Transcript Our Region Our challenges What We’ve Learned

MESOAMERICA
Our Region’s Challenges
What We’ve Learned
July 2009
Harry Strachan
DRAFT
This information is confidential and was prepared by Mesoamerica solely for the use of our client; it is not to be relied on by any 3rd party without Mesoamerica's prior written consent.
Topics
•Perspectives and Challenges?
•Lessons for Business?
•Lessons for Leadership?
1 - CFR Red.pot
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Who “we” are … Mesoamerica …
Our history
Bain & Co. CR
Our region
MESOAMERICA
• Mesoamerica’s roots (1993-1998)
- Bain Costa Rica – Consulting
- Mesoamerica Fund 1 (1996-1998)
• Mesoamerica (1998 – present)
- Strategy consulting,
- Mergers & acquisitions
- Private equity
- Mesoamerica Foundation
• Offices: San Jose (1998), Bogota (2008)
“Core” countries
• 35 Professionals: 13 Nationalities; variety of
educational and work backgrounds
Offices
Topics
•Perspectives and Challenges?
- Survey re Global Crisis
- Key challenge & CAFTA
- $64,000 Question
•Lessons for Business?
•Lessons for Leadership?
1 - CFR Red.pot
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The Survey (12/08 – 2/09)
1
Screnarios & probabilities in U.S.
• Typical “V” Recession
• Prolonged “U” Recession
• Severe “L” Recession or Depression
2
Impact of the crisis in Central América
• Worse in Central America
• Better in Central America
3
Evidence of the crisis in your company
• Yes
• No
4
Actions taken as a result of the crisis
• Defensive
• Offensive
5
Leadership in the crisis
• Advice to our governments
• Advice to the International Agencies & other countries
Probable scenarios?
# responses
(Percent)
Optimistic
(>30%)
In middle
Pessimistic
(>30%)
All
21
(20%)
72
(69%)
12
(11%)
105
49%
16%
13%
22%
39%
65%
42%
57%
12%
19%
45%
21%
A. Typical Recession
• Recovery by end of 2009
• Dow Jones ↑ >11,000
• Credit available
B. Prolonged recession
•
In recession until 2010/11
• Dow Jones @ 8,000 has hit bottom ↑
above 9,000 by end of year
• Crédit available but expensive
C. Severe Recession
• Profound recession > 3 years
• Dow Jones not hit bottom Goes bellow
7,000, doesn’t recover quickly
• Crédit hard to get
Historic correlation is a fact …
Ciclo Económico en EE.UU. y América Central
(% de desviación sobre la tendencia)
6
América
Central
Correlación:
- Contemporánea: 0.62
- Un trimestre rezagado: 0.72
4
2
0
-2
-4
EE.UU.
-6
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Fuente: Estimados BID, Bancos Centrales, Reserva Federal.
* Calculado sobre la base de los Indices Mensual de Actividad Económica (IMAE) y el Indice de Producción
Industrial de EE.UU. El componente cíclico fue estimado con el filtro Christiano-Fitzgerald.
2009
Impact of crisis in Central America?
# responses
(Percent)
Optimistic
(≥60%)
In middle
Pessimistic
(≥60%)
All
53
(54%)
9
(10%)
36
(36%)
98
69%
48%
30%
52%
31%
52%
70%
48%
A. Better in C.A. than U.S.
• Region less linked to U.S. China
& India new motors of growth
• Region less vulnerable, more
diversified economically
• Government reserves high and
local banks are healthy.
B. Worse in C.A. than U.S.
• “When the U.S. gets a cold, we
get penumonia.”
• Governments don’t have much
counter cyclical capacity.
Our major challenge – closing the gap
The economic Gap between Central America and developing
countries has increased in the past 40 years …
GDP / Capita
Constant Yr 2000 US$
CAGR GDP/Capita
$40K
30
'60-'00
(2000)
2.8%
$35K
1.7%
1.0%
$4.2K
$1.7K
G7
20
10
0
1960
Central America
1970
1980
Source: World Development Indicators 2002, The World Bank Group
Latin America
1990
2000
In education and poverty, the gap is
significant …
Poverty levels*
60%
Illiteracy Rate
30%
58%
23%
40
20
36%
20
10%
10
7%
0
CA
LA
G7
* % of households whom income is less than double the cost of basic family needs
Source: World Bank, ECLAC, PNUD. Information to December 2003
0
<1%
CA
LA
G7
06
The key cause -- lost decades
In spite of strong periods of growth, internal conflicts and lack
of sustained strategies often destroy much progress …
CAGR: Real GDP Growth /
Capita Real by Decade
6%
War,
instability
4.5%
3
2.5%
3.1%
2.6%
2.4%
1.7%1.6%
0
-3
G7
CA
-2.0%
'60s
'70s
Note: 1979 is included in the 80s decade
Source: World Development Indicators 2002, The World Bank Group
'80s
'90s
CAFTA increases the likelihood of
sustainable growth …
Percentage of countries with Economic Growth > 3%
(89 Countries in Development, 1970-1989)
Trade
policy
11 / 15
Always
Open 1
(73%)
Not
Always
Open
4 / 74
(5%)
0
20
40
60
80%
% of countries with GDP CAGR >3%
A country is “always open” if it has: a) Non-tariff barriers on less than 40% of trade, b) Average trade tariffs less than 40%, c)
Difference between official and black market figures is less than 20% d) non-socialist economic system, and e) Open market in its main
exports
Source: Economic Reform and the Process of Global Integration, J.D. Sachs and A. Warner, Harvard University
1
CAFTA contributes to the elements of a
strategy for sustained development
Social:
Economic:
•  trade and
investment
•  employment and
salary levels
•  productivity and
competitiveness
•  growth and
incomes in
equitable manner
•  consumer prices
•  poverty
Impact
FTA
CA-US
•  training and
opportunities for
development
•  investments in
education and
health
Institutional:
•  transparency and improve/
strengthen rule of law
•  corruption
•  political stability
$64,000 Question in 2009
Will the current crisis lead to
protectionism in the world and
populism in the region that
undercut CAFTA and the progress
of the last two decades and send
us into another “lost decade?”
1 - CFR Red.pot
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Topics
•Perspectives and Challenges?
• Lessons for Business?
-Magnitude of the Challenge 1993
-Strategies that worked 1993-2008
-Tools for the future?
•Lessons for Leadership?
1 - CFR Red.pot
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The business challenge in 1993
What is the magnitude of change that
globalization will require?
2.0
2.0
Indice
1.5
1.0
0.5
0.0
Calidad
2.20
2.00
1.79
1.0
Costo y Calidad
1982-85
Fuente: Bain & Company, muestra de compañías globalizadas
0.5
Costo
0.46
0.52
0.50
1992
Key to Competitiveness
The formula that worked for companies that met
the globalization challenge…
Potential
Value
Strategic Focus
 ROIC > WACC
 Strategic position (RMS)
 Sustainable growth
Current
Value
Operating Excellence
 Benchmarking
 Best practices
 Organizational effectiveness
030827-JAS-XCD-INTEL PREEZ6
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Benchmarking and best practices’ was a
very powerful tool for rapid improvement
…
Vehicles Per Day
4
Vehicle repairs per day per mechanic
3.04
3
2
1.14
1
0
Fuente: Bain & Company
1.00
0.86
0.79
0.77
0.66
Average
0.87
Taller 1 Taller 2 Taller 3 Taller 4 Taller 5 Taller 6 Benchmark
USA
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The focus of our consulting today …
Consulting
• Typical projects:
- Review of business portfolio
- Evaluation and redesign of
strategies and business models
Competitiveness
- Business planning and
performance monitoring
• Typical projects:
- Full potential analysis:
core business and
adjacencies
A winning
business strategy
and a solid
business model
- War planning
- Turnarounds
- Benchmarking
- Growth strategies
- Strategic due diligence
and integration of
Core business’
acquisitions
full potential
Sustainable and
profitable growth
• Typical projects:
Productivity
Corporate
governance
best practices
• Typical projects:
- Organizational redesign
- Role of the center
- Family-company relations
Organizational
Effectiveness
Critical Paths
In order to achieve leadership, implement best demonstrated
practices, and acquire competencies, local companies must
often engage in strategic alliances, mergers, or acquisitions
 Strategic Alliances
 Acquisitions
 Mergers
NON
COMPETITIVE
POSITION
 Exit Strategies
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Lesson 5: Negotiation Process
It is critical to understand the objectives and interests of the
parties in order to determine if there is a common ground to
reach a mutually beneficial agreement
Families
-
Mutlinationals
Dividends
Succession issues
Local/Nacional Loyalties
Others
- Enterprise value
- Continuity and
professionalism
- Multicountry loyalties
- Others
Case A:
ZONE OF MUTUAL
BENEFIT
Case B:
NO MUTUAL
BENEFIT
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An Important Business Question
Where will companies find the
“gold” in the future? Superiority
in the basics: cost and quality?
Innovation? M&A and regional
expansions? Financial
engineering? What sectors?
1 - CFR Red.pot
22
Topics
• Perspectives and Challenges?
• Lessons for Business?
• Lessons for Leadership?
-INCAE 1981 Seminar “Live
cases in leadership in chaos”
-Participants List of lessons
-Personal implications
1 - CFR Red.pot
23
The “Live” Cases
• Some examples:
-Automobile Inventory as Managua is
taken by the Sandinistas
-“Under the gun” pay raises in a
maquilador
-What to do about the New Office
Tower? – Complete, Distressed sale and
Miami?
-Rural hardware stores in the civil war
1 - CFR Red.pot
24
Effective leadership in crisis:
•Realism and critical analysis
•Proactive action
•Care for your people
•Energy and optimism
•Audacity
Source: Participants INCAE Seminar 1981, Leadership
In Chaos based on live cases
Becoming an effective leader in crisis
Pesimistic
Analytic
Intuitive
Optimistic
Left Brain
Right Brain