Business Development Manager Special Projects Coordinator: Ana Berger Colombia/Panama: María Cristina Restrepo India: Stephen Dioneda CIRCULATION COORDINATOR Claudia Banegas LATIN BUSINESS CHRONICLE Patricia Cabarcos, Enterprise Solutions/Datarisk Director, pcabarcos@latintrade.com Rosemary Begg, Marketing Associate, rbegg@latintrade.com

w.latinbusine w w ss

Latin Trade Group

e.com nicl o r ch

LATIN TRADE MARCH-APRIL 2012

CHAIRMAN RICHARD BURNS CHIEF OPERATING OFFICER JOANNE HARRAS ACCOUNTS MANAGER KATHY POLLYEA, kpollyea@manhattanmedia.com LATIN TRADE GROUP IS A DIVISION OF MIAMI MEDIA, LLC, AN AFFILIATE OF ISIS VENTURE PARTNERS Executive, Editorial, Circulation and Advertising ofﬁces are located at Brickell Bay Ofﬁce Tower, 1001 Brickell Bay Drive, Suite 2700, Miami, Florida 33131, USA. CUSTOMER SERVICE AND SUBSCRIPTIONS: Please visit www.latintrade.com to order online or call +1 (305) 749-0880. Latin Trade (ISSN 1087-0857, USPS 016715) is published bimonthly by Miami Media, LLC. All rights reserved. Reproduction in whole or part of any text, photograph or illustration without written permission of the publisher is strictly prohibited.

Visit Latin Trade online @ www.latintrade.com

/1/23;G 16@7AB=>63 1=:=;0 3?C/B7=< =4 B7;3 :7;7B32 327B7=< :WTS Wa W\ bVS []dS[S\b

eee hS\WbV eObQVSa Q][

53<3D/ E/B16;/97<5 5@/<2 >@7F B63 H3<7B6 ;/<C4/1BC@3 6/A E=< B63 >@7H3 4=@ B63 B=> 1/B35=@G =4 Âµ1=;>:71/B32 E/B16Â¶

/@53<B7</( 1V`]\]a 2O\TS` 3dS 8]gS`WO AW[]\SbbO =àW\W BVS EObQV 5OZZS`g 03@;C2/( AeWaa BW[W\U 0@/H7:( AbS`\ 1/G;/< 7A:/<2A( 2WO[]\Ra 7\bS`\ObW]\OZ 167:3( ;]aa] 1=:=;07/( 8]gS`WO 5ZOcaS` :S AS\bWS` 1=AB/ @71/( BWS[^] 5Z]POZ 5C/B3;/:/( 4A @WQVO`Ra ;3F71=( ;{fWQ] 2 4( 0SÙS` 8]gS`]a >cSPZO( 3\`W_cS B]``Sa 8]gOa ;]\bS``Sg( 3[eO :]a 1OP]a 1O\Qc\( CZbÒXSeSZa

>/</;/( ;]bbO >C3@B= @71=( 1ZcP 8WPO`Wb] A/7<B 0/@B63:3;G( 2WO[]\R 5S\SaWa A/7<B :C17/( B]c`\SOc A/7<B ;/@B7<( >OaaW]\ A/7<B B6=;/A( 2WO[]\Ra 7\bS`\ObW]\OZ A7<B ;//@B3<( 8]SÂ¸a 2WO[]\Ra 7\bS`\ObW]\OZ B=@B=:/( B]c`\SOc C@C5C/G( AS\aObW]\ Rc BS[^a D3<3HC3:/( 2O]`]

THE E SCE SCENE

A R O F E N TO S E N L I A C M I R E M A N I EN M LAT O W SS E N I S BU

MARIA DAS GRAÇAS FOSTER , Petrobras’s CEO

he appointment of Maria das Graças Foster to the top job at Brazilian oil giant Petrobras, Latin America’s largest company, is seen as a major milestone for businesswomen in the region. “Maria das Graças Foster has become the most important role model for aspiring young women in the corporate world in Latin America,” says Susan Segal, president and CEO of the Council of the Americas, a New York-based organization that includes major international companies doing business in Latin America. “Her career from the beginning is an example for women not only in Latin America but globally.” Foster, who succeeded Jose Sergio Gabrielli in February, grew up in a poor and violent slum in Rio de Janeiro. “I lived in the Complexo do Alemão for 12 years, lived with domestic violence in childhood and faced difﬁculties in life,” she told Brazilian newspaper O Globo in September. However, Foster’s determination led her to earn degrees in chemical engineering from the Federal Fluminense University (UFF), a master’s degree in nuclear engineering from the Federal University of Rio de Janeiro (COPPE/ UFRJ) and an MBA in economics from the Getulio Vargas Foundation. She then started her 32-year career as an intern at Petrobras and rose through the ranks, taking a break only to work at the Energy Ministry for three years (as Secretary for Oil, Natural Gas and Renewable Fuels).

LATIN TRADE MARCH-APRIL 2012

“She has never been afraid to take on difﬁcult assignments, including the turnaround of challenging money-losing divisions of Petrobras,” Segal says. The appointment of Foster marks a milestone not only in Brazil but also in Latin America, where there are few women CEOs of local companies. On the latest ranking of Latin America’s Top 50 Businesswomen from our sister publication Latin Business Chronicle, there are only seven women CEOs of Latin American companies. That contrasts with 15 women country managers for foreign multinationals operating in Latin America and another nine who head up the Latin America or sub-regional operations of multinationals. Prominent examples include Maria Asuncion Aramburuzabala, president and chief executive ofﬁcer of Tresalia Capital in Mexico; Blanca Treviño, CEO of Mexican IT company Softtek; Luiza Helena Trajano Inacio Rodrigues, CEO of retailer Magazine Luiza in Brazil; and Angelica Fuentes, CEO of health-food company Grupo Omnilife in Mexico. However, Segal points out that the issue

of women holding the top job in the corporate world is not just a Latin American issue. “It is a global issue,” she says, quoting a study by Catalyst showing that only 36 companies, or 3.6 percent of the Fortune 1000 largest companies, have women CEOs, while the Financial Times list of the top 500 companies in Europe shows that only 1.8 percent of those top jobs are held by women. “And Latin America is an even bigger challenge,” Segal says. “It remains a closed club, with the much-discussed glass ceiling. “ Existing CEOs and boards of directors in the region need corporate role models with women CEOs, which is why the appointment of Maria das Graças Foster at Petrobras is so important in promoting gender parity at the top, Segal says. But to foment broad-based change in multiple companies requires the application of real pressure and a realization of what Segal sees as self-evident: that the decision is good for the company. “The appointment of Graças Foster has certainly raised the bar for companies in Brazil and Latin America, as the largest company in the region now has a woman CEO and the country a female president,” Segal says. “Hopefully, it will have an impact, as promoting women makes economic sense for businesses. But also of huge importance, it will inspire and empower generations of women to push and believe that they can make it to the top and be the CEO.” – Joachim Bamrud

Smooth sailing from procurement through settlement. Linking more than 150 countries, our global trade and supply chain finance solutions give you a worldwide edge. Let our expertise help you minimize risk and optimize cash flow everywhere in the pipeline.

Taking your opportunity further. That’s return on relationship.

“Bank of America Merrill Lynch” is the marketing name for the global banking and global markets businesses of Bank of America Corporation. Lending, derivatives, and other commercial banking activities are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., member FDIC. Securities, strategic advisory, and other investment banking activities are performed globally by investment banking affiliates of Bank of America Corporation (“Investment Banking Affiliates”), including, in the United States, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Merrill Lynch Professional Clearing Corp., all of which are registered broker-dealers and members of FINRA and SIPC, and, in other jurisdictions, by locally registered entities. Investment products offered by Investment Banking Affiliates: Are Not FDIC Insured y May Lose Value y Are Not Bank Guaranteed. ©2012 Bank of America Corporation

THE SCENE

Latin American

ADVERTISING What makes an advertisement a hit tends to be emotion or humor. BY PAULA ANCERY

“Ofﬁce”, by Ogilvy Mexico

hat makes an advertisement “good” is a never-ending discussion among advertisers. It isn’t the awards at festivals or the pre-and post-campaign sales, or academic criteria that provide a scale that fairly measures the quality of a piece of advertising. But when an ad becomes a hit, just as a song does, that’s when it reaches the podium. In many cases, it is a two-way relationship. Something happens on the street, and the ad uses it, reelaborating it, putting the concept at the service of a brand. It then launches a commercial, and the people take it to heart again. This is what is happening in Brazil right now when Joel Santana, coach of soccer club Flamengo, gained renewed popularity after giving an interview peppered with Portuguese pronunciations of English words (“lefche” for “left”, for example). The video went viral On YouTube, and AlmapBBDO hired Santana for “Tradutor,” an advertisement in which the coach is a Portuguese interpreter with a strong accent, that mixes Portuguese

and English. “¿Me dá uma Pepsi, pode to be?” (“Could you give me a Pepsi, could it be?”) , he says, and the mixture “pode to be” leapt off the screen into the street and became an instant hit. What makes an advertisement a hit tends to be emotion or humor.

In Argentina, Tulipan condom commercials for the Day of the Student, the perfect occasion to address adolescents and young adults, are keenly awaited. As 2011 was also an electoral year, strets were saturated with political

“Damned ponies”, for Nissan Brasil, by LewLara\TBWA

LATIN TRADE MARCH-APRIL 2012

THE SCENE posters, which can turn into antiadvertising. At the hand of Young & Rubicam, Tulipan made a parody of the candidates’ communications, saying, “Murra in the provinces, Maza in the city.” To give murra, or maza, is slang for sex. However, it can be difﬁcult to evaluate the merits of advertising because some categories are more likely to succeed than others. For example, there was never an original campaign for toothbrushes. There are complex themes, such as the insurance market, a service everyone wants not to need. Ogilvy Mexico managed to bypass this quagmire with “Ofﬁce,” a spot for the Mexican Association of Insurance Institutions (AMIS). In it, a man suffers an accident but he is not driving – he is working at his desk. The ad closes with the message: “Seven out of 10 car accidents take place when you are thinking of something else. If you drive, just drive.”

INNOVATIVE PIECES Brazil, Mexico and Argentina lead the adversiting market in Latin America, but other countries are beginning to produce innovative pieces. In Chile, BBDO scored again in a campaign for Pepsi. It used the Facebook concept of “like” (PepSI or PepYES) and added the “don’t like” (PepNO) to invite the public to use the “Pepsi-meter” to vote on what is good and bad about summer or the Viña del Mar festival. Like many cases, the spots invited the public to enter Facebook to continue proposing pairs of PepYES and PepNO, and the response level remained high all summer. From the advertising market alone, it is difﬁcult to determine exactly how much money changes hands in each country. There are several factors involved. There are no mandatory audits. Advertising agencies are not obligated to make public the fees they charge, companies do not always disclose the ﬁgures of their campaigns, and it is not possible to use a simple formula that involves multiplying the number of

“In spring we are all candidates”, a street ad in Buenos Aires, mocking a political campaign.

seconds or centimeters by value, as the relationship is not so direct. The frequency of an advertisement inﬂuences its ﬁnal price, and there are discounts that companies may get, or swaps, among other factors. But the

Brazil, Mexico and Argentina lead the ad market in Latin America, but other countries are beginning to produce innovative pieces greater a country’s GDP, the greater the volume of the market. Not all repercussions are necessarily positive. In Buenos Aires, in the summer of 2011/2012, “the” campaign is, again, from Young & Rubicam, for Quilmes beer. The spot is a version of the battle of the sexes that harks back to several

ﬁlms, including pre-battle rallying cries in Braveheart (Mel Gibson) and Elizabeth I (in particular that of Cate Blanchett, on horseback). Men and women race toward each other to kill or be killed, but when they meet they embrace and say things that are completely opposite to what they had been shouting. The production is impeccable, but because of the sensitivity of the theme, some people overlooked the fact that “Encontronazo” proposed “equality” and criticized the advertisement because of the negative image it gave on women’s gender. And advertisers who use humor run the risk of being disrespectful about issues that some people consider sacred. To a lesser extent, this was the case of “Pôneis malditos” (Damned ponies), a campaign by de Lew’Lara\ TBWA for Nissan. The ad, playing with the concept of “horsepower,” suggests that some pickup trucks are not horses but ponies. Not only that, but small, evil ponies, according to the popular soundtrack. A song that proclaimed itself to be demonic because – and the prophesy was fulﬁlled – if you heard it you couldn’t get it out of your head. The problem was that some people were upset that these innocent little characters were being demonized.

MARCH-APRIL 2012 LATIN TRADE

THE SCENE

The Evolution of

HOTEL SECURITY in Bogota WHEN General Orlando Salazar retired from his military position nearly a decade ago and became general manager of what then was the InterContinental Tequendama, the norms for security at five-star hotels in Colombia’s capital were decidedly more intense. “Ten years ago, we had to have three layers of security,” Salazar recalled. Arriving guests had to pass through a line of military guards and then members of the national police force before reaching the Tequendama’s own security staff. This well-armed, multi-layered approach was a very visual reminder to travelers of the state of security in the nation. Flash forward to 2012, and the arrival process is noticeably less intrusive. Yes, armed guards stand on some street corners near five-star hotels. And, yes, the cadre of dark-suited men standing outside luxury hotel entrances might be larger than in some other Latin American cities. But it’s easy to stroll into a lobby and barely notice that someone is guarding the entrance. Overall, the security presence in Bogota’s top hotels is far less visible, thanks in large part to Colombia’s continued effort to make the nation safer. As safety improves and hotels tone down their once-dramatic security presence, foreign travelers feel more comfortable about visiting, according to Salazar. “Ten years ago, 12 percent (of the hotel’s guests) were foreigners,” he said about his property, which now is known as the Crowne Plaza Tequendama. “Today, 48 to 52 percent are foreigners.” Colombia has drawn accolades for its progress in fighting terrorism and crime. In February, Colombia’s foreign minister, Maria Angela Holguin, signed an agreement with the Inter-American Development Bank to collaborate on programs designed to improve security in Latin America and the Caribbean. “The most interesting aspect is that

LATIN TRADE MARCH-APRIL 2012

Bogota has a (crime) index much lower than cities that a tourist would visit without even considering safety issues,” said Marcela Pinzon, a spokesperson for the Bogota Convention Bureau. “For example, Caracas, Philadelphia or Washington and even cities in Central America.” Even with reduced numbers of guards surrounding their buildings, hotel managers and owners are still vigilant about safety – but sometimes while using different tactics. Salazar noted that technology – including surveillance cameras and communication devices – have made the process more efficient and, perhaps to the untrained eye, less visible. At the Radisson Royal, internal security measures haven’t changed, according to Andres Bobadilla, the hotel’s general services manager and director of security. “Security is something intangible, and, in any case, one must always keep the processes current in order to avoid any situation that might present itself,” he said. “When businesses or people begin to feel too comfortable, they leave protocol by the wayside, and that’s when people who want to cause harm can do so.” Bobadilla noted that his hotel meets with the military and national police from time to time to discuss security issues. Luis Perillo, the Caracas-born general manager of the new Hilton Bogota, moved to the city in 2011 to take on his role at the new hotel, and he immediately noticed a greater sense of safety on the streets. But he said that regardless of how safe the city has become, five-star properties are expected to have extensive security in place. “Hotels of this level have a certain ‘frente de seguridad,’ ” Perillo said, adding that, for guest comfort, “we try to do it in a non-invasive way” – noting, for example, that the Hilton Bogota employs the services of a friendly-looking, explosives-sniffing beagle at the entrance, rather than the more aggressive-looking

large dogs that some hotels use. Safer or not, the basic safety advice that hoteliers in Bogota share with guests remains constant: Don’t take taxis in the street; stick with transportation arranged by the hotel or other trusted companies; don’t walk outside with valuables visible; avoid walking in certain neighborhoods alone, especially after dark. Hotel guests should be careful not to let their guard down too much, according to Michael E. Faessler, president of Oversight S.A.S., a Bogota-based risk-consulting and risk-management service. “I’ve been here for 10-plus years, starting in 1991, during some of the worst years in Colombia for the security situation, and have been living/working here consecutively since 2003,” said Faessler, who is a retired U.S. Army ofﬁcer and a former global head of security for an international mining company. “There has been a continual improvement in every aspect of security over that time period – with the possible exception of a short spike in FARC activity about six months ago. So, for foreign visitors to Bogota, you can say in absolute terms that security is much better. But, in a global comparative context, you still have to remember that Colombia continues to rank in the top three countries globally in kidnappings and homicide. The highest security risks to foreign visitors is crime, so one has to be aware of that, especially in tourist areas.” Still, armed with caution and encouraged by improving safety statistics and booming hotel growth, Bogota’s hoteliers are thinking positively. The shining new Hilton Bogota is one of the latest examples of how greater safety has attracted more investment and foreign travelers. “People are rediscovering not just Bogota, but the rest of Colombia,” Hilton’s Perillo said. “We’re at a stage where there is a lot of potential.”

ISTOCK

By Mark Chesnut

THE SCENE

TRADERS CAUTIOUSLY UPBEAT ABOUT MILA’S YEAR AHEAD BY SOPHIE KEVANY

economic uncertainty and the slow recovery from a volatile Peruvian election, as well as capital gains tax integration issues between the MILA partners, which almost resulted in a Peruvian pull-out. But the S&P MILA 40 clawed back 10.08 percent this January, showing a total profit of 2.16 percent over the trading period from August 26, 2011, to January 31, 2012. Positive drivers for MILA in 2012, Bernal-Leon said, should include upbeat demand for raw materials – which will boost exchanges in Chile and Peru – based on a gross domestic product forecast of 8.5 percent for the No. 1 consumer, China, plus projected GDP growth of 2.5 percent in the United States. In addition, Bernal-Leon predicted, world monetary policy will remain “extraordinarily easy, and therefore terms of trade will remain quite positive for the region. Copper will stay at about $3.40 to $3.20 (per pound), oil at $95 to $100 (per barrel).” Hopes also are high that most of the legal, technical and tax intricacies of merging the three exchanges are “nearly complete,” said Jose Fernando Restrepo, the head of research at Medellin-based brokerage Interbolsa. Restrepo is looking to the second and BUSINESS. TECHNOLOGY. TRAVEL. FASHION. STYLE. ART. third quarters as a busier time for MILA, with “more gear”. Other upsides in 2012 include the TAILORED FOR THE BUSINESS EXECUTIVE TRAVELING IN forecast from official MILA sources that LATIN AMERICA AND THE CARIBBEAN. oil companies on the Colombian BVC will “outperform,” with Petrominerales and Pacific Rubiales leading the way, followed by Canacol and Ecopetrol. There also are hopes that Mexico’s exchange – the second-biggest in the region, after Brazil – might soon join MILA, having signed an agreement of intent in December. Any further announcements about the move are bound to send positive waves. Downside risks include the possibility BE A PART OF THE 2012 FALL ISSUE. CONTACT: of China underperforming, along with Maria Cristina Restrepo Europe’s economic woes, although (954) 353-4418 Bernal-Leon sees Euro effects as unlikely. mcrestrepo@latintrade.com “Europe is pretty much irrelevant for commodities,” Bernal-Leon said A Latin Trade Group Publication – unless, he added, the euro were to www.latintrade.com/splendid collapse. In which case, “All bets would be off.”

LATIN TRADE MARCH-APRIL 2012

ISTOCK

ulling back from last year’s pre-launch hype, traders remain cautiously upbeat about the 2012 outlook for MILA, the integrated Mercado Integrado LatinoAmericano, which in May 2011 linked the Colombian, Chilean and Peruvian stock exchanges. One of the most upbeat analysts is Bulltick Capital Market’s head of research, Alberto Bernal-Leon. He estimates that, separately, MILA’s three exchanges should grow 20 percent to 25 percent this year, although he described 2012 as “another year of initiation for MILA.” That should cheer investors, who last year saw one MILAbased investor index, Standard & Poor’s MILA 40 (launched August 26 with 22 companies from Chile, 12 from Colombia and six from Peru) sink 7.2 percent up to December 30, 2011. Trading in 2011 did hit a few bumps, though, including global

by covering the world, ACE insures progress Property & Casualty Accident & Health

To manage multinational risk it takes dedicated expertise, a strong global network, ﬁnancial security and cutting edge technology. Introducing ACE Global Program Solutions — ACE GPS,SM a dynamic client focused solution for your international insurance needs. ACE GPS includes our remarkable web-based portal ACE WorldviewSM, which enables you and your broker to manage your program in real-time, right from your desktop. We’ll take on the responsibility of your global risks so you can take on the responsibility of making things happen. We call this insuring progress. Visit us at acegroup.com/gps ARGENTINA • BRAZIL • CHILE • COLOMBIA • ECUADOR MEXICO • PANAMA • PERU • PUERTO RICO © 2012 ACE Group. Coverages underwritten by one or more of the ACE Group of Companies. Not all coverages available in all jurisdictions. ACE, ACE Logo and insuring progress are registered trademarks of ACE Limited.

THE BOTTOM LINE

EINIGKEIT, EUROPE? * ISTOCK

BY ALBERTO J. BERNAL-LEON

IT’S HARD TO BELIEVE, but nearly four years have passed since the outbreak of the worst global economic crisis since 1929. Many things have changed since that fateful September day when the U.S. Treasury committed the worst economic mistake in modern history: It allowed the collapse of Lehman Brothers in order to send an unequivocal message to the world that it wasn’t going to step in and save the “irresponsible bankers” anymore. All of us, without exception, have felt the collateral impact of that decision. I begin by analyzing the 2008 crisis because the European crisis is a direct consequence of the economic collapse of 2008. We must remember that the economic collapse of 2008 led to the breakdown of global trade, which in turn led to a plunge in the tax revenues of countries such as Greece or Portugal, rendering their fiscal situations completely unsustainable. I would venture that 2012 is going to be a year of political and economic resolutions as the European crisis, which has been evolving for more than two years, is reaching a breaking point. As a result, 2012 could be the year in which the world will ultimately discover if Europe is going to continue to be a united continent or if the integration exercise will definitively collapse. Clearly, I believe Europe will survive. Not because I am clairvoyant, but because I am convinced that the destruction of the European Union would lead to the demise of

LATIN TRADE

MARCH-APRIL 2012

the Western economic world. And I believe, as the Mexicans say, “No matter how insane we are, we don’t chew glass.” The discussion about whether Greece or Portugal have sustainable public debt levels is superfluous. We all know that these countries have excessive debt and therefore will need help for a long time. That is not the point. What matters is whether Germany is willing to end the modern world by not helping the Greek authorities obtain another €15 billion in funding. If Germany decides not to help Greece, Greece will have no choice but to print drachmas. And if this happens, all of Greece’s assets will be denominated in drachmas, but the debt will remain in euros. If Greece leaves the euro, the country will face the worst economic collapse in modern Europe, as all companies, banks and families will see the value of their assets go up in smoke. But this catastrophe is not the most relevant issue for the world. The relevant point is that if Greece leaves the euro, the people of Portugal will rush to the banks to withdraw all the euros they can – because they know they will be the next victims. The Irish will follow, then the Spanish, and then the Italians. Everyone will rush to the banks to withdraw their resources to avoid losing them. And this is where the situation becomes untenable, because Italy’s total debt is about €2.2 trillion. Mark my words, I do not believe any bank in the world would be able

to withstand the risk aversion that will arise if Italy loses access to the financial markets and is forced to declare a default (Italy’s debt is six times bigger than that of Greece). Just to present one fact, according to the BIS, French banks have US$420 billion of exposure to the Italian economy. Fixing the problem in Europe is simple: The ECB needs room to print more euros, ensuring that non-competitive countries approve the necessary reforms. Even more importantly, all the leaders of Europe need to stand together, look steadily at the cameras and tell investors around the world: “Come on, people, we invite you to keep attacking Europe. It will be a very unequal battle because Europe will not split up. If it costs us 100,000 trillion euros to hold the union together, so be it.” If Europe sends this clear message, the total cost of resolving the crisis will be zero euros. Because no one will attack the old continent. Simple. * Unity in German

Alberto J. Bernal-Leon is Head of Research at Bulltick Capital Markets. You can follow him on Twitter @ AlbertoBernalLe.

TECH TRENDS

ISTOCK

LATIN-RUN ENTERPRISE DEVELOPS BUSINESS APPS FOR BURGEONING MOBILE DEVICE MARKET By Joseph A. Mann Jr. hen Bolivian-born Lionel Carrasco, who has worked in IT for more than a quartercentury, got his first iPhone several years ago, he was pleased to find he could access applications – such as weather reports – in two clicks. “Can we do this with business apps as well?” he said. This was the starting point for Leapfactor, an innovative company that develops and sells easy-to-use business apps for increasingly popular mobile devices. Leapfactor – which takes its name from Light Enterprise Access Point – offers businesses a variety of useful, easily installed “cloud”-based apps, which eliminate the cost and complexity of standard enterprise mobility systems. Leapfactor’s mobile cloud services securely distribute content and route transactions, permitting the development of customized, robust and scalable

apps that can be used on any type of modern mobile device, the company says. Customers, whether large companies or small businesses, do not have to invest in their own servers and IT departments since Leapfactor’s cloudbased apps are used and paid for as a service. Costs can range from $1.99 per month for large-scale customers to $19.95 per month for small businesses with only a few employees. Charges varies depending on the economies of scale. Since customers don’t need to buy servers and connect programs to individual employees through an IT department, the savings are considerable, Leapfactor says. Working with a team of colleagues from Latin America, Carrasco – who was born in Bolivia, brought up in Mexico and has, in his words, “lived everywhere, including China” – founded Leapfactor in San

Francisco in 2009 and recently moved its headquarters to Miami. The company, with a core group of Carrasco and five co-founders, began developing a platform for its products, created its first business applications and then made its first sale to AXA, the insurance and financial-services giant, in the fourth quarter of 2010. “In less than 18 months, we have developed 48 apps and have 25 customers,” said Carrasco, who has degrees in history and computer science. He spent 10 years working in Silicon Valley, building software, and almost a decade as a consultant at Neoris, a global IT and consulting firm and unit of Mexican cement giant Cemex. Today, Leapfactor has 50 employees and maintains offices in Miami, San Francisco, Mexico City, São Paulo and Rio de Janeiro, as well as a group of developers based in Buenos Aires. Besides AXA, it also supplies apps to Avon, Bayer, Audi,

Chase credit cards, SAP and other companies. Avon, for example, uses a version of Leapfactor’s “Stencil” app in Mexico. A salesperson using an iPad with Stencil can show customers the complete Avon catalog online, choose products and place an order by touching the screen. Bayer sales representatives in Mexico also use iPads equipped with Stencil to show physicians new medications and place orders. Leapfactor, which so far has raised $13.4 million in private capital, uses Terremark in Miami as its cloud base.

LIONEL CARRASCO CEO & Founder, Leapfactor

BUSINESS: Develops and sells cloud-based business applications for mobile devices; ESTABLISHED: 2009; HEADQUARTERS: Miami; FOUNDER AND CEO: Lionel Carrasco; OWNERSHIP: Privately-held; EMPLOYEES: 50; OFFICES: Miami (head office), San Francisco, Mexico City, São Paulo and Rio de Janeiro, plus a development center in Buenos Aires; FINANCING: Private investors; SOURCE: Leapfactor; WEBSITE: www.leapfactor.com

LATIN TRADE

MARCH-APRIL 2012

EXICO CALDERON’S ROUGH RIDE AND WHAT STILL LIES AHEAD BY DAVID AGREN

MARCH-APRIL 2012 LATIN TRADE

ISTOCK

COUNTRY REPORT: MEXICO

Guanajuato, Mexico.

Macroeconomic stability has become Mexico’s calling card in business circles MEXICO CITY – Jose Avalos grows gourmet lettuce hydroponically in greenhouses covering 12.5 acres near Leon in Mexico’s west-central state of Guanajuato, near the presidential library opened by former leader Vicente Fox, who ended 71 years of Institutional Revolutionary Party rule in 2000. The latter part of PRI rule was marked by self-inflicted economic injuries: recurring peso crises, soaring inflation and sky-high interest rates, to name three. But during the Fox administration, from 2000 to 2006, and the subsequent first five years of President Felipe Calderon’s term, Mexico has become a model of good economic management, with a stable business environment and, in recent years, a boom in manufacturing products for export. For a businessman such as Avalos – whose company, Next Vegetales, grows, markets and exports high-end lettuce varieties under the EVA brand – the change has been welcome. “From a macroeconomic point of view, it couldn’t have been better,” Avalos says. “The finances of the country are outstanding.” Macroeconomic stability has become Mexico’s calling card in business circles – even if media outlets have focused on the Calderon administration’s ongoing crackdown on drug cartels and organized crime, which has claimed more than 47,000 lives over the past five years. Inflation and interest rates have been low in Mexico, and foreign reserves reached a record $134 billion in early 2012. “We have been most impressed with President Calderon and

LATIN TRADE MARCH-APRIL 2012

his team,” Leonardo A. Rodriguez, president of Latin American operations for Emerson and Emerson Process Management, tells Latin Trade. U.S.-based Emerson, a diversified global technology company, is one of the largest private multinational investors and employers in Mexico, with 17,000 employees and 37 plants that provide high-technology products and solutions to the world. Rodriguez has met Calderon several times. “President Calderon and his Economy and Finance team have always come fully prepared to our meetings,” Rodriguez says. “Always. They have been proactive in their listening to our suggestions and recommendations. Additionally, there has been superior follow-up to outstanding items, with a strong bias for action.” Rodriguez adds that Calderon’s cabinet and administrative team have understood that companies such as Emerson have many options of where to invest their assets. “They are ‘business-friendly,’ ” he says. “Thus the reason why we, as Emerson, continue and will continue to invest in Mexico.” Improvements in the business climate have not gone unnoticed. Mexico has climbed steadily in the World Bank’s “Doing Business” surveys, ranking No. 53 in the most recent edition –up 20 places from 2006 – in part because of simplifications in the way taxes are paid and the removal of governmental red tape. “There’s no doubt that the business climate in Mexico continues being attractive,” says Johannes Hauser, managing director of the German-Mexican Chamber of Commerce, which has 530

COUNTRY REPORT: MEXICO

CALDERON’S ECONOMIC LEGACY

World Economic Forum, 2012, Davos. President Calderon meets top leaders from largest global companies.

icente Fox’s economic legacy as president of Mexico was extremely mediocre, despite having consolidated the macroeconomic stability he inherited from Ernesto Zedillo. The average annual 2.1 percent growth over his sixyear administration (the worst in Mexican history, with the exception of Miguel de la Madrid’s presidency from 1983 to 1988), nearly cost the PAN the 2006 election. However, Felipe Calderon pledged to carry out the reforms that Fox was unable to implement, and Calderon said he would be the champion of employment if he won. There was renewed hope as the GDP grew 5.2 percent in 2006 and average inflation reached its lowest level in 37 years. However, the evidence suggests that the results of Calderon’s administration will not even match those of the previous one. Average growth in the first five years of the Calderon government barely reached 1.5 percent. This means the GDP would have to grow 5.2 percent or more in 2012 to surpass Fox’s overall percentage. Given that the current forecasts fall far below 4 percent, it is almost certain that the economic performance of the past six years will be weaker than that of the previous administrations. If the forecasts for this year are accurate, Calderon will end up with an average growth rate of 1.8 percent. Mexico has faced a crisis or recession in each of the past seven administrations. Although it is true that the Fox and Calderon recessions were derived from negative external factors and all the previous ones stemmed from internal political errors, the recent numbers are far worse than for any period before the 12 years Fox and Calderon were in office. Without a doubt, Calderon’s legacy was severely damaged by the scale of the great recession of 2008. However, average economic growth under his administration is the worst in Latin America, even if we don’t take this year into account. The positive element has been the consolidation of macroeconomic stability, which is reflected in low inflation rates, external and fiscal balances, a greater accumulation of international reserves and a flexible exchange rate that has worked well to offset the external shocks. However, several worrying elements cannot be ignored, because they could be the source of future problems.

LATIN TRADE MARCH-APRIL 2012

In particular, the fiscal situation is less favorable than it appears at first glance. In 2006, Vicente Fox’s final year, the federal budget and the fiscal-responsibility law were passed in order to obligate Mexico’s central government to present balanced budgets. Although that was a good first step toward fiscal responsibility, it had serious limitations that still allowed the government to maintain chronic deficits, in particular when it applied the concept of fiscal balance to the economic balance rather than to the total financial requirements of the public sector. Unfortunately, in 2008 the law was modified so investment from PEMEX was not included in the balance in question. At the same time, the Mexican government can now register a relatively large deficit (greater than 3 percent of the GDP) but can present it to the public as if it were balanced. This change allowed the government to register a primary deficit in its finances after registering surpluses for 20 years. The result is that Mexico’s public debt (as a percentage of GDP) no longer is declining and actually has demonstrated an increase for the past four years. Calderon also won’t end his six-year term with very favorable numbers in terms of employment and unemployment. The nearly 1.7 million additional jobs registered in Mexico’s Social Security program in Calderon’s first five years barely reversed a rising trend in the country’s unemployment rate after it reached historically low levels in 2000. The greatest number of generated jobs has been in the informal sector, and they are marked by very low income. Meanwhile, poverty levels have deteriorated, and income distribution has ground to a halt. Such low economic growth numbers have lead many people to ask why Mexico cannot grow. One of the most common answers has been a lack of structural reforms -- such as labor, energy, fiscal and political reform – even though they have been approved in nearly all areas during Calderon’s presidency. Upon examination, the majority of the approved initiatives has not have fallen short, and some have even represented steps backward. What does Mexico need to return to the path of sustained growth, to generate more employment and to become more efficient and competitive? First of all, Mexico cannot allow itself the luxury of experiencing more crises or recessions, which impede progress. Second, the country needs a more functional political system – a system that allows it to approve reforms and advance along the correct path. If Mexico continues to experience crises, and if dysfunctional democracy is maintained, we cannot expect better numbers.

PHOTO COURTESY OF PRESIDENCIA DE LA REPÚBLICA

BY JONATHAN HEATH, Research fellow at INEGI and former chief economist for Latin America and Mexico at HSBC Mexico.

ISTOCK

COUNTRY REPORT: MEXICO

members. “The proof of this is the foreign companies that continue investing in the country.” One thing has been lacking, however: robust economic growth, leaving many people discontented as Mexico prepares for elections. This has put the PRI in a position to take back the presidency by positioning itself as a party that presided over past periods of security and prosperity – however fleeting they were. Other shortcomings of the past six years include an inability to pass key structural reforms as opposition parties in the lower house of Congress – mainly the PRI – have refused to address the topic over the latter half of the Calderon administration. Reforms to Mexico’s inflexible labor markets are still pending, and fiscal and energy reforms approved in 2007 need to be expanded upon and deepened, according to proponents such as Gerardo Gutierrez Candiani, president of the business group Coparmex, the Mexican business owners’ confederation. Coparmex has 36,000 members throughout the country, represented by companies of all sizes. Still, growth has been respectable in recent years, reaching 5.5 percent in 2010 and nearly 4 percent in 2011. The Finance Ministry projects growth of 3.5 percent in 2012, a solid figure given the world economic situation. Analysts attribute the Mexican situation to solid governance from the Finance Ministry and Central Bank. “There’s been a great deal of continuity,” says Deborah Rinner, chief economist for the American Chamber of Commerce of Mexico. “What we’ve seen is a lot of consistency on what should be government macroeconomic policy.” Members of the U.S. chamber are responsible for 70 percent of the direct investment that flows from the United States to Mexico. In another change from past years, Rinner says, the economic shocks rocking the Mexican economy have come from abroad: the 2008 world economic crisis and the H1N1 influenza outbreak, which caused Mexico’s GDP to contract nearly 7 percent in 2009. The manufacturing-for-export sector showed its sensitivity to external factors in 2008, when activity from the “maquiladoras” along Mexico’s northern border slowed production and triggered

employee layoffs because of the U.S. slowdown and the global crisis. But activity bounced back nicely in places such as Ciudad Juarez – where, despite the worst of the cartel violence, crossborder trade between the city and neighboring El Paso, Texas, increased 47 percent in 2010, to $71 billion. That rate increased further by 13 percent over the first 10 months of 2011, Bob Cook, director of the El Paso Regional Economic Development Corporation, tells Latin Trade. Places such as Ciudad Juarez demonstrate the ongoing cha-

MARCH-APRIL 2012 LATIN TRADE

COUNTRY REPORT: MEXICO

llenges for Mexico and its economy. The city has suffered the closures of small businesses because of crime and extortion while nationwide internal demand has lagged, with a rebound starting only in 2010. Large, export-oriented businesses have thrived, however. “We have to differentiate between businesses attending to exports and businesses attending to the internal markets,” says Adolfo Albo, chief economist at BBVA Bancomer, Mexico’s largest bank by assets. Successful sectors in recent years, Albo says, include automo-

bile and auto-parts manufacturing: Mexico produced a record 2.56 million vehicles in 2011, and exports increased 15 percent as the country gained market share in other Latin American countries. Notwithstanding, 2.14 million cars were exported in 2011, mainly to the United States. High-end consumer electronics and appliance manufacturing also increased, and an aerospace industry has been fomented. Activity also moved back from China because of rising wages overseas, currency issues and transportation costs, Albo says, allowing some Mexican products to gain market share in the United States.

FELIPE CALDERON’S LEGACY ON SECURITY BY SERGIO E. DÍAZ, Managing Director, FTI Consulting Mexico is growing domestic drug use, a negative impact on the country’s international image and on tourism in some areas – and, in particular, there is a growing sense of danger and vulnerability among the public, according to nearly all public-opinion polls. However, it is possible to afﬁrm that regarding security issues, the Calderon government will leave a qualitative legacy that will be important to conserve and to use as a starting point in the next federal administration: a more suitable (although still insufﬁcient)

n a national context marked by growing violence in recent years and a high crime rate, the full-frontal effort of Mexico’s federal government to combat organized crime is noteworthy, as is its determination to reform security forces and improve the legal and operative capacity of the Mexican state to fight crime. When Felipe Calderon assumed the presidency, it fell to him to confront an extremely critical and unprecedented situation in Mexico’s recent history that can be summarized by the following elements: 1) drug-trafficking cartels strengthened with the economic, technical and human resources to challenge municipal, state and federal governments in an unprecedented fashion; 2) the beginning of the worst war among these cartels, involving territory and drug-smuggling routes; 3) a weakness in the coordination and logistic capacity of a central government in transition after the exit of a party that governed for more than 70 years; and 4) the prevailing corruption and ineptitude in the majority of police organizations throughout the country. With very few tools, President Calderon decided to confront the worst security problem in Mexico’s recent history. The results of his last year in office do not seem particularly positive: Organized crime and common crime are on the rise in many parts of the country, even in some places where the problem did not exist at the beginning of his government. There also

LATIN TRADE MARCH-APRIL 2012

legal framework to reduce money-laundering and the resource management of organized criminals; a greater technical, logistic and operative capacity of security forces (federal, in particular) to confront crime; and, above all, the public perception that the state should, and must, combat organized crime in an effective manner. In this sense, the arrest or elimination of several of the most important leaders of the drug-trafﬁcking cartels by state forces (federal police, the army and the marines) has been seen as positive by the public and has allowed President Calderon to gain legitimacy and to strengthen his authority – no small feat in a society where the political class is deeply discredited. In Mexico, one may or may not be in agreement with President Calderon and his strategy against organized crime, but no one doubts his bravery and determination to confront the problem – and this is an asset for the presidential authority that the next president could maintain and broaden if he continues with this determination.

PHOTO COURTESY OF PRESIDENCIA DE LA REPÚBLICA

Army and Air Force National Day, February 19th, 2012

THE CALDERON GOVERNMENT WILL LEAVE A QUALITATIVE LEGACY THAT WILL BE IMPORTANT TO CONSERVE AND TO USE AS A STARTING POINT IN THE NEXT FEDERAL ADMINISTRATION

COUNTRY REPORT: MEXICO

MEXICO’S

FUNCTIONING MONOPOLIES & DUOPOLIES INDUSTRY BEER SOFT DRINKS BREAD TELEVISION CEMENT GLASS PRIVATE HOSPITALS MINING

RAILWAYS

ISTOCK

TELEPHONE CORN TORTILLAS

DOMINANT PLAYER(S) /MARKET SHARE Grupo Modelo FEMSA Bimbo Televisa TV Azteca Cemex Holcim Vitro Grupo Angeles Peñoles

gold silver Grupo Mexico copper Ferromex KCS Telmex landlines cellular Gruma

65% 70% 68% 56% 38% 87% 12% 74% 67% 52% 97% 88% 58% 27% 95% 80% 73%

ARCHIVE PHOTOS/ISTOCK

Source: US State Department, Wikileaks

“The breach has been practically closed between (the cost) of qualified manufacturing in the south of China and Mexico,” Albo tells Latin Trade. Challenges remain in Mexico, however, and the Calderon administration has faced difficult security and political situations from the outset. Calderon began his administration by winning reforms to the state workers’ pensions and the judicial and tax systems, along with a limited opening of the petroleum sector to increased private investment. But deeper reforms have been elusive. These include changing labor laws to make the hiring and firing of employees more flexible, increasing tax collection to allow the government to depend less on revenues from Pemex (another institution requiring reforms to offset dwindling reserves), and overhauling an education system in which students perform poorly on standardized tests and the country’s powerful teachers’ union wields enormous control. Albo cited another area in which Mexico has fallen short in recent years: improving the rule of law. Courts remain slow, and judicial certainty can be lacking. Corruption remains problematic, too. The 2011 Corruption Perceptions Index by Transparency International ranked Mexico at No. 100, below Colombia, Peru and Brazil. Then there is insecurity: BBVA Bancomer estimates that insecurity holds back economic growth by about 1 percent. Still, the business sentiment remains strong in Mexico. The German-Mexico Chamber of Commerce reports that 70 percent of its members have investment plans for Mexico in 2012. Avalos, who boasts that his lettuce now sells in supermarkets in

California’s Salinas Valley – known as “The Salad Bowl of the World” – has complaints about some water, power and agricultural issues, but he still feels bullish about Mexico’s economic future – especially considering where it has come from. “This was unimaginable” a generation ago, Avalos says. editorial@latintrade.com

A BIT OF HISTORY: Voters at the polls during the presidential elections, San Gregorio Atlapulco, Mexico, 14th July 1958. At that time, in towns dominated by the eventual winners, voting booths were not provided and voters marked their ballots in public.

MARCH-APRIL 2012 LATIN TRADE

THE CONTRARIAN

REFORMS THE KEY TO IMPROVE COMPETITIVENESS

he World Economic Forum’s annual competitiveness ranking is the global beauty pageant for competing nations. Mexico, the darling of emerging markets in the 1990s, had gradually slipped into the “ugly duckling” range of nations, ranking No. 66 by 2010. But Mexico got a bit of a face lift in September 2011, rising eight positions to No. 58, and that was the largest singleyear improvement of any country in the Western Hemisphere. The sudden acknowledgement was well-deserved. In spite of congressional deadlock and heinous, mob-like crime, Mexico’s executive branch has done what it can to improve the country’s business environment. The Calderon government has eliminated more than 2,000 administrative procedures and 16,000 regulations that stifle enterprise. It established a single online desk to facilitate importer and exporter paperwork, and electronic invoicing was finally authorized in 2011. The often-maligned Federal Commission of Competitiveness was given some teeth and actually took a $1 billion bite (fine) out of Carlos Slim’s Telmex. These executive-mandated changes re-present incremental but vital microreforms that complement Mexico’s already-impressive macro-reforms of the 1990s. Under Calderon, the tradition of highly professional and competent stewardship of the Ministry of Finance and the Central Bank continue a 20-year tradition, dating to Pedro Aspe and Guillermo Ortiz, respectively. The World Bank’s “Doing Business” reports rank Mexico at No. 28 worldwide in the crucial area of macro-economic stability. But in a legislative democracy such as Mexico’s, no amount of presidential tinkering can affect the deep reforms needed to really boost competitiveness. The past three presidents – Zedillo, Fox and Calderon – have all been keenly aware of their

LATIN TRADE MARCH-APRIL 2012

Mexico cannot put its reform process on hold for decades in the hope that political stars will align. nation’s defects, and all have tried to pass needed reforms. Ever since Zedillo’s PRI lost majority control of Congress following the mid-term elections of 1997, Mexico’s presidents have been stymied by a level of congressional inﬁghting that makes Washington politics seem collegial by comparison. Although Mexican citizens have embraced democracy, their political leaders have spent 15 years failing to perform their most basic function – legislating. As a result, the emerging market’s most impressive reformer of the 1990s has watched the rest of the world pass it by. Many of Mexico’s best and brightest people have voted with their feet. An estimated 20,000 Mexicans with doctoral degrees now reside in the United States, and most of them have left since 2000. Some people point with hope to the 2012 elections as an opportunity to vote into power the same party, the PRI, with control of the executive branch and both houses of Congress. But Mexico cannot put its reform process on hold for decades at a time in the hope that political stars will align. The reform to-do list in Mexico is daunting. The 90-year-old labor code, written to bring justice to exploited miners in the 1920s, does not serve today’s service-dominated economy and a manufacturing sector that must compete with Asia. Mexico ranks 120th in terms of its labor force, according to the World Bank’s “Doing Business” 2010-11 report. Mexico’s impressive spending levels for public education come with almost no accountability to teachers or administrators. In the same study, Mexico ranks 122nd

in terms of effective use of talent, 89th in terms of its quantity and quality of engineers and scientists, and 79th in terms of its higher-education quality. Mexico launched its maquiladora strategy in the 1980s in the hopes of emulating the success of Japanese and Korean manufacturers that began post-war resurgence as low-cost assemblers. Today, those Asian competitors design, build, market and sell some of the world’s best automobiles and machinery. Mexico is still working the assembly line for other nation’s companies. When Mexican companies have excelled, they have done so in part because a collusive government allowed them to maintain a “functional monopoly” status. In a U.S. State Department memo published through WikiLeaks.org, no less than 11 industries were identiﬁed as monopolies or duopolies (See page 35.) Many of Mexico’s coddled corporate giants have blossomed into competitive global players. Telcel, Bimbo, Cemex, Modelo, FEMSA, Vitro and Grupo Mexico all have impressive international operations –and that is all the more reason to dismantle their hold on the Mexican market. Most damaging of all to Mexican competitiveness – and democracy – is the concentrations of power in the communications and media markets. When Mexico embarked on an impressive journey of neo-liberal reforms in the 1990s, the country seemed destined to rise to the elite ranks of world competitiveness. Unfortunately, Mexico’s political class has failed to make that happen. JOHN PRICE, Managing Director of Americas Market Intelligence and a 20-year veteran of Latin American competitive intelligence and strategy consulting. jprice@americasmi.com

S Opportunities Ahead BY JUAN PABLO DEL VALLE, Chairman of the board of Mexichem

exico, together with other Latin American countries, has a unique opportunity to assume a position of leadership, growth and deve-lopment. These countries have assets that must be appropriately valued, particularly regarding European economies and other developed economies. These are: 1) solid macroeconomic factors; 2) healthy financial systems that were not severely affected by the crisis of 2009; 3) low debt and public deficit levels; 4) modern industrial plants; and 5) qualified and efficient labor forces. Added to this is the high potential associated with the unprecedented infrastructure and housing development in the region. The 200 main cities in Latin America will have 315 million residents in 2025, a population greater than the U.S. population today. Moreover, 50 million people will enter the Latin American labor force by 2025, a number that is higher than France’s current economically active population. Mexico has particular advantages, including oil, gas, a 3,326-kilometer border shared with the world’s largest economy, shorelines and ports with enormous potential in the Pacific, the Gulf and the Caribbean regions. In recent years, while work has been done to improve Mexico’s living standards (health coverage, programs to alleviate extreme poverty), as a society we must work to improve the

quality of education, to resolve the problem of public safety as well as some pending issues regarding the country’s competitiveness. Regarding basic education, the results of national and international assessments show insufficient levels in quality and attendance, plus high dropout rates. For example, only 46 of every 100 students in the first year of primary school in Mexico have the possibility of reaching the first year of high school. Regarding public safety, it is imperative to continue the battle the Mexican government has begun against organized crime to prevent it from challenging the state. And, above all, it is necessary to wage a frontal attack against the crimes that most affect the civilian population. It is critical to find solutions that economically discourage the massive earnings generated from the sale of drugs in the United States. Doing this could significantly decrease the violence. This will be even more the case if the effort is accompanied by programs that address drug use as a health problem rather than as a crime. Finally, regarding competitiveness, there is a need to redouble efforts, in particular regarding innovation, with a vision associated with greater productivity and relatively higher salaries. I am optimistic about the country. I am convinced that the obstacles we face will be successfully overcome, thanks to the confidence we have in the country and by working hard and investing in projects with a high economic and social return. Mexico and Latin America currently have a privileged position that we must take advantage of in order to achieve a real transformation of our economies and the living conditions of our inhabitants.

Mexichem, based in Mexico City, is a leading company in the chemical and petrochemical industry in Latin America, with operations in more than 15 countries. In 2010 had US$2,953 billion in revenues and reported earnings of US$299.1 million. Its payroll has more than 10,000 employees.

MARCH-APRIL 2012 LATIN TRADE

HELP BRAZIL REDUCE ITS OVERALL RELIANCE ON FOREIGN IMPORTS WITH THE LAUNCH OF THE COUNTRY’S LARGEST PETROCHEMICAL OPERATION.

IT’S NEVER BEEN DONE

BEFORE

Get the full story at Emerson.com/Petrobras

ISTOCK

WORLD ECONOMIC FORUM: LATIN AMERICA

COMPETITIVENESS THE GAP TO BE REDUCED BY JOHN OTIS

s Latin America struggles to become more competitive, the tiny isthmus of Panama stands out for its great ambitions but also for its epic backwardness. Panama is spending billions to widen the Panama Canal to accommodate larger ships and double the waterway’s cargo capacity. Yet even as this titanic project moves forward, Panama has yet to build a highway across the impoverished, isolated Darien Jungle to allow for overland trade with neighboring Colombia. In some ways, the so-called “Darien Gap” symbolizes the uneven pace of development throughout Latin America. True, the region has made much progress in forging macroeconomic stability and liberalizing trade and investment laws. But many analysts say problems such as run-down roads and ports, rising crime, low-quality education and the massive divide between rich and poor prevent the region from catching up to more dynamic parts of the world, such as Asia. “Latin America has improved a lot over the past two decades, but

it is still a very mixed picture,” said Mauricio Moreira, an economist at the Inter-American Development Bank. The World Economic Forum defines competitiveness as the set of institutions, policies and factors that determine a country’s level of productivity. And in its 2011-12 Global Competitiveness Report, the WEF noted Latin America’s progress. GDP is projected to grow by 4.25 percent this year, and the region largely avoided fallout from the economic uncertainties in Europe and the United States. Mexico, Bolivia, Peru and Brazil showed the greatest progress in terms of competitiveness because of strong demand for commodities from China, buoyant internal demand and sound fiscal policies, the WEF report said. But the report also warned that “in order to keep the positive momentum going, Latin America and the Caribbean will need to address some of the persistent challenges that constrain its competitiveness.” One of those problems is the vast disparity in trade policy.

MARCH-APRIL 2012 LATIN TRADE

ISTOCK

WORLD ECONOMIC FORUM: LATIN AMERICA

Problems such as run-down roads and ports, rising crime, low-quality education and the massive divide between rich and poor prevent the region from catching up to more dynamic parts of the world, such as Asia. Instead of a single free-trade area stretching from Tijuana to Tierra del Fuego, separate agreements with the United States have been signed by Mexico, Central America and the Dominican Republic, Panama, Colombia, Peru and Chile. Meanwhile, Southern Cone nations trade under Mercosur, and the region’s leftist governments – such as Bolivia, Cuba, Ecuador, Nicaragua and Venezuela – have set up an alternative commercial bloc called ALBA. “There is no strategic thinking on trade,” said Johanna Mendelson Forman, a Latin America analyst at the Center for International and Strategic Studies in Washington, D.C. “If you had a regional consensus, you could lower costs.” Even seemingly innocuous details, such as operating hours for customs officials at border posts, can cause roadblocks. Most Central American exports, for example, are transported by truck. Yet, on Sundays, the region’s border posts often function only part-time. “Sometimes the border guards are off duty. The trucks just sit there in a big line, and goods spoil,” Mendelson Forman said. Another drag on productivity is poor infrastructure, and that drives up costs, according to Peter Hakim, president emeritus of the

LATIN TRADE MARCH-APRIL 2012

Inter-American Dialogue in Washington. While Latin America was getting its fiscal house in order over the past two decades, Hakim said, budgets were balanced, in part, by reducing spending on highways, bridges, ports and railroads. Hakim acknowledges that Latin America has made great strides in reducing poverty. But he points out that the region remains the most unequal in the world as measured by the so-called Gini coefficient. “That means whole groups of people are not getting educated and not participating in the formal economy,” Hakim said. “That means a whole lot of things are going wrong with the economies and that countries are not taking advantage of human resources in an efficient way.” Education can help close this gap. However, Claudio Loser, a former IMF economist from Argentina, says that in proportion to GDP, Latin America spends only about half as much as many Asian countries spend on education. Even at that, the results have been mediocre: International surveys regularly list only two or three Latin American universities among the world’s top 200.

WORLD ECONOMIC FORUM: LATIN AMERICA

Greater investment in education, research and development, and social safety nets should be possible because of the windfall from sales of oil, coal, copper, soybeans and other commodities to Asia. But as Latin America racks up profits for its natural resources, it continues to fall behind Asian manufacturers. China’s share of manufactured goods exports to the United States has jumped from 7 percent to 25 percent since the mid-1990s, according to the IDB. By contrast, Mexico’s share peaked at 13 percent a decade ago but has since fallen to 10 percent, and Brazil’s share has dropped from 1.4 percent to 0.8 percent. Some experts say Latin America will never catch up with Asian factory productivity – and perhaps shouldn’t even try – because of the disparity in wages and working conditions. “Latin America is never going to compete with China or other Asian countries in any industry that requires low wages because the people won’t stand for it,” said Mark Weisbrot, co-director of the Center of Economic and Policy Research in Washington. He described the sweatshop conditions in some parts of Asia as “like something out of a Charles Dickens novel.” That doesn’t mean industrial output will disappear in Latin America, especially considering local advantages such as Mexico’s location on the U.S. border and Brazil’s massive domestic market, which buys up most of that country’s factory goods. But Moreira,

the IDB economist, said profit margins are thin because of relatively high wages and the fact that the commodities boom has pushed up the value of local currencies. Weisbrot said one way out is for Latin American nations to develop industrial policies similar to the way Asian governments have protected and promoted strategic industries, some of which are dominated by the state. China’s state-run companies can invest in high-risk countries and ventures without having to answer to private shareholders. They also can afford to be patient. For example, China’s Chery automobile company recently opened a $400 million factory near São Paulo. With state backing, Chery can take its time in gaining a foothold in Brazil, and it does not expect to make profits for the next decade. But Moreira said no amount of subsidies will level the playing field for manufactured goods because wages in Asia often are onefifth of the wages paid in Latin America. He said Latin America should focus instead on what it does best – exporting commodities – and branch out into complementary businesses. For instance, booming grain exports should free up money to establish agriculture biotechnology companies along the lines of the U.S. giant Monsanto. “You can’t fight against big world trends,” Moreira said. “The answer is to better invest your profits and to diversify.” —editorial@latintrade.com

LATIN AMERICA WILL HAVE TO COMPETE THROUGH INNOVATION LATIN TRADE: How will Latin America be affected by the economic turmoil in Europe and the continued slowdown in the United States? BILBAO: Latin America proved to be quite resilient during the 2008 crisis. But the deceleration of the global economy will probably affect Latin America’s economic growth because there will be less demand for its products and raw materials. LT: What is Latin America’s role in rebalancing and deleveraging the global economy? BILBAO: The developed countries have to reduce their debt levels. But the emerging economies can also play a role to improve equilibrium. If Latin American countries manage to keep inﬂation under control, they can start to loosen monetary policies and invest more in social spending. This

will help boost conﬁdence worldwide. LT: How can Latin America contribute to global economic recovery and simultaneously improve its resilience to growth deceleration? BILBAO: In the face of economic uncertainty, developing domestic markets and increasing productivity will be crucial to boosting resilience. There is some progress on the fundamentals, especially in Brazil, Chile, Peru and Colombia. But Latin America will have to improve in four key areas: insecurity, poor infrastructure, education and innovation. LT: How can ties between Latin America and China go beyond the traditional relationship based on commodity exports from one side and manufactured exports from the other? BILBAO: China has incre-

dible economies of scale that allow the country to produce at low cost. It will be difﬁcult to compete with these low costs, so Latin America will have to start competing through innovation. And this will require more investment in education, research and development. LT: How can Latin American nations eradicate poverty? BILBAO: The recent economic development means the region has an unparalleled opportunity to lead a large part of the population out of poverty. But countries must invest more in health and education to create a larger middle class. And this larger middle class will help bridge the gap between rich and poor. LT: How can governments, business and civil society strengthen entrepreneurship capabilities?

BILBAO: The entrepreneurial spirit exists in Latin America but has been restricted to certain layers of society and has not been trickling down. When people are better educated, there will be more opportunities, and this spirit will increase. Market conditions can also allow entrepreneurs to ﬂourish. For example, you need labor ﬂexibility so companies don’t fear going bankrupt if they can’t adapt staff levels to the business cycle. Some large economies that still have quasi-monopolies, and this hinders entrepreneurs from coming into the market.

BEÑAT BILBAO, Associate Director for the Center for Global Competitiveness and Performance at the World Economic Forum.

MARCH-APRIL 2012 LATIN TRADE

Panama’s Paciﬁc port of Balboa.

LATIN AMERICA’S

INFRASTRUCTURE GAP

YEARS

as a leading

business source of information for

Latin America and the

Caribbean

To become a part of the Collector’s Edition please contact: Ana Berger Special Projects Coordinator aberger@latintrade.com

www.latintrade.com 42

LATIN TRADE MARCH-APRIL 2012

CATEGORY RESULTS Category leaders and laggards TRANSPORT: TECHNOLOGY: ELECTRICITY: WATER:

FIRST Panama Panama Uruguay Uruguay

LAST Venezuela Nicaragua Venezuela Peru

HOW DID BRAZIL AND MEXICO RANK? TRANSPORT: Mexico (6th), Brazil (3rd last) TECHNOLOGY: Brazil (5th), Mexico (10th) ELECTRICITY: Brazil (7th), Mexico (10th) WATER: Mexico (4th), Brazil (6th) Mexico is signiﬁcantly better than Brazil when it comes to transport infrastructure and somewhat better in water infrastructure, while Brazil has the upper hand in technology and electricity. Source: Latin Business Chronicle

ranking of 18 countries. Haiti, which appeared in last year’s index, was not included in the 2011 ranking. Mexico, the other regional giant, moved up two positions to the 6th position while Peru jumped four slots to the No. 8 ranking. Argentina this year is ranked 4th after moving up one notch form last year. In spite of Mexico’s infrastructure gains, the latest index demonstrates that the region’s two most important economies – Brazil and Mexico – remain far behind the leaders. At the bottom end of the list, Nicaragua stubbornly held on to 18th place, the same as last year, and last place among the countries surveyed for 2011. Paraguay (17th place) and Bolivia (16th place) each fell one position from 2010.

ISTOCK

he total infrastructure gap in Latin America – the difference between existing and needed investments – is a whopping $170 billion per year to 2020, according to the United Nations Economic Commission for Latin America and the Caribbean (ECLAC). It warns that ports in South America will reach their capacity by 2020 if they don’t invest in infrastructure. Major weaknesses in the quality of infrastructure continue to plague most of Latin America, including its largest economies, according to the latest Latin Infrastructure Index from our sister publication Latin Business Chronicle. The index looks at four key categories and 24 subcategories of infrastructure. The four key categories are: Transport, Technology, Water and Electricity. It uses data from seven different sources, including The World Bank, the World Economic Forum, the International Monetary Fund and the International Telecommunications Union. Some progress has been made as Brazil, working to meet infrastructure demands of the 2014 World Cup, has begun granting concessions to private investors in an effort to renovate and operate its notoriously deﬁcient airports before millions of soccer fans need to be moved between 12 Brazilian cities for the multiple matches. The country also plans to spend more than $41 billion over the next four years on telecommunications, according to Brazil’s Minister of Communications. Panama, Chile and Uruguay lead the 2011 Infrastructure Index in 1st, 2nd and 3rd place, respectively, in the overall ranking, matching their performance in the 2010 index, while the region’s largest economy – Brazil – dropped a slot to 8th place (tying with Peru) in the

& BRAVO BUSINESS AWARDS

SAVE THE DATE October 26, 2012 BUILDING THE NEW LATIN AMERICA THE COMPANIES, THE LEADERS, AND THE PARADIGMS FOR SUCCESS The Latin Trade Symposium is the leading forum for discussion and debate about the Americas for the business and government community in the Region. PAST SPEAKERS INCLUDE:

Policy Makers: •Luis Alberto Moreno, President, Inter-American Development Bank (IDB) • Celso Amorim, Foreign Minister of Brazil • Laurence Golborne, Minister of Public Works, Chile • Bruno Ferrari, Minister of Trade and Investment, México • Álvaro Uribe Vélez, Former President, Colombia Corporate Leaders: • Marcelo Odebrecht, CEO, Odebrecht, Brazil • Alberto Alemán Zubieta, CEO, Panama Canal Authority, Panama • Germán Efromovich, Chairman, Synergy Group, Colombia • Daniel Servitje, CEO, Grupo Bimbo, Mexico • Gerardo Mato, CEO, Global Banking for the Americas, HSBC Social Entrepreneurs: • Luanne Zurlo, President and Founder, Worldfund • Pilar Nores de García, President, Instituto Trabajo y Familia • Rebeca Villalobos, Founder, ASEMBIS, Costa Rica

LA TIN TRADE

Don’t miss this opportunity! For more information on registration or sponsorship opportunities, please contact Natasha Valle nvalle@latintrade.com

www.bravo.latintrade.com LATIN TRADE SYMPOSIUM IN PARTNERSHIP WITH:

PLATINUM:

SPONSORS GOLD:

MEDIA PARTNER:

SILVER: CNN PR COMMUNICATIONS:

REPUBLICA

INDUSTRY REPORT: TOP FRANCHISERS

FRANCHISING BOOM IN LATIN AMERICA

AND THE CHALLENGE OF ADAPTING TO LOCAL TASTES BY TAYLOR BARNES RIO DE JANEIRO -- The Kentucky Fried Chicken meals in this seaside city come with Brazilian staples: black beans, rice and farofa, the popular side dish of crushed and seasoned manioc root. But the U.S. brand says its franchises are taking off since their 2011 start because few competitors sell fried chicken. “I only find this at KFC,” says student Rose Marconi, 24, as she eats a 15 reais ($8.50) lunch of chicken, with a Pepsi to drink. Marconi says she eats regularly at the fast-food chain and orders delivery when she can’t make it to the restaurant. In just months, KFC has opened 13 units in Rio and four in São Paulo, and the company has six more to debut soon. It’s a sign of the franchise boom across Latin America. Strong economic growth and a surge in the middle class have more people turning to franchises as a way to tap rising consumer demand. And franchise companies from the United States and Europe are eager for opportunity overseas when their own

LATIN TRADE MARCH-APRIL 2012

markets are growing slowly, industry specialists say. Not every franchise will succeed in Latin America, where markets differ

NOT EVERY FRANCHISE WILL SUCCEED IN LATIN AMERICA, WHERE MARKETS DIFFER WIDELY IN THEIR BUYING POWER AND EASE OF DOING BUSINESS widely in their buying power and ease of doing business. Consumer tastes vary across nations. And management must carefully operate franchises to cover costs from start-up fees to royalties.

But Rio de Janeiro and other big cities in giant Brazil now rank as top growth targets. KFC says more middle-class consumers mean more meals outside the home. And Brazilians traveling to the United States already recognize the brand. “If you compare Brazil to more consolidated markets, Brazil still has a lot of opportunity,” says Flavio Maia, KFC’s director in Brazil. Food is an obvious area for Brazil’s franchise boom – restaurant chain Applebee’s and frozen-yogurt brand Yogen Früz opened recently. But services also are growing, says Batista Gigliotti, who heads the franchise consulting firm Fran Systems. Real estate chains Remax and Century 21 entered Brazil in 2008. Sunbelt Business Brokers has opened more than 15 offices in Brazil since 2010, and Mail Boxes Etc. operates in six cities since launching in São Paulo in 2006. “Many American and European franchisers didn’t have any presence in Latin America” before the global recession in 2008, says Gigliotti, who is also the franchise coordinator at the Center for Entrepreneurship and New Businesses at the university Fundação Getulio Vargas. The Brazilian market is particularly receptive to other Western brands, he adds: “Among the BRICs (Brazil, Russia, India and China), Brazil is possibly the country that is most culturally similar to the franchise countries.” DOUBLE-DIGIT GROWTH The growth rate is astounding. Brazil’s franchising sector has tripled in revenue over the past decade as the middle class blossomed. Franchises brought in 75 billion reais (about $43 billion) in 2010, according to the Brazilian Franchising Association, which tracks domestic and international brands alike. The group estimates Brazilian franchising growth at 15 percent last year and forecasts 15 percent more in 2012. Brazil now has more than 1,800 franchise brands, at more than 90,000 outlets. That includes many homegrown brands, such as chocolate stores Cacau Show, with 1,126 outlets; hamburger Bob’s, with 739; and coffee shop Pão de Queijo, with

INDUSTRY REPORT: TOP FRANCHISERS about 400 stores. Brazil’s franchise count dwarfs the number in Mexico (about 1,300 brands at 54,000 outlets) and in Argentina (about 500 brands at 25,000 outlets), according to their franchising associations. But, like Brazil, other major markets in Latin America are posting doubledigit growth. Mexico forecasts 13 percent gains this year, thanks in part to its home-grown brands, such as doughnut maker Beleki and Dental Perfect clinics. Franchises in Mexico now employ nearly half a million people and generate about 6 percent of the country’s total economic activity, according to the Mexican Franchising Association. Argentina expects 10.5 percent expansion this year, according to consultant Carlos Canudas. He’s on the board of the Argentine Association of Brands and Franchises. Canudas is bullish because more shopping centers are opening in smaller Argentine cities. They’re attract-

ing such chains as Argentina’s own baked-goods and coffee-shop veteran Havanna, which has 213 franchised cafés in Argentina and abroad. The franchise growth extends into smaller Latin American countries, too, including Panama and Uruguay. Colombia’s Juan Valdez Coffee started an international expansion in February 2011 based on a franchise model and has just opened its first international franchise in Panama, with 10 more stores planned in five years. And Argentina’s ice cream chain Heladerias Grido plans to open a dozen shops in neighboring Uruguay by spring. There is even growth in lower-income countries, such as Paraguay, which has a per-capita income of about $3,000 a year. This year a local franchisee opened Paraguay’s first store for Spain’s fashion designer Adolfo Dominguez and plans up to six across the landlocked nation.

TOP FOOD FRANCHISORS IN LATIN AMERICA RANKED BY NUMBER OF FRANCHISED LOCATIONS MCDONALD’S SUBWAY 7-ELEVEN CACAU SHOW (BRAZIL) BURGER KING GRIDO HELADOS (ARG.) KFC BOB’S (BRAZIL) PIZZA HUT DOMINO’S PIZZA STARBUCKS CASA DO PAO DE QUEIJO (BRAZIL) HAVANNA (ARGENTINA) DUNKIN’ DONUTS TACO BELL

3,350 1,804 1,351 1,126 1,079 925 900 739 700 598 503 400 213 140 100

Sources: Companies, Latin Trade

MARCH-APRIL 2012 LATIN TRADE

PHOTO: COURTESY OF HAVANNA

INDUSTRY REPORT: TOP FRANCHISERS

A Havanna coffee store in Buenos Aires, with its wide offering of chocolates and sweet products

OBSTACLES TO GROWTH Still, there are hurdles to expansion. Violence on the Mexican border is turning off some U.S. companies from entering Mexico, although sophisticated ones are starting up farther south in the sprawling nation. And a left-leaning government makes Venezuela unattractive for a U.S. start-up, franchise specialist Bill Edwards, from Edwards Global Services in California, tells Latin Trade. “I would not have anything to do with entering Venezuela now. You can’t get dollars out. And an American brand would be a (political) target,” Edwards says. “But my experience in this business for 40 years is that Venezuela will come back as a market for U.S. franchises.” Growth presents its own challenges too. In Rio de Janeiro, there are not enough qualified workers for all the

LATIN TRADE MARCH-APRIL 2012

MANY AMERICAN AND EUROPEAN FRANCHISERS DIDN’T HAVE ANY PRESENCE IN LATIN AMERICA BEFORE THE GLOBAL RECESSION IN 2008 restaurants now opening, says Pedro de Lamare, president of Rio de Janeiro’s Hotels, Bars and Restaurants Syndicate (SindRio) and a partner in the domestic franchise Gula Gula, a casual-dining chain. Many migrants to Rio from

Brazil’s less-developed northeast are returning home as opportunities improve there. And Rio’s real estate bubble is pricing some workers out of the city while also boosting prices for labor. “The shortage of workers in Brazil comes from lack of investment in education, in specialization,” de Lamare says, citing problems in finding trained cooks. “You have a lot of demand and few people to work. I think this is something international brands will face.” HAMBURGER WARS Perhaps nowhere is the franchise boom more evident – and competition more fierce – than in hamburgers. Opportunities to expand in Latin America are among the reasons that Brazil’s investment group 3G Capital bought Burger King Holdings for $4 billion in late 2010.

INDUSTRY REPORT: TOP FRANCHISERS

PHOTO: COURTESY OF BURGER KING

Spanish for “Golden Arches” – now ranks as the world’s largest McDonald’s franchisee. Its 86,000 employees serve four million clients a day in nearly 1,800 McDonald’s restaurants spread in 20 countries and territories in Latin America and the Caribbean. In 2011, Arcos Dorados opened 64 new restaurants in the region, or one about every six days. Its revenues in the third quarter, adjusted for inflation, shot Burger King’s new owners are already cashing in. In the first nine months of 2011, revenue from the company’s Latin American and Caribbean region jumped 14 percent from a year earlier, to $95 million. Sales dropped in every other world region. What’s more, the Latin American area had Burger King’s highest profit margin on operations of any region: 42 percent, company reports show. Miami-based Burger King had a head start in entering Latin America: It opened outside the U.S. mainland in 1963, in Puerto Rico. And the company was an early burger arrival in Mexico. But, in recent decades, Burger King’s growth has foundered on repeated ownership and management changes. “I think the new owners … will do what we always wanted to do at Burger King – expand internationally”, says Nelson Marchioli, who ran the company’s international division in the 1990s. The King has plenty of room to add Whoppers. Its Latin American region included just 1,079 franchises and 97 company-owned stores as of last fall. Starting in 2011, its biggest franchisees – Alsea and Affiliates (196 stores in Mexico, Argentina, Chile and Colombia); Caribbean Restaurants Inc. (175 stores in Puerto Rico); and Geboy de Tijuana (66 in Mexico) – had no presence at all in giant Brazil. To speed growth, the chain, in June, awarded its master franchise for Brazil to an affiliate of Brazil’s Vinci Partners. Brazil had just 108 Burger King stores then, fewer than one for every million people. McDonald’s, in contrast, has been aggressive in Latin America for decades. Argentina-based Arcos Dorados –

THE GROWTH RATE IS ASTOUNDING. BRAZIL’S FRANCHISING SECTOR HAS TRIPLED IN REVENUE OVER THE PAST DECADE AS THE MIDDLE CLASS BLOSSOMED up 20 percent from a year earlier, to $984 million. For the year, sales were growing by double digits from $3 billion in 2010. Burger King and its biggest franchi-

see, Alsea, would not comment for this report. Arcos Dorados also would not provide specifics on future expansion plans, reflecting the tough rivalry. EVEN A KOSHER MCDONALD’S One secret to Arcos’ enormous success is clear: adapting to local tastes. “One of our main focuses is getting to know our customers’ needs very well,” chief executive Woods Staton told Latin Trade. Although you can get the signature Big Mac anywhere, you also can have breakfast with an arepa corn bun in Venezuela or with a pão de queijo cheese-flavored bread in Brazil. And you can chew on a kosher Big Mac in Argentina, where many in the country’s large Jewish community choose food prepared under strict Judaic rules. “This is great,” says Martin Rotem, 27, at the only kosher McDonald’s outside Israel; it’s at the Abasto shopping mall in Buenos Aires. Rotem is cramming down a Double Quarter Pounder, no cheese – kosher rules ban mixing meat and dairy – with fries topped with outrageous volumes of ketchup. “Before they opened, we (young Jewish people) didn’t have a lot of options to eat out,” Rotem says. His friend Ruben Katan, 22, who also wears a kippah, or skullcap, gestures at

MARCH-APRIL 2012 LATIN TRADE

INDUSTRY REPORT: TOP FRANCHISERS of restaurants,” Staton says, “penetration would still be just two-thirds that of the North American market.”

income-earning years ahead. The region’s economy is growing faster than those of richer nations. And franchise penetration remains low. “Even if we were to double the number

Steve Anderson, owner, with a sample wing platter at Hurricane Grill and Wings in Palm Beach Gardens in Florida

LATIN TRADE MARCH-APRIL 2012

FRANCHISES AS A MARRIAGE Still, opportunities to grow don’t guarantee profits for all companies. Franchising is a marriage between a brand and an operator, and not all marriages work, according to participants at Franchise Expo South, a trade show of the International Franchise Association held in Miami Beach in January. “We’re looking for the right partner more than the right country,” says Dan Collins, vice president of Hurricane Grill & Wings, a Florida-based chain with 46 U.S. outlets to date. Collins looks for a partner with multi-unit franchise experience, links to the local construction industry and a track record in real estate

TOP/OPPOSITE PAGE: PHOTOS COURTESY OF MC DONALDS; NEWSCOM

the line of customers waiting to place an order. “It’s always like this,” he says, gulping down his McCombo. “This place is always full.” Also key to success: Arcos’ focus on training, Staton says. Since 1997, Arcos has teamed with a McDonald’s University in Brazil, where more than 52,000 people have taken courses to date. And Brazil hosts one of only two McDonald’s recruiting centers – the other is in France, Staton says to Latin Trade. Yet even with all its growth, mammoth Arcos sees plenty of opportunity to expand for decades to come. That’s because Latin America is big, with 580 million people – more than the populations of the United States, Germany, France, the United Kingdom and Italy combined. One-third of its residents are young (15-34 years old), with prime

development “to find the right locations.” The Noodle House, a full-service restaurant chain expanding from Dubai, seeks a partner with strong food-andbeverage experience that can develop a deep understanding of its brand. “It can take a year to sign a deal, purely to make sure the relationship is right,” says Phil Broad, managing director of Jumeirah Restaurants. The company is keen for a partner in Brazil, “with so much going on – the Olympics and World Cup coming,” Broad says. But a Brazilian franchisee also must show a track record navigating the country’s legendary bureaucracy and tax system, he says. Even with the right match, some experts don’t recommend booming Brazil for franchises new to Latin America. The paperwork for a foreign brand to register

GROWTH PRESENTS ITS OWN CHALLENGES TOO. IN RIO DE JANEIRO, THERE ARE NOT ENOUGH QUALIFIED WORKERS FOR ALL THE RESTAURANTS NOW OPENING and launch stores can take nine months to two years. And Brazil is pricey, says consultant Edwards. Colombia is a better option for U.S. brands now, he says.

It’s quicker and cheaper to start up there. Plus, the new U.S.-Colombia free trade agreement has U.S. authorities working to help U.S. franchise companies enter Colombia, Edwards says. Arcos Dorados’ success shows that in a good marriage, perseverance pays off. The company has resolutely invested in Latin America for decades, even when some rivals retreated during times of turmoil. Chief executive Staton welcomes other couples to join the growing market – researching, training and adapting to local tastes: “I see great prospects for Latin America and for the companies that persistently invest in the region,” he says. With David Haskel from Argentina and Joseph A. Mann Jr. and Doreen Hemlock from Miami.

SPECIAL ADVERTISING FEATURE

“Innovative business concept and designs are changing the way people in the Americas design and furnish their homes, and the way homes are bought and sold.” Tui Lifestyle was launched in 2008 and the business has grown at a remarkable pace. Consumers used to spend years waiting to afford a designer style home and months waiting to transform their home into the home of their dreams. Now with Tui Lifestyle they no longer have to wait. Tui Lifestyle has made the world of designer style homes accessible to everyone with its large selection of in-stock luxury furniture collections and beautiful decorative accessories. Tui Lifestyle gives customers the ability to transform their homes into a designer style home in as little as 72 hours. “We are altering the way you design and live in your home,” Atkins says. Tui Lifestyle offers more than a dozen collections; simply select your

Design for the Americas

favorite. “Our designer collections are beautiful, comfortable and well-suited for a modern lifestyle,” Atkins says. “Our designs incorporate fine Italian leather, rich fabric, hand-polished stainless steel, beautifully lacquered walnut wood and modern simplicity.” All of the collections are in-stock and ready for delivery in Tui Lifestyle’s international distribution center headquartered in Miami.

ason Atkins, believes that the way

into dream homes. Atkins also saw the

Although Tui Lifestyle is a relative new

people design and furnish their

opportunity to change the way the real

comer in the world of furniture and fur-

homes has been dramatically al-

estate industry sells homes. Atkins set out

nishings, the company has also set a new

tered in an age where time is es-

to transform a 60 billion dollar industry

tempo and standard for residential de-

pecially valuable and moving so quickly.

which has not seen much innovation in

velopers, real estate agents and brokers.

In this world of instant transformation, At-

the last 50 years, and has created a dy-

The company has helped to transform

kins saw the opportunity to change the

namic, innovative and very successful

the real estate industry with its innovative

way that people transform their homes

company.

business concept and services; trans-

SPECIAL ADVERTISING FEATURE

forming the way homes are bought and sold. Tui Lifestyle has simplified the once complex interior design process into a sales tool that allows real estate agents, brokers and developers to sell turnkey designer residences. The sales of furnished residence sales outpace all other residential sales. Tui Lifestyle has made creating “for sale” luxury furnished residences easy, enjoyable and simple. Tui Lifestyle is the industry choice for turnkey designer residences in Miami, New York and other cities in the Americas. “Our customers come from all parts of the world, but they all share one thing in common, they love to enjoy their luxury designer residence in a virtual turn-key moment,” says Atkins. Tui Lifestyle is very engaged with customers from Latin America; over half of the company’s customers are Latin American. As Tui Lifestyle expands it operations, it plans to open showrooms in Latin America; an important and expanding global market. You see the growth on many fronts and in the thousands of successful people from Latin America that are investing in

authorized dealers in Atlanta, Scottsdale

Atkins says the goal is to make luxury de-

Miami and New York. This growth is just

and Toronto, Canada. “We invite you to

signer home furnishings available across

the cornerstone of the expansive growth

save today and start living the “Tui Life-

the Americas as they transform the way

occurring in Latin America. Tui Lifestyle

style,” says Atkins. Soon Tui Lifesytle cus-

you enjoy and live in your homes forever.

now has showrooms to serve its custom-

tomers will also be able to shop for de-

Atkins is experienced in corporate

ers in Miami, New York, Las Vegas, and

sign collection online at tuilifestyle.com.

development, expansion and success; having created and built two national companies by the time he was 32 years old. The son of a Philadelphia small-business owner, Atkins is a lifelong entrepreneur. Following high school, he enlisted in the United States Marine Corps as an infantryman, then transferred to Special Forces. After his military service, Atkins entered the business world. Thanks in part to his military experience, Atkins combines keen business acumen with exceptional leadership ability, discipline, and organizational skill. As an entrepreneur, Atkins has built several highly successful and profitable companies. Tui Lifestyle is looking for authorized dealer’s in Central and South Americas. For Information email: contact@tuilifestyle.com

CSR WHEN CARE HAS ITS REWARDS

THE BEST CORPORATE SOCIAL RESPONSIBILITY PROGRAMS IN LATIN AMERICA

Computer repairs, another way to help from Microsoft

hey nurture local suppliers, provide scholarships and teach nutrition. They plant trees, embrace renewable energy and encourage teenagers to become involved in social causes. Across Latin America, companies are paying closer attention to Corporate Social Responsibility, looking beyond profits to their impact on the environment and society. They’re active in CSR partly to keep their brand names strong. Companies face growing scrutiny of their practices from civic groups who can mobilize fast online. Plus, companies are increasingly ranked on how they treat employees, use resources and help their communities. Dozens of companies in Latin America now have top-notch CSR programs, improving the lives of millions of people across the region, from highlands to inner cities. Here is Latin Trade’s first list of the best CSR programs in Latin America, drawn from our own correspondents, awards and

LATIN TRADE MARCH-APRIL 2012

rankings, including the Global 100 from Canada’s Corporate Knights magazine for “clean capitalism” . Presented yearly at the World Economic Forum in Davos, Switzerland, the Global 100 this year featured three companies from Latin America – all from Brazil.

ARGENTINA Software titan Microsoft strives to bridge the digital divide. In Argentina, the company has partnered since 2001 with Fundacion Equidad, an entity that promotes equal opportunities in a digital era. Last year, they trained more than 600 students in computer repair, fixed at least 2,400 PCs and delivered the machines to 350 community organizations. In all, Microsoft’s Latin American division donated $13 million in cash and software last year just through its Community Technology Skills Program, assisting more than 300 groups in

PHOTO COURTESY OF MICROSOF T ARGENTINA

BY DAVID HASKEL in Argentina, TAYLOR BARNES in Brazil, GIDEON LONG in Chile, ANASTASIA MOLONEY in Colombia, DAVID AGREN in Mexico, LISA WING in Peru and DOREEN HEMLOCK in Miami

LATIN TRADE SPECIAL SUPPLEMENT

GOODYEAR LATIN AMERICA IS ON A CSR MISSION Since Jaime Szulc’s

tenure as President of Goodyear Latin America began in 2010, his vision and focus has been to emphasize innovation across the company, including its products, processes, marketing and branding. He believes continual innovation leads to success and, as one of the largest tire manufacturers in the world, Goodyear’s most important role is to be a profitable business while providing challenging and rewarding careers for more than 5,400 associates in Latin America. But, while business success is critical, Goodyear has a long history of being a responsible corporate citizen and operating in an ethical and sustainable way. Building on that legacy, Goodyear Latin America established its three pillars of corporate social responsibility: Environmental Care, Safety and Wellness, and Community Support. Through a variety of local environmental initiatives, Goodyear associates are encouraged to be environmentally conscious about the need to conserve natural resources, improve biodiversity in their local community and reduce, reuse and recycle. For example, Goodyear Brazil, a leader in Goodyear’s sustainability efforts, hosts an “environment week” each year -- including a tree-planting celebration and training on sustainability concepts, such as how to be “green” at work and home, and also constructed a water reuse station in 2011 with a capacity to recover 450,000 cubic meters of water each year. Goodyear Chile developed a program to voluntarily collect used tires and has recycled more than 20,000 tons since 2004. Goodyear encourages wellness and safety both on the job and at home, and Goodyear associates play an integral role in promoting safety within their communities.They created local campaigns focused on road and vehicle safety, such as the “Women with Drive” workshops throughout the region which educate drivers on proper car and tire maintenance.

Regional outreach programs focusing on education, children and families, and disaster relief also receive support from Goodyear Latin America. A few examples include Goodyear Argentina’s participation in the “Carrera por la Educación” (“Race for an Education”) initiative, which invited the community to rally for the right for a better education and Goodyear Venezuela’s collaboration with the Los Guayos community to build a new school. Examples of disaster relief programs include a campaign in Brazil that collected eight tons of food, clothing and hygienic products for the citizens of the flood-damaged areas of Sumare and Rio de Janeiro, and a program in Chile to build new houses for the victims of the earthquake and tsunami in Dichato. Throughout Goodyear’s long history, there has been a strong correlation between achieving business objectives and doing the right things for associates, customers, the environment and our communities. Led by Szulc, Goodyear Latin America plans to build on its philanthropic legacy and develop partnerships benefiting the communities far into the future. Goodyear Brazil’s new water reuse station.

PHOTO: COURTESY OF PHILIPS ARGENTINA

SPECIAL REPORT: CSR PROGRAMS

Philips Women’s Truck travels across Argentina providing free gynecological studies

Accross Latin America companies are devoting time and money to CSR programs 16 countries. Its training program spans from basic computing to applications that can boost productivity for micro-enterprise. The global powerhouse, with $70 billion in revenue last year, also works with Argentine universities known for turning out topnotch software engineers.

rural areas have no formal training to teach, says the foundation’s Adriana Castro. The company has 40 industrial plants in South America, exports to 120 countries and had $2.5 billion in annual revenues in 2010, according to the Latin 500 ranking, from Latin Trade and Latin Business Chronicle.

Argentine confectioner Arcor doesn’t sugar-coat problems. The company billed as the world’s largest candy maker has embraced sustainability – that is, taking long-term responsibility to use resources in ways that ensure they’ll last. Since 2009, Arcor has reduced its water and energy use, adopted more eco-friendly packaging, added health foods to its lineup and boosted diversity in the workplace. Those efforts earned it the No. 1 spot on the latest CSR ranking by Argentine business magazine Mercado, based on a consumer opinion poll. Arcor’s foundation focuses on education for children. Since 2007, it has worked with Argentine authorities on an e-learning program that has reached preschool, kindergarten and elementary school teachers in 18 provinces. The program’s Webinars and Web site are vital, because many teachers in barrios and

Philips Argentina began its CSR health program in 1999 with a mobile diagnostic truck that traveled throughout the country, assisting the low-income population. In 2003, the company established an alliance with LALCEC, the prestigious Argentine League Against Cancer, and converted the project into the Women’s Truck, a vehicle equipped with its own technology to diagnose gynecological ailments. Nine years and thousands of kilometers later, the success of the program is measured by 24,000 diagnostic studies carried out with low-income women in different parts of Argentina to prevent cancer. “With this program, we seek to improve people’s quality of life,” Santiago Pezzati, Philips’ director of public affairs for Argentina, Uruguay, Paraguay, Chile and Bolivia, tells Latin Trade.

LATIN TRADE MARCH-APRIL 2012

SPECIAL REPORT: CSR PROGRAMS

PHOTO: COURTESY OF MTV

In this alliance, Philips took charge of the medical and operative team, and LALCEC contributed the organizational network and the statistical studies throughout Argentina. The next stage, which will begin in the second half of this year, will be to convert the Women’s Truck into a Maternal-Child Truck and to move from diagnosis to prevention, said Sabrina Guidi, manager of the company’s corporate communications, Philips contributes $100,000 a year to this project and has 65 volunteers among the company’s employees. It also has other CSR programs, such as one targeting schools called Health Guardians, which is aimed at ensuring that children learn, through play, activities that contribute to improving their quality of life and the environment.

flung providers of such tropical fruits as cupuaçú and pitanga. “We go there and figure out all the paths” for farmers to deliver, Sergio Talocchi, Natura’s manager of community relationships, tells Latin Trade. That helps rural families make a better living in their traditional homelands. Natura sells through 1.1 million consultants in Brazil and 200,000 more in other countries, bringing in nearly $3 billion in revenue in 2010. Its work with suppliers, ban on animal testing, carbon off sets and other green practices, earned it the 2009 ECO prize from Brazil’s American Chamber of Commerce and 2010 awards from the Global Reporting Initiative. Corporate Knight ranked Natura No. 2 on its latest Global 100 companies list.

Ubiquitous in Brazil – it’s in every municipality – Bradesco bank has staked its reputation on financial inclusion to spur prosperity. It opened branches in Rio de Janeiro favelas, such as Rocinha and City of God, before others did. It launched a pay-by-cellphone option for people without checking accounts. Nearly 80 percent of its customers come from Brazil’s middle- or low-income classes. Outreach by the banking giant, which has more than $400 billion in assets, extends deep into pockets of the sprawling Amazon region. A floating bank agency travels 995 miles along Lead artists of Puerto Rico’s Grammy award-winning band Calle 13, who are active the Amazon River to 51 settlements, offering in a campaign against human trafﬁcking micro-credit and other services. “With those little communities on the riverside, how do you LATIN AMERICA promote development?” spokeswoman Ivani Benazzi de Andrade – a chapter of the New York-based says. Her answer: “Inclusion.” MTV network and the largest musical network in the region – The push to reach low-income customers helped Bradesco win has launched major campaigns to help fight poverty and exploitainternational Golden Peacock awards for CSR. It also helped tion in Latin America, where half-a-million children and youths earn the bank a spot on the latest Global 100 sustainable compahave become victims of human trafficking and are often forced into sex work and drugs, according to UNICEF. These campaigns nies list from Corporate Knights, ranking No. 61 worldwide. include MTV EXIT and MTV SET. MTV’s EXIT (End Exploitation and Trafficking) campaign unites UNICEF, Miami TV network Tr3s and Puerto Rico’s Grammy award-winning band Calle 13 to raise awareness of the abuse and show there are other options for youths. MTV’s SET kicked off late 2011 as a magazine-style show on youth health, work and education issues. It features Latin music stars discussing their involvement with social causes. The show is part of MTV Latin America’s long-standing partnership with the InterAmerican Development Bank’s youth program. MTV Latin America makes its CSR push partly from its hub in Argentina.

BRAZIL Multi-level marketing to trendy urban women hasn’t stopped Brazilian beauty products maker Natura from staying grounded in rural hinterlands. The eco-friendly brand partners with far-

Paper production might not be the first thing to jump to mind when considering environmental stewardship. But Brazil’s Votorantim Group repeatedly earns eco-kudos. Its paper-making Fibria company has ranked on the Dow Jones Sustainability Index for the past five years. (And Votorantim Cement won a 2010 ECO prize from Brazil’s American Chamber of Commerce.) Votorantim created an institute focused on promoting initiatives for young people to improve their education, access to qualified jobs, broaden its cultural frontiers and develop their sports capacity. Votorantim operates in 24 countries and had $13

MARCH-APRIL 2012 LATIN TRADE

SPECIAL REPORT: CSR PROGRAMS

A clean environment around the moai statues at Rano Raraku on Easter Island, Chile.

CSR programs focus mainly on health, education and environment

CHILE When Easter Island had a waste problem, Chilean steel maker Gerdau AZA found the solution. The island is a Chilean territory 2,250 miles from the mainland. It receives th housands of tourists per year on just 15 miles of land, measured from end to end, and that doesn’t leave much room for landfills. So, Easter Island’s garbagee is shipped to South America at great expense. In 2010, Gerdau AZA donated a metal compactor to the island. It has crushed hundreds of tons of junk into cubes for easy transport. When the scrap reach hes Chile, Gerdau AZA recycles it. The company also produced a booklet explaining how the 5,000 residentts can best to keep Easter Island clean.

LATIN TRADE MARCH-APRIL 2012

In mainland Chile, Gerdau AZA joined forces with the government to help destroy illegal weapons. More than 13,000 weapons have been melted down in company furnaces and recycled. Such efforts have Gerdau AZA climbing the annual rankings for best CSR practices in Chile. PROhumana, the Chilean foundation promoting CSR, ranked it ninth on the list in 2009, third in 2010 and number 1 last year. The company has been part of Brazil’s Gerdau Group since 1992.

“W We provide the light. You provide the energy.” That’s how Chilean electric company Chilectra describes its relations C with thousands of aspiring soccer players in Santiago, the capital. For 17 years, Chilectra has been reclaiming derelict land to make vibrant public spaces. Many lots now are mini-soccer pitches, with Chilectra providing floodlights. The company has provided lighting for more than 150 lots since 1994, spawning its own soccer m com mpetition – the Chilectra Cup – played by teams of rival youths. Some lots are used to screen movies free of charge, with h Chilectra providing lights. PROhumana, a non-profit

ISTOCK

billion in revenue in 2010, according to the Latin 500 ranking from Latin Trade. Its Fibria unit is keen on reforestation and has signed the Atlantic Forest Restoration Pact. It aims to replant 28,000 hectares by 2023, with nearly 5,000 hectares already reforested.

SPECIAL REPORT: CSR PROGRAMS

company, ranked Chilectra No. 2 in its 2011 list for best CSR practices. The company is part of Spain’s Endesa Group.

The earthquake that shook Chile in February 2010 proved a headache for many companies – especially Sodimac, Chile’s biggest supplier of construction materials, and part of Falabella Group. Thousands of people needed wood, cement, and metal to patch shattered homes, and Sodimac moved quickly. But it also organized workshops in the quake zone, teaching people how best to rebuild, and started a “1+1” campaign matching its employees’ donations. In 2011, Sodimac placed seventh in PROhumana’s 2011 CSR rankings, and employees seem to appreciate its efforts. A recent poll asked Chilean workers to score their companies on how well they responded to the quake. Sodimac scored 4.17 out of 5 – well above average. Also, in its daily work the company seeks to reduce the environmental impact throughout its operation, looking for an efficient use of resources. It works in reducing energy consumption in its stores through updated technology to deal with garbage and by reducting water consumption, and it also has other active programs that involve its employees, such as tree-planting in Santiago. The company belongs to the Climate bourse, an entity founded to promote “green markets” in Chile and Latin America, to reduce global warming.

COLOMBIA Outdoor-clothing maker Patagonia has long been an environmental pioneer, promoting recycling and investing in conservation. The company aims for the cleanest operation possible in order to cause the least harm to the environment. It looks for innovative technologies, is a careful user of water and adheres to Swiss “bluesign” standard - which means evaluating and reducing resource consumption in its industrial process, screening raw materials and chemicals used in dyeing fabrics, and controlling water and air emissions in its production processes.

Patagonia also is leading a campaign called “Common Waters,” with alerts on the threats the consumer society puts on drinking water. “The more water we waste, the more habitat we destroy,” Patagonia says. Also, the U.S.-based company has broken legal ground as a new kind of enterprise: a Benefit Corporation. Benefit Corporations have a legal purpose to create positive impacts on society and the environment. Their leaders must consider interests outside profits when making decisions. And they must report on social and environmental performance, using third-party standards. The so-called “B” status means that when Patagonia chooses suppliers, including factories in Colombia and other Latin nations, it must look at more than cost. And it commits to audits of its practices.

Founded by Swiss immigrants in 1945, Colombian dairy producer Alpina works with government agencies and non-profits such as Oxfam to help farmers and promote nutrition in low-income areas. It’s active even in conflict-ridden indigenous reserves in Colombia’s northwest Cauca province. Alpina’s training and technical support have helped more than 500 indigenous farmers produce more goat milk and sheep milk and also more cheese – and with better quality. Alpina also invests in nutrition programs at its school near Bogota and in nutrition workshops held with community groups. Strong outreach earned Alpina the 2010 CSR award from Colombian business newspaper Portafolio. Alpina has $800 million a year in revenue, has factories in three countries and exports to 20 nations.

MEXICO As Mexico’s largest retailer and private employer, Walmart de Mexico sets a huge example by striving to use only renewable energy by 2025. It now relies on a Mexican wind farm for nearly 20 percent of its needs. And it has installed one of Latin America’s biggest solar-panel arrays on a store in Aguascalientes. Walmart operates more than 2,000 stores in Mexico, and they posted $27.1 billion in sales in 2010, according to the Latin 500 from Latin Trade. The company wants zero waste by 2025 from that growing business, and it’s teaming with suppliers to reduce

MARCH-APRIL 2012 LATIN TRADE

PHOTO: COURTESY OF BBVA BANCOMER

SPECIAL REPORT: CSR PROGRAMS

BBVA Bancomer directs 1 percent of its proﬁt to CSR projects

CSR programs involve ﬁnancial contribution but also the participation of company employees

Mexico’s largest bank, BBVA Bancomer, directs 1 percent of its profit to CSR projects. That adds up for a bank with more than $94 billion in assets and $1.8 billion revenues in 2010, according to the Latin Trade’s bank ranking. Some of the bank’s CSR spending goes to financial education, but most of it goes to social programs. Bancomer handles about 40 percent of Mexico’s multi-billiondollar remittances yearly, so it reaches out to students in villages shrunk by out-migration. Its “Those Who Stay” program gives scholarships of about 1,000 pesos (US$78) a month, and it pairs recipients with bank employees who become their “padrinos”, or

LATIN TRADE MARCH-APRIL 2012

ISTOCK

packaging and boost recycling. Walmart already recovers cooking oil from 242 of its restaurants and has the used oil converted to biodiesel, soap and a supplement for cattle feed. Walmart’s sustainability push extends across its Latin American operations. The company aims to buy more locally, from small companies and also from women. The Walmart Foundation spent $2.5 million last year to boost skills for women in six Latin nations so they can sell more to Walmart stores.

mentors. The program now operates in 18 Mexican states. Since 2006, it has helped 25,600 students at a cost of more than $44 million. Many youths have finished high school and opted not to leave the country. Surveys show that their mentors also bene-fit, Luisa Arredondo, director of the bank’s social development programs, tells Latin Trade. The program earned a 2011 internation-

SPECIAL ADVERTISING FEATURE

Risk Management In A Time Of Global Uncertainty Moving Toward A More Proactive Approach

Business leaders should regard risk management as essential to their own success,” one vice president of operations at a U.S. financial services firm said, “not to be the people who always say no. GLOBAL COMPANIES increasingly view risk assessment and enterprise risk management as an important strategic activity, yet most executives still feel their companies have a long way to go in building an effective, risk-aware culture, according to a new survey by Harvard Business Review Analytic Services. Over two-thirds of 1,419 business executives surveyed said risk management has increased in importance in the wake of the 2008 financial crisis. The study made clear that risk management needs to have a clear owner to be effective—CROs are far more likely to be in the driver’s seat now than three years ago, but the CEO bears ultimate responsibility. Despite this, however, only one in ten said their executive management is “highly effective” in creating a strong risk-management culture. And while the need to link risk information to strategic decision-making was identified as extremely important, only 14% felt their organization did it extremely well. Executives surveyed said that integrating risk management and corporate goals was key to gaining competitive advantage, but a majority of the companies said their approach to enterprise risk management continues to be basic or reactive.

AMONG THE TOP BARRIERS TO BETTER RISK MANAGEMENT IDENTIFIED: » Focus on Compliance to the exclusion of fundamental ERM processes (42%) » Lack of strong management support (41%) » Reluctance to share information internally & across functions (35%)

Executives stressed that their goal was not to create a risk-averse environment but one in which better measurement and understanding of risk gives them more confidence about making strategic decisions to build the business.

SOME OF THE TOP BENEFITS OF ERM CITED BY RESPONDENTS WERE: » Improved strategic decision-making (39%) » Improved governance (34%) » Increased management accountability (31%)

VIEW THE FULL REPORT AT: www.hbr.org/white-paper/risk-management

SPECIAL REPORT: CSR PROGRAMS

In 2000, Cemex launched “Patrimony Today,” offering micro-credits, plus technical and logistics support, to help families build their houses.

Cementos Mexicanos ranks as the world’s biggest producer of ready-mix concrete and the third-largest producer of cement. Its revenue exceeds $14 billion a year. But the century-old behemoth knows that many lowincome people still can’t afford its construction materials to build their own houses. In 2000, Cemex launched “Patrimony Today,” offering micro-credits, plus technical and logistics support, to help families build. So far, it has extended $135 million in credit, allowing more than 265,000 families in Mexico, Colombia and other Latin countries to build their homes. About 60 percent of those people say they couldn’t have built without the program’s assistance. The effort earned Cemex a World Business Award from the International Chamber of Commerce in 2006 and a UN Habitat Business Award for accessible housing solutions in 2009.

PERU Travel company Inkaterra pioneered eco-tourism in Peru in 1975, working to conserve the environment and native cultures. Now it is Peru’s first carbon-neutral travel company. It buys credits to off set its carbon emissions, spending on programs that preserve Amazon forests. Inkaterra runs several luxury hotels in Peru and

LATIN TRADE MARCH-APRIL 2012

PHOTO: COURTESY OF CEMEX

al Stevie Award for CSR, presented in the United Arab Emirates.

A family participating in the Cemex program

involves its neighbors through training and jobs. “We look forward to sharing our knowledge and wealth with the communities where we work,” founder Jose Koechlin tells Latin Trade. “The underlying goal is to empower locals.” Inkaterra’s eco-efforts include a rescue center for endangered spectacled bears and restoring 12 acres of native forest that are home to hundreds of species of birds, butterflies and orchids. The company has trained more than 4,000 community members in hotel operations and conservation so far. Inkaterra earned a responsible-tourism award from the World Travel & Tourism Council in 2010 and recognition in Travel + Leisure magazine in 2011. The company had $14 million in revenue last year.

A NEW WAY TO LISTEN MEANS A NEW WAY TO HELP. Having more ways to reach help sometimes means the difference between flying and waiting. That’s why you can find us on Twitter, where we have a dedicated team standing by 24/7 to help you with your travel. Whether it’s checking how weather is affecting your local airport or rebooking if you’ve missed your flight, they can give you the assistance you need. Of course, you still have the option of calling, emailing, or speaking with one of our Red Coats at the airport, but if you’re more of a 140 characters kind of person, drop us a tweet @DeltaAssist.

A valley of rural ﬁelds and villages in the Peruvian Andes, where Barrick contributes agrotechnology.

Gonzalo Quijandria tells Latin Trade. More than 250 families have worked with Barrick’s farmer program, named first runnerup in the BBC News’ World Challenge Competition in 2010. Barrick Peru has two gold mines in Peru producing more than $400 million a year in revenue. It also helps install clean, ventilated stoves in rural homes, where traditional wood-burning stoves remain a health-and-safety hazard. Almost 6,500 clean stoves have been installed so far.

Who says mining and farming can’t co-exist? Canadian mining company Barrick Gold makes an effort to make it happen. Its “Productive Highlands” program helps resource-poor farmers in Peru’s Andean highlands (4,000 meters above sea level) by offering a set of 18 farming and water-conservation technologies. They include new irrigation practices and the use of organic fertilizers. “Thanks to these technologies, many participating farmers now have two harvests a year: one for family consumption and the other to sell for profit in the market,” Barrick Peru spokesman

LATIN TRADE MARCH-APRIL 2012

Peruvian chef Gaston Acurio owns the Astrid & Gaston restaurants, which have become gourmet destinations in several Latin American cities and also in Madrid. With the slogan “Everyone in Peru can be a cook,” Acurio helped start the Pachacutec Culinary Institute, Peru’s first public cooking school. “Our goal is to educate low-income youth, not only in the kitchen but also with regard to their values,” school coordinator Rocio Heredia tells Latin Trade. Pachacutec takes its name from the shanty town in Lima’s outskirts, where the school is located. The institute received 700 applications this past year and accepted about 30 new students for its four-year program. London-based magazine Monocle last year named the school, which is funded by donations, as the education initiative with the most global impact. A second school branch is opening in Peru’s city of Arequipa.

PHOTO: COURTESY OF INKATERRA

ISTOCK

SPECIAL REPORT: CSR PROGRAMS

What are the key challenges for treasury when going global? Find out here

EuroFinance’s 16th annual conference on

International Cash and Treasury Management 9 – 11 May 2012, Miami, USA www.euroﬁnance.com/miami

% 0 2 D

U N eT O C IS Trad

tin for Lraeaders

with nline e LT o r e t Regis oking cod o the b

Key topics include: Making the move from international to global Managing growth markets Strategic treasury transformation Reducing the complexity of global operations Managing treasury operations in Latin America

EuroFinance’s ﬂagship international event has been adapted for the Americas, enabling us to bring the global experts to your region.

INDUSTRY INDUSTRY REPORT: REPORT LOGISTICS

PHOTOS: COURTESY OF DHL AND UPS

TRADE LOGISTICS

thriving in Latin America despite obstacles and slower economic growth

BY JOSEPH A. MANN JR.

AS TRADE GOES, SO GOES LOGISTICS And despite World Bank predictions of slower overall economic growth and trade activity this year in Latin America and the Caribbean, major players in trade logistics such as DHL, FedEx and UPS continue to invest in key markets in the region and expect significant growth in 2012. A multibillion-dollar industry in the region involving thousands of service providers, trade logistics refers to all the steps involved in moving products from manufacturers to consumers as quickly and cheaply as possible. Enterprises working in the supply chain range from a tiny package delivery company in São Paulo to firms specializing in moving parts to auto manufacturers in Mexico to the huge, U.S.- and Europeanbased courier and freight companies with fleets of cargo jets, armies of workers, enormous warehouses and offices worldwide. Global companies such as DHL, FedEx and UPS started out as messenger or courier services but moved into freight and trade logistics as they identified new growth oppor-

LATIN TRADE MARCH-APRIL 2012

Loading of a DHL cargo plane.

tunities in international commerce. Logistics companies manage supply chains, offering services that include handling imports and exports; arranging air, sea and land transportation; managing customs and regulatory documentation; warehousing, inventory control, order fulfillment; moving delicate and dangerous cargo; and trade financing. Poor infrastructure, a lack of automation at air and sea ports, complicated internal regulations in different countries, a lack of transparency, and corruption have plagued the sector for years, slowing the movement of goods and

increasing costs throughout the region. Logistics companies, however, try to find ways around these obstacles for their customers and provide the best options for moving goods to market. And despite an expected slowdown in regional GDP growth and international trade, business in several markets will expand or remain strong this year, according to executives at U.S.-based logistics companies. These markets include Brazil, Mexico, Peru, Chile, Panama, the Dominican Republic and perhaps Argentina. In fact, logistics providers see new and attractive opportunities in Latin America as labor costs rise in China, and some manufacturers evaluate the option of moving operations to the Western Hemisphere. “If you look at world markets, China and Asia have gotten a lot of publicity, but wages are increasing in China,” said Jose Acosta, vice president of public affairs and operations for Latin America at UPS, which has more than 8,000 employees in the region. “Companies seeking cheaper labor in Asia find that it’s no longer so attractive. There will be more

INDUSTRY REPORT: LOGISTICS

The regional logistics market is highly fragmented. DHL, FedEx and UPS are the largest players, but they don’t dominate the market sourcing here in our region because the U.S. is the largest market in the world,” and the transportation costs for moving products from Latin America are much less. “In addition, the region is drawing more direct foreign investment, and that pushes trade,” Acosta said. An expert in Latin American trade struck the same chord. “Labor costs are growing faster in China than in Latin America,” said John Price, managing director of Americas Market Intelligence and a long-time consultant on competitive intelligence and business strategy in the region. “Mexico is winning the race with China for outsourcing heavy, bulkier goods because they don’t have to be

shipped that far to the U.S. market.” Also FedEx sees a strong growth potential in Latin America for 2012. “In fact, to accomodate this growth, FedEx LAC has expanded internacional freight services in the region,” says Salil Chari, Managing Director, Marketing for FedEx Latin America and the Caribbean . The company now serves 22 countries and 130 destinations in all.

THE PLAYERS The regional logistics market is highly fragmented. DHL, FedEx and UPS are the largest players, but they don’t dominate the market because there are thousands of local and regional companies working dif-

There is little information on the total market. The big players make up less than 25 percent of the market, which offers us a real opportunity to grow. JOSE NAVA President of DHL Supply Chain Latin America

MARCH-APRIL 2012 LATIN TRADE

INDUSTRY REPORT: LOGISTICS

SAMUEL ISRAEL CEO Latin America for DHL Global Forwarding

ferent parts of the supply chain. Logistics executives said they had no clear idea of the exact size of the total logistics market in Latin America and the Caribbean, but they believe it is a multibillion-dollar annual business. “There is little information on the total market,” says Jose Nava, president of DHL Supply Chain Latin America. “There are a lot of local companies, and some are very good operators. But some are small carriers that call themselves logistics companies. The big players make up less than 25 percent of the market, which offers us a real opportunity to grow.” DHL Supply Chain, one of two DHL divisions that handle most of the company’s logistics business, has nearly 15,000 employees in its four principal Latin American markets – Mexico, Brazil, Argentina and Chile – and 70 warehouses with more than 13 million square feet of storage space combined. The company works with about 200 carrier companies throughout the region to provide customers with end-to-end service. In addition to DHL, FedEx and UPS, large European companies such as Hellmann Worldwide Logistics and Panalpina Group operate in Latin America. There are also large local and regional companies – some with international ties, such as the Bomi Group, Seglo Logistics, TMM International and Zimag Logistics. As the gateway to Latin America, Miami is home to many of small to mid-sized firms that help move cargo to and from the region through the Port of Miami and Miami International Airport. WTDC, a Miami-based supply chain management company founded 36 years ago,

LATIN TRADE MARCH-APRIL 2012

is seeing a big increase in business this year in both large and small countries in Latin America, says Ralph Gazitua, the company’s president and CEO. Among its diverse services, WTDC manages inventory for international furniture companies at a “dry port” (similar to a free trade zone) in Brazil. WTDC “works mostly with mid-sized and some large companies,” Gazitua said, “while the big logistics companies are fighting with each other over the top 100 companies in Latin America.”

MORE TRADE MEANS MORE LOGISTICS Latin America’s exports were expected to grow last year by 26 percent, reaching about $1.1 trillion, according to an estimate released in December by the Inter-American Development Bank. Intra-regional exports (those within the Americas) grew by 24 percent, and extraregional flows increased by 26 percent, the report said. The IADB, like the World Bank, also anticipated a decline in Latin America’s

At this DHL Supply Chain facility in Louveira, outside São Paulo, Brazil, the company is storing merchandise for a technology company.

GDP growth this year “due to uncertainty in the global markets and the potential reduction in demand for basic products.” Yet for company executives and trade experts, this year’s outlook for trade – and logistics – is generally quite positive. “FedEx still believes that Mexico and Brazil are the biggest players in the region,” says Chari. And he estimates 2012 will be

LOGISTICS GALORE Thousands of companies work in the trade logistics sector throughout Latin America and the Caribbean, including domestic and international transportation companies, customs brokers, freight forwarders, consolidators, warehouses, inventory management, and trade finance firms. Some specialize in providing only one service (such as overland freight transportation within a country), but the big players – such as DHL, FedEx and UPS – offer end-to-end supply chain management. This list includes the largest international logistics operators, plus a sampling of important regional enterprises. - Asimex S.A. - Bomi Group - DHL - FedEx - Hellmann Worldwide Logistics - Panalpina Group - Seglo Logistics - Schenker Logistics - TMM International - UPS - Zimag Logistics

“another year of strong growth for Brazilian freight transport.” Price believes the highest growth this year will occur in Colombia and Peru, which are receiving strong flows of foreign investment. “Peru has received tremendous direct foreign investment in the mining sector, and the middle class has changed there dramatically in the last several years,” he said. Although executives at DHL, FedEx and UPS won’t talk about specific investment figures, they continue to see growth opportunities in the region for logistics and are expanding their operations. “Latin America is taking a larger role in the global economy,” said Samuel Israel, CEO Latin America for DHL Global Forwarding, a unit that shares most of DHL’s logistics business with the Supply Chain division. “It used to be very much an import region, but it has balanced its trade with perishables and commodities,” he said. “There is a lot of potential for outsourcing (in the region) since many companies are still insourcing.” DHL Global Forwarding saw its ocean freight tonnage grow by 9 percent last year, and its air freight increased 13 percent in the region, Israel said. Both figures were above market rates. Israel’s company, which

PHOTOS: COURTESY OF DHL

Latin America is taking a larger role in the global economy. It used to be very much an import region, but it has balanced its trade with perishables and commodities.

A FedEx plane on the tarmac, ready for departure

has offices in the major cities where DHL operates, expanded its footprint in several countries by opening freight offices in secondary and smaller cities where it identified demand for its services. The DHL unit has 120 offices in warehouses in Latin America and employs about 3,300 people. Working in concert with other DHL divisions, it moves freight by air, sea and land. DHL Supply Chain has seen 10 percent to 12 percent annual growth in recent years from new and existing customers, Nava said. Like its competition, DHL wants to maintain and improve its portfolio of multinational clients, multi-Latin customers and other large regional companies while increasing its share of small and mid-size enterprises. “I’m very proud to tell you that when I started with DHL, we had mostly multinational customers,” Israel said. “Now we have a very balanced portfolio of about 53 percent small and medium enterprises.” The remainder is made up of large multinationals and other large Latin companies, some of which have expanded beyond their borders. UPS has a “very positive” outlook for Latin America this year, Acosta said. “Brazil and Mexico are the biggest markets, but Colombia and Panama and Peru are expected to show profitable growth, and we will continue the

LATIN TRADE MARCH-APRIL 2012

trend that we’ve seen for the last few years.” UPS has made significant investments in Latin America and continues to do so, Acosta said. “What is critical for us is that we don’t add capacity unless the demand is there.” UPS Capital is opening financial service offices (to assist customers’ production, expansion, etc.) in Bogota, Lima and São Paulo, and last year UPS established a partnership with Deprisa, Avianca’s delivery arm. UPS also expanded its capacity in 2011, bring in Boeing 767 cargo planes to replace 757s, adding 19 weekly flights in Central America and South America and opening new UPS offices throughout Brazil. FedEx announced in January its FedEx Express unit was adding 12 markets in Latin America and the Caribbean to its coverage of priority freight and economy freight services. FedEx has more than 8,000 employees in the region. “We foresee that the market for transport of perishables (flowers, fruits, vegetables) will continue to grow in Latin America,” says Chari, who added the company offers 24-hour connections between the US, Canada, Mexico and the Caribbean and 48-hour connections to Europe.

OBSTACLES The problems facing logistics companies all over the region are well-known: infrastructure

(airports, sea ports, highways, railroads), poor performance of customs and border agencies, lack of computerized systems for processing paperwork, inability to track shipments, low quality of some local logistics providers and lack of reliability in shipping times. In its most recent (2010) report on logistics performance in Latin America, the World Bank found that the region’s overall performance lagged behind East Asia, the Pacific, Europe and Central Asia. Brazil, ranked No. 41, was the best performer in the region, followed by Argentina (No. 48) among the 155 countries in the study. The World Bank said Brazil, Argentina, Chile, Mexico, Panama and Costa Rica were the “consistent performers” in the region, followed by 14 “partial performers” led by the Dominican Republic. Out of those 155 countries, Guyana ranked No. 140, and Cuba was No. 150. Germany was No. 1, and Somalia ranked last. “Infrastructure is crucial, especially in places like Brazil that are growing very fast,” said DHL’s Nava. “Space is getting hard to find and more expensive,” he added. “Some countries and areas are growing much faster than they ever planned.” For FedEx’ Chari “there are a number of risks on Brazil’s booming shipping and freight transport sector, including the infrastructure deficit and signs of overheating in the economy.” Also, a cumulative lack of transport infrastructure investment, he says. Another challenge in the region is a lack of people who are familiar with logistics. DHL holds classes to train people in the region, but local companies also must step up, he noted. Nava said he also would like to see change in tax and revenue rules in the region. For example, moving merchandise from state to state is complicated and requires more people and paperwork. UPS’s Acosta summed up the problem: “As a market, we see Latin America as very dynamic but in a nascent state,” he said. “We still have a lot of growth to go, but we need cooperation from local governments. “We can provide all these great services, but if it takes four, five or six days for merchandise to clear customs, your customer is not happy. Customers also have to ask for changes – it can’t just be UPS and the other big companies.” –editorial@latintrade.com

PHOTO: COURTESY OF FEDEX

INDUSTRY REPORT: LOGISTICS

IF YOU ARE LOOKING TO INCREASE TRADE REVENUES AND DEFINE NEW BUSINESS OPPORTUNITIES, YOU CAN’T AFFORD TO MISS THIS EVENT.

MIAMI JUNE 11-13, 2012 AN AFFILIATE OF THE LATIN TRADE GROUP

InterContinental Hotel Miami www.tradeamericas.com

The Latin Trade Group presents

Trade Americas in partnership with

The first business focused conference and expo designed for North American Small and Medium sized businesses positioned for growth.

• Learn how to position your SME towards growth and success in Latin America. • Maximize your human and financial resources by meeting key sector and country specific government participants. • Gain comprehensive insight to one of the world’s fastest growing trade markets. TRADE AMÉRICAS WILL INTEGRATE:

• Pre-conference overviews and tutorials • Educational sessions • Country-specific presentations

• One-on-one meetings • Networking functions

For further details on sponsorship opportunities or registration, please contact nvalle@latintrade.com Sponsors Presenting:

Silver:

Media Partner:

UNIVISION NETWORKS

Exhibitor:

LOGISTICS WHAT DO LOGISTICS COMPANIES DO? Here are some examples of the solutions supply chain companies provide to their customers. BY JOSEPH A. MANN JR.

Logistics companies can help move mining machinery and parts from a factory in Europe to a warehouse in Chile so they can be stored there and shipped quickly to a Chilean mine that desperately needs a spare part. They can work directly with a pharmaceutical manufacturer, overseeing the packaging of delicate vaccines or medicines, transporting them from factory to airport, moving them through export inspection (without having packages opened and contaminated), and placing them on a plane. The supply chain company then retrieves the shipment at the destination, moves it through customs and delivers the merchandise to a local distributor or hospital. Throughout the process, the merchandise is kept in temperature-controlled environments (cold chain).

WHERE’S MY MASK? A company in Mexico that makes Halloween masks contacted UPS with a problem: The company successfully produced colorful masks for Mexico’s extremely popular Día de los Muertos, but it wanted to expand its sales to the United States (for Halloween) and to Europe and Latin America (for local versions of Carnival). The company was not familiar with export/import regulations, international shipping or delivery services in different countries. It also had experienced problems with shipping time that averaged 30 days to some external markets, making it difficult to adjust production and inventory if a shipment was lost or delayed. If a shipment did not arrive on time, for example, the Mexican company had to produce more masks or dip into existing inventory and ship the products again. This raised costs, caused long delays and angered customers. UPS designed a proposal that used its knowledge of border crossing, international shipping and delivery times in different markets. It recommended use of UPS standard delivery in the foreign markets, an economical alternative. When the Mexican company began using UPS, average shipping time was cut from 30 days to seven days, transportation costs were reduced, and the location of shipments was visible from start to finish. LET THERE BE LIGHTS: DHL Global Forwarding signed a contract last year to move 1,000 20-foot containers of lamps and fixtures from Asia and other locations to Brazil. The Brazilian buyer needed the merchandise – an enormous order

LATIN TRADE MARCH-APRIL 2012

with some pieces in small quantities and others in full containers – within a strict time frame. DHL moved the merchandise from sites in Asia to the Port of Santos, arranged all the details for customs and contracted with local trucking companies to move the containers from the port to several distribution centers. DHL’s Israel pointed out that each step of the process had to be planned carefully in advance and monitored. “If you use direct shipping and the fastest vessel, you lose the advantage if customs breaks down” because of improper documentation or other issues, Israel said. DHL also had to deliver the merchandise in two modalities – full containers to some locations and smaller shipments to other destinations. By using the company’s experience and expertise, lead time was reduced by three to five days, Israel said.

WORLD CUP CHALLENGE: Nike selected Brazil as one of its focus markets among emerging economies, and the company needed to ship large quantities of apparel, footwear and equipment each time it changed its product lines – every three months. Nike also needed to remove unsold merchandise quickly from retail stores and move it to Nike outlet stores as the new stock arrived. Nike coordinates each launch on a worldwide basis, so timing is crucial. Some of the products are made in Brazil, and others are imported. Some merchandise was delivered to warehouses of large retail chains, and some went directly to stores. Working with Nike, DHL Supply Chain built an enormous, specially designed central warehouse using DHL’s experience in transport, storing and delivering time-sensitive fashion goods internationally. The warehouse had a large number of doors for loading and unloading, interior storage areas designed for Nike’s different products and workers who were specially trained to work with this particular warehouse system. The warehouse also was built so it could be rearranged internally to accommodate different types of seasonal merchandise and different volumes. DHL also applied its own management practices to the local transportation companies that moved Nike merchandise. By partnering with DHL, Nike was able to meet 100 percent of its World Cup marketing goals, Nava said.

cle.com i n o r h c s s e n i s nbu i t a l . w w w

Benchmarking Indexes • Business Environment • Infrastructure • Security • Tax • Technology • Labor • Globalization

Rankings • Top 500 Companies • 100 Most Powerful Business People • Who’s Who in Latin America • 100 Best Companies • Top 100 Insurers

News/Special Reports • Real Estate • Infrastructure • Technology • Political Environment • Tourism • M&A’s • Legal

Statistics & Forecasts • GDP • GDP Growth • Foreign Direct Investment • Trade Volumes

Latin America

On Demand Schedule a web tour today: Call 1-800-765-0453

ON THE ROAD

BUENOS AIRES, ARGENTINA

Buenos Aires: First-hand tips for visiting Argentina’s capital.

Latin Trade: What do you like most about traveling to Buenos Aires? Francisco Cerezo: The warm people and the great food and restaurants. Nigel Page: Buenos Aires is a nice, relaxed city. Great architecture, a mix of Italian and French. Broad avenues, the tin houses of La Boca, the tango schools, great restaurants in Puerto Madero, which is an amazing renovation project. Paulo Piovano: What’s not to like about Buenos Aires! After you’ve been there, it leaves that feeling of, ‘Wow, that was just great.’ LT: What do you like the least? Cerezo: The traffic and the long lines you sometimes have at security and immigration when departing. Page: Sadly, incidents of pickpocketing – like many cities – do occur in crowded areas, like Florida Street. Piovano: As an Argentine native, what I don’t like is the feeling of gradual deterioration of various aspects of life – politics, economy, culture, education, etc. Without politicizing here, I characterize it using a famous quote from Carlos Menem, who presided (over) the country from 1989 to 1999: “Estamos mal pero vamos bien.”(“We are not doing OK, but we are on the right path.”) For decades now, my sense is that Argentina is experiencing the exact

LATIN TRADE

MARCH-APRIL 2012

opposite: “Estamos bien, pero vamos mal.” (“We are doing OK, but we are on a wrong path.”) LT: What are your preferred hotels when visiting Buenos Aires on business? Cerezo: Sofitel Arroyo, Four Seasons and Alvear Palace. Page: The Park Hyatt, which is really a converted palace with stylish, modern bedrooms, great food, nice service. Marriott is the old ‘Grand Dame’ hotel, conveniently situated in the center of the city. Piovano: Hotel Madero and Sofitel are my favorites. LT: What restaurants do you recommend? Cerezo: In no particular order: Club Vasco Francés (near San Telmo) –Basque restaurant, excellent fish and old school atmosphere; El Mirasol (Recoleta) – outstanding Argentine meat; Gardiner (Costanera) – very trendy, international cuisine; Bengal (Recoleta-Retiro) – an exclusive Indian restaurant combined with international cuisine; Osaka (Palermo) – Peruvian/ Japanese cuisine, excellent atmosphere, trendy; Happening (Puerto Madero) –outstanding Argentine meat; Piegari (Recoleta) – good Italian and lively atmosphere. Page: My favorite restaurant in BA is Cabaña Las Lilas, in Puerto Madero. Piovano: El Mercado at the Faena Hotel

ISTOCK

Insights and advice from Francisco J. Cerezo, partner and chairman of the Latin America Practice at Foley & Lardner LLP; Nigel L. Page, senior vice president of the Americas at Emirates; and Paulo Piovano, president of Techint Inc., an Argentine who lives in New York.

is simply superb. Cabaña Las Lilas in Puerto Madero, as well as Sotto Voce, are other favorites. And when you feel like heading to the Palermo crowd, the restaurant of Bodegas del Fin del Mundo is very recommendable. LT: What practical advice would you give to someone who is visiting Buenos Aires for the first time on business? Cerezo: Take at least a few hours to simply stroll around certain parts of the city. Take a leisurely walk around the Recoleta district, have a cafecito at one or two of the beautiful cafes, pop into the art galleries and antique shops in Arroyo Street, and simply enjoy the city and its many characters. Page: Be aware that English is not widely spoken, so it helps to have someone with you who can speak Spanish. Only get radio taxis from the hotel, rather than hailing one in the street. Taxi drivers have been known to take advantage of foreigners. That said, fares are relatively inexpensive. Piovano: 1) Have a taxi ride – you’ll simply meet the best chef, or futbol coach, or brain surgeon; it simply doesn’t matter what subject or topic it is – they know it all! 2) Don’t feel bad if lunch takes two to three hours, and forget about having dinner before 8 p.m. —Mark Chesnut

Intelligent and relevant.

THEN • NOW • ALWAYS cnn.com/international

/cnninternational

@cnni

ON THE ROAD

BUENOS AIRES, ARGENTINA

Hilton Buenos Aires, Argentina

The Hilton Buenos Aires is one of the largest hotels in the fast-growing Puerto Madero district. The 417room property centers around a seven-story glass atrium lobby, and it features more than 20,000 square feet of meeting space. Concierges Charles Budden and Sebastian Blaser offer tips for making the most out of a visit to this bustling city.

What restaurant would you recommend for a professional lunch or dinner? For restaurants, we can recommend El Mirasol del Puerto for beef, Marcelo for Italian cuisine and Puerto Cristal for seafood. In each of these places, you can enjoy a pleasant atmosphere for business, first-rate cuisine and exceptional service; they are all just a few minutes from our hotel in the Puerto Madero. I have 24 hours in Buenos Aires. What itinerary would you recommend? If you have a full day to spend in Buenos Aires, the perfect thing would be to take a tour of the city in order to get an idea of the different neighborhoods, and then go back and explore further what you’ve seen during the tour. We offer tours every day at 9:30 a.m. and 2:30 p.m., in Spanish and English, which last three hours. The cost of the tour is $35.

LATIN TRADE

MARCH-APRIL 2012

The Recoleta, Palermo and San Telmo districts are usually the most visited. Can you suggest one or two places to shop? For shopping, we recommend Cordoba Avenue in the Outlet district. You cross Scalabrini Ortiz Avenue, and you’ll find a great variety of retailers selling clothing of every type. Something you cannot miss for sure is to visit a leather factory. There you’ll find excellent prices and unbeatable quality. If you’d like to arrange a visit, the factory offers a free shuttle service. Of course, it’s very important to make a stop on Florida Street, the commercial heart of the city. What safety measures do you recommend? As for security, we recommend that you always leave valuables in the hotel’s safety deposit box. It’s also important to be careful with how you handle money

on the street. If someone tries to help you for whatever reason, we recommend that you don’t let them, since this can often be a way to distract you. I have many meetings in the city. What is the best way to get around? Travel by taxi is safe, as long as you use radio taxis. Of course, we always recommend taking hotel cars, which guarantees the attention and excellent service that you deserve. What is the appropriate amount to tip a taxi driver or other driver, and in restaurants? The tip in restaurants is generally 10 percent, while for taxis it’s customary to round up from the amount that appears on the meter at the end of the trip.

– Mark Chesnut

HILTON BUENOS AIRES COURTESY OF HILTON WORLDWIDE

Ask the Concierge

MADE IN

Peru

Asparagus

ear-round sunshine, sophisticated irrigation systems and United States trade preferences have helped Peru become the world’s biggest exporter of asparagus. The Andean nation bounced back from an economic-crisisinduced slump with asparagus export totals of $480.3 million in 2011, up from $395 million in 2009 and $431 million in 2010. William Arteaga, head of agriculture and agro-industries at PromPeru, says the industry is expecting modest growth in 2012, despite the worrying economic outlook in Europe – Peru’s second-biggest market, after the United States. Arteaga says the development of new Asian markets is key to further growth prospects, as big exporters such as Camposol, Danper Trujillo, Sociedad Agricola Viru and Complejo Agroindustrial Beta already are fighting hard for existing market share. Japan is Peru’s most promising Asian market, buying $9 million worth of asparagus in 2011, up 58 percent from its 2010 orders. Almost half of Peru’s asparagus exports went to the United States in 2011. Peru has had a stronghold on the U.S. market since the 1990s, when the U.S. government began subsidizing the crop in an attempt to discourage Peruvian farmers from growing coca, the base ingredient for cocaine. Peruvian growers have flourished in the arid desert south of Lima, using drip-feed irrigation to bring the sands to life, even as U.S. growers complain that their government’s trade preferences have hobbled their industry. European markets such as Spain (14 percent), the Netherlands (10 percent), France (9 percent) and Great Britain (5 percent) import most of the other half of the Peruvian asparagus crop. Preserved asparagus is especially vulnerable to the European economic downturn, as Spain and France are among its biggest buyers. The 2008 global financial crisis hit the preserved sector

LATIN TRADE

MARCH-APRIL 2012

harder than fresh or frozen asparagus, with exports slumping from $178 million in 2008 to $112 million in 2009 and $103 million in 2010. Exports of fresh or refrigerated asparagus, the bulk of the industry, now exceed pre-2008 levels after taking their biggest hit in 2009. Arteaga says the rapid recovery of fresh asparagus in the United States highlights big differences among markets in responding to an economic crisis. “The Americans keep on eating while the

Peru has had a stronghold on the U.S. market since the 1990s, when the U.S. government began subsidizing the crop in an attempt to discourage Peruvian farmers from growing coca, the base ingredient for cocaine Europeans restrict. Nothing is written in stone,” he says. “In an age of crisis, sales of products that are considered to be luxuries or superfluous are expected to drop off, and prices are lowered. But in the midst of the 2009 crisis, the value of asparagus rose in the U.S.,” Arteaga says. “Fresh succeeds because people who go to certain supermarkets and also restaurants – fine cuisine – still buy.” Exports of frozen asparagus also recovered well in 2011, jumping 64 percent from 2010 levels, to $47.6 million. The major constraint on growth in this sector is a lack of the capacity to freeze asparagus products in Peru before shipping them. —Naomi Mapstone