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As a young consultant in South America, Michael Fairbanks was handed a routine assignment. Find out, the government of Colombia asked him, why Colombian leather products were selling so poorly in the United States.
So Fairbankswho is Americanscoured two thousand retail outlets in the U.S. with his team. They posed the question to retail managers. The answer: Nobody wanted Colombian leather goods because, when they wanted cheap stuff, they bought Chinese; when they wanted top quality, they bought Italian.
Fairbanks returned to Colombia to seek the source of the unappealing Colombian leather goods. The Colombian manufacturers passed him off to the tanneries; the tanneries in turn blamed the slaughterhouse foremen. The foremen pointed a finger at the ranchers: "The ranchers over-brand the cows to protect cows from people who come down from the mountains to try to steal them to feed their village," said the foremen. And the ranchers' reaction?
"Es la culpa de la vaca," Fairbanks said, in Spanish. "It's the cow's fault."
As he told the story, Fairbanks embellished another step. When he questioned the cows, he quipped, the cows all blamed the International Monetary Fund. But Fairbanks was making a serious point. Economies can't prosper as long as business sectors routinely pass the buck and refuse to accept responsibility for problems they could solve through better integration.
Fairbanks, an adviser to business and government leaders around the world, was the opening speaker at the Latin-American Business Conference at Harvard Business School, held March 2. At the conference, entitled "Sources of Competitive Advantage in Latin America," he challenged the audience of mostly MBA students, many of them Latin Americans, to confront taboos in order to push economic growth in their home countries.
His affection for the region and long experience there, as well as, he joked, his lack of coffee on the morning of the conference, had put him in a feisty mood. Latin Americans need to develop a "sociological imagination" about competitiveness, he said. The solution to Latin American ills "is not going to be business strategy; it's not going to be government behavior alone. It's also going to be culture: our attitudes and our beliefs and our values. This is the dirty little secret we all talk about in small groups but we never talk about in a systematic way," he said.
The daylong conference was organized by Harvard Business School's student-run Club Ibero-Americano in collaboration with the David Rockefeller Center for Latin American Studies at Harvard University. Other sessions at the conference covered financial services, telecommunications, competitiveness, and the crisis in Argentina. A panel of top executives from three success stories in Latin Americathe companies Grupo Pão de Açúcar of Brazil, Grupo Modelo of Mexico, and Embraer of Brazildescribed how they compete domestically and globally.
Human capital is the only investment with the possibility of infinite return. |
Michael Fairbanks |
Seven kinds of wealth
According to Fairbanks, every country has seven forms of potential wealth. The first threenatural resources, financial capital, and infrastructurecan be discussed openly and explicitly. But most people find it difficult to talk about the next four, he said.
- Institutional capital: the rule of law, clusters of related and supporting industries, and democracy.
- Human capital: education of children. "Human capital is the only investment with the possibility of infinite return," he said.
- Knowledge capital. "Human capital is knowledge capital with legs: it is skills and capabilities. But knowledge capital is international patents." How good a country is at acruing international patents is a clear sign of its ability to innovate and thus grow economically, he said.
- Cultural capital. This is the most important form of capital, Fairbanks insisted. "The only thing I have found more corelated with economic growth than rule of law is punctuality. Punctuality is a cultural trait Punctuality is a proxy for some other things that are correlated with growth: commitment, reliability, respect, consideration, purpose." Latin America has two distinct types of cultural capital in abundance, he said. The first is the "explicit articulation" of culture: statues, music, food, beautiful clothes. The second type is norms of behavior, "meaning what's good and what's bad," he said.
"Today I will say the truth and I will be controversial. ... As long as Latin American families have a flexible ethical standard and transfer that to their childrenwhere they say that there is a difference between little lies and big lies, and little lies are okaywe're going to have the destruction of trust and positive human values that support innovation."
"This is a Latin thing," Fairbanks continued. "I'm not saying North Americans don't lie. Oh, we lie and our leaders lie. Everybody lies. But I'm saying it is endemic to the culture in Latin America and we need to be deeply introspective about this. Latin America is a low-trust region. The radius of trust is extremely narrow. You only trust your brothers and your immediate family, and then your cousins a little bit."
North Americans, on the other hand, tend to think they can trust other North Americans with their money or welfare. "I'm not saying it's always warranted; whereas in the countries we're talking about today, it's a problem. And just because economists can't measure it doesn't mean it doesn't impact our prosperity."
Acknowledging a personal bias against economiststhey are obsessed with math, and they lump all solutions into four categories, he complained: "stabilize, privatize, democratize, liberalize"Fairbanks said economists need better tools to measure the forces that hinder growth.
"If I drop my contact lens anywhere in this room and there's an equal probability of finding it anyplace in this room, the economist will look for it only where the light shines," he said. Economists who study countries such as those in Latin America should integrate mathematical models with other types of sciences in order to offer viable solutions, he added.
"The answer to the problem [of economic growth], much like the culpa de la vaca, is the integration between business strategy, economic science, sociology, and work of non-governmental organizations," he said.
The best hope for countries to move forward"and it aggravates me to say this," Fairbanks admittedis people who've earned MBA degrees. "The MBA by his training and inclination is a natural integrator. He should not be beholden to any special domain. He should be action-oriented, an integrative thinker; he should be a pragmatist in the best American sense. ... [MBAs] know the value of something by its practical end result."
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Crisis in Argentina
In an afternoon keynote session at the conference, Ricardo Hausmann, a specialist in the practice of economic development, discussed the Argentine crisis that began late last year. A professor at the John F. Kennedy School of Government of Harvard University, Hausmann provided economic background to the fiscal collapse and suggested policy implications for the future. Argentineans need to be given confidence that at least some banks are solvent and that a credible monetary policy will emerge, he said. The country also needs international financial support, but such support may be hard to come by now.
Asked if the rest of the world is doing enough to help Argentina, Hausmann said the decision to help has to come not just from foreign finance ministries and principal members of the International Monetary Fund but also from state departments of member countries. Those who aren't enthusiastic about helping Argentina now are afraid that they'll be pouring money into a bad strategy and won't have the money to support a better strategy later. "I would say the international community probably has been too timid," said Hausmann. "They said, 'We want the Argentineans to come up with a program that we can support.' The truth is that time has passed by and they have not come up with a program. Maybe the international community has to turn around and say, 'This is the program that we're willing to support, take it or leave it.' ... But I also think people in Washington have not been willing to gamble their professional careers or their political esteem in a very, very dangerous situation that has many chances of failure."
Asked how converting the Argentinean money supply into long-term bonds which people don't believe will be paid can help the country now, Hausmann said that such solutions are "horrible," but there isn't much choice in a crisis. The appropriate strategy is to minimize the number of rules that have to be broken in order to get the country out of crisis, he said. "The creativity in terms of finding haphazard solutions to every piece of the puzzle has been so great that it has definitely done a lot of long-term damage to the institutional setup and the framework," he added.
"It's not nice to tell people who have deposits that now they don't have them, they have a long-term bond, ... but it's probably the least damaging solution to the problems they are facing right now."
Success stories
The afternoon session on "Success Stories" was notable, in part, because two of the three company leaders represented on the panel were women-a rather unusual situation for Latin American companies. (The lone male in addition to moderator Felipe Monteiro, of Harvard Business School's Latin America Research Center, was Horacio Forjaz, executive vice president of Embraer, the Brazilian aircraft manufacturer.) Ana Maria Diniz, executive vice president of operations for Brazil's largest food retailer, Grupo Pão de Açúcar, said her company has achieved 23 percent average annual growth partly by focusing on changing attitudes within the company and among consumers.
MarÃa Asunción Aramburuzabala, vice chairman of the boards of Mexico's Grupo Modelo (which holds the beer company Corona) and Televisa, inherited a strong role at Grupo Modelo from her father. Though a certified public accountant, she had no working experience when he died in 1995, she said. She, her mother and sister had significant investments and controlling stakes in the company.
"It seemed we were a big pie to eat, and everybody wanted to eat it, by the way," she told the audience with a wry grin. The three decided to fight: no one else would represent them at boards and no one would manage their money. "In a Latin American male-dominated corporation, being a woman equals being weak and stupid; on top of that, I was Daddy's girl." She had to resist stigmas and prove herself, she said.
Nowadays when she talks to women at colleges in Mexico, she said she always tells them to take risks and dare to do what other people say can't be done by a woman. "When you want to do something, go ahead and do it," she said at HBS. "I think that's a key to succeeding."
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