Thanks to economic expansion led by increased exports, the year 2004 should be Latin America's strongest since 1997. That made it a good time to check in with Gustavo A. Herrero, Executive Director of the Harvard Business School's Latin America Research Center (LARC), based in Buenos Aires. HBS Working Knowledge corresponded with Herrero about recent Latin American business trends and the Center's activities.
Cynthia Churchwell: What have you found most interesting in researching the Latin American business environment? What trends have you observed? And, has anything surprised you?
Gustavo Herrero: Latin America has been shaken by a certain degree of economic instability over the last few years. But this is more of a steady-state condition than an exception. Businesses adapt well to changes in macroeconomic scenarios. If anything, we are observing that, as social distress abounds, business leaders and the population in general seem to be more sensitive to the value entailed by social enterprise initiatives and entrepreneurship. Business schools in the region have picked up on this trend and are addressing these subjects in their offerings.
Q: Please tell us about the research you have been conducting lately and the types of cases you've been working on.
A: Lately, we have worked on the expansion of Brazil's largest oil company, the development of a microfinance business by a cement company in Mexico, the positioning of a small winery in Chile that exports to the United States and Europe, a real estate development in Brazil, and the relative competitiveness of soybean producers in Argentina, Brazil, and the United States.Non-case projects have included the effect of economic distress on Argentina's largest corporations. We also contributed to our first HBS "global case" on HSBC (in which three research centers participated in its development). And we are now trying to do a follow-up case on HSBC Latin America.
But perhaps our most distinctive attribute has been enhancing our intellectual capital creation capability by working with academics as well as business leaders in the region. We call this "social capital." Some of the programs that we have supported from the LARC have been the creation of the Colloquium on Participant-Centered Learning (CPCL), a course for teachers at HBS; the development of the Social Enterprise Knowledge Network (SEKN), a consortium of eleven business schools that research and develop teaching cases on social enterprise in Iberoamerica; the Latin American Case Consortium (LACC), a program created by Harvard Business School Publishing to address the distribution and translation of academic material in Iberoamerica; and others.
| I would say that entrepreneurs have been vindicated for the role they are now perceived to be playing. |
We have found that these efforts are synergistic with our core mission of assisting our faculty in the creation of intellectual capital for HBS. Now we are working with the Entrepreneurship unit on a course that HBS would offer in Brazil for executives and faculty, co-hosted by several leading business schools in the region. This could be very powerful, and it will have an important impact, since the idea is to train local academics to carry on with courses of their own in a field where little research has been made, and pedagogical approaches have not been developed. Our faculty view this as a research project where they can learn from the experience and develop contacts for their own research.
Q: What challenges has the Center faced integrating itself with local businesses and the research community?
A: We have experienced fewer problems in this area. The Harvard Business School name carries great weight when it comes to opening doors. Besides, we chose to have researchers spread out in the field: The LARC employs a full-time researcher in Brazil and part-time researchers in Mexico and Argentina. These people have local contacts and are familiar with what is going on in their respective countries. Our accent on doing work with local business schools has enhanced our door-opening capabilities. Latin American business leaders like the notion that HBS is here to learn and give back.Q: Since the LARC opened four years ago, what changes have occurred in the environment for entrepreneurs or for business conditions in general that are reflected in the Center's research?
A: Because of the economic distress that has affected most Latin American countries, unemployment has been high and self-employment activities have surged. Furthermore, there is a general conception that small and medium businesses will play a significant role in the region's economic development and job creation.
There was a time when the term "entrepreneur" stood for people who initiated a small business to compete informally (i.e., not always complying with appropriate fiscal discipline). I would say that entrepreneurs have been vindicated for the role they play. Their thrust is different, too. With some exceptions, they are no longer mature business people who create micro-businesses one after the other to remain unnoticed. We now see younger people starting businesses today because they cannot find jobs, and they aspire to make them grow. Technology and communications have advanced in a manner that allows these people to compete with larger corporations.
Q: During your recent campus visit, you discussed the interesting trend of for-profit companies beginning to target underserved customer groups and, at the same time, improve social conditions. Tell us more about this phenomenon.
A: We find that businesses are starting to address the low-income population as customers rather than recipients of welfare. Globalization does not seem to be narrowing the gap between the rich and the poor, and businesses have come to realize that they cannot ignore the number of people who live below the poverty line. Some estimates indicate that there are four billion people in this segment. That is over 60 percent of the world's population. Companies are starting to address this segment as an important part of their core business strategy, rather than a philanthropic initiative that is carried out by peripheral departments.
This could be very powerful. As corporations try to serve the poor as part of their profit-making activities (this is what makes it sustainable in the long run), they can create enormous social value by bringing people into a society from which they feel ostracized. Developing the right products, choosing how to distribute them, giving customers credit, making sure they are satisfied—these activities will create social mobilization in environments where there is none. HBS is considering a conference in November 2005 to address these issues.
Q: What other business trends do you consider will likely emerge within the next three to five years in Latin America?
A: The question of providing people with basic services such as water, electricity, sewage, highways, and so on, will experience further changes that will create challenges for management. Inefficient privatizations and posterior government interventions leads me to believe that there are pending assignments in this area.
Q: Could you tell us about any unique lessons or concepts the Center's research has contributed to the business or academic environment that would interest managers in Latin America and elsewhere?
A: I'd like to think that our efforts in complementing our intellectual capital creation capability along with the enhancement of social capital has reinforced the HBS mission, "to educate leaders who make a difference in the world." We are "walking the talk," and I think businesses and academic institutions are impressed by it. Not only are we investing in serious research throughout the world (to hopefully train managers who will go out and create value for the shareholders of their enterprises), but we are also trying to do things to make this a better world to live in. 