Belo Horizonte

Brazil Blog #2

Yesterday Ray and I left Sao Paulo and came to Belo Horizonte. This is the city where I served my mission almost 5 years ago and it is good to be back. The city is the 3rd largest in Brazil, but still small enough to feel like I can put my finger on it and know my way around a bit. The friend with whom we are stayed, Schirlei, was kind enough to let us borrow her a car a bit last night, so we cruised around BH for a while. We stopped by McDonald´s (which I *never* eat when I´m in the states) and had a McDuplo — the double-patty burger — with fries and guarana. McDonald´s was the coolest place we could find to hang out — not by our opinion, but theirs — and there were indeed dozens of high school and college aged kids there.

I´ve seen so much while I´ve been in Brazil, and I wish I could bring it back so you´d all know what it´s like. I wish I could take pictures of everything I see. There are academic projects in progress around the country with this goal — I think Microsoft´s research lab has a fellow working on this — and I believe that will be nice. I don´t know if that will mean wearing glasses with a tiny embedded camera, or what, but the day I can take pictures of what I see without any overhead will be a cool day. It´s just not convenient (or safe here) to bring a camera with me everywhere I go and snap pictures of everything I see.

Anyway, my point is that there are so many things here that you wouldn´t know exist because they don´t exist in the middle-class American life. And though I´ve seen it before, it´s easy to forget after you leave.

For instance, the middle class here is much, much less affluent than the middle class of America. That might be obvious to most people, but being here reminds you how nice life is in the U.S. The average American — or even the college-aged “poor student” has much, much in the way of comforts than the middle class here. Cellular phones, Internet access, telephone service, microwave ovens and washing machines, for instance, are all things they have here. Brazil isn´t all jungle with “backwards” people. Brazilian know what all these things are, and the upper-class has them, but the middle-class often doesn´t have these things and when they do, they are expensive and not commodities like we consider them.

I´m reminded of the Heckscher-Ohlin theorem that I learned in Econ 110 and Econ 257 — that countries, for instance, with a relative advantage in manual labor will specialize in products and services that are labor-intensive. That´s definitely the case in Brazil. Manual labor is so cheap that it makes for a different economy than in the U.S., for instance. Everything is available for delivery — pizza, prescription drugs, bottled water. Most of the time, the deliverymen ride motorcycles outfitted with equipment to hold pizzas, water bottles, etc. Cars are expensive, but labor is not, so motorcycles fill the streets like flies. At big intersections, it´s not uncommon to see 8 or 10 motorcycle riders (deliverers, with goods) who have come to the front of the intersection between all the cars to wait for the light to turn green. At small intersections they don´t wait for the light to turn green.

When building large buildings (even 20 story apartment buildings) labor is the dominant ingredient. They don´t use large, steel beams put in place by cranes, but rather, brick upon brick laid by an army of pedreiros.

There is strong anti-American sentiment here. Even our friends whom we´ve stayed with in Sao Paulo and here in BH dislike President Bush. I prefer not to bring it up to much, but we´ve talked a little bit about the reasons behind Bush´s decisions. The U.S. is in a unique position of being the enemy of many nations, so when we act unilaterally, it´s hard for others to understand what we´ve done and appreciation the difficult decisions our leaders have to make. I guess I can´t expect that everyone will perfect understand our rationale for going to Iraq.

When we arrived at the airport in Sao Paulo, we had to go through a second immigration line for being Americans. Notwithstanding, the customs agent that stamped my passport was very friendly.

I´ve seen a lot of Nextel phones down here, especially when we arrived in the airport, which makes me wish I still had mine. I saw a few people talking on their Nextel phones in Chicago and then again in Sao Paulo, so the Nextel network must be pretty well equipped in Brazil. I also heard that annoying Nokia ringtone that comes standard on all Nokia phones — that´s one thing I wish hadn´t been globalized.

richard miller

Downtown Sao Paulo

I´m in Brazil right now. I came down here for two weeks with my friend Ray to celebrate graduating from BYU. We were picked up from the airport yesterday by a friend he made when he served a mission in Sao Paulo. She drove us back to her house where we´ve been staying. Her mom has been cooking for us and allowing us to stay in one of their rooms. They have a very nice house — clean and colorful. The outside walls are painted bright green and the leather couches are yellow — Brazilian colors.

It has been incredible to be back here. The familiar smells are smoke from brush fires, pollution, and occasionally sewage. But mostly the air seems fresh. I think that will be even better when we leave Sao Paulo.

Today we are in the centro (downtown) of Sao Paulo. I´m writing from an Internet cafe right down the street from BOVESPA — the stock exchange of Brazil. This area is comparable to Manhattan — most of the people around us are “chique”, wearing suits and ties, dresses, and jewelry. Most of the people here probably work in the financial services industry. There are dozens of banks here and wide streets with thousands of people. I´ll try to get some pictures.

I can´t write much now but I´ll write more later.

richard miller

APC 2

I’ve blogged before about wanting to start or be involved in an Anti-Pornography Campaign.

I saw a funny commercial on TV the other day and wasn’t surprised at the end to see, when the product was revealed, that it was a beer ad. Beer companies almost always have entertaining commercials. Not surprising — they have huge war chests of cash to afford expensive ad agencies that can make creative commercials. Budweiser reported having $228M at the end of 2004. Why so much cash? Huge profit margins. Above-average profit margins. For 2004, Budweiser reported a 15% net profit margin on $14.9B in revenue. Compare that with the 2004 net profit margins of other profitable companies: GE (10.9%), IBM (8.8%), Dell (6.2%), JetBlue Airways (3.7%), Apple Computer (3.3%). I’m not sure if it would be fair to include Microsoft among the companies I compare (22.2% net profit margin for 2004) since it is a convicted monopolist.

But that’s exactly my point about the beer companies. You learn in economics classes that the only way to consistently earn above-average returns is to have an economic rent — e.g., a patent for a lucrative invention, ownership of natural resources, a monopoly position in the market, etc. Without the economic “rent”, no one can maintain above-average returns because competitors enter the market place and drive profit margins toward zero. It’s hard for the every-day corporation to be profitable. Budweiser, on the other hand, had similar net profit margins (14-15%) for 2003 and 2002 as well.

My guess is that if we had financial statements for pornography companies we’d see similarly high profit margins — probably even higher than beer. Alcohol is widely known to be an addictive substance, and the same understanding about the addictive properties of pornography is growing too. Therein lies the economic “rent” — alcohol and porn companies bank on selling addictive substances, thus “monopolizing” your morality. I wonder if antitrust law has any place in the legal fight against pornography on the grounds of pornography being a monopoly on morality.

richard miller

Business Plan Competition

Yesterday I went to the annual Business Plan Competition final. It’s a business plan competition hosted by the Marriott School‘s Center for Entrepreneurship that spans several months. From among 66 student entries, three finalists were picked to present their plans yesterday and win $50, $30, or $20,000. They’ve been doing this competition for about 15 years and the prize money and exposure has grown a lot. Actually the prize money is half cash, half services. The services include legal and accounting services as well as some business plan software.

My friend and neighbor Jared Smith was in the competition with Pacific Industrial Contractors Screening (PICS). I helped him with the customer testimonial videos they showed (thank iMovie) so I had a vested interest in their winning.

All three companies had compelling presentations. Here were the results:

  • Alianza — 1st place ($50,000 prize). These folks are providing VoIP telephone services to businesses in Mexico. While only some 5% of households have internet access in Mexico, almost 90% of businesses have access. Alianza can save these businesses up to 90% in telecommunications costs over TelMex, the Mexican telephone monopoly. They also offer extra features such as voicemail, call forwarding, etc. at no additional charge, and free in-network calling.

    When asked about competition from the big boys, they said that TelMex has announced that it has no plans to get into the VoIP arena in the next three years. And their free in-network calling is producing a viral marketing effect and locking in (satisfied) customers. Someone asked about their churn rate. Answer: zero. They haven’t lost any customers.

    Their plan is to be bought out in a few years by a Skype or a Vonage.

  • PICS — 2nd place ($30,000 prize). Pacific Industrial Contractor Screening is an intermediary for large industrial companies and their contractors. Current customers include British Petroleum and Caterpillar. These large customers, which depend on contractors for providing services such as welding and construction but can be held liable for it, can use PICS to screen their contractors. PICS keeps a database of contractors (currently 100+) and gathers safety, legal, and liability information about them. The large companies (currently a dozen or so) can search the database to find contractors that are assured to be safe. The large companies pay to use the database and small companies pay to be in the database, but it’s still cheaper for both parties. Having this central database means that each contracting company does not have to audit each individual contractor (at its own expense), and each individual contractor does not have to be audited by every large company. PICS is capturing revenue from a huge redundancy in the market and making it much better.

    This business plan also has a viral marketing effect — when large companies become pleased with the PICS service, they require ALL the contractors who wish to work with them to register through PICS. This networking effect locks in PICS’s (also satisfied) customers. The videos I worked on showed two very happy customers — BP and Cat.

  • Informera — 3rd place ($20,000 prize). Informera has an interesting advertising model. They install a large plasma screen TV in restaurants, at no charge to the restaurant, connected to a desktop PC at the hostess station. The host or hostess can use the PC to keep track of the patron waiting list. Patrons can see their name on the big screen, how far down the list they are, and how much time is left until they are seated. They can also see sports scores, news, and other “interesting” information. Informera makes it revenues from ads it runs on a portion of the screen. The only requirement of the restaurant is that it provide an internet connection so that Informera can serve up and rotate ads from its headquarters.

    In Provo they’ve already signed up Magleby’s and Chili’s. They (Chili’s) are also test marketing in Dallas. There are half a dozen advertisers signed up, including a fitness club. (Irony or perfect match?)

    One strength of this system (and advantage to the advertiser) is that the demographic of each restaurant is fairly specific. Magleby’s usually has a high income crowd; Chili’s has a middle income crowd. Both groups have a propensity to spend discretionary income. Sounds pretty sweet for advertisers.

    I like their idea. I think they also ought to send a text message to your phone when your table is ready. (Or maybe 10 minutes prior so you can get back to the restaurant.) That ought to be easy with an Internet-connected computer already installed.

It was a good competition with three good companies. Congratulations to all the teams, and way to go Jared!

richard miller

Governor Huntsman

Today Utah Governor Jon Huntsman, Jr., spoke at BYU as part of “eBusiness Day”. (I saw Phil Windley a couple rows ahead of me.) I liked Governor Huntman’s speech. He touched on several important topics to me, and his speech didn’t drag on like one might expect. On the contrary, he was smart, concise, and well-polished. Here are my notes from his keynote:

  • Most schools are still teaching Cold War languages — French, German — they ought to be teaching Chinese — Utah has brought in a Chinese language expert from China to teach in two Utah junior high schools — kids and parents are loving it, and learning Chinese will be much more valuable in today’s world
  • The most powerful weapon in America isn’t our military, it’s our entrepreneurial spirit — America has unparalleled ambition, drive, and entrepreneurial spirit — and this is coming from one who’s traveled and lived abroad extensively — these entrepreneurs are risk takers who put everything they have up against a competitive, free market and win
  • Government shouldn’t get in the way of entrepreneurship — Europe may have highly-regulated business, but it’s not the right thing for America — government needs to protect and preserve the entrepreneurial spirit
  • 1-800 Contacts is one of the fastest growing businesses in Utah — it was started in a BYU dorm room — Chinese visitors to Utah asked about 1-800 Contacts and want to take it to southeast Asia
  • There are 2.5 million residents on the Wasatch Front (from Brigham City to Santaquin and from Tooele to Park City — $3-4 B in exports — ranks higher than Hungary — 2500 tech companies
  • We often take globalization for granted — we think it’s just happened in the last few years and that it’s done and can’t be reversed — the world was very globalized at the turn of the last century — WWI and WWII destroyed a lot of the progress we had made in globalization and trade — we’re now in the “2nd Renaissance” of globalization
  • Brazil had a bigger economy than the US in 1900 — it has incredible natural resources from mines to forests to lots of land to a large coast — but it hasn’t been able to take advantage of all these economic advantages — poor leadership — current President Lula da Silva may be as bad as Hugo Chavez (wow!)
  • As we get faster and smarter, we need to remember to be more compassionate — we can’t turn our backs on the 50% of the world that lives on less than $2 a day
  • Besides entrepreneurship, one other uniqueness of the U.S. is its heros — other countries don’t have heros — we have Abraham Lincoln, Martin Luther King Jr., JFK — find a hero and emulate him or her — don’t shoulder all the work yourself — find a passion and find a hero consistent with that passion and emulate your hero
  • Ethics still matter — the US is the most powerful nation but also a beacon of morality and of ethics in business — what other countries call “convenience taxes” we call “bribery” — when American companies decide on what’s ethical, other countries follow — stay rooted in ethics
  • Q&A:
  • (A lady asked about the expensive regulations her small business has to deal with.) “Utah will be one of the first to hold regulatory reform meetings as has been done in a national setting between countries — we will look for ways to deregulate industries and have fewer obstacles for small businesses
  • (Someone asked about how technology can help the poor.) “Technology can be a homogenizer for society and can help poor people — the Internet is allowing worldwide access to “best practices” – the best ways of doing business, best ways of holding elections, human rights practices, etc. — “they’re reading about it in Vietnam” — the Internet is bringing “literacy” to the entire world
  • (Someone asked about why Utah was cutting some specific benefit for State employees) “Utah state employees are still getting treatment comparable to or better than the private sector — we have to reduce our expenses to maintain our good bond rating — Utah state bonds are AAA-rated — we don’t want to lose that rating and incur higher costs of capital and put more expense on taxpayers — we need to remain streamlined
  • (Someone asked about the “outsourcing problem”) “I don’t think there’s an outsourcing problem — we tend to focus on bad news, but there’s actually lots of INsourcing going on — we are insourcing computation, genome science, biotechnology and others — we’ve had a total of 15 months (I think) of recession in all the years since 1982 — we’ve had a steady 2.4% growth rate — I think our economy is doing well

That was my first encounter with Governor Huntsman and I was impressed. I am going to pay more attention to him now.

richard miller