30 August 2011

Latin America weathered the global economic downturn better than many regions of the world and in the process became home of some of the world’s darling economies and a growing middle class. Multinational corporations are increasingly finding opportunities throughout the region, but have also learned dealing with governments from across the political spectrum looking to protect their own industries is no walk in the park.

“We are in a two-speed world,” said Jerry Haar, associate dean and professor at Florida International University's College of Business Administration and director of the university’s Pino Global Entrepreneurship Center, referring to booming growth in the developing world and lagging growth in industrialized countries.

“There’s a two-speed track on the regulatory angle as well,” he said during WorldCity’s Government Affairs Connections on Aug. 24. “Certain countries may be lowering their corporate and individual tax rates, putting [business registration] online… and permitting using state-of-the-art technology like Chile, Ecuador and Panama.

“On the other hand we noticed this morning [Peruvian Prime Minister] Salomón Lerner just announced a $1 billion windfall tax on oil companies operating in Ecuador,” he added.

Regulatory discrepancies can be found across Latin America in a myriad industries, a gathering of government affairs officials from top multinationals said.

The best way to work with governments to reform regulations or processes such as customs inspections and business permitting is to “use examples that are working in some other country and… show them that they work in their model,” said Ana Gazarian, CEO of immigration and relocation firm EMS. “We reduced a process that took six months to a month.”

Despite companies lobbying foreign governments for more business friendly practices and some governments’ earnest effort to initiate them, it’s always a work in progress.

“Panama is one of the countries where you would say they make a great effort to make good government; to make it easy to do business yet it’s still not as easy as you would think,” said Jurg Zundel, general counsel for Latin America and the Caribbean for Caterpillar Americas Services.

If forming a company in some countries takes months and costs thousands of dollars, “who can do it?” he asked.

Companies trying to do business abroad must also understand how many governments think. Many Latin American economies are based on tourism, customs revenues and agriculture. Combine that with free trade agreements and currency fluctuations that destabilize some industries and you’re left with countries looking to squeeze revenue out of foreign enterprises in any way possible, some argue.

“If you tell me a tariff is 17.5 percent, it’s up to me to look at my supply chain to figure out how to deal with it,” Haar said. “If you put a non-tariff barrier in place I don’t know how to deal with that.

“They do it because their own industry is hurting because of all the bureaucratic red tape and nonsense, plus competition from China,” he added.

Those policies often lead companies to pull up anchor and leave a country entirely, as was the case with a pair of companies who declined to go into specifics as to which nations they recently divested from.

A final point of consideration was how technology affects doing business in Latin America, and how governments deal with it.

“What we find is that technology is moving faster than regulation,” said Patricia Rojas, head of public policy for Microsoft Latin America.

“By the time [a government] implements something we have to take our information and step it [back] five years,” said Stanislas Clement, senior regulatory affairs adviser for FedEx Express’ Latin America and Caribbean division.

Government Connections is one of seven event series organized by WorldCity to bring together multinational executives on international business topics. The next meeting is set for Oct. 21. Visit the website for more details and to register.

22 February 2011

Faced with limited resources for government relations across Latin America, Marcos Malfavon tried a novel approach: Recruit a team of executives region wide to share the task, many from sales positions.

But there’s a learning curve for sales staff to master government affairs, he soon found out. Building relationships with officials to discuss policy, laws and other long-term issues “really requires a different level of conversation. It’s not about one sale.”

Malfavon, who runs communications and public affairs for telecom giant Alcatel-Lucent in Latin America and the Caribbean, shared his experiences at WorldCity’s Government Affairs Connections on Feb. 11 with a group facing similar challenges on how to leverage limited resources in the Latin America region.

Participants agreed that government affairs is a growing concern in Latin America, because area governments are more actively investing in and regulating a wide variety of industries, from telecom to energy.

Ideally, multinationals should be pro-active in nurturing relations with officials to discuss policy and legal issues and to offer their input from a business perspective. But few companies have ample staff and resources dedicated to government affairs in Latin America. That leaves most companies reacting instead to proposals that emerge for laws, rules and policies, participants said.

New technology compounds the challenge. Today, with the internet, governments in Latin America can essentially “copy and paste” a law from Scandinavia or elsewhere, translate it and quickly present it for approval in their homeland, leaving public affairs managers with little time to offer input, said Ed Santos, vice president for public policy in Latin America for MasterCard International.

Companies can opt to pay for monitoring services in countries across the region to provide information on new bills and proposals, but the volume of information received can be daunting – especially for one public-affairs executive in Miami with no extra staff to read it all, participants said.

“And the monitoring doesn’t help if you have no relationships built” with lawmakers and other officials to act on the information received, added Craig Prusher, Burger King’s general counsel for Latin America and the Caribbean.

To process all the information, it helps to hire consultants who know what’s important for your company and can provide you specific, actionable data. But that requires an investment in training those consultants about your business and keeping them updated on changes in the industry, said Salvador Perez-Galindo, Visa’s vice president of government affairs for Latin America and the Caribbean.

 

“If you’re not willing to make that commitment, then you are going to be drinking out of a fire hose” that spews a torrent of information that will be wasted and unusable, said MasterCard’s Santos.

To leverage extra resources for government affairs, some companies work with industry groups in different countries that can collectively advance their common interests.

But industry groups have limits, especially when members are competitors with divergent agendas, said Alexandra Valderrama, Chevron’s regional manager for Latin America policy, government and public affairs.

“Use industry associations when you can,” Valderrama said. “But when you really need to protect your business, it all goes back to the relationship you’ve built with the government. That is critical.”

“And you really need to show [the officials you’re dealing with] what’s in it for the government. Because if they don’t see that, they walk” without pondering the company’s concerns, she said.

Some multinationals are turning to lobbyists as a way to boost outreach in Latin America. They’re motivated by lawmakers expanding regulation, from internet to financial services and TV.

“We’re considering whether to be more proactive on the legislative level,” possibly hiring lobbyists to deal with proposals before they become law in Latin America, said Jose Sariego, HBO Latin America’s senior vice president for business and legal affairs.

Other companies are looking inside for ways to boost their effectiveness in government relations. Kraft Latin America has been conducting workshops to sensitize executives on how to deal with government officials, using an interactive, board game as part of the training, said Jonathan Baker, who runs corporate and government affairs for Kraft Latin America.

Getting buy-in from top executives is invaluable to energize outreach to governments,, said MasterCard’s Santos.

“You have to have CEO agreement on being pro-active,” Sanros said. “If you don’t, but the time [an issue] cascades down to you, you’re putting out fires.”

Malfavon said Alcatel-Lucent is busy with at least two global initiatives that require outreach to governments. One program is “Green Touch,” which calls for slashing the company’s energy use over five years in a push that involves deploying more efficient networks. The other calls for making and selling a small, box-sized device called “Light Radio” that can replace cell-phone towers.

But the challenge remains to execute those and other government-affairs programs in Latin America in the short term: How best “to leverage resources in the region,” said Malfavon.

Government Connections is one of seven event series organized by WorldCIty to bring together multinational executives on international business topics. The Government series is sponsored by energy company Chevron. The next meeting is set for April 15.