Reference 4 – a genuine learning experience

Background

Being a co-owner of a trading company in Brazil between 1994 and 2000 was a genuine learning experience.

As I was often in Brazil on business in 1993 and 1994, I had the chance to analyse Brazilian market trends carefully: the country’s economic situation after the introduction of the new currency (Real), its market needs, the standard of living and so forth. The Brazilian currency was strongly marketed and the country wanted to know what the outside world had to offer. I recognized that the opening of the country meant opportunities for ventures.

After several analyses and many trials of different products in the market, plastic housewares were considered the best segment for us. They are imperishable which meant low cost, fast return and low risk.

The challenge

When starting a business in a new country you need to understand the risks, demand the right return and make the right investment decisions. This is particularly important in an emerging market. As this was my first business, I was at the beginning of the learning curve.

I talked to everyone I could who worked in the field, especially potential suppliers, in order to understand how the system worked. My communication skills and instinct were vital assets. All this greenness notwithstanding, I weighed all the variables involved and got ready to run the risk. And so I did.

The business

The products were accepted promptly by the market and price was not an issue. Our company had an exclusive contract for the Brazilian market with our European suppliers. We marketed throughout Brazil’s main capitals via national trade fairs, magazines, TV and potential clients’ in-house fliers. Our major distribution channels were supermarkets, department stores, home centres and convenience stores (network). We had the monopoly of these high quality injected plastics until the competition caught up.

New strategies were developed for local production in Brazil in order to make the products more competitive. Licensing with imported moulds from Europe was chosen as a low working capital arrangement to start with.

Unfortunately at that time our main supplier was in financial distress. It was announced that they would be sold to an American Corporation. The American management was aware of the danger in Brazil after the Asian Crisis and Russian crisis in previous years. They hesitated to make any investment in Brazil. Indeed the Brazilian Real collapsed in January 1999.

It was impossible to continue the import trading business after the collapse of the currency. It would take years to recover even if the Brazilian authorities could get its internal finances in order. By late 1998, the nation’s consolidated nominal fiscal deficit exceeded the level of 8% of GDP.

The learning process

In running the business, I had to learn to deal with all its aspects: costs and expenses, market instability, exchange rate exposure, the legal framework, government regulations, taxes, clients, employees, marketing issues, the competition, operational mechanism, warehouse organization, etc. Even though it was not possible to continue the initial success of the business, I confess that I enjoyed learning every inch of it. It was exciting to connect all aspects of the business into a whole.

The decision to follow a formal education in finance was the continuation of this process. It was not a coincidence that my Master’s Thesis was called ‘Speculative Attacks on the Brazilian Real’.