NewsLeader

NewsLeader
 
April 2004 NewsLeader Year 2 number 2

Alfredo Behrens
Editor

This is a space for quick conversations on management and society. 

Our interests gravitate around issues of leadership, management of workteams, technology, creativity, emotional intelligence and most issues which should be shared to shape a better world. 

Our approach brings thorough  perspectives into real-life situations and seeks awareness rather than compliance

Your comments will be most welcome.


 

The feature article of this April issue points to the downside of domestic corporations resorting to what we call national commercial policies. These policies frequently use  nationalist arguments, such as 'Buy Mexican', 'Buy Brazilian' or 'Buy' whatever nationality may suit the beneficiary in the short run. We argue against those commercial policies on two accounts; not only those commercial policies are shortsighted, as Latin American corporations make headway in neighbouring counties, like Telmex or Ambev did; but - under the current protracted economic stagnation - commercial nationalism may also trigger a nasty political backlash adding to the cost of sales and much more.

Corporate social responsibility in the Latin American environment faces higher challenges than elsewhere. Here corporations may wish to sustain schools or hospitals besides going about their own business. But the orchestration of their core business must also seek to sustain the fabric of the society they operate in. Domestic corporations may fail to help on this account when they sell out to a foreign investor after having asked the population to rally around the domestic corporation to make a national industry more profitable.

Worse, that failure to uphold fidelity based on a promise only adds to too many hollow promises which have frustrated the population. Unfulfilled promisses add to the predominant cynicism which corrodes the already weak civic cohesion sustaining these societies.

These are hard times for everybody and frustration is a bad counsel for political behaviour, particularly at a time of economic stagnation.

In response to our last issue, several subscribers kindly pointed out that their firewalls or antivirus resources were rejecting HTML annexes such as the ones we relied on to make NewsLeader available to you. As from this issue we are testing a new way of composing NewsLeader in order to circumvent at least some of those inconveniences.

To compensate for the losses we are also repeating two of the articles which you may have missed in the last issue: 'Feudal values boost stock price'; and 'Selling to the poor may well be your next market.' The first shows how old-fashioned values bring about the most effective leardership style; and the second shows how to tap on apparently unattractive alternative markets to expand sales and train new leaders.

Some of the articles published here are being offered in Spanish, with about month lag, at www.thesponsormission.net  I encourage you to visit the link and to test their newsletters and services.

The Editor. 



IN THIS ISSUE

Sponsorship Notice: Leadership Cafés Back to Table of Contents
 
 

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NewsLeader is launching Leadership Cafés in São Paulo, Rio de Janeiro, Belo Horizonte and Brasília (and almost wherever else you may need us to). 

 

 

During half day meetings 'in company'; or during two hour sessions  in late afternoons, these for open enrollment; NewsLeader will facilitate in Portuguese the discussion of leadership issues in small homogeneous teams. These sessions are focused on leadership and aim at securing your own development and enhancing your company's competitiveness

 

 

NewsLeader can also make arrangements for similar events to be held in other Brazilian cities in Portuguese, or elsewhere in Latin America, in Spanish or English.

 

 

Call the Editor at +55 11 38713363 or email him at editor@newsleader.com.br

+5511 38713363



 
Feature Article: My kingdom for a buck! Or how national commercial policies may buckfire. Back to Table of Contents
 

My kingdom for a buck!

 

Alfredo Behrens

Editor@newsleader.com.br


 

Wrapping goods in nationalism seems to me an opportunistic use of a slim competitive advantage; and it may even backfire in the long run.

 

AMBEV, the largest Latin American beer manufacturing company, came into being through a merger between Brahma and Antartica, leaving Brazilian consumers with little beer to choose from.

 

AMBEV’s birth was hailed as a truly Brazilian large company that would fend its way abroad. Further, by artful use of advertising, Brazilian beer consumers were led to believe that by drinking AMBEV’s beers, Brazil might grow even faster than their pouches would.

 

Indeed, streamlining and competitive pricing enhanced AMBEV’s  financial muscle; empowering a buying spree. Soft drinks and beer manufacturers succumbed under the AMBEV spell in Argentina, Peru, Uruguay and Guatemala. For a time it looked like AMBEV was fulfilling the dream of a truly Brazilian manufacturer gone international. Yet, a few years later AMBEV relinquished control of its beer kingdom to the Belgian Interbrew. Brazilian beer drinkers were left wondering whether they should still be drinking what was now portrayed as a foreign beer.

 

There is nothing wrong in taking the opportunity to make a quick buck – like AMBEV did - unless its consequences are less than innocuous to society. A healthy society requires a high level of trust, and while the population may occasionally be asked to rally around this or this other manufacturer, it is unlikely that the same population will respond as readily if they are repeatedly taken for fools by companies whose behaviour seems more inclined to separate consumers from their wallets than in respecting their honest allegiance.

 

The fuss above would not be worth writing about if it did not depict a lazy trend amongst retailers to use the national commercial argument when persuading buyers to buy from them rather than from foreigners.

 

Pão de Acúcar offers another case. This is one of Brazil’s largest food and beverage distributors, with over 500 outlets, many of them inviting Brazilians to buy from them rather than from foreigners. However, the French retailer Casino holds 24% of Pão de Açúcar’s controlling shares, besides a shareholders’ agreement to buy up to 40% of Pão de Açúcar. There is nothing wrong with that either, except if customer fidelity to Pão de Açúcar is construed on a promise the current controllers may one day wish to give up for a fast buck.

 

So far the largest ‘Brazilian’ private retail banks have not fallen prey to the “Buy Brazilian” fashion. If they do, we would also stand to see “Buy Brazil” posters in their additional 15 thousand outlets. 

 

Does the national commercial card make sound business? I would say not, because, when the company becomes international, the nationalist card is akin to shooting itself on the foot.

 

Might it work for a provincial business never expected to become international? It makes more sense for those unattractive businesses. Even then, one may want to ask whether this commercial nationalism is a socially responsible phase of business affairs?

 

I would go as far as saying it is a dangerous way of doing business. Latin American political structures are still too fragile to sustain a state of business affairs that may trigger an onslaught of xenophobia and racism, as it might happen in these societies with a high level of unemployment and a battered national identity.

 

These are sad times, of terrorism, fundamentalism and economic stagnation. Stirring nationalism to exclude foreigners undermines social integration. In countries with deep divisions, whether ethnic, regional or social income gaps; national commercial business policies are prone to side with the worst aspects of politics. There are too many strident signs of the neo-fascism that creeps in Europe. Not even the traditionally hospitable New World is free from it; from North America, where a venerable Harvard Professor may publicly argue that America is home to too many Mexicans; to Argentina, where a Pew Trust survey revealed that immigrants are most resented there than anywhere else in Latin America. 

 

Today’s fascism does not espouse a national project nor endorses a specific political doctrine. But is not devoid of “action appeal” to the young and disenfranchised in countries with stagnating economies; like so many of the Latin American ones.  Flirting with xenophobia – as commercial nationalism implies -  is far from socially safe.

 

From a business point of view, espousing commercial nationalism is not only a cheap shot at foreign competitors, it is not even a fair shot, as we have seen by the ownership structure of the companies which occasionally underwrite the national commercial campaigns. But worse, flirting with xenophobia is detrimental to political integration and to the stability of our incipient democracies. In the long run, opportunistic nationalism may even buckfire; adding to the cost of sales and much more.

 

 



 
Management Insights: Selling to the poor may well be your next market Back to Table of Contents
 
Selling to the poor may well be your next market

 

Alfredo Behrens

 

 

 

There is a lot of waste energy hanging around us, but engineers are quick to point out that it is hard to harness waste energy and put it to useful work. The same with the poor; however ubiquitous they still are too scattered over the planet and each one has too little to spare to pay you with.

 

This is why marketing gurus have frowned upon the poor. However nasty that may sound, it has always been hard to argue with the diagnosis. This is why it is refreshing to read about a new initiative to reinstate the poor as King of Growth by C.K. Prahalad, professor of corporate strategy at Michigan Business School.

 

In “The Fortune at the Bottom of the Pyramid,” to appear in the next American Summer, Professor Prahalad adds up all the purchasing power of the poor in the largest developing countries and comes up with a potential market, of sorts, larger than the GDP’s of the largest European countries plus Japan. Such a market begins to sound interesting, perhaps not enough for a multinational to move in any of those poor markets, but enough to trigger awareness. If a company is already present in a country with many poor, could the company – multinational or not - be missing an opportunity? Perhaps.

 

Professor Prahalad’s adding-up of the poor is effective in raising awareness, but if you are in the cement business in Mexico it might not help to know that you are missing out on customers in Indonesia. Yet, what if you were missing out opportunities in Mexico itself? This is precisely what Cemex discovered in Guadalajara: a way to sell to the poor and make a stable profit while at it.

 

Cemex is the World’s third largest cement manufacturer and Mexico’s largest one. In the course of its business Cemex realized that while its large construction clients offered a profitable niche, their demand tended to be more volatile than the “build-it-yourself” one. The latter market consists mainly of poor households earning less than $5 a day; far from Cemex’s typical client. The interesting issue is that this market offered a significant growth opportunity.

 

Cemex moved to organize this market by building on the social capital of the poor: their inherent networking abilities and solidarity liaisons. Small teams of three to ten people were bundled into saving teams focused on home improvements. To them Cemex offered credit to buy cement as well as ancillary services: architectural and engineering advice, plus schools for construction workers and deposits for the cement and other building equipment.

 

A few years later Cemex brags having extended $10 million in credit to the poor and having made 36 thousand new customers. Cemex is still is adding over 1500 new customers every month. By 2005 Cemex expects to have close to 1 million customers among the “build-it-yourself” market niche. Margins are 3 percentage points lower than the average in the business, but Cemex has extended its market into a vaster and more stable market. Besides, plenty of opportunities now exist for cross-selling, which remain still untapped.

 

Knowledge @ Wharton also points out to other success stories such as Hindustan Unilever’s  in selling soap to poor Indians. But one can also point out to high short term losses made by ill-advised incursions in those markets, like the one of Lloyds Bank in Brazil when it bought the financial house Losango.

 

Losango specializes in extending conventional credit to poor households to buy electricity-operated household equipment like pressing irons and beaters. Lloyds saw in Losango an easy opportunity to elbow its way into the financial services to the poor; only to find out, as unemployment increased, that bad loans were too many besides too small and too scattered to deserve the effort a foreign bank would have to deploy to clean-up its books.  Central Bank guidelines - perhaps inadequate when dealing with loans to the poor - did not help either, as they called for higher-than-necessesary reserves for this type of bad loans; because poorer borrowers make better payers.

 

For a time “Losango” was known at Lloyds’ board of directors' meetings as “Loss and go”, as Lloyds would have gladly gotten rid of Losango, had they been able to. They were not and they finally managed to turn Losango around into a significant money maker, capable of interesting HSBC, as it bought Lloyds out of Brazil.

 



 
Hot Tip

Think out of the box, suspend your jugdgment and your 'Big Five' consultants, call on your local university's  social scientists and discuss the new venture into the 'poor's market' with a bold and younger executive team which the experience may shape into your company's future leaders.

 

 

As the Losango case illustrates, moving into the lower income markets is not the for faint-hearted. It requires a specific marketing strategy, one that may involve the knowledge of professionals not close to conventional decision makers. Cemex relied on the wisdom of a former socialist advisor to Chile's President Allende. In some ways you would do well in suspending your reliance on conventional advisors, too prone to tell you the new strategy will not work.  The strategy also requires resolve and an unusual dose of audacity and managerial low-fat flexibility.

 

None of the above are likely to come easily, but perhaps selling to the poor may also prove a valuable ground to form new business leaders. Surely a company - multinational or not - can think of a couple of fast track executives eager to try their teeth on a challenge. One can think of Brazil’s intercity transportation business allocating a few heirs to develop new transportation services more attuned with the needs of the poor, or Argentina’s industry testing its proverbial inventiveness in selling food and cleansing materials to its own poor. 

 

After all, current macroeconomic conditions in most Latin American countries leave little hope for growth as usual. Growth by mergers and acquisitions is one of the most boring alternatives, and one soon to run into anti-trust regulatory difficulties; such as Nestlé (Brazil) did, when it attempted to buy Garoto.

 

Cemex’s and Lloyds' way points out to an interesting growth avenue, one also likely to allow private business to grow in an even more socially responsible way; while also providing good testing grounds for future leaders.

 



 
The Spotlight: Feudal Values Boost Stock Price Back to Table of Contents
 

 Feudal Values Boost Stock Price

Alfredo Behrens

 

Humility, loyalty, integrity are virtues frequently taken to be pre-capitalist in the sense that, having no exchange value, they cannot fetch a price. Yet, what if feudal virtues turned out to add value to a company's stock?

 

In a world leaning towards entertainment rather than information, the likes of Jack Welch, Lee Iacocca and  Gianni Agnelli are bound to be better known than Darwin Smith, CEO of Kimberley-Clark. However, Smith’s tenure led to his company outperforming the stock market by almost twice than GE under Welch’s own tenure.

 

Indeed, under Smith, Kimberley-Clark, outperformed stars like Hewlett-Packard, 3M and Coca-Cola, let alone Chrysler or FIAT. Nonetheless, for six years running, Fortune declared the now notorious  ENRON “the most creative company in America,” while Darwin Smith did not make even the specialized business press’ headlines.

 

Jim Collins led a five year study into almost 1500 American companies seeking to unearth what was it that leaders had in common when they succeeded in turning failing companies into great ones. The leaders themselves he called Level 5 Leaders.[1]

 

Personal humility is one of the common characteristics and one of the reasons that the leaders were relatively ignored by the press. Neither Smith, nor Gillette’s Colman Mokler, nor Abbott’s George Cain sought the press. Neither did the eight other Level 5 Leaders. Further, when interviewed,  those leaders would credit their collaborators more readily than themselves. When hard pressed to explain what made them so effective many of these non-celebrity business leaders would also claim that they were simply lucky.

 

Luck may have had some role, but it did not help their competitors as much. For instance, Abbott Laboratories outperformed the stock market permormance by twice as much as Merck or Pfizer did. Circuit City’s Alan Wurtzel helped that company outperform the stock market by almost 19 to 1; but Mr. Wurtzel claimed that luck also helped him find the right successor.

 

Why would humility be so important?

 

Perhaps because it allows for close collaborators to feel dignified by their work, for they are more likely to take credit for their own work than would, say, collaborators of FIAT’s Gianni Agnelli; too busy cruising “his car across red lights, with his chauffeur cowering in the back seat.”

 

Perhaps as important, the humility of the Level 5 Leaders also assures that lower-ranking collaborators will feel that their best efforts are made on behalf of something larger than themselves, even larger than their bosses. An impression that would not be borne as readily by the workers of Scott Paper under Al Dunlap, the “Rambo in pinstripes,” who pocketed $100 million for less than two years of downsizing at Scott Paper. The latter’s performance, incidentally, was surpassed by Kimberly Clark under Darwin Smith.

 

Besides personal humility, these Level 5 Leaders also displayed a relentless resolve. Darwin Smith worked through his radiation therapy to cure him from cancer. George Cain - himself an 18 year insider and heir of Abott Laboratories - had to wipe the company clean of the traits of nepotism that had stalled its creativity. Charles R. 'Cork' Walgreen III shifted his business out of the food service sector; where it had 

invented the malted milk shake and where led the market with over 500 restaurants. 

 

Where does their resolve come from? One may only speculate, but drawing on the Jungian foundations of Jaworski’s Synchronicity,[2] one may admit that in this larger-than-human resolve there is a well of certainty that may stem from a feeling of “oneness” in which the individual leader flows in a river of unconscious determination, larger than himself. This allows us to better understand Collin’s appreciation of “an even stoic resolve” in the determination with which these leaders followed their destiny, and instilled “discipline” within the rank and file. Discipline, in this context, does away with the need for bureaucracy and puts each person at his own helm.

 

Under this approach “personal humility” makes more sense; because the leader feels he is only allowing himself and others to flow with a force beyond his control, which, in Collin’s study the leaders referred to as “luck”, perhaps for lack of a better word.

 

In this role, attuned with a force larger than oneself, the leader acts more as Greenleaf’s Servant leader; geared to serve his organization over himself; thus also helping to understand the readiness with which Collins’ leaders credited their collaborators for the company’s success; and the care they put into selection their successors. The latter is in itself a litmus test for stewardness, rather than personality cult.

 

You may disagree with my attempt to reconcile the seemingly disparate character traits and the behaviour of the most effective corporate leaders singled out by Collins, but one thing is for sure: celebrity leaders did not lead corporate performance as high as Collin’s Level 5 Leaders did. In fact quite a few celebrity leaders even tarnished the reputation of their companies much in the same way that, in politics, a comparable style of celebrity leadership helped wreck the economies of countries like Argentina, or Ecuador.

 

However, Collins’ work has returned the lost lustre to leaders who, holding precisely these old-fashioned virtues, have led their companies to unparalleled success; and in the process of doing so, these leaders paved the way for their own succession.



[1]  Jim Colins, Level 5 Leadership, Harvard Business Review; Jan 2001, Vol 79 issue 1, page 66.

 

[2] Joseph Jaworski, “Synchronicity: The Inner Path of Leadership” with an introduction by Peter Senge. Berret-Koehler publishers, 1995.  


 

Further reading on qualities of leadership: there is an endless list of psychological qualifications for leadership, but - given Jack Welch's standing in the leadership field - it is not a waste of time to see Jack's own list, in a reproduction of his Wall Street Jounal article of last January 23rd.  



 
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Copyright information Back to Table of Contents
 
Copyright 2003: Authors retain copyright of their work. Alfredo Behrens is entitled to all other rights concerning NewsLeader, except the template design. You are encouraged to make use of the views and information provided herein, as long as you appropriately give credit to the author and quote this Newsleader's issue number and date.

 
How to Be Featured as our Guest Columnist: How to be a guest columnist, instructions Back to Table of Contents
 
Provocative insights under 400 words long will receive our attention more rapidly. Larger pieces may be abridged without consultation with the author. Guest authors may wish to submit contributions in English, Spanish or Portuguese. Please use Arial 12 font; and  with each submission include a statement indicating the work submited is your own. Please also submit your affiliations, email address and CV or Oxford Muse like portrait.  Authors will only be notified when their contributions are selected for publication.

 
To contact the Editor Back to Table of Contents
 
Alfredo Behrens
editor@newsleader.com.br 
Phone +55 11 38713363
São Paulo, SP
Brazil

Alfredo Behrens is an economist. He holds a PhD by the University of Cambridge; has lectured at Princeton’s Woodrow Wilson School, at FSU and at PUC-RJ. He has broad experience in advising high public officials, shareholders and board members of banks and large corporations on issues such as: governance, corporate relations with governments, M&As and strategic planning focused on the internationalization of companies. He has worked in or with the private and public sector in the Americas, East and Western Europe and Southern Africa. He was awarded the McNamara Fellowship by the World Bank, the Hewlett fellowship by Princeton University and the Jean Monet Fellowhship by the European University, Fiesole, Italy.


 
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