Argentina Chile study tour day seven

Saturday March 20 2010

Last day in Santiago for the group. Today we had the opportunity to visit Lodge Andino El Ingenio in the foothills of the Andes. Most of the group elected horseback riding; we had to stay in the valley because of fears that aftershocks could result in falling debris if we were further uphill.

After the outdoors activity we had a wonderful lunch, some poolside relaxation and then it was time for the bus ride to the airport. There was significant damage to the airport from the earthquake, but operations were getting closer to normal. There was a holding area under a tent where everyone had to stay until three hours before their flight. Then we picked up already printed out boarding passes outside the terminal. From there we proceeded to bag check, immigration and security -- all of which were set up in areas that had previously been allocated to other functions. Took only about 45 minutes for all of this, leaving the students time to say goodbye before hopping on return flights.

Kudos to the Austral Group for organizing and escorting the NC State team for a wonderful week in Chile. Based on the learning objectives for the course and the background and interests of the students, the Austral Group put together an itinerary that exposed us to a wide range of companies and industries. All of the presenters were engaging and polished presenters. The on-ground staff -- Ignacio and Shirly in BA and Claudia and Alejandra in Santiago -- were simultaneously professional and fun to be with. The cultural opportunities were all outstanding. I would certainly work with them again if I were to take a group to South America.

Argentina Chile study tour day six

Friday March 19 2010

Today we headed about 35 miles south of Santiago to visit Subsole (fruit exporter) and Vina De Martino (winemaker). Subsole takes grapes from local farmers (who are the main shareholders), packages and cools them and then exports them. Subsole also exports citrus, kiwi, cherries, and avocados so that their capacity and employees are fully utilized over the year. After a presentation from Jose Miguel Fernandez the general manager, we all enjoyed a plant tour. I was a bit surprised that this was the first factory tour for many students. At the end we all received a nice size basket of Ralle grapes, a scrumptious new variety.

Next stop was Vina De Marino, where we enjoyed a talk from export manager Guy Hooper (another expat). De Martino is currently the #46 wine producer in Chile and is looking to build market share overseas, especially in the US. De Martino charges slightly higher than average prices, with their key differentiators being 12 years of research to find the best terroir, the launch of carmenere as a distinctive varietal (as opposed to part of a blend), and fully organic production (hello, Whole Foods, have we got a wine for you!). De Martino's facilities also have just been certified 100% carbon neutral. Lots of questions from the students about the marketing challenges; the best advertising is still "get wine into people's mouths."

Hooper then hosted a fantastic lunch. We started with the choice of chardonnay or cabernet sauvignon, while trays of empanadas and razor clams circulated. Then it was time for a three course dinner (1-charcuterie, 2-squid ink risotto topped with fish and crab, 3-pick between fresh fruit, cake or creme brulee) accompanied by more wine (carmenere and/or sauvignon blanc). Then it was time for the winery tour. Each of us was provided with a glass so we could sample at various stages of fermentation, which was a nice twist. Finally, and much to my surprise, we had a chance to sample two more wines (syrah, carmenere) from De Martino's premium brand.

Last night in Santiago and the entire class went to Mestizo where more great seafood and wine were enjoyed. Hard to believe we only have one more day.

WSJ interview today with Gary Becker

Learn what Chicago's best known Nobel laureate has to say about health care legislation, the power of special interests, market and government failure during the financial crisis ("The SEC didn't see it at all"), and the power of markets to promote economic growth (China, India and Brazil vs. North Korea). Unlike many conservative, market-oriented economists, Becker says that "I remain basically an optimist."

Argentina Chile study tour day five

Thursday March 18 2010

Full day today with two morning and one afternoon meetings. Our Santiago guide Claudia told us that there had been two aftershocks in the early morning; no one seemed to have noticed.

First stop was the local chapter of the American Chamber of Commerce, where we had two speakers both of whom were US expats. John Welby gave us a great overview on the economy and current trade issues. Steven Buchanan provided a personal account on what an expat needs to do in Chile to become accepted and credible to the business community. His advice included the following: find a niche, learn the language, be careful selecting partners, understand your market, embrace a local accountant, and "always give more than you receive."

Back to the hotel for a presentation from microbrew entrepreneur Christoph Flaskamp, a German expat who has unleashed his Tubinger brand on Chile. Flaskamp talked about the challenges facing startups in general and brewing startups in particular. Pisco and wine are the two dominant alcoholic beverages in Chile; microbrews are just starting to get noticed. The students had many questions (including one who is starting his own microbrew enterprise in the Sandhills region soon) and enjoyed the opportunity to taste a small sample of Flaskamp's product.

After lunch we all hopped on a bus and went downtown to visit Andres Bello University for a talk from Prof. Marcelo Mena about energy and environmental challenges facing Chile. Chile does not produce much in the way of petroleum and natural gas, making it heavily dependent on imports. Hydropower and wind are being closely scrutinized as energy sources for the future.

Most of the students stayed downtown to shop and explore after Mena's talk. A brave few sampled the terremoto, a blend of white wine and pineapple sherbet. Terremoto is the Spanish word for earthquake.

Argentina Chile study tour day four

Wednesday March 17 2010

Today we visited the Standard Bank Foundation and learned all about trade issues from the perspective of Felix Pena, a lawyer who had headed the Argentine delegation in various trade negotiations. We reviewed a lot of facts and charts about imports and exports (Argentina exports a lot of beef -- it would export more if it did not tax beef exports) and then had a great discussion about trade policy. We learned that Argentina's priorities for the coming years are to promote the Doha Round of tariff reductions (especially regarding agricultural issues), build stronger ties through Mercosur (Southern Cone trading bloc that also includes Brazil, Paraguay and Uruguay) and initiate discussions between Mercosur and the EU.

In the afternoon we had to say goodbye to our wonderful Argentine guide Shirly Kalush (pictured here) and headed off to Santiago Chile. Chile's economy is heavily dependent on agriculture. To keep pests and diseases away, all incoming passenger luggage is screened. A few of us had close calls with those apples from the breakfast buffet that we had stowed away for a late afternoon snack.

As one might expect, everyone is Irish today and most students sought out Irish pubs in Santiago. It was my birthday, made extra special because of a card from the students and their gift of a Maradona soccer shirt.

The future of economics: more history, less math?

Interesting NYT column by David Brooks today about the economics discipline. In a nutshell, Brooks argues that economics has become increasingly abstract and mathematically complex at the cost of ignoring history and psychology. I agree with Brooks on the history side, but there has been a lot of progress in the last 20 years integrating psychological rigor into economic models. NC State's COM just hired Stacy Wood to the Langdon Distinguished Chair of Marketing; one of Stacy's main interests is neuroeconomics. Stacy will be teaching a new course in consumer behavior in the fall.

Argentina Chile study tour day three

Tuesday March 16 2010

This morning was the academic high point of our visit in Argentina when we visited the Metro-politan Design Center. The Center acts as an incubator for dozens of startups; it also houses the Buenos Aires Fashion Bureau and a research center on design and innovation (which makes it a natural partner for NC State given our university's focus in these areas, especially in the Colleges of Design, Management and Textiles). The Center is housed in what was a seafood distribution facility in a marginal neighborhood, a mere 10 blocks from the largest shantytown in BA. Buenos Aires is one of the first four urban areas labelled as a design center by UNESCO, so the strategy is to leverage this advantage into company and job creation. (Other cities now include Berlin, Montreal, Kobe Japan, Nagoya Japan, and Shenzhen China.)

The students learned first hand from one of the companies how hard it is to get a business started in Argentina and how much harder it is to gain access to export markets. Pictured here is the owner of a slipper design and manufacturing company who sells her product in the chic Palermo neighborhood in BA (and would like to sell abroad).

In the afternoon we learned about Neoris (a spinoff of Cemex from Mexico) which is essentially the Accenture of Latin America. Neoris differentiates itself by focusing on IT deployment (versus IT strategy) and by locating offices in medium size cities that are ignored by the IBMs and Deloittes. Neoris finds Argentina an attractive market place because of the availability of skilled labor at relatively low cost, but it has concerns about political and economic stability -- a recurring theme of our visit.

In the evening most of the group headed for Cabana Las Lilas in the Puerto Madero district for one last beef throwdown.

Argentina Chile study tour day two

Monday March 15 2010

The group walked to the American Club in BA and went to the top floor, overlooking the Teatro Colon, BA's jewel of an opera house modeled after La Scala in Milan. The day began with two talks. Fernando Furci, head of international trade for the American Chamber of Commerce (and GQ model?), gave an overview of economic conditions and summarized do's and don'ts for American firms thinking about entering the market. Juan Cruz Diaz, director of Cefeidas a consulting firm, talked about how Argentine politics affect the business climate. We learned that the current president Cristina Kirchner of the Peronist party ran on a unity ticket with the leader of the Radical party as VP, but the two had a falling out on export taxes on agricultural goods (Cristina wanted higher taxes but her veep cast the tie-breaking vote in the Senate against her). Kind of like an Obama/McCain ticket. The class asked questions about the debt repudiation in 2001 and the prospects for Argentina receiving international investment in the future. Diaz concluded his talk on an optimistic note, "We are convinced the next government in 2011 will be more conciliatory toward business." To quote the Who, "We won't be fooled again!!!" I hope so.

In the afternoon we visited Craveri Laboratories, a rapidly growing contract manufacturer of various pharmaceutical products and an Argentine pioneer in Tissue Engineering. We selected Craveri because of NC State's emphasis on technology and biosciences. CEO Juan Craveri generously spent an hour telling us about Craveri and answering student questions. Craveri is making great strides in developing new products to help victims of burns, skin ulcers, and other ailments.

Fun time in the evening: a visit to El Viejo Almacen for an hour-long tango lesson, a three course dinner and a great tango show.

Argentina Chile study tour day one

Sunday March 14 2010

Last week I led a class of 15 NC State MBAs on a weeklong study abroad visit to Buenos Aires Argentina and Santiago de Chile. Never had time to blog while on the road but will try to fill in the high points now. Delta got us to BA right on time. We had the privilege of waiting in two lines: one to pay the "Reciprocity Tax" (the US charges Argentines $130 for the privilege of entering, so the Argentines decided recently to return the favor -- deadweight loss triangles were dancing in my head) and another to clear immigration. My first impression as we boarded our van -- where did all of these Renaults, Peugeots, and Citroens come from? There were more French cars on the road in BA than there were in Paris.

Sunday was designed to get everyone exposed to Argentine culture and to recover from overnight flights. We took a bus tour of the highlights of BA, including stops at Recoleta Cemetery to give out respects to Eva Peron and La Boca to soak up an array of merchants and street vendors. Most of us then went to see River Plate host Huracan in football. River Plate is, along with Boca Juniors, one of the big name teams in Argentine soccer. Their stadium seats 70K and was mostly full. The fans of the visiting team are housed in their own section surrounded by a 10' tall fence topped with barbed wire. Fans of both teams spent most of the game chanting insults at each other. After the game the River Plate fans had to stay in their section for 20 minutes to give the visitors time to escape the area. River Plate won 2-0.

Enjoyed a pizza and some malbec for dinner at Las Cuartetas, one of BA's top pizzerias. Deep dish style with lots of cheese, yummy.

Supply and demand for recreational drugs

Secretary of State Hillary Clinton is in Mexico today to discuss our mutual concerns about the violence associated with drug trafficking. Yesterday's WSJ column by Mary O'Grady does a good job of explaining the futility of drug prohibition in simple economic terms. Money quotes:

I suggest that one or two of Mexico's very fine economists trained at the University of Chicago by Milton Friedman sit down with President Obama's team to explain a few things about how markets work. They could begin by outlining the path that a worthless weed travels to become the funding for the cartel's firepower. In this Econ 101 lesson, students will learn how the lion's share of the profit is in getting the stuff over the U.S. border to the American consumer.

Marijuana use, through medical marijuana outlets and general social acceptance, has become de facto legal in the U.S., and demand is robust. The upshot is that consumption is cool while production, trafficking and distribution are organized-crime activities. This is what I called in a previous column, "a stimulus plan for Mexican gangsters."

Why concert tickets are sometimes hard to get

Yesterday's N&O reports that the March 27 Wilco concert at DPAC was sold out within 17 minutes. But if you visit sites such as Ticketsnow or Stubhub, you can still find plenty of seats, albeit at a considerable markup over list price. To quote the late, great Marvin Gaye, "What's Goin' On?"

Even though DPAC has 2700 seats, only about 1000 went on sale to the general public. Some were presold to DPAC patrons or members of Wilco's fan club. Others were reserved for guests/friends of the band. No doubt these are some of the sources of the tickets currently for sale online. Prices at Ticketsnow range from $57 to $251 apiece; originally all seats were on sale for $35 according to the DPAC website.

The economic puzzle here is why do the band and the concert promoters set initial prices so far below market clearing levels. Bands make most of their money from touring as opposed to recording, so one has to wonder why Wilco is sharing consumer surplus with others.

This is good news on the jobs front?

Lead headline in today's NYT: "Jobless Rate Holds Steady, Raising Hopes of Recovery." The so-called good news is that unemployment held steady at 9.7 percent. The not-so-good news is that employment fell by 36,000. Keep in mind that this is the net change in jobs, equal to vanishing jobs minus new jobs. The optimist will say that the employment number is encouraging given the lousy February weather. The pessimist will point to the paragraph in the article that says we will need to create more than 100,000 jobs each month to bring unemployment down to any significant degree. Somehow I don't think the new jobs bill is going to make a big difference.

Intel CEO: US lags in global competitiveness

Today's NYT column by Tom Friedman features an interview with Intel CEO Paul Otellini. Otellini is concerned about the future innovative capacity of the US economy. He points out that the combination of high corporate tax rates in the US and incentives provided by other countries to base new plants inside their borders are having a profound effect on corporate decisions. Case in point: Intel's next big plant opens in October in -- where else -- China. Otellini also is concerned about human capital; the US is lagging in critical STEM disciplines (science, technology, engineering and math). Money quote on the emerging education gap:

As a citizen, I hate it. As a global employer, I have the luxury of hiring the best engineers anywhere on earth. If I can't get them out of MIT, I'll get them out of Tsing Hua.

Cry for Argentina

I am taking 16 NC State MBAs to Argentina and Chile later this month to learn about the different environment facing businesses in those two countries. This week's Economist magazine has an outstanding piece about Nestor and Cristina Kirchner, the husband-and-wife team that has run Argentina since 2003. Out of control spending. Corruption. Inflation. Punitive taxes and price controls. Confiscation of private pensions. Alas, Argentina has seen this play before and we all know how it will end.

Health savings accounts for state employees

Interesting experiment with HSAs for Indiana's state employees. The state deposits $2750 each year into an account and pays the premium for a health insurance plan with a much higher than normal deductible. Employees pay for their own health expenses up to an annual limit of $8000. If they spend less than $2750, they get to keep the money. Pluses: people spend their own money more carefully than if a third-party were involved, so state employees have higher take-home pay AND the state saves money. Minus: $8000 is still a pretty big hit for many state employees (although this should be compared to the maximum copays and deductibles under conventional plans, which would certainly be in the thousands).

We have our own health care challenges and state budget issues in North Carolina. What would it take for the General Assembly and the Governor to take a serious look at HSAs?

Microsoft: Google monopolizes paid search ads

It's not easy being a monopolist. Microsoft knows. Convicted of antitrust violations in both the US and EU. Losing market dominance to new technologies. Staking its future on me-too products that no one really wants. So what do you do? Yesterday's WSJ headline: "Google, Microsoft Spar on Antitrust." Google indeed has a virtual monopoly on paid search advertising, which may or may not be alarming to you depending on the cross-elasticity of demand between search and other forms of advertising (translation: if small price changes lead companies to switch their ads between Google to other outlets, this isn't a monopoly.) Microsoft's lead outside counsel has filed briefs for small firms in Ohio and New York accusing Google of antitrust violations. The Justice Department is investigating as well.