Galt’s Gulch South of the Border
Wow. Think of it. No more Big Brother in your face. No more over regulation, excessive taxation, and meddlesome bureaucrats getting in the way of your unbridled enthusiasm and entrepreneurial spirit. Fantastic right? Mostly, yes, but watch out. Galt’s Gulch south of the border is a wonderful idea, but reality has a way of throwing some curve balls your way. Latin America is a left-handed pitcher with a 102 Mph fastball and a wicked curve. Forewarned is forearmed.
In Ayn Rand’s version of Galt’s Gulch, business people get fed up and depart for greener pastures and a place where each can provide a service to others and earn a fair fee for doing so. Even adding the Latino copper tycoon, the mix of business people is, on the surface, homogenous and very similar in culture.
But Atlas Shrugged is a work of fiction and if you intend to start a business in Latin America, be prepared for a reality that is nuanced in ways you cant even imagine. A favorite saying of mine is, “I didn’t know what I didn’t know.” At first glance this seems so obvious, and it is. But as with many saying of wisdom, the only way one ever really understands the deeper meaning is to have paid some tuition to learn the lesson of the saying through experience.
Hundreds of books have been written on the topic of cross cultural business opportunities, dealings, and failings. The examples of missteps and miscues from companies around the world range from humorous to tragic.
Chevrolet’s naming a car “Nova” in Latin America is humorous. “No va” means “doesn’t go” in Spanish. Who’d want a car that doesn’t go? It flopped. At the tragic end of the spectrum is the cultural reality that Malcolm Gladwell pointed out in his book, Outliers, about the Korean Airline Flight 801 that crashed killing everyone on board. Culturally a Korean co-pilot could not correct a pilot’s mistake.
Fortunately this issue between pilot and co-pilot has been addressed, but there are thousands of unspoken cues we learn and hold dear at a subconscious level that translate into how we do business. Not understanding the cultural context of your business environment is a serious lack of planning and judgment. Your business’ success or failure depends on how you address these issues.
Of course there are many other factors in running a business, practical ones like local rules, regulations, labor laws, tax filings, etc…. These too have a huge cultural or foreign component. Addressing the specifics of these practical concerns vary from one country to another, but there are some powerful similarities throughout Latin America based largely on the Civil Law Code and its penetration throughout the business environment.
And then there are the silly factors. They actually aren’t silly at all, but if we look at them analytically, and objectively, we’d be likely to call the mistakes in this category silly. And yet so many business people fall into the trap of making mistakes I label as “Margarita Madness” or the “James Bond syndrome.” Each of these areas along with the practical issues will be covered in a subsequent article.
For now in this first article, lets stick to the macro cultural issues that frame the entire process of opening and running a business start to finish, the “theory” so to speak. Understanding these will allow the specifics to drop into place. Or as Einstein once said, “Theories without facts may be barren, but facts without theories are meaningless.”
Lets start with why we want to leave a highly regulated environment like the US, Canada, or Europe. Legitimately we know that excessive regulation and taxation hurt the small businessperson and make it very difficult for new ideas to enter the marketplace. In highly regulated industries like pharmaceuticals, the small companies are almost all gone leaving only the largest of the multinationals to produce drugs. The FDA regulation process slows desperately needed cancer drugs to nearly a decade from discovery to introduction. Europe is easier and faster, but even there the time lines are distressingly long.
At the other end of the spectrum you have laws like the ones in Alabama that require 1200 hours of training to paint fingernails. Seriously. I kid you not. That is more than a half a year. It’s thirty 40-hour weeks of class. Yet, literally 1 foot away in the state of Mississippi you only need 350 hours of training to do the same job.
Do the fingernail clients in Alabama get a 3 times better nail job? Better yet, do we even need a license for this activity between two free and willing adults who want to exchange money for a service? The bottom line is that it’s these kind of absurd regulations that are driving entrepreneurs out of North America in search of their own Galt’s Gulch.
These are examples at both ends of the regulation spectrum in the US right now. When we are inside the world of regulation we see the ills it causes, and we don’t like it. Understand that business in Latin America is not free from regulation although there is a perception that regulation is less here. This perception is true to some extent but not for the reason most folks would imagine.
In many cases and in many ways Latin America may actually have more regulation than North America and Europe. A significant difference is that in most cases it is more tiresome to deal with these regulations as opposed to burdensome. This is an important distinction. This subtle nuance is critically important for anyone thinking of starting a business in Latin America.
Regulation as we know is the domain of Big Brother and to the extent he is limited by financial constraints, we will see less of him. There is also the efficiency factor. North America and Europe are incredibly efficient and have the systems, procedures, and technology to know many things, all at once, and fast. Enforcement of the regulations is where the rubber really meets the road for entrepreneurs. In Latin America, the budgets and technology for civil service enforcement are often lacking and therefore we get the impression that regulation is less. It’s actually just less enforced. Or another way of saying this is that it is selectively enforced. If you are smart, you’ll read between the lines here.
Many of you who have heard me speak know I like the phrase, “Freedom is a double edged sword.” In order for freedom to work well, it must be paired with responsibility, and for personal freedom, personal responsibility. The kinds of protections that we take for granted as consumers in North America and Europe just simply don’t exist in Latin America and the developing world. If they do exist, they are not or cannot be significantly enforced. Protections for the consumer are a whole other topic, but how about protections for the investor?
Personal responsibility and due diligence are the ounce of prevention any investor needs. But how do I perform the serious due diligence I need to when I don’t even really understand all the issues? It’s a great question and the one you should really be asking yourself.
The bottom line is this. After 17 years of doing business in the region, I still don’t know what I don’t know. But there are tricks and techniques that we can employ to open ourselves up to the possibilities and probabilities, both good and bad, that are in the neighborhood so to speak.
One of the many functions of our brain is to filter information. At any given moment, we are bombarded with stimuli from the noise of traffic outside our window the to pressure on our buttocks in the chair in which we are sitting. Those are just stimuli we can be conscious of if we allow ourselves to be. And we need to be as you’ll see below.
Our brain must filter what our conscious mind sees, hears and computes or we’ll be overloaded and stressed. The conscious function to filter is given to the Thalamus, a small part of the brain which plays traffic cop and keeps out the sound of the thunder and lightening, but lets the sleeping mom hear the squeak of an infant in the room next door.
While this filter in a normal, culturally familiar setting is a great thing, just the opposite is true when we are doing business overseas or outside our primary culture. Filters become a dangerous luxury we can no longer afford. Outside our culture what we really need to be doing is seeing and hearing everything. But not only seeing and hearing everything, processing these stimuli to see if they make sense, hold the possibility of danger, or perhaps opportunity.
A foreign culture is just that, foreign and we have to have our wits about us at all times. It’s like being on our toes 24/7. Or to say it another way, we must expand our radar screen to see the blips further out and then we must address them with conscious focus and attention. “What is this?” “Why is this happening?” “What can this mean?” These are the questions you’ll start to ask yourself over and over and you may even wonder if you are getting paranoid. Let me assure you, it’s hard to do, but let your guard down at your peril. As Andy Grove, the founder of Intel says, “Only the paranoid survive.”
One last element to be conscious of is that of similarity. It is easy to slip into complacency, especially the more familiar a place feels. This new environment might seem like home in many ways, but it isn’t. You don’t know what you don’t know. Just like sports teams like to have the home field advantage, be assured that the there is a lot of home cooking going on. Legal issues are a topic unto themselves and will be addressed in a later article, but be assured, the umpires and referees you’ll be dealing with are from the home town and you are a long way from home no matter how similar it may feel.
The point of this article is to be sobering and encouraging, but primarily sobering. There are literally tens of thousands of US entrepreneurs doing business in Latin America. It’s fertile territory for creative individuals and teams to provide a product or service that folks want and need. I’ve been working in the region for over 17 years and I love it. But as I like to say, I earned my Ph.D. from the Latin America Campus of the School of Hard Knocks.
Any savings of time and money you receive by sidestepping some of the potential land mines are my gift to you. There are some great books about the cultural issues surrounding development in Latin America. I prefer these to the business books because they get to the heart of the matter. Knowing the root cause of behavior lets you get out in front more often with better odds. Send me a note and I’ll send you a short reading list of some great books that have lit light bulbs in my head over the years.
Look out for my next article where I get down and dirty with some specifics and issues you’re likely to face when you set up shop in the region. Until then, many continued successes.
