Nordic GIP Part 3: The Lessons Taken Home

Kit O’Connor ’17

NEW YORK – This is, alas, the final time you’ll be hearing from me. Which sounds so morbid, but really, it’s just because my work as the social media guru will conclude with this post, and then I’ll graduate and won’t be able to take week-long trips around the world on random Spring Breaks anymore! A single tear rolls down my cheek…(to match the single dollar left in my bank account).

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The gorgeous Nyhavn district in Copenhagen – be sure to take the canal tour (bottle of wine or six-pack optional, but highly recommended).

But! Sweden! Denmark! Families! Business! That’s what this is about. I struggled a little bit with structuring this post, so like any good consultant, I ended up with three main takeaways: one negative, one positive, and one that’s purposely a bit amorphous (I know, I know, show, don’t tell). Let’s get started.

The bad: One of our first visits was to the American Embassy in Stockholm, where we met with a number of senior embassy officials and learned about their initiatives for American interests in Sweden and how they can help US businesses make inroads around the globe. That meeting was perfectly fine, and we were impressed by the number of speakers who made time out of their day to meet with a group of Columbia MBAs.

However, the security protocols necessary to get into the embassy honestly made me embarrassed to be a United States citizen – I saw a young girl, who couldn’t have been more than four years old, shouted at through a glass wall, forced to take off her coat on a chilly day, and contort her feet and body to prove, I guess, that there were no threatening items on her, all while her mother had to stand twenty feet away (yes, we all had to do the same). I’m proud of my country and believe there’s a reason that our mantra of freedom above all attracts the most innovative and accomplished people to learn, teach, and start businesses – by no means does that mean that our people or politicians are always correct, though I do like to think that we represent the opportunity to make life better, no matter who you are or where you come from. But when I’m reminded of that scared little girl and her introduction to America, I wonder whether we’ve become a bit too possessive of our liberty.

(steps off high horse)

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OK, so, the candles aren’t exactly the focus of this photo but they really are everywhere!

The good: Hygge! Hygge, the Danish concept of “everyday togetherness”, which has certainly seeped across the border into Sweden, and definitely enjoys a robust ad campaign in the US.

There are a couple ways that hygge was present during our trip. The first is in the purely physical, and can be represented best by the abundance of candles in nearly every conference room that we met in. What would certainly be a fire hazard in America is a source of coziness and serenity in Scandinavia: proof that work in the Nordic is supposed to be comfortable in addition to being productive.

The second is the attitude that work in Sweden and Denmark is generally a two-way career contract. I alluded a bit to this in prior posts, but it deserves a specific callout here: employment in Nordic is designed to last much longer than in other areas of the world. Compared to the two ends of the spectrum – the US, where workers are used primarily for efficient productivity, and, say, France, who has extensive protections for employees to keep jobs – Scandinavia firms seem to invest more in training and education for their workers, and those workers in turn accept slightly lower wages for a career that can span decades rather than years. I will put a caveat on this: my belief may be skewed a bit due to small sample size or meeting exclusively with family firms.

 

The fuzzy: Speaking of family firms…another student and I were talking with Professor Angus about one small family firm’s search for a CEO. We wondered why the search never seemed to find a good candidate: the business was established, profitable, and had a well-oiled supply chain and production facility. In fact, we softly felt that just about any of the students on the trip would be well-positioned to run the company after our education at CBS.

However, Professor Angus asked one question: “Could you run the firm AND deal with the family issues behind the scenes?” We immediately shook our heads and realized THAT’S what makes family firms different – it’s never just about the money, contracts, or factory. It’s about everything that came before and the legacy that will be. One founder noted, “That’s my name on the jar. What will it stand for after I’m gone?” Will an outsider ever be able to live up to that attitude?

So in the end, neither the Nordic region nor family businesses can really be put into neat little boxes (classic consulting again: it depends.) But, like each Chazen trip I’ve experienced, I feel I now truly have an informed opinion on the region and will be better able to understand and transact with my future Swedish and Danish colleagues and business partners. Thanks again for reading along with my journey, and looking forward to my next chapter after Columbia!

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A trip we’ll never forget.

Nordic GIP Part 2: Descendants and Decisions in Denmark

Kit O’Connor ’17

COPENHAGEN – Um, well, COPENHAGEN-ish. Mostly written on a flight from Copenhagen to London, which means I’m still very technically on the trip! And feeling much better; thanks for everyone who expressed concern (both of them).

OK, so, last blog post, I wrote mostly about the Nordic part of this trip. Obviously, there’s another critical component of the class: family business! It was pretty amazing hearing the stories of so many people in the Three-Circle Model of the Family Business System, especially those with close connections to CBS. One quick caveat before I get started: our hosts were incredibly open with their personal experiences, so some of the references below are slightly changed or frustratingly vague in order to protect their privacy.

Three Circle Model of the Family Business System

One big overall theme was the idea of pervasiveness, which manifested itself in two main ways. First, literally everyone, and I mean every one, who was a family member talked about how family dinners would always revolve around the family business, unless someone, almost inevitably Mom, banned the topic. For anyone who didn’t grow up in a family business (author raises hand), this is a sobering reminder of the all-encompassing nature of such a venture.

Second, we spoke a lot about the “long shadow” effect of company founders, even long after retirement or death. At Maersk, our host spoke in hushed reverence of Mr. Moller, the only person he didn’t refer to by first name. At Ikea’s headquarters, our tour guide told the story of Ingvar Kamprad, Ikea’s founder, coming in with an eleventh-hour request (ha, no, it was definitely a demand) that the restaurant be removed from the first floor of the massive open-concept four-floor complex. He felt that if employees wanted a hot meal, they could trek ten minutes across the parking lot…to an Ikea retail store.*

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Just a perfectly normal corporate headquarters…

The other word that every presentation contained was choice. The amount of choices that need to be made in a family venture are enormous, and start at a very young age. One current CEO spoke of his father pointing to a chair and telling him that he’d sit there one day – no choice for the five-year-old kid there. More than one had lives and un-related businesses in other countries when the call came – would they give it all up to come home?

This choice element seemed to me to hint at why family businesses have so rarely persist beyond three or so generations. Does the grandson truly want to be there or is it just expected? Are there the right management skills to go along with the last name? Current CEOs we spoke to who had experienced the chance to work outside the family business before moving back seemed much more happy with their firms, as it was largely their decision to be there. Others felt trapped – one even mentioned possibly selling the company, but as he put it, how could he? It’s his name – his legacy – on that bottle!

That will do it for in-country updates from me. Time to figure out where and when my classes are tomorrow! I’ll see you again in a week or so with a final recap of the trip.

 

*Alright, this is a little harsh. His reasoning was that upper management couldn’t lose sight of what was happening in the stores and this was a good way to keep them engaged there. Ikea also seems to fancy itself a bit of a socialist workers’ paradise, constantly stressing that if something is good enough for an entry-level employee, then it must be good enough for management as well. In the end, a small-ish cafeteria with prepared meals replaced the restaurant.

From 25°C to 25°F

Looking out my window at a grey, snowy Morningside Heights, it seems hard to believe that just a few days ago I was still in bright, sunny Santiago.  Our trip was exhausting, amazing and surprising all at the same time.  Though our packed days of programming would wear out even the most seasoned business traveler, we were all so fortunate to have had the opportunity to explore this country and meet with a few of the businesses that have made it a success.  We learned about the specific developments in the Chilean economy, we learned about the general challenges faced by markets shifting from an industrial to knowledge-based economy, and we got to know our peers better.  Since you have heard a great deal from me about my thoughts on the program as well as our meetings during the week, I’d like to use my last blog post as a chance to share the thoughts of my classmates from the program.  Their perspectives, questions and commentary added so much to my experience in Chile!

“The fact that we were able to look behind the scenes and communicate with the highest levels of management of interesting companies was very valuable. I think Chazen organized everything very well, and most compliments goes to Carmen Concha [program teaching assistant] who has been able to pull off this huge effort without a hitch. It was surely one of my CBS highlights.”

–          Chayenne Wiskerke, CBS Class of 2013

 

The group enjoying the private winery tour on the last day of our trip
The group enjoying the private tour  at Amayna Winery on the last day of our trip

“I thought the trip was a huge success. It was quite a learning experience to hear from executives in some of Chile’s largest businesses about their growth strategies in Latin America’s most stable economy. I was also impressed by how much I learned from my classmates. Sixteen different countries were represented on the trip, and it was great to compare notes about the different cultures. Carmen, our TA, Professor Preston, and Katrina from Chazen all did an amazing job at putting this trip together.”

–          Adam Breitman, CBS Class of 2013

Very patriotic shot at the Mercado Central
Very patriotic shot at the Mercado Central

“The trip was a fabulous opportunity to learn about the Chilean economy as well as successful business models in South America. The speakers were very inspiring and the factory visits were particularly interesting. Also, it was great to meet so many new classmates.”

–          Anne Kronschnabl, CBS Class of 2014

Getting a tour of the pasta production facilities at the Carozzi factory
Getting a tour of the pasta production facilities at the Carozzi factory

Chile stands out as an economy and a country destined to be a leader in Latin America and possibly on the global stage. The sheer determination of its immigrant-infused population has really made a huge difference in the country and the region. Similarities can be easily drawn between Chile and the US during its growth post-World War II.  Chilean government is a great player in this regard, providing the appropriate working environment and facilitating the impressive level of growth and prosperity.  I am certain that, as Chile transforms more of its working class from poverty to middle class, new challenges await. It will be interesting to see how Chile grows over the next 30 years.”

–          Varghese Mathew, CBS Class of 2013

Though I mentioned it time and again in this blog, Chile has impressed me in so many ways.  This country has been through many difficult times and only recently re-joined the democratic world as it continues on its path toward development.  Over those past two decades- relatively little time when talking about the development of a country- Chile has become one of the leaders in the world in terms of economic growth and has truly created a development model worth of emulation by any country seeking to boost economic growth and the living standards of their citizens. The eagerness of everyone we met with to help us learn more about this amazing market was key to making this a very memorable and informative trip for all of us.

Hasta pronto,

Hannah Stern ‘13

Los Vencinos [The Neighbors]

Since arriving here in Santiago, it has been emphasized time and again that Chile relies strongly on its open, export-driven economy.  While the open economy strategy has worked very well here over the past decade, there are complications on the horizon.   Los vecinos- or the neighbors- of Chile include Peru and Argentina as well as regional partners such as Colombia.  While Peru and Chile have a very strong working relationship that I will discuss later, Argentina is facing a number of its own challenges that are beginning to impact the way other countries in the region perceive it. And the Colombian market is heating up quickly, making entry expensive.

As Chile’s second largest and formerly most significant trade partner, Argentina’s trade regulations create complications for a country where exports are key.  While Chile is all about efficiency, Argentina has a number of protectionist policies in place as well as a very powerful unionized labor force. In 2008, the Argentine state repossessed assets from a joint venture with Spanish energy company Repsol, sounding alarm bells for the international investment community.  Among the biggest critics of these problematic policies has been formerly close ally, Chile.  When asked to comment on recent movements toward a further closed economy in Argentina, Gonzalo Arenas, president of the Chilean parliament’s Economy Committee  said, “The protectionist policies not only generate disappointment but also attack free markets and free international trade principles. We should begin thinking in reciprocity measures.”

We heard a more tempered but still very concerned attitude toward Argentina and future investments there almost every time we spoke with a company representative.  Particularly interesting was our conversation with Falabella, Chile’s largest retailer.  It should also be noted that the company has diversified into a number of sectors including home improvement stores, private label credit cards and retail banking services.  Our speaker mentioned a number of interesting facts on growth of Falabella’s sales in Chile, Peru and even Colombia but took a long pause when glancing to the near side of the map at Argentina.  “It’s difficult to manage our product mix in our department stores there because there are many restrictions on the types of goods we can bring into the country.  And banking services there are a substantial challenge. At present, we do not have plans to grow in Argentina simply because we view the risk as excessive relative to the potential growth in profitability.”  While prospects for continuing investment in Argentina are not strong, there are others in the region that Chile seems very interested in.

Peru has been mentioned by almost all of the companies we met with- whether Banco Santander, retailers Falabella, food producer Carozzi, even the Western world’s biggest copper producer Codelco– as a strong candidate for future growth.  Chileans also seem to view Peru as a trailing indicator of their own progress.  Chile seems eager to integrate its economy further with that of Peru.  For example, as we learned at a meeting with Superintendencia de Pensiones (Pension Oversight Board), Chile has passed legislation allowing Peruvian workers to move their pension withholdings back into a Peruvian pension plan if they choose not to stay in Chile. Time and again we heard that Peru is still between five and ten years behind Chile but that it is showing strong signs of moving in the right direction.

And then there’s the more distant but  dynamic Colombia. One of Chile’s largest food product producers, Carozzi, expressed a strong desire to move into the market but pointed out a number of challenges. “We have to make an investment in Colombia or we won’t remain regional market leader. But we need to make it worth our while. That means strong brands with strong multiples and high volume.  We don’t see that company available for acquisition in the Colombian market right now at a price we consider exceptable.  Most candidates have valuation of upwards of 20 times EBITDA.” said Gonzalo Carozzi, partial owner and CBS ’10 alumnus.

Though we have been extremely busy attending mining presentations, speaking with tech startups, touring factories and even tasting wine, we did find time to fit in some fun.  Below are photos from a number of events and sightseeing activities we’ve done over the past few days:

CBSers hanging out in front of La Moneda, the equivalent of the White House in Chile
Data from Cochilco Mining presentation
Group shot after an amazing diner at the family home of our TA, Carmen Concha!!

Small Market, Big Plans

Now that I have been in Santiago for about two days, I feel I have absorbed enough to make some observations about the culture and business climate.  Our meetings with executives from banks, forestry companies, airlines and even chocolate stores have been extremely helpful in generating a better understanding of what doing business in Chile is like.  If you don’t have time to read the rest of this blog post, let me sum it up for you in one word:

Efficiency.

It feels almost as if all the executives we meet with have coordinated their messaging to ensure that we are repeatedly reminded of this defining trait of the Chilean economy.  Coming from a very large market – the US- where there are various population centers, geographies and climates it’s hard to understand the constraints under which Chile has managed to do a stellar job of growing its economy.

As I mentioned in my previous post, Chile’s population is right around 17 million people.  And according Juan Pablo Castro, Head of Research at Banco Santander Chile (the second largest commercial bank in Chile), the average income per capita has grown over the past 40 years from roughly $9,000 in the 1970’s to upwards of $17,000 today.  While this growth is remarkable, it still only amounts to about $248 billion in total income.  This is a very small market compared to a country like Brazil or Colombia.  What this all boils down to is Chile’s need to be an exporter of both goods and services.  Because the domestic market reaches saturation very quickly, the country is one of the most open economies in the world today and has free trade agreements with over 90 countries.   Though not directly related to the Chilean economy, a particularly interesting point brought up during our discussion was the challenge this local subsidiary of the large Spanish firm Groupo Santander, SA, has faced from ratings agencies eager to reduce its rating because of ties to its parent.  The case of Banco Santander highlights the critical role of corporate governance and creating appropriate separation between parent and subsidiary, especially when one is disproportionately affected by a market downturn while the other is reporting strong growth.

Chile’s laser focus on only producing goods in which it has a competitive advantage is very impressive.  For example, the country used to assemble cars and trucks domestically.  However, it was eventually decided that this was not a best use of Chile’s labor force and resources, and today the country imports virtually all of its vehicles.   On the other hand, the Chilean climate gives this country a unique advantage in the lumber and paper pulp market.  As we learned during our visit to Arauco, where we met with CFO Gianfranco Truffello, certain types of trees grow significantly faster in Chile than in North America.  This gives the company a tremendous advantage and allows it to get higher yield out of its land holdings in order to produce the paper pulp.  The mining industry, which I look forward to learning more about later in the week, is another good example of how this small country is a net exporter of raw materials to the world but imports almost all of its finished goods.

In the services area, Chile faces similar growth ceilings.  One of Chile’s best known companies, LAN, is a perfect example of the need to expand outside of the country’s borders.  The airline recently merged with Brazilian giant TAM to become LATAM Airlines.  The challenges of integrating with a Brazilian firm- with substantial language and cultural barriers- is one of the most interesting parts of the new company and learning about how LAN prepared for and continues to manage the integration process was a highlight of our discussion.  LATAM Airlines now servers a substantial part of the South and Central American market, allowing what was a small Chilean airline founded in 1929 to become the leading airline in Latin America.  Today the combined company serves over 60 million passengers a year and recorded a combined revenue of nearly 3 times that of its closest regional competitor.

Though we have yet to dive in to the large-scale retail experience here in Chile, we literally got a taste of what the entrepreneurial climate is like for aspiring retails today when the founder and CEO of La Fete Chocolate, Jorge Mckay, came and spoke to us about his business as well as the challenges of starting and growing a small venture in Chile.  What was most impressive about our discussion, aside from the delicious chocolate we all received (yum!), was Mckay’s passion for optimizing the customer experience.

A La Fete store in Parque Arauco, one of Santiago’s large, upscale malls.

The expertly decorated and laid out stores looked like they could have been on a chic corner in Soho and the focus on providing an optimal selection of products for customers, even at the risk of complicating the production process, was what really impressed our group.   He concluded his presentation with a few words that really stuck with me: “First build a dream, then you can build a business.

Though we have not had much free time, our guide managed to squeeze in a trip to the Mercado Central as well as the Plaza de Armas, the main square downtown.

We also attended an outdoor movie last night, which was a lot of fun and made for a great opportunity to experience Santiago as a consumer.  The event allowed us to see how companies market themselves in Chile since the outdoor space was surrounded by promotional booths for wines, food and other goods.

Thus far Chile has been everything I expected and more. This country has a surprisingly sophisticated and developed feel.  Everyone has been very welcoming and seems to really want to show us how much this country has to offer.  Tonight we are off to a reception with CBS alumni (being abroad is no excuse to stop networking after all) so there will be more updates to come.

Abrazos,

Hannah

Proxima Parada: Santiago [Next Stop: Santiago]

Peru, Colombia, Argentina, Uruguay, Brazil, Ecuador.  All places I have visited and or worked in at one point or another over the past several years. Speaking Spanish and having a long term interest in doing further work in this region, I was a little surprised when I thought about the gap in my regional knowledge as I have yet to visit Chile.  But that is going to change tomorrow.

When I heard about the Chazen Global Immersion Program in Chile focusing on family businesses and the unique challenges they face in Latin American markets, I wasn’t sure that this was the class for me.  Unlike some of my peers in the class, I don’t have any stake in a family business and don’t plan to start one in the near future.  However, upon further contemplation I realized that this was a valuable experience for me regardless of my (lack of) involvement in a family business. I attribute this in large part to two factors:

1)      According to a report by the Family Firm Institute, it is estimated that roughly 75% of all firms in Chile are family owned and controlled. While one might initially think that this is just a very large number of very small businesses, in fact, about 65% of the medium-to-large enterprises in Chile are family owned.

2)      Chile’s GDP growth- though somewhat volatile over the past ten years- has held steady at 5% to  6% throughout the past three years and even as the fortunes of its neighbors rise and fall, Chile has retained a sound economy and government about 20 years.

Just these two pieces of information were enough to convince me that this will be a very valuable program!  But that was five months ago, so lets fast forward to now.

Though I didn’t know much about Chile prior to this course, my peers and I have all been making an effort to understand more about the country and its progress over the past several years.   One of the most surprising things I discovered during our pre-trip lectures was that Chile is one of only about 20 countries in the world that, according to the World Economic Forum’s Global Competitiveness report, is successfully moving from an efficiency-driven to an innovation-driven economy.  Such a move will put this small country of about 17 million people alongside Western Europe and North America in terms of development. The report also ranks Chile as number 33 in terms of global competitiveness (out of 141 countries), placing it ahead of all its South American peers.  An economy with a majority of family owned businesses that is on a steady growth path and outpacing its cohorts is a country every businessperson should know more about.

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CBSers will feel right at home in the business district of Santiago, affectionately known as ‘Sanhattan’

In a recent interview with CNN, the country’s president Sebastián Piñera highlighted the “Four pillars of success for Chile: Education, science and technology, innovation and entrepreneurship, and more employment.” He went on to state, “Our vision is to transform Chile into a developed country and to eliminate poverty by the end of this decade.  We hope that we will be the first in our region to achieve that… by being an economically open and integrated country.”  My classmates and I can’t wait to see firsthand how Chile’s efforts are progressing and how family businesses are having an impact.

Hasta pronto!

Hannah Stern ‘13

(Follow my travels on twitter.com/Iamblond007)  [blogging from sunny Rio de Janiero…for now]

Final Thoughts on the Austria Family Business Trip

I apologize for taking a bit to get the final entry out, but I would like to relive some of the moments on the trip. We saw a lot of family businesses over our time in Austria, from a waste management/recycling company to a multi-national distribution and logistics company. The trip really makes you think about how different the perspectives can be in a business. Especially in a family business, the culture, attitude, and process can usually be attributed to a single person. Personalities can range from an “overbearing father” type of CEO, who keeps tight control over the firm and drives decisions, to a more team-based leader, who will defer to the general consensus of the board. These personality ranges in the manager/family owners really do make each company unique in its structure. I will admit, my preconception of a family business leader was that of an independent decision maker, who led with a firm conviction. But this trip has taught me that, in preparing for the success of future generations, it is important to include the family in a large portion of the decisions of family ownership.

I’ve met a lot of people on this trip who have developed into new friends. A smaller trip made interacting with everyone possible, which was very refreshing. All of my travels to date have been with what feels like a billion people. We had some good times and laughs, which can probably best be summarized below:

Thank you to Jennifer, Roberta, and Michael Preston for making this such a memorable trip. I hope they do a similar trip for the family business people of CBS in the upcoming years.

Auf wiedersehen!

By: Michael Murnane