John Graham: Latin American CFOs have toned down optimism

Posted: July 17, 2012 by jennroig in English, Interviews
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John Graham

John Graham is Finance professor at Duke and director of the Duke’s CFO magazine Global Business Outlook.

(This is the unedited version of the interview to John Graham, originally published by AmericaEconomia on July 3rd, 2012)

In a recent study by PwC Interamericas, it was found that CEOs within Center America and the Caribbean show optimism in regard to future economic outcomes in the region. How would you explain this contradiction in respect to your findings? Did the study assessed the level of relationship between CFOs and CEOs?

As for the sample that refers to Latin America, the largest amount of respondants we had were professionals from South America, some of them from Center america, but a minority.

The important thing we saw it’s that CFOs were not as optimistic as they have been in previous year. So the level of optimism has come down. It’s not to say that the majority are pesimistic, but that they are not as optimistic as they were before. It’s also related that right now the world economy is really turned down.

I think in general the feeling is that they feel that once they can make through the year, things will be just fine.

Among the findings, it’s suggested that there’s a scarcity of qualified professionals, Is this referred to the CFO position?

Not just that, it’s much more. The CFOs who answered the survey tell us how hard time they were having in the companies to find qualified employees and maintaining them, and that can apply to civil engineers, or technicians specialized in working with certain types of equipment, or people specialized in energy related equipment, sometimes even accountants. It is not saying they cannot hire qualified CFOs, they are saying that they are having a hard time finding qualified employees that the company needs.

By the way, it is happening the same thing here in the US. It’s not just in Latin america, neither at the C-level executiuves, it’s manifested in other lines of work maybe more technical.

However, a general landscape shows a high unemployment rate among professionals in the US. And studies show that many foreign companies face problems to find local talent once they approach local markets. What do you think is causing this divergence? Could it be that local cultural standards of education clash with companies’s operative standards so they can’t find the right personnel to fit their demands once they invest in a region? Do you think it’s a lack of homogenized standards?

Why is there a mismatch between the skills employers are looking for and the available talent? I think as the world becomes more and more global, you really need to have people with international experience. For instance, companies from countries with an accounting system once they move to another country where there’s a different system, they will have problems finding the appropriate accountants, because they need people who can operate with both systems, and these are harder to find. What you can find is people that learn in college one system or the other, not both. And that’s part of the problem, regional education vs international business environment.

And again, by the way, this is relevant in the US too, where we have our own accounting system, so we are training people who can operate internationally. That’s one aspect.

The other aspect though refers to the kind of people that work in labors like handling equipent in manufacturing, in mining, or energy production. You don’t learn that in school. You have to be in the place and learn with the equipment. The fact then it’s whether there are training programs available, whether run by goverments or perhaps by the company that hires the person.

In Latin America, when they refer to the problem of finding the people with the right skill. And considering the recession we have here, we asked them what they do about it, how they manage to fill that position. In latin america they companies said they are willing to hire people who don’t necessarily have the top skills but then they train them. I think that can be very good.

The other thing that …… it’s hiring someone that already has experience from working for another company, offering more money, but that’s not a very good long term solution. It might help the company on the short term but doesn’t help the country. That pushes up wages.

In Latin America they increase salary by 9% per year, and that’s a lot. And that makes sense with the fact that salaries are higher in many latin american companies too. But in the US salaries go up about 5% a year……

However, apart from my own opinion, I must say the study is not focused on offering solutions or ways to tackle the problem. We just offer the overview of the scenary. But maybe the solution is enabling choices of training, by the government or by the companies, that train the people according the needed skills that have been already evaluated.

Regarding the negative effect of corruption, what are the most affected countries? Are there some areas more affected than others? what are the most common forms of corruption?

A lot of what they mean it’s paying for licensing, or paying to government for permissions. You might call it a bribe or a gift, but it’s the kind of extra layer that you need to supass in order to start operating a business. That’s without waiting years and years for the permission is granted through the legal or regular channels.

By the way, we found similar responses from India and China as well.

On the one hand, you could say, well that’s the way business are done in that area, but what companies are saying it’s actually cutting the growth, and it makes it more difficult and more expensive to do business. As well, while there are more companies waiting in line for a license or a permit, that also reduces competition, which affects the market because prices go up and quality doesn’t necessarily needs to go higher.

Maybe in the short term you can manage in that way but in the long term it’s damaging.

Lobbying many times is about influencing political and legislative decisions, based on making pressure on behalf of specific groups of insterests. Althoughit is a separate process from the donation to political campaings, it ends up influencing the political decision making. Why is it then so different -from an ethical point of view- from this corruption?

It is a good point. We didn’t actually cover it on the study, but for sure you could say they can have the same effects. You can have a set of companies that push for decisions that can harm another set of companies, and because of that it can result less competition, higher salaries.

But even if there is a lot of common setbacks between lobbying and bribes, for instance, lobby doesn’t affect that much to companies that want to start the business, or it doesn’t affect the local market limiting permits. Lobby operates at a higher level.

Are there any special data you found in the research that you would like to point out?

Well, we asked companies where did they get the funding to be able to run the business or a new business. The number one source is profits, for example the money they make in a year that can use to invest in growth. it’s a standard answer around the world. But specifically in Latin America, a second answer is they get it from banks.

And that’s noticeable, because ten years ago that wasn’t the case. It was difficult for Latin American companies to borrow from banks. That leads to think the banking system has gotten stronger in LA. A good thing. We are not getting the sense either that the turmoil going on in europe is affecting the financial sector in LA, the companies are pretty confident. Even in the US there’s people are worry about this.

This is also a good news for the US, because we are worried we wont be able to export that much to Europe, but it’s good to know we can find a market in Latin America.

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