GM Bankruptcy

More talk today about a possible GM bankruptcy. Well, a monkey with a calculator could have figured out GM was bankrupt years ago, if you accounted for their off-balance sheet liabilities. Instead of addressing the problem then, GM stuck its head in the sand, overproduced cars and offered in-house financing to sell cars that the market couldn’t support, and thus to make their own numbers look better. The credit crisis didn’t hurt GM, GM helped create it.

On a different note, instead of fixing their disastrous labor relations GM tried to get rid of its union workforce and go to the greener pastures of Mexico. How’s that whole globalization thing working out?

Let’s have a look at a US made car, as seen on the road here in Peru, shall we:

US made car in Cusco, Peru

US made car in Cusco, Peru

Now take a look at the vast majority of cars on the road in Peru: made in Japan, Korea, and China.

Kind of says it all. The US auto industry messed up globalization beyond belief.

I’m not a happy camper about this: my brother works for GM in Europe, he and a lot of other good people might lose their jobs. This weekend I’m going to the beach. I’m writing a turnaround plan for GM, see if I won’t.

21 reasons globalization as we know it is over

Here they are:

21 reasons globalization as we know it is over

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.

Not one of them ever told me they want to work a menial job in near slave-labor conditions for little money to support some fat cat CEO’s illusion of competitive advantage.

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 🙂

21st century globalization – a perspective from Peru

With the start of the New Year there are lots of opinions and blog posts out there about how to deal with the global financial crisis and the economy today. I agree with Umair Haque that “… this year, those with the purpose, courage, and vision to get seriously radical will have the opportunity to reconceive and reinvent the global economy”.

What strikes me in all of the current discussion is how much corporate culture, and many of the solutions being proposed, continue to resemble the ideas and corporate culture of the 20th century – the same tired old ideas that caused the crisis in the first place.

One idea that needs to be revisited is globalization. The old way of globalization was to move labor-intensive work to developing economies to save costs and find less environmental restrictions, see the case of La Oroya here in Peru.

Here’s why and how globalization needs to be reinvented for the 21st century:

  • Relationships matter. Too often the old way of globalization was to “get the deal done” and then get the heck out of this backwards place. The economy is truly global today, the developing world expects to be treated as an equal partner, future growth will undoubtedly be in the developing world – it’s not too late to start building real relationships, but start now.
  • Contribute something. Just buying “cheap labor” is an unsustainable illusion, there has to be a balance, something of value added to the developing economies where you buy the labor. If not, the developing world ends up with a big pile of funny green printed paper and the developed world ends up with a ton of stuff we don’t need and a colossal credit crisis – newsflash: we’re there!
  • So what can the developed world contribute, how can you rebalance globalization? Let’s open-source globalization: share your know-how, human resources and intellectual property. The developing world still needs a lot of improvements, from occupational safety to environmental protections and employee development – things we are good at.
  • Forget about competitive advantage. My old bosses at GE would cringe… $30,000 on tuition reimbursement for business school and I dare say “forget about competitive advantage”? That’s right, globalization was all about gaining an advantage over organized labor, suppliers, etc. Problem is, for a sustainable enterprise you need a good workforce, reliable suppliers, distribution channels, etc. Trying to gain advantage over them is akin to destroying your own future.

There are a lot of opportunities in developing economies. Here in Peru, half of the population today is less than 26 years old and the country’s infrastructure is nowhere near ready for the economic growth that definitely will happen when these young people start their own lives and families.

In closing, consider the developing economies an equal partner. If you’re doing business overseas, you can contribute your ideas and expertise to the corporate culture there, as well as learn from your foreign partners. Globalization today should be about businesses in mature economies benefiting from a solid presence in the developing world while at the same time helping to improve the quality of life there.

Ward Welvaert

This Chery is for real

As I’m reading the news of a possible taxpayer-funded auto industry bailout / GM bailout I thought I’d offer some observations from down here in Peru.

On my morning walk when I return from teaching at ICPNA I walk by a car dealership where you find brand new, made-in-China Chery cars. These are still a small minority here in Cusco, but you occasionally notice one of them as well as a few Indian Mahindra trucks. The majority of vehicles here are the popular Asian brands, the ever-present “Tico” and a few VW cars. I rarely see any US brands, save for the occasional antique landyacht.

I think the trouble at the “Big 3” US automakers reflects a corporate culture of staying in a comfort zone that I wrote about in a previous post. While the Latin American market isn’t very big by US standards, it is a developing market and the US manufacturers seem to have largely ignored it. On the other hand, US outsourcing has helped create the world’s manufacturing base in Asia – with which GM, Ford and Chrysler now have to compete.

Update: check out this great analysis of Detroit’s 20th century mistakes.

In addition to all of the discussion that is sure to follow about inefficiencies, quality, labor relations and product design, I believe US businesses in general need to rethink how to build a global presence in order to be successful. Don’t outsource your core business and if you do source overseas, build up good relations with your foreign partners and establish your brand there – if only in anticipation of future growth. The idea of cheap overseas labor without some valuable presence in the market where you buy the labor is an unsustainable illusion.

I don’t think the near-term options for the US auto manufacturers are very attractive, and a big wad of government cash won’t solve their predicament unless they also improve their business plans to resolve the underlying problems in their industry. In addition, I’m a bit skeptical that GM and the rest of the industry is waving the white flag just at a time when big government bailouts are the flavor of the day, and a president supported by organized labor was just elected.

Ward Welvaert

international business
turnaround consulting
aviation/airline consulting
CIS applications

New Chery cars at a Peruvian dealership

New Chery cars at a Peruvian dealership

New Chery cars at a Peruvian dealership

New Chery cars at a Peruvian dealership