By: Doctor Gloria

In 1984, Noel Tichy and David Ulrich declared that to revitalize the US economy, the national agenda would have to include the creation of a new style of leadership: one that would no longer lead companies by the traditional paths, but which could transform them so that they could reinvent themselves. This new style was called transformational leadership.

Tichy and Ulrich’s statement 25 years ago is today highly relevant to today’s Mexico. Many of our political, social and business institutions need to be renewed by transformational leaders who can propose a new vision and are able to mobilize all the participants. Only if we reinvent our organizations can we make our economy grow and pull our country out of the rut into which it seems to be catch in a loop..

This article analyzes the characteristics of transformational leadership, its differences with other styles of leadership and its relationship with emotional intelligence, so readers can discover the abilities and skills they need to strengthen in order to bring about change in their organizations.

1. Transformational Leadership

Although Burns was already using the term “transformational leadership” in 1978 to describe certain political leaders, it was not until the 1980s that this new concept began to be studied in the business world. Scholars of organizational behavior were undoubtedly inspired by great directors like Jack Welch or Lee Iacocca, who brought about dramatic changes at General Electric and Chrysler, respectively. Thus, transformational leadership covers primarily organizational changes that are attributed to leadership.

The previous theories of leadership, like Hersey and Blanchard’s “situational leadership,” merely described how a leader should behave in order for others to do what they were asked, and explained how to cultivate the relationship with subordinates, or were focused on meeting goals. In contrast, transformational leaders are concerned more about the changes produced in their followers. Subordinates feel trust, admiration, loyalty and respect for their leader; they are so highly motivated that they exceed what is expected of them. Transformational leaders exercise a profound positive influence on the efforts of their subordinates and in the satisfaction they derive from their work. They are also able to convince their people to not be limited by their own personal interests, but to seek out the good of their team or their organization. To this end, leaders stimulate a higher order of needs and motivations in their employees, for growth, excellence and transcendence.

One influential study on detecting the characteristics of the transformational leader was presented by Bass 1990, in which he identified four basic dimensions of this style of leadership:

Charisma or Idealized Influence

• Provides a vision and a sense of mission
• Inculcates pride, generates respect and trust

Inspiration

• Acts as a model for subordinates
• Inspires vision and uses symbols for focusing efforts to achieve it

Intellectual stimulation

• Stimulates subordinates to re-examine their old ways of working and reconsider their basic values and beliefs
• Assigns interesting tasks and proposes challenges
• Encourages subordinates to resolve problems using their own judgment

Personal consideration

• Acts as coach and mentor
• Provides continuous and significant feedback for the subordinates development

If we analyze these characteristics of transformational leaders, we see that the first thing they do is to develop their vision for the organization. They then motivate subordinates to make this vision their own and to do everything they can to make it a reality. At the same time, they earn the respect and admiration of their people, they train them, and they reward them for outstanding results.

Other Characteristics of Transformational Leaders

Since Bass’s original studies on transformational leadership, there have been numerous other scholars who have researched the topic. One of the most recent was carried out by Sayeed and Shanker in 2009, in which they found the six factors or dimensions that characterize transformational leaders. These six factors do not refute Bass’s dimensions, but rather enrich and broaden them. In effect, they offer a more complete set of characteristics to describe transformational leaders. The characteristics are so clear and precise that they serve as a guide to the abilities and competencies that we should cultivate if we want to bring about organizational changes.

These six qualities of transformational leaders are as follows:

• They are resolute and empowering of their subordinates. They may take risks and are able to question the status quo in the organization in order to achieve a higher good. They also give their employees autonomy and authority to develop their fullest potential.
• They motivate their team about the importance of their work. Transformational leaders are passionate about their work and encourage the same attitude among their subordinates. They are also generous and rewarding those who obtain extraordinary results.
• They are visionary. Transformational leaders propose a vision of what they want to achieve in their organization and persuades employees to adopt it. Leaders communicate clearly what needs to be done to materialize this vision, and they know how to direct and channel the group’s energy in that direction.
• They look toward the future. Transformational leaders are focused on the future, and direct their energy toward reaching where they want to be instead of regretting the errors of the past. They also refuse to be boxed in by the present. Transformation and the changes they want to achieve in the organization become a challenge for them.
• They are innovative and unconventional.. Transformational leaders are not conventional, and they do not follow the old rules; they try to do things in a new way, things that have not been done before. At the same time, they conceive new ideas and remain at the forefront of their organization.
• They are results-oriented.This means not just working intensively but in achieving the expected results in the organization, like increased profits, opening up new markets, new product launches, etc. They make decisions based on their intuition.

2. Transactional Leadership

Transformational leadership is different from the transactional leadership that is so commonly found in Mexican organizations. Transactional leaders get their followers to do what they ask by means of rewards and punishments. Inspiration, trust and admiration are irrelevant to this style of leadership; in contrast, power and influence are exercised in quasi-commercial exchanges between the leader and the subordinate, which are characterized by the following philosophy: “you scratch my back (loyalty, support, results, sales, etc.), and I’ll scratch yours (incentives, etc. rewards, promotion, favors, etc.); but if you don´t meet my expectations, I will scold and punish you.” Obviously, there is nothing charismatic about this kind of leadership, because it only relies on the authority vested in the position.

Transformational and transactional leadership are not mutually excluded. Leaders can obtain a commitment to achieving a mission, and when the subordinate achieves excellent results, they may generously reward them. Or, on the other hand, if they do not reach the stipulated goals, they may be re-trained or even dismissed. If this sounds familiar, it’s because it is the style that Jack Welch exercised for 20 years at General Electric, during which time he introduced changes that enabled the company to achieve extraordinary results, like prospering in international markets, dramatically improving product quality and obtaining outstanding financial results. Of course, the road behind was littered by those who could not keep up the pace..

3. Laissez-faire Leadership

Other studies on transformational leadership (Yammarino et al., 1993; Bass, 1997; Gardner and Stough, 2002) compare it with a third style of leadership, called “laissez-faire leadership,” which is characterized by simply doing nothing, and allowing subordinates to do what they want. This is not a style of leadership per se, but rather the absence of leadership, since these leaders do not accept responsibility or make decisions. They are not “there for” their subordinates nor do they provide any support or guidance.

Table 1 Compares the three types of leadership.

4. Transformational Leadership and Emotional Intelligence

To better understand the influence that emotional intelligence can have on transformational leadership, we should begin by explaining what it is and what fields it encompasses.

Briefly put, emotional intelligence is the capacity to manage feelings, both our own and those that arise in our relationships with others. We may cite three definitions:

Emotional intelligence is the capacity to appropriately manage our own feelings and those of others, and use them to guide thought and action. (Salovey & Mayer, 1990)

It is knowing how to control our emotions and skillfully manage our relationships ( Goleman, 1995)

It is knowing how to enrich and complement the left side of the brain with the right. It is reason with emotion ( Robles, 2002)

In 1983, Howard Gardner was the first to refer to emotional intelligence as a type of intelligence different from the rational, but it was Daniel Goleman who popularized the term in his book Emotional Intelligence in 1995. The main contribution of this work was an exhausted bibliographic review of the role of emotions in the life of human beings and an explanation of how the nervous system works in different emotional states.

Goleman’s book was so well received that corporate managers asked to apply its concepts in the business environment, particularly in the fields of leadership and teambuilding. After that, Goleman also wrote, among other works, Working with Emotional Intelligence (1998) and Primal Leadership (2002). The purpose of this last book was to teach executives how to learn to lead with emotional intelligence.

Goleman’s books entice readers with their logical ideas and their apparent congruency and validity. But the author failed to prove the veracity of his assertions with systematic studies, especially in the workplace.

Among the systematic studies that have been carried out about emotional intelligence in the workplace are the works of Palmer and Stough (2001) who devised a model of five factors that determine efficacy in managing emotions in the workplace:

• Recognize and express our emotions. This includes the ability to identify feelings and emotional states, as well as the capacity to communicate our feelings to others.
• Emotions that guide cognitive aspects. This factor refers to the extent to which emotions and emotional knowledge influence decision-making (for example, the use of intuition) and problem-solving.
• Understanding others’ emotions This aspect of emotional intelligence consists in the ability to identify and understand the emotions of others.
• Emotional management. This is the capacity to manage positive and negative emotions, our own and those of others.
• Emotional control. This factor has to do with the ability to handle negative emotions on the job, like anger, stress, anxiety or frustration.

Lisa Gardner and Con Stough, published another study in 2002 on emotional intelligence in the workplace. The study was conducted among 110 high-level managers and aimed to determine whether there was any relationship between the level of emotional intelligence and the three types of leadership mentioned in Table 1: transformational, transactional and laissez-faire. The results indicate a strong positive relationship between transformational leadership and the total emotional intelligence point score. Furthermore, there was no significant relationship found between transactional leadership and emotional intelligence and, in contrast, there was a negative correlation between the laissez-faire style and emotional intelligence, which means that the more emotional intelligence a leader possesses, the less he or she is likely to use the laissez-faire style of management.

The results presented by Gardner and Stough are fairly logical, because if executives intend to make changes in the organization, they must be able to transmit their enthusiasm and commitment to the vision. If they want to become an inspiration and motivation for change, they must know how to use the positive emotions embodied in the following slogan: “it can be done, and together we can do it.” Transactional leaders do not use emotions as a means of influence, they simply grant rewards and punishments. The power of this type of leadership is coercive, not inspiring. Finally, it is obvious that laissez-faire managers give up all intent to be an inspiration, stimulus or motivation. They lack empathy, because they are unable to perceive the needs of their subordinates. Instead of transmitting enthusiasm, trust and recognition, they leave them in a motivational emptiness or they are so clumsy, emotionally speaking, that they express the opposite feelings to what their employees expect; for example, they appear cold and distant when they should show enthusiasm and joy at the success of their subordinates.

Sayeed and Shanker (2009) conducted an investigation among 139 executives to test the relationship between emotional intelligence and transformational leadership. They found a very high correlation of 0.83 between these two variables. The emotional intelligence factors that most influenced transformational leadership were the following: concentration on problem solving, acceptance, empathy, personal awareness and self-confidence. According to these authors, of the six factors that constitute transformational leadership, emotional intelligence influences three of them: concentration on the future, motivation about the importance of the work, and the drive to be innovative and unconventional. The factors of determination, vision, and results-orientation had little relationship with emotional intelligence.

Conclusions

If executives intend to make major changes in their organizations, whether to renew them, to better meet their clients’ needs, to follow market trends or make them more productive, they would do well to build up their transformational leadership qualities. To do so, they must strengthen the following abilities: they must have a vision, be a source of inspiration, provide intellectual stimulus to employees and take a personal interest in training them. They must also direct their energies to building the desired future, and not lament on the errors of the past. By becoming a model and guide for change, they propose new ideas that break with the old paradigms and question the status quo of the organization. Finally, they should perfect their capacity to understand and manage their feelings and those of others, since emotional intelligence bears a solid relationship with transformational leadership.?

References

• Bass, B.M. (1990). “From Transactional to Transformational Leadership: Learning to Share the Vision”. Organizational Dynamics, invierno.
• Burns, J.M. (1978). Leadership. Nueva York: Harper and Row.
• Gardner, H. (1983). Frames of Mind: The Theory of Multiple Intelligences. Nueva York: Basic Books.
• Gardner, L. y Stough, C. (2002). “Examining the Relationship between Leadership and Emotional Intelligence in Senior Level Managers”. Leadership and Organization Development Journal: 23/2, pp. 68-78.
• Goleman, D. (1995). Emotional Intelligence. Nueva York: Bantam Books.
• Palmer, B. y Stough, C. (2001). Workplace SUEIT: Swinburne University Emotional Intelligence Test – Decriptive Report. Unidad de Investigación en Psicología de las Organizaciones, Universidad de Swinburne, Australia.
• Robles, G. (2002). “Inteligencia emocional: Como mejorar nuestras relaciones”. Dirección Estratégica, núm. 1, año 1, marzo-mayo, pp. 30-33.
• Salovey, P. y Mayer, J.D. (1990). “Emotional Intelligence”. Imagination, Cognition and Personality, vol. 9, pp. 185-211
• Sayeed, O.B. y Shanker, M. (2009). “Emotionally Intelligent Managers & Transformational Leadership Styles”. The Indian Journal of Industrial Relations, vol. 44, núm. 4, abril.
• Tichy, N.M. y Ulrich D.O. (1986). “The Leadership Challenge – A Call for the Transformational Leader”. Sloan Management Review, otoño, pp. 59-68. Reimpreso en: Kolb, D.A., Osland, J.S. y Rubin, I.M. (1995). The Organizational Behavior Reader. Upper Saddle River: Prentice Hall.

By: Alejandro Covarrubias
Citi Banamex

Renata Herrerías Franco
ITAM

Until the last decade of the twentieth century, traders of all financial intermediaries determined benchmark prices of traded financial instruments using their own methodologies and computations. Thus, investors faced the possibility of buying at unfair prices if, at the time of settling the order, there was a disparity between the selling price and that determined by the trader. This problem was even more acute in the case of instruments that required several pricing assumptions, causing potential ambiguities in price determination.

Today, the employment of price vendors is fundamental in the financial markets, particularly in the derivatives and money markets, where pricing is a very complex process. For example, in the futures market , it is necessary to rely on correct prices in order to determine the margin accounts’ balances and, if necessary, execute margin calls whenever balances are below the minimum requirement.

The margin account covers possible price fluctuations of each contract and its adjustment process is known as marking to market.

As for the other financial markets, the price vendor plays a very important role in determining other risk factors such as interest rates, exchange rates and indexes, and stock prices. Information produced by the price vendor is a useful resource of strategic value to all departments with trading activities, which in turn are an essential part of the financial intermediation process. In particular, the department within a financial intermediary responsible for the management of price information is usually called “financial parameters area” and is part of that unit in charge of market risk control.

The creation of price vendors

On August 9, 1999, the Comisión Nacional Bancaria y de Valores (National Banking and Securities Commission, CNBV) issued the rules regarding price vendors; and it was until the year 2000 when three companies were created with the task of providing market participants with the regular and professional services of computation and determination of updated prices for the valuation of financial instruments.

Eventually, the three vendors became just two: Valuación Operativa y Referencias de Mercado, S.A. de C.V. (VALMER) and Proveedor Integral de Precios (PIP). These are two Mexican companies highly regarded, not only locally, but in all Latin America, due to their contributions in the production of information and financial instruments pricing.

The concept of price vendor was already indispensable in the twentieth century, given the fast development of information technologies experienced worldwide, particularly in the last three decades. In particular, the Bolsa Mexicana de Valores (Mexican Stock Exchange), in the 90′s experienced a rapid transformation, due to the adoption of advanced systems, the development of new financial instruments, and the standardization of its operating processes to international standards. Such process allowed the surge of more complex financial instruments in turn requiring sophisticated pricing processes. For example, the growth experienced in the mutual funds market made necessary, not only the professionalization of price generation, but also the inclusion of a third party that would evaluate in an impartial way, the determination of fair prices.

The price vendor’s evolution

With time, price vendors have improved their operations, by implementing quality control management and making sure each task is performed properly, following quality standards and delivered on time, thus satisfying and exceeding their customers’ expectations and requirements.

Among the products and services provided by price vendors we find: the daily reporting of relevant and complementary information for pricing, performance measures, tools for comparative analysis of returns, as well as other useful inputs and indicators. In addition, they produce valuations and related information of all instruments traded in the Mexican financial market, international markets and private offerings required by any intermediary or any commercial or industrial enterprise. Price vendors also provide financial institutions with information relevant to their integrated risk management processes in areas such as market, credit, operational and liquidity risk.

The permanence and strength of existing price vendors is due to their joint ventures and acquisitions. PIP originated as an association between Enlace Int, S.A. de C.V., a well-known interbank broker and COVAF, S.A. de C.V., a leader in the valuation of Sociedades de Inversión (mutual funds), SIEFORES (pension funds), and institutional portfolios. VALMER is the product of an alliance between the Mexican Stock Exchange – which provides integrated services for the operation and development of financial markets -, and Algorithmics Inc., a worldwide leader in risk management solutions, and the acquisition in 2007 of a Brazilian company called Risk Office, a financial risk specialist.

The influence of price vendors is noticeable in Latin America. PIP has a presence in Colombia, Costa Rica, and Peru, while VALMER expanded to Brazil, Chile, Colombia, Costa Rica, and Panama.

The current position and importance of price vendors is also due to the high degree of customer involvement. When a new price requirement or risk measurement process is to be established, representatives of both the client and price vendor participate actively.

There is also the possibility of “price objection”: before a given piece of information becomes official, the client has a window to demonstrate to the price vendor any discrepancies in prices, rates, and risk factors that are relevant in the valuation and are also monitored by the client.

Each price vendor offers competitive advantages that distinguishes them. The financial intermediaries market also has allowed them to develop a balanced positioning. Given that there is no unique vendor, a monopoly of price information and its consequences are averted.

PIP and VALMER employ the financial body of knowledge available to stock market participants and any discrepancies are explained by the degree of specialization required to attend to each type of clients’ needs.

Considering the most important financial intermediaries in the Mexican market, we can observe that PIP works with Banamex Citigroup, while VALMER works with Bancomer.?

Conclusions

The experience generated by the standardization and fair-price determination will be beneficial to the corporate and business sectors. Listed companies are facing important changes since, starting in 2012, they will be required to report under IFRS. In consequence, these companies need standardized prices for those financial instruments or derivatives that must be filed to the authority in financial reports. Furthermore, these prices must be obtained from a price vendor. Relying on world-recognized price vendors gives security to investors and helps markets operate in a more efficient and fairer way for all their participants.

Bibliography

• Comisión Nacional Bancaria y de Valores, Disposiciones aplicables a los proveedores de precios, 9 de agosto de 1999, México.

• www.pip.com.mx
• http://www.valmer.com.mx/VAL/quienes_somos.html
• http://www.valmer.com.mx/VAL/servicios.html
• http://www.valmercostarica.com/CR/PDF/PRESENTACIONVALMERCR_pagina.pdf

By: Carlos Amtmann

“Therefore every scribe which is instructed unto the kingdom of heaven is like unto a man that is an householder, which brings forth out of his treasure things new and old”

Matthew 13, 52

I. Background

When Mexico legislated labor conditions in the Mexican Constitution of 1857, the nation introduced the right to freely choose a trade or profession, the obligation to remunerate, banned child work at an early age and stated a commitment “to pass laws improving working conditions and rewarding those who excel in science and arts”.

Years later, the law incorporates ideas from abroad. Article 123 of 1917 Constitution regulates working relations and thus incorporated those European social principles from the 19th century: working hour limits, banning child labor, establishing mandatory holidays, maternity leave, minimum wages, and the right to form unions, among others.

The Mexican Institute for Social Security (IMSS) was created in 1948 as a federal replica of those health and retirement services established by some entrepreneurs from Monterrey. It encompasses health services, maternity leave, and retirement. Employers contribute with 7.7% of salary while employees contribute with 1.3%. Unfortunately, IMSS administrators did not provide for proper pension reserves, causing a deficit which triggered a change in the pension system during 1997. Now the system is based on individual accounts, administered by private institutions (AFORE) where out of the 6.5% salary contribution is paid by the employer (5.15%), the employee (1.15%), and the remaining covered by the federal government in a 24-year-labor term.

While that established a cap on the IMSS liability, funds projections are still not encouraging. At some point additional money will need to be added to the system.

Another pressing problem, however, is that the working population in Mexico delists frequently by changing into informal jobs. The actuarial projection is that a young man beginning a working career today will be part of the social security systems for only 12 years during his projected labor life. That number falls to 9 years for a woman. Currently, 42% of the economically active population contribute (18.3 million out of 44) to the IMSS, excluding the 16.2 million Mexicans who live abroad. Mexico would need an average real GDP growth rate of 4.75% for 30 years to bring 80% of the working population into the social security system.

Current labor law (from 1970) introduces the housing issue. This law has interesting consequences. A fund is created with employers contributions equal to 5% of workers’ salaries. It is administered by the Institute for Workers Housing (INFONAVIT). It´s board is made up of by representatives from the government, unions and employers. It covers both construction and financing.

In the beginning it had a poor performance, especially at the mercy of authoritarian and financially undisciplined governments. Major construction projects and preferential treatment in the assignment of apartments were awarded by bribery. But in recent years it has received awards for its systematization. More transparency avoids bribes and has kept the construction industry in black numbers, raising its productivity. Since inception it has financed 6.1 million dwellings, representing 24.7% of Mexican households.

Last year corporate social value added by this system has gone one step beyond. INFONAVIT and the Mexican Institute for Competiveness have ranked cities and their urban development areas by means of indicators ranking them by both, quality of life and an increase in home value that housing projects may obtain. The best ranked are granted lower interest rates for construction purposes and for financing the house purchase by credited workers.

The current labor law protects workers from unjustified layoffs. In such a situation, the employer must pay compensation equal to three months salary plus 20 days for each year employed. Plus an extra 12 days per year employed, with day´s pay value capped at the equivalent of twice daily minimum wage. All these originate liabilities for employers starting at the moment of hire.

The 1970′s law also included a profit-gain distribution clause (10%). This benefit is in no way related to individual productivity, for it has been designed half in accordance with salaries level proportion and hay by days labored. Nevertheless, only 30% of companies actually pay it. One way to bypass it is by hiring the employees under a different company, hereby eluding the issue of certain labor related liabilities and in occasion lowering contributions to IMSS.

II. Benefits and Challenges Posed by Stability

After a substantial effort, Mexico’s Central Bank became an independent entity, inflation rates dropped, democratic governments improved transparency, reduced red tape, and lowered public deficit. The result has been an increase in currency reserves, inflation control, an increase in industrial productivity and construction, as well as an increase in purchasing power, albeit minimum wages are still lagging.

Nevertheless, Mexico is a developing country evolving from an efficiency driven economy in transition to an innovation driven stage of development. Gini’s index dropped from 53% to 49.3%, ranking Mexico from place 107 to place 100 out of 135 countries. Its GDP per capita is too low for the 13th biggest economy in the world. Of OECD countries, it ranks last in working mobility and ranks 115 in use of talent. Although an ancillary benefit of such low mobility is the reduction in the unemployment rate to a level of 1.8% since the 2008 downturn, compared to 2.1% from that of OECD countries average.

But there is hope. Wages schemes have been modified. We have opened markets with innovative remuneration schemes that establish Worker Productivity Funds based on dividends from the employees’ life insurance policies. These funds, a complement to those from AFORE´s, are delivered when workers leave and are a cushion to the aforementioned labor liability.

III. From Good to Even Better

We anticipate changes in labor law requiring productivity plan registration by which workers are compensated in this area. To this goal, it is advisable that companies set strategic goals, orienting those goals to those of the workers’ at an individual or group level, or even better, combining them at the level of business logical processes.

After evaluating worker performance, employees would receive a bonus according to the respective score and amounts allocated by the company, usually 20% of quarterly salaries. As stated the law considers the profit-gain distribution, but beneficiaries are limited, since it is common practice that the employer is a separate entity. In consequence, it is preferable that reforms in labor law establish the obligation of measuring a productivity index and the obligation to settle a percentage of after tax gains as a basis for productivity bonuses and then, distribute them according to an evaluation of individual performance. With this, compensation is settled in terms of productivity and innovation of the whole workers unit. From that amount the unit opens a wider possibility, that of contributing individually in a percentage of the productivity pay to a fund payable in case of leave or in that case, for an economic need during recession times, loan compensation or even as a one-time contribution to AFORE´s.

Such measures have been adopted by medium-sized companies as Papelerías Lozano Hermanos, Carvel Print Serigraph, some Toyota dealerships and pharma labs. Similarly Medix, Banco Compartamos and Compusoluciones1 go beyond law requirements attending workers’ vital and personal needs. By recognizing and rewarding employees’ actions, they complement the labor gains built through the years.

Between the lagging working conditions in Mexican haciendas in the XIX century, the extreme conditions experienced today at Chinese factories (shifts of 12 x 12 hr. called “hot bed factories”), the inflexibility of our labor law and the “laissez faire” in which an employee can be dismissed without compensation, there is a common ground: it´s not a point in between, it´s a place, a common ground where it must be possible to build and raise the value for which businesses contribute to society.

IV. Corporate Social Value (CSV) or Corporate Social Responsibility (CSR)

The creation of social business value should overcome corporate social responsibility when orienting companies’ investments. CSR programs are focused on reputation and they hardly maintain a connection with the business core; therefore they make it difficult to justify and maintain long term commitments. In contrast, CSV incorporates company’s profitability and its competitive edge. It gathers unique resources and experience in order to innovate and create economic value when creating social value, henceforth having a positive impact even to potential externalities..

What has been accomplished until now, sustainable housing projects, formation of retirement funds, health services and profit-gain distribution is similar to the Corporate Social Business Value approach suggested by Porter and Kramer1, destined to a more prosper society, with purchasing power, more equal, and able to innovate.

Mexican society must define what goes first: sharing the fruits of productivity by raising salaries, thus lowering risk and interest rates, in accordance to business goals or to remain in cosmetic philanthropic acts of social responsibility. It seems that the former, CSV makes more sense.?

References

Carlos G. Amtmann y Carlos Osuna (2010, diciembre). Estimular el pago por productividad: Un acuerdo nacional para el desarrollo, Dirección Estratégica 35; .

Michael Porter y Mark Kramer (2011, enero-febrero). Creating shared value. Harvard Business Review.

By: M.C. Benito Revah

Valencian paella is without a doubt a dish worthy of a feast. In order to taste its richness, it must have the exact amount of ingredients of the best quality. Since its preparation takes time, care must be taken in integrating all the ingredients at the exact moment, because it is vital in order to achieve the desired result.

In a recent talk I had with Jacques Rogozinsky, Ph.D. in Economics, he explained that in order to achieve sustained growth in uncertain economic times, all the “ingredients” must be present in precise portions in order to achieve our desired outcome, and that one special ingredient “makes all the difference” between a common and ordinary rice recipe and a “delicious paella.”

Upon reflection on his economic theory, I immediately visualized the whole process involved in mergers and acquisitions, from its components in the beginning to the professional care, which is required in all its aspects, to a successful closing.

There are a lot of rice recipes and anyone with a basic knowledge of cooking can handle them; likewise in business, when closing a deal, we think we are capable and know how to do it, however when faced with a business deal requiring more than simple negotiation, we must seek the help of experts in the field.

In mergers and acquisitions, once the decision to acquire a business is made, it is important to supervise carefully the various stages and have the exact ingredients to achieve a successful process.

One such ingredient is the financial expert, who is charge of the business’ initial valuation; he must have access to updated financial information, expected cash flows, the growth projections of each business unit, appropriate rates to discount the cash flows, and must perform calculations requiring professional judgment as in the case of the Weighted Average Cost of Capital.

Another essential ingredient is the auditor’s job, which is external and independent from the parties involved since he is in charge of analyzing the acquired assets and the company’s assumed liabilities. His professional opinion and our belief in his capabilities give us a degree of certainty regarding the acquisition’s figures.

An additional ingredient is the banker, responsible for providing financing at the right amount and time and at an affordable cost. He is involved with all the interested parties in the transaction and will be charging the agreed amount.

Another necessary ingredient in this process is the tax expert. He is in charge of implementing the best strategy to finalize the negotiations minimizing the tax burden, but always in compliance with the law. He is responsible for suggesting the best way of closing the negotiation, namely through a merger, a demerger or the exchange of shares between the interested parties. Furthermore, he is responsible for doing the complex capital allocation calculations and the tax net income accounts in order to optimize tax reimbursements.

This recipe is not whole without its “legal-corporate” ingredient. This team of professionals is in charge of drawing up the contracts, writing the clauses, setting the penalties in case of breaching, and providing assurance to all parties.

However, the main ingredient, which brings “color” and a “savory” taste to the paella is without doubt, the saffron, i.e. the Public Accountant. This professional incorporates perfectly all the abovementioned ingredients thereby resulting in a delicious dish and successful business transaction. That is to say, he possesses a vast knowledge of corporate finances, has independent external auditing experience, coordinates the cash flows between the seller and the buyer, has expertise in the tax regulations regarding acquisitions, implements the tax strategies with the least burden, and finally analyzes every clause in the agreements.

Being a leader in merger and acquisition teams, he possesses a strong work ethic regarding confidentiality in business negotiations, establishes the terms of these negotiations in a fair and just manner for both parties involved, and does not disclose any relevant information knowing that in doing so the rice becomes “clumpy” thus ruining the paella for clients.

Saffron is the most important ingredient in our paella, and without it we are left with “common and ordinary rice.” ?

By: Carlos Mondragón

Despite being unfamiliar to the consumer market, Coltan is a mineral of such strategic importance in the industrial world that companies refer to it as the “indispensable magic dust.” Tantalite* and niobium are extracted from Coltan making it one of the most sought minerals since 1990 due to its unique features: rapid conductivity, resistance to strong electrical charges and high temperatures, capacitance (storing electric charges temporarily and releasing them when needed), and resistance to corrosion. Its main uses are in cellular phones, computers, electronic games, ballistic missiles, the aerospace industry, and intelligent weaponry. It is utilized in microprocessors, batteries, miniature circuitry, and capacitors. Coltan is so important that the Internet could not work without it.

Its price is as high as its demand. It is extracted in a primitive manner from open-pit mines since it is found in the subsoil less than a meter deep. Eighty percent of its world supply is found in the Democratic Republic of Congo, and the rest is found in Australia, Brazil, Thailand and far lesser amounts in Canada, Ethiopia, Malaysia, Nigeria, and Rwanda.

Congo is one of the richest countries in the world in terms of natural resources possessing gold, silver, diamonds, oil, cooper, cobalt, tin, and other minerals in its subsoil. In order to justify the presence of foreign troops, the Congolese government asserts that it is just trying to defend its natural resources with the help of Zimbabwe, Angola, and Namibia. In contrast, the northern and eastern regions are occupied by two large rebel movements and thousands of soldiers from two bordering countries: Rwanda and Uganda.

Wars over natural resources are not unknown in the Congo; in fact, in Africa they usually revolve around the sale of “blood diamonds.” Their earnings are used by the leaders of Angola and Sierra Leone to finance their revolutions using an international mafia trafficking network of arms, drugs, and raw materials. Despite an embargo imposed by the UN in 2000, the sale of blood diamonds continues, and they are unloaded in important stores in Antwerp, Geneva, New York, and Tel Aviv. Discovering their origin is practically impossible.

Great national ecological reserves have been ravaged and invaded for coltan extraction, not only by the Congolese but also by the rebels who overrun the thick forests of the Congolese national parks. One of the major environmental damages to the area is the disappearance of jungle reserves inhabited by gorillas and elephants, which have been endangered species for many years.

Since Coltan extraction poses an international dilemma, major companies in need of this raw material pretend to obtain it from other countries such as Australia and Brazil. However, they actually obtain great amounts of it through agents in the black market in order to meet their needs. The price in which Congolese’ coltan is obtained is lower than the that of other producing countries and due to its great demand it would be practically impossible for Australia, Brazil, Canada, and other countries to satisfy it. Although lacking exact figures, it is estimated that one fifth of Coltan’s global production originates in Congo, but this figure could be considerably higher.

Coltan coming from Congo is often taken as being illegal (stolen) when in fact it is not. Many companies refuse to buy the mineral in Central Africa due to the controversy surrounding its legitimacy, preferring to buy it in Australia or Canada. However, much of the Coltan stolen in Congo is already found in computers, cellular phones, and other electronic devices as we continue to be clueless as to which companies purchased it, let alone its origin.

The U.N. stated in a report at the end of the 1990s that the conflict in Congo revolves around the control, illegal exploitation, looting, and commercialization of its natural resources. Moreover, it is at the heart of the bellicose conflict that results to be so profitable to the large guerrilla cartels. According to the United Nations and other nongovernmental organizations, the illegal coltan mines in Congo are perpetuating the war that involves at least six African nations since 1995. A U.N. panel proposed a temporary embargo of coltan imports and exports to the Congo until the cease of all illegal mining activities, but as of 2011, this embargo has not been enacted.

The numerous reports from different NGOs and even the U.N. accusing Rwanda and Uganda of plundering Congo’s mineral riches has placed some degree of international pressure and led to the creation of black lists of companies operating in the area. Thus, 35 companies, 27 of them Western, were accused of importing coltan and cassiterite, and even the Belgian aviation company, Sabena, was forced to stop its transport of the mineral from Kigali (Rwanda’s capital) to Brussels. Despite these efforts, other alternative routes continue to operate, and a large amount of Congolese coltan is sold as if it were from Brazil or Thailand.

Even Uganda which does not have diamond mines has sold 1,263 million dollars in 2000. It doesn’t have Coltan mines either, yet it exported 70 tons of it in 2005.

The main Coltan mines are found in the Kivu region, east of Congo; this is where thousands of miners work all day to collect the so-called “blue or gray gold”, lacking machinery and basic tools, under subhuman conditions, and receiving a monthly salary of ten dollars. The majority of the miners are children ranging from 10 to 15 years old. They are particularly suitable because of their agility and ease to fit into tight spaces. The children work in a semi-servitude system. The other important group of miners is the Hutu prisoners who opt for a sentence reduction and are paid between 5 to 10 dollars for each kilo of Coltan. For more than a decade, an average of 800 mortal accidents occur daily and, without having exact figures, some estimations indicate that more than 5 million workers have already died.

The Congolese Coalition for Democracy and different guerrilla groups from Rwanda are the controllers and protectors of this region. They have contributed to the growth of an enormous illegal mining industry looting coltan from Congolese terrain. The mineral is trafficked through the black market by a network of dealers and agents to the largest multinational corporations for the manufacture of computers, video games, cellular phones, and medical equipment. Anecdotally, the Japanese company, Sony, had to postpone its launch of Playstation 2 due to insufficient coltan supplies.

Between February 2000 and January 2001, its demand got to a point that the price of a kilo of Tantalite rose from 180 to 950 Euros on the London Stock Exchange. The major manufacturers of mobile phones, Nokia, Ericsson, and Motorola have limited their PR activities regarding this topic stating that they were totally surprised and decided to disenfranchise from the commercialization of Congo’s coltan. These companies claimed that they were not sure whether coltan mining was illegal or not; yet they continue to produce hundreds of millions of cellular phones worldwide.

In May 2001, an Ericsson spokesperson stated that they were investigating the origin of all coltan they purchased and were in the process of discontinuing its use in cellular phones replacing it with ceramic capacitors. As of 2011, it is unknown if Ericsson has actually made such replacement.

It is such a competed mineral that according to the writer, Vazquez Figueroa, “he who possesses Coltan will rule the world.” Its resistance to heat, precise conductivity, and optimal energy storage make this mineral a source of revenue for developed countries and a source of human rights violations for Africa

That is why, although coltan is unknown to most, it can be found everywhere at any time. For example, we are awoken by our cell phone alarm, eat breakfast while watching the news on television, use the car and turn on the GPS or listen to the radio. Almost all electronic devices contain “gray gold.” Wars, environmental damage, child exploitation, and many other human right violations have all occurred because of it.

Since cellular phones have been on the market for many years, there should already be a way to recycle them. Furthermore, an international evaluation system should be established prohibiting the entry of raw materials from shady areas and severely fining those transnational companies that benefit from those crimes against humanity.

Final Observation: 800 miners have died daily in the Congo for more than a decade. Similar to September 11th, the atomic bomb in Hiroshima, and the Holocaust of WWII, the Developed Nations and the international organizations are probably waiting for the conflict in Congo to end in order to “commemorate” it, yet as of 2011, it still wages on. ?

Note:

*Tantalite was discovered in 1802 by the Swedish chemist, Eckberg, and once he realized how difficult it was to analyze this acid resistant metal, he named it after the Greek god, Tantalus, who was sentenced to eternal suffering in the underworld.

References

• Jeffrey, Silva (2001, 21 de mayo). Coltan controversy. RCR Wireless News. Vol. 20, núm. 2.
• Klaus, Werner, y Weiss, Hans (2003). El libro negro de las marcas. El lado oscuro de las empresas globales. Buenos Aires, Sudamericana.
• http://galiciasustentable.org/la-explotacian-del-coltan-saqueo-ambiental-humano-tras-nuestros-telafonos-maviles/
• http://www.neoteo.com/coltan-el-verdadero-precio-del-consumismo-13773

By: Adalberto Mendoza
Director of Market Research at Master Research

Edmundo Ramirez
Creator and Director at Master Research

In Mexico, the word crisis has been part of our vocabulary for many decades. We lack statistics indicating how many businesses close annually due to it, but based on the 4,374,600 businesses reported in the 2009 census and INEGI’s business listing that indicated that 13.6% of small businesses relocated or disappeared, therefore approximately 600 thousand businesses disappeared as a result of the economic crisis.

Signs that you are facing a crisis:

• Loss of liquidity, insufficient funds to buy, invest or save
• Massive staff layoffs
• Increase in business’ defaults
• Slow economic growth
• Lack of consumer confidence

“The best way to face a crisis is to anticipate it: investigate and monitor the market constantly for changes or alarming signs” states Edmundo Ramírez, Director of Master Research.

The Importance of Market Research when facing a crisis

Everyday, businesses must make decisions in a quick but safe manner; however, in a crisis, it is important to have useful and reliable information at hand in order to back our decision making. Market Research is an essential tool to overcome a crisis.

During a crisis, businesses tend to reduce their research budget; however it is vital to implement certain Market Research strategies to deal with this situation as the following:

1. Focus: In a crisis, it is important to have a better understanding of your clients and focus your research on their products, brands, and key niches targets in order to create the appropriate market strategy.
2. Identify changes in consumption patterns: Different consumption patterns are adopted during a crisis and many of these changes remain. Therefore, businesses that can identify and understand the consumers and their patterns will be successful.
3. Take advantage of the opportunities abroad: It is important to study not only the local markets but the international ones. Opportunities can be found abroad (e. g. emerging markets as Latin America or Asia).
4. Make use of new methodologies such as online research:By using online tools to support market research, response time is shortened thus benefiting decision making. In the international market, there is a significant growth in online research increasing by 24% with respect to the total research conducted and it exceeds telephone research, which represents around 20%.Quantitative research represents 20% of online research while qualitative research has just begun to emerge.
5. Analyze consumer behavior closely: It is imperative to know how the crisis is affecting directly the consumer and his buying habits: How is the consumer’s behavior changing? Which new products is he willing to buy? How long and what steps will these new consumption patterns take?

Edmundo Ramirez claims that “Market Research allows businesses know what products and services in their portfolio will agree with the needs of the time and of the future so that they can focus their market strategies on the new trends.”

Businesses that emerge stronger from a crisis are those that understand the consumer’s new desires and values and are able to adjust not only its products and services but also its corporate structure to the new market environments.

Right On The Button: The United States Crisis of 2009

After the crisis in the United States in 2009, 56% of consumers felt that their life style had changed. Luxury items were out of style (sales in the luxury industry fell 15%).

The new American consumer is price driven by the price and not by social status. Brand loyalty has decreased while the sale of generic and name brand products have increased. While curiosity in new products remains the same (albeit a better sense of cost-benefit) we see an increase in research before making a purchase( in the United States after the 2009 crisis there was a sharp increase in the average number of visits made by the same consumer to department stores in order to evaluate 4 to 10 products). High volume purchases have declined while more and more consumers value sales. Price became the key factor in decisions and demand for an innovative product and service is on the rise.

Summary

In times of crisis, due to a general fall in sales, companies will engage in commercial wars pulling out all the stops to get new clients while holding on to their current ones. During this time, it is imperative to conduct Market Research to get a better understanding of the consumer and his behavior patterns which tend to change due to his reduced purchasing power, becoming less active, more thrifty, analytical, and less loyal to brands.

The businesses that will emerge from a crisis stronger are those that adjust and understand their consumers’ new desires and values.

Before making any decisions and proceeding, please take the following advice into consideration:

• Listen to your new consumer: Conduct market studies in order to learn their needs, buying habits, and factors in their decision making.
• Keep an eye on your competition: Monitor constantly where they focus their efforts, anticipate their price and sales strategies so that they don’t corner the market.
• Know your surroundings and its protagonists: By anticipating the changes, you can influence the protagonists to work to your benefit (legislators, activists, communications media).

Market Research can provide the answer to many questions. Research provides a better perspective of what is happening in the market allowing us to understand changes in consumer habits so that with this information we will be able to attract more clients and emerge stronger from such times.

Master Research suggests conducting market research constantly, namely analysis of clients, competition, and environment allowing us to foresee a crisis and act with clear and effective strategies.

In conclusion, a few market research facts worldwide

• In 2007, global revenue rose to 28,235 million dollars.
• The European market represents 45% of the global market. North America comes second with approximately 34%, followed by Asia Pacific at 14%, Latin America at 5%, and the Middle East and Africa at 2%.
• 80.7% of the studies conducted are quantitative and 14.8% are qualitative.?

Sources:

How to Use Market Research in a Recession,[HarvardBusiness.Org].

By Sergio Giralt, philosmarketing.com

Esomar Industry Report 2009

Note

Master Research is a business known for its loyalty to its customers for over two decades.

Master Research considers itself a highly reputable company known for its expertise and commitment to their clients’ businesses, and whose research methods are in line with AMAI’s (Mexican Association of Market Research and Public Opinion Agencies) quality and ethical standards since 2004. This association awarded them the Market Research Services Standard certificate (ESIMM 2.0) in 2005.

What makes Market Research stand out from the rest is that this agency is a pioneer in the development of Competitive Intelligence methodology in Mexico.

It can be found at twitter @MasterResearch and on Facebook providing vital information to its followers.

Press Contact:

Susana San Román Oñate

rp@masterresearch.com.mx

Twitter @suxsan

By: Agustín Castañeda
Director of Competitive Intelligence Master Research
acastaneda@masterresearch.com.mx 

In a highly competitive business environment, where companies of different sizes and sectors participate standing out is winning half the battle to gain new clients, maintain the current ones, and of course, acquire greater market share.

Companies seek to develop sustainable competitive advantages representing a plus in their clients and consumer’s eyes whether in the product they purchase or in the service they receive. Technological developments and the expansion of global commerce have caused the business environment to evolve more quickly causing executives to not only trust in their instinct or intuition when making strategic decisions for their business. Nowadays, a wrong decision can potentially cause a company to pull out of the market.

In today’s world, it is important to know where and who you are competing against, how to direct the company’s path, and keep your competitive advantage. One of most effective methods to gather this information is through commercial intelligence or competitive intelligence. In this article, we will explore this topic and how to apply it.

What is it?

Competitive intelligence is a field involving gathering, analyzing, administrating, and circulating market data and its environment. This process increases a business’ competitiveness in the market since it provides knowledge of our competitor’s abilities and our client’s needs. Furthermore, it makes decision making easier, supports strategic planning and the corresponding marketing strategies.

The information employed is obtained from public sources or by ethical means, as simulated purchases and in-depth interviews.

Most important businesses operating in Mexico, like Banamex, IBM, Vitro, etc. have market intelligence processes as part of their business operation. However, this is not exclusive to large companies. Since both small and medium companies compete against large corporations for the same market, it is even more important that their CEOs have data about their competitors before making decisions.

Its Objectives

Competitive intelligence has four main goals:

• Improve competitive positioning and, consequently, a company’s profitability
• Support company’s decision making in tactical movements as well as in long term strategies.
• Establish early-warning mechanisms for market changes, allowing companies to act instead of react.
• Identify market trends

Its Uses

An advantage of competitive intelligence is its ability to address a large number of of a company’s needs, such as:

• Market Monitoring
• Analysis of consumer behavior and detection of their specific needs
• Identification of business opportunities
• Development of marketing plans
• Analysis of price policy in the market
• Identification of changes that have taken place and or could take place in the market (new products, supply chains, etc.)
• Identification of competitors’ strategies and actions
• Evaluation of promotion and publicity campaigns (including those of competitors)
• Study new competitors
• Identification of joint ventures and business partners
• Anticipation of technological changes
• Determination of investment priorities
• Evaluation of a company’s performance in the supply chain

Its Effectiveness

The effectiveness of competitive intelligence depends on the continuity given to the process of gathering, analysis, and circulation of information. In a continuous process, the information becomes knowledge and then intelligence, allowing decision makers to take action.

Is Competitive Intelligence Espionage?

Competitive intelligence is not espionage. The main difference between the two is that espionage uses illegal means to obtain information while market intelligence utilizes ethical methods and the information is accessible to the public.

Public information is not considered an industry secret. On the other hand, information about industry or trade secrets is not considered espionage when having the full consent of the company’s owner or staff. Trade information is considered an industry secret when it affects the company’s competitive edge, which must be proven.

Financial information is neither confidential nor a trade secret. Only bank deposit information is considered secret when it is a part of a national banking system.

We refer to an unethical process when the information is obtained through robbery, bribing employees to acquire it or getting access to it through different methods without the company’s express consent (this includes, of course, classified information.) Similar unethical processes include the following: bribing employees with gifts, incentives or coercing them, misusing another person’s id or that of an organization in order to obtain information about a third party as well as infiltrating your competitor’s company with your employees.

How to Accomplish it

In order to implement a competitive intelligence system, you must take the following steps:

1. Planning and management

To identify the need for competitive intelligence.

2. Information gathering

3. Information analysis

That is, interpreting it in order to make recommendations.

4. Circulation

This step involves presenting the analysis to the decision makers and interested parties.

5. Feedback

This is necessary in order to improve the process.

How you Can Implement this System in your Business

1. Identify and establish who are responsible for decision making in the company

2.Identify the strategic information required to achieve corporate goals

3. Involve the personnel taking part in decision making to spread the word about the competitive intelligence system’s objectives.

4. Identify the information sources

5. Determine the levels of information priority

6. Create a process of gathering, validation, and analysis, and generate the flow of the circulation of information.

The competitive intelligence system is permanent and systematic in nature. Therefore, we suggest that the person placed in charge of it has access to sufficient resources and support, and is able to organize the analysis of the key information, as well as create the reports and provide information to decision makers. ??

Press Contact Master Research:

Susana San Román Oñate

rp@masterresearch.com.mx

susanna.sanroman@gmail.com

Twitter @suxsan