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Immersion Experience – Mexico, Grasshoppers and Mescal

Around 50 students escaped the harsh Boston winter for a week in sunny Mexico on HBS’s first Latin American IXP. Under the guidance of Professor Michael Chu, the group visited a number of companies in Oaxaca, Mexico City and Monterrey learning about the challenges that come from doing business in emerging markets.

The trip was designed to offer a series of contrasts allowing students to experience life in Mexico from all angles. Highlights of the trip included a weekend at a Zapotek village, an HBS alumni event in Mexico City and a trip to a Sealed Air plant, made famous by the RC Marketing case.

As I arrived at the group hotel in Oaxaca, Mexico, sleeping bag in hand, I was sure there had been a mistake. A former monastery and prison (although not at the same time) the hotel looked rather too nice. On passing a few familiar faces leaving for some late night Salsa dancing I quickly became convinced that I was indeed not lost, although I must admit to being ignorant as to where precisely Oaxaca was and why exactly the trip started here of all places. After a cocktail reception under the stars and an early start the next morning, it soon all started to become clear.

We were separated into 4 groups and sent to Zapotek villages for the weekend. The concept of moving from a 5* hotel to somebody’s floor (or in one case somebody’s roof) was perhaps alien to some, but it brought to life the apparent contrast of life within an emerging market.

Oaxaca is one of the poorest states of Mexico and was chosen as the starting point for the trip so that students could experience, albeit briefly, life at the base of the pyramid. Situated in the south and divided into 571 municipalities, 70% of residents do not have access to healthcare, 35% have no running water and 27% of school girls are illiterate. Oaxaca has a high proportion of indigenous people whom we were asked to observe and question during our weekend home stays. Along with 10 others, I visited Santa Ana del Valle, a small Zapotec town with around 2000 inhabitants. I was greeted by Juan and his 4 sisters, my home stay hosts, and given a wonderful lunch. I, learned that Juan had returned from Santa Monica, where his family lives and owns a bakery. In true HBS style I raised my hand over the dinner table to ask “why he had returned? “Out of civic duty to my community,” he replied. What may seem rather odd to some was perfectly normal in Santa Ana. Local 18-20 year olds acted as security in the evening and all members of the community had roles which they currently upheld, or promised to fulfill sometime in the future.

With 95% of the town Catholic, religion also plays a very important part of everyday life in St.Ana. The role of church bell ringer and “music player” clearly holds a prestigious role as I found out the hard way, at 4.30 in the morning, awakened (rather ironically) to the sound of Simon and Garfunkel’s “the sound of silence” being blasted across the 1950s tannoy system.

After learning about rug production and spending a day hiking in the nearby mountains, visiting archeological ruins, we re-united with all other groups at the ranch of Emeritus Professor James Austin reflecting on our experiences, and admiring his fully sustainable waterless toilet. We were told that according to a Oaxacan saying, if we ate grasshoppers and drank mescal (a strong liquor) we would someday return to the city. Several grasshoppers and numerous drinks later it looked like several participants would be coming back very soon.

The following morning we were again split into groups, this time to explore specific industries. I was part of the Microfinance trek and spent the day visiting a payment collection and weekly meeting with two microfinance institutions; a recently IPO’d Banco Compartamos and an NGO, Banco Munidad. Both companies focused on group credits, mainly for women, and provided them with capital for their business, albeit at very high rates. The experience of being “on the ground” was truly eye opening and our daily task of spotting potential business opportunities, revealed a number of interesting ideas.

The next morning saw another early start with a flight to the densely populated Mexico City. A national holiday gave us a day to see some local sights including the home of Frida Kahlo and the Metropolitan Cathedral to name but a few. The following day we met with the “Two Charlies”, the co-CEOs of Banco Compartamos.

Eating a buffet lunch in their modern headquarters I could not help but note the contrast from two days earlier and questioned whether a c.60% annual interest rate for a $200 loan could really be morally justified. They answered candidly and gave their opinion that a large profit is a necessity in microfinance in order for clients to invest in the firm and view microfinance as an attractive investment prospect. I left still slightly skeptical although impressed by their achievements to date.

Following lunch we met with the COO of SanLuis Rassini, one of the world’s largest suppliers of suspension and brake components who offered his take of the challenges that come from leading an emerging market company. We then heard from several entrepreneurs at an HBS Mexico alumni gathering who spoke about the challenges of entrepreneurship in emerging markets.

A subject that arose on numerous occasions that evening was the almost impenetrable ceiling that separates the Mexican upper echelons and lower/middle class entrepreneurs, so it was well suited that the following morning we should travel to our final city, Monterrey, and visit a Sealed Air factory, made famous by the RC Marketing case, to learn about their global specialization strategy and production of near impenetrable plastic.

To complete the trip we were hosted by two leading Mexican multinationals. First, brewing giant FEMSA, whose CEO hosted a presentation, complete with a tour of the brewery, and of course free beer. The following day we travelled to ALFA to learn about the conglomerate and in particular Nemak, producer of high tech aluminum components. Touring the plant, TOM concepts rushed to the front of my mind and I looked frantically to see if I could find an Arthur Moreno, but sadly with no such luck.

After a lunch hosted by Alfa CEO and Chairman, Dionisio Garza, we returned to our hotel to hear from Ignia, a VC firm investing in the base of the pyramid, seeking to tackle poverty by driving systematic change within Mexico and Primedic, a portfolio company, that is seeking to provide healthcare to the poorest in Mexico using an innovative “all you can eat” approach.

All in all, my time in Mexico taught me three things. First, the need for local expertise and a strong understanding of local customs and cultures when seeking to conduct business in an emerging market. Large parts of businesses were based on cultural norms that were almost impossible to comprehend and replicate elsewhere without local insight. Second, that the base of the pyramid has very deep roots, which cannot be changed overnight. Societal impact takes time, although with perseverance positive change can occur. Finally, despite some moral objections, private companies can provide a solution to addressing societal issues at the base of the pyramid.

Not bad, for 10 days in January!

January 26, 2009
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