LATIN TRADE
COUNTRY REPORT: MÉXICO 2014 AND BEYOND
NEW
THE
BUSINESS BREED Meet the new Latin American business leaders.
THE NEW BUSINESS BREED
CAPITAL WILL BE SCARCE Interview with Roberto Setubal, CEO of Itaú Unibanco
LATIN LEGAL STARS MAY / JUNE 2014
2014
A RADICAL CHANGE Transformation is taking over logistics operations in Latin America Gustavo and Adriana Cisneros, heads of the Cisneros Group
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donde Patricia Janiot va para llevarte el pulso del mundo
CONTENTS M AY / J U N E 2 0 1 4
Editor’s Note 8
Nature Does Not Make Leaps
The Scene
VO L . 2 2 N O . 3
20
12 Trends in Human Capital
Opinion 14 The Contrarian: Could a World Cup Victory Rescue the Brazilian Economy? By John Price
Events 60 CEO Roundtable Panamá 62 CFO of the Year Distinguished and Powerful Marcela Drehmer, CFO of Brazilian conglomerate Odebrecht, is the first woman to be named CFO of the Year.
63 CFO São Paulo 64 CFO Miami
Features Trends
16 Legal: Rising Legal Stars Meet the lawyers behind the largest deals or who have made a substantial impact through their multiyear knowledge of the region’s legal landscape.
24
Europe
18 Telefónica: Customers and Cash Flow The group’s recent restructuring reflects the Spaniards’ bet on Latin American businesses.
20 Mexican Investment: The Mexican Conquista Spain rolls out the red carpet for capital arriving from México.
Multilatina
22 “Capital Will Be Scarce in the Coming Years” Roberto Setubal, President and CEO of Itaú Unibanco
Trade
24 Chile Exports to China: The Silk Route 26 Retail: Riding the Retail Boom Latin America is perhaps the most exciting region in the world for retailers. 4
LATIN TRADE
MAY-JUNE 2014
26
CONTENTS M AY / J U N E 2 0 1 4
VO L . 2 2 N O . 3
Features 30-35
Cover Story: Business Leadership The New Business Breed Up-and-coming executives are 30 or 40-something. Most have studied abroad, traveled widely and bring a global perspective to businesses. Meet the new Latin American business leaders.
Special Report
36 Logistics: A Radical Change Transformation is taking over logistics operations in Latin Ameica.
36
46 New in Executive Education Since the 2008 financial crisis, the programs for Latin American executives in the U.S., and at home, have changed dramatically.
Forecast
50 México: Mexicans Take Their Future Into Their Own Hands Initiatives in education, justice and security show a new interest from citizens in accelerating changes in the country.
52
?
Country Report
52 México: Growth in doubt México’s government expects 3.9 percent growth, but sector analysts and businessmen think differently.
Policy Agenda
54 Pensions: Addressing the Ticking Time Bomb
Latin America Philanthropy Initiative
56 Innovation: Strength in collaboration
Aviation Special
57 Success story in the air
Luxury
68 Watches for every wrist
Web Find us online at www.latintrade.com
Cover: The New Business Breed 6
LATIN TRADE
MAY-JUNE 2014
56
LETTER FROM THE EDITOR
“N
ature does not make leaps” is the phrase used by scientists to mean that social phenomena do not advance in jumps, but move continuously. Events that surprise us are often the result of trends that have been forged and have evolved, slowly, over a long time. They take us by surprise perhaps, because as they develop, we have been looking in another direction. It seems advisable then to spot and monitor those developments, which are not always visible, but no less inevitable because of that. This edition is full of trends that will transform the region. In financial services, the CEO of Bank Itaú, Roberto Setubal, explained to Latin Trade readers how the latest Basel Accord regulations increased capital requirements for banks in such a way that it will completely change business in this sector worldwide. Banks will no longer offer products, and will get out of countries where they cannot make enough profits to cover the cost of capital increased by the new rulings. Their exit from some services and regions will open entry opportunities for non-banks, which do not have to maintain high levels of capital. In retail, we find that Latin America is one of the most attractive regions in the world to invest. This is due in part to the
8
LATIN TRADE MAY-JUNE 2014
existence of forces that will guarantee continued demand in the future. The emergence of the middle class is the best known of them, but there are also heroic increases in online shopping, a growing financial independence of women, and the notable expansion of direct credits from retailers, among others. These developments will set the stage in which the new corporate leadership of the region will have to maneuver. These are professionals in their 30s and 40s who are debuting as the heads of the largest companies in Latin America. This is the subject of our cover story, and it is, in itself, another of these big trends. But, there are also worrying signs. The population over 65 will triple, reaching 140 million in 2050, and IDB economist, Carmen Pagés fears that if current trends continue, 50 to 60 percent of those who retire then will not receive a pension, nor have enough savings to live outside of poverty. Let´s not be surprised by these transSantiago Gutiérrez, formations now that we know they are Executive Editor coming. sgutierrez@latintrade.com
PHOTO: © ISTOCKPHOTO.COM/ PEJO29
NATURE DOES NOT MAKE LEAPS
Latin America
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THE SCENE
TRENDS IN HUMAN CAPITAL
A
recent report from Deloitte analyzes world trends in human capital for 2014, a year in which it said global organizations have left the recession behind and are positioning themselves aggressively for growth. It stated: “Slowness has given way to expansion. Retrenchment has been replaced by investment. The need to be careful has been replaced by the need to get things done.” The study is based on a survey of 2,532 companies and human resources executives in 94 countries, who show these characteristics as being the most
urgently needed: leadership, retention and commitment, training, and attainment of and access to talent. Leadership is the most prominent issue in the survey and was identified as the top priority for South Americans, who also gave high priority to retention and commitment. Training of the labor force, globalization of human resources and the attainment of talent are next in importance. In fact, the companies with head offices in South America show that at the global level, they are the ones that most need improvements in training the labor force.
PRIORITIZATION OF HUMAN CAPITAL - MOST IMPORTANT TRENDS BY REGION 34
466
More important
Asia Pacific
Western Europe
Central and Eastern Europe
Africa
Middle East
North America
Less important
South America
Leadership
439 (37%)
447 (38%)
278 (24%)
246 (21%)
155 (13%)
466 (40%)
292 (25%)
Retention and engagement
355 (36%)
297 (31%)
192 (20%)
200 (21%)
101 (10%)
346 (36%)
237 (24%)
Workforce capability
374 (40%)
287 (31%)
178 (19%)
218 (23%)
111 (12%)
316 (34%)
201 (22%)
Global HR and talent management
337 (53%)
305 (48%)
188 (29%)
168 (26%)
120 (19%)
286 (45%)
198 (31%)
Learning and development
319 (38%)
279 (33%)
183 (22%)
157 (19%)
92 (11%)
287 (34%)
209 (25%)
Talent acquisition and access
263 (37%)
222 (32%)
160 (23%)
150 (21%)
89 (13%)
286 (41%)
170 (24%)
HR technology
226 (38%)
255 (43%)
155 (26%)
141 (24%)
89 (15%)
256 (43%)
160 (27%)
Talent and HR analytics
207 (40%)
215 (41%)
120 (23%)
111 (21%)
76 (15%)
244 (47%)
126 (24%)
Reskilling the HR function
208 (34%)
228 (37%)
117 (19%)
135 (22%)
59 (10%)
202 (33%)
126 (20%)
Performance management
199 (34%)
210 (36%)
115 (20%)
123 (21%)
65 (11%)
230 (39%)
114 (19%)
The overwhelmed employee
137 (27%)
168 (34%)
95 (19%)
86 (17%)
39 (8%)
188 (38%)
94 (19%)
Diversity and inclusion
91 (35%)
74 (28%)
51 (20%)
80 (31%)
34 (13%)
86 (33%)
62 (24%)
Note: Figures in each cell represent the number of respondents who viewed the given trend as one of the top five most important, and who felt that the trend would be important in the given region. Percentages are calculated on the total number of respondents who selected the given trend as one of the five most important overall. Source: Deloitte University Press, Global Human Capital Trends 2014: Engaging the 21st-century workforce.
12
LATIN TRADE MAY-JUNE 2014
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OPINION THE CONTRARIAN
COULD A WORLD CUP VICTORY RESCUE THE BRAZILIAN ECONOMY? The incredible effect of the Seleção verde amarela. BY JOHN PRICE
A
fter averaging 4.5 percent per year GDP growth over the last decade, Brazil has begun a two-year (’14-15) slowdown, stunted by falling commodity prices, rising inflation and wilting consumer confidence. Chest beating Brazil, leader of the Brics, resource rich and business savvy, seems to have lost its mojo. Like a salesmen whose hit a slump, Brazilians of all stripes are hoping for a miracle – only the Seleção , the Brazilian national soccer team, can lift the country from its slump. Is such an idea modern superstition, or do the Brazilians have a point? From the moment Brazil won the hosting rights to this year’s World Cup tournament, the economic benefits have been grossly exaggerated. Though billions will watch the games, only 600,000 will visit Brazil from abroad, joined by another three million domestic tourists. By comparison, over 70 million people visit Florida each winter. The estimated $11 billion dollar spending impact from World Cup tourism will have only a ripple effect on the $2.2 trillion Brazilian economy. The construction of stadiums and other World Cup infrastructure, condemned by Brazil-
14
LATIN TRADE MAY-JUNE 2014
ians as wasteful and corrupt, will barely reach $4 billion, versus national infrastructure spending over the same five-year period of more than $400 billion. Why the World Cup matters has to do with the psyche of the Brazilian consumer. Brazil is the most storied soccer team in the world, the perennial favorite of almost any World Cup tournament. Brazilians expect to win. Their present FIFA rankings (6th when we went to print) reflects the fact that la Seleção has played fewer competitive matches than others over the last two years since they do not have to qualify as the host country. Many analysts put them in the top three, alongside Germany and Argentina. But as confident as Brazilians are of their soccer skills, voters have lost confidence in their economy and their politicians. Support for President Rousseff has slipped as the economy slowed, inflation grew and the extent of government corruption is brought to light. Protests in June 2013 that pointed to the country’s brand new stadiums as symbols of waste are scheduled to resume with the World Cup. If the Seleção fares poorly, the din of protest will be joined by jeering fans,
and the government will be the target of widespread frustration. If Brazil wins or at least advances to the final, protests will be drowned by cheers. No wonder Rousseff has become an avid soccer fan. Brazil’s economy has been running on the fumes of consumer credit for the last 24 months as the export sector choked on the custo Brasileiro and an overpriced real. As China weans itself off of overinvestment in infrastructure, the price of iron ore (Brazil’s largest export) has dropped 20 percent from its peak. The real is more competitive, but a decade without reform has weakened Brazil’s manufacturing sector, which has lost share in most markets outside of South America to stronger U.S., European and Asian peers. Without growth in the external sector, Brazil relies heavily on consumer spending to keep growing. But almost a decade of buying beyond their means, with the help of parcelados (installments), has indebted Brazilians. Today, the average household spends 24 percent of their disposable income servicing debt, compared to 19 percent for Americans at the height of the 2008 financial crisis. With weak export growth, an overextended consumer, six percent inflation, and a government committed to spending its way to re-election, policymakers have few tools left. Whoever governs Brazil in 2015 will be forced to raise interest rates dramatically to avoid a downgrade of Brazilian debt below investment grade. Economic growth in 2015 will depend upon one factor and one alone – consumer confidence. If Brazilians keep spending, the country is in for a soft landing. If consumers grow morose (over a poor showing in the World Cup, for instance), then Brazil’s fall from grace will be less seemly. This year, winning the World Cup will mean more than ever to Brazil. It just might save their economy.
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
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15
TRENDS LEGAL
RISING LEGAL STARS
2014
Meet the lawyers who have been behind the largest deals or who have made a substantial impact through their multiyear knowledge of the region’s legal landscape.
E
very year, Latin Business Chronicle honors 50 lawyers who have made an outstanding achievement to Latin America’s legal field, a tradition it has continued since 2011. The list aims to honor the attorneys who make the greatest contributions, including those who have been behind the scenes of the region’s largest M&As, arbitrations, IPOs, project finance, and other major transactions. These are lawyers who are well established and respected among their peers as senior statesmen. The market intelligence gleans this information from its other rankings, including those of Latin America’s Top 100 M&As, as well as through independent research, discussions with the region’s top legal talent, the relative importance of the law firm within Latin America, and through consulting third-party sources such as UK-based Chambers and Partners. The list includes attorneys from both large and smaller boutique firms. They are based both internationally - in the United States, Spain, and the United Kingdom, as
16
LATIN TRADE MAY-JUNE 2014
well as in the region, in Argentina, Brazil, México, Panamá, Perú, and Venezuela, and other major legal markets. Their expertise spans a broad range of subjects, including arbitration, banking, capital markets, energy, mining, M&As and taxes. This year’s list includes such standouts as Luiz Antônio Campos, founding partner of Brazilian M&A heavyweight Barbosa, Müssnich & Aragão – a newcomer to the list for 2014 - who last year oversaw the team advising Brazilian telecom giant Oi in its acquisition of Portugal Telecom – a $15 billion deal which was the largest M&A of 2013 according to Latin Trade rankings. Also represented is Bruno Ciuffetelli, co-chair of the Latin American practice group of Hogan Lovells in Caracas, where he advises international oil companies in the complicated Venezuelan legal market. The list also includes Cynthia Urda Kassis of Shearman & Sterling, a leader in project finance who has received numerous accolades for her work in the expansion of the Panamá Canal. Other familiar names include Eduardo
C. Leite, the chairman of the executive committee of Baker & McKenzie – the world’s largest law firm by revenues, and a native Brazilian himself, who has worked on almost all Brazilian privatizations either for the Brazilian government (through the Bndes), or for private investors. Other familiar senior statesmen include Richard S. Aldrich Jr. of Skadden, Arps, Slate, Meagher & Flom, who brings decades of experience to the fields of securities offerings, mergers and acquisitions, and public and private financings in Brazil and the U.S., as well as Fernando C. Alonso of Hunton & Williams, who has long worked with Spanish banks Santander and Sabadell in their Latin American dealings. Also present on the list is Luis Riesgo of law giant Jones Day, an expert in M&A/ takeovers, buyouts, restructuring, and private equity transactions with 20 years of practice, including many complex multicountry acquisitions, as well as Robert Ellison of Shearman & Sterling, who headed Petrobras’ historic $70 billion initial rights offering.
PHOTO: © ISTOCKPHOTO.COM / MAXKABAKOV
BY MARK KELLER
TRENDS LEGAL
These names represent some of the brightest legal minds operating in Latin American business today, and are indispensable to maintaining the strong growth coupled with transparency and rule of law that are so necessary to Latin America’s future. We congratulate them on their achievements. RICHARD S. ALDRICH JR.
Partner
Skadden, Arps, Slate, Meagher & Flom
São Paulo
FERNANDO C. ALONSO
Chairman Latin America Practice Group
Hunton & Williams
Miami
PAULO CEZAR ARAGÃO
Senior Partner
Barbosa, Müssnich & Aragão
São Paulo
RICARDO M. ARANGO
Partner
Arias, Fábrega & Fábrega
Panamá
JOSÉ ASTIGARRAGA
Founding Shareholder
Astigarraga Davis
Miami
DONALD E. BAKER
Partner
White & Case
São Paulo São Paulo
STUART M. BERKSON
Chair Latin America Practice
DLA Piper
NIGEL BLACKABY
Partner
Freshfields Bruckhaus Deringer
Washington, D.C.
RANDY A. BULLARD
Shareholder
Greenberg Traurig
Miami
ANTONIO BULNES
Partner
Garrigues
Madrid
LUIZ ANTÔNIO CAMPOS
Partner
Barbosa, Müssnich & Aragão
Rio de Janeiro
STEVEN L. CANTOR
Managing Partner
Cantor & Webb
Miami
JEAN PAUL CHABANEIX
Partner
Rodrigo, Elías & Medrano
Lima
BRUNO CIUFFETELLI
Partner
Hogan Lovells
Caracas
MARIA CRISTINA CESCON
Founding partner
Souza, Cescon, Barrieu & Flesch
São Paulo
VICENTE CORTA FERNÁNDEZ
Partner
White & Case
México City
S. TODD CRIDER
Partner & Co-Head
Simpson, Thacher & Barlett
São Paulo & New York
ANTONIO DEL PINO
Partner and Co-Chair Latin America Practice
Latham & Watkins
New York
MICHAEL DIAZ, JR.
Managing Partner
Diaz, Reus & Targ
Miami
ROBERT ELLISON
Managing Partner
Shearman & Sterling
São Paulo
JAIME A. EL KOURY
Partner
Cleary Gottlieb
New York & Buenos Aires
JEAN MICHEL ENRIQUEZ DAHLHAUS
Partner
Creel, García-Cuéllar, Aiza y Enríquez
México City
RAYMUNDO E. ENRÍQUEZ
Chairman, Latin America Regional Council
Baker & McKenzie
México City
GLENN FAASS
Co-Head Brazil Practice, M&A Latam
Norton Rose & Fulbright
Bogotá & São Paulo
MICHAEL L. FITZGERLAND
Partner
Paul Hastings
New York
SERGIO J. GALVIS
Head, Latin America practice
Sullivan & Cromwell
New York
MANUEL GARCÍA DÍAZ
Partner
Davis Polk
São Paulo
DANIEL E. GONZÁLEZ
Partner
Hogan Lovells
Miami
THOMAS S. HEATHER
Partner
Ritch Mueller
México City
FULVIO ITALIANI
Partner
D’Empaire Reyna
Caracas
ANDREW JÁNSZKY
Partner, Head Latin American Practice
Milbank
New York & São Paulo
JORGE U. JUANTORENA
Partner
Cleary Gottlieb
New York
EDUARDO C. LEITE
Chairman Executive Committee
Baker & McKenzie
Chicago
JAIME LLOPIS
Partner
Cuatrecasas, Gonçalves, Pereira
Madrid
PAOLA LOZANO
Partner
Skadden, Arps, Slate, Meagher & Flom
New York
ALBERTO LUZÁRRAGA
Partner
Linklaters
São Paulo
MICHAEL J. MCGUINNESS
Partner
Shearman & Sterling
New York
JAIME MERCADO
Partner
Simpson, Thacher & Barlett
New York & São Paulo
FRANCESCA L. ODELL
Partner
Cleary Gottlieb
New York
ANTHONY OLDFIELD
Office Managing Partner
Clifford Chance
São Paulo
MELISSA RACITI-KNAPP
Co-Head Latin American Practice
Freshfields Bruckhaus Deringer
New York
LUIS RIESGO
Partner-in-Charge
Jones Day
São Paulo
EDUARDO RODRÍGUEZ-ROVIRA
Partner
Uría Menéndez
Madrid
LUIS RUBIO BARNETCHE
Managing Shareholder
Greenberg Traurig
México City
PAUL T. SCHNELL
Chair Latam Practice
Skadden, Arps, Slate, Meagher & Flom
New York & São Paulo
LUIS ANTÔNIO SEMEGHINI DE SOUZA
Partner
Souza, Cescon, Barrieu & Flesch
São Paulo
ANTONIA E. STOLPER
Partner
Shearman & Sterling
New York
CYNTHIA URDA KASSIS
Partner
Shearman & Sterling
New York
CARLOS VIANA
Partner
White & Case
Miami
DAVID L. WILLIAMS
Partner, Head Latin American Practice
Simpson, Thacher & Barlett
New York
RICHARD L. WINSTON
Partner
K&L Gates
Miami
JONATHAN ZONIS
Partner
Clifford Chance
Hong Kong
MAY-JUNE 2014 LATIN TRADE
17
EUROPE T E L E FÓ N I C A Executive team from Telefónica de España, with César Alierta (C), surrounded by COO José María Álvarez-Pallete (L) and Chief Financial Officer Ángel Vilá
CUSTOMERS AND CASH FLOW The group’s recent restructuring reflects the Spaniards’ bet on Latin American businesses.
O
n September 5, 2011, Telefónica announced a major shake-up in its organizational chart. Countries as business units were dismantled and consolidated into two large divisions: Telefónica Europe and Telefónica Latin America. Added to these offices – one in Madrid and the other in São Paulo – was Telefónica Digital, which joined the battle in the technological world from its headquarters in London. On February 26 of this year, company president, César Alierta, again banged his fist on the table and changed everything, just two and a half years after the first restructuring. He’s starting all over again. On that day, the telco’s board of directors approved the group’s new organization plan as proposed by Alierta. This time, it’s fully oriented to the customer and incorporates the digital offering as it focuses on its sales policies. The plan provides more visibility for local operators, specifically in Spain, Brazil, Germany and the United Kingdom, as well as in the Latin American unit, which no longer includes Brazil. The old system of dividing Telefónica geographically turned out to be a disappointment. José María Álvarez-Pallete, a current member
18
LATIN TRADE MAY-JUNE 2014
of the board and new strong man at Telefónica, after Alierta, warned the president that dividing the company by geographic areas was holding the company back from meeting the fierce competition from its rivals. The big transatlantic firm that is Telefónica was at risk of being left behind. It’s said that Alierta heeded this advice and felt no doubt about retreating, although some people close to him were seriously hurt, such as Santiago Fernández Valbuena, who at the time was responsible for Teléfonica Latin America, and who left São Paulo and returned to Madrid. The change for Fernández Valbuena goes beyond a switch in postal codes: he leaves the executive tasks to return to office life, with the position of general director of strategy. On the Latin American scorecard, Telefónica Latin America underpinned the growth of the group in 2013 with a year-to-year increase of 9.6 percent, while billings in Europe fell 8.6 percent – a startling contrast in numbers. The Brazilian Paulo César Pereira Teixeira is in charge of Brazil, and Eduardo Fernando Caride is head of the Latam unit. Those are the certainties. But with
the new organizational chart, could the region lose its relevance? “We have given Latin America a lot of weight for a long time, so it is very hard to give it more than it already has,” a senior company executive with responsibility in Latin America told Latin Trade. The source pointed out that in addition to creating the Latin American unit with Brazil as a local operator, Latin America had never been represented on the executive committee, and now it is. “The company’s new structure strengthens local business and eliminates the regional divisions, except in Latin America, which shows the importance we are giving the region,” he added. Telefónica recognizes that managing businesses in México, Argentina or Chile from São Paulo doesn’t work because these are very different markets. In Madrid, they concluded that they need national executives who understand the needs of their customers. Alierta said: “I want them to bring me customers and cash.” And that’s what they’re doing. Sergio Manaut reported from Madrid.
PHOTO: ANDREA COMAS/REU TERS/NEWSCOM
BY SERGIO MANAUT
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EUROPE MEXICAN INVESTMENT
THE MEXICAN
CONQUISTA
In need of investments, Spain rolls out the red carpet for capital arriving from México, which over the past year has increased by 273 percent.
M
exican companies are landing in Spain, attracted by opportunities opening up as a result of the economic crisis that is battering the mother country. The data speaks for itself. In 2013, México increased its investment in Spain by 273 percent compared to the previous year, and this puts it in seventh place among foreign countries investing in the country. “México is leading the pack in Latin American investment in Spain, with a significant flow of financial transfers,” said the Spanish secretary of state for trade, Jaime García-Legaz. The official added that in those two years, especially the latest one, he has seen important Mexican moves in Spain. What investments is García-Legaz talking about? In November, Sigma launched an IPO to take a 54.2 percent interest in Campofrío, after acquiring the rest of the food group’s capital in an arranged operation. Sigma, a subsidiary of Grupo Alfa, is a leader in the cold meat market in the United States and cheeses in México, and invoices $16 billion annually. For Sigma, the acquisition of Campofrío is an opportunity to enter the European market with leadership positions and solid branding, plus an experienced management team. Two months earlier, in September, Banco Sabadell announced the shoring up of its balance sheet with capital from two large Latin
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American fortunes – those of Colombian banker Jaime Gilinski and Mexican businessman David Martínez Guzmán – by means of an operation to broaden its capital base after paying out 1.4 billion euros. Another traditional bank, Popular, tied its future to Mexican capital by sealing an alliance
“México is leading the pack in Latin American investment in Spain, with a significant flow of financial transfers.” with the Mexican bank BX+ (also known as Grupo Financiero Ve Por Mas), whose principal investor is the del Valle family, which also owns the giant petrochemical firm Mexichem. The Mexican investors bought 6.39 percent of Popular for 450 million euros, while the Spanish bank will buy 24.9 percent of the Mexican institution for 97 million euros, launching its internationalization with this purchase. The transportation company ADO has purchased the Spanish firm Avanza, which is in urban transportation and the management
of bus stations. Avanza has a staff of more than five thousand employees. The Mexican Luis Solís, assistant dean of the Instituto de Empresa Business School, attributes the venturing of Mexican businesses into the outside world to several factors. The first, he said, is the new generations of executives that are now populating the companies. They are professionals trained at foreign universities and with a broad vision of the world. Second, he added, Mexican companies are taking the first step toward opening up to the world through alliances with global companies. “And in Spain, today it’s cheap to buy companies there. There are opportunities,” Solís said, adding that Spain is the leader in compound materials, “which makes it convenient for México to invest in these companies, since the aeronautic sector is developing, and the same is true of automobiles.” By getting involved in these companies, the Mexicans are acquiring vital knowledge for development of these two sectors at a very low price. “Unfortunately, they are not seeing this growth opportunity, because non-strategic purchases can also grow,” Solís added. It’s unfinished business for the next wave. Sergio Manaut reported from Madrid.
PHOTO: INGRAM PUBLISHING/NEWSCOM
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MULTILATINA R O B E R TO S E T U B A L Roberto Setubal, president and CEO of Itaú Unibanco
be able to do much more in addition to what we have now, at least in the next two years. In other countries, we are open to analyze opportunities for acquisitions or partnerships.
HOW DID THE BANK IMPROVE ITS PERFORMANCE SO MUCH IN THE LAST YEAR?
“CAPITAL WILL BE SCARCE IN THE COMING YEARS” Major changes are coming to the banking industry, said Roberto Setubal, CEO of Itaú Unibanco, the largest bank in the Southern hemisphere. He shared with Latin Trade his view of a world with costlier capital and with no advantages to being a global bank.
B
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tries require them to have capital and liquidity accounts on a local basis. They will be competing on the same conditions of local banks, and lose the synergies of consolidating capital on a global basis. How will Itaú Unibanco move in this new environment?
WHAT ARE THE MAIN LINES OF YOUR INTERNATIONAL EXPANSION? Our international expansion strategy is tied to Latin America. We plan to be in countries where we are already are - Argentina, Chile, Uruguay, Paraguay and Colombia, and we have a small operation in México and Perú, which we want to increase. In Colombia and Chile, we do not have any specific plans, other than that of implementing the (acquisition) deal that we signed with Álvaro Saieh. We will have a lot of work merging those banks with our banks. In Colombia and Chile, we will not
The general guidelines will not change. We have not seen the full benefit of these policies. We expect to have a lower level of provisions in 2014 and probably in 2015. But by then, most of the benefits will be already shown in our P&L. Our portfolio will be moving towards lower risk because the products that are outgrowing the rest are mortgage and payroll loans, and lower-risk type of products, so the mix of the portfolio will have lower risk.
THAT IS INDEED A MAJOR DECISION… We are aiming to have lower volatility in our earnings, that they are not so much connected to the economic cycle, so we want to have lower risk. Along with that, we are increasing our fee service revenues. We have made some acquisitions, and we have been working to increase the fees and commissions revenue. Last year, we grew by
PHOTO: NELSON ALMEIDA/AFP/GETTY IMAGES/NEWSCOM
ARE MAJOR COURSE CHANGES COMING?
BY SANTIAGO GUTIÉRREZ
rigadeiro Faria Lima, the Paulista avenue which will be flooded with flag-gowned soccer fans in June – not Praça Alfredo Egydio de Souza Aranha, the company’s headquarters – was the place for the interview with Roberto Setubal, the vice chairman of the board, shareholder and CEO of Itaú Unibanco, the largest bank in Latin America and in the Southern hemisphere. At one of the high rises on the avenue, Roberto Setubal discussed the bank’s achievements and challenges – their international expansion plans, their product strategies, and their vision of the banking business. “Banking is going through a major transformation because of regulation,” he said. He believes that increases in required capital with Basel III norms will also increase the cost of capital on a global scale. Besides, he expects global and international banks to feel more intensely the consequences of the new environment, as coun-
At the end of 2011 and beginning of 2012, we made a major movement in the bank in terms of readjusting risk appetite. Given the lower growth and the uncertainty of the recovery in the United States, we thought it would be a good idea to move to lowerrisk products. We started doing that back in 2012, and we were very successful in reaching lower level delinquency and higher after-provisions margins. It took us one year to see the results, until the second semester 2013. Although we were certain that the results would come, because we could see the leading indicators - the improvement of early delinquency and the quality of the portfolio - it’s very good to see the results on the bottom line. Our first quarter 2014 profits were almost 30 percent higher than last year’s first quarter figures. It was a real turnaround.
MULTILATINA R O B E R TO S E T U B A L
more than 20 percent. The mix that we have today is based more on fees than in the past, and our books have lower risk. Together, this brings lower volatility to the bottom line.
HOW WILL BANKING CHANGE IN THE NEXT 10 YEARS? Banking is going through a major transformation because of regulation. Regulation in our industry is very important, as it shapes the way in which banks interact with their clients. It is changing a great deal, especially because of the demands of capital and liquidity that will be required by Basel III. This will, in my view, change many of the business models, and the way we price capital. I believe that it will be key in the next 10 years to optimize management of capital. Capital will be scarce in the coming years because the additional amount that will be required to do business is huge. Therefore, banks will have to be much more efficient in its use. I expect banks to go back to where they really can make money, to where they really have some competitive advantage and expertise, and moving out of areas where they have not been successful. This includes not only activities, but also geographies. Banks will move out of countries where they do
not make enough money to cover the cost of capital.
banks in local markets. This is something we will see in the future.
WILL NON-BANKS THRIVE IN THIS SCENARIO?
WHAT WILL ITAÚ DO IN THIS SCENARIO?
I think so. Shadow banking will grow, given the more strict regulation for banks. Regulation will open opportunities for shadow banks which will not need as much capital as banks in some activities. We will see these activities moving out of banks. For instance, trading which was an important source of revenue for banks. I believe that in the future it will move to funds and hedge funds.
We will concentrate in geographies and activities where we are good. Starting with geographies, Brazil clearly is a geography where we are very good, very strong. But on the other hand, we do not see much opportunity to increase our market share. We are already too big and we won’t have that much space to increase it. If we look outside of Brazil, the natural region for us is Latin America where I do believe we have competitive advantages. I don’t think that we will be able to play in Asia, Africa or even in the U.S. Those are markets where we do not have any competitive advantage. We will focus on our geography, which is Latin America. In terms of products and activities, we are very good in retail, in consumer business, in credit cards. For instance, we are leaders in many countries in credit cards. This, among others, will always be a product where we will put a lot of efforts and will be concentrating our strategies. Santiago Gutiérrez reported from São Paulo.
BUT THERE ARE OTHER SIGNIFICANT AREAS WHERE BANKS WILL LOSE… The synergies that a global bank had in terms of capital and liquidity. Banks are required to have capital and liquidity on a consolidated (global) basis. But today, we see a trend of most countries requiring capital and liquidity in local terms. Hence, there are no synergies by having a global bank. You have to show capital and liquidity locally, so you leave them in the same condition as local banks. International and global banks will feel more intensely the competition of local
PHOTO: MAURICIO LIMA/AFP/GETTY IMAGES/NEWSCOM
Itaú bank in the financial center in downtown São Paulo, Brazil
See the full text of the interview in www.latintrade.com MAY-JUNE 2014 LATIN TRADE
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TRADE C H I L E E X P O R T S TO C H I N A
THE SILK ROUTE While copper still accounts for about 80 percent of Chilean exports destined for China, non-copper exports to China have grown by 61 percent over the last three years.
C
hilean copper runs through the very circuitry of China’s economic boom wiring skyscrapers, automobiles and rice cookers. But Chile has something else China wants: healthy, high-quality food. While copper accounts for the lion’s share of Chile’s exports to China — its number one export partner — food products like salmon and cherries are in high demand. Chilean livestock and agriculture exports to the Middle Kingdom grew by 42 percent last year, according to the ProChile export agency, for a value of $674 million. Also coming up fast, Chilean wood and paper products saw a 23 percent jump in revenue in China last year, for a total of $1.3 billion. “It’s where we see the big opportunities for growth,” said Eduardo Tagle Galilea, China and Hong Kong sales director for Chile’s Agrosuper meat producer. The company, which exports pork, chicken and salmon to Mainland China, saw China sales double in 2013. The export numbers fit snugly into Chile’s plan to diversify its exports and unlock value in products it already sells. It’s a goal shared with most of Latin America, but one Chile seems poised to achieve. While copper still accounts for about
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80 percent of Chilean exports destined for China, non-copper exports to China have grown by 61 percent over the last three years. Tagle attributes the growth in part to ongoing food safety concerns in China, like last year’s discovery that thousands of dead pigs were floating down the Huangpu River that supplies drinking water to Shanghai. “Those Chinese consumers with a slightly higher earnings level are paying more for safe and healthy food,” Tagle said, “and Chile is becoming known as a relatively isolated country, with no major diseases.” It doesn’t hurt that Chile also penned a free trade agreement with China in 2005. Next year, when the agreement turns 10 years old, most Chilean goods shipped to China will be tariff-free. Fruit exports are ramping up especially fast. In November, Chile sent its first direct cargo flight full of cherries to Shanghai. All 109 tons of the fruit were sold in two days. This year, Chile plans to send 30 planeloads of cherries, packaged and marketed as an exclusive treat. “This is the growth we’re trying to promote,” said Julio Alonso Ducci, director of Chile’s trade commission office in Shanghai. “With materials that could be
near commodities, we add value so they might be considered more exclusive, a luxury item.” China imports seven fruits from Chile, and will begin importing its eighth — avocados — this year. “Our strength is in the organic, the natural,” Ducci said. Chilean wines are also finding an appreciative audience. Chile ranks third in bottled wine sales in China, which recently became the world’s leading market for red wine. Ducci said vineyards were looking to boost China sales by promoting their fine wines, and aiming at a higher price per bottle. Looking to the future, Ducci said his office would be turning its focus west, beyond the cosmopolitan hubs of China’s east coast where western goods already stock supermarket shelves. China’s growth rate may be moderating to around 7.5 percent this year, but the capital of Anhui province, for example, just inland from Shanghai, is steaming along at 13 percent. “These places don’t have Chilean products of any type,” Ducci said, “so as a first territorial strategy, we see the necessity to open markets in the interior of China.” Ruth Morris reported from Shanghai.
PHOTO: ISTOCKPHOTO.COM / MICHAKLOOTWIJK
BY RUTH MORRIS
TRADE R E TA I L
Elegant and sophisticated shops in Leblon district in Rio de Janeiro, Brazil
RIDING THE RETAIL BOOM Latin America is perhaps the most exciting region in the world for retailers. The rising middle class, fast growth of e-commerce and the increase of female income are among the factors that make it vibrant.
W
hen management consultants A.T. Kearney published their latest Global Retail Development Index (Grdi), it gave a graphic illustration of just how vibrant the Latin American retail scene is at the moment. For the third straight year, Brazil topped the index in 2013. It is, according to A.T. Kearney, the best country in the world to invest in retail. Brazil was not alone. Chile placed second in the rankings, and Uruguay leapfrogged China into third. Perú, Colombia, México and Panamá all finished within the top 25. An expanding middle class, benign inflation and sustained economic growth helped make Latin America perhaps the most exciting retail region. According to Deloitte, Latin America’s biggest retailers recorded average revenue growth of 14.7 percent in 2012 – the fastest rate in the world. The global average was 4.9 percent. Where will the sector go from here? What do Latin America’s new generation of consumers want, and how should the region’s retailers provide them with it?
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THE RISING MIDDLE CLASS Perhaps the single biggest factor in the retail boom has been the extraordinary expansion of the middle class. According to the World Bank, 49 million Latin Americans became middle class between 2003 and 2009, and the figure is still rising. The number of people with disposable income has shot up. Retailers have responded accordingly. Increasingly, their focus is on items that were once considered luxuries: electronics, fashion, home furnishings and vacations. As people have moved up into the middle class, retailers have moved down to meet them. In Brazil, for example, big players like Marisa, C&A, which traditionally catered to the elite, are tailoring their assortments to shoppers on tighter budgets. “Many are creating standalone business units within the mother company to cater to the middle class,” said Esteban Bowles, a senior retail analyst at A.T. Kearney. “Marisa, for example, one of the largest apparel and lingerie retailers in Brazil, is developing a unique position in business for the D classes (lower income).”
The good news for retailers is that there is room for further expansion – although the middle class has grown rapidly, according to the World Bank, 68 percent of Latin Americans have yet to be part of it. “The region is not yet a middle class society,” the bank explained. For retailers, that is an opportunity. By 2030, 42 percent of the region’s population will be middle class compared to 29 percent in 2009, the bank estimated. Millions more Latin Americans will have disposable income to spend. But, the growth of the middle class will be uneven. There are important differences within the region and retailers need to be attuned to them. In Uruguay, for example, half the population is already middle class (defined by the World Bank as having an income of $10-$50 per day). However, in Brazil and Panamá, the figure is about a third, and in El Salvador and Honduras, less than a fifth. There are also cultural differences to consider. One A.T. Kearney study found that while the average Argentine spent $175 on clothes in 2011, in Colombia, the figure
PHOTO: NELSON ALMEIDA/AFP/GETTY IMAGES/NEWSCOM
BY GIDEON LONG
TRADE R E TA I L
PHOTO: MAURICIO LIMA/AFP/GETTY IMAGES/NEWSCOM
The Brazilian online retail industry, worth $11 billion in 2012, is forecast to hit $28 billion by 2017.
was just $36. While clothing accounted for 6.3 percent of retail spending in Argentina, in México, it was just 1.8 percent. The lesson for retailers is clear: what works in one country might not work in another. “A consumer in the Chilean city of Concepción wants very different products from a consumer in Cartagena in Colombia,” said Sandro Solari Donaggio, CEO of Chilean department store giant Falabella, which operates in both those countries, as well as Perú and Argentina. Fashion is booming in Latin America as never before. Young Latinos are looking for trendy clothes at affordable prices, creating a market for foreign incomers like Sweden’s H&M and Japan’s Uniqlo. H&M opened its first Latin American store in Chile last year and plans another in Perú soon. Home improvements are another big growth area. More Latin Americans have spare cash to spend on their houses and gardens. In some countries, there is a thriving market for luxury goods. In Brazil, up-market malls like JK Iguatemi in São Paulo and Village Mall in Rio de Janeiro have brought Valentino, Miu Miu and Dolce & Gabbana to a new generation of wealthier Latin American shoppers.
The Brazilians are particularly fanatical online shoppers. There are over 90 million internet users in Brazil, and 57 percent of them said they have made purchases online. The Brazilian online retail industry, worth $11 billion in 2012, is forecast to hit $28 billion by 2017.
Walmart, the biggest retailer in the region, said it gets 12 million visitors to its Brazilian website each month. Here too, there are differences within the region. According to A.T. Kearney, Brazilians now buy 50 percent of their electronic goods and six percent of their clothes online, while in Chile the figures are just 28 percent and one percent respectively. When it comes to food and drink, the trend is reversed. Brazilians buy just three percent online, while in Chile the figure is nine percent. Once again, retailers need to be aware of these differences when entering Latin American markets. SPECIAL ADVERTISING FEATURE
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BUY IT ONLINE! The relentless rise of online shopping has been a big factor in the boom and will continue to be so. According to Deloitte, online retail sales in Latin America are growing at 20 percent a year.
MAY-JUNE 2014 LATIN TRADE
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TRADE R E TA I L Mother and daughter shopping online at home.
BANK AT THE RETAILER As a customer, once you’ve selected your con-
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sumer goods, how do you pay for them? Here too, Latin America’s retailers are coming up with answers. They are making it easier, for example, for shoppers to pay in instalments, even for smallticket items like a bag of groceries, and they are using loyalty programs to keep hold of customers. In the past, Latin American shoppers sought credit from banks to spend in the shops, but they now seek it directly from retailers. In Chile, four of the top five credit card issuers are now retailers, not banks. “We’re the biggest card issuer in Chile, and one of the biggest in the region,” said Falabella’s Solari. “It’s crucial for maintaining our leadership.” Across the region, retailers are developing their own financing arms, either alone or in partnership with banks. Co-branded credit cards and private label credit cards are likely to grow in importance. “Credit cards now generate a significant proportion of a retailer’s net profit,” Bowles said. “The money made on either revolving credit or delinquency is quite high. For some retailers, the interest paid on credit cards makes up as much as a quarter or a third of their net profit.” There are still plenty of Latin Americans out there who have yet to enter the formal credit market. In Colombia, for example, a third of the population doesn’t have a bank account, but that will change as the middle class expands.
THE FEMALE SHOPPER The rise of the female shopper is another important phenomenon for retailers. The income gap between Latin American men and women is closing, and women increasingly control their own purse strings. There is a vibrant market for women’s clothing, beauty products, accessories and footwear. Walmart, for example, has given Latin America ‘Dream Out Loud’, a range of own-label clothing for teenage girls, and ‘George’, a British brand the company imported from its Asda operation in the United Kingdom. “Both brands provide our customers with the more sophisticated clothing they’re looking for now that they’ve become members of the middle class,” said Kevin Gardner, a Walmart spokesman. While foreign retailers are piling into Latin America, only a handful of Latin American retailers are expanding abroad. According to Deloitte, Latin American retailers are the least likely to operate internationally. Foreign expansion, then, might be a logical next step for many of them. Consolidation is also likely to be a key factor in the coming years. “The large established players – the Walmarts, the Carrefours, the Casinos, the Cencosuds – will continue to increase their market share due to their deeper pockets and greater access to credit,” Bowles said. Gideon Long reported from Santiago de Chile.v
PHOTO: © ISTOCKPHOTO.COM / OMGIMAGES
Price comparison websites like Buscapé are attracting more users, as are group-buying sites like Groupon and Peixe Urbano. Smart phones have changed the way Latin Americans shop. In 2011, Santiago became one of the first cities in the world to install virtual supermarkets on the walls of the subway. With the help of a QR code reader, easily downloaded as an app, you can buy food and drink by pointing your phone at images on the wall while waiting for the train. All being well, your groceries will be on your doorstep by the time you get home. Innovations like this are transforming the industry. Increasingly, the shopping of the future will be a multi-channel mix of “bricks and clicks.” There will still be a demand for traditional brick-and-mortar stores, but customers are demanding alternatives – online shopping, smartphone shopping, telesales and catalog sales. “‘Multi-channel’ is the key word in retail at the moment,” said Francisco Díaz, a senior consultant at Deloitte in Santiago. “You have to align your different channels, prices and commercial offers for each part of the market. “It’s something that’s been well developed outside Latin America by the likes of Walmart and Amazon. They have the strategic vision to use the right channel, at the right moment, for the right segment of the market.”
COVER STORY B U S I N E SS L E A D E R S H I P Adriana Cisneros, chief executive officer of the Cisneros Group.
THE NEW Up-and-coming executives are 30- or 40-something. Most have studied abroad, traveled widely and bring a global perspective to businesses that were once national or regional in scope. Meet the new Latin American business leaders. BY JOHN OTIS
A
driana Cisneros was only 33 when she became CEO last year of the multibillion dollar Cisneros Group, a media and real estate conglomerate that was founded in Caracas and is now based in Coral Gables. But she launched her first business much earlier – at age 12. Growing up in Venezuela, Cisneros raised chickens and sold eggs out of the family home. She bought and sold elaborately embroidered Peruvian backpacks to travelers. The precocious Cisneros even recycled garbage that she and fellow scuba diving enthusiasts collected from the bottom of the ocean and sold by the pound. “I was
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always trying to figure out how to do stuff, how to sell stuff,” Cisneros told Latin Trade. “I wasn’t driven by the money because I gave it all away.” Those early initiatives reflect youthful enthusiasm, a willingness to look beyond traditional boundaries, and a nascent social conscience. In bringing these same qualities to the business empire founded by her grandfather Diego Cisneros, then handed down to her father, Gustavo Cisneros, the rookie CEO of the Cisneros Group is emblematic of the rising generation of Latin American business leaders. As many founders, patriarchs and builders
of the region’s largest business groups – from Carlos Slim in México and Luis Carlos Sarmiento Angulo in Colombia to Horst Paulmann in Chile – approach retirement, they are in the process of passing the torch to heirs or outside professionals who often have very different backgrounds, strengths and weaknesses. The newcomers will eventually manage assets valued at close to $480 billion. To ensure a smooth transition – or in some cases the very survival of their companies – they will have to strike a balance between loyalty to the old ways and the need to shake things up and take their firms in new directions.
PHOTO: CHRISTINA MENDENHALL/BLOOMBERG VIA GETTY IMAGES
BUSINESS BREED
COVER STORY B U S I N E SS L E A D E R S H I P
PHOTO: COURTESY OF GRUPO BIMBO
As many founders, patriarchs and builders of the region’s largest business groups – from Carlos Slim in México and Luis Carlos Sarmiento Angulo in Colombia to Horst Paulmann in Chile – approach retirement, they are in the process of passing the torch to heirs or outside professionals who often have very different backgrounds, strengths and weaknesses.
Like Cisneros, many of these up-andcoming executives are 30- or 40-somethings, and a growing number are female. Most have studied abroad, traveled widely and bring a global perspective to businesses that were once national or regional in scope. After focusing on building markets within Latin America and the United States, many are looking towards Asia. It’s about time. Latin American companies still lag behind U.S. and European firms when it comes to investing in China, Japan, Singapore, South Korea and other Asian nations, said Eric Farnsworth, vice president of the Americas Society/Council of the Americas. One marquee company that is making this leap is México’s Grupo Bimbo under CEO Daniel Servitje, the son of one of the firm’s founders. The largest providers of baked goods in the United States, Grupo Bimbo recently expanded into China. Servitje, 55, also stands as an example of how many of the current crop of CEOs take corporate social responsibility and sustainable development more seriously. A wind farm with 45 turbines powers all of Bimbo’s Mexican factories. “The new generation has a new mindset,” said Jorge Becerra, senior partner and managing director in Chile for the Boston Consulting Group. Another change is the size and scope of business deals. Cisneros said her father made some huge acquisitions in his heyday while now the company is making many more deals, but smaller in size. Cisneros, who studied at Harvard, Columbia and New York University, and has lived outside of Venezuela for much of her life, is also part of the digital generation as opposed to her grandfather and father whose legacies include building Venevisión into one of Venezuela’s largest TV stations. In naming
her one of the 50 most influential New Yorkers who are revitalizing show business, Variety magazine last year said Adriana Cisneros “brings the Venezuelan conglom into the digital arena, adroitly tapping social media, mobile game apps and creating an interactive strategy for the company’s TV programs.” In a recent survey by Campden FB magazine on the world’s top family business leaders, four of the 11 Latin American CEOs who made the list are age 41 or under. Two are women and nearly all have a broad range of experience outside of the companies they now run. Typical of the new breed is Camalia Valdés, 41, the president and chief executive of Compañía Cervecera de Puerto Rico, the island’s largest brewery which is owned by her family. She studied liberal arts at Trinity College in Connecticut, then earned a law degree before joining Compañia Cervecera
where she has built a high-tech brewery and focused on expanding into the U.S. market. Another rising star is Claudia Sender, 39, who last year was appointed CEO of Brazil’s largest carrier TAM Airlines. She has an engineering degree and a Harvard MBA and worked for Bain & Company and Whirlpool before joining TAM. She is now focused on the TAM merger with Chilean carrier LAN to create the largest airline in Latin America. Some of the region’s other young guns are scions of family firms who are taking them in new directions. Luis Pescamona, 38, graduated from Harvard Business School and worked for Morgan Stanley in New York before returning to Argentina to become the fourth generation leader of Impsa, which provides integrated solutions for power generation from renewable resources, equipment for the energy sector, and other environmental services. “The new generation is better educated,
Daniel Servitje, chief executive officer of Grupo Bimbo SAB, also stands as an example of how many of the current crop of CEOs take corporate social responsibility and sustainable development more seriously.
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“The new generation is better educated, and more professional than their predecessors. Many of them are state of-the-art when it comes to best practices in managing and administrating companies.” Jon Martínez, professor at the ESE Business School, University of the Andes in Chile and more professional than their predecessors,” said Jon Martínez, a professor at the ESE Business School at the University of the Andes in Chile. “Many of them are state of-the-art when it comes to best practices in managing and administrating companies.” But to a large degree, excellence is their only option. Most of the largest firms in Latin America are family-run businesses. According to the Harvard Business Review, 70 percent of family companies fail before reaching the second generation while only 10 percent reach the third generation of family leaders. One problem is that many firms insist on maintaining family leadership even when their offspring lack the requisite business skills. In fact, Mauro Guillén, a family business expert at the Wharton School of the University of Pennsylvania, said the odds that family relatives will turn out to be as brilliant as the founding moguls are extremely low. “There is a lot of pressure on the new
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generation because they are standing on the shoulders of giants,” Guillén said. Brazilians have a saying for this high rate of failure: Pai rico, filho nobre, neto pobre, which means “rich father, noble son, poor grandson.” “The third generation usually screws things up,” Cisneros conceded. “That’s why I have spent a lot of time academically looking at patterns and trying to understand how other families have been successful. All the odds are against me, but I hope to prove the statistics wrong.” A frequent mistake is keeping top posts within families, a policy that can drive away non-family talent. A 2011 Moody’s report on corporate governance in Latin America warned: “It can be difficult for a family controlled company to build bench-strength at the senior executive level where it is clear the CEO position is reserved for family members.”
Then there’s the fact that families tend to grow faster than businesses they have inherited. While the founders often started from zero, but later enjoyed full power and control of their companies, family heirs usually lack such authority, thus management becomes more of a consultative process, Martínez said. Relatives, in turn, often disagree on the best path forward. For these and other reasons, some analysts predict that over the long term, the family business model will be the exception rather than the rule in Latin America. Yet the sons and daughters of founders rarely turn out to be slackers, said Olga Botero, a Colombian business consultant. Brilliance and hard work, she said, often rub off. And given Latin America’s history of instability – including periods of civil wars, dictatorships, and debt crises – family heirs tend not to take their wealth for granted. “You do see families around the world whose
PHOTO: JORGE A RAMIREZ PORTELA/EL NUEVO DIA DE PUERTO RICO/NEWSCOM
Camalia Valdes, entrepreneur and president of a brewery in Puerto Rico where the Medalla and the Malta India beers are produced.
Executive
MBA
Executive
Education
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COVER STORY B U S I N E SS L E A D E R S H I P
“There is a significant competitive advantage to be gained for organizations that get this right: they can better recruit and retain talent, remain more competitive into the future, and more positively impact society.” Gary Coleman, a managing director for Deloitte Touche Tohmatsu Limited
heirs live off the income and have so much money that they don’t do very much,” Botero said. “But in Latin America, our culture is different. People are very hard-working. It is in our blood to be like that.” Botero pointed to the successful fatherto-son transition at Grupo Aval, the Bogotábased banking and construction holding company founded by Luis Carlos Sarmiento Angulo. His only son, Luis Carlos Sarmiento Gutiérrez is now the company president. While the elder Sarmiento has spent nearly his whole life in Colombia, his son spent 19 years studying and working in the United States. Sarmiento Gutiérrez was a talented student and athlete and at one point considered becoming a professional waterskier. Instead, he worked as a financial analyst and profit forecaster at Procter & Gamble in Cincinnati and spent several years at a New York bank owned by Grupo Aval. “I can’t say I feel like a gringo. But I understand the American business mentality, which is more strategically oriented and focused on long-term planning,” Sarmiento Gutiérrez told Latin Trade in a 2011 interview. “In Colombia, long-term can mean three to six months.” At Grupo Aval, Sarmiento Gutiérrez has pushed foreign acquisitions, in part, because after massive growth in Colombia, domestic prospects are limited. He also oversaw the most important acquisition
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in the company’s history: the $1.9 billion purchase of the Central American financial group BAC-Credomatic. Still, an all-inclusive report card on Latin America’s new breed of business leaders has yet to emerge because many of them have yet to assume full responsibility of their companies while others, like Cisneros, have only been in charge for a short period. But analysts and academics point to a number of challenges that nearly all of them are facing. Roberto Vassolo, a professor at the IAE Business School in Buenos Aires, points out that Latin America’s middle class is growing, has attained higher levels of education, and now has greater expectations. The result is that company clients as well as their labor forces have become far more demanding. Back in 1997, The Economist magazine described the typical Latin American family company as a “dictatorship.” Today, responsive customer service is critical as is a more flexible workplace because employees chafe at top-down management and want more say in the way things are done, Vassolo said. Many companies still have a long way to go in reforming their corporate culture. A 2013 survey of 2,000 future business leaders in Latin America found that only 18 percent of these Generation-Y respondents said they believed that their organization’s leadership encouraged and
rewarded idea generation and creativity. “As demographics change, and the generational shift in leadership continues, a very real opportunity exists for organizations across Latin America to step up and create the conditions needed to encourage and foster innovation in their work environments,” said Gary Coleman, a managing director for Deloitte Touche Tohmatsu Limited, which commissioned the survey. “There is a significant competitive advantage to be gained for organizations that get this right: they can better recruit and retain talent, remain more competitive into the future, and more positively impact society,” he said. Another shift, Cisneros said, is that the best and brightest employees often disdain the idea of lifetime employment at a single company. “Today, a 24-year-old thinks it’s great to change companies every two years because that shows that they are driven,” she said. “So we need a structure to allow for that because we won’t be training someone to be with the company for 30 years. Millennials are a very different story and they bring a different energy to the way we work.” In dealing with the new demands of clients and employees, some experts see a role model in Falabella, the Chilean retail giant that employs more than 80,000 people in Chile, Colombia, Perú and Argentina. For example, Falabella credit cards have provided customers
PHOTO: MAURICIO MORENO GDA PHOTO SERVICE/NEWSCOM
Grupo Aval. Led by businessman Luis Carlos Sarmiento Angulo (L) and Luis Carlos Sarmiento Gutiérrez (R)
COVER STORY B U S I N E SS L E A D E R S H I P
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Mexican billionaire Carlos Slim (left), chariman emeritus of America Movil Sab de CV, which controls 70 percent of México’s mobile-phone business with his son Carlos Slim Domit (right), chairman of Telefonos de México SAB de CV.
with more convenience, generated loyalty, and increased profits. Falabella is also routinely listed as one of the best companies to work for in Latin America. Falabella, which is controlled by the Solari, Cúneo and Del Río families, is also undergoing a changing of the guard. Following the April decision of company president Juan Cúneo to step down, it is widely expected that leadership will pass to the MIT-educated Sandro Solari, 44, who is currently Falabella’s corporate manager. Solari started out selling shoes and gradually worked his way up the company ladder. Rarely bound to his office, Solari is a details man who is constantly visiting suppliers and stores and intermingling with employees and customers. In following customer migration to the internet, he plans to take the company much deeper into e-commerce. Corporate social responsibility is also high on his list of priorities. Falabella has won several awards for its programs that include everything from hiring people with disabilities to stressing local procurement to help develop the areas where it operates. “We don’t just want to make money. Our goal is to be a loved and admired company,” Solari told the Chilean magazine Capital. David Aikman, the managing director at the World Economic Forum, said more and more young leaders want to be seen as
forces for positive change. The Forum runs a Young Global Leaders program that includes Sender, the CEO of TAM, as well as 16 other influential Latin Americans. Among them, “there is a re-emerging sense of ethics and values, of responsibility to the global commons – an attitude that it’s not sufficient to make a great product or have a good career if it doesn’t have a larger meaning,” Aikman wrote in a recent blog post. The previous generation “was about success in terms of size, money, profitability and power,” added Becerra of the Boston Consulting Group. “Some of the new leaders are more inclined to see their significance in terms of social impact. It is harder for them to avoid questions of inequality, educational opportunities, or female development.” In the past, corporate philanthropy was something of an afterthought and was often delegated to wives and daughters within family companies. Now, giving back to communities is viewed as a core part of many businesses. A good example is the philosophical evolution within México’s Slim family. Carlos Slim Helú, one of the world’s richest men, used to badmouth philanthropy and once told The New Yorker magazine : “I don’t believe in charities too much. They can make you popular … but you don’t solve any problems.” After the 1999 death of his wife, Soumaya
Domit de Slim, from kidney disease, he began funding hospitals. In 2007, he announced plans to pump one-fifth of his fortune into various charities. With the family patriarch now devoting most of his time to philanthropy, his 47-year-old son, Carlos Slim Domit, has taken over leadership at some the most important family businesses including Grupo Carso, Telmex and América Móvil. But his biggest contribution to his family was donating a kidney to his younger brother, Patrick Slim Domit. The two brothers also helped set up a foundation to provide kidney transplants. Slim Domit also chaired the ICT task force at the G20 Summit held in México in 2012. The task force recommended expanding broadband service and
The previous generation “was about success in terms of size, money, profitability and power. Some of the new leaders are more inclined to see their significance in terms of social impact. It is harder for them to avoid questions of inequality, educational opportunities, or female development.” Jorge Becerra, Boston Consulting Group
telecommunications to improve education, health, financial inclusion, innovation and development. “Since I was very young, I realized the importance of business, the big impact you can have on society by generating employment opportunities and taking care of social problems,” Slim Domit said in a 2012 interview with Latin Trade. “This is part of the philosophy advanced by my father – we are temporarily administering wealth and we must do so efficiently and achieve a social impact.” John Otis reported from Bogotá.
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SPECIAL REPORT LO G I S T I C S Trucks delivering Coca-Cola in Guatemala
A RADICAL CHANGE Transformation is taking over logistics operations in Latin America. A look at the big challenges, and the opportunities.
B
ringing products and their end-users together in Latin America, and exporting them to the world, remains one of the biggest economic challenges facing Latin America in the modern global economy. It’s also one of the region’s great opportunities. The region faces a number of challenges. Many of them are related not just to the large infrastructure of ports and airports, but also to the transportation infrastructure within countries, and to the processes and services that facilitate trade or make it possible, such as customs services and other logistics operations. One clear-cut example can be found in the productivity of cargo transport, which in Latin America shows serious signs of backwardness, according to Pablo Guer-
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rero, a transportation and infrastructure specialist with the Inter-American Development Bank (IDB). According to the IDB analysis, one way to look at the competitiveness of cargo highway transport among countries is to compare the average age of the fleet with the median tariff of freightage in dollars per mile. The conclusion is that the fleets of most Latin American countries have a high average age and a median freightage cost that’s also high. The average age of the fleet in Latin America is 16 to 18 years, and the cost per mile is more than $1.9. In the United States, the cost per mile is just $0.9, and the average age of the fleet is between six and eight years. Another way of seeing it is from the point of view of productivity of automo-
tive cargo transportation. According to IDB data from 2013, the average number of mileage run per cargo vehicle per year in Latin America and the Caribbean is 35,000, while in the United States it’s 100,000.
IT GETS MORE COMPLICATED Another important trend is that of supply chains and logistics. “Between 1986 and 2011, the quantity of goods from Latin America exploded, and this calls for more and better services of cargo transportation and logistics,” said Guerrero. “By their nature, industries seek to operate with less inventory and tighter supply chains. The availability of infrastructure and services are challenges to the best logistical practices.” Great opportunities for Latin America
PHOTO: GREGORY BYERLINE / DESIGN PICS/NEWSCOM
BY JAIME MEJÍA
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SPECIAL REPORT LO G I S T I C S
AUTOMOTIVE TRANSPORTATION CHARGE: Productivity and rates 5
9,000
4.5 4 3.5 72 2,0 ,000 3 38,000 000 00 6 60,000
2.5
United States
2
161,000
1.5
Average LAC
56,000
39,000 42,0 000
1
55,00 00
10 1 08,000
0.5 0 6
8
10
12
14
16
18
20
22
24
Source: Anuario Estadistico, Observatorio Regional de Transporte de Carga y Logística, IDB 2013
can also be seen among the recent global changes. The increase in production costs in China have meant that many companies are starting to look at Latin American countries as production centers that can offer the efficiency of being geographically closer to the large consumer centers of North America and Europe.
While ground transportation in Latin America faces serious competitive challenges, changes are also emerging in the way the large fleets of transport ships are organized and managed. According to Guerrero, the economic rules of container transportation have changed radically over the past 10 years.
During the first years of this century, the global economies were growing very rapidly and demand for cargo space on ships also increased. The biggest shipping companies increased their available capacity in both the number, and size, of their ships. But the economic slowdown in recent years left them with a large in-
T
Workers onboard a vessel walk past cranes at Itaqui port in the northern Brazilian city of São Luís.
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he Port of Itaqui, which is the largest in the north of Brazil and the fifth most important in the entire country, is preparing for the logistics challenges that are being imposed on it as well as on the entire Brazilian economy, such as the global changes in the way in which products are moved and distributed. According to Luiz Carlos Fossati, executive president of Emap, the private company that administers the port of Itaqui as a concession, investments of $793 million are planned over the next five years to build new grain and fertilizer terminals, another container terminal and to develop the terminal yards. These investments are a response to two main trends. The first is that the port of Itaqui is one of the most important in the management of primary goods such as petroleum and soy. The second is that significant growth is expected in other types of container cargo. The port wants to take advantage of its strategic position of being the closest port in Brazil to the large markets of the U.S. and Europe. According to Fossati, the main challenge at present is to respond to the growth of the Brazilian economy that has resulted in the ten percent annual growth of cargo managed by the port, and “we project that this rate will be maintained over the next few years.”
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The world’s principal shipping companies have already begun to take important measures to make the management of their fleets more efficient. stalled capacity and a slow-growing business. According to the IDB transportation specialist, the large ships represent lower transportation costs for the shipping companies, but this cost saving depends on the
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LATIN TRADE MAY-JUNE 2014
ships operating at full capacity and the time in port being reduced. This growth in cargo capacity by the shipping companies has turned into a major challenge for these companies. Once
they had made the huge investments to increase their capacity, they found themselves operating in a very competitive business with tiny profit margins. It didn’t take long for their response
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“The business of cellular telephones presents many challenges from a logistical standpoint, such as the fact that there is a large number of manufacturers with many operators, and the useful life of the product is constantly getting shorter.” Antonio Belfort, general director of Celistics
to the challenge to appear. The world’s principal shipping companies have already begun to take important measures to make the management of their fleets more efficient, and in Latin America, there are some outstanding cases in which private initiative and the leadership of some governments are able to respond to some of the region’s main logistics challenges.
SHIPPING COMPANIES RESPOND Last June, Maersk Line, the maritime transport affiliate of the giant Danish company Maersk Group, created the P3 Network, a long-term operations alliance between Maersk Line, Mediterranean Shipping Company S.A. and CMA CGM. This is an agreement to share the ships of the three large maritime shipping companies on the East-West trade routes. According to Maersk, the general purpose of the agreement is to make container transport more efficient and to improve service to customers by providing a more reliable fleet with greater availability and frequency of routes. “The increase in costs and the volatility of freightage are the main issues in our industry,” said Maersk spokesman Michael Christian Storgaard. “Freightage can decrease in a growing market due to the excess capacity, and it can increase if
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capacity shrinks. There is only one efficient defense against this, and that is to reduce costs and offer the highest quality of service possible.” P3 Network is an obvious bet on increasing efficiency and reducing costs in a maritime transport industry that has enormous capital investments and in which profit margins are very small. According to Maersk, the alliance has not yet been finalized, since there are still regulatory authorizations needed. It hopes that it will be operational by the middle of this year, when they will be operating with a capacity of 2.6 million TEUs in three commercial lines: Asia-Europe, TransPacific and Trans-Atlantic.
THE DISTRIBUTION OF CELLULAR TELEPHONES Many of the biggest logistics challenges in Latin America are homegrown. Making sure that each product arrives at the customer’s doorstep at the right time and at the right price is an increasingly complicated task in the modern world. That’s because it involves more than transporting a product; it means making sure that the end consumer will have access to the latest technology, and that the sellers and manufacturers manage the costs of their supply chains in a way that maximizes their profits. The cellular telephone industry offers a
good example of this, because it is a sector of permanent technological change. “The business of cellular telephones presents many challenges from a logistical standpoint, such as the fact that there is a large number of manufacturers with many operators, and the useful life of the product is constantly getting shorter,” said Antonio Belfort, general director of Celistics. Celistics is just six years old in the market and already manages the logistics of distributing about 84 million cellular telephones each year in Latin America, through an operation that moves these units through 300 routes, so that they arrive at 20,000 points in 12 Latin America countries. It is a complex operation that depends on the ability to plan and to anticipate what the companies that operate cellular phones have. Celistics, the affiliate of Telefónica de España, was originally focused on storage of the cellular telephone operation of the Spanish telecom giant in the region, but now the company handles about 30 percent of all cellular telephones sold in Latin America.
PLANNING IS THE SECRET According to Belfort, the first key in the logistics process for cellular telephones in Latin America is planning. “Every week, we meet with the telephone operators in Latin America (Celistics has offices in 12 countries in the region and a team of
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“In recent years, industrial production in zones like Eastern China have gotten more expensive, and the result is a relocation of industrial operations from countries like Vietnam, China and Indonesia to other areas that offer new advantages such as Central America and México.”
2,000 people), to determine how much equipment each company needs, and which brands or features.” Armed with this information, Celistics moves on to the next part of the process, which consists of buying the devices the operators need from manufacturers around the world. Belfort said that 78 percent of them come from Asia. With the information, Celistics manages between 4,500 and 5,000 shipments each week, and planning is the critical factor “because we have to make sure we always have space on the airplanes,” Belfort said. The last step is delivering the merchandise to the points of sale in the region, including retail chains and other distributors. To do this, Celistics has a logistical infrastructure in the countries that includes about 100,000 square meters of warehouse space. “However, our goal is to have the least inventory possible because cellular phones have an evershorter shelf life and lose value quickly.” Belfort explained that it is very important for the operators of cellular phones
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to manage the capital invested in the devices efficiently. The equipment that Celistics manages each year has a value of close to $2.5 billion.
A NEW FRONTIER The winds of change in logistics have also blown in from China. Several studies done in recent years have shown that this country has been losing competitiveness as the world’s manufacturer of all kinds of products. A study by the Boston Consulting Group (BCG) shows that a series of global economic factors over the next few years will cause China to lose part of its cost advantage. The result, according to BCG, will be the relocation of many industries in China to other countries that offer new advantages. “In recent years, industrial production in zones like Eastern China have gotten more expensive, and the result is a relocation of industrial operations from countries like Vietnam, China and Indonesia to other areas that offer new advantages such as Central America and México,” said Guerrero.
Nicaragua is already being tried out and the country is starting to become a production center for the Americas. According to Javier Chamorro, executive director of PRONicaragua, an entity that promotes investment in the Central American country, Nicaragua wants to use its competitive advantages such as geographical proximity to the North American market that enables any product to have a lead time – that is, the time between manufacture and arrival in the hands of the end consumer – of five to seven days. Another is the fact that it has trade agreements that provide preferential access to markets such as the U.S., Canada and Europe. Those advantages might be the reason why, as of the third quarter of last year, Nicaragua had a foreign direct investment flow of about $1 billion, and it’s estimated that for all of 2013, the number will rise to $1.5 billion, a 17 percent increase from the previous year, according to data from PRONicaragua. “We have had a very positive and dynamic investment in the industries of shoes, textiles, automotive parts and disposable medical products, and we believe that Nicaragua is a real competitor with countries like China, Vietnam and Cambodia,” said Chamorro. Jaime Mejía reported from Miami.
PHOTO: © ISTOCKPHOTO.COM / E_Y_E
Pablo Guerrero, Inter-American Development Bank (IDB)
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SPECIAL REPORT E X E C U T I V E E D U C AT I O N
NEW IN EXECUTIVE EDUCATION Since the 2008 financial crisis, the programs for Latin American executives in the United States, and at home, have changed dramatically. Today, they are more international, more practical and have more regional orientation.
BY DAVID RAMÍREZ
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combine physical presence with online possibilities. To learn more details about the recent trends in EE curricula, we consulted some of the universities that ranked highest among the leading business school surveys such as that of the Financial Times of London.
U.S. AND EUROPE PERSPECTIVE Although there was talk about the “MBA crisis” at the time of the global debacle of 2008-09, with fingers pointed at the supposed failure of the role of these programs, that term is generally rejected by the most prestigious schools in the U.S. and Europe. In fact, unlike the smaller institutions, the best-positioned American and European universities didn’t even see a drop in the number of entrants in their MBA programs for executives and other EE programs. Nevertheless, the consensus is that there have been changes. One of them, said Itziar de Ros Raventós, admissions director of the Iese’s MBA program, has to do with new industries that want to hire MBA graduates. “Companies from around the world, like banks and consulting groups, are still coming,” he said, “but interest has been growing more from technology companies like Amazon, Google and Facebook.” The educational profiles of the students have also become more diverse. Now, they include not only people from the overwhelming majority of careers in areas like administration and economics, they also
“Interest has been growing more from technology companies like Amazon, Google and Facebook.” Itziar de Ros Raventós, admissions director of the Iese’s MBA program
include engineers and even medical doctors. They are, as well, students with more training and work experience, who demand discussion of a larger number of case studies, mainly in the MBA for executives program. These demands have resulted in additional
PHOTO: © ISTOCKPHOTO.COM / TOMAZL; COURTESY OF ITZIAR DE ROS RAVENTÓS
E
ven though there’s a general impression that the university market offers lots of curriculum options for executive education (EE), it’s still rather surprising to discover the breadth of variety and the high level of specialization among the available alternatives. Thinking of the needs of the medium – and high-level executive – the world’s most prestigious universities not only are continuing to strengthen traditional programs like the MBA, but they’ve created new educational opportunities as well. Now it’s possible to find diplomas for Big Data management for executives, as well as arts courses for managers aimed at developing “soft skills” such as communication and leadership. This varied offering is in response to a combination of factors that surfaced at the time of the world financial crisis of 2008-09. While post-crisis corporate management assumed there would be emphasis on issues like ethical management, the emergence of learning needs such as globalization and cost controls has generated interest in other areas, such as creating regional management centers and supply chain management. All this change provided unprecedented challenges and opportunities for the suppliers of business education courses. It’s especially interesting to see the major changes that even the most prestigious universities are implementing to increase their offerings of distance learning programs, as well as those that
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Latin America’s leading universities also reinforce the life experience of the executives by establishing EE programs that include visits to cities outside of the home campus. efforts, even for entities like Iese, which in the words of Ros Raventós, is the business school with the second highest number of case studies in the world (after Harvard), and the highest number of case studies written in Spanish. Providing service for the Ibero-American public undoubtedly reflects the growing importance being given to recruiting students from Latin America. Thus, for example, while an institution like Booth, the business school of the University of Chicago, maintains its traditional program for senior financial executives (the Latin American CFO’s Executive Program), it has recently established an alternative (the Latin America Executive Program), which is directed exclusively at high-level students from the most important Latin American companies. According to Ron Bendersky, director of executive education at Booth, the content of the latter program is a response to a survey carried out among executives of the region as to the kind of material they want. The same survey showed, beyond a doubt, that although online education is definitely a trend, senior management prefers the campus experience, among other reasons for the opportunity it provides for interaction with peers and professors. The famous Massachusetts Institute of Technology (MIT) has also brought in initiatives aimed at attracting Latin American students. It offers EE in Spanish and Portuguese, but in addition, as Kate Anderson, director of marketing and enrollment at MIT Sloan Executive Education explained, the university wants to broaden its scope even more. It also offers courses in Mandarin, and has put in place an interesting online platform with the latest technology that enables interaction between professors and students in real time. The basic objective is to integrate the situation with eyewitness experience as much as possible. With Miami considered by many to be the capital of Latin America, the University
Institutions like Booth, the business school of the University of Chicago, recently established a Latin America Executive Program, directed exclusively at high-level students from the most important Latin American companies.
The Massachusetts Institute of Technology (MIT) wants to broaden its scope even more. It offers courses in Mandarin, and has put in place an interesting online platform with the latest technology that enables interaction between professors and students in real time.
Ron Bendersky, director of executive education at Booth, the business school of the University of Chicago
Kate Anderson, director of marketing and enrollment at MIT Sloan Executive Education
of Miami (UM) could be an alternative for those who want to be in the United States and in Latin America “at the same time.” Anuj Mehrotra, vice dean, graduate business programs and executive education at the University of Miami, said the university is launching the Executive MBA of the Americas, which will place special emphasis on studying the challenges and opportunities faced by Latin American businessmen. The need to understand the dynamics of globalized business requires senior executives to look at emerging economies beyond Latin America. As expressed by Harvard Business School (HBS) in a written response to an interview request from Latin Trade, “HBS is seeing a growing interest among executives in a number of recent trends and global business issues.” It offers
a variety of programs on China and India, and others aimed at senior executives in areas like innovation and the health services industry.
WHAT’S ON OFFER IN THE SOUTH Following the lead of their counterparts in other latitudes, Latin America’s leading universities are aiming to reinforce the life experience of the executives by establishing some MBAs for executives and other EE programs that include visits to cities outside of the home campus. The multi-national MBA offered by Adolfo Ibáñez School of Management is based in Miami, but includes modules with visits to Beijing, Shanghai, Santiago de Chile, Barcelona and San Francisco (Silicon Valley), said director of admis-
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SPECIAL REPORT E X E C U T I V E E D U C AT I O N
“We have to be very meticulous about the content we offer in the MBA for executives program.”
Anuj Mehrotra, vice dean, graduate business programs and executive education, at the University of Miami
Stavros Xanthopoylos, director at the Educational Development Institute of the Getulio Vargas Foundation
sions for graduate programs, Alex Valero. As you would expect, the efforts to increase registration of students go beyond that. They also include a new focus on content. Following the financial crisis, there was a new emphasis on ethics, compliance and regulations. There also emerged “the need to move beyond the teaching of basic paradigms like the analysis of DOFA, Porter’s diamond and the concept of eliminating competition to, for example, the idea of taking advantage of competition to grow more, by means of integration,” said Valero. Stavros Xanthopoylos, vice director at the Educational Development Institute of the Getulio Vargas Foundation, the area responsible for EE programs said, “We have to be very meticulous about the content we offer in the MBA for executives program.” He said that in developing countries, it’s more important to emphasize project management over general finance and administration. One of the reasons for that is the large number of new infrastructure projects that countries like Brazil will have over the next few years. In addition to redirecting content to regional needs, some Latin American
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institutions are also emphasizing gender differences. Incae Business School, for example, offers programs exclusively for women through the Center for Women’s Leadership, the only business school of its kind in Latin America. María Balbás, associate director of EE at Incae, said the Women’s Executive Leadership Program, launched recently in Miami, “seeks to work on aspects of collaborative leadership as opposed to a focus on discrimination or sectarianism, and on thinking of ways to improve the position of the woman in companies.” On the other hand, in general, the region’s educational entities are also putting in place strategies to capture the demand for EE of companies and individuals who receive funds for education from the companies where they work. “Companies and the state (in Chile) have noticed that it’s more productive to train their executives than to let them go and then look for a replacement,” said Nicolás Velasco Fuentes, director of continuing education at the Pontifical Catholic University of Chile (UC). Carlos Díaz, UC’s director of the school of administration, adds that the ad-hoc pro-
The Women’s Executive Leadership Program, launched recently in Miami, “seeks to work on aspects of collaborative leadership as opposed to a focus on discrimination or sectarianism, and on thinking of ways to improve the position of the woman in companies. María Balbás, associate director of EE at Incae
grams that companies require address their concern for improving internal communication, teamwork skills, leadership and, overall, “to combine the development of soft skills with corporate strategy.” The region’s universities, like their counterparts in other territories, agree that little or nothing is accomplished by the effort to attract new students if the quality of the programs is not simultaneously improved. One way to achieve better quality has been to increase the number of professors with a Ph.D., and offer them competitive salaries. In the particular case of the MBA at the University of the Andes, that strategy is reflected in the fact that “the percentage of faculty with a doctorate has increased from 20 percent a couple of decades ago to 70 percent now,” said program director Lino Lazala. The alternatives are on the table. Whether it is a personal or corporate decision, there’s no doubt about the return on investment in education. But as several of those interviewed agreed, the EE might be one of the best policies for retention of personnel that a company could have. David Ramírez reported from Miami.
PHOTO: COURTESY OF: ANUJ MEHROTRA; STAVROS XANTHOPOYLOS; MARÍA BALBÁS
The university is launching the Executive MBA of the Americas, which will place special emphasis on studying the challenges and opportunities faced by Latin American businessmen.
-* Ê 6 ,/ - Ê /1,
LAMS IS A SPACE FOR STRATEGIC CONSIDERATION AND UPDATING OF MANAGEMENT TOOLS FOR SENIOR DIRECTION.
senior executives, INALDE Business School has consolidated the Latin American Management Seminar -LAMS-, as a space for analysis and consideration towards a business environment in constant change and multiple opportunities. In LAMS, Presidents, CEO’s, members of Boards of Directives and General managers of organizations, participate, and who in a space for discussion and analysis, exchange experiences of different sectors strengthening their learning process in order to provide to their organizations, the best tools and face the challenges of the day by day. The thought and discussion is guided by professionals from the most prestigious business schools, such as Harvard Business School (USA). IESE Business School and
T
he economical growth that is currently undergone in Latin
Darden School of Business (USA).
America demands that the business community is prepared
The Latin American Management Seminar makes part of the
to take advantage of the challenges our countries offer and of
program portfolio of senior management of INALDE Business
the opportunities of growth for our organizations. In order to
School, which seeks to impact on senior management through the
respond to the needs of our Latin American entrepreneurs and
perfection of its abilities and development within the companies.
LAMS 2014:
The competitiveness of the companies in a global environment Panama City - Panama. September 2nd - 5th, 2014. Trump Ocean Club International Hotel & Tower Panama www.inalde.edu.co/programas/executive-education/lams/presentacion/ MAY-JUNE 2014 LATIN TRADE
*/
FORECAST MÉXICO
MEXICANS TAKE THE FUTURE INTO THEIR OWN HANDS Initiatives in education, justice and security show a new interest from citizens in accelerating changes in the country.
O
ne might recall the famous play, Waiting for Godot, by Samuel Beckett in which Vladimir and Estragon, endlessly wait for the arrival of a person named Godot. With this play, the Irish Nobel laureate epitomized a literary movement known as “theatre of the absurd,” which became popular in the middle of the 20th century. And absurd it is, to wait for someone (or something) that never arrives, and is only ever defined by the characters as “nothing very definite, a kind of prayer [...] a vague supplication.” For most of the past century, México had a presidentialist political system where the country’s transformation and modernization (as they liked to call it) came about by executive decree. This ended in the year 2000 with the democratic transition. However, Mexican society has not fully adapted to the new political and civic freedoms it has earned. A country used to having little voice, and even less power to affect change, is naturally relegated to wait for improvements to living conditions. Government has to fix it, many say. Just like Beckett’s characters, Mexicans have waited long years to see any change in many vital fronts. It took 30 years for a labor reform, almost 20 years for last year’s energy bill, and many more for any significant policy action in education. Still, the real impact of all of these so-called structural reforms is yet to be seen. More recently, Mexicans have been helplessly calling for more effective government action in the security, democracy and the rule of law, all of which seem to keep deteriorating, at least in the public’s perception. Government can’t take the full blame for this “vague supplication” of México’s urgently needed amends. The country’s population is measurably among the least participative in civic, social and political activities within Latin America. According to the 2012 National Survey of Solidarity and
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Volunteer Action, produced by Cemefi, México has almost 200 million voluntary actions in a year. However, according to Cepal, the country has one of the least socially engaged populations of the continent. In the last election, only six out of every 10 registered voters went to the ballots, a historically high, but still comparatively low, turnout. México’s youth has also been extremely disengaged from civic and social duties. During the 2012 electoral process, only the 80-year-old cohort had less electoral participation than those less than 24 years of age. A project called “One Million Young for México” launched that same year by a local think tank, Ipea, managed to get just beyond the 100,000 mark before they threw away their website counter. Against a backdrop of homegrown YouTube comedy stars getting views in the six or seven million range, these are clear signs of political and civic apathy. Perhaps only the #YoSoy132 movement, which took to the streets to demonstrate for democracy and a telecommunications reform last year, speaks to the contrary.
WITH A LITTLE HELP FROM MY FRIENDS Not everything is lost in the country of eternal anticipation. There are some signs of a Mexican awakening in many areas of public interest. A clear example is education policy. For many years now, a private sector funded non-profit called Mexicanos Primero (Mexicans First) has been pushing for important changes in the public education system, including an overhaul in teacher evaluation and reducing the union’s stronghold. The social awareness, thorough analysis, and policy recommendations that stemmed out of this advocacy group proved instrumental in the reform that followed. Mexicans are also taking best practices from around the world,
PHOTO: © ISTOCKPHOTO.COM / FRENTUSHA
BY ARTURO FRANCO
FORECAST MÉXICO
and adapting them to the local context to affect change. Another education-focused program, Enseña por México (Teach for México) works directly in underperforming schools to improve the quality of education in México while creating social engagement among college graduates. Part of the Teach for All network, founded in 2007 by Wendy Kopp, founder of Teach for America, the program commits professionals to two years of teaching, and has been also rolled-out in Chile and Colombia. As Erik Ramirez-Ruiz, CEO of Teach for México explained to me: “Currently, tens of thousands of low-income children in México lack the knowledge and skills they need to become productive citizens.”
USING ART TO DELIVER JUSTICE Another way in which Mexicans are taking action for social change is through creative arts and entertainment. Such is the case of the 2010 film Presunto Culpable (Presumed Guilty), probably the most successful documentary in México’s history. The film highlighted some of the pitfalls of México’s obscure and obsolete judicial system: corrupt and incompetent judges, abusive police, and thousands of innocent people in jail. Generating public outcry, the film contributed to an important policy change in this arena, namely the presumption of innocence and the implementation of oral trials. Ironically, the film’s producers were recently absolved from accusations of privacy violations after a long and tedious judicial process. The country of muralists Diego Rivera and José Clemente Orozco,
who used art as a means to express social and political concerns, cannot leave this tradition behind. Today, many musicians, artists, actors and poets have found ways to move Mexicans into action. Even more so than the government. The case of Javier Sicilia, a leading Mexican poet whose son was murdered, is emblematic. He stopped writing and took to the streets to campaign against the drugfueled violence spreading through his country, leading the “Voices of the Victims” movement and having an impact in government policy.
SELF-DEFENSE GROUPS: EYE FOR AN EYE Perhaps the most dramatic display of civic organization in México’s recent history is still developing in the western state of Michoacán. After many years of being caught in the middle between fighting drug-cartels, the federal police and the military, farmers, teachers, and other civilians have taken to arms to defend their families, property and lives. These self-defense groups have successfully recovered several townships and cities from the grasp of the caballeros templarios, one of the deadliest gangs in the country. Government was clumsy in its response, first taking their high-powered weapons away, only to give them back a few days later. The situation lead to many questions, and it is not clear how this social experiment will end. And while Godot might be around the bend, clearly Mexicans have decided the wait is over. Arturo Franco reported from México City.
PHOTO: © ISTOCKPHOTO.COM / DUNCAN1890
Mexicans are also taking best practices from around the world, and adapting them to the local context to affect change.
MAY-JUNE 2014 LATIN TRADE
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COUNTRY REPORT MÉXICO
?
México economy 7
Quarterly GDP* Year-on-year change, in percentage
Consumer confidence index Monthly, seasonally adjusted
100
6
95
5
Feb 90 86.0
4
85
3
80
2
75
Q4** 0.7
1 0
70 65
Q1 Q2 2010 * At market prices
Q3
Q4
Q1 Q2 2011
Q3
Q4
Q1 Q2 2012
Q3
Q4
Q1 Q2 2013
Q3
Q4
Q1 2014
** Preliminary
Source: Mexico’s national statistics agency INEGI
GROWTH
R. Carrera, 20/03/2014
México’s government expects 3.9 percent growth, but sector analysts and businessmen think differently. BY MARCO NÚÑEZ
T
he World Bank reported in April that the Mexican economy will grow more slowly in 2014 than had been predicted. The international organization cut its estimated growth forecast for México from 3.4 percent to 3 percent this year, moving further from the official forecast of the government of President Enrique Peña Nieto. Speaking at México’s annual banking convention in Acapulco, the secretary of finance, Luis Videgaray Caso, rejected the notion that the Mexican economy is stalled and insisted that on the contrary, it’s starting to accelerate in spite of the numbers that still show mixed trends. Secretary Videgaray Caso said he sees good economic indicators, and for that reason, his department is holding firm with its expectation of 3.9 percent growth for 2014. However, Daniel Calleja Pinedo, president of the Mexican Institute of Financial Executives (Imef ), isn’t as optimistic. In his view, “There are external factors that influence economic performance, such as uncertainty about activity at the global level, a major setback in the recovery of the United States, and the change in monetary policy at the Federal Reserve. (These factors) are slowing down the recovery, and this is affecting the enthusiasm of companies and investors. The projection of the secretary of finance for the present year of 3.9 percent appears to be off base.” Many private analysts have also cut their Mexican economic growth
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rate forecasts for 2014, the Bank of México reported in its survey of expectations from the private sector. In its poll, the average forecast at the start of the year was 3.4 percent, but now it’s 3.2 percent. On the other hand, despite the short-term uncertainty for the economy, mainly due to external factors, the financial group Banamex remains optimistic that the weakness in the third quarter of 2014 won’t last. It estimates that the second half of the year will see a more solid recovery. Alberto Gómez Alcalá, the bank’s executive director of economic research and communications, admitted that in the short term there is a lot of uncertainty, mainly as a result of a slow recovery in the United States, slower growth in China, and the start of the process of monetary tapering by the Fed. However, he said, the long-term view is more encouraging, as a result mainly of the approval of the internal structural reforms, especially in energy policy, but also of the macroeconomic stabilization that has anchored the economy for a long time. “In the long term, we see the foundations well laid and more clearly defined, even though in the short term, there are still many factors at play that keep us from seeing a clear panorama,” the Banamex executive said. Banamex recently adjusted its growth estimate for México from 3.8 percent to 3.3 percent, but stated that if the reforms go well, the economy could grow by about 5 percent after three years. Businessmen think it will be hard to reach this year’s expectation of 3.9 percent as set out by the Mexican government, and it’s because the internal market, they say, remains stuck and it doesn’t look like it will break free. “To maintain the trends, growth in the current year will be closer to 3.3 percent, with a marked inertia in large measure a result of the ‘bounce’ that came after the slowdown in 2013,” said Gerardo Gutiérrez Candiani, president of the Mexican Coordinating Business Council, CCE. Marco Núñez reported from México City.
PHOTO: © ISTOCKPHOTO.COM / ALEXSL
IN DOUBT
SPECIAL ADVERTISING FEATURE
NOVEMBER-DECEMBER 2013 LATIN TRADE
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POLICY AGENDA PENSIONS
ADDRESSING THE TICKING TIME BOMB Under current conditions, a bone-chilling 60 percent of individuals who will reach retirement in 2050 will not be able to receive a contributory pension and will not have enough savings to live out of poverty. Carmen PagésSerra offers a solution to the problem.
T
he majority of pension systems in Latin America and the Caribbean are not fulfilling their objectives. Despite recent attempts to increase pension coverage, four out of 10 Latin Americans over the age of 65 do not receive a pension, and of those who do, a large proportion receives a pension below $10 a day. Moreover, a number of social security systems are under financial strain due to the lack of alignment between contributions and payments. All this suggests that pensions systems are ineffective at eradicating poverty, or at maintaining the standard of living of retired Latin Americans. Sweeping the problem under the rug, or pushing the solution into the future, will only make matters worse, as the absence of savings for retirement has serious social, fiscal, political and economic consequences. The population over the age of 65 in Latin America and the Caribbean will triple in size in a few decades, reaching nearly 140 million people in 2050. Additionally, retirees will live longer. With fewer children to rely on, elders will need more resources to live on after retirement. Yet, we estimate that given current trends, 50 to 60 percent of those individuals who reach retirement – amounting to 66 and 83 million people in total – will not have had
paid enough to receive a contributory pension, and will not have enough savings to live off. If nothing is done soon, these fast-approaching demographic changes will jeopardize recent gains in inequality and poverty reduction. They will bring substantial political and fiscal challenges, since retirement-age people who will lack a contributory pension will account for more than 20 percent of the electorate. The labor market is the main cause of low pension coverage, and it is at the heart of the solution. About six out of every 10 workers are not contributing to a pension through their jobs. This means that 130 million workers do not make social security contributions, and are part of the informal economy. The good news is that informality is not an incurable disease. It is largely shaped by state-provided incentives in the labor markets, by the design of the social security system, and by the value that firms and workers place on the benefits of formality. All these issues can be addressed with the right interventions. In our recent book, Mariano Bosch, Ángel Melguizo and I argue that universal pension coverage is feasible by promoting universal non-contributory pensions. Universal pensions have two advantages. They are easier to manage than targeted schemes, which require
complicated targeting instruments. They also distort incentives less than formats that require people to remain poor, or not to have a contributory pension in order to receive a noncontributory one. To be fiscally sustainable, such pensions would have to be set quite low (enough to eradicate old-age poverty), be taxable, and be adjusted over time with a rule that takes into account the population aging. In addition, countries will have to step up efforts to bring more workers into formality, so enough savings are generated. We argue that a combination of contribution subsidies for low-income workers, better enforcement mechanisms, and innovations that make contributions automatic for the self-employed would go a long way to increase savings. Lastly, many countries will need to reduce the gap between contributions and benefits as current imbalances will be unmanageable as the population rapidly ages. *Carmen Pagés-Serra is chief of the Labor Markets and Social Security Unit at the Inter-American Development Bank (IDB). The views expressed in this article are her own.
For more information, view the book Better Pensions, Better Jobs (in Spanish or Portuguese) www.publications.iadb.org/handle/11319/462?locale-attribute=es (English forthcoming)
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PHOTO: ISTOCKPHOTO.COM / HARTOWORLD
BY CARMEN PAGÉS-SERRA*
LATIN AMERICA PHILANTHROPY INITIATIVE I N N O VAT I O N
Left: Uganda, July 2013. The Rapid Family Tracing and Reunification System (RapidFTR) is used to collect and share information via mobile phone about children and families in emergencies. Right: Officials at Mulago Hospital enter particulars of children and their parents into Mobile Vital Records System (Mobile VRS) to obtain a birth certificate. Mobile VRS is an innovative technology supported by UNICEF to improve birth registration in Uganda.
Unicef is one of four pan-regional foundations in Latin America. Despite its reach and brand strength, it’s actively partnering with private companies and policymakers to touch new markets, and to solve longstanding social problems. BY CHRISTOPHER FABIAN*
W
hen it comes to collaboration, Unicef is increasingly looking to Latin America. With innovation hubs across the world, including one in Chile, we work to identify and support technological and entrepreneurial solutions to the world’s most difficult challenges affecting women and children. We have helped build the largest mobile health system in the world in Nigeria, developed solutions that reduce the time to reunite children with their families after emergencies, and mapped favelas in Rio de Janeiro, among other initiatives. We have done this through partnerships with firms like Honghe Technology Group, frog design, and others. So, why such an interest in Latin America, and its thriving private sector? We believe that this region can help define how we create and foster solutions to globally pertinent problems for the world’s newest consumers – the often, and incorrectly named, “bottom billion.” Latin American-oriented businesses know the value of a newly empowered consumer base. The diversity of needs within each market has created companies and corporate strategies that are already sensitive to social, economic,
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and communication-level differences among consumers – exactly the kind of sensitivity that Unicef knows is key in creating new solutions.
In the coming year, Latin America will play a key role in changing the way the world approaches development. We have a lot to learn from companies like Itaú, Arcor, América Móvil, and others who are able to quickly adapt to changing circumstances and create relevant and timely products and services for their consumer base. The region’s multilatinas have grasped the potential of single business models, individually flavored and crafted for various markets. That method of franchising and expansion will be instrumental when Unicef and others are looking at taking solutions from one context in the region, and scaling them globally. At
least four million children in Latin America and the Caribbean have not been registered at birth. Without an identity, children are more vulnerable in emergencies or times of crisis, and often lack access to formal systems of health and education. Without identity, a credit rating is hard to come by. There is a clear opportunity to collaborate on spaces of mutual, explicit, shared business need – and create solutions that protect the region’s most vulnerable children as well as supporting consumers and workforces. Finally, Latin America has a particular capacity to engage collaborators in problem solving. Socialab in Chile has created systems to harvest the best solutions for emergency response innovations from local (and global) innovators. Electronic Arts in Brazil is working with computer game design universities and Unicef to get young designers to create a set of open source education games for kids that will be further developed in Unicef innovation labs. This is just the beginning. In the coming year, Latin America will play a key role in changing the way the world approaches development. Companies in the region will help create an engine of change that can solve challenges of identity, transportation, mobile financial services, and more – not only for the region, but for the world. Together, we can create and scale a set of groundbreaking solutions for new and emerging consumers. *Christopher Fabian is co-lead of Unicef Innovation, which partners with organizations and individuals from the public, private and academic sectors to co-develop user-driven innovations.
PHOTOS: © UNICEF/UKLA2013-03809/SHAH ; © UNICEF/UGDA201300581/SIBILONI
STRENGTH IN COLLABORATION
AVIATION SPECIAL
SUCCESS STORY IN THE AIR
T
he opening of the Latin American markets to the world has caught the attention of large local and global investors within the air transportation industry, who have begun to consider expansions, acquisitions, mergers, introduction of new routes, and implementation of better and best practices. Today, the Latin American aviation industry is emerging as one of the most successful stories around the world by delivering the highest performance among all regions, even above Asia. Domestic traffic to and from South America has grown by 50 percent in the last five years, and the impressive expansion of international routes has led to the growth and development of new airports
throughout the region. Major international events like the World Cup in Brazil and sustained momentum in continental trade will continue to drive this success story in 2014. Consolidation in the industry has led to a concentration of 60 percent of all revenue into five main conglomerates, and this could soon increase to almost 70 percent. Multilatina mergers such as Avianca-Taca, or the latest LAN-TAM, as well as the multinational American AirlinesU.S. Airways merger, confirm this trend. The remaining 30 percent continue down a narrow path of possible absorption by the large conglomerates; yet, they continue with the strategy of focusing on regional flights and airports that
big airlines cannot compete with, but that it is undoubtedly the path to business growth. Ease of air transportation, whether for business or leisure, is becoming increasingly competitive, not only in terms of fares, but also in-flight experience. The new generation of air fleets and new aircraft acquired by the large conglomerates are an excellent example of this new trend, where entertainment and on-demand content is readily available, from the latest Hollywood releases to breaking economic and political news in video or digital text formats. For this issue, we have selected the following success stories, which are also the beginning of many more to be told.
SPECIAL ADVERTISING FEATURE
Delta Builds Solid Regional Footprint through Long-Term Alliances
D
elta continues to grow in Latin America and Caribbean. In addition to organic growth, that is expanded flying in the region, a key tenet in our strategy is our alliance relationship with key regional carriers GOL Linhas aéreas inteligentes and Aeroméxico. Delta and its regional partners leveraged the strengths of each carrier to create additional value by establish a seamless customer experience and achieve greater synergies for solidifying their combined networks. “The core of our strategy goes to achieving greater synergies with Aeromexico and GOL alliances that define Delta’s regional business plan,” said Nicolas Ferri, Delta´s vice president for Latin America and Caribbean. “The key is to continue transforming the business to make the customer experience even better by building an added value proposal that exceeds what could be done individually.” Delta has an important shared-code alliance with
Aeromexico that allow it to strengthen its services, to create an enhanced customer travel experience, and offer a better added value proposition with the power of combined network. The joint Aircraft Maintenance, Repair and Overhaul Center TechOps Mexico, opened early this year, is one of main results of a long-term alliance between Delta and Aeromexico. Twenty months after Delta and GOL Linhas aéreas inteligentes announced their enhanced long-term exclusive alliance; the companies accomplished the alliance immediate objectives: expand the codeshare agreement, provide additional benefits to the airlines’ loyal customers, and offer a consistent experience at airports. The partnership offers flights to about 380 destinations in more than 62 countries, and provides network coverage to 99 percent of Brazilian and U.S. customer demand between the countries.
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SPECIAL ADVERTISING FEATURE
A STORY OF SUCCESS THAT HAS BEEN S
ix decades have passed since Copa Airlines initiated operations with domestic flights to David, Bocas Del Toro and Changuinola in Panama, with small Douglas C47 aircrafts adapted for passenger transportation. Afterwards, in the 60,s and 70,s, some international routes were opened, and in the 80,s, the first jet was brought in, focusing the operation on the international market. The evolution of this company, pride of the Panamanians, responds to the implementation of key decisions that have consolidated its leadership, not just within the Latin-American airlines, but also in the selective group of flagship companies in Central America. The first of them was the alliance with Continental Airlines. This Alliance allowed Copa to make an exponential leap in 1999, by acquiring
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new and modern B737 Next Generation aircrafts, incorporating new technologies, adapting the commercial image, using the same frequent flyer program and connections in order to expand the access of Copa Airlines to the international markets, amongst other achievements. Another important landmark was the acquisition of Aero Republica in Colombia, a strategic move that allowed Copa Airlines to provide direct connectivity between the major cities of that country with Panama and the rest of the continent, operating several flights per day from Bogota, Medellin and Cali, and daily or inter-day flights from Cartagena, Pereira, Bucaramanga and Barranquilla. The progress and consistent expansion of Copa has had a direct impact on the economy and tourism of Panama. According to the study of economic
SPECIAL ADVERTISING FEATURE
WRITTEN THROUGHOUT DECADES benefits of air transportation in Panama from the International Air Transport Association (IATA), The Hub of The Americas generated in 2013 close to 38 thousand direct and indirect jobs, and a participation of approximately 4.1% of the Gross Domestic Product (GDP). This means that Panama has the largest air connectivity in relation to the GDP, than any other country in America, including USA, Brazil and Mexico. In 2013, Copa Airlines carried more than 11 million passengers and experienced a 14% increment in available seats offered. Figures that are expected to increase with the implementation of new flights to Montreal, Canada; Fort Lauderdale, USA, and Georgetown, Guyana during 2014, adding to its route network a total of 69 destinations in 30 countries of North, Central, South America and The Caribbean, consolidating its
Hub of The Americas as the hub with more international destinations and flights in Latin America. This contribution will continue to grow. For the present year, the airline expects to create more than 700 new jobs in Panama and offer more than 2,228 additional seats a day and more than seven million seats a year, which represents a 10% increment in relation to 2013. Furthermore, it will incorporate to its fleet 8 new Boeing Next Generation 737-800 aircrafts, which will increase its fleet to a total of 98 airplanes.
ABOUT COPA HOLDINGS, S.A. Copa Airlines and Copa Airlines Colombia, subsidiaries of Copa Holdings, are leading airlines in Latin America for passengers and cargo. The airlines currently offer service to 69 destinations in 30 countries in North, Central, South America and The Caribbean. For over 65 years of uninterrupted operations, they have managed to make the Hub of The Americas, located in Panama, the leading hub in the entire continent. They count with one of the youngest and most modern fleets in the industry, composed of 91 aircrafts: 65 Boeing 737 Next Generation and 26 Embraer-190, and an on-time performance close to 90%, at the level of the best airlines in the world. Copa was awarded in 2013 two (2) prizes by Skytrax as “Best Airline of Central America and The Caribbean” and “Best Cabin and Airport Staff in Central America and The Caribbean”. Copa Airlines is also part of the largest global airline network, Star Alliance, offering its customers the possibility of reaching 1,269 destinations in 193 countries and enjoy more than 18,000 daily flights and 1,000 VIP rooms. To make reservations and select seats, write down your world recognized frequent flyer program MileagePlus number, keep a flight record, register for flights, print boarding passes and pay for tickets through secure transactions in eleven different currencies, visit www.copa.com.
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CEO ROUNDTABLE PA N A M Á
José Pacheco Tejeira, Viceminister of Foreign Trade, Government of Panama; Herman Bern, President, Empresas Bern; Maria Lourdes Gallo, Executive Director, Latin Trade Group; Ricardo Quijano, Minister of Commerce & Industry, Government of Panama; José Vergara, Managing Director, Venezuela, Central America and Caribbean, Marsh USA, Inc.; Ramiro Prudencio, President and CEO, Latin America, Burson-Marsteller.
Jorge Becerra, Senior Partner and Managing Director, The Boston Consulting Group; Adriana Noreña, Managing Director, Spanish Speaking Latin America, Google Inc.
BUILDING SUSTAINABILITY
Kennett Meighan, Country Manager, CENAM, Celistics; Juan Abellán, Chief Executive Director, North Hispanoamerica, Telefónica.
Ramón Marcelino, Director, Business Support, Scotiabank Panama.
and second, they have to partner with other companies, governments and academia to support more ambitious sustainability projects. These were the main conclusions of Latin Trade’s CEO Roundtable, held last April at the InterContinental Playa Bonita Resort in Panamá. Michael Raney, CEO Global Corporate at Zurich Insurance Group, Latin America, set a framework for the discussion of this event “Re-thinking Impact: Governments, businesses and civil society.” His presentation was followed by keynote speaker, Frank De Lima, Panamá’s minister of economy and finance, and then by a rich summary of corporate social responsibility programs at Google, Telefónica, Scotiabank, Goodyear, and Empresas Bern, among others. They sponsor projects in
Steve Miller, Director, Consumer BBU, GIC Cluster, The Goodyear Tire and Rubber Company.
areas such as education, art and digital culture, health, and volunteer work. Jorge Becerra, senior partner at The Boston Consulting Group stressed the importance of impact assessment over other metrics of performance for foundations or other corporate non-profits. Then, Ramiro Prudencio, CEO Latin America at Burson-Marsteller, stated that according to their surveys, Latin Americans value CSR programs. A key conclusion was that companies need to move from funding small, individual CSR programs, to supporting large sustainability efforts. Building sustainable environments is a task that exceeds the powers of a single company. Sustained economic growth and development can only occur in a collaborative environment. Government, business and civil society have to partner to get lasting and relevant results.
Frank De Lima, Minister of Economy and Finance, Government of Panama; Seiji Shiraki, Executive Vice President, Regional CEO, Latin America, Mitsubishi Corporation; Michael Raney, CEO, Global Corporate, Zurich Insurance Group.
CONNECTING LATIN AMERICA’S CEO COMMUNITY
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PHOTOS: ILDELFONSO MARIN
C
ompanies concerned with their role in society are finding that they have to move in two new directions. One, they have to institute rigorous impact assessment programs for their corporate social responsibility (CSR) or charity activities,
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CFO SERIES S Ã O PA U LO
WHAT ARE THE MORE ATTRACTIVE GEOGRAPHIES FOR ODEBRECHT TO EXPAND IN THE NEAR FUTURE? Africa, Latin America, the United States and Brazil.
WAS THIS THE MAIN CRITERIA USED IN DEVISING THE COMPANY’S $20-BILLION, FIVE-YEAR INVESTMENT PLAN?
DISTINGUISHED AND POWERFUL An example of the new role for financial executives in Latin America, Marcela Drehmer, the CFO of Brazilian conglomerate Odebrecht, was the first woman to be named CFO of the Year. BY SANTIAGO GUTIÉRREZ
M
arcela Drehmer holds a post that in many ways can be considered one of the most sophisticated for a Latin American CFO. She is the corporate CFO of Odebrecht, a conglomerate with an international operation on which the sun never sets. As such, she has experienced the complexities of having to deal with different regulations, different tax laws, different ways to finance investment, and still run an orderly, disciplined, principled growth process in 35 countries and four continents. Drehmer also had to develop a good knowledge of a wide array of sectors in which the company has diversified: construction, transportation, agriculture, energy, manufacturing and mining, among others. More than that, working in a highly decentralized company, she learned to deal with the strong limitations imposed, paradoxically, by being at the top of the Odebrecht hierarchy. As a member of the board of affiliate companies different from when she was a CFO at Braskem, she cannot impose decisions, but she has to persuade and convince. Now, she must weigh the advantages and the risks of a specific board
decision, without knowing all the details of the plan. All things considered, a difficult, challenging and at the same time, fascinating job. In part because of this, Marcela Drehmer was selected as Latin Trade’s CFO of the Year Brazil last March in São Paulo - she is the first woman to obtain this award. Her professional career began at Universidade de Salvador in Bahia, where she received a degree in business administration, and continued at the Ibmec Business School in São Paulo, where she studied finance. But, as she explained, a significant part of her professional development came from having the double task of CFO and head of investor relations at Braskem. Equity investors and equity analysts do not just want to hear stories of financial discipline, as creditors might, she said. They have deep knowledge of an industry, and a spokesperson for a company can expect questions from them that range from logistics in a city and the running of a specific plant to the company’s global strategy. A CFO has to know about the business and the industry to satisfy their huge information needs. Marcela Drehmer really does.
WILL ODEBRECHT CONSIDER ACQUISITIONS? It depends on the sector and the opportunities. In petrochemicals, the majority of growth came from acquisitions. Only recently, we started a greenfield project, the Etileno XXI in México. In other businesses, we focus on greenfield projects in the following sectors: roads, urban mobility and logistics in Brazil and Latin America; water, sewage and waste management; oil and gas services; ethanol and bioenergy; real estate development; hydro-power and wind-power energy; properties; integrated defense systems and shipbuilding/offshore.
DO YOU PERCEIVE THAT THE ROLE OF THE CFO CHANGED IN THE LAST DECADE? We have seen more CFOs becoming CEOs. The CFOs are usually involved in many different areas and decisions, especially acquisitions and investments. Additionally, the contact they have with creditors, including banks and capital markets, and equity investors, private funds or the market, brings the perspective of what is really important when you are investing: the perspective of value creation and financial discipline. That helps in creating a more complete professional. On the other hand, the big challenge for CFOs is to have the view of an entrepreneur, that is, to identify the opportunities.
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PHOTO: NEWTON MEDEIROS
Marcela Drehmer, CFO, Odebrecht, 2014 CFO of the Year – São Paulo; Juan Pablo Cuevas, Managing Director, Head of GTS Latin America and the Carribean, Bank of America Merrill Lynch; Santiago Gutiérrez, Executive Editor, Latin Trade
In the next five years, we will invest in Brazil, in the rest of Latin America – including Perú, México, Colombia and Panamá – and Africa, mainly Angola. Those are regions where we have been established for many years, and our investment decisions take into consideration this experience, along with the expected return, as well as our focus on doing projects that are important for the development of those countries and communities.
CFO SERIES S Ã O PA U LO
Mauricio Kedhi Molan, Chief Economist, Banco Santander Brasil
LT CFO Forum in São Paulo
NEW AGENDA FOR BRAZIL
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razil moved part of its population from unemployment to some form of salaried employment. This shift of labor between activities generated a productivity jump, which fostered economic growth. This model will hardly be sustainable in the future, said Banco Santander’s chief economist for Brazil, Maurício Molan, during the Latin Trade CFO Forum in São Paulo. Going forward, “one has to increase productivity inside sectors. For this to happen, we need an agenda of savings, innovation, infrastructure and education,” he said. It´s a paradigm change. Growth would come from from productivity. About the changing role of the CFO, Amit Sighi, CFO, Ford South America Operations
PHOTOS: NEWTON MEDEIROS
Roberto Palmaka, CFO, Microsoft Brazil
at Ford Motor Company in São Paulo, said that CFOs should understand how businesses are run. “Forecasting financials is putting dollars against physicals. If you are able to forecast the physicals, the financial forecast will be more precise,” he said. The moral is simple and deep: “First, be a good business person.” In a way, “CFOs have to be operations leaders with finance expertise,” he added, but they also have to be strategists, looking around, anticipating change, driving business to its vision, he concluded. On taxes, Roberto Palmaka, CFO of Microsoft Brazil, said that since the 1988 constitution, Brazil approved 400,000 new tax norms. To cope, Microsoft hires strong professionals for the tax
Amit Singhi, CFO, Ford South America, Ford Motors Company
team, and tries to retain them. In Brazil, knowledge about tax law has to be inside the company, Palmaka said. Rogério Menezes, finance director at AkzoNobel in Brazil rates the Brazilian tax system as the most complex in the world. It has 76 taxes, 170 official fiscal obligations, 100 types of fiscal documents and three government levels. Menezes suggested that companies should calculate the impact of tax requirements on their cash flow, which represent, on average, 20 percent of the total, in large Brazilian companies. Juan Pablo Cuevas, managing director, head of GTS, Latin America and the Caribbean for Bank of America Merrill Lynch, moderated the discussion.
Martin Barrios, Managing Director, GTS Product Latin America Miami, Bank of America Merrill Lynch; William Calvache, VP Finance Latin America, World Fuel Services.
Wagner Dantas, CFO, Under Armour ; Marcelo Giugliano, CFO, Nike; Marcio Garotti, CFO, Newell Rubbermaid.
Rogério Menezes, Director of Finance, AkzoNobel PPC Brazil
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CFO SERIES MIAMI
Philippe Schrader, President, CHPS International LLC; Ignacio Corral, Finance Director, Latin America and Caribbean, Diageo
Gustavo Reis, Senior International Economist, Bank of America Merrill Lynch
Cheryl McDowell, Vice President Finance and Business Operations, Oracle Corporation
BRIC INFLATION ON THE RISE felt,” he said. In Brazil, growth will be slowed by a lack of fiscal or tax reforms, which will not be done until after the World Cup and the election in the fall. Reis predicts an adjustment will need to be made in the country for 2015, and that we should not expect a tax reform before 2016. The Acquisition Integration workshop was designed to highlight financing and accounting operations, administrative issues and personnel, and systems and reporting which multinational corporations face. “When it comes to acquisitions, the budget and the timelines are double what you think they’ll be,” said Diageo’s Ignacio Corral, and both Corral and Carl Occhipinti of FedEx Express Latin America and Caribbean Division agreed that the busi-
LT CFO Forum in Miami
ness case for the acquisitions tend to be over optimistic. Both also warned to make sure the acquisition makes financial sense. This workshop gathered ideas for best practices when dealing with the complexities of developing and retaining talent, the last discussion of the day. Among the topics covered were resource determination, technical skills, coaching, and mentoring. “You need to start with good hiring,” said Cheryl McDowell of Oracle in opening the conversation, but acknowledged that could be a challenge. Tony Peñate of Janssen Pharmaceutical Group of Companies, Latin America acknowledged the importance of mentoring, but said Janssen did not have a formal mentorship program, but rather operated on an informal system.
Eduardo Rodriguez, CFO, Distributor Group Latin America & Caribbean, Xerox; Michael Edwards, Director, Strategic Solution Delivery, Latin America, Bank of America Merrill Lynch; Alejandro Kong, Controlling Director, Latam, Grunenthal Latin America; Fernando Moreno Lamus, Vice President Finance, Latin America & the Caribbean, Avnet Technology Solutions; Liba Salovici, Managing Director, GTS Product Latin America, Bank of America Merrill Lynch; Seher Samilgil, Manager, Finance & Business Support – Latin America, InterContinental Hotel Group; Virgilio Penso, CFO, Latin America, Teva Pharmaceutical.
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PHOTOS: PABLO BLAZQUEZ
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lobal economic activity is above room temperature now, said Bank of America Merrill Lynch Senior Economist Gustavo Reis. Growth is on the rise, consumers are more optimistic, and globally, we see inflation more or less under control in developed economies. However, there are challenges in emerging markets where food prices are on the rise, driving inflation upwards in Brazil, India, South Africa, and especially China. Within Latin America, Reis said that México saw a recession in 2013, but last year’s reforms and stronger growth in the United States should help the economy to pick up steam. Reis notes that while the world is optimistic about México, Mexicans seem to be less so. “It will take time for the reforms to be
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LUXURY HUBLOT | Hublot Big Bang It is 44 millimeters in diameter, with an automatic movement, stainless steel with a glass bottom, a black rubber bracelet with folding clasp, scratch resistant, sapphire crystal, ceramic bezel, stopwatch function, date format, and pressureresistant up to 100 meters.
WATCHES FOR EVERY WRIST Cutting-edge technology in precision mechanisms, together with luxury finishes of imposing jewels and pink gold, are the trends that are driving executive tastes.
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N.O.A | GRT Racetrack This Swiss watchmaker has a collection that honors five of the world’s most famous racetracks: Le Mans, Nürburgring, Monza, Indianapolis and Monaco. They will be in limited editions, with just 200 watches of each model produced, and will combine attractive colors and the company’s renowned design. The five watches are made of titanium and protected with a sapphire crystal.
CARTIER | Calibre This brand now has Calibre De Cartier, its first diver’s watch with an ISO 6425 certification. It has a unidirectional revolving bezel that is watertight to a depth of 300 meters, and hands and time indicator in Super-LumiNova. It meets all the criteria for a diver’s watch as established by international standards, and is entitled to engrave on the back: “Diver’s watch 300 m.” It is equipped with a thick crystal, a curled bottom and a threaded joint oversized crown.
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PHOTOS: COURTESY OF CARTIER; HUBLOT; N.O.A.
op executives who want to dress well must almost always invest in a good watch. These items not only are conspicuous uous symbols of elegance and status, but also reflect the personality of whoever wears them. ver Gold, silver, other precious metals, sapphires and diamonds make up part of the list of materials from which the world’s most exclusive watches are made. For many of them, tthe quality and quantity of materials used in making a watch of distinction are the most relevant aspects for the distin buyer. However, to ha have a special and useful timepiece, one must also look at brand re reputation, design, the mechanism and the features it offers er such as a calendar or a stopwatch. According to experts, the world of the most desirable watches includes famous brands such as w Patek Ph Philippe, Audemars Piguet, Rolex, IWC and Chop Chopard. There are also the traditional luxury brands bran like Cartier, Bvlgari, Tag Heuer and Omega. B Besides the brand, white gold is a big attraction, aalthough today, pink gold together with steel is also in fashion. Experts say that yellow gold is less at attractive for executives. Here are some of the most desirable watches for the world’s CEOs.