Stories
Stories
Dispatches from the Global Classroom
The School’s Immersion Experience Programs challenge MBAs with active, cross-cultural learning situations around the globe, from Silicon Valley to China to Europe. An on-the-ground report from Mexico’s smallest villages and its multibillion- dollar conglomerates.
There are no cold calls here. No laptops, or blackboards, or Sky Deck. Thousands of miles from Aldrich Hall, 48 MBA students and their HBS faculty leader fan out in small groups to spend an early January weekend at one of four villages outside Oaxaca City, 340 miles southeast of Mexico City. Travel in a foreign country is nothing new for this bunch. They come from every corner of North America and from countries as varied as Switzerland, Haiti, India, Japan, Jamaica, and Zimbabwe. Some have worked in cities like Baghdad, Phnom Penh, Monrovia, Tokyo, and Madrid.
But none of the students in our group has been to Santa Ana del Valle, a village of just under 2,000 inhabitants, where rug weaving and farming are the main occupations. As the starting point for our ten-day Immersion Experience Program (IXP) to Mexico, Santa Ana del Valle, located in one of Mexico’s poorest states, is the unassuming launchpad for a trip that will end with tours of several multibillion-dollar corporations and ultimately cause many students to question their preconceived notions of poverty; emerging markets; and the roles of business, government, and the nonprofit sector.
“The IXP program is all about active learning,” says HBS senior fellow Regina Abrami, who serves as faculty chair of the program. Abrami emphasizes the distinction between the relatively new faculty-led immersions and the student-organized treks familiar to many HBS alums. “Part of the experience is asking students to go out and find a business problem or opportunity, which is something you’ll have to do over and over as a manager or entrepreneur. It takes students out of their comfort zone. There’s a lot of self-learning that goes on in the process of adjusting to a different environment.
“Some students are better at reaching across cultures and being effective communicators in ambiguous situations,” continues Abrami, who led the China IXP. “Others get very frustrated. The IXP has a cross-cultural learning aspect to it that you can’t duplicate in the classroom, which is very much a part of being a global business school. That doesn’t mean putting a U.S.-born student in the Paris office of Goldman Sachs. It’s immersing students in situations with local people who are locals in every sense of the word and letting the students figure out how to execute a project.”
Days 1 & 2: Zapotec Villages
We arrive by van at the Santa Ana del Valle town square on Saturday morning. There’s a basketball court; a small, local history museum; a church; and a rug market. All’s quiet. Earlier, at our hotel in Oaxaca City, local activist Gustavo Esteva, a founder of the Universidad de la Tierra in Oaxaca, gave us a crash course in Zapotec culture, a way of life for the area’s indigenous people who first settled the Oaxaca valley thousands of years ago. In his talk, Esteva stressed concepts like “we-dentity” and the power of community in the face of an inefficient, sometimes corrupt, local government. Santa Ana del Valle, for example, provides many of its services (such as policing or maintenance of the church and museum) through a labor cooperative made up of the villagers themselves: Every individual volunteers for a two- or three-year term to keep the whole community functioning smoothly.
We also learn that the Zapotec sense of time comes from the sun, not a watch. It’s a difficult adjustment to make from our overscheduled lives back in Boston, where various electronic devices keep us connected and on task throughout the day. Here, the agenda is less structured. Most villagers survive on sales of handmade rugs and subsistence farming. But there’s also a tension in the village between a communal way of life and external pressures. With an estimated 50 percent of residents working in the United States, remittances have become an expected supplement to many family incomes, even as the U.S. economy worsens and many immigrants return.
Toting sleeping bags and a change of clothes, we set out on foot to explore the village, stopping now and then to drop off students with their host families. Later, we gather with locals to learn about every aspect of rug weaving: cleaning and brushing the wool; pulling and spinning it out into yarn; coloring it with plant- and insect-based dyes; and finally, weaving it into the beautiful rugs that hang in the market. There’s plenty of good humor on both sides as students attempt the deft, precise movements the process demands.
After a full day in the village, we’re all left with an unspoken question: How does this slow, labor-intensive way of life jibe with an MBA’s view of the world? Or, to put it more bluntly, what’s the takeaway?
“Rufina, my host mom, lives in a house with a courtyard, a Ford Explorer, a full kitchen, and running water. Not too rough and definitely not what I expected,” writes Michael Newton (MBA ’09) in his journal, a requirement of the Mexico program. “Time seemed to move very slowly,” observes Stephen Chan (MBA ’09), “and when I asked my host family what they were planning to do in the context of time lines and schedules, I realized that my tendency toward accomplishment and ambition didn’t seem to match with my family’s outlook on life.”
As is so often true in the HBS classroom, there are no hard and fast lessons or definitive answers. But somewhere in the two-day span we spend talking with villagers, sharing their food, and sleeping in their homes, perceptions shift. It’s one thing to read a newspaper article about the impact of immigration on the Mexican family and culture. It’s quite another to observe an almost total absence of 20- to 40-year-old men and women around the village, or to experience the hard labor that falls on those left behind when it comes to simple needs like getting and preparing food — a task delegated primarily to women, noted Lauren Margulies (MBA ’09).
“Development doesn’t look like what I thought it would, but I have learned, once again, that people are so much more varied and interesting than what I could imagine on my own,” writes Margulies, who worked on improving health-care systems and rural economic development in East Africa before coming to HBS. “On a professional note, people will tell you what products, services, and goals are important to them; you just have to constantly, tirelessly listen to them.”
Sunday night, we say goodbye to our host village families and convene for dinner in the town of San Pablo Etla, at the home of HBS professor emeritus Jim Austin and his wife, Cathy. It’s a welcome opportunity to swap stories about our experiences in the different villages and reflect on what we’ve seen while touring the Austins’ gardens, which provide vegetables to the local markets. More than a few students also drink a glass of mescal and eat some grasshoppers, ensuring (according to local lore) that they’ll return to Oaxaca one day.
Day 3: Oaxaca Site Visits
During our village stays, faculty leader and HBS senior lecturer Michael Chu has asked us to observe and think about how villagers take care of the basics of everyday life: housing, food, income, water, health care, etc. Now, back in Oaxaca City, we’ll divide into smaller groups for a full day of site visits, each focusing on a different track (water, microfinance, and retail, for example), with the goal of identifying a viable business opportunity to present to the group that evening. Intrigued by the sight of a large, sterile-looking housing development not far from Santa Ana del Valle (and the villagers’ strong negative reactions to it), I choose “housing” and head out with Camille DeLaite (MBA ’09), Vibha Kagzi (HBS ’10), and our translator, Ricardo Paulo.
Our first stop is in an area outside Oaxaca’s city center, where we meet a woman and her two grandchildren, home today due to a teachers’ strike. The story of how she built her house, dug a well, and fought to get electricity (at one point giving most of her savings to a government official) is an epic tale that spans many years and is surprisingly typical. Less than 10 percent of Mexican homes are financed with mortgages; most people still inherit their homes, build them by hand, or buy them with cash. Obtaining clear title to land and gaining access to basic services such as sanitation, water, and electricity can pose challenges for potential homeowners, too. At one point, our translator simply puts his head in his hands and swears as he struggles to keep up with the convoluted account.
Throughout the day we visit other Oaxacans in their homes and listen to their stories. Each demonstrates the sharp contrast between housing markets in the United States and Mexico, where demand for affordable homes and the loans to finance them significantly exceed supply, and the availability of basic services is far from a given.
During all of these visits, Camille and Vibha pepper our translator with questions, gathering as much information as possible about the particulars of home ownership. “We spent much of the day being fascinated by what we were seeing — then it came down to preparing something concrete,” says Camille. “Because we didn’t know anything about the market beforehand, we spent a lot of time figuring out the different classes of incomes and what funding mechanisms were out there.” As the day wears on, the pressure mounts to boil down everything they’ve seen and heard into a succinct, viable business opportunity.
In the end, Camille and Vibha propose a lending vehicle to make loans available to the many millions of Mexicans who work outside the formal employment system and therefore do not qualify for Infonavit, a government loan and public housing agency that grants more than half of Mexico’s mortgages and is funded in part by a 5 percent payroll tax. Their idea is validated in a talk back at the hotel given by Juan José Gutiérrez Chapa, a Oaxacan with deep experience across the private, nonprofit, and public sectors who is the founder and chairman of FOMEPADE, a financial institution that offers consumer and housing credit.
“The fact that we could actually talk to the people and look around in their houses was incredible,” remarks Vibha. “It gave us a real sense of the situation and also provided some perspective on how things look now as opposed to fifteen years ago, before they had access to basic services like water and electricity.”
“For students, the IXP experience offers that magic combination of understanding something at the gut level and the analytical level,” observes Chu. “By seeing the world a bit differently, they also see themselves, and think about their careers, a bit differently.”
Days 4 & 5: Mexico City
After an early morning flight to Mexico City, we enjoy a day of sightseeing, taking in Diego Rivera’s murals at the National Palace, visiting artist Frida Kahlo’s house, and touring the vast National Museum of Anthro-pology. It’s Día de los Reyes (Three Kings Day), a national holiday, so Mexico City’s infamous traffic isn’t too bad; even better, the skies are so clear that we can see the mountains from our tour bus.
The next morning we visit the impressive headquarters Compartamos Banco (CB), a microfinance institution providing loans to rural women in Mexico. Students on the microfinance track in Oaxaca interviewed some of CB’s long-term clients in its Crédito Mujer program; at our debrief meeting it quickly became clear that many questioned the organization’s high lending rates and the program’s ultimate benefit, since many of the women had not been able to substantially grow their food and crafts businesses or greatly improve their quality of life over the years. Now, with open access to Carlos Labarthe and Carlos Danel, the company’s co-CEOs, they can dig a little deeper. The students pointedly but diplomatically inquire how CB can create positive social change with a program that charges annualized lending rates as high as 78 percent and offers no support or business guidance to a largely uneducated client base.
“It’s in our hands to provide an opportunity, not an X or Y outcome,” says Danel. “We believe in people’s freedom to be the architect of their own lives,” adds Labarthe. “The level of development each person has is very different.”
Founded in 1990 as a nonprofit, CB became a private, for-profit institution in 2000 and issued a controversial IPO in 2007, raising $458 million. Many, including Nobel Peace Prize–winner Muhammad Yunus, have accused CB of making a profit at the expense of the poor, passing most of the earnings on to shareholders rather than lowering interest rates. With just over 1.1 million clients, 98 percent of whom are women, CB enjoyed a net income of about $73 million in 2008. According to Labarthe and Danel (aka “the two Charlies”), a high profitability rate is necessary to convince investors to take a risk on a relatively unknown bank; it’s also the surest way to gain access to capital, quickly scale their model, and effect the greatest social change.
The discussion continues over lunch, with many students ignoring plates of sandwiches in favor of one-on-one conversations with CB executives. Some come away enthused about the organization’s model and the two Charlies’ vision and passion; others wrestle in their journals with the bank’s balance between doing well and doing good, even as they acknowledge that CB’s clients are better off than they would be without the loans.
“When you are dealing with a more vulnerable and uneducated population, I don’t think funders can just wash their hands of education and say that they are only providing opportunities,” writes Tamara Heimur (HBS ’10). “On the other hand…I was impressed with the CEOs’ commitment to continually increasing reach and decreasing interest rates. It highlighted the important issue of scale, which not many social organizations are able to achieve.”
After lunch we return to our hotel for a presentation by Eugenio Madero (PMD 71, 1996), vice president and COO of San Luis Rassini, a leading Mexican manufacturer of small components for automobiles. It’s a company that Michael Chu knows well. As a young man, he worked for a firm that partnered with San Luis Rassini when it was a state-owned steel company. Its evolution into a privately owned, global supplier of auto parts is symbolic of how deep Mexico’s transformation has been over the past twenty years. “In that sense, the IXP is an intellectual journey for me as well,” says Chu, who grew up in Uruguay. “Seeing how dramatically San Luis Rassini has changed was incredible. It makes you think about the factors that have contributed to that change and wonder what it means for the future.”
The conversation switches from established firms to entrepreneurship at an evening event with HBS alumni, followed by a panel discussion moderated by HBS professor Bill Sahlman. “To be an entrepreneur in Latin America requires a certain amount of lunacy,” says Ralph Toussieh (MBA ’94), founder of Fidelity Marketing, citing the region’s bureaucracy, crime, corruption, and lack of resources. “We don’t have a culture that rewards risk. But jump in, it’s fun, and the adrenaline keeps you strong.”
Gerardo Ruiz Maza (MBA ’01) sees a huge opportunity in Mexico’s housing market. His firm, Grupo Módulo Progresivo, has seven small, low-income housing projects in Mexico City. Obtaining construction permits, he says, is often the most difficult part of what he does, but “you learn a lot. Scale as much as possible,” he advises. “It’s easier to survive challenges when you’re bigger.”
Carl Rianhard (MBA ’85) describes growing up on the inside of Mexico City’s walled, upper-class society. As president of OpenTec, an e-learning enterprise, he sees the Internet as a democratizing force that could improve his country’s competitiveness in the world economy. “Mexico has a huge number of people who work in the informal economy,” he observes. “We have plenty of entrepreneurs; some have education, and some don’t even realize they’re entrepreneurs.”
Sahlman remarks on the fact that it takes thousands of 400-person companies to change the structure of a country’s economy; Àlvaro Rodríguez-Arregui (MBA ’95) agrees. As cofounder and managing director with Michael Chu of IGNIA, a venture-capital firm based in Monterrey that invests in bottom-of-the-pyramid (BoP) markets, Rodríguez hopes to help make that shift happen. “The future of Mexico will not be built by existing large corporations,” he observes. “Unless we incorporate the poor into our way of thinking, we will not have the market we desire.”
Days 6–9: Monterrey
The next stage of the IXP offers a dramatic contrast to our first few days in Oaxaca. We’ve traveled from one of the poorest states in Mexico to its richest, Nuevo León; just a few hundred miles from the Texas border, its capital, Monterrey, even looks a bit like the United States, complete with fast-food chains and high-end malls. It’s a long way from our stay in the Zapotec villages.
The companies we visit — Sealed Air, Femsa (Mexico’s largest beverage company), and ALFA — demonstrate the diversity and scale of multinational and Mexican corporations with a presence in the global marketplace. At ALFA’s Nemak manufacturing plant, we tour the R&D lab and walk the factory floor to get a better sense of the technical and operational expertise behind the world’s leading manufacturer of aluminum auto engine heads and blocks. As one of the four businesses that make up ALFA, Nemak employs 14,300 workers at 29 plants around the world; 2008 revenues totaled $3 billion.
We round out our day back at the hotel, where we hear from Dr. Paulino Decanini Garza, founder of Primedic, as well as its COO, Fernando García. Using an innovative membership program, Primedic charges a small monthly fee of about $6 for access to primary health care and specialists for urban individuals and families with annual incomes of less than $3,500.
This is just the sort of BoP business solution that has drawn many of the students to the Mexico IXP and its focus on emerging markets, so the Q&A session is long and intense, despite the late hour. Shawn Anthony (HBS ’10), currently enrolled in the joint MD/MBA program with Harvard Medical School, asks how adverse selection and the higher costs associated with treating chronic illnesses would affect Primedic’s business model. Garza’s response: By providing preventive care and earlier intervention, Primedic’s network will lower costs compared with a public health system notable for its long lines and months-long wait for referrals.
Rodríguez, cofounder of the IGNIA venture fund, is also present, having invested $3 million in Primedic’s first round of financing. He estimates that returns from IGNIA investments such as Primedic could exceed 30 percent, thanks to the sheer scale of the BoP market. “Alternatives for these customers are so inefficient that it represents a huge opportunity,” he says.
One student asks if IGNIA has much competition in its focus on BoP businesses. Not yet, Rodríguez responds. “We hope to see more people pouring in, because it will mean IGNIA was successful. Poverty is like an elephant,” he adds. “We’ve been trying to kill it with a BB gun, but we need the big guns that come from capital markets.”
The evening ends with a group dinner and margaritas at La Caterina, a local restaurant. The IXP’s formal programming has ended, but the questions and perspectives that have come out of the experience will continue to resonate back at HBS and beyond. Brian Elliot (MBA ’09) describes the IXP as the perfect introduction for B-Bop (Business at the Base of the Pyramid), a spring semester elective taught by Chu and HBS professor Kash Rangan. “The IXP really gave me the inside view of creating businesses and social value in Mexico,” says Elliot. “It shaped my outlook on the incredible potential in BoP markets.”
“Going on the IXP has helped me see my coursework in action — from the processing times I learned about in TOM to the cross-cultural issues in multinationals that we discussed in LEAD and my other OB classes,” observes Tiffany Lai (MBA ’09). “Discussing ‘live’ issues with company leaders, while also meeting other students outside my section, was a wonderful opportunity.”
Chu notes that the IXP builds on MBA Program priorities of educating students to be better leaders and communicators in the context of today’s global reality. “Analytical skills are honed every time a student goes into the classroom,” he observes. “Developing leadership skills often requires a different sort of situation. Being an old MBA myself Chu graduated in 1976, I know that half of the experience comes from the classroom, with the other half happening outside the class in the context of your peer group. The IXP is a powerful extension of that experience.”
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