In praise of the local approach

It sounds like a cliché, but when Juan Ramos, head of Latin American operations at the internet telephony company iBasis, took his US boss to Brazil to seal a deal, the Latin pair spent an hour discussing football while the American looked on, bemused.

Yet without all that preamble – and the subsequent hour talking about business values to build trust – Mr Ramos says no agreement would have been possible.

Mr Ramos knew that not only would a US-style cut-to-the-chase approach have been considered clumsy, it would also have ended in failure. He was also aware that his company’s previous approach to doing business, based on managing accounts rather than markets, was less efficient in Latin America than the country-by-country model he has successfully implemented.

Mr Ramos’s strategy has attracted the attention of Fernando Fraguiero, dean of IAE Business School Universidad Austral in Buenos Aires. Prof Fraguiero is focusing on the way a new breed of regional managers at international companies has abandoned the one-size-fits-all approach handed down from headquarters in favour of using local know­ledge to find business opportunities that may not be apparent from outside the region.

To learn from their experience and share best practice, the dean has assembled 36 regional chief executives from leading global companies including American Express, Kraft, Hewlett-Packard, Dan­one, the Walt Disney Co, Telefónica Móviles and Volks­wagen, who meet twice a year for a day in Buenos Aires to analyse the fresh approaches being implemented by people such as Mr Ramos.

“Multinational companies mapping out their inter­national strategy from an office in somewhere like St Louis are losing lots of opportunities to grow,” Prof Fragueiro says.

Although Latin America accounts for only about 10 per cent at best of a global company’s sales, experience has shown that to take a different tack can pay off.

Academic Analysis

Prof Fragueiro says that in companies where dynamic regional bosses have room to take strategic decisions about the best approach for their markets, “growth of the company in the region in terms of sales is much higher”.

As an example, he cites how, during Argentina’s 2001-02 debt and devaluation crisis, the French-based global food group Danone abandoned the traditional recessionary strategy of putting up costs and instead slashed prices, while aggressively advertising its determination to stay in the country during the tough times.

The bold tactic paid dividends in both market share and consumer goodwill and helped make the region a crucible for ideas applicable to other recession scenarios.

“Latin America may still only be a small component of a company’s bottom line but there are 500m people here and there are opportunities,” says Prof Fragueiro.

The region’s relative distance from global headquarters can even work in favour of such a tailor-made ap­proach, by giving far-sighted regional bosses the room to innovate and to add value in a region seen as non-core.

The Business Council for Development and Integ­ration that the dean has assembled – named the “business board” – is a forum at which regional chief executives can discuss ap­proaches and problems using the analysis of corporate case studies as a starting point.

Prof Fraguiero started the ball rolling by calling on former IAE alumni and then networked to assemble the council. It is a novel approach, blending hands-on experience about successful strategies and the ways in which regional managers have changed their global headquarters’ thinking, with academic analysis.

Importantly, it also gives managers whose seniority often makes them feel isolated a chance to compare notes with their peers in other sectors.

“I don’t have too many forums where I can benchmark myself vis-à-vis my colleagues,” says Victor Agnellini, the communications group Alcatel-Lucent’s president for the Caribbean and Latin America.

“It gives you the chance to think through challenges you haven’t faced yet and, if you have faced the same ones, to compare yourself with the others.”

Mr Ramos says there is no risk of industrial espionage: “We talk about the concepts rather than specific details.”

But still, he adds, “we expose ourselves a bit and talk with complete freedom”.

Prof Fragueiro says IAE, like other such institutions worldwide, has found in the business board a way to educate people and to promote development in the region.

Eugenio Sevilla-Sacasa, vice-president and managing director of the transport and logistics company Ryder Latin America, says it has helped him to secure investments in a region still often perceived as flaky.

“Brazil, for example, is still viewed as a very volatile country, and it is, but [during] the past five years it [has also been] a country whose currency has been appreciating against the dollar – something unheard-of in Brazil for the past 50 to 100 years. How do you communicate to headquarters that there is a real change in Brazil, and that the economy is much more stable?”

Vision

One way – an approach he honed at the business board – is to show that free trade agreements struck by Latin American governments such as Mexico go beyond matters of trade and form institutional rules that make it hard for governments to slide into a populist agenda that could make the business environment volatile.

The response was: “OK, let’s invest a few thousand more. It’s been pretty positive,” he says.

The first case the executives analysed was the bold reorganisation of Disney’s Latin American operations led by Diego Lerner to unify a fragmented structure to take advantage of the business assets and challenges: a common language, under-development, unequal wealth distribution and political and economic volatility.

The board’s second case is that of iBasis, where Latin American business and profitability have grown rapidly.

What emerges is the vision of a regional chief executive with an entrepreneurial outlook, granted trust and autonomy by global bosses, says Prof Fraguiero.

Mr Ramos says he hopes the business board will yield a set of best practices for growth in the region.

“To be successful today in global negotiations, you have to have a structure to act locally, but for real – not like the appendix of headquarters.”

“That means giving up a lot of things, and lots of headquarters aren’t willing to do that. But companies that don’t understand this are going to lose out.”

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