June 28 , 2005
With the Brazilians...
I am in Houston this week with 18 Brazilian folks. I am running an executive course on petroleum supply chain management. We have a bunch of good people mostly who are from Río de Janeiro and São Paulo . We have had several speakers including a couple of guys who used to work for Enron. We have also made some interesting visits. Below is a picture of my friend Cesar riding in a converted tank.
These tanks have been converted to use as firefighting equipment. You can put a guy or two into the middle of a fire and they will not be hurt. These tanks come from Canada. Canada does not need tanks much anymore. They don't really plan to fight anyone.
I love Brazil. And I love the folks that live there. They have a love of life that I really enjoy. They work hard and play hard.
I usually go down to Brazil once or twice per year to visit my friends at COPPEAD, which is the business school at the Federal University of Rio de Janeiro (UFRJ). This year, I am going to go down there in August for their big seminar. They typically have 800-1,000 people registered for this event. My plan this year is to take Jaesa with me. Jaesa is nine years old and in the fourth grade. I got her a passport last week but you also need a visa to go to Brazil and I am hoping we will have enough time to get one before we have to leave. The reason that you need a visa is not because Brazil cares that much about American coming to Brazil , but rather it is a policy of "reciprocity" because United State requires Brazilians to have a visa. In fact, there is a separate line at the airport in São Paulo for American because US citizen have to get their picture taken in the inner Brazil , just as Brazilians do when they enter the United States . It is probably pretty unlikely that the Brazilians do anything that the pictures, or that the Americans do much with the Brazilian pictures for that matter, but Brazil will give US citizen the same amount of hassle that the US gives Brazilian citizens.
The folks from Brazil are very interested in logistics and supply chain management. They had a tough economy for several years in the 70s and 80s up through the mid-90s. Now, their economy is in much better shape. They elected a president and a government that seemed to generally be on the track towards stability.
Stability is critical to foster a good business environment. People may naturally try to create instability, but they really desire and ability. Banks and investors are much more willing to invest money when they believe it is likely that they will get their money out lots premium for investing their money. Yes companies and people have to spend too much time worrying about whether their money will be safe or not, they are much less likely to invest. They will move their money and their innovation to an economy that they believe adhere to just rules. All economies have rules, but many countries have the rules that are written, and then they have the real rules that are flexible based upon who is in power. That was one of the big problems in Iraq . Saddam Hussein and the ruling elite could do whatever they wanted. They did not have to play by ethical or moral rules. In fact, they just made up whatever rules would work for them. Many American and do not understand the attraction of radical Islam. I believe that one of the real attraction of Islam he is that it provides a real structure. It is the structure that is not that flexible but people are comfortable with no waiting what the behavior of any person, corporation, or in to see is going to be staged on a very tight structure.
This goes back to one of my favorite sayings. "Structure drives behavior." All of my students know by the end of the semester that even you they don't learn anything else in supply-chain management class, they have to know that "structure drives behavior."
If you would like another example, think about your kids for a minute. If you don't have any children, think about my kids. They like structure. They do not always appreciated when the structure seems to momentarily be oppressive, but in the long-term they like structure. They also need to be able to think flexibly and be able to have their own opinions. But they are much better off if they are raised with rules and structure. Kids feel more comfortable, and they tend to do better in life.
Good structure can take many forms. But it has to be at the very least understandable. It cannot be inconsistent or capricious.
I have not always been a guy that did well when people handed me too many rules. I avoid had a little bit of difficulty with authority opened Karen is probably why I'm a professor) but I do like knowing what the outcome is going to be before it happened and an understandable structure. In an understandable structure, I can guess or sometimes even know what the structure what results the structure and my actions within that structure are going to produce. It makes it more comfortable for me to live even though I don't like rules and I certainly don't like much authority over me.
Back to Brazil – and their Structure
Inflation and high interest rates are still a problem down there. I understand that the interest rate as of the end of June 2005 is up around 17 1/2 percent. That means that it is very difficult to invest capital in a business. The hurdle rate (the required return percentage on any investment) the required return on invested money) has to be above 17 1/2%, otherwise it would be a waste of time to invest. This means that it is very difficult to start new businesses. Most businesses do not get a net return over 17 1/2%. The high rates might be great for bankers and folks that already have money, but it is a terrible for people that are trying to use capital to innovate and start new companies, or invest in additional business.
Even though the interest rates are too high down there, it is still a great place. The weather is beautiful, they have lots of natural resources including great agriculture and a lot of mining, and they have a willingness to work very hard. Plus, the people are pretty good-looking. My friend Cesar has a former model working for him at the University. How many times have you heard about Brazilian models? The reason that you have is that the raw material is all over the place down there.
One time I was eating dinner at a quiet, upscale Japanese restaurant in Silicon Valley with a senior executive from a Brazilian company named Guillerme Lager. It was one of those restaurants where the waitress is dressed in some complicated Japanese outfit and whispers to you. We were sitting with a bunch of Guillerme's guys, my friend Cesar, and some people from other Brazilian firms. They were drinking beer and laughing, and telling me about how great Brazil was. At some point during the dinner, Guillerme raised his glass and said loudly, "we may not be as rich as you Americans, but we live like Kings!" The whole table erupted into cheers and they started singing. I love that spirit.
There has been a lot of attention recently paid to Brazil by the world news media lately. The world seems to be waking up to the fact that this economy of 160 million people is getting stronger and becoming more stable.
Last week on CNBC they ran a special report on business in Brazil. It was fun to watch because most of the companies they mentioned had sent representatives to one of my executive courses at the University of Nevada. I should mention that I watched the special sitting in my office at the University because I locked the keys to the T-bird in the trunk so I could not leave. Deana and some of the kids came to help me get them out of the trunk, but it ended up that the key they gave me did not include the key needed to drive the Thunderbird. So I sat in my office for another hour waiting for Deana to comeback and get me. I truly felt like a doofus, absent minded Professor making my lovely wife drive twice to the University to get me keys that I should not have locked in the trunk in the first place. At any rate, in between the first and second time she came to give the keys, I sat inmy office and watched the special on Brazil. As you probably know, CNBC is the business channel. The reporter said that Brazil is a good place for American companies to be.
So why is Brazil a much more interesting place to businessmen and investors than it was few years ago? There are a few reasons. One of them is that it has a large market that is growing in affluence. Another reason is that even though the interest rates and the cost of money are still high, and inflation is still somewhat of a problem, it is a much more stable place to do business then it was before 1994. People are now making money reliably down there. And, it is a beautiful place.
If you ever get a chance you should go to Brazil one of my favorite places on the planet in Ipanema Beach where my friends that their lives. You can look out and be out it took a the big mountain that looks like a Sugarloaf and beautiful, blue water. And if you are not even mean the beach in August, or next February, maybe I'll see you there.