Latin Trade (English Edition) - Sept/Oct 2013 by Latin Trade Group

LATIN TRADE

SPECIAL REPORT: LOGISTICS, THE NEW OPPORTUNITIES

ALSO INSIDE:

LATIN TRADE SYMPOSIUM & THE 19TH ANNUAL BRAVO BUSINESS AWARDS S

A TRUTH ABOUT PDVSA PRIVATE BANKING AND PHILANTHROPY EXECUTIVE EDUCATION FINANCE: LATIN AMERICA 2014

BUSINESS AWARDS 2013 RECOGNIZING EXCELLENCE AND LEADERSHIP IN GOVERNMENT, BUSINESS AND SOCIAL DEVELOPMENT Otto Pérez Molina • María das Graças Silva Foster • Álvaro Fernández Garza Germán Efromovich • Ignacio Antoñanzas • The Goodyear Tire & Rubber Company Magalie Dresse • Marina Silva • Enéas Pestana

SEPTEMBER / OCTOBER 2013

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SEPTEMBER/OCTOBER 2013

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CONTENTS

S E P T E M B E R / O CTO B E R 2 0 1 3

26 30

VOL. 21 No.5

36 40

38 42

Features 23-43 26 28 30 32 34 36 38 40 42

BRAVO Business Awards 19: The 2013 Winners Leader of the Year: Otto Pérez Molina, President of Guatemala Lifetime Achievement: María das Graças Silva Foster, CEO, Petrobras CEO of the Year: Álvaro Fernández Garza, CEO, Alfa Innovative CEO of the Year: Germán Efromovich, CEO, Synergy Group International CEO of the Year: Ignacio Antoñanzas, CEO, Enersis Trade Americas BRAVO Award: The Goodyear Tire & Rubber Company Innovative Social Sustainability: Magalie Dresse, President, Caribbean Craft Distinguished Service in the Hemisphere Award: Marina Silva, Former Senator of Brazil and Director of the Institute of Democracy and Sustainability Dynamic CEO of the Year: Enéas Pestana, CEO, Grupo Pão de Açúcar

46 Lawyers: Iberian Action Spanish Wave

66 Special Report: Executive Education The search for the ideal executive

The top law firms are going at it alone.

50 Oil & Gas: PDVSA The ugly truth about PDVSA

The skills and training firms look for.

72-82 Special Report: Logistics

56 Private Banking: Philanthropy The altruistic angle 62 Foundations: High Impact Houses with a heart Ronald McDonald House Charities is one of the few foundations that extend throughout the entire region of Latin America. A case study of high impact.

64 Investment: Uruguay A national purpose Its investment climate makes it a magnet for foreign investment. 4

LATIN TRADE

SEPTEMBER-OCTOBER 2013

The opportunities of the new international order of logistics.

84 Economy: Forecast 2014 Better, but not the best Predictions for Latin American economies.

88 Ranking: The 25 Most Powerful Women The women at the top Meet the women who head the Latin American business community.

CONTENTS

S E P T E M B E R / O CTO B E R 2 0 1 3

VOL. 21 No.5

Editor’s Note 8

Leadership, the key to growth

The Scene 12 Entrepreneurship and Social Mobility 12 Opportunities in the United States

Opinion

14 The Contrarian: Latin America’s Booming Pharma By John Price. Read about how pharma has become a local affair.

Agribusiness 16 Olives The new American fruit.

Beverages 18 The promised land China gives the Mexican drink a shot.

On the Road

94 Duty-free: Growth, Challenges & Change. The Latin American duty-free market evolves.

Events 98 CFO Bogota A good lesson from Sura´s CFO.

100 CFO Sao Paulo The road ahead.

SPECIAL REPORT: LOGISTICS, THE NEW OPPORTUNITIES

ALSO INSIDE: A TRUTH ABOUT PDVSA PRIVATE BANKING AND PHILANTHROPY EXECUTIVE EDUCATION FINANCE: LATIN AMERICA 2014

BUSINESS AWARDS 2013

Web Find us online at www.latintrade.com

RECOGNIZING EXCELLENCE AND LEADERSHIP IN GOVERNMENT, BUSINESS AND SOCIAL DEVELOPMENT Otto Pérez Molina • María das Graças Silva Foster • Álvaro Fernández Garza Germán Efromovich • Ignacio Antoñanzas • The Goodyear Tire & Rubber Company Magalie Dresse • Marina Silva • Enéas Pestana

YOUR BUSINESS SOURCE FOR LATIN AMERICA » WWW.LATINTRADE.COM

SEPTEMBER/OCTOBER 2013

Cover: 19th Annual BRAVO Business Awards Photo: Pablo Blazquez 6

LATIN TRADE

SEPTEMBER-OCTOBER 2013

ERRATUM On page 73 of our July/August issue, by mistake we identified Francisco Estrazuelas de Souza, consultant Connect Americas at the IDB, as Daniel Veron. Our sincere apologies. On the list of the Latin 500 we erroneously classified Skanska as an auto maker. It should be classified under construction. Skanska is involved in construction, commercial property and public private partnerships.

EDITOR’S LETTER

LEADERSHIP

ig entrepreneurial success stories are becoming more and more common in Latin America. The list of large, efficient international companies has grown, and they have become more relevant to the world economy. The explanation for their success goes beyond high commodity prices or the growth of the middle class. On one hand we have enormous worldwide liquidity that has lowered interest rates and moved investors’ money into the developing economies, where there is a higher return on capital. There is also growth in local savings in the pension funds, the retreat of multinational firms to the their trenches in their first-world home countries, and the changes in the way goods are made in global manufacturing chains that require decentralized production processes in different parts of the world. In large and small ways, all of this is creating a space for the growth of local companies. In the last few years a powerful economic and financial tail wind has been generated which facilitates the take-off of companies in the region. All of the companies, the good and the not so good, have felt this positive

LATIN TRADE SEPTEMBER-OCTOBER 2013

effect. The same is happening to the region’s countries. Almost all of them grew regardless of their starting point or their policies. To put this in more familiar terms, paraphrasing the old adage, it was the hurricane that enabled even turkeys to fly. In spite of such favorable conditions, the fastest and most long-lasting growth will surely come from the companies with the best leadership. The proof? The facts. With just two exceptions (chemicals and manufacturing) the difference between companies with the biggest and the smallest operating margins in the 22 sectors included in the Latin 500 of Latin Trade is above 14 percentage points. The average difference is 35 percentage points and in some sectors, such as energy, retail, aluminum and beverages, it’s more than 50 points. That’s a huge difference between the two extremes (See the details at www.latinbusinesschronicle.com). What this means is that the profits of a company don’t depend on the industry but on the leadership each one has for conceiving and executing its strategic decisions. The best companies have operating margins of up to 50 points larger than the worst ones.

Never have there been changes of direction so profound, or results so favorable in this region like those of the last five years. Behind those changes are managers who are ever more audacious but who are increasingly tying their actions to their basic corporate values. The proof? The leadership styles of the CEOs who are winners of the BRAVO 2013 Prizes in Business who are showcased in this edition. As we have learned in so many ways in Latin America, opportunities are worthless without business leaders who find them and take advantage of them for the good of all. Hence, an extraordinary tool for accelerating economic growth would be to make good corporate leadership a more abundant resource. For now, it’s still refreshing to think that you can be successful in any sector, provided that the leader allows it to happen.

Santiago Gutiérrez, Executive Editor sgutierrez@latintrade.com

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THE KEY TO GROWTH

ENERO-FEBRERO 2013 LATIN TRADE

Are you losing

valuable time looking for data and analysis on

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CORRESPONDENTS Argentina: Élida Bustos, David Haskel, Charles Newbery • Brazil: Taylor Barnes (Rio de Janeiro), Vincent Bevins, Thierry Ogier, (São Paulo) • Chile: Gideon Long China: Ruth Morris • Colombia: John Otis Mexico: Arturo Franco (Mexico D.F.), Nancy Ibarra (Monterrey) Peru: Lisa K. Wing, Ryan Dube Spain: Sergio Manaut • US: Alejandra Labanca, Joseph Mann Jr. , David Ramírez, Álvaro Moreno, Jaime Mejía (Miami), Mark Chesnut (NY) • Uruguay: Diego Stewart • Venezuela: Peter Wilson TRANSLATION: Ken Emmond, Élida Bustos, Alejandra Labanca COPY EDITING: Millie Acebal Rousseau, Élida Bustos MARKETING CHIEF MARKETING OFFICER Nick Miles

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SALES & CIRCULATION Miami/Pan-regional sales: Silvia Clarke, Senior Account Manager/Team Leader Mercedes Fernández, Business Development Director Andean region/Central America: María Cristina Restrepo, Manager Dubai: Stephen Dioneda Marketing & Sales Associate: Cristina Diaz Marketing & Sales Coordinator: Viviana González For advertising/sponsorship opportunities: cdiaz@latintrade.com or vgonzalez@latintrade.com LATIN BUSINESS CHRONICLE Senior Marketing Associate: Rosemary Begg: rbegg@latintrade.com

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Latin Trade Group 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: 75 Valencia Avenue, Suite 1000, Coral Gables, Florida 33134-6135, 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, with editions in English and Spanish, 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.

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LATIN TRADE SEPTEMBER-OCTOBER 2013

THE SCENE

ENTREPRENEURSHIP AND SOCIAL MOBILITY

he Inter-American Development Bank (IDB) has published the study Is Entrepreneurship a Channel of Social Mobility in Latin America? in which its authors, Francesca Castellani and Eduardo Lora, find that entrepreneurship doesn’t occur among people by chance. In fact, the evidence shows that entrepreneurs are found more frequently among higher-income groups who have more probability of having experienced intergenerational social mobility – that is, who have more years of education than their parents. The authors also show that in Colombia, for example, entrepreneurship is more

common among more educated older men. In Uruguay, the children of entrepreneurs receive more years of education than the children of those who are not in business, regardless of the education level of the parents. The results of these two countries suggest that entrepreneurs are as much the result of more social mobility, as they are the cause of it. In Mexico, the authors found that the probability of becoming an entrepreneur increases when the father has also established a business of his own, which suggests that there is a high “model to follow” effect.

SOCIAL ORIGIN OF ENTREPRENEURS (percentage) Social Class

Argentina

Brazil

Colombia

Ecuador

El Salvador

Peru

Lower Class

23.3

19.8

34.4

42.3

51.6

62.0

Middle Class

63.9

61.3

46.3

50.6

44.2

33.2

Upper Class

12.8

18.9

19.3

7.0

4.2

4.8

Source: IDB, Is Entrepreneurship a Channel of Social Mobility in Latin America? Note: Social classes are defined according to the ranks: daily income per capita of less than $10 PPP corresponds to the lower class; between $10 and $50 corresponds to the middle class; and more than $50 corresponds to upper class

OPPORTUNITIES IN THE UNITED STATES ccording to Game Changers: Five opportunities for US growth and renewal, a report published by McKinsey Global Institute (MGI), growth in the United States over the next 10 years will come from five sectors: energy, trade, technology, infrastructure and talent. The latter two sectors will be important sources of growth until 2030. Latin America has enormous opportunities in some of the five catalysts identified by the global consultant, mainly in trade, infrastructure and energy, given that, in addition to favoring trade with the United States, the region could increase the investment of its multinationals by having a presence in these sectors there. To identify the catalysts, MGI looked for developments that are at the point of achieving scale, as well as areas with an immediate opportunity for action. The catalysts could have an effect on the

demand from stimuli that the economy will receive in the short run and could also have longer-term effects which favor American competitiveness and productivity. If we are

to take seriously the recommendations of the report, we would be close to a takeoff point for the American economy that Latin America could capitalize on.

(billions (en milesofde US$) millones de US$)

FIVE SECTORS COULD SUBSTANTIALLY PROMOTE THE GDP OF THE UNITED STATES BY 2020

...AND TWO OFFER EVEN GREATER IMPACT BY 2030

380-690

Incremento Annual GDP anualincrease del PIB

200-590

155-325

270-320 165-265

Energy

Trade

2.0–3.7%

1.1–3.1%

Big data

Infrastructure

Talent

0.8–1.7%

1.4–1.7%

0.9–1.4%

Sector/participation in the GDP of 2020 Sources: Economist Intelligence Unit; IHS Global Insight; and McKinsey Global Institute

LATIN TRADE SEPTEMBER-OCTOBER 2013

REFORMAS ESTRUCTURALES

LATIN AMERICA’S

BOOMING PHARMA INDUSTRY IS A LOCAL AFFAIR

BY JOHN PRICE PHARMACEUTICAL SALES (USD millions) etting older and wealthier by the 80,000 day, Latin Americans increasingly visit their pharmacy. Since 2008, 70,000 60,000 the region is by far the fastest grow50,000 ing pharmaceutical market in the 40,000 world. By 2017, Brazil will become 30,000 the fourth largest pharma market, be- 20,000 hind the U.S., China and Japan. But, 10,000 0 this impressive growth story is not a 2008 2009 2010 2011 2012 2013 2014 2015 2016 victory for multinationals. The real Colombia Brazil Mexico winners are Latin American generic able regulatory regime they have expanded. drug makers and locally owned retailers. Former Brazilian health minister, Jose Serra In the course of two decades, Latin Amerifamously stood up to the international pharcan generics have evolved from a nuisance to maceutical industry in the 1990s by criticizing the international laboratories into the dominant force in most medication categories. The the lengthy patent protections of expensive HIV drugs. After winning their showdown most accommodating market in the region is with global pharma, Brazil began opening Argentina. Patents were only first legally recthe regulatory door to more generics. Though ognized starting in 2000, so as a result, many considered more respectful of intellectual propinternational drugs marketed there carry no erty rights than Argentina, Brazil nonetheless patent protection. Non-original drugs are supports one of the world’s largest generic inclassified as Biosimilars (not generics) and dustries. EMS, Brazil’s largest drug laboratory, thus do not require proof of bioequivalence. began producing generics in 2000, and today Furthermore, data exclusivity, the most imemploys over 5,000 Brazilians and exports portant step of protecting original formulas generics to 40 plus countries. Even Mexico, in developed markets, is not even recognized bound by the rigors of Nafta, has developed an in Argentina. Argentina’s lax intellectual impressive homegrown generics industry. property protection has enabled the generic Generics can be as much as 70 percent industry to thrive. Companies like Labocheaper than original drugs. Since medical ratorios Raffo, Driburg, Grupo Bago and prescriptions in Latin American countries Biosidus are some of the largest private secmust only list the medical name and not the tor employers in Argentina and the pride of Kirchner administrations, under whose favor- brand name, pharmacists tend to recommend

LATIN TRADE SEPTEMBER-OCTOBER 2013

generics. In spite of their affordability, generics are mindful to incorporate a healthy margin for pharmacy retailers into their pricing structure. The accessible prices of generics has helped unleash consumer demand for pharmaceuticals. Rising incomes and an aging population further bolsters medication volumes. The pharmacy retail sector is quickly evolving to meet demand. Chile was the first to modernize and consolidate its pharmacies. Farmacias Ahumada S.A. (Fasa), based in Santiago, is the largest drugstore chain in Latin America and one of the largest in the world in number of outlets, with a network of nearly 1,000 pharmacies in Chile, Peru, Brazil, and Mexico. Consolidation is underway in other markets, most evidently in Brazil and Mexico where independents are losing ground to well-lit large size pharmacy chain stores modeled after U.S. and UK equivalents where a high percentage of sales come from OTC and non-medical related items. In Mexico and Brazil, the larger pharmacy chains are striving to stay ahead of the process and prevent foreign competitors from entering. The greatest threat to pharmacy chains comes from non-medical retailers like Walmart, who mastered the pharma product category in its U.S. stores and now sells more than 250 generics in its Mexican outlets. Almost one fourth 2017 of all pharmaceutical sales in Mexico today go through non-medical retailers including Superama, and Soriana, two of the largest supermarket chains. Latin America’s $100 billion pharmaceutical industry is today dominated by Latin American firms. Brazilian, Argentine and Cuban generics producers already export their goods to other emerging markets in Asia, Africa and the mid-East. It may not be long before Latin American pharmacy giants do the same. Perhaps then, the multinational players will finally act upon the opportunities south of the Rio Grande. John Price is the managing director of Americas Market Intelligence and a 20-year veteran of Latin American competitive intelligence and strategy consulting. jprice@americasmi.com

PHOTO: © ISTOCKPHOTO.COM/ STUDIOCASPER

THE CONTRARIAN

OIL AND GAS: PDVSA

AGRIBUSINESS: OLIVES

NEW AMERICAN

FRUIT Some 500 years after olives were introduced by the Spanish conquistadors, olive production offers good potential for South American farm producers.

ith more than 247,000 acres planted, Argentina is the leading Latin American producer and exporter of table olives and olive oil, and it occupies a prominent place in the international market, where Spain and Italy are the biggest producers. According to the latest data compiled by the Madrid-based International Olive Council (IOC), Argentina is in eighth place worldwide as a producer of table olives and in tenth place in olive oil. It exports 90 percent of its table olives and 80 percent of its olive oil production. “The sector has seen extraordinary growth in Argentina since 2000, when it launched a diversification program that expanded the area planted from 74,000 acres to today’s 250,000 acres,” Maria Eugenia Gallego, an agricultural engineering researcher in olive culture for the Federal Investment Council based in Buenos Aires, told Latin Trade. In the provinces of La Rioja, San Juan and Catamarca in the country’s northeast, growers have taken advantage of policies promoting its cultivation, and today have first-class processing plants which produce extra virgin oils of the finest quality. These oils have even won awards at international competitions. Argentina consumed 5,500 tons of olive oil during the crop year 2010/2011 and produced 20,000 tons. It’s estimated that it produced 32,000 tons last year. Other Latin American regions are also increasing production. Jean-Luis Barjol, executive director of the IOC, told Latin Trade, “Although some countries have not started producing yet, they will in the near future.” For the French-born executive, the strength of “producer countries like Argentina, Chile, Uruguay and Peru is their high production and the expectation of growth; their weakness is low internal consumption.”

TO EXPORT Chile and Uruguay have plantings but above all, international ambitions. “We want exports of olive oil to rise to about $100 million by 2015, which means deliveries of 25,000 tons of extra virgin olive oil,” the general director of ChileOliva, Gabriela Moglia, told the daily publication Estrategia a few months ago. Last year, their exports totaled $24 million, or 6,714 tons.

LATIN TRADE SEPTEMBER-OCTOBER 2013

The International Olive Council says, “Chile has lower production than Argentina, and until recently, cultivation of olives was more traditional, extensive and of low productivity.” But since the end of the 1990s, it has gained momentum and today, there are about 15,000 acres in production and 49,000 more planted and maturing. An olive tree needs about ten years before it starts producing economically. Chilean producers are betting on being able to offer an oil of high enough quality to compete in the most discriminating markets. As for Uruguay, Barjol of the IOC says that “since the end of the 1990s they have increased their interest in this product and the area planted to olives has increased considerably.” Uruguay has 22,000 acres under cultivation, most of which has not yet started to produce. The IOC also says other South American countries such as Venezuela and Peru and others “have increased their consumption of olive oil and table olives in the last few years.” In Peru, consumption of table olives increased form 14 tons in 1990 to 50 tons in 2011, while in Brazil, which is not a producer, olive oil consumption ballooned from 13,500 tons in 1990 to 61,500 tons in 2011. The IOC projects that it will surpass 70,000 tons in 2012/13. In Argentina, Gallego thinks the next stage of development of the sector will be increased mechanization of the harvest. This will be crucial to make up for the steady reduction of available workers, and there already is a made-in-Argentina harvester in operation. The researcher says that improved access to education for low-income people means they have gone on to jobs requiring higher qualifications, and this has resulted in fewer people available for the harvest. Another reason for the decline in the number of foreign migrant workers from neighboring countries is the dollar trap. These workers can no longer be paid in dollars due to the restrictions imposed by the Argentine government. And, as with so many other food products, China is also waking up. The China Daily recently reported that imports of olive oil will increase from 32,000 tons in 2011 to 160,000 by 2015. It’s yet another source of income for Latin American exporters. And so it is that olive oil is moving from being a gourmet experience to making space for itself in supermarket shopping carts. Elida Bustos reported from Buenos Aires.

PHOTO: ©ISTOCKPHOTO.COM / DAINELA

BY ELIDA BUSTOS

REFORMAS ESTRUCTURALES

BEVERAGES: CHINESE MARKET

Chinese President Xi Jinping shakes hands with Mexican President Enrique Pena Nieto during a joint press conference at the president’s ofﬁcial residence, Los Pinos, in Mexico City.

“We’re thinking tequila can easily become one of the biggest and most expensive imports into China, in spirits.”

THE PROMISED LAND Will tequila exports to China catch fire? According to forecasts, it could become the second largest market after the United States. BY RUTH MORRIS

hina has already developed a taste for French wine and Scotch whisky. Now, Mexico is asking the Middle Kingdom to give tequila a shot. During his June visit to Mexico, Chinese President Xi Jinping signed a trade deal that lifted restrictions on imports of Mexico’s finest, 100 percent blue agave tequila. Along with efforts to boost Mexican pork shipments, the agreement strives to narrow a yawning trade gap that favors China 10 to 1 and represents the worst trade imbalance in Latin America. If all goes according to plan, distillers will be the big winners, and some already have boots on the ground. “We’re thinking tequila can easily become one of the biggest and most expensive imports into China, in spirits,” said William Jarod Webb, Asia field support director for Dos Lunas Spirits, LLC. Webb boarded a plane to China two weeks before President Jinping arrived in Mexico. The game plan, he said, is to be the first horse out of the gate, and to replicate the success of fine cognac – China’s No. 1 imported liquor and a favorite among China’s well-healed and emergent professionals. “Tequila has an oaky, caramel flavor, similar

LATIN TRADE SEPTEMBER-OCTOBER 2013

to a fine cognac,” Webb said. “We think we can start importing in the next three months.” Mexico’s national tequila industry chamber forecasts exports to China will catch fire, hitting 2.6 million gallons of superior quality tequila in five years. That would make China its second largest market for 100 percent agave tequila after the United States, which imports about 13.7 million gallons a year. China effectively banned 100 percent agave tequilas in 2008 as part of a sweeping move to crack down on fake alcohol with toxic levels of methanol. Premium tequilas had methanol levels slightly above China’s cut-off, due to their high agave content. Francisco Soltero Jimenez, the Tequila Chamber’s director, said China now represents the most dynamic new market open to tequila producers. “For Mexico, tequila is not just a national spirit,” Soltero said. “It’s also a product that has shown in different markets that Mexico can make products of very high quality. That means for the government, tequila is more than a revenue generator. It has a symbolic value of what the Mexican economy can be.” Distillers have their work cut out for them. Although China never banned lower agave tequilas—known as mixtos— imports have

been slim, to the tune of 108,000 gallons last year. Tequila is relatively unknown here. The chamber plans to familiarize Chinese consumers with “sangritas” and “margaritas” through tastings later this year, and by placing bottles in prestigious clubs and restaurants. Distillers also will have to contend with the lofty import taxes China slaps on luxury items. Webb, at Dos Lunas, estimated a bottle of the company’s reposado tequila, aged in oak barrels, would cost between $80 and $100 in China, about double U.S. prices. The distiller will eventually make its grand reserve bottles available in China too. Aged over 10 years in Spanish cherry wood barrels, its grand reserve tequila sells for $2,500 a bottle in the United States. On the other hand, Webb said limited supply would work to distillers’ advantage. By law, tequila can only be produced from agave grown in Jalisco and a few regions in other Mexican states. The grains that go into other spirits are easier to come by. Dos Lunas is a U.S.-owned company, but its tequilas are distilled and bottled in Mexico. Another advantage, according to Soltero, is tequila’s versatility. Distillers will likely begin by targeting China’s status-conscious snifter set. “The United States has shown us that the tequila sector that has been growing the fastest is the high-end,” he said. But, tequila can also be downed in a shot glass, the way Chinese drinkers consume their favorite homegrown spirit, baijiu. Or, it can be mixed. Soltero said early research suggests tequila might even go nicely with green tea. “What we have to do for these (export) figures to become a reality is work very hard in the market,” he said, “because 1.3 billion consumers have to get to know the drink. They have to see it… they have to try it.” Ruth Morris reported from Shanghai.

PHOTO: JOSE MENDEZ/EPA/NEWSCOM

William Jarod Webb, Asia ﬁeld support director, Dos Lunas Spirits, LLC.

Â&#x152; Trademark of The Bank of Nova Scotia, used under licence (where applicable).

SPECIAL ADVERTISING FEATURE

SECURING LATIN AMERICA’S FUTURE A conversation with James W. Dwane, President and Chief Executive Officer of Latin America and the Caribbean for American International Group’s (AIG) property casualty business.

Regional Office

AIG 701 Brickell Avenue, Suite 2300 Miami, FL 33131 Main Tel: 786-777-7575

Argentina

La Meridional Compañía Argentina de Seguros S.A. Tte. General Juan D. Perón #646 Piso 4to Buenos Aires, Argentina C1038AAN Main Tel: +5411 4909 7000

bringing our aviation expertise and decision making authority to Latin America and the Caribbean, which provides a value proposition for a region historically served by foreign markets.

As Latin American businesses are expanding their global footprint and need insurance programs to cover their risks, are you prepared to meet this demand?

Tell us about AIG and your position in the Latin America market? We are very proud of our history in Latin America and the Caribbean and are particularly excited about being a part of its future. We have over 75 years in the region and have an established and growing position in that market. We have the advantage of AIG’s geographical reach, service capabilities and expertise which today serves over 88 million commercial, institutional, and individual customers—that is truly unmatched in the insurance industry. In Latin America and the Caribbean we have operations in 15 countries with underwriting, claims and loss control professionals on the ground.

Tell us about AIG’s product portfolio and some of the areas you are focusing on? In Commercial insurance we provide insurance solutions to small, mid-sized and large companies, “multilatinas”, entrepreneurs, and non-profit organizations. Our product offering encompass both traditional product types— including casualty, property/energy, and financial lines—and highly specialized ones such as marine, environmental, surety and trade credit. For individuals and families our product offerings span accident and health insurance, specialty coverages for high net-worth individuals, as well as homeowners and auto coverage. One of the emerging areas where we are innovating is protection against cyber risks with a comprehensive solution to help businesses safeguard against sensitive data breaches, computer hacking, dumpster diving, computer viruses, employee sabotage or error, pilferage of information, and identity theft. Finally, we are leveraging AIG’s marketing leadership in the aviation business and are now

As market needs evolve, so do our offerings and we provide local and global policies and Controlled Master Programs (CMPs) giving businesses the confidence they need to conduct business across borders. Whatever the policy choice we work closely with our customers to ensure the solution matches their risk profile, preferences, and business operations. And they can rest assured we help with the placement of locally compliant coverage that is in line with the indigenous culture and business practices.

When you view the Latin America region what countries are you focusing on? We are particularly optimistic about Brazil, Colombia and Mexico which are designated as part of our Strategic Business Expansion Plan. However, we see significant opportunities in a number of other countries including Chile, Ecuador, Panama and Venezuela.

Aruba

Aruba AIG Insurance N.V. L.G. Smith Blvd. 160 Sun Plaza, Suite 202 Oranjestad, Aruba Dutch Caribbean Main Tel: +297 582-5500

Brazil

AIG Seguros Brasil Rua Gomes de Carvalho, 1306 12th Floor Vila Olimpia - São Paulo - SP Brazil 04547-005 Main Tel: + 55 11 3809.2200

Chile

AIG Chile Compañía de Seguros Generales S.A. Agustinas 640, 8, 9 and 21st Floor Santiago Chile, Chile Main Tel: 56-2-2826 8000

Colombia

AIG Seguros Colombia S.A. Calle 78 No. 9-57 1st Floor Bogotá, Colombia Main Tel: +57 (1) 313 8700

Ecuador

AIG Metropolitana Compañía de Seguros y Reaseguros S.A. Ave. Brasil #293 y Antonio Granda Centeno Edif. IACA, 5th Floor Quito – Ecuador Main Tel: 5932 3955 000

El Salvador

AIG Seguros, El Salvador, S.A. Calle Loma Linda No. 265 Col. San Benito San Salvador, El Salvador Main Tel: 503+2250-3200

Guatemala

AIG Seguros Guatemala, S.A. 7a. Avenida 12-23 Zona 9 Edificio Etisa, Level 3rd Guatemala, Guatemala 01009 Main Tel: 0050222855900

Honduras

Chartis Seguros Guatemala, S.A., Sucursal Honduras Co. Edificios Los Castaños, 4th Floor Boulevard Morazan Teguzigalpa, Honduras Main Tel: 0050422028300

What’s your outlook for the Latin America region and what are the main challenges and opportunities you foresee? We are very optimistic as Latin America includes some of the fastest growing economies in the world. There are challenges caused by disparate economic, political and regulatory environments; high distribution costs and an uninformed insurance market. On the other hand, there are significant opportunities with a growing middle class, increasing disposable income, small and medium enterprise expansion and infrastructure spending—leading to rising demand for insurance products. With the 2014 World Cup and the 2016 Olympics both in Brazil we also expect to see increased demand in construction and property businesses, as well as prospects in marine and cargo, and accident & health coverages. Due to our long history of product innovation, market-leading claims and loss prevention expertise, and ongoing investments in technology and human capital, AIG in Latin America and the Caribbean is very well positioned to capitalize on the positive trends in the region.

Jamaica

Chartis Jamaica Insurance Company Limited The Towers, 5th Floor, 25 Dominica Drive Kingston, 5 Jamaica, West Indies Main Tel: 876-926-2074

Mexico

AIG Seguros Mexico S.A. de C.V. Ave. Insurgentes Sur, #1136 Col. del Valle D.F, Mexico 03219 Main Tel: +52 55 5488-4700

Panama

AIG Seguros Panama Edificio Torre de las Americas Mezanine A Punta Pacifica, San Francisco Panama, 0816-07854 Main Tel: +507 302-5010

Puerto Rico

AIG Insurance Company - Puerto Rico 250 Muñoz Rivera Avenue Suite 500 Hato Rey, PR 00918 Main Tel: 787-767-6400

Uruguay

AIG Seguros Uruguay S.A. Colonia 999 Montevideo, 11100 Uruguay Main Tel: +598 2 900-0330

Venezuela

C.A. de Seguros American International Av. Principal La Castellana con calle Blandin Torre Digitel, Piso 7 y 14, oficina 7C;14A Y 14B Urb. La Castellana, Caracas, Venezuela Main Tel: +58212-3188400/+58212-3188401

BRAVO BUSINESS AWARDS 2013

THE WINNERS,UNDISPUTED REGIONAL LEADERS

PHOTO: VINCENT BECCHINELLI

ver the last twenty years, Latin Trade has recognized excellence in leadership in government, business and social entrepreneurship in Latin America with the BRAVO Business Awards. The pages of this magazine have consistently paid homage to the winners, who have helped produce deep and permanent change in the region. This year, the tradition lives on. This year’s awardees are leaders of change. The president of Guatemala, Otto Perez Molina; the CEO of Petrobras, Maria das Graças Silva Foster; the CEO of the Mexican group Alfa, Alvaro Fernandez; the CEO of Brazilian Synergy Group, German Efromovich; the CEO of power generator Enersis, Ignacio Antoñanzas; the CEO of Brazilian retail group Pão de Açucar, Eneas Pestana; Goodyear; the president of Caribbean Craft, Magalie Dresse and the co-founder of Rede Sustentabilidade, Marina Silva. These are leaders with a common trait: they want to make their mark in the world by doing things right. The pages that follow showcase their merits and their achievements.

LEADER OF THE YEAR

OTTO PEREZ MOLINA PRESIDENT OF GUATEMALA

LATIN TRADE SEPTEMBER-OCTOBER 2013

OTTO PEREZ MOLINA

BRAVO BUSINESS AWARDS 2013

Committed to development BY SANTIAGO GUTIERREZ

PHOTO: PEDRO AGUSTIN

uatemala’s president, Otto Perez Molina, believes that his main achievement is to have motivated his fellow Guatemalans to make an effort to change their country. It is not a minor accomplishment. After all, the nation still has many scars and open wounds left by the civil war that lasted 36 years and that ended only 17 years ago, following a peace agreement signed between four representatives from the guerrillas and the government, including Perez Molina himself. “We want to look ahead. Let us not remain entangled by ideological differences. Let us have the fight against extreme poverty and the defeat of hunger as our single ideology,” he said in a conversation with Latin Trade. At the same time, he points out that his biggest challenge is to achieve “a safer Guatemala.” In fact, this was one of the main bids of the campaign that took him to the presidency. He believes that fighting criminals requires various fronts. One of them, he states, is to have strong institutions, particularly, a well-equipped police force. This is why President Perez Molina will increase the number of policemen by 10,000, and his government is already training officers and agents in specialized schools. In addition to this, he underlines the need to strengthen the judiciary. President Perez would like to be remembered for having built the institutional foundations to achieve higher public security in Guatemala, as well as for having given higher priority to the hunger-eradication policy, under his Zero

Hunger Pact. He believes that this is such an important task that it will be continued by any of his successors. He estimates that these two pillars will speed up the country’s path to development. Yet, there are other topics that are capturing the president’s energy and attention. Education is one of the most important. The government just established a plan that will eliminate illiteracy from various towns and provinces. Out of the 334 municipalities in the country, 20 are already illiteracy-free, and 10 more aim to become so before the end of this year. It is expected that two out of a total of 22 provinces become fully literate this year. It is not an easy task, but it is being done with the standards monitored by Unicef, explained President Perez. He also highlighted the importance of the program to educate teachers. “This is the beginning of everything. (The program) goes forth and has no turning back,” he emphatically said. Attracting foreign investors is a task on his personal agenda too. Local business leaders join him on his international trips just to make it clear that the interest to develop Guatemala is equally shared by the government and private sector. Foreign direct investment soared at unprecedented rates in 2011 and 2012. Disciplined and formal, the 63-year old Perez Molina, although retired, is a soldier to the bones. He graduated from the military academy in his country in 1973, got a master’s degree in international relations from the Francisco Marroquin university in Guatemala, and studied at

the Inter-American Defense College in Washington D.C. Nowadays, in the presidency, his tone has a different hue. He changed the leadership style he deployed during his 30-year military career, in which he achieved the rank of general. “It is not an authoritarian leadership, but one by example and conviction,” he says using just that style. Anyhow, he acknowledges that his military experience allowed him to develop that characteristic to the maximum. “There is competition for leadership and recognition for leaders in the academy.” Otto Perez Molina has four basic life principles. He practices and passes them on to his two children. “I do my best effort so that not only they hear them, but see the example.” The first, he says, “is the value of the name. Honesty and sincerity are basic principles I recommend to my children. Honesty is priceless.” The second one is modesty. “You must have your feet on the ground. You have to be humble, simple,” he points out, while affirming that this is achieved by being a good listener. The third one, he adds, “is the constant fight to reach goals. Nothing comes as a gift, for free.” The fourth basic principle that guides his job is family unity. Guatemala’s president, Otto Perez Molina, believes that in addition to these principles, his love for his country and his spirit of service are qualities that have helped him the most in his career. Perhaps, it is now time to also add to his capacity to innovate and design new ways to resolve his country’s problems. Santiago Gutierrez reported from Miami.

SEPTEMBER-OCTOBER 2013 LATIN TRADE

LIFETIME ACHIEVEMENT

MARIA DAS GRAÇAS SILVA FOSTER CEO, PETROBRAS

LATIN TRADE SEPTEMBER-OCTOBER 2013

MARIA DAS GRAÇAS SILVA FOSTER

BRAVO BUSINESS AWARDS 2013

A tribute to action BY TAYLOR BARNES AND SANTIAGO GUTIERREZ

PHOTO: COURTESY OF PETROBRAS

etrobras finds itself in more troubled waters these days than just five years ago, when the discovery of deep-sea oil finds inspired optimism. Nevertheless, one thing remains sure: Maria das Graças Silva Foster, the company’s CEO, will address those difficulties head on. She has never shied away from tough decisions in the company where she has worked for some 33 years. The executive speaks frankly and forcefully about the challenges Petrobras faces, including debt, falling production, imports, and its mandate to buy local. Solutions might seem hard to come by, but she seems best suited to find them: not only because of her academic credentials and her long and diverse experience in the oil business, but because she knows that achieving big goals does not come easy. Her path to the top of Petrobras – a position that makes her the only female CEO of a large oil company in the world - underscores the value of education, hard work and perseverance. Foster, who lived part of her childhood in the Rio de Janeiro favela (squatter settlement) of Complexo Alemão, earned extra cash in her childhood by reading and writing letters for her neighbors. “I have always worked to help support my mother and my children and pay for my studies. Willpower is everything for me. I was never afraid of work,” she said in an interview with Brazil’s O Globo, just after her taking office.

Foster completed her education in Rio de Janeiro’s public universities - whose limited spots are coveted by students who take rigorous entrance exams – first with a degree in chemical engineering from the Federal Fluminense University and later with a master’s degree in chemical engineering and graduate studies in nuclear engineering at the Federal University of Rio de Janeiro. She also earned an MBA from the Fundação Getulio Vargas. Having started as an intern in Petrobras in 1978, Foster was hired as a chemical engineer in 1981. Her ascension brought her to the secretariat of petroleum, natural gas, and renewable fuels of the Ministry of Mines and Energy from 2003 to 2005. She was appointed by president Dilma Rousseff, who at the time was Luiz Inácio Lula da Silva’s minister of mines and energy. Foster first worked with Rousseff in 1998, when the former managed a pipeline project for natural gas from Bolivia and Rousseff was an energy official in the southern state of Rio Grande do Sul. “I learned with President Dilma Rousseff much of what I know. I am a student of hers,” Foster told magazine Isto É Dinheiro in a 2012 interview. She was appointed CEO of Petrobras in January 2012. Colleagues describe Foster as deeply focused on project management and managing costs. She addresses Petrobras’ woes in a straightforward manner both with the press and internally, which shows her determination to confront the situation

“with transparency and discussion with the whole administration,” a company executive told Latin Trade. In some ways, her trajectory to the top of the industry was not much of a surprise. Before her appointment, Silva Foster was one of the most prominent businesswomen in Latin America. In 2010, for instance, she had been selected by the British daily, the Financial Times, as one of the world’s 50 business women on the rise. Maria das Graças Silva Foster has a reputation as a hard-driving boss who demands results and sticks to deadlines. She starts her day at 7:30 a.m. But she is not a typical office manager and doesn’t stand on ceremony. Often she will don a jumpsuit, gloves and protective glasses and personally inspect building sites. She also believes that female CEOs tend to show great sensibility in working with others. “They more quickly detect the technical needs of their collaborators,” she said in a recent interview. Her loyalty to Petrobras is seen almost as a religious devotion. “I would die for Petrobras,” she has been known to say in public. Maria das Graças Silva Foster has a tremendous challenge facing her in Petrobras. But even a superficial review of the lifetime achievements of this 2013 BRAVO Business Award winner will assure one result: there will be action. Serious, responsible, and courageous action. Taylor Barnes reported from Rio de Janeiro, Santiago Gutierrez from Miami.

SEPTEMBER-OCTOBER 2013 LATIN TRADE

CEO OF THE YEAR

ÁLVARO FERNÁNDEZ GARZA CEO, ALFA

LATIN TRADE SEPTEMBER-OCTOBER 2013

ALVARO FERNANDEZ GARZA

BRAVO BUSINESS AWARDS 2013

Sheer Monterrey power BY SANTIAGO GUTIERREZ

PHOTO: LUIS B. REYES-GARCÍA

hree years after economist and business administrator Alvaro Fernandez Garza became the head of the Mexico-based Alfa Group, this conglomerate’s revenues and assets have risen at an annual average rate of 22 percent and 13 percent - both measured in U.S. dollar terms - whereas the operational margin went from 7.6 percent to 8.1 percent. However, these figures are only part of a story of success. The group’s international presence also grew. With 85 producing plants in 18 countries around the world, foreign sales went from slightly over 50 percent of the total to over 61 percent. But there is more. Unquestionably, Alfa has become a major player. Nowadays, one in every four cars produced in the world has parts manufactured by Nemak, Alfa’s automotive affiliate, which now is the world’s largest maker of aluminum parts for engines. Furthermore, the totality of the heads of engines for Porsche and Audi are made by Nemak. As Alvaro Fernandez says, this speaks to the company’s world-class engineering and management. Investors acknowledge the effect of these changes on future revenues. The Monterreybased company’s stock price soared by nearly 80 percent over the past 12 months, and stock market capitalization is currently around $15.2 billion. Yet, the story was different in the past. Back in the 80s, oil prices and the country’s difficulties practically forced the group into bankruptcy. “We do not forget that,” said Fernandez in an interview while at his office, located just next to Sierra Madre. They do not forget, but they were able to put it in the past. They achieved a fantastic recovery with the very same team that survived the troubled times. How do you manage to turnaround a business in such way? Alvaro Fernandez’s formula begins with two key elements: trust and openness. Perhaps this has to do with his youth (he was born in 1968) and with his character – energetic, kind, and easygoing. Back in the 90s, Alfa’s organizational structure had a reputation for being very formal and hierarchical, and its top management was believed to be virtually

unreachable. Fernandez’ arrival brought about a cultural change, which is acknowledged by the company’s 60,000 employees in 18 countries. On the other hand, given the group’s significant business diversification – petrochemicals (through its affiliate Alpek), aluminum automotive parts (Nemak), processed foods (Sigma), telecommunications (Alestra) and gas and oil (Newpek) – it is very hard to become an absolute expert in all fields. The senior executive acknowledges that. Traditionally, he says, the corporate office of a conglomerate closely manages its companies. He prefers to ask the management of each subsidiary what they need and then, support them. “The notion in Mexico is that the boss takes full control.” However, Fernandez Garza sees his role as this: “generate enthusiasm and not to tell people what to do ... we are trying to eliminate the ‘go, do this’,” he says with humor. This is how he achieved the deep cultural change that makes employees cheerfully wake up and go to work, just as they did in the 70s. Reflecting this way of thinking, the majority of affiliates has a board of directors, and soon all of them will have one. “It will not take longer than 24 months,” he reveals. There is another evidence of the change in the way the group is being managed. “We had an enormous planning team.” They asked for reports and designed each company’s strategy. Now, corporate planning has two people who work more as facilitators, rather than “law enforcers.” The conglomerate’s CEO knows that he can fully trust the executive team as many of them have more than 30 years in the business and, even more interesting, rotation has not undermined their innovative spirit. “We have none of the businesses that we had in the 70s.” Albeit all these elements, he does not believe that they have a management style to export to the rest of the countries where they operate. “There is not an ‘Alfa way’,” he says. However, there are distinct characteristics. Valuing diversity, for example, is one of them. The management team includes Italians,

Germans, and Americans. “We have not arrived to conquer,” he adds.

NEW PURCHASES Alvaro Fernandez is never away from the frontline. He personally closed the Bar-S acquisition, one of the most successful in recent years. The Phoenix, Arizona-based processed meats company was for sale and its owner had discussed a deal with other buyers. An owner-to-owner contract actually facilitated the acquisition, without the need for armies of lawyers and bankers. “We closed with a handshake.” The result, Alfa increased its Ebitda from $60 million to $90 million in two years, albeit Bar-S operated with nearly military-disciplined low costs. Alfa is now aggressively hunting for new deals. “We will not accept losing an opportunity.” The CEO speaks of real estate; distribution networks in Latin America for Sigma; and oil and gas, which will have a space following Mexico’s energy reform. There is a sort of institutional caution that somehow cools-off the process – the company is full of engineers that only make decisions when their complex models show good results. Alvaro Fernandez believes that in the end, it is not wrong to look at the models. If everything was done by intuition, “we would be bankrupt,” he says. In all, he would like to see faster speed in the acquisitions. Nevertheless, the hurry to buy does not translate to results. Alfa’s shareholders do not put pressure on companies to generate profit in the short run. “We have invested heavily in Nemak over the past 20 years, and this will be the first year in which it will yield dividend,” he remarks. Investment and perseverance are the costs that must be assumed to become market leaders. This is Alfa’s moment. Maybe because in order to lead its growth Alvaro Fernandez Garza, CEO of the Year, has a clear motto inherited from his grandfather: “With the feet on the ground, and with the sight on the sky.” Alfa’s signature? No doubt. Santiago Gutierrez, special envoy to Monterrey.

SEPTEMBER-OCTOBER 2013 LATIN TRADE

INNOVATIVE CEO OF THE YEAR

GERMAN EFROMOVICH CEO, SYNERGY GROUP

LATIN TRADE SEPTEMBER-OCTOBER 2013

GERMAN EFROMOVICH

BRAVO BUSINESS AWARDS 2013

Midas touch

BY SANTIAGO GUTIERREZ

PHOTO: COURTESY OF AVIANCA

erman Efromovich obtained his first aircraft as payment for a debt on inspection services he did for oil companies in Brazil. A plane could be an undesirable asset for a mid-sized services company. However, the Bolivia-born engineer, who also is a Brazilian and Colombian citizen, discovered that the oil industry employees in the region had to travel 150 miles before they could reach a heliport that served as cargo point for platforms. He offered to transport them and this is how Ocean Air was born. Years later, this company acquired Avianca, in a sort of David and Goliath deal. Avianca, the world’s second oldest airline, had filed for Chapter 11 in the United States and was almost toxic, given its high losses and labor problems. Continental, Taca and LanChile had rejected buying it. Efromovich, who then owned Ocean Air and some oil operations in South America, made a bid in May of 2004. Without due diligence on the airline, he offered to pay up to $63 million and to assume a debt of some $220 million on the condition that the seller would be responsible for any contingency. Besides, he would only invest the money that the company required. In December that year, with the company in his hands and out of Chapter 11, he disbursed the first $10 million. By then, however, the company’s Ebitda had already gone up to $40 million. He did not have to put a single dollar more. With an enthusiastic management style that makes him approachable to people, the owner of the small Brazilian airline achieved the unthinkable: make Avianca fly. While in 2004, Avianca’s revenue amounted to $700 million, the revenue made by Avianca Holdings (which was created after the merger with Salvadorian airline Taca) went to $4.1 billion at the end of 2012. Over the same period, Ebitda rose from $40 million to $700 million, and the number of planes grew from 40 to 174. AviancaTaca transported 23 million passengers last year. There are more achievements. He turned a fleet of trucks that was literally dumped by an oil company in which he was shareholder, into the largest courier transporter in Colombia,

with revenues comparable to that of the subway of Medellin (the second largest city in that country). It seems he has a magic touch. No doubt he does. However, 18 hours of daily work are also behind the business transformations he achieves. What is different is the way he faces such hours. “I say that I do not work a single second in my life because I enjoy when I am working” he said in an interview with Latin Trade. Part of the magic lies in the pleasure he derives from the contact with people and his tremendous magnetism, which can be easily confirmed by anyone talking to him for just a few minutes. He enjoys to be surrounded by people, and that makes his shipyard and airline businesses his preferred ones. That also gives him enough enthusiasm to, from time to time, personally attend passengers at the Avianca counter in any given airport at 5 in the morning. German Efromovich attributes his ease around people to three things: having assimilated the warmth and cheerfulness of the Brazilians, having learned the easiness and courteousness of the Colombians, and having had a nomad childhood and teenage years. The latter due mostly to his position as son of immigrants. “I was born in Bolivia, lived in Santiago, then in Arica, and years later in Sao Paulo,” he explains. His arrival to new cities, he says, forced him to develop an extraordinary capability to adapt to people in new environments. Being very practical is yet another personal trait that favors him in business. He refuses to deploy legions of lawyers to deal with business transactions. He did not hire a single one during the negotiation phase for Avianca. He refrains himself from hiring new consultants to manage issues directly related to the heart of his businesses. “If I call someone to ask how I should manage my business, then I am into something I do not know, I should not be there,” he remarks. He would hire them for specific tasks in which his team is not experienced or does not have enough time to develop, but not to opine on central aspects of his business. This is a task he reserves for himself and his team. “If a

consultant is that good, he would be my competitor, and we would never be discussing how to manage my business,” he says half seriously, half in jest. Consultants, he told in an interview years ago, “look at your watch to tell you what time it is.” However, he hears his close ones, especially his friend and Synergy board member, Alexander Bialer, his brother and partner, Jose Efromovich, and Avianca’s CEO, Fabio Villegas Ramirez. “I do not necessarily accept what they tell me, but I am far from being convinced that I own the truth or that only I know everything. I have made a lot of mistakes.” He admits to errors, such as having gotten an option that he never exercised to buy a cargo company in Brazil, or the early decision to make Ocean Air fly twin-aisle aircrafts internationally. “It was a hard hit. My mistake, totally. I did not understand aviation business at the beginning.” But he has no regrets. “If a man does not want to make a mistake, he just needs to do nothing.” Naturally, there have been lots of successes, due in part to his great vision. He believes that the world’s future is in agriculture and energy. This is why Synergy is harvesting coffee, pineapple and palm oil in Colombia, and has oil activities in Brazil, Ecuador and Colombia. He thinks that Synergy will be more focused in 10 years. “We will sell some assets to concentrate in those that please us strategically, both in professional and economical terms,” he says. The sale of PetroRubiales (Pacifc Rubiales today, where he has a small interest) is an example of a divestment in which he came out at the right time. “A moment came in which we did not have enough technology or capital. They were giving us a good value for what we had done until then and therefore it was the moment to sell. We sold it well ... and the buyer purchased it in good terms too.” German Efromovich wants his journey in life to transcend. “It should not be a simple journey, without leaving a footprint.” Given his impressive list of successes, he has not to worry about that. Santiago Gutierrez reported from Bogota

SEPTEMBER-OCTOBER 2013 LATIN TRADE

INTERNATIONAL CEO OF THE YEAR

IGNACIO ANTOÑANZAS CEO, ENERSIS

LATIN TRADE SEPTEMBER-OCTOBER 2013

IGNACIO ANTOÑANZAS

BRAVO BUSINESS AWARDS 2013

Electricity for the region BY JOSEPH MANN, JR.

PHOTO: COURTESY OF ENERSIS

nersis, the Chile-based company that ranks as one of the largest private electric power suppliers in South America, has seen exceptional growth in recent years. Under Ignacio Antoñanzas, who took over as CEO in 2006, the company has expanded its operations to cover 14 million customers in five countries – Chile, Argentina, Brazil, Colombia and Peru – and has reached over 15,000 megawatts of installed capacity, most of which comes from hydroelectric plants. To ensure its future growth, meet growing demand and remain competitive in the region, Antoñanzas earlier this year announced plans to invest more than $9 billion through 2017, which the company expects to fund through its own internal cash flow. Managing a multinational power company presents some special challenges. “We’re talking about a company with a presence in five countries, with several business lines and it’s important to be able to lead a multidisciplinary, multicultural group and get the best out of every one of our team members,” said Antoñanzas, who earned a degree in mining engineering with a major in energy and fuels from the Universidad Politecnica de Madrid (UPM) and began his professional career as a commodities trader. Antoñanzas, who grew up in northern Spain and learned about different cultures during his international travels in the commodities business, firmly believes in defining achievable goals at Enersis, setting a clear strategy and shunning con-

formity. “It’s very important for people to feel that the responsibility for achieving our goals is individual, with respect to their own work, and at the same time that it is a collective responsibility,” he said. “Because unless everyone is rowing in the same direction, it’s very difficult to reach your goal.” People can’t wait around for the CEO to make all the decisions. “In Latin America, there is too much of a hierarchy in corporate decision making. Many people believe that the CEO has to make the decision, and this slows down companies, especially the big ones. The boss is there to help his team and provide them the means with which to make decisions.” The Enersis CEO, who started at Endesa Spain in 1994, pointed out that over the last seven years, his company has been able to increase its operating results by more than nine percent each year. “I believe that it’s been decisive that our people feel that the transformation of the company depends on them, and that they can show their teams and the shareholders that betting on Enersis was worthwhile.” Endesa-Spain, the country’s leading electric power company, controls a majority of Enersis’ shares, while Italy’s Enel owns 92 percent of Endesa-Spain. As for Enersis’ future, Antoñanzas noted that while it’s easy to define goals, it’s not always easy to achieve them. Demand for electric power is growing substantially in the five countries where Enersis operates, and the company currently has a wide range of hydroelectric projects in the

pipeline, at different stages of development, covering 12,000 megawatts of additional capacity. It also has plans for building a large, new transmission system and a host of related projects. “Nevertheless, acceptance by local communities of each project is a slow process, and the company logically has to make a greater effort to explain the benefits of each project and how we will minimize their impact.” Delaying these projects will cause customers to pay higher rates, since new hydroelectric energy is more economical than the current plants supplying the region. Enersis enjoys some important competitive advantages, Antoñanzas said, thanks to its diversified asset portfolio spread throughout five countries, its presence in large urban markets, its diversified mix of energy sources, with a clear focus on hydro power, and a balanced reliance on generation and distribution. In addition, the company counts on the support of Enel/Endesa, their broad international experience and their best practices, as well as the advantage of enjoying joint purchasing power for equipment and fuel. Looking ahead, Antoñanzas said that Enersis’ M&A activity will be concentrated in its current operating region but he added that, since his company has become the main investment vehicle for Enel and Endesa in South America in conventional energy, the group may also analyze new investment opportunities in different countries and different businesses. Joseph Mann, Jr. reported from Miami.

SEPTEMBER-OCTOBER 2013 LATIN TRADE

TRADE AMERICAS BRAVO AWARD

THE GOODYEAR TIRE & RUBBER COMPANY ACCEPTED BY JAIME SZULC, PRESIDENT, GOODYEAR, LATIN AMERICA REGION

LATIN TRADE SEPTEMBER-OCTOBER 2013

THE GOODYEAR TIRE & RUBBER COMPANY

BRAVO BUSINESS AWARDS 2013

A reliable partner BY DOMINIC PHILLIPS

PHOTO OF JAIME SZULC: COURTESY OF GOODYEAR; LOCATION PHOTO: MIRRORPIX/NEWSCOM

ometime around 2010, cheap Asian imports began flooding the Latin American tire market. Industries from textiles to toys had already been hit by Asian imports that did not have to withstand expensive taxes or salaries, and which competed on price, and rarely on quality. Some companies took fright. Others changed their retail strategies. For the tire industry the numbers were alarming: from 2010 to 2012, the Brazilian tire industry alone produced 4.6 million less tires, according to the country’s National Tire Industry Association (Associação Nacional da Industria de Pneumaticos, or ANIP). In 2012 alone, over 26 million tires were imported to Brazil, while production stood at 66 million. The country’s Chinese tire imports for four-wheel vehicles went from 5.4 million units in 2009 to 12.9 million last year. But, sometimes the smartest thing to do during a market threat is to go back to basics. This was the strategy Goodyear adopted, said Latin America president Jaime Szulc. The company focused on the dealers, who had been with the company for decades, and invested in that relationship. “We are really getting closer to our dealers as a way to win in the market place,” said Szulc. The Latin American tire market first began changing a decade ago as new mass merchandise and non-assisted points of sale began to emerge – then came the Asian imports. The move from a protected marketplace to one of cut-throat competition pressed the company to try new things, Szulc explained.

Their choice, training for their dealers. “By doing that we are getting great results,” said Szulc. Goodyear’s unit volumes in the region increased four percent in the second quarter of 2013 compared to the same period a year ago – the second consecutive quarter. Total Latin America net sales in the second quarter were $531 million, up three percent, and $17 million, on the prior quarter. Operating income was up for the third quarter in succession at $82 million. The company has turned a potential defeat into victory. Szulc has had a huge part on this turnaround. A civil engineer from the University of São Paulo, he served as senior vice president and global chief marketing officer for Levi Strauss and previously, as worldwide COO for Eastman Kodak’s consumer business. He joined Goodyear as president of the Latin American region in September 2010. Szulc switched the focus at Goodyear to innovation. From December 2011 to July 2012, the company conducted a full review of the business. “We did a huge benchmarking work,” he states. They hired consultants and conducted internal benchmarking using all the data they could get their hands on. They also listened closer to consumers. “We did continuous and ad hoc consumer research to really map their needs and guide our efforts towards growth,” said Szulc. This research led towards the need to focus on Goodyear’s dealers in the region – many of whom had been working with the company for decades, starting out as small tire workshops, graduating to

bigger stores, often staying hands in the same family. “Our brand equity in the region is very strong. We believe one of the main reasons we are a leader in Latin America is because of the support of our dealers,” said Szulc. In September and October 2012, Goodyear went on a road-show to visit dealers across Brazil, training 200 people on the results. Another 15 people from top dealerships were taken on a visit to the company’s factory in Americana to see how a $240 million investment was being spent. In June this year, 350 dealers, re-treaders and Goodyear associates attended a sales meeting, and a European benchmarking trip is planned for executives and key dealers. Through this, the Goodyear brand has re-established itself as the safe and reliable choice in a region whose roads are often a liability and where price is always a primary concern, even for struggling middle class consumers. This has been done by making sure local dealers teamup with the company – because who better to sell their tires, than somebody who really knows their customers? For Jaime Szulc, the key figure in this successful turnaround, is the replacement business – which was up nine percent in the second quarter of 2013 compared to the second quarter of 2012. “This is down to the reputation of the brand,” he said. “If you buy a Goodyear tire, it is really the most trusted tire in Latin America, and that equity will retain through the people who represent us in the market place.” Dom Phillips reported from Rio de Janeiro.

SEPTEMBER-OCTOBER 2013 LATIN TRADE

INNOVATIVE SOCIAL SUSTAINABILITY

LATIN TRADE SEPTEMBER-OCTOBER 2013

MAGALIE DRESSE PRESIDENT, CARIBBEAN CRAFT

MAGALIE DRESSE

BRAVO BUSINESS AWARDS 2013

A crafter of development BY JOSEPH A. MANN

PHOTO: NICOLE WOLF

hen Magalie Dresse bought control of Caribbean Craft in 2006, the small Haitian crafts company was in deep trouble. The firm based in Port-au-Prince, and originally founded in 1990, had a sizeable debt and needed to develop new markets for its products and new designs. Dresse, who was born in Haiti and earned a degree in industrial engineering there, was working in New York City at the time and studying for a master’s degree. “I was not planning to return to Haiti,” says Dresse, 38, “but I thought the company offered an opportunity to help people in Haiti by creating jobs and using their creative sprit to make crafts. I obtained a loan from a family member, bought the company and became the owner and president. I have no background in crafts but I love this work.” Working with Haitian and international designers, Dresse developed new craft designs and product lines made from recycled materials. She and her husband, Joel, worked hard to expand Caribbean Craft’s foreign markets, going to trade shows and finding more customers in the United States, Canada and Europe. The company, which produces a wide variety of crafts, sells only to wholesalers and retail clients. Big retailers account for about 80 percent of Caribbean Craft’s sales. Workers make brilliantly colored papiermâché animals, wall décor cut from old oil drums, stone images and designs, artistic license plates and others. The papier-mâché products are the company’s most popular line and are made from old cement bags. “We try to use things that don’t have value in the market and add value,” Dresse says.

Caribbean Craft began recovering and expanding, and had about 500 direct employees, when the 2010 earthquake devastated Haiti, killing some 150,000 people and destroying homes and other buildings throughout the country. Caribbean Craft’s headquarters near the airport was ruined. Within a few weeks, Dresse moved production to her home and installed tents nearby so work could continue. Dresse saw that her workers had little or no access to food and water, so she provided them with these basics at the temporary workshop. Using her existing client base, Dresse and her workers continued to produce, despite the extremely difficult conditions. Today Caribbean Craft is a profitable enterprise with about 385 employees at three new locations in Haiti, as well as independent contract workers. Each employee supports eight or more other Haitians. The company sells to major retailers like Macy’s, West Elm, Anthrpologie and Crate & Barrel. Customers are located in the U.S., the Caribbean and Canada, and Dresse is developing new markets in Europe. In 2010, despite the impact of the January earthquake that year, Caribbean Craft sold about 380,000 individual items. In 2011, that figure rose to 415,000 and to 422,000 in 2012. “This year we’ve seen a significant increase in sales, due to new accounts, especially in Canada,” Dresse noted. She keeps in close contact with her customers’ buyers and designers, “so we know what colors and styles people are looking for in the coming year.”

Demand is very strong but Dresse says that the company must not grow too fast to ensure quality products and its ability to deliver on time. The company has grown by managing its own cash flow, and by obtaining outside help. After the earthquake, Dresse was invited to participate in the Clinton Global Initiative, where she made contacts with potential customers. Caribbean Craft has been visited by former presidents, Clinton and Bush, as well as TV personality Oprah Winfrey, and has received considerable attention overseas. In 2011, the Haiti Development Fund announced a $415,000 investment in Caribbean Craft to expand production facilities and add new jobs. The social role of Caribbean Craft is critical to Dresse’s philosophy. Her employees earn far more than the minimum wage and receive free food each day at a company cafeteria, as well as low-interest loans from the company. Piece workers earn up to $18 per day while papier-mâché employees average $13.50 per day, both of which are good wages in Haiti. Dresse’s progress has not been easy. The company works in a country where crime and personal security are constant problems. For example, to prevent theft of raw materials, Dresse wants to build a fence around her headquarter building in Port-au-Prince. But, this project has been stopped due to threats from a local politician, she explains. “Our challenges are not small,” Dresse says. “We are part of a system that doesn’t work, but that will not stop us from working.” Joseph A. Mann, Jr. reported from Miami.

SEPTEMBER-OCTOBER 2013 LATIN TRADE

DISTINGUISHED SERVICE IN THE HEMISPHERE AWARD

LATIN TRADE SEPTEMBER-OCTOBER 2013

MARINA SILVA, FORMER SENATOR OF BRAZIL AND DIRECTOR OF THE INSTITUTE OF DEMOCRACY AND SUSTAINABILITY

MARINA SILVA

BRAVO BUSINESS AWARDS 2013

Lady in green

BY SANTIAGO GUTIÉRREZ

PHOTO: DOUG MENUEZ

o get a taste of Marina Silva’s enormous strength you only have to hear her speak. You don’t need to know that she was born in 1958 in Rio Branco, the capital of the state of Acre, on Brazil’s border with Peru. And you don’t need to know either, that as a child she lived in Breu Velho, 40 miles from Rio Branco, on a plantation where her father was a rubber harvester. That she was illiterate until she was 16 years old, or that as a result of the hard conditions of her life she had to overcome hepatitis, malaria, and leishmaniasis during that time. But when you hear her speak it will be easy to understand why she got a Master´s degree in educational psychology, or why, at the age of 36, she became the youngest member of Congress in the entire history of Brazil, or why she was Minister of the Environment for five years during the government of Luiz Inácio Lula, or why she captured almost 20 per cent of the votes in the election that raised Dilma Rouseff to her party’s leadership. Or why, conceivably, she will be a candidate for President of Brazil in 2014. It’s that the winner of the BRAVO Award in the category of Distinguished Service in the Hemisphere is the incarnation of a new way of doing politics that she has been perfecting throughout her life. “I have a commitment to the ideal of politics as service and not as a way to get power,” she says. But this isn’t a new conviction; it was forged and maintained from the years when she was close to the Liberation Theology of the 1970s. She has also become the standard bearer for preserving the environment. “Ever since I

was 17 years old I have worked for this cause in the jungle villages, a very early process,” she explained in an interview with Latin Trade. Her arrival in Congress in October 1994 had a lot to do with the recognition she had gained in the Amazonas region for defending the environment. She thinks that being a woman has been more a point in her favor than an obstacle to her political career. She never acknowledged the discrimination, although she sees that it’s there and that it’s very strong. Her family origins could be the reason she doesn’t pay attention to discrimination. Her father always showed a deep respect for women. “Coming from a humble family, he listened to the women. He looked to my mother and my grandmother for advice.” Her grandmothers were matriarchs, and she lived with five sisters and just one brother. “It was a woman’s universe. I never felt diminished for being a woman.” “I see clearly that being a woman became a positive difference because I was involved in some very difficult and dangerous struggles in which few men had the courage to place themselves. The differences I have are not because I am a woman. They are differences of perceiving the world and confronting it without feeling victimized, while respecting those with whom I disagreed.” In 2003 she took on the post of environment minister with the aim of obtaining better treatment of ecological issues in the government. “Getting that across was very difficult to achieve because the ministers see their processes as being separate from the environmental ones.”

A group within the government tried to reverse a decree against the deforestation of Amazonas, arguing that it went too far. As is well known in Brazil, Marina Silva resigned from her post. Her resignation produced a citizen-based movement against revoking the law, and in the end that popular backing allowed President Lula to stand firm against revoking it. The final result was that deforestation has been reduced by 80 percent, (in 2004, 6.7 million acres of forest were lost), and it has been possible to preserve an area that saves the world the equivalent of two billion tons of CO2. That’s how Marina Silva shows the strength she has behind her fragile appearance. It’s enough to hear Marina speak. But despite the fact that she recognizes and is thankful for this gift of speaking, she thinks that it’s a factor that is losing relevance. “To choose leaders, what counts is life experience and less what is said or how it is said.” Hers, she says, isn’t a discourse but an experience. Now she believes her task in government will be to try a different approach to environmental conservation. “Not from the government for society but for government with society. There isn’t the slightest possibility that the government can get results without getting everyone together to make a sustainable model. Sustainability isn’t a way of doing things, it’s a way of being, a vision of the world,” she says. For now, the vision of this Brazilian is to be able to move her country towards sustainability. If she achieves this goal, even it in a small proportion, her life would be meritorious. Santiago Gutiérrez reported from Miami.

SEPTEMBER-OCTOBER 2013 LATIN TRADE

DYNAMIC CEO OF THE YEAR

ENÉAS PESTANA CEO, GRUPO PÃO DE AÇÚCAR

ENÉAS PESTANA

BRAVO BUSINESS AWARDS 2013

A man of values BY SANTIAGO GUTIÉRREZ

PHOTO: COURTESY OF GPA DIVULGATION

néas Pestana gets on his multi-cylinder BMW motorcycle on weekends. He goes, for example, to Poços de Caldas in the neighboring state of Minas Gerais, just over 100 kilometers from São Paulo. Once he’s the road he has time to reflect on his life, and the countryside and the speed help him keep his emotional balance. It’s his way of relaxing after 12-hour days as head of the second biggest retail sales business in Latin America, the Pão de Açúcar group. This is one of his finest moments. One of the company’s most difficult chapters was brought to a close early in September. Casino, the group’s biggest shareholder, and the son of company founder Abilio Diniz, signed an agreement to end a conflict that had caused problems for the company’s development. At the low point of this dispute Enéas made the decision that has won him the respect of the entire Brazilian business community. He told the shareholders that his work would be to defend the company and not individual stakeholders. “It wasn’t easy, but I have always been focused on the company, protecting the administrators and the executives. I can say that I was respected by the shareholders, and that I have always been focused on the business,” he says. In the end, this attitude gave the company an important financial boost, and now it seems that there’s only good news.

That’s largely because in the last three and a half years, since Pestana became the group’s president, the company has changed profoundly. Before 2010, Pão de Açúcar had been a more or less conventional retailer with a network of supermarkets and hypermarkets. Now it’s also Brazil’s most important player in furniture, electronics, home products and e-commerce. Maybe it changed so quickly because Enéas Pestana isn’t a recent arrival in the market or in the company. His retail career began more than 18 years ago in Carrefour Brazil. Then, after 2003 he became the group’s CFO, and he moved up to be president in 2010. He brought new businesses to the company such as that of real estate, an activity in which Casino, the group’s biggest shareholder, has had great success in other countries. This business has an Ebitda margin of 45 to 50 percent, he says, more than four times higher than in trade, where it’s about 12 percent. He increased participation in the sales segment even more with its Assaí Atacadista house brand. They are now in third place, after Atacadão (Carrefour) and the Dutch company Makro, but Eneas Pestana hopes to move up to number two in 2014. He has also aggressively developed the electronics business. In August Nova Pontocom, the company’s e-commerce

affiliate, grew at an annual rate of nearly 60 percent, but more important, “without burning through money. I have seen many people increase their market share with very negative results,” he says. The reason for success is a combination of a good pricing strategy and what Pestana calls the best level of logistics service in Brazil. Now they want to aggressively focus on organic growth. He thinks there’s room to improve its presence in the northeast and central regions of Brazil. As might be expected, the firm has no plans to go international, since it has a large investment in the French multinational Casino. Throughout this process, the four corporate values of Pão de Açúcar permeate everything: humility, emotional balance, determination and discipline are the pillars of conduct for the 150,000 people who work in the group, the largest employer in Brazil. The same is true of the companies that merge with it. “We do not concede anything in the values,” he says. “I hate stars. I prefer executives who are capable of listening and working with the people.” The winner of the BRAVO Business Prize to the Dynamic CEO of the year is proud of his organization. “I love this company,” he says unreservedly. In this romance, the works and the results speak of his affection. Santiago Gutierrez reported from Miami.

SEPTEMBER-OCTOBER 2013 LATIN TRADE

SPECIAL ADVERTISING FEATURE

THE IDEAL HOTEL BRAND FOR the emerging class of TRAVELERS IN LATIN AMERICA Palm Beach, Aruba

Latin America is a key emerging market for the travel and hospitality industry, as the region’s recent economic growth has spurred a rapidly emerging middle-class of literally millions of individuals.

Cartagena, Colombia

A recent World Bank report notes that the middle class in Latin America and the Caribbean grew by 50% over the past decade, amounting to an increase of more than 150 million people. In Brazil alone, a staggering 40 million were added to the middle class between 2004 and 2010. The economic engine that has generated such growth has allowed for more business and leisure travel within the region. As a result, there has been an increase in demand for quality hotel brands that meet the needs of this breed of travelers. The rapidly expanding Holiday Inn® Brand Family of properties in the region, part of the IHG portfolio and known as the leading midscale hotel brand, is ideally positioned to meet the expectations of the evolving traveler. In order to remain connected to its audience, the brand kicked off an unprecedented evolution in 2007, a global refresh of the brand, which included new brand, service and quality standards – all for the single purpose of encouraging the evolving traveler to take a fresh look at Holiday Inn and remain attractive to this younger generation. As travelers’ expectations continue to grow, Holiday Inn will continuously evolve to enhance guests’ experience and provide them with a great value. Traditionally, businesses have focused in the upper tier of the region’s 600 million-plus consumers. The new middle class is estimated to be in the 200 million range, and has been traditionally non-traveling. That is rapidly changing. This new class of travelers, due to social media and the myriad of informational tools on the Internet, tends to be younger and tech savvy, hence the appeal of IHG’s mid-scale Holiday Inn®. IHG’s overall strategy to engage customers throughout their guest journey, both personally and through technology, has generated tremendous brand loyalty. The emerging traveler expects hotels to offer the quality, service and standards that only international hotel companies like IHG can provide. These new travelers are equipped with the most important tool a traveler possesses – information. They are demanding the type of hotel experience IHG has been delivering for more than six decades.

SPECIAL ADVERTISING FEATURE

Bogota, Colombia

IHG’s growing Holiday Inn family of brands is the fastest-growing of the company’s brands in the region, and among the fastest-growing hotel brands in the industry worldwide. Of the 28 hotels currently in the pipeline for IHG’s Latin America and Caribbean region, 21 hotels are expected to be developed under either the Holiday Inn® or Holiday Inn Express® brand flags. With over 3,439 hotels worldwide, the Holiday Inn® Brand Family is the most widely recognized lodging brand in the world. Whether traveling on business or pleasure, the Holiday Inn family of brands offers travelers comfort and convenience in a modern and contemporary environment. Recent Holiday Inn® brand hotel openings in Latin America include Holiday Inn Buenos Aires-Ezeiza Airport in Argentina, Holiday Inn Cartagena Morros in Colombia, Holiday Inn Bogota-Airport in Colombia, Holiday Inn San Jose Escazu in Costa Rica, Holiday Inn Resort Grand Cayman in Cayman Islands and Holiday Inn Guayaquil Airport in Ecuador. IHG plans to grow its portfolio within the next year in Marilia, Belem, Sao Luis, Rio Branco, Belo Horizonte, and Porto Velho in Brazil; Nassau in the Bahamas; Bucaramanga, Bogota, Barranquilla, and Cucuta in Colombia; Tegucigalpa in Honduras; Managua in Nicaragua; and Panama.

San José, Costa Rica

Brazil, a country with a traditionally low overall percentage of international hotel brands, the emerging traveler is single-handedly changing that, demanding standards only companies such as IHG can deliver. For example, Brazil has 16 cities with a population of one million residents or more, and 41 cities with a population of 500,000 or more, the vast majority of which have few internationally branded hotels proportionate to population. This creates opportunity to introduce strong, international brands like those in the IHG family to these cities. Beyond countries like Brazil and Colombia, which is also a hotbed of growth for the Holiday Inn brand, with new Holiday Inn properties recently opened in Bogota and Cartagena, we find that our guests at these properties are increasingly intra-regional, resulting in a rapid increase in travel from within the different countries. As these nations and regions forge trade agreements, business is becoming more consistent, and travel more accessible to exponentially more people. The trend of the new class of emerging travelers looks to permeate the region, as hotels aim to fulfill their every need. Studies show that IHG’s Holiday Inn family of brands have high familiarity and have high preference in the region. With most of the properties being new-builds that include the new Holiday Inn brand standards; this global brand is forging a new era in the region’s hospitality industry. Holiday Inn is nothing short of a pioneering brand, providing the ideal hotel setting for the millions of individuals and families increasingly on the move from within Latin America. And pioneering is nothing new to IHG. As the first international hotel company in Latin America in 1946 through the InterContinental hotels and resorts brand, it has been in the international scene for more than 60 years and no one knows the world like they do. And just like the needs of those travelers were met and exceeded all those years ago, IHG is poised to do the same with Holiday Inn. Visit our website at: www.holidayinn.com

Santo Domingo, Dominican Republic

Santiago, Chile

LAWYERS: IBERIAN ACTION

THE SPANISH WAVE The largest Spanish law firm broke its ties with Latin American firms and went solo to conquer legal business in the region. The rest of the top five law firms in the Iberian Peninsula are following suit. Here, their strategies. BY SERGIO MANAUT arrigues moved its business and the Spanish American legal community felt a powerful shock. The most important law firm in Spain and Europe announced that it has left its partnership with the Affinitas law firms – which itself created in 2004 – to go at it alone in the region. This decision is encouraging the most important law firms on both sides of the Atlantic to join the field of battle. There are many questions that need answers, but one thing is certain: Latin America is the place to start, and to strengthen in some cases, the internationalization of Spanish law firms. Garrigues exemplifies this progressive process of internationalizing law firms. “The idea was that through the alliance, Garrigues would integrate better with the Latin American member firms, but at the end of the day, integration wasn’t possible. After talking it over for a long time with the alliance members, Garrigues decided in May 2013 to leave Affinitas to establish itself in Latin America on its own, through its own offices, and to contract local lawyers in several of the most important countries in the region where the local legal consulting doesn’t encounter regulatory obstacles.” That’s how Javier Ybañez Rubio explains it. Ybañez Rubio is the managing partner for Garrigues in Latin America. Having taken that step, its new stage begins with the opening of offices in Colombia, Mexico and Peru, offices that will be added to those in Sao Paulo, where it has been operating since 2011. Ybañez Rubio poses the big question that faces law firms that intend to enter Latin America: should they work with local partners or open their own practices?

LATIN TRADE SEPTEMBER-OCTOBER 2013

PROS AND CONS Ybañez Rubio recognizes that the strategy of partnering didn’t work out. “We think an alliance doesn’t resolve certain issues that concern us and that are essential when we want to organize an office with our own strengths in the region, to be able to provide first-class support for our clients,” he says. “Issues such as quality control, the homogenization and the consultancy, conflicts of interest and professional careers require a presence controlled by ourselves, if we want to achieve an integrated and coordinated practice in the region.” In spite of that, he maintains that integration with a local firm makes the road easier in that you don’t have to start from zero, and you start with a structure attuned to working in the local market. “Nevertheless,” he adds, “the integration of teams already formed in larger structures also presents difficulties which have particular features that are especially complicated in the legal market.” The law firm that could be said to be the pioneer in the region is that of Uria Menendez, which established itself in Latin America in 1998, arriving with its clients when it started up in the region. The firm chose a mixed strategy, in which it has its own offices in Mexico, Sao Paulo, Santiago de Chile, Lima and Buenos Aires, but also, according to the managing partner for Latin America, Eduardo Rodriguez-Rovira, “We maintain very direct relationships with firms in other jurisdictions such as Colombia, Uruguay, and Venezuela, and as well, we collaborate closely with the best law firms in each of the jurisdictions in which we have our offices.”

PHOTO: SERGIO MANAU T

OCTOBER 25, 2013

FOUR SEASONS HOTEL, MIAMI

WWW.BRAVO.LATINTRADE.COM

LAWYERS: IBERIAN ACTION

“We think an alliance doesn’t resolve certain issues that concern us and that are essential when we want to organize an ofﬁce with our own strengths in the region, to be able to provide ﬁrst-class support for our clients.” Javier Ybañez Rubio, managing partner for Garrigues in Latin America

Cuatrecasas, the other giant in the legal market, rivals Garrigues in size and strategy. Jaime Llopis, a partner in the firm and managing partner in Latin America, explains that the firm’s business model consists of maintaining a special relationship with a large firm and close relationships with a series of local practices. They have, as Llopis puts it, “a short list of friends.” Exactly what does that mean? “It’s very important,” he replies, “to have a road map of the local market. If one of our clients has a complex matter before him, we send it to a large firm; if it’s a small matter, to the smaller ones, and in that way we do excellent business at low cost.” For Julio Veloso, the partner responsible for internationalizing Broseta, there is neither a good nor a bad strategy. “One chooses what one believes to be best for one’s firm. It’s also true that one can change the strategy if it doesn’t bring the expected results, as Garrigues did,” he says. More than a few of those who normally work in and around the Plaza de Castilla, the seat of the Madrid Courts, have serious doubts about the decision taken by Garrigues. In a low voice, they comment that opening offices in the region could weaken the brand because, unless they make a very important investment, these markets will cost them their place among the top five firms in Spain and Europe.

MORE CHALLENGES One person who has no doubt about what awaits the Spanish firms that have gone into Latin America is Borja Martinez-Echeverria, a consulting partner in Perez + Partners. “The Spaniards are going to have a hard time of it. Baker & McKenzie is very well established in the region, and even its world executive president, Eduardo Leit, is Brazilian. The English firm Norton Rose Fulbright went to Colombia. The Anglo-American merger, DLA Piper, signed up former Spanish president, Jose Maria Aznar, as consultant for the region,” he said. His partner, Miguel Angel de la Manga Falcon, holds that culture and language don’t provide an advantage for the Spaniards, “because the Latin American lawyers are trained in the United States, not in

LATIN TRADE SEPTEMBER-OCTOBER 2013

Spain.” However, both of them emphasized that the strongest competition will be from the local firms. “They are ready to face them, and not from a position of weakness. They’ve been in a state of alert since the Garrigues announcement,” he said. He says that now begins the dance for signing up lawyers. “The firms that win have to offer to the best and the brightest a seductive career plan, while the local firms see that they have to do their best to keep their talent. And this is precisely the measure that the Latin Americans have to take. They must offer a partnership and define how they are going to reward their new partners,” explains De la Manga Falcon. Borja is even more graphic: “What we’re talking about is how they’re going to share the pie.” Latin American lawyers know that their Spanish colleagues are not coming just to keep the national firms company, but to capture local clients, with the added advantage that they can offer them services in Europe. “We think that at some moment the Latin American companies will start to go to Spain. There will be companies that have little or no international experience. We would act as if we were an external legal counsel,” says Velosos. In the same vein, Rodriguez-Rovira says, “There’s a perception of an increase in Latin American investors investing in Spain or Portugal, which would cover multilatinas as family offices.” The arrival of Latin American companies could be for the long run. Once there, the Spanish firms select target markets for their potential. Ybañez explains why Colombia, Mexico and Peru are the sites chosen for the first phase of expansion: “These countries are the ones that offer the best opportunities for our activities, and in addition are the countries our clients are thinking about. The decision was relatively easy, at least for this first phase. The sustained growth of their economies, the infrastructure needs, the expected public and private investments, the good prospects for mergers and acquisitions, the development of the financial markets in general, were very relevant to our decision.” Sergio Manaut reported from Madrid.

PHOTO: SERGIO MANAU T

Javier Ybañez Rubio

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OIL AND GAS: PDVSA

PDVSA

A general view of the Venezuelan city Puerto La Cruz shows the smoke caused by a ﬁre in the government oil company Pdvsa in Venezuela on August 11, 2013.

BY PETER WILSON

dvsa, the third-largest company in Latin America, is in trouble. The state-owned company is facing a one-two punch: declining production and growing financial demands from Venezuela’s cash-starved government. “The cash flow that the government takes from Pdvsa is very high,” says Lucas Aristizabal, an analyst with Fitch Ratings in Chicago. “That includes the royalties, taxes, dividends, social programs and oil barter agreements such as Petrocaribe and the Fondo Conjunto Chino-Venezolano. When you add it all together, the cash flow from operations is about negative.” That’s hamstringing Pdvsa, which is trying to develop Venezuela’s oil reserves, which at 297 million barrels are the world’s largest. The company is in the midst of an investment program intended to more than double output to six million barrels of oil per day by 2019, by spending $257 billion. The question is where the money will come from. According to the company’s 2012 annual report, Pdvsa will finance $208 billion of the investment splurge, with private partners supplying the rest. “Pdvsa is going to be hard pressed to meet its investments. The company just doesn’t have the money to pay its bills,” says Fernando Sanchez, vice president of the Society of Venezuelan Petroleum Engineers. Pdvsa’s problem has been years in the making as the government has used the company to finance its social programs, political objectives and

LATIN TRADE SEPTEMBER-OCTOBER 2013

The government take is huge in Petroleos de Venezuela, S.A (Pdvsa). When social programs and oil barter agreements are added up, the cash flow from operations is nearly negative. Venezuela has the world’s largest oil reserves, but Pdvsa can’t grow production because there is no room for needed investment.

electoral campaigns, including two presidential campaigns and one gubernatorial election since October. To gain more funds, the government has raised royalties, income taxes and other payments on all oil companies. Like others, Pdvsa has paid the price. The company paid $20 billion in taxes, royalties and dividends last year, up from $19 billion in 2011, and $13.7 billion in 2010. Taxes rose even though the company’s revenue fell slightly to $124.5 billion last year, down from $124.8 billion in 2011. But that’s not all. Pdvsa’s contributions to social programs, including a government housing project, totaled $9 billion last year, down from $15.6 billion in 2011, but nearly double the $5.3 billion in 2010. Contributions to Fonden, an opaque government development fund that has been used to purchase Russian fighter jets, totaled $8.5 billion last year, down from $14.5 billion in 2011, but still nearly quadruple the $1.7 billion in 2010. Pdvsa’s overall payments to the government were $47.5 billion last year, just slightly down from $49.1 billion in 2011, but more than double the $20.7 billion paid in 2010. Many analysts suspect that hundreds of millions more were advanced off the books, especially in the two presidential campaigns. “Pdvsa is the government’s golden goose,’’ says Risa Grais-Targow, an analyst with Eurasia Group. “Oil is essential to the government.”

OIL DIPLOMACY Pdvsa has also underwritten the government’s foreign policy initiatives. To curry favor with its neighbors, Venezuela has used oil to buy support. Under the aegis of its Petrocaribe program, Venezuela sells or barters oil to Caribbean, Central and South American countries offering subsidized finance. Members, who include Guyana, Haiti, Jamaica and the Dominican Republic, can defer payments for up to two years, while accessing long-term financing. Participating countries can also pay in goods and services. Last year, Venezuela’s oil exports to the members rose 14 percent to about 108,000 barrels per day (bbl/day), up from 95,000 bbl/day in 2011. They are expected to rise another 10 percent this year. Petrocaribe doesn’t include Cuba, which takes another 100,000 bbl/day in return for thousands of Cuban doctors, teachers and other professionals working in Venezuela. But the chief culprit is China. In the last few years, China has ad-

PHOTO: STR/EPA/NEWSCOM

THE UGLY TRUTH ABOUT

OIL AND GAS: PDVSA

vanced the Venezuelan government $36 billion in credits with repayment being set in oil and petroleum products, chiefly fuel oil. Venezuela has already repaid $16 billion, according to Pdvsa President Rafael Ramirez, who is also the country’s energy minister. However, Venezuela is already seeking another $4 billion tranche. The loans have been repeatedly criticized by opponents of Venezuelan President Nicolas Maduro, especially as terms have never been released. Many suspect that the Venezuelan government is selling oil at a discount of up to $5 a barrel to cover shipping costs. The downside of loans to China, and other barter programs, is that Pdvsa doesn’t receive any money from the sales, and must cover the production costs. “Such deals make up about 700,000 bbl/day,’’ Aristizabal says.

CHEAPER THAN WATER Pdvsa faces another drain on its resources: Venezuela’s domestic market where products are sold at a loss. Gasoline is one example. Raul Rodriguez, a government employee, can complain about many things in Venezuela, but the price of gasoline isn’t one of them. Rodriguez fills up the tank of his Volkswagen Golf for less than $0.50 for 10 gallons of fuel each week. That’s about $0.01 per gallon at the black market rate. “Considering the prices of everything else, it’s ridiculous,’’ Rodriguez says. “I spend less on gasoline than a liter of water costs, or a can of Pepsi.”

LATIN TRADE SEPTEMBER-OCTOBER 2013

The cost of producing one barrel of oil soared to $11.09 last year from $7.53 in 2011, as the company continues to add workers and take on non-energy responsibilities. Cheap gasoline costs Pdvsa dearly. Since prices were frozen 17 years ago, the subsidy has cost the oil giant $7.5 billion, according to some analysts. However, there is a hidden toll as well. With gasoline so cheap, there is no conservation. Demand for gasoline has surged, as well as for fuel oil, especially as the government builds new power plants intended to end power outages. The plants will someday burn natural gas, but right now, Venezuela has a shortage of the fuel even though it has the world’s eighth-largest reserves of natural gas. Given those two factors, Pdvsa estimates that domestic demand for petroleum products will rise by 16 percent this year to about 790,000 bbl/day. That compares to 681,000 bbl/day in 2012, and 646,000 bbl/ day in 2011. Those figures are considered low by some analysts. When oil from barter programs and domestic consumption are combined, about 1.5 million bbl/day of Pdvsa’s output isn’t being sold at international prices. If Pdvsa was growing its oil production, such giveaways wouldn’t hurt the company’s finances so much. But, production is falling and Pdvsa seems unable to grow it significantly in the short term. Pdvsa claims that its 2012 output averaged 3.03 million bbl/day and exports were 2.56 million bbl/day. However, most analysts and the Organization of Petroleum Exporting Countries (Opec) estimate output anywhere between 2.35 million bbl/day and 2.8 million bbl/day. Most expect output to fall further this year. According to the Central Bank of Venezuela, oil revenue dropped 13 percent to $21.3 billion for the first quarter of this year, down from $24.6 billion in the first quarter of 2012. The central bank said that the fall was caused by a 5.6 percent drop in export volume, and a 7.2 percent drop in price.

INVESTORS WANTED Production from Pdvsa’s mature fields is falling in the face of the company’s financial crunch. Many of the fields in the western state of Zulia need to have fresh wells drilled every few years due to sediment and silt buildup. Indicative of the problems are the fields that Pdvsa seized in 2005 from private companies. The 32 fields were operated by private companies such as BP, Shell, Chevron and ExxonMobil, with the companies being paid a per barrel fee. Then President Hugo Chavez ordered that the contracts be converted into joint ventures with Pdvsa holding at least a 60 percent stake. The minority partners were supposed to receive dividends to cover their investments and profits. At the time of their seizure,

PHOTO: BORIS VERGARA/EPA/NEWSCOM

Minister of Venezuelan oil and president of Petroleum of Venezuela (Pdvsa), Rafael Ramirez.

OIL AND GAS: PDVSA

A general view of the Venezuelan state oil reﬁnery (Pdvsa) in Puerto La Cruz, Venezuela.

“Pdvsa’s ﬁnancial situation is unsustainable if they continue operating in the way that they are without increasing production.” the fields were producing about 500,000 bbl/day. Since their conversion, production has slipped, and last year it averaged 360,000 bbl/day. “The fall isn’t surprising,’’ says Vera De Brito de Gyarfas, counsel with international law firm King & Spalding, which advises oil companies. “When Pdvsa took control of the fields, they didn’t have the personnel to run them. The company was supposed to approve the new ventures’ business plans each year. That hasn’t happened.” Making matters worse is that Pdvsa doesn’t have the funds to cover its share of the investments in the fields, most of which are mature fields located in Lake Maracaibo. The company has also failed to make dividend payments to its partners. “Pdvsa owes its partners about $10 billion, both in dividends and to cover its own share of the investments,’’ says Sanchez. Ramirez declined repeated requests for an interview. Falling production in Pdvsa’s traditional fields hasn’t been made up by the oft-promised, but oft-delayed, Faja, where the bulk of Venezuela’s oil reserves lie. The Faja holds more than 257 billion barrels of recoverable extra heavy crude that has the viscosity of peanut butter. However, the crude must be upgraded to lighter blends before it can be refined. Therein lies the rub: few of Pdvsa’s partners want to invest the billions needed to build upgraders. Without upgraders, development in the Faja will lag. “Venezuela has the world’s largest oil reserves but Pdvsa can’t grow production,’’ says Sanchez. “And that is their number one problem.” Pdvsa has sought to raise funds from its partners. This year, the company has finalized loan agreements with Chevron, China’s Cnpc and Schlumberger for a combined $7.5 billion, with funds geared

LATIN TRADE SEPTEMBER-OCTOBER 2013

toward increasing output. But even those moves have been criticized by Pdvsa’s unions, who have repeatedly called for Ramirez’s removal, especially due to a string of industrial accidents, including last August’s fire and explosion at the Amuay refinery that claimed more than 40 lives. “Pdvsa has a double discourse,” says Jose Bodas, secretary general of the Futpv, one of Pdvsa’s largest oil unions. “They say they are supporting the government’s socialist revolution with its anti-capitalistic, anti-imperialistic line but what are they doing? They are borrowing from capitalists like Chevron, and Cnpc to fund their operations. “But if we ask the company to honor the terms of the collective contract, they call us counter-revolutionaries or imperialist lackeys. Pdvsa’s workers are the worst paid in the industry now. And we don’t have the right to protest. We don’t have the right to strike.” Ramirez brushes aside such criticisms, saying that the company remains on course to meet its goals and further Venezuela’s socialist revolution that was started by Chavez and being continued by Maduro. However, Pdvsa and the government may only be delaying the inevitable by denying the inherent problems in the company’s balance sheet. Operating costs soared last year with the cost of producing one barrel of oil rising to $11.09 from $7.53 in 2011 as the company continues to add workers and take on more non-energy responsibilities. “Pdvsa’s financial situation is unsustainable if they continue operating in the way that they are without increasing production,” says Aristizabal. Peter Wilson reported from Caracas.

PHOTO: CARLOS LANDAETA/EPA/NEWSCOM

Lucas Aristizabal, analyst, Fitch Ratings

PRIVATE BANKING: PHILANTHROPY

BY DAVID RAMIREZ

THE ALTRUISTIC ANGLE Private bankers are thinking more about how to assign part of the money from their high net worth clients to foundations.

LATIN TRADE SEPTEMBER-OCTOBER 2013

few years ago Mexican tycoon Carlos Slim caused a stir when he declared that “poverty can’t be solved with donations,” a comment that angered many coming from “the richest man in the world.” However, what Slim meant to express was his skepticism for philanthropy without goals, something he continues to believe to this day. The magnate thinks that indiscriminate donations are not sufficient alone. Rather, they need to be focused on concrete projects where they can be followed up on. Slim’s thoughts are still valid, as we see in the growing trend toward corporate social responsibility (CSR) and philanthropy. Although philanthropic activities are as old as time, day by day, billionaires like Slim, Bill Gates, George Soros and Warren Buffet, just to name a few, are

PHOTO: © ISTOCKPHOTO.COM/ HILLARY FOX

PRIVATE BANKING: PHILANTHROPY

The billionaires in the south of the continent tend to carry out philanthropy in educational causes, while those in the central and northern parts of South America appear more oriented to social issues, such as health. doing philanthropy in a more organized way, which includes formal consultations withtheir private bankers or lawyers as part of their overall strategies of investment or estate planning. In fact, according to the 2012 Bank of America Study of High Net Worth Philanthropy, carried out by the Bank of America Corporation (BAC ) and the University of Indiana Center of Philanthropy, almost three-quarters of those interviewed (billionaire donors in the United States) had a philanthropic strategy in 2011.

PRIVATE BANKERS, CONSULTING FOR “IMPACT PHILANTHROPY” Billionaires need help and want advice about how to find answers to the most basic questions when they undertake a philanthropic action: What are the options for a donation? Which one should I choose and why? How can I be sure that it will be more than a donation and will be an investment with a high social return? How can I maximize the impact in terms of tax incentives? How can I make sure the donation will have an impact for generations to come? How can I get

more involved and make the donation a business project? This demand for information has created a corresponding supply. Now, virtually all financial entities that provide private banking services have specialized divisions for consulting on philanthropic causes. What’s more, they do it without charging for this specific service, as value added in the general consulting practice for wealth management. The aim of the private bankers is to coordinate forces, not only to answer the philanthropists’ questions but also to en-

SEPTEMBER-OCTOBER 2013 LATIN TRADE

SPECIAL ADVERTISING FEATURE

Carlos Gadala-Maria, CEO

What is VectorGlobal WMG (VG) VG is a US Securities Broker-Dealer established in 1993, registered with the SEC (Securities and Exchange Commission), a member of FINRA (Financial Industry Regulatory Authority), SIPC (Securities Investor Protection Corporation), and the NFA (National Futures Association).

Tell us about VG’s Philosophy We have an investment philosophy that is based on close contact and in-depth knowledge of our clients’ needs and objectives. We believe in showing them the essential balance between time horizon, risk tolerance and expected returns. We guide our investors through the complex market dynamics and recommend only what is best suited and prudent for each individual.

Where are your offices located? We are headquartered in Miami, Florida, with offices in New York, Houston, Colombia and Singapore, as well as alliances in Chile, Costa Rica, Ecuador, Mexico, Peru, Switzerland, and Venezuela. We are committed to having a global presence for the benefit of our clients and advisors.

What have been the successes of VG in recent years? 20 years ago we established a successful wealth management operation that has steadily grown year over year. We have gained the trust of more than 1,500 clients in 15 countries, and have $1.1 billion dollars of assets under management. Even more important is the level of training and experience of our worldwide advisor workforce. These advisors provide a level of service and advice that truly differentiates us from our competition.

What role do custody banks fulfill within VG and which one do you have a relationship with? Our custodian banks play a very important role in the relationship between the broker-dealer and its clients, as the custodian banks are responsible for the safe keeping and the proper registration of all assets held by our clients. It is worth mentioning that VG does not have direct access to our clients’ cash or securities.

What is VG’s Wealth Management process? The most important part of our wealth management process is to collect all necessary information to determine the risk tolerance and investment objective of each client. Secondly, we construct diversified portfolios designed to meet the risk profile and needs of every investor. We then monitor the global financial markets and make necessary recommendations and adjustments. Our financial advisors work closely with our specialized credit teams and market analysts in order to provide the optimal investment alternatives.

Why work with VG? At VG we feel that because of our strict investment guidelines, our experienced team of advisors and analysts, our open architecture, our competitive execution, and our philosophy of continuous portfolio monitoring, we are able to provide the optimal balance of service and results that our clients are looking for.

What are the advantages of working with VG? At VG we have an open product architecture to provide our clients with the best financial products without conflicts of interest. To this we add a superior customer service philosophy, a team of experienced financial advisors, economic analysis and product specialists, competitive pricing on execution, and two custodial platforms considered to be the most prominent and safe: JP Morgan Clearing Corporation and Pershing LLC.

VectorGlobal WMG Management Team. From left to right: Carlos Younes, Sales & Marketing Head LATAM; Oscar Mejia, CFO & HR Director; Claudia Batlle, Product Analysis & Trading Director; Carlos Gadala-Maria, CEO; Ana Lucia Chavarriaga, Chief Compliance Officer

PRIVATE BANKING: PHILANTHROPY

sure that they achieve maximum benefits that most countries’ tax laws provide in terms of donations. In this sense, the first mission of the teams specializing in philanthropic services in the business of private banking is to identify and evaluate the motives an individual or his family has for undertaking a philanthropic project. From there they determine the areas where an investment could be made, decide whether there will be periodic donations or only “seed capital,” organize the follow-up structure, invest and finally, evaluate the results. Some private banking entities are so deeply involved in causes of great impact that, in the signing of agreements with non-profit non-government organizations (NGOs) in the course of looking for new sources of donations, they have taken the initiative of contacting them to establish links. The reason is so that the clients of private banking can know first-hand what the opportunities are for financing the projects of these

LATIN TRADE SEPTEMBER-OCTOBER 2013

NGOs. Other private banks have associated themselves with business schools to support departments in research for philanthropic projects, while others have established prizes to encourage new philanthropic activities. Apart from that, to the extent to which the philanthropists want to be in style and not only donate but also follow up on the impact of their projects, the private bankers have had to incorporate this into their job of managing the philanthropic investment portfolios. This is not only about funding projects but also ensuring their long-term viability. That’s why it has a new term: “impact philanthropy.”

TRENDS IN LATIN AMERICA For any billionaire in any part of the world, the possibility of obtaining tax benefits from their donations provides a huge incentive to undertake philanthropic enterprises. However, the study done by BAC and the University of Indiana shows that only a third of those surveyed

in the United States admitted that tax relief is a motive for doing philanthropy. Another survey of American billionaires, published by Forbes in 2012, showed that in almost three-quarters of the cases, the donations are based on a belief in family values and traditions. The survey also found that almost two-thirds of those interviewed prefer anonymous donations to public philanthropy, which would confirm the idea that their inspiration is altruism and not just publicity. Anecdotal evidence from Latin America suggests important similarities and differences relative to the trends in the United States and Europe, which have significant implications for assessing risk management that the private bankers and lawyers provide their clients in the region. One basic difference is cultural. In countries like the United States, which have basically always been rich, there is a strong tradition at the family and

PHOTO: © ISTOCKPHOTO.COM/ KUZMA

They don’t just sign the check with the donation and forget about it. There is no doubt that the billionaires want to achieve “impact philanthropy.”

PRIVATE BANKING: PHILANTHROPY

individual level about the importance of giving. In contrast, in nations that have suffered scarcity, as is the case in LatinAmerica, the feeling is possibly much less deeply rooted. On the other hand, in countries where there has been a lot of insecurity billionaires tend to be much more cautious with their donations, according to Carlos GadalaMaría, CEO of Vector Global Wealth Management Group. And although some Latin billionaires are starting to call for services of “impact philanthropy,” the truth is that most of their philanthropic activities are carried out without much strategy at all. They do respond to altruistic motives, and even anonymous giving (often necessary for security reasons), but these are directed at causes in which they cannot measure impacts. It’s hard to find clear-cut trends, but according to a group of bankers from the private banking arm of Merrill Lynch (ML) who were interviewed by Latin Trade in Miami, the philanthropy could be much better organized. To the extent that there is a plethora of social causes in the region and the motives for giving are mostly a result of emotional factors (for example, the family legacy), the distribution of donations is far from optimal. The ML team also noted that there appears to be a continental divide, with an inclination among the billionaires in the south of the continent to carry out philanthropy in educational causes, while those in the central and northern parts of South America appear more oriented to social issues, such as health campaigns for children or the fight against specific diseases. The bankers agree that, as in the rest of the world, there is a growing consciousness among the youth of Latin America about the importance of philanthropy as an ethical value. That’s even true of the sustainability of some dynasties. In fact, according to Scott Bowman, a lawyer with the legal firm Proskauer in Boca Raton, Florida, in his estate planning work for clients (including many Latin Americans), there are cases where the trustees that manage inheritances

make philanthropic works a condition of payouts for the heirs. In other situations, the ethnic legacy pushes the American billionaires toward doing philanthropic work in the country of origin of their Latin American forefathers. As Paul Roy, a partner in the law firm Withers Bergman LL P explains, these actions are sometimes carried out by means of money sent directly to the region or indirectly, for example, by donating resources for the research and development of products made in the United States or other countries – say, in the health or technology sectors – that in the end are used by persons from the marginal sectors of the region. On the other hand, the work of the private bankers that serve Latin American clients appears to be gaining recognition through the important consulting they provide in philanthropy. For example, Morgan Stanley Wealth Man-

agement makes occasional donations in the name of its clients for specificprojects, including the initiative against Neglected Tropical Diseases (NTDs), says Verónica López-López, Executive Director of the firm. In fact, as López-López recalls, Carlos Slim himself has joined the project against the NTDs, which was originally started by Gates, and which can be considered to be a pioneering effort in terms of coordinating and searching for synergies among billionaires around the world. In this case it involves the premier billionaire in Latin America. So that’s how things are, in the light in which private bankers and estate planners see what is happening in Latin America and other parts of the world. They don’t just sign the check with the donation and forget about it. There is no doubt that the billionaires want to achieve “impact philanthropy.” David Ramirez reported from Miami.

SEPTEMBER-OCTOBER 2013 LATIN TRADE

Kevin Pardinas (center) is one of four Hispanic students to receive an RMHC(R)/HACER(R) National Scholarship of $100,000 this year.

HOUSES WITH A HEART Ronald McDonald House Charities is one of the few foundations that extend throughout the entire region of Latin America. A case study of high impact. BY SANTIAGO GUTIERREZ

he woman hadn’t moved from her spot all day. She was in front of one of the houses of the Ronald McDonald House Charities (Rmhc) in Sao Paulo, Brazil. Her son, stricken with cancer, was in a nearby hospital and this woman spent hours there, waiting until visiting hours. But, she wasn’t like the thousands of mothers who live free of charge in one of the 329 houses the foundation operates throughout the world, or the 16 that are located in 14 countries throughout Latin America. She was on the outside. “She told me there are basic conveniences there that she doesn’t have in her own house,” recalls Lyana Latorre, the director Rmhc for South America. “She thought she shouldn’t cross the threshold because she didn’t deserve to be there. Our greatest satisfaction is that this dignified lady could be close to her sick son for six months throughout his recovery, thanks to our work.” It’s a moving story about an entrepreneurial foundation that provides service to poor children and adolescents up to 18 years old, with programs that directly improve their health and the well-being of their families. The work of putting sufficient resources in the hands of the families with children sick with cancer, or other complex chronic illnesses, has an incalculable value.

LATIN TRADE SEPTEMBER-OCTOBER 2013

The diagnosis of an illness that requires prolonged medical treatment destroys the lives of children, of families, and of couples. Even if they can get treatment through the national health systems, the families don’t have the resources to accompany their children to the treatments. They don’t have enough money to go to another city or to be with their loved ones for the time required. “They ignore the diagnosis or stop treatment because they don’t have any way to live close to the hospital,” says Lyana Latorre. That’s why there are Ronald McDonald houses. They’re a home away from home, where the families can stay for free and remain at their children’s side while they receive treatment. In 2012, 25,516 families were helped throughout the region. The foundation also has Family Rooms, places inside the hospitals where families can be with their sick children. They can’t sleep there due to hospital restrictions, but there are places with showers, laundry and waiting rooms. These are very useful for people who have children in intensive care or who are getting chemotherapy or dialysis, and who can have visitors for only a few hours a day. Almost 39,000 families were helped in 2012. These places help keep families together

when one parent has to stay home while the other goes off to the city where treatment takes place. Many mothers who arrive at Rmhc are adolescents themselves. The foundation works with them in the Family Rooms, to help them recover their self-esteem and get them on track to a productive and happy life. They teach the mothers skills such as hairdressing or how to give manicures, which do not require large investments in materials, so that when they return home they have a way to earn a living. They may give classes to the children being treated so that they don’t get behind in their schoolwork, another problem these types of long-term illnesses create. Financing comes from various sources. The foundation gets a percentage from sales of each “happy meal” that McDonald’s sells in the region. It also receives money from companies such as Arcos Dorados and Coca-Cola, and donations of time from Ernst and Young, which audits its finances, or from “green” architectural and engineering firms that design the houses and the Family Rooms. One day a year, called McDía Feliz (Happy McDay), Arcos Dorados donates all of its big mac sales to the foundation. Arcos Dorados also assumes its office costs and supports the different processes in each country as the financier and legal sponsor. Rmhc operates with only a few people and directs most resources toward services rather than to administration. The foundation maintains alliances with local governments, which are the owners and operators of the hospitals, with other entities in the private sector and with academic institutions such as Stanford and Northwestern (Kellogg) to maintain the highest standards in their work of medical care and management. There’s another noteworthy advantage in this foundation. It functions as an international network, bringing a child from Guatemala to be looked after in a hospital in Houston, while the family lives in an Rmhc house. The fact is, says Lyana Latorre, although there are more than a hundred foundations that focus on the well-being of children in Latin America, only four have total regional coverage. Rmhc shows how effectively it can design and operate a project that provides relief for children under medical care and for families, and in addition, it offers the poorest people of the region a dignified treatment that otherwise would be only a luxury beyond reach. Santiago Gutierrez reported from Bogota.

PHOTO: PR NEWSWIRE/NEWSCOM

FOUNDATIONS: HIGH IMPACT

OIL AND GAS: PDVSA

Leader Of The Year Otto Pérez Molina, President Of Guatemala lifetime Achievement María Das Graças Silva Foster, CEO, Petrobras ceo Of The Year Álvaro Fernández Garza, CEO, Alfa innovative CEO Of The Year Germán Efromovich, CEO, Synergy Group international CEO Of The Year Ignacio Antoñanzas, CEO, Enersis trade Americas Bravo Award The Goodyear Tire & Rubber Company innovative Social Sustainability Magalie Dresse, President, Caribbean Craft distinguished Service In The Hemisphere Award Marina Silva, F. Senator of Brazil & Director of the Inst. of Democracy and Sustainability dynamic CEO Of The Year Enéas Pestana, CEO, Grupo Pão De Açúcar

INVESTMENT: URUGUAY

A NATIONAL PURPOSE

FOREIGN DIRECT INVESTMENT IN URUGUAY

Uruguay’s investment climate has made it a magnet for foreign investment. Industry, ports, hotels and construction are all on the list of projects.

(Period: 2000-2012 Millions of dollars)

IED

2000

273

2001

297

2002

194

2003

416

2004

332

2005

847

2006

1.493

2007

1.329

2008

2.106

2009

1.529

2010

2.289

2011

2.505

2012

2.775

Source: Banco Central del Uruguay (BCU) / UNASEV / Uruguay XXI

YEAR

en years ago, Uruguay’s level of foreign investment barely reached $200 million, but today, the number exceeds $2.7 billion per year. What happened that a small country could increase Foreign Direct Investment (FDI) by an order of magnitude? Historically, Uruguay was one of the Latin American countries that attracted the least amount of foreign investment. Only after 2005, with the arrival of the Botnia cellulose plant, whose construction required an investment of $1.2 billion, did the graph’s curve arc upward in terms of FDI. Located on the banks of a river that is the border with the Argentine Republic, the pulp and paper company Botnia placed Uruguay into a large environmental conflict with its neighbor, but Uruguay’s response sent a signal that showed the nation’s interest in protecting a foreign investment project. It’s not just happenstance that before the end of 2013 the forest products company Montes del Plata will inaugurate a new cellulose plant in Uruguay with an investment of about $2 billion. The partners in the Montes del Plata project are Arauco, one of the largest forest products companies in Latin America, and the international firm Stora Enso, with Swiss and Finnish capital. Situated in the locality of Conchillas, about four miles from the Rio de la Plata, its

LATIN TRADE SEPTEMBER-OCTOBER 2013

construction will create 6,500 jobs and once in operation, it will be capable of producing 1,300,000 tons of cellulose per year. “It will be a state-of-the-art plant, with technology that meets the BAT standards (Best Available Technology and Techniques) of the forest industry,” general manager, Erwin Kaufmann told Latin Trade. Kaufmann spoke highly of the excellent investment climate that he found in Uruguay, although he recognizes that construction strikes were a factor that delayed the inauguration that was slated for 2012. However, for Kaufmann, the element that Uruguay must improve if it is to attract large investments is to avoid producing infrastructure bottlenecks. As part of the answer, Montes Plata will have a port terminal for deep draft ships which will export cellulose and bring in wood to be delivered by barge. The government of Uruguay recognizes that it’s urgent to improve the nation’s infrastructure and its president, Jose Mujica, has warned of the risk of a “logistics blackout.” Uruguay’s most ambitious project at the moment is the deep water Atlantic port that will be the departure point for forest products, minerals and bulk products not only from Uruguay, but also part of the production of Argentina, Bolivia, Paraguay and southern Brazil. It’s a project that requires regional political consensus.

To move the project forward, President Mujica visited China this year and convinced the Bank of Development to finance part of the $1 billion needed to build the port, plus support for reactivating the rail line, another large gap in Uruguay’s infrastructure logistics. Uruguay XXI is the government agency responsible for promoting the country and its business climate. For its director, Andres Pelaez, Uruguay has a unique promotional program for investment in the region, which does not answer to the government of the day, but to a state policy. Kaufmann says the program of free trade zones that Uruguay offers was the determining factor for the investor group that made the decision to locate there. Palaez adds that the Law of Investment includes attractive tax benefits and doesn’t discriminate between foreign and national investors. He emphasizes that it permits the free repatriation of capital and profits through a flexible financial system. Soon, Uruguay will be able to trot out new projects that reflect its investment climate. The hotel chains Hyatt and Hilton are building their first hotels in Montevideo. At Punta del Este, the name of Donald Trump is associated with a tower on the Rio de la Plata, an investment whose symbolic value will be worth much more than the $100 million needed for its construction. Diego Stewart reported from Montevideo.

PHOTO: COURTESY MONTES DEL PLATA

BY DIEGO STEWART

SPECIAL REPORT: EXECUTIVE EDUCATION

THE SEARCH FOR THE

IDEAL EXECUTIVE What skills and training are firms looking for when they hire new employees? A look at what universities are doing to make their students meet market needs.

eadership, flexibility, multicultural skills, and strategic vision appear to be the most important qualities that top business executives must possess to run today’s multinationals and multilatinas in Latin America. Although vast work experience and high educational levels could weigh-in when reaching a very specialized position, the academic background no longer seems to be the single most important determinant factor. Nevertheless, graduate studies, such as an MBA continue to open doors, as firms value them as a symbol of willingness and motivation for an individual’s progress. Latin Trade interviewed representatives of the human resources (HR) teams of several leading companies in the region to get their views on what kind of business executive is in high demand. In fact, the HR teams of many Latin American firms have been busy in recent years, recruiting new executives as – albeit slowdowns, just as the one experienced in 2012-13 – the region has been growing at high rates, which has generated new labor needs in the most diverse areas.

LATIN TRADE SEPTEMBER-OCTOBER 2013

Unilever, the mass consumption goods multinational, constitutes an example of this. The company’s expansion in Brazil, Colombia and Peru, among other markets in the region, pressed demand for personnel specialized in supply chain management, forcing the company to recruit talent outside its own ranks, against the company’s tradition of using internal talent to cover vacancies. Talking about this process, Pablo Maison, HR vice president for Unilever in Latin America, highlighted that their new recruits must have a “Latin mind set” that could help their adaptation to the company’s view of the region: “We value the ability to deal with multiple cultures, so that our executives can understand Latin America as a large single-market, and flexibility, so that they can adapt and move easily within different countries in the region.” Accenture, the multinational firm of technology and consulting services, has also been very active in hiring executives in recent years, owing to the growth of their business in the region. “Regarding the profile of our new recruits, we have gone from looking for people

with basic knowledge to finding executives with very specific knowledge of their industry,” said Gaston Podesta, responsible for Accenture’s HR affairs in Latin America, Europe and Africa. He added that adhering to the firm’s business model, new executives are also required to adapt and work with different cultures and styles. Podesta highlighted the growing need for executives to have “virtual supervision skills, which in other words means the ability to handle today’s technologies to lead their teams from a distance.” While some multinational firms have covered some of their vacancies in Latin America by relocating talents from other parts of the world, the multilatinas have been compelled to increase efforts on this front. In many cases, their exponential growth has forced them to implement substantial changes in the composition of their mid and high-level executive positions. The multilatinas have also been required to focus on employee qualities that did not seem so important in the past, pointed out Sergio Osorio, administrative vice president, and Adriana Mejia, manager of HR and

PHOTO: © ISTOCKPHOTO.COM/ WHANWHANAI

BY DAVID RAMÍREZ

OIL AND GAS: PDVSA

SPECIAL REPORT: EXECUTIVE EDUCATION

LATIN TRADE SEPTEMBER-OCTOBER 2013

“Leadership is a key attribute. It is based on respect for people by practicing institutional values.

”

Femsa

fast, more than market, it is essential to hire people that are able to deal with pressure in a positive way, make things happen, promote collaboration across organizational boundaries, build trust among the stakeholders, walk the talk. An executive who believes in people potential, inspires them and develops a meaningful vision.”

RECRUITING YOUNG WORKERS, AND WOMEN Several companies focus their recruitment on young executives that are trained internally to reach mid- and high-level positions. Firms, such as Procter & Gamble (P&G), Unilever, McKinsey & Company and Grupo Roble operate this way. P&G’s HR team for Latin America (Karina Garcia, regional talent manager, and Leyla Hormazabal, Panama talent manager) told Latin Trade they consider three basic skills when hiring new executives: entrepreneurship, leadership and communication. This multinational company does not look to cover specific vacancies. Instead, it looks for people that can adapt to their business culture and assigns them to positions where they can maximize their abilities and potential. On the other hand, although several firms have targeted the promotion of minorities as a basic business principle, Unilever’s efforts to boost gender diversity in favor of women is noticeable. “Gender promotion is key within Unilever’s strategy to position women for top executive roles. Our global target is to cover

PHOTO: © ISTOCKPHOTO.COM/ WHANWHANAI

administrative affairs, at Grupo Argos - the Colombian multilatina that has been rapidly expanding in the cement and ready-mix markets of the United States, Central America and the Caribbean. “The chief attributes of the executives that we are recruiting today include global vision, capacity to adapt, innovation, teamwork, and high ability to incorporate the criteria of business sustainability (in economic, social and environmental terms.)” In the case of Femsa, the multilatina bottler, today’s business executive’s profile must include abilities such as entrepreneurship, execution, negotiation, leadership and dealing with multiple cultures. In response to a Latin Trade questionnaire, the company’s HR team says that “to Femsa, leadership is a key attribute. It is based on respect for people, by practicing the institutional values that we have promoted and carried out for more than 120 years.” Arcos Dorados, which manages the franchises of the McDonald’s restaurant chain throughout the region, constitutes an interesting case study, given the rapid success achieved by its top management following the set up of their operations in 2007. Pablo Rodriguez de la Torre, HR corporate vice president, highlighted the ability to deal with multiple cultures as the main attribute that the company looks for whenever they hire new executives. “People that have had experiences in other markets in the region provide a great added value to the firm,” said Rodriguez de la Torre, who also underlined the importance that simultaneously, their executives must have a great strategic vision, focus on detail and largely be self-starters: “They need to be hands on, as this is a business in which any small detail can make the difference between winning or losing. This also demands lots of proactivity and commitment.” Rodriguez de la Torre’s arguments confirm that today’s executive must be flexible and practical. As Andrea Destri, head of HR in Brazil for Zurich, the multinational insurance company, summarized it: “As we are growing

50 percent of our top-level business executive positions with women by 2015. We are making very good progress in Latin America, where we already have reached a level of 45 percent,” said Pablo Maison, HR vice president of Unilever for Latin America.

UNIVERSITY - INDUSTRY TIES The academic background of the new recruits is key to firms that focus in recruiting low- and mid-level executives, such as in the case of Grupo Roble, the Central American multilatina involved in the hospitality and construction industry. As explained by Clau-

LATIN TRADE SEPTEMBER-OCTOBER 2013

dia Rodriguez Angulo, the company’s regional HR manager, Grupo Roble favors the hiring of graduates from highly acclaimed universities, and preferably with an MBA degree obtained in Europe, the United States, or one of the premiere institutions in Latin America. Rodriguez Angulo concurs, along with other colleagues, that the region’s universities are doing a good job training MBAs, although as Femsa’s HR team pointed out, there is a need for more exposure to real-life experiences, as well as higher ties between university and industry, although both these topics are being addressed. The most prestigious universities in the region acknowledge the need to increase their students’ experiences in actual “on–the-job” situations. In this regard, Laura Esther Zapata Cantu, director of the MBA program at the Instituto Tecnologico de Monterrey (Itesm), pointed out that “we have looked for a way to reach a balance in our classrooms. We have teachers coming directly from the academy, others that once belonged to the business world and today are in the university, and a third group of active business leaders that dedicate part of their time to lecture students. The idea is to bring the industry into the classroom.” In addition, Itesm is strengthening the links with the private sector by cooperating in the mutual identification of supply and demand labor opportunities, and in some cases, the joint sponsoring of students. On her part, Diana Vesga, director of the MBA program at the Universidad de los Andes in Bogota highlighted the presence of teachers that are active in business consulting, as well as the participation of active businessmen in the MBA’s advisory board, “as part of the effort to be fine-tuned with what is happening in the real world.” Universities are also working so that their MBA graduates develop the main skills required by hiring firms, such as leadership, innovation and dealing with other cultures. Zuluaga and Vesga agree that MBA’s contents are useful to develop leadership skills, whereas the ability to deal with multiple cultures is promoted through the exchange with foreign students. In the Universidad de los Andes MBA’s case, the share of foreign students is 25 percent, according to Vesga.

Breaking with the tradition of focusing on functional areas, a new MBA program at the University of Miami – the Miami Executive MBA for the Americas – plans to center on four key areas: global multicultural leadership; global operations management and decisionmaking; global strategy and execution; and entrepreneurship, innovation and technology. According to Eugene W. Anderson, dean of the Business School at this American university, the program differentiates from others in that it will have more cases studies of Latin American companies and will not be designed for a typically young audience, but for “people with a strong professional trajectory,” as the academic pointed out. Some firms have tried to strengthen their ties with the university with unique approaches. In Unilever’s case, one of the objectives is to diversify relations by reaching universities that, while top notch, are not the ones more sought after by other firms. Meanwhile, companies such as Arcos Dorados have taken a step further in implementing internal training and professional education programs. The McDonald’s University “is a guarantee of the company’s sustainability that started supporting the operational area, but today encompasses not only the development of operational excellence, but also of the leadership and education to do business,” said Pablo Rodriguez de la Torre, HR corporate vice president at Arcos Dorados. The Brazilian campus of the McDonald’s University, the only one in Latin America, has alliances to develop education programs with institutions, such as the prestigious Getulio Vargas Foundation. The effort currently undertaken in Brazil by the climate change and sustainability division of the multinational consulting firm Ernst & Young (E&Y), led by Ricardo Catto, is also worthwhile to mention. According to Catto, while E&Y’s Brazilian operations demands executives that are highly experienced and come from the most varied disciplines, they have agreed on an internship program with the University of Sao Paulo. Some 20 to 25 students in their last year are recruited by the company each semester, and only the best are selected at the end of the internship to continue in the consulting business. David Ramirez reported from Miami.

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SPECIAL REPORT: EXECUTIVE EDUCATION

SPECIAL REPORT: LOGISTICS

THE OPPORTUNITIES OF THE NEW

GLOBAL LOGISTICS ORDER With the increased labor costs in China, the world’s logistical architecture is undergoing a sea of change. Latin America can benefit from the new environment. BY JAIME MEJIA

atin America is in an exceptional position to take advantage of the opportunities that could arise from a new order in the global organization of supply chains and logistics. This is about major trends created by the changes the global economy has undergone in the last few years that could cause, among other things, a relocation of supply chains, such as the transfer of industrial operations from China to other countries that could be more competitive. Latin America is clearly on the front line to be the site for these new production centers. Some companies see this very clearly. “Latin America has the advantage of proximity and we are very optimistic about the growth of our business especially in Brazil and Mexico,” says John Gazitua, general director of operations of the cargo transport division of FedEx for Latin America and the Caribbean. This could happen because it is becoming more clear that China is losing its big advantage of low labor costs and because the growing costs of transportation are forcing companies to look at shortening the distance between the manufacturers and consumer markets. In today’s economy, logistics are a key factor in any business process and companies are looking for ways to reduce costs to increase their profitability. In Latin America, logistics costs could represent up to 30 percent of the cost of a product, according to research from

LATIN TRADE SEPTEMBER-OCTOBER 2013

Amar Ramudhin, an expert from Georgia Tech’s Supply Chain and Logistics Institute in Atlanta. At the same time, other important industries in the logistics processes, such as shipping, are facing huge challenges because, after the global economic crisis of 2008, these companies have been left with excess capacity and their main markets in developed countries have been seriously weakened. There are also changes in the supply chains that anticipate, for example, that the companies are breaking up their supply chains into multiple units to better respond to the change in the global economy, as indicated by a report from consulting group McKinsey & Company. Another logistics trend shows up in population growth in the large Latin American cities. In the so-called mega-cities, the distribution of products is expected to continue through traditional channels or neighborhood stores, and this creates major logistical challenges for the companies. Latin America is in an advantageous position to capitalize on these changes that will arrive in the next decade, according to a report from the World Economic Forum. However, the region still isn’t sufficiently prepared for the new business, as is indicated in the last Enabling Trade Index (ETI) of the World Economic Forum.

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China Shipping container ship

SPECIAL REPORT: LOGISTICS

CLOSER TO THE CONSUMER The increases in fuel and labor costs in China have changed the way containers are transported by sea. A look at the new trends.

ne of the main motives for expanding the Panama Canal was the need to allow larger container ships to pass through. And that’s what will happen. The canal will allow the passage of ships with a capacity of up to 12,000 TEUs. But, not for long will those ships be the largest ones to ply the global trade routes. Ships that can carry 18,000 TEUs are already entering the marketplace, and even the new Panama Canal will be too small for this type of mega-ship. Until 2008, the big ships were growing rapidly and increasing their installed capacity. “Then the global economy tanked, and the shippers were left with excess capacity,” says Amar Ramhudin, an expert for Georgia Tech’s Supply Chain and Logistics Institute in Atlanta. Paradoxically, one of the responses of the shipping companies to the global economic crisis wasn’t to reduce the size of the ships, but to increase them even more, together with other measures aimed at increasing efficiency and reducing costs. The largest ships carry more cargo and thus can take advantage of the fact that on each voyage they consume less fuel per TEU. “The main cost of the ships is fuel. If the companies consume less, they reduce their costs and at the same time, have a favorable effect on the environment,” says Robert Jan van Trooijen, executive president of Maersk Central America, an affiliate of the Danish multi-national Maersk Group, one of the world’s principal carriers of containers. In fact, Maersk’s new 18,000-TEU container ships will very soon be traveling the global shipping routes. Jan van Trooijen says they will

LATIN TRADE SEPTEMBER-OCTOBER 2013

be used mainly for trade between Europe and Asia, and it’s possible that they won’t be going to Latin America for many years because the demand from trade in the region doesn’t justify it. In addition, with the growth in the size of ships, there are other factors which, according to Ramhudin, are changing the rules of global trade, especially in the supply chains and logistics throughout the world. Ramhudin says the higher fuel costs and the expected rise of labor costs in China are causing a fundamental change in container transport, and therefore in the way in which companies obtain raw materials to produce goods, and the way products are distributed to the different markets. The shipping companies, for example, have responded by reducing travel speeds of the ships to cut fuel costs. Ramhudin says that although this is cost-effective, it lengthens cargo travel times and increases inventory in transit, which has negative effects on the whole global supply chain. To complete the list of challenges for the global supply chains, the cost of labor in China, the big provider of cheap labor, is increasing. As a result, says Ramhudin, companies have been developing contingency plans to mitigate the growing risks in the chain. “Transferring production operations to sites closer to the consumer markets is an increasingly attractive alternative. Some companies have already moved their operations, and in the next few years, this trend will continue to grow, and it’s expected that more operations will be transferred to the United States and Latin America.”

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Miraﬂores Locks. The Panama Canal, with its 48-mile ship canal.

OIL AND GAS: PDVSA

SPECIAL REPORT: LOGISTICS

THE NEIGHBORHOOD STORE WON’T DISAPPEAR Mega-cities – cities with a population of 10 million people or more – appear to be an inexorable trend for the future as they set up huge challenges for commercial distribution in the region.

The neighborhood store is still the preferred channel in Latin America Modern Channel UTT (Up The Trade)

24%

37% 58%

48%

53%

58%

Traditional Channel DTT (Down The Trade)

70%

22%

20%

60% 80% 99%

63% 42%

Argentina

Brazil

52%

47%

42%

30%

Chile

Colombia Ecuador

12%

76%

78%

80%

U.S.

Italy

88%

40% 20%

Mexico

Peru

espite the growth of the big supermarket chains and large retail companies in Latin America, the neighborhood stores aren’t going to disappear any time soon. As a principal distribution channel in the region, the stores represent one of the most important logistical challenges in Latin America over the next decade. According to Logyca, a consulting firm specializing in logistics based in Bogota, Colombia, it’s increasingly clear that the future of product distribution in Latin America will be dominated by the trend of major population growth in the big cities. The research done by Logyca, together with MIT in the United States, shows that although the so-called modern channel (supermarkets and developed retailers) is growing in Latin America, the traditional channel (neighborhood stores) will continue to be crucial in the distribution of products throughout the region. Logyca points out that although more than 70 percent of the products are distributed through the modern channel in the developed countries, in Latin America, the traditional channel still represents 37 percent or more of product distribution. Even in Brazil, Argentina, Colombia and Peru, the traditional channel represents more than 50 percent of all distribution. The mega-cities trend “represents a huge challenge for logistics and supply chains because in many places, it’s not easy to deliver the products to the neighborhood stores, and in some cases, distribution is carried out by motorcycles and even bicycles,” says Christopher Mejia, a Logyca consultant.

Venezuela

France

Spain

Mejia says that although the middle classes are growing, and that this suggests a boost to the modern distribution channels, the base of the population pyramid, composed of low-income groups, is growing even faster, and this means the traditional channel remains strong in Latin America. With the trend toward mega-cities, the density of population in the world’s large urban centers is on the rise. The research of MIT and Logyca shows that there are about 55 mega-cities in the world, with several in Latin America, starting with Mexico City, Sao Paulo and Bogota. In fact, 23 of the mega-cities are located in emerging markets, where it’s predicted in 20 years, there will be more than 70 of them, according to the study. The Latin American cities are among the 40 most densely populated in the world. To distribute products in these very dense areas is a monumental logistical challenge, and that’s why Logyca thinks the traditional channel is here to stay. Mejia also believes that in the future, the logistics of product distribution in these mega-cities will have to be supported by software and global positioning systems, to enable the shippers to assign products in the right quantities and to the right routes, even in highly complex environments such as very densely populated cities where consumers have their neighborhood stores. “It’s possible to imagine a system in which you can see, in real time, that products are being distributed and what their routes are, with the support of GPS and other logistics management tools,” says Mejía.

Source: Universos Nielsen 2006 and Universos Nielsen LATAM 2009. Euromonitor retailing 2010. Mapa del retail ILACAD, 2011. * The data from France and Spain is from 2006.

LATIN TRADE SEPTEMBER-OCTOBER 2013

OIL AND GAS: PDVSA

SPECIAL REPORT: LOGISTICS

THE SUPPLY CHAINS OF THE FUTURE Companies will have to change their logistics systems and global supply chains to make them more flexible.

n recent years, the largest and most sophisti cated companies in the world have developed complex systems of logistics and supply chain management to produce very complicated goods and services for highly competitive, growing markets. According to a recent report from McKinsey & Company, a global consultancy firm, these sophisticated systems have had trouble adapting to the rapid and unexpected changes in the global economy. McKinsey says that many logistics systems were carefully engineered to manage high volume industrial operations that capitalized on the opportunities provided in China and other countries with low labor costs. In the future, the attractiveness of different regions of the world for establishing industrial operations will change

more quickly, changing the capacity of companies to produce large volumes profitably. According to the consultants, the growing wave of uncertainty and complexity in business is forcing companies to change their logistics systems and global supply chains to be more flexible. McKinsey’s report says many global companies are responding to these challenges in two ways. They are breaking up their supply chains into several smaller units that are better able to adapt to the higher levels of complexity. Or, companies are converting their supply chains into systems designed to hedge against the uncertainty of reconfiguring their manufacturing production networks to respond easily to the changes. The breaking up of the supply chains is done by designing structures that can respond better to

the needs of the markets. A company could have a supply chain for all types of goods according to the demand and the complexity of production. They’re leaving behind the models in which there is just one chain for all goods, especially if it is a multi-national firm with a broad range of products for multiple markets. Companies could use the supply chains as a way of hedging against uncertainty risks in the markets, which means adopting the appropriate combination of production locations when conditions change. The report asks, is China the optimum site to produce if its currency appreciates by 20 percent and the price of petroleum rises, increasing shipping costs? Companies will have to respond with more flexibility to the changes and uncertainties of the world economy.

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LATIN TRADE SEPTEMBER-OCTOBER 2013

SPECIAL REPORT: LOGISTICS

THE NEW GEOGRAPHY OF SUPPLY CHAINS:

LOOKING SOUTH G

lobal economy-watchers are barely starting to comprehend the magnitude of the economic changes that developed following the massive global crisis of 2008. Not only did the nations of the developed world in Europe and the United States enter into an unprecedented recession, but many sectors have had to re-invent themselves as a result of the difficulties. One of the sectors in the midst of re-inventing itself is international trade and the companies that transport goods as part of the supply chain. The global supply chains make it possible for goods to be produced and distributed throughout the length, and breadth, of the world’s marketplaces. These chains are in the midst of a transformation which, over the next decade, will bring new processes of manufacturing and sales, and which will also represent opportunities for Latin America. A report from the World Economic Forum in 2012 summarizes the agents of change in the supply chain as: the rising cost of fuel, the emergence of new consumer market centers due to the growth of the middle class in emerging countries, and the decline of China as the biggest center of low-cost industrial production. The combination of these major trends is creating the need to seek new production centers outside of China, and to reduce the distance between manufacturing plants and the major consumer markets. A document published in September 2013 by Supachai Panitchpakdi, secretary general of the Swiss-based United Nations Conference on Trade and Development (Unctad), tells us that world trade is undergoing a change that is so deep that for many economies it will mean a structural change in their development model. “The change is from a development model oriented to exports to another more focused on internal consumption,” says the document.

LATIN TRADE SEPTEMBER-OCTOBER 2013

This transformation is due to the fact that the major sources of demand for global trade in the developed world such as the United States and Europe are no longer growing at the same rate as they were before the crisis. The container transport companies are well aware of the change in the global economy and are adapting to it rapidly. “We think the purchasing power of the world’s consumers is moving toward the emerging markets such as those of Latin America,” says Poul Hestbaek, vice-president of Hamburg Sud, one of the world’s biggest container transport companies. According to Hestbaek, the numbers for growth of trade have changed dramatically. “Before the crisis, global trade was growing at rates of 10 percent per year. In 2008, it collapsed, and then in 2010, there was a rapid recovery, but now we don’t expect to return to double-digit growth, but rather to something more aligned with GDP growth.” However, today Latin America has other perspectives. While the business of carrying containers is growing at annual rates of two to three percent in the developed world, in Latin America the rates are between five and seven percent in terms of volume, says Hestbaek. That’s where Latin America has a large advantage: the potential to transform itself into the new industrial production center for the world, and the expansion of the middle class in countries like Brazil and Mexico would convert the region into a new consumer market. The World Economic Forum report says that for these reasons and others, it expects changes in the geography of the supply chains throughout the globe over the course of the next 10 years. “The markets of the south will continue to grow in relative importance, and this will produce the reorientation and relocation of the value chains, possibly in unpredictable ways,” the report adds.

ILLUSTRATION: ©ISTOCKPHOTO.COM / TILO

There is a new need to find industrial production centers outside of China and to reduce the distance between the factories and the major markets.

SPECIAL REPORT: LOGISTICS

IN THE MIDDLE OF THE PACK

atin America is far from being in first place on the Enabling Trade Index (ETI), which is the index the World Economic Forum uses to measure how prepared a country’s economy is for global trade. In the 2012 index, the leaders were economies that were small, but very open and efficient. The first two countries on the list are Singapore and Hong Kong. These two economies show high performance in the key

variables of the index, with policies very open to trade, good infrastructure, some of the most efficient border administrations, and a business environment favorable to commerce. And Latin America? It’s not at the top of the list, but it’s not at the bottom either. Its performance is mid-way down the list. The biggest obstacle for Latin America is the general environment for business, where there is still a lot of room for improvement, especially in areas like corruption and lack of security, factors which increase the cost of importing and exporting for the nations of the region. The leaders in the region are Chile, which is number 14 on the index, Uruguay, which is in 40th place, and Costa Rica, which occupies the

43rd spot on the global list. The big economies of Brazil and Mexico have a less acceptable assessment and occupy numbers 84 and 85 respectively. The Enabling Trade Index measures four crucial areas for international trade: 1. Access to markets or the performance of a country in receiving products from abroad, and promoting access to external markets for its exporters; 2. The efficiency of the administration of the borders, which refers to the authorities and institutions charged with administering the arrival and departure of products; 3. The transportation and communications infrastructure; and 4. The business environment, which includes the regulatory environment and physical security. Jaime Mejia reported from Miami.

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FINANCE: FORECAST 2014

BUT NOT THE BEST

How will the prevailing weaknesses in Europe, the gradual ending of the monetary expansion in the U.S., the deceleration in China, and the growth in domestic demand play in the region? A look at what is to be expected for Latin American economies in 2014. BY DAVID RAMIREZ

ith the expectations of an economic rebound in 2013 vanishing as the year comes to an end, Latin American economies look ahead for better times in 2014. Although prevailing uncertainties about the international environment could prevent the region from recovering the dynamism shown prior to the 2008-09 crisis, there are reasons for hope. The continued expansion of the middle class and infrastructure investments will likely support a slim economic recovery next year, whereas strong macroeconomic conditions will probably help the region to weather external adversities. Amid challenges, the region maintains potential to sustain higher economic growth rates in the long run. “We see the current deceleration as mainly cyclical, rather than structural,” says Irene Mia, regional director for Latin America and the Caribbean at the Economist Intelligence Unit (EIU). The EIU expects regional GDP to grow by an annual average rate of 3.7 percent in 2014-17 “supported by broadly sound macroeconomic policies, resilient domestic demand and a progressive recovery of economic activity in the Oecd area,” according to Mia. Although the experts consulted for this article agree that regional economy will barely grow around three percent this year, and that it will gain some pace in 2014, their GDP forecasts for next year show a wide dispersion.

LATIN TRADE SEPTEMBER-OCTOBER 2013

These range from 3.2 percent to 3.8 percent, with the International Monetary Fund’s recently revised forecast appearing in the middle at 3.4 percent. According to analysts, prevailing weaknesses in Europe, the gradual ending of the monetary expansion in the U.S., and the deceleration in China would be the main factors playing against Latin American growth in 2014, whereas the region would benefit from the continued expansion of domestic demand.

BRAZIL AND MEXICO, THE TALE OF TWO COUNTRIES The short-term outlook for Brazil remains clouded by the hit in confidence brought about by recent demonstrations of social unrest. Tight monetary policy to curb inflation would also hamper economic growth in coming months. Even so, the consensus is that after a modest 2.5 percent this year, GDP growth would lift to 3.3 percent in 2014, underpinned by domestic demand, including fiscal stimulus and private participation in infrastructure concessions. Although the government must still overcome obstacles before the concessions program finally takes off, “if successful, they (the concessions) will boost confidence, favoring investment and increasing economic growth, principally from 2015, whereas 2014 will be a transition year,” says Ilan Goldfajn, chief economist

ANDEANS, GROWING FASTER Growth in Chile will remain in the 4.5 percent area in 2014 amid fiscal and external stability. Inflation could increase slightly, chiefly in response to currency depreciation, but will remain within the central bank’s range. Regarding the upcoming presidential elections, Alberto Bernal, head of research at Bulltick Capital Markets, has little doubt that Michelle Bachelet will be the victor. He further adds: “the political cycle has little to no relevance in Chile because traditionally the risk of structural economic changes following a change in government is minimum.” Bernal also believes that risks for significant policy changes following next year’s presidential elections in Colombia are small. However, he does not discard that a left-wing (populist) candidate could broaden his/her support base in case that voters become disenchanted by potential confrontation between leading candidates to the right of the spectrum - including the incumbent president, Juan Manuel Santos,

BETTER

at Itau Unibanco. He and other economists agree that the political cycle will hamper fiscal consolidation and privilege economic growth over inflation. In the longer run, experts say, Brazil must improve its policy framework in order to make the country more competitive. In the meantime, after disappointing performance in the first half of 2013 – partly explained by falling terms of trade and slow government spending associated to the political cycle – the Mexican economy will probably gain speed in the months to come and grow by 3.8 percent in 2014, up from 2.9 percent in 2013. According to Gabriel Lozano, chief Mexico economist at JP Morgan, the ongoing recovery in the U.S. will support domestic industrial output and remittances from Mexican workers, whereas structural reforms would have positive effect on confidence and permanent effects on various areas, such as infrastructure, manufacturing and energy. “The reforms would have a multiplier effect that could take the Mexican GDP to expand close to five percent a year in the long run. Accounting for the energy-sector reform alone, the economy could grow each year by an additional 0.5 percentage point above its long-term potential (3.5 percent),” Lozano adds. His basic assumption is that congress will keep the basic scope of the reforms, amid political and social controversy.

FINANCE: FORECAST 2014

Forecasts for the region for next year range from 3.2 percent to 3.8 percent, with the IMF’s recently revised forecast appearing in the middle at 3.4 percent. LATIN AMERICA FORECAST 2013-2014 2013 GDP growth

2014

BRAZIL 2013

CHILE

2014

2013

2014

3.3

2.7

2.5

3.3

4.6

15.0

15.7

5.8

2.5

2.9

Unemployment rate (yearend)

7.4

5.7

6.7

6.9

Combined ﬁscal deﬁcit / GDP

-2.5

-2.3

-2.9

-3.1

0.0

0.1

Current account / GDP

0.1

-0.3

-3.2

-3.3

-4.5

-4.4

Yearend exchange rate

5.9

7.1

2.1

2.2

503.3

514.1

Inﬂation (yearend)

COLOMBIA 2013

2014

MEXICO 2013

PANAMA

2014

2013

2014

GDP growth

4.1

4.5

2.9

3.8

8.1

7.7

Inﬂation (yearend)

2.6

3.1

3.7

3.4

4.3

4.1

Unemployment rate (yearend)

9.9

9.6

4.3

4.1

Combined ﬁscal deﬁcit / GDP

-1.6

-1.5

-1.9

-1.8

n/a

Current account / GDP

-3.5

-3.3

-1.3

-1.4

-9.4

-8.5

Yearend exchange rate

1899.0

1890.6

7.4

7.3

1.0

PERU 2013

URUGUAY

2014

2013

2014

VENEZUELA 2013

2014

GDP growth

5.9

3.9

4.1

-0.6

1.9

Inﬂation (yearend)

2.4

2.3

7.3

6.7

34.8

28.9

Unemployment rate (yearend)

6.9

6.8

7.2

6.6

8.8

8.7

Combined ﬁscal deﬁcit / GDP

0.6

0.3

-1.6

-8.8

-6.5

Current account / GDP

-4.5

-4.4

-3.2

-2.3

4.8

5.0

Yearend exchange rate

2.2

20.1

20.8

6.5

8.3

Sources: Bulltick, BBVA, Economist Intelligence Unit, HSBC, IMF, UBS Calculations: Latin Trade. Calculations correspond to simple average of data provided by sources

LATIN TRADE SEPTEMBER-OCTOBER 2013

and his potential rival from the ranks of former president Alvaro Uribe. In any event, partly reflecting statistical factors but also in hand with infrastructure investments, Colombia’s GDP would probably expand by 4.5 percent in 2014. Infrastructure spending will also play a role in supporting economic dynamism in Panama and Peru next year, although the expansion of domestic consumption will provide an additional stimulus in the latter country, where GDP should keep growing close to six percent. Panama’s economic impetus will moderate slightly in 2014, but the GDP will still grow by a healthy 7.7 percent, according to the analysts’ consensus. Growth in Uruguay would also exceed the Latin American average next year.

ARGENTINA AND VENEZUELA, LITTLE PROGRESS After being one of the few Latin American economies experiencing a recession in 2013, the Venezuelan GDP would probably grow by a meager two percent in 2014, based largely on statistical effects. Experts agree that a new devaluation will be required “in order to keep the patient alive,” as Bernal put it. In the meantime, analysts’ estimates on Argentina’s GDP growth in 2013 and 2014 show significant dispersion, ranging from 2.5 to 4.3 percent, and from one to 3.5 percent, respectively, at least reflecting agreement on a slowdown. Experts expect, however, that the outcome of the early-August elections could lead the Argentinean government to introduce more pro-business policies, thus favoring future growth. David Ramirez reported from Miami.

ARGENTINA

OIL AND GAS: PDVSA

RANKING: THE 25 MOST POWERFUL WOMEN

THE WOMEN

AT THE TOP

The 25 most important women in the Latin American business community. BY ALVARO MORENO

“T

hirty years after women began to represent 50 percent of the higher education graduates in the United States, men continue to occupy the vast majority of leadership positions in government and industry.” This is perhaps one of the most poignant sentences in Lean In, the bestselling book published by Sheryl Sandberg last March. The popularity of the book is due in large part to what Sandberg recounts in her personal story as chief operating officer (COO) of Facebook, a position that had never before been held by a woman, and to which the executive rose following a transformational experience, as much personal as corporate at Google, where she had previously worked. Today, many voices have joined with Sandberg to demand that the gender balance in corporate leadership become equalized. Also, it’s now more common to find men who assume that the tasks around the home are a joint obligation, in place of the traditional vision, that it was mainly a female responsibility in family affairs. Even so, the statistics reveal an inconvenient truth. In the United States, only 16.6 percent of the members of boards of directors of the companies listed in the Fortune 500 are women. Worse, just 21 chief executive officers (CEOs) of the 500 largest American companies are women. Globally, the truth is even more inconvenient: only 12 CEOs of the 500 largest companies in the world (Fortune 500 Global) are women. In Latin America, the situation is just as bad: only 12 presidents of the Latin 500 are women (2.4 percent). Analyzing the stories of the women who have reached the C-level is important to help smooth the way for other Latin American women. With this in mind, we present below the cases of the 25 most powerful

LATIN TRADE SEPTEMBER-OCTOBER 2013

women in the region’s business community. The first of these is without a doubt the most meritorious of all. She is the head of the largest company in Latin America, Petrobas: Maria das Gracas Silva Foster. This Brazilian woman had a very difficult youth. She was born and lived in the Complexo do Alemao, a favela on the outskirts of Rio de Janeiro, until she was 12 years old. But, this didn’t stop her from studying chemical engineering at the Universidad Federal Fluminense, followed by a post-graduate degree in nuclear engineering at the Universidad Federal do Rio de Janeiro, and an MBA from Fundacao Getulio Vargas. She started her professional career at Petrobas when she was very young, joining the company as an intern in 1978, where she occupied various positions. Before becoming CEO of the Brazilian giant, she held important positions in the public sector, where she worked closely with Dilma Rousseff, the current president of Brazil, who at that time was the minister of energy under former president Luiz Inacio Lula da Silva. The second most important woman in Latin American business is Indra K. Nooyi, President of PepsiCo. She is responsible for Latin American operations of the multinational, which occupies 74th place in the Latin 500. Nooyi was born in India, where she began her professional career at Johnson & Johnson after obtaining her undergraduate degree at Madras Christian College. After completing her MBA at the Indian Institute of Management Calcutta, and a master of public and private administration at Yale University, she worked for several companies in the United States. She joined PepsiCo in 1994, and after occupying several positions, she became president in 2007. Third place is also occupied by a Brazilian. She is Claudia Sender, president of TAM (number 89 in the Latin 500). Previously, Sender had

PHOTO: NACHO DOCE/REU TERS/NEWSCOM

CEO of Brazil’s state oil company Petrobras, Maria das Gracas Silva Foster

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The sixth edition of the Business Monitor Latin America (BMLA), commissioned by UPS and conducted by TNS Gallup, provides new insights, attitudes and habits of more than 800 business leaders of small and medium size enterprises (SMEs) in Argentina, Brazil, Chile, Colombia, Costa Rica, Dominican Republic and Mexico. The study takes the pulse of the SMEs by identifying their priorities and needs as well as their main concerns and obstacles they face. The goal is to provide a better understanding of the motivations behind business decisions leaders in Latin America. The report has interesting findings that will help SME executives have a better perspective of how to run their business and engage in international trade.

Claudia Sender, president of TAM

been vice-president of marketing at Whirlpool, where she worked for seven years. She is a chemical engineer, having received her undergraduate degree at the Escuela Politecnica de la Universidad de Sao Paulo, and an MBA from Harvard Business School. A Colombian occupies the fourth spot: Sylvia Escovar Gomez, president of Terpel, the country’s biggest fuel distributor and number 101 in the Latin 500. Escovar has been with Terpel for 10 years and has occupied several positions there. Professionally, she has been in the public sector, in institutions such as the Banco de la Republica and the secretariats of finance and education in Bogota. She has also worked at the World Bank. She is an economist from the Universidad de Los Andes and earned a post-graduate degree in advanced econometrics at the Sorbonne. Rounding out the top five is another Brazilian, Solange Maria Pinto Ribeiro, CEO of Neoenergia (104 on the Latin 500). Pinto Ribeiro is also a member of the executive board of an important number of energy companies in Brazil, including la Companhia Energetica de Penambuco and the Companhia Energetica do Rio Grande do Norte. She studied electrical engineering at the Universidad Federal de Pernambuco and has a master’s degree in electrical engineering from the Pontificia Universidade Catolica do Rio de Janeiro. A Brazilian also owns the sixth position. She is Dilma Seli Pena, president of the water distribution company Sabesp (112 on the Latin 500). She got her undergraduate degree in geography at the Universidade de Brasilia and obtained a master of public administration from the Fundacao Getulio Vargas Foundation. Seli Pena has written articles, texts and other books on drainage, water and planning. Sherilyn S. McCoy, an American, occupies the seventh spot on the list. She is the CEO of Avon, a company whose importance in the region lands it at number 118 of the Latin 500, and with its multi-layered sales force, is one of the region’s biggest employers. McCoy completed

LATIN TRADE SEPTEMBER-OCTOBER 2013

her undergraduate studies at Textile Chemical at the University of Massachusetts, and has a master’s in chemical engineering from Princeton University, and an MBA from Rutgers University. She has four patents registered in her name. Mexico’s first representative on the list is in eighth place: Paula Santilli, who is CEO of PepsiCo in Mexico (146 in the Latin 500). The daughter of Horacio Santilli, who was a well-known executive of multinational companies in different countries throughout the region, she was previously president of PepsiCo in Argentina and in Chile. Santilli has said publicly that she favors a policy of gender diversity in organizations, where men and women have the same opportunity to rise to senior positions and have matching responsibilities. Luiza Helena Trajano Inacio Rodrigues is another Brazilian, appearing in the ninth position on the list. She is the CEO of Magazine Luiza (155 of the Latin 500). Trajano converted Magazine Luiza, a family company, into a holding with 350 locations, with businesses that include real estate, credit and insurance, after radically changing the focus of business management, starting with the demolition of the dividing walls and panels so she could get closer to her personnel. Completing the top 10 is another Brazilian, Anna Christina Ramos Saicali, CEO of B2W Varejo (240 on the Latin 500). Ramos Saicali did her undergraduate degree in the arts at the Universidad Presbiteriana Mackenzie, then a post-graduate degree in art and education at the Universidad de Sao Paulo, and completed the management program at Harvard Business School. The 11th spot belongs to an Argentine who was born in Brazil and is CEO of General Motors in Argentina (315 of the Latin 500): Isela Constantini. She studied communications at the Universidad Catolica Pontificia de Parana and obtained an MBA from Loyola University.

Sylvia Escovar Gomez, president of Terpel

PHOTO: CLAUDIA SENDER: EDU LOPES; SYLVIA ESCOVAR GOMEZ: DIEGO SANTACRUZ/EL TIEMPO DE COLOMBIA/NEWSCOM

RANKING: THE 25 MOST POWERFUL WOMEN

OIL AND GAS: PDVSA

Grace Lieblein, vice-president of the General Motors global supply chain

The second Colombian to make the ranking occupies number 12: Sandra Stella Fonseca, president of the Empresa de Energia de Bogota (463 of the Latin 500). Fonseca is an electrical engineer from the Escuela Colombiana de Ingenieria, and has a master’s in energy studies from the Sheffield Hallam University, plus an MBA in industrial management from the same university. Another American makes the list: Grace Lieblein, the first non-CEO in this compendium, who occupies number 13 because she is vicepresident of the General Motors global supply chain, company 26 of the Latin 500. She also has other links to the region. Lieblein was previously CEO of General Motors in Brazil and also in Mexico, and is an industrial engineer who graduated from Kettering University. She obtained an MBA from Michigan State University. In 14th place is a person who could easily be the best-known businesswoman in her country, the Mexican Maria Asuncion Aramburuzabala, vice-chairman of the board of directors and former owner of Grupo Modelo (76 of the Latin 500). Currently, she is CEO of Tresalia Capital. She is an accountant who obtained her degree from the Instituto Tecnologico Autonomo de Mexico and the granddaughter of Felix Aramburuzabala, who founded of Grupo Modelo in 1955. She has been vice-chairman since her father died. The first Chilean to make the list, at number 15, is another heiress, Iris Fontbona, widow of the influential Chilean businessman of Croatian origin, Andronico Luksic Abaroa. Today, Fontbona controls Antofagasta (88 on the Latin 500), and is the majority shareholder of Quiñenco (168 on the Latin 500). Marcela Drehmer is in 16th place. Less than three months ago, she became CFO of the Brazilian firm Odebrecht (76 on the Latin 500).

LATIN TRADE SEPTEMBER-OCTOBER 2013

Drehmer took part in the Credit Suisse First Boston’s Corporate Finance Internship Program in New York, after having done her undergraduate work in company management at the Universidade Salvador and post-graduate work in finance at Ibmec. Adriana Machado of Brazil occupies 17th place. She is the CEO of General Electric in Brazil. Machado studied political science at the Universidade de Brasilia, and in December 2011, became the first woman in the history of GE Brazil to direct the business of the company. A similar case is that of executive number 18 of the list, the Mexican Gabriela Hernandez Cardoso, CEO of GE Mexico, company number 42 for sales in that country. Hernandez encourages the participation of women in her company because she is convinced of the value of diversity, and for this reason she participates in the internal networking program for women, where participants are trained and assessed to help them move forward in their careers. Another Mexican who makes the list, in 19th place, is Carmina Maria Abad Sanchez, general director and chairman of the board of MetLife in Mexico (company number 58 in Mexico for sales). Abad Sanchez is convinced that the presence of women in business is growing, along with equality of opportunities, and believes that its true value lies in the diversified points of view. Maria Ines de Lafuente Lacroze, who occupies 20th place, is one of the richest businesswomen in Argentina. Her fortune comes from selling the family business, Loma Negra, the biggest cement company in Argentina, which her mother, Amalia Lacroze Fortabat, ran for 25 years. Another Argentine heiress, Edith Rodriguez de Rey, occupies the 21st spot. She is the widow of Luis Alberto Rey, the founder of Pluspetrol, one of the last oil companies to be wholly owned by Argentines. In 22nd place is the first Venezuelan on the list and one of the bestknown women in the country, Adriana Cisneros de Griffin, vice-president of the management committee of Grupo Cisneros. She is the most famous representative of this business-oriented family of communication media, where she is from the third generation. Another Colombian, in 23rd place, is Sol Beatriz Arango, president of Servicios Nutresa, a new platform in the business model of Grupo Nutresa (196 in the Latin 500). Arango is also director of the foundation this food group has established. Its aim is to develop socially responsible activities in education and nutrition. Mariela Garcia de Fabbri is the first Peruvian to make this list, in 24th place. She is the general manager of Ferreyros. Garcia has worked for more than 20 years in this company, which is thought to be the largest marketer of capital goods in Peru. She has worked as treasurer, manager of finances and assistant general manager. In 25th place is the first Ecuadorian on the list, Isabel Noboa, CEO of Consorcio Nobis. Noboa is the founder of this company, one of the largest in Ecuador, with businesses in the real estate, health, tourism and manufacturing sectors. Consorcio Nobis has more than 8,000 employees and reported revenues of more than $600 million in 2012. Like Arango of Nutresa, Noboa has managed a social responsibility foundation, Fundacion Nobis, since 2001. Alvaro Moreno reported from Miami.

PHOTO: PEDRO MERA/EL UNIVERSAL DE M XICO/NEWSCOM

RANKING: THE 25 MOST POWERFUL WOMEN

OIL AND GAS: PDVSA

DUTY-FREE: GROWTH, CHALLENGES AND CHANGE Latin America’s duty-free market evolves, as economic and retail realities hit the industry. BY MARK CHESNUT

ith travelers from North America on the decline, duty-free retailers and suppliers in Latin America are vying for their attention, even as they ride a local wave of increased spending power among consumers who live within the region. To negotiate this tricky situation, businesses are introducing larger retail spaces, new marketing techniques and a wider array of products. From one angle, sales trends are positive, according to Manuel Montico, the general manager for the Montevideo office of Grupo Wisa, the Panama-based travel retailer. “The global travel retail market in Latin America has been growing almost continuously over the past 10 years, except for a slight contraction experienced in the year 2008 due to, among other factors, the crisis created after the fall of Lehman in the United States ,” he said. “It shows signs of strength to continue growing for at least the next five years.” Montico’s very presence in Montevideo is proof of Grupo Wisa’s expansion plans. The company, which until last year operated solely in Mexico, Panama and Colombia (including a new La Riviera-branded duty-free shop at El Dorado International Airport in Bogota), is now making a major push to create a duty-free presence in the Southern Cone — focused, for now, mostly on border shops in Uruguay, near the Brazilian border.

LATIN TRADE SEPTEMBER-OCTOBER 2013

According to Jose Luis Donagaray, secretary general of the Asociación Sudamericana de Tiendas Libres (Asutil), duty-free sales in the region are up nine percent for the first four months of 2013 compared to the same period in 2012, while registration at their annual conference — which took place in June in Punta Cana, Dominican Republic — jumped by 80 delegates from the year before, to 360. Fast-growing Latin American economies — which results in more people traveling and spending money in airports — is fueling duty-free sales, according to Joe Arellano, vice president for Latin America and duty free at Patron Spirits, which markets tequila products in the region. “One of the biggest factors driving growth in Latin America is the emerging affluent middle class, especially in countries such as Colombia and Brazil,” he explained. “Consumer purchasing power is increasing in many Latin American countries, and for a high-quality luxury brand like Patron, that has a very real effect on our business – with more money to spend, people are increasingly seeking affordable luxuries.”

THE CHALLENGES It’s not all good news in the duty-free aisle. The “unfavorable side effect” of the region’s economic growth, according to Montico, is that there are fewer potential customers ar-

riving from outside of Latin America. “The region has become relatively more expensive compared to the rest of the world, and that means that another engine of regional growth, tourism, is going through a complicated period, with fewer passengers from Europe and the U.S., and therefore a significantly lower level of spending,” he said. “Today, Sao Paulo is more expensive than Paris, and vacationing in Punta del Este is considerably more expensive than Miami. Given this reality, we have to be very creative to grow our sales with the few clients coming from outside the region.” There seem to be other challenges. “Like all parts of the world, Latin America is facing three primary challenges,” according to Anna Szentivanyi, the Zurich-based manager of customer marketing at Mondelez World Travel Retail, a division of snack giant Mondelez International, which owns brands including Cadbury, Milka and Toblerone. “The first of these is that not enough travelers are going into duty free stores. In large international travel hubs, 52 percent aren’t choosing to enter travel retail stores, and this figure can be higher in other places, with reasons ranging from being in a rush to not having a specific need or not finding the store appealing enough.” Szentivanyi, who spoke at this year’s Asutil conference about confectionery duty-free growth in Latin America, added that traveler spending habits are also problematic. “Even when travelers are tempted in store, the second problem is that they are not spending enough,” she said. “Research highlights that 71 percent only buy items from a single category and 67 percent only purchase a pre-planned item. There is clearly more that needs to be done to tempt shoppers to make impulse purchases en route to the cash till. The third challenge is that travelers don’t return to the stores often enough. Our surveys show that 69 percent of shoppers visit and buy from duty-free stores only “sometimes” or “rarely,” with shopper feedback citing confusing store layouts and an overabundance of products on the shelves making it difficult to find items when time is limited.

GROWTH STRATEGIES The goal, according to Montico, is to make sales increase outpace passenger growth in each of the airports in which Grupo Wisa operates. The company uses a variety of methods to drive traffic and sales, including loyalty program promotions, e-mail marketing and live events.

ON THE ROAD

“La Riviera has developed strategic alliances in some airports with VIP lounge operators, to bring master watch experts from the most famous Swiss brands, and to offer talks about the technical performance of their products,” he said. “The response to this type of direct marketing is highly efficient; five or six watches may be sold in one afternoon, whereas the monthly average may be 10 units.” Montico said that overall, the trend in newer and recently renovated airports is to allow fewer duty-free shops, but to make each one larger. “You now have bigger [duty-free retail] spaces at the airport, but with just one or two operators,” he noted. “Not like you used to have in Panama.” An additional recent example: This year, Motta Internacional, through its Attenza dutyfree brand, was named the exclusive operator of duty-free stores in Ecuador’s new Mariscal Sucre International Airport. Individual suppliers, meanwhile, are getting creative in marketing their products. This year, Luxottica Travel Retail partnered with Duty Free Uruguay to open a pop-up sunglass shop at the Montevideo airport, which reportedly resulted in a 70 percent increase in sales. “There is no doubt that pop-up shops and other activities outside the main duty-free store can create engagement and drive incremental sales, as they reach those travelers who don’t go in to the duty free store,” said Szentivanyi. “Whenever we run such events, we try to come up with a way of motivating travelers to enter the main store too, because that’s the way to get a greater benefit for the total market.” Szentivanyi said that a major goal for any duty-free retailer should be to improve the

LATIN TRADE SEPTEMBER-OCTOBER 2013

appeal of the consumer shopping experience. “At Mondelez WTR, we believe we need to change the industry’s mindset and together become more traveler-centric, in a bid to drive the right action for each location,” she said. “This is why we’ve held over 30 senior level meetings with key travel retail partners in the last year, sharing our category vision with them and prompting ideas for enhancing the travel retail environment.”

BRAND FOCUS Several suppliers are increasing their focus on the duty-free market segment, as part of their overall sales and marketing strategy. Heineken, for example, created a new duty-free sales manager position for Latin America this year, while Montblanc has shifted responsibility for the region from Hamburg to its Miami office, to be closer to the market. Patron Spirits has also dedicated more resources to the Latin America duty-free market. “The duty-free channel and the domestic market complement each other – that has always been our strategy and approach to duty free,” said Arellano. “In the early days, our top priority was to open distribution, and now that our distribution is at a mature level, our strategy has evolved into an emphasis on in-store activation and promotion, and consumer education. To help do that, we’ve brought on a dedicated resource – a member of our international team who is solely dedicated to the Latin America duty-free channel.” Also eying expansion in Latin America is Mexico-based Fraternity Spirits, which has found Colombia, Chile and Peru among the most receptive regions for its tequila brands,

according to Raffaele Berardi, the company’s CEO. He said that the company is now looking at Brazil, adding that “the challenge is that it’s one of the major markets where we have not yet found the right local partner,” he said. “It’s a more challenging market because of the size for distribution.” Porton, the Peruvian pisco brand, is also looking beyond borders. The brand is currently featured in three duty-free stores at Lima’s international airport, but the goal is to move it beyond the Peruvian border; company officials are currently negotiating availability in Chile. “The Latin America duty-free market is crucial for Porton, as we are a Peruvian brand established, in just 2.5 years, as an ultra-premium, quality brand in the Peruvian market,” said Brent Kallop, Porton’s president. “The opportunity to expand to other duty-free markets is important and is a huge part of our growth strategy in the coming years. As we open distribution in other countries, we will attempt to negotiate the possibility of Porton being carried in those airports, but want to ensure the product and messaging is well known before emerging in the duty-free space.” Mondelez International recently added a new member to its Latin America sales team, and has introduced a new category to its Latin America duty-free portfolio: chewing gum — namely, the Trident brand. “Latin America is the key driver of the high growth we are experiencing in Americas duty-free revenues, and plays a big part in the leading position we have achieved in terms of sales value market share, which was 19.3 percent last year,” said Szentivanyi. “While key challenges are consistent across all regions, there are some regional-specific characteristics in Latin America that we have to take into account in our strategy,” Szentivanyi added. “In many other parts of the world, for instance, airport shops are the largest channel, whereas in the Americas there’s more diversity, with airport shops accounting for 37 percent of sales and other channels for 58 percent.” Other channels include mainly border stores, downtown duty-free and diplomatic stores. Border stores are significant in Latin America. She also pointed at the importance of Brazilians in regional travel. ”We see a share of the traditional traveling nationalities in the region, but Brazilian travelers make up the biggest number.” Mark Chesnut reported from New York.

ON THE ROAD

LT CFO BOGOTA

Raúl Jimenez,Finance Director- Beauty and Grooming Categories, Procter & Gamble Latin America; Rocio Vargas, Financial Manager, Procter & Gamble Latin America; Carlos Andres Hleap, Finance Director, Diageo Colombia

Emilio Fortou, Global Commercial Expansion Team Latin America & Caribbean Region, Visa, Inc.; Kathryn Rooney Vera, Director and Partner, Macroeconomic Research, Bulltick Capital Markets; Mark Ludwig, Contributor Editor, LT CFO; Beatriz Dager, Partner, Deloitte; Victor Traverso, Director Representative in Colombia, CAF

Andres Bernal, VP Finance and Strategy Dev/CFO, Sura Assets Management

LESSONS FROM A CFO flows to the region will not trigger another Latin disaster like the Tequila Crisis in 1994. Even more, a hard landing in China would have a smaller effect on Latin America now than a year and a half ago, she added. Over the next months, she sees investors shying away from Brazil and moving into Colombia and Mexico. On the topic of the new role of the CFO, Beatriz Dager, CEO of Deloitte Colombia, remarked that the financial executive should be a catalyst in the organization, to generate behaviors that promote the achievement of financial goals. On its role of cost managers, Juan Felipe Gomez, vice president of finance at SAP Latin America said that CFOs should try to induce decision makers within the company to always think about financial goals.

Hernán Humberto Herrera Echeverri Ph. D. Director Master In Financial Administration Universidad EAFIT

Jorge Hernan Jaramillo Ossa, President, Deposito Centralizado De Valores de Colombia; Juan Pablo Cuevas, Managing Director, Head of Global Transaction Services, Latin America and the Caribbean, Bank of America Merrill Lynch

Aquiles Rico, Solutions Specialist, SAP Latin America; Carlos Eduardo Botero Madera, Finance Director, Productors Naturales de la Sabana; Bolivar Arosemena, Head of Sales Latin America/Caribbean Region AETNA Intl

CONNECTING LATIN AMERICA’S CFO COMMUNITY

LATIN TRADE SEPTEMBER-OCTOBER 2013

Javier Diaz Fajardo, Commercial Vice President, Bolsa de Valores de Colombia

PHOTOS: DAVID AMADO

ith a swift acquisition process, Grupo Sura became the largest pension savings manager in Latin America. For his involvement in that process, Andres Bernal Correa, head of Sura Asset Management was named Latin Trade CFO of the Year Colombia. The award was presented at the CFO event held in July at the JW Marriott Hotel Bogota. Andres Bernal gave the audience a description of these audacious operations, which relied heavily on equity financing and innovative structuring. There is an abrupt end to the love affair between investors and emerging markets, caused by the expected drop in world liquidity, said Kathryn Rooney Vera, macroeconomic strategist and partner at Bulltick Capital Markets. However, a sudden increase in interest rates in the U.S., and a drop in capital

LT CFO SÃO PAULO

Moira Paz-Estenssoro, Director Representative, CAF Brasil; Juan Pablo Cuevas, Head of Global Transaction Services, Latin America and the Caribbean, Bank of America Merrill Lynch

Enéas Pestana, Chief Executive Ofﬁcer, Grupo Pão de Açúcar

Sandro Freitas, Financial Director, Discovery Networks Brazil; Amit Singhi, CFI, Ford; Genilson Melo, CFO, Copersucar; Cristiano Furtado, CFO, Marsh

Edson Silva, General Manager, Firmenich; Rodrigo Neaime, Head of Operations and Finance, Gallo Worldwide

Luis Emilio Fortou, Global Commercial Expansion Team, Latin America and Caribbean Region, Visa Inc.

THE ROAD AHEAD T

Claiton Clivati Camargo, Finance Director, Lexmark International do Brasil; Igor Miotto, Finance Director, Bull Latin America; Eber Coelho, CFO, Artsana Brasil; Milton Brandt, Finance Director, Unilever Brasil

Fernando Lewis, Vice President of Business Development and Operations, SAP Brasil; Flavia Lauletta, Branking and Insurance Marketing Coordinator, SAP Brasil; Jose Maria Pessoa, Commercial Director, SAP Brasil

CONNECTING LATIN AMERICA’S CFO COMMUNITY

100

LATIN TRADE SEPTEMBER-OCTOBER 2013

PHOTOS: NEWTON MEDEIROS

he “wondrous decade” that has just passed, marked by economic growth and poverty reduction, may now come to an end, said the CAF’s director representative in Brazil, Moira Paz-Estenssoro. The reason is that this success mainly came from the export of commodities. To make progress sustainable, much greater effort needs to be placed on investment in infrastructure and education. Technology, innovation and SME development must gain a place on the region’s agenda, she said. This was one of the conclusions of the CFO Event hosted by Latin Trade on August 13 at the Hotel Tivoli in Sao Paulo. A group of 50 CFOs exchanged views on the current Brazilian economic situation and discussed challenges faced by finance executives. David Beker, chief Brazil economist at Bank of America Merrill Lynch Global Research, fears that there will be a dip in investment as investors hold back or even retreat, as the October 2014 elections get closer. He expects GDP growth to be just two percent this year, and inflation 5.6 percent. Zero based budgeting (ZBB) was another topic of discussion at the event. The merits of this method were advocated by various participants. “It makes you think differently,” said Rodrigo Neaime, head of operations and finance, Gallo Worldwide. He praised it as an efficient tool to cut costs. Eneas Pestana, CEO of the Pão de Açúcar Group, the largest retailer in Brazil, delivered the keynote address. He gave proof of why a CFO has a clear advantage on the race to become a CEO. In a nutshell, he has all the information. Eneas himself was CFO before becoming the head of the retailer. Thierry Ogier reported from Sao Paulo. Santiago Gutierrez from Miami.