International business, globalization, the developing economy in Peru.
I will be in the US during April – May. I just finished up a 2-day corporate workshop that I’ll be offering while I’m in the US.
The idea of this workshop will be to challenge participants to erase the destructive corporate culture of the late 20th century and replace it with new, responsible thinking. Any inquiries or referrals, please contact me.
Ward Welvaert
ward DOT welvaert AT gmail DOT com
919 889 9208
Otto at Inca Kola News has some good analysis on the work stoppage at La Oroya today.
From Reuters:
“Doe Run Peru has halted work at its sprawling La Oroya smelter after banks cut credit lines for the company.”
Also read my previous post about money and La Oroya. It remains to be seen if Alan Garcia’s pro-mining government will step in. Personally, I’m with Otto on this: Ira Rennert took the money and ran.
A friend of mine sent me this. Crude, but funny. Also sad actually, because it’s becoming increasingly obvious these bailouts are set up to protect greedy incompetent executives who caused the mess in the first place. If anyone knows of the correct origin, please let us know in the comments.
The political posturing around the AIG bailout back home in the US almost makes Peruvian politicians look sincere…
Remember when former NY Attorney General Elliot Spitzer – not exactly the poster boy for ethics himself – keelhauled then-CEO Maurice “Hank” Greenberg in 2005? Here’s what Greenberg recently said about credit default swaps at AIG:
Instead of all the posturing, let AIG fail. It was just a house of cards. AIG’s business model of insuring investments only created a false illusion of security. Letting AIG fail would be a good first step to cleaning up both the financial system and ethics in business.
Bailouts and political posturing don’t change the fact that money is just a funny printed paper. Real productivity, what we contribute to society in tangible terms, and the tangible things you expect to get in return, is what matters. Just printing up more money so old guys in suits can continue to get ridiculously rich doesn’t seem like the solution to me.
Jeff,
There’s no real easy way to say this: please quit screwing my friends!!!
I’m sorry. This blog was previously free of profanity.
But Jeff, sometimes it’s better to say what you really think, and I honestly feel bad for my ex-collegues at GE who saved up for their retirement in GE stock. I got sentimental once and bought about $1,200 worth of GE stock for my 401(k), it’s probably worth $200 now. Some of my friends had their entire life savings in company stock, now they’ll be saying “hello, welcome to Wal-mart” for the next 20 years.
What really makes me angry Jeff, is that I remember seeing a memo from you several years ago saying “we still do too many things by the rules of some old playbook.” So I think you knew long ago the culture you inherited from the GE of Jack Welch was nothing but a grand illusion, but why didn’t you do anything about it?
Jeff, ayude me pues, GE’s Short/Current Long Term Debt alone is $193 billion, that’s 6 times the entire foreign debt of Peru, a country of 29 million people.
But let’s put things in perspective Jeff. Fly down here to Cusco (economy ticket on LAN is $800) and I’ll introduce you to a 10 year old kid in my English class. He has no hands but is happy as anything, he gets by just fine despite his disability. I can also introduce you to about 4,000 other kids where I teach, every one of them believes tomorrow will be better than today, and so do I.
I’ll also introduce you to Mama Vicky, who worked the land with her own two hands her entire life. Funny thing Jeff, Mama Vicky might “be worth” more than all of GE right now, since she has a house in a good area of Cusco – and no debt. But the point is this: she worked hard to provide tangible things to her family for eighty-some years, and GE can do the same thing.
GE makes lots of great things, tangible things, but GE culture is lousy. When I was at GE Jeff, kids with MBAs who didn’t know which pointy end of the airplane goes down the runway first had better career opportunities than hard working engineers and technicians. And what’s up with V-dollars? Come on Jeff, that sounds ridiculous even for a guy who went to business school.
I like how you cut the dividend Jeff, it was a decision based on reality. Quit worrying about AAA credit ratings. I know, I know, it affects the cost of capital. But borrowing money like it’s going out of style is what got us in this predicament, so let’s not borrow any more, okay Jeff.
Come have a few cervezas at Mama Africa with me and we can talk about how to ditch GE’s stale old 20th century culture and split of the industrial businesses in a successful IPO.
Seriously Jeff, you might think I’ve been drinking too much coca tea, but GE was a standard-bearer for business in the late 20th century, and that kind of culture is exactly what caused the recession. So let’s stop doing things like we did in the 20th century, that was a decade ago. Let’s look forward and start a radical overhaul of GE, so my friends can say “Welcome to Key West” or wherever they choose to retire, not “Welcome to Wal-mart” for the next 20 years.
Here they are:
21 reasons globalization as we know it is over
Front row: Glinish, Pamela, Jose Luis, … Back row: Luis, Milagros, Tania, … You get the idea. They were my students at ICPNA a few months ago.
I always ask them why they’re studying English, what their goals are.
Some examples: Pamela (the youngest one on the first row) is studying at UNSAAC to be an accountant, so is Tania (3rd. on the back row). Williams (2nd. from right on the back row) is a tour guide and Sharon (next to him) will probably be accepted in the performing arts program at the Católica in Lima. Jose Luis (front row) is studying medicine, his father is a doctor and dentist.
Some of the students at ICPNA may be privileged compared to the average Peruvian, but others proudly tell me they are the first generation in their families who have the opportunity to study and pursue a professional career. All of them are working hard to get a better life.
The old idea of globalization, selling natural resources to multinationals, outsourcing jobs for cheaper wages or moving factories to avoid environmental regulation is simply doomed – and that’s a good thing.
Old style globalization often did not add any tangible value, or improve the lives of the average Peruvian (or middle class America). Globalization 2.0 will be about real value, exchanging goods, ideas and services based on differences in geography, culture, infrastructure, economies of scale, etc.
I have ideas…
Even in the current downturn I’m very optimistic about the opportunities here in Peru, where the median age is 26 and the per capita GDP is $8,500. I have a ton of ideas: a floatplane business to visit Lake Titicaca, a web development company in Cusco, an export business of typical Andean products, … We’ll save the details for another day 🙂
A lot can be said about the success of Google, how the company largely took over the lucrative internet search business from one-time internet darling Yahoo!, and many of Google’s other success stories are the stuff college case studies are made of.
Here in Peru I noticed one more reason why Google became so successful: Google speaks Quechua.
Quechua is a native Indian language spoken here in the Andes region, it is believed to date back well before the Incas’ time. Today Quechua is an official language in Peru, it is spoken by the native Indian, typically rural, population in both Peru and Bolivia.
Of course lots of websites are available in different languages, that in itself is not the point. But think about this quote from Umair Haque’s Smart Growth Manifesto:
The significance of Google’s Quechua site is that I can’t imagine Google sees any substantial revenue from it.
I don’t say this to put down the Quechua language, but simply because most of the native population who speak Quechua also speak Spanish, and they revert from one language to the other seamlessly, with Spanish typically spoken in the cities and used in business.
Cost/benefit is an entirely different concept from revenue/cost. Even though Google may not see much revenue from its Quechua site, thanks to Google lots of schoolkids in little towns all over Peru can read and search information in their native language.
I believe it’s well past time to stop managing companies like we did during the era of supply-side economics in the 20th century. In the 21st century, businesses will find opportunity when they do things because it’s the right thing to do, when the outcome is something you would be proud of.
Kids in rural Peru whose native language is Quechua learn Spanish in school.
GE, my former employer, released earnings this morning. As expected, it wasn’t pretty.
GE needs a radical new corporate culture
Many of my former collegues who have been at GE since the stock’s heyday of the late 1990s have a hard time understanding how GE stock has consistently lost value for nearly 10 years now while the company continues to post profits. Some of them still believe the stock will go back up like it did in the 1990s.
Now working at GE was very good to me. The company has great benefits, health care, tuition reimbursement, a fixed pension, etc. In the aircraft engines division we had a fantastic team of engineers and technicians, as well as a world-class work environment. It’s easy to understand how many of my former collegues, from inside the company, always believed in GE’s stock.
The trouble with GE is that the finance arm Jack Welch created to buy and sell companies at will, and thereby achieve his illusion of “managed earnings”, has now become a big headache. I’m no finance guy or economist, but check out a great analysis of GE’s creaky balance sheet here.
What to do if I were Jeff Immelt:
GE’s corporate culture needs a radical overhaul. GE’s culture is still focused on things like competitive advantage, doing more with less, earnings growth, and all those tired old 20th century concepts that simply won’t work in the 21st century. Only by having a culture that relentlessly drove an illusion of value did GE end up with north of half a trillion $ in debt.
Change in a large organization is not easy, but here are some ideas:
There are plenty of other things I could think of, but the main idea is that GE was a standard-bearer of business in the 20th century, yet corporate culture of the late 20th century set the stage for today’s crises, and a radical overhaul is needed. You can read Umair Haque’s great thoughts on 21st century economics and why 20th century thinking won’t work any more.
Reality check:
As much as I believe in overhauling corporate culture, GE may also have to make structural changes to survive. If GE were forced to take the kind of write-downs on its financial portfolio that major banks have (and there’s no reason why that’s not a possibility) the company would be in big trouble. It may be inevitable to split the finance arm from the rest of the company.
Some more positive ideas going forward:
In the final analysis, you may think I’m naive, just plain wrong or have been drinking too much coca tea. But GE and the rest of corporate America already know how to do business in the 20th century, so if I’m wrong we can always return to the old way of doing things. But if we wait any longer to look forward, it may be too late in case the new reality is here to stay, as I believe it is.
NB: 5 year chart used above courtesy of marketwatch.
I just stumbled across this article in Latin Business Chronicle:
My first thoughts were something like “Madre de Dios… Ayude me pues!!!”. Now I have often said life in Peru has been great to me and there are a lot of wonderful opportunities here, but I find it disappointing that both the media and political / business establishment in Peru often view “progress” strictly in macro-economic terms, levels of foreign investment, nr of free trade agreements, etc.
The unfortunate reality is that the macro-economic gains Peru has made in the last 2 decades have not improved the quality of life of all Peruvians proportionately, hence Alan Garcia’s (and before him Toledo’s) low approval ratings. In addition, in light of the collapse in commodities prices I wrote about earlier, anyone who believes Peru won’t be affected by the global recession is dreaming.
The good news, I agree with Umair Haque that “this is no mere recession: it’s a tectonic global shift in savings, consumption, and investment”. There has never been a better time than now to tackle some of the issues that will improve the quality of life for all Peruvians, such as economy in the provinces, environmental protections, occupational safety, corporate culture, cost of home ownership, etc.
Finally, one of the accomplishments touted by Alan Garcia was the free trade agreement (TLC) between Peru and China signed at the APEC summit. Here’s a wildly speculative, yet extremely intriguing question about what will happen to La Oroya now that the Chinese are coming?
I just read this Reuters release on mining giant BHP Biliton:
Much has been written about the environmental situation in the Peruvian town of La Oroya, since it was featured in an episode of CNN’s “Planet in Peril” a few weeks ago. This news release simply illustrates that the money involved to clean up, move or close the Doe Run smelter in La Oroya is just not that big an issue. Mining is a huge industry, and if BHP Biliton is willing to kiss $1.6 billion goodbye just because the economy is slowing, Doe Run and the Peruvian government darn well ought to pony up the money to fix, move or close the smelter at La Oroya.
Read an interesting comment about Doe Run’s history in the US at americaninlima.com.
Ward Welvaert
Life in Peru 