Global Immersion Trip
Chile
A Report by Vinod Jayakumar
Traditional MBA 2013

Pre-trip

Excited about visiting a South American country for the first time, I started my journey to Santiago De Chile from Miami on March 2nd, 2012. To start with, I was skeptical about the quality of a Chile based airline. But, I was amazed by the excellent service provided by LAN airlines. My perception about a Chilean company changed then and there. Also, prior to my flight I doubted whether the officials in the flight will understand English (even though we were assured by the Professor that there wouldn’t be language problems during the travel) and my doubts didn’t fructify. In fact, the quality of the food given to us in the plane set up a high expectation for my one-week long stay at Santiago.
Day One

After watching the Pirates of the Caribbean – At World’s end, a movie which I have been craving to watch for a long time, and a couple of hours of pleasant flight, we landed in Santiago on time. As soon as the automatic door swung open letting me in to the airport, I noticed a group of people standing before a counter that was used to collect a reciprocity fee. The notice board before the counter showed “US - $140”. As I didn’t fully understand what a reciprocity fee is and since I was coming in to the country from US, I stood at the back of a very short line counting my $140.
When my turn came, I was pleasantly surprised to find out that it applies only to US Citizens and that it is a one-time charge only for the life of the passport. I wondered what the reciprocity fees was and later found out that this was the amount the US charges Chileans entering the country. For that reason, the fees are referred to as “reciprocity”. After a little research, I found that out of the countries in South America, five of them charge a fee: Argentina, Bolivia, Brazil, Chile and Paraguay. The fees charged are in direct relation to what the home country of the passenger charges residents of the country you are visiting. The fees look like a good source of revenue for these countries.
I reached the Atton El Bosque hotel by hiring a taxi from the airport after a little struggle to explain the hotel name and location to the taxi driver. After resting for a while, and after a brief orientation meeting, we started a City Tour. The tour guide who accompanied us was very knowledgeable about the history and culture of Chile. It was a pleasure to see the La Moneda Presidential Palace and was interesting to learn about the history of the palace. Construction of the La Moneda started in 1784 and was constructed to be the country’s official mint, hence the name which translates to The Mint. A wiki entry shows that coins were minted from 1814 to 1929. And, in 1845 the palace became the residence of the president.
I learnt an important history of Chile that day about the Chileans having a different 911 to remember about and that was about the military coup d'état on September 11, 1973. The then Commander-in-chief Augusto Pinochet led the coup against the President Salvador Allende. Despite the air raids and ground attacks on the palace, the President vowed to stay in the presidential palace and rejected the military’s ultimatum to step down. Eventually the President killed himself (although this is questionable and still under scrutiny). The tour guide explained this really well to the group and pointed to a closed door, which was guarded by a uniformed officer, mentioning that the dead body of the president was taken out through this door.
After finishing the tour around the palace, we had a stop at Los Dominicos for some artisan shopping and then the first day of the trip officially ended. Later for dinner, we went to a place nearby the hotel and the service was not so good. So we decided to tip him lesser than the 10%. But to our surprise, the waiter stood there demanding for the remaining tip. We didn’t know if it was a Chile culture to tip 10% mandatorily. Later I found out that the livelihood of most of the waiters depends on tips. They may get a minimum salary but it is barely enough to cover transportation. But according to me, the financial dependence on tips doesn’t necessarily mean the waiters/waitresses deserve to get tips for a lousy service. Thus, day one ended with some important lessons learnt about the history and culture of Chile. Throughout the trip we were informed of the importance of the copper industry to the economy of Chile.
Day Two

We started early on day two for a two hour long trip to the port city of Valparaiso. En route to Valparaiso, the second largest city of Chile, we stopped at a place to refresh ourselves and we saw some Llamas at the back of the store. It was the first time I saw a Llama. Later on a casual talk to one of the hotel staff, I learnt that during the Spanish conquest the Llamas was primarily used to bring down ore from the mines that were atop mountains. But then the introduction of horses and donkeys diminished the importance of Llama as a beast of burden. And, that they are primarily used as a source of food and fiber now.
The first thing that came to our attention in Valparaiso was the National Congress of Chile. Our tour guide pointed out that Pinochet shifted the congress from downtown Santiago to Valparaiso. The Chile government, like the USA, has a bicameral legislature. The legislature is made up of the Chamber of Deputies, which is the lower house, and the Senate. Also, we saw the Valparaiso market through the windows of the bus and the guide mentioned that you will get all sorts of stuff (even used goods) at cheap prices in that market.
Chile has two Nobel Prize winners and both awards were in the fields of Literature. Our tour itinerary indicated a visit to the house of one of the Nobel laureates, Pablo Neruda. I wondered whether there will be anything interesting to see at a house of a poet. Again, my perceptions turned out to be wrong after entering the house and after listening to the narrations (in English!) through an audio guide. I liked the way Pablo named everything in his house. And, the view of the port from his window was stunning.
Then we trekked down the streets of Valparaiso and walked by the beautiful houses. The guide showed us certain parts of the town overlooking the port that were occupied mainly by the English and a church which had service in German. Later we took a short ride on a funicular, which was used to take the residents up and down the steep hill sides of Valparaiso. The funiculars are now operated just for tourism purpose as the cheap fee that was being charged previously for routine use was not profitable for the operators. Anyhow, it was interesting to ride on a historic means of transport.
From there, we proceeded to have lunch at a wonderful restaurant overlooking the sea. The founder of La Bicicleta Verde greeted us during lunch and gave us an introduction to his business. His company, which gives a bicycle tour of the city, was founded with a local partner and through InnovaChile, CORFO, which is the executing agency of government policies in the field of entrepreneurship and innovation. His insights about doing business in Chile were really thought provoking and his discussions revealed the support from the government for such innovations. After that, we took some time off walking along the beach and under the bright sun and then returned to the hotel. The second day too was filled with lessons about the culture, business in Chile and about the wonderful poet, Pablo Neruda.
Day Three

On the third day, we visited the Adolfo Ibanez University that was atop the scenic San Ramon Hill. The University was away from the city and the tour guide told us that many poor people live near that college. Thus, students have been skeptical of travelling to the college as there have been many incidents of robbery. Anyhow, we reached the University from where we could see the whole of Santiago from the hills. There, we attended a lecture from Guillermo Paraje, one of the eminent professors of the University, about the Latin American Economies.
The lecture started off with the information that the Latin American countries were only mildly affected by the economic crisis going on around the world. Also, the unemployment rate has been going down along with an increase in the average wage. Most importantly, the increasing price of copper has boosted the growth rate of the Chile economy. The Professor took pride in mentioning that Chile is the first South American country to be an OECD member.
One important point that the professor touched upon was the low productivity of labor. He compared the productivity of Korea and Brazil and his graphs showed that Korean has been growing its productivity rate at 4.7% whereas Brazil has been growing only at 0.1%. This trend was seen throughout the Latin American countries and is a growing area of concern. Also, the Latin American countries were lagging behind in the service sector. Moreover, there seems to be an increasing gap between the rich and poor. He raised an important point about Chile (or Latin American countries) remaining as a producer of raw materials alone. That is, he mentioned Chile is the leading exporter of copper but it is not a good producer of finished goods based out of copper. This, according to the Professor, should be the long term strategy of all Latin American countries.
A casual talk with the Professor after the lecture revealed that Chile is not investing much in renewable and nuclear energy. A recent proposal to invest in nuclear energy was rejected by the Government citing safety issues, especially after the incident in Japan. Being a growing country, Chile could encourage more people to invest in renewable energy. After that, we toured in and around the University and then returned to the bus to be greeted by our smiling bus driver who always referred to us as “Macho, macho”.
Later in the day, we had a presentation about Flora & Fauna Chile Ltda. (Ltda. stands for limitada for limited companies). The mining industries cause a lot of environmental issues and the activities around the mining have an impact on the wildlife around the region. The company does a wonderful job in minimizing the impact to the habitat. The government made it mandatory for these mining companies to get the advice of Flora and Fauna. I was happy to learn that the government is actually interested in preserving the habitat of the various regions and they were assisted by this wonderful set of people who work for Flora and Fauna.
Then, we had a presentation from the Managing Director of Banco Santander. The Banco Santander is the leading bank in Latin America. He gave as some good insights about the financial system in Chile and told us that the financial system of Chile ranks among the best in South America. Also, Mr. Martin Perez, described the Pension System of Chile. A reform in late 1980 replaced the pay-as-you go regime with a fully-funded pension system. The third day was filled with lessons about the economics and financial systems of Chile.
Day Four

The next day, we visited the Frito-Lay, which was located in Cerrillos. The manager of the plant addressed us with some information about the plant. In Latin America, Frito-Lay has 6 production sites and the Cerrillos plant was bought in 2008. One of the slides of the presentation showed a growth rate of around 8% in the volume of sales and a 15% increase in revenue since the inception of the plant. Another graph illustrated a volume of the salty snacks portfolio of Frito-Lay despite having no new line in the site. The manager mentioned the increase was because of an improvement in the efficiency of the site. The manager takes pride in the fact that they have a world-class site in terms of efficiency, service and sustainability. For instance, the plant includes a series of photovoltaic panels on top of the factory that produces around 12KW of electricity. Interestingly, the plant has reduced its water and energy consumption significantly. Also, the future plans for the site includes a reuse of 100% of the wasted water.

Once the presentation was done, the manager took us around the factory and showed us the various lines and packaging units. Along the way, he told us that the potatoes are grown under controlled conditions and that it is not the same as the ones used for domestic consumption. On inquiring about some froth lying on the ground, the manager told me that it was the result of an experiment to re-use the starch produced from the potatoes. This was really surprising. Apart from being very sustainable, the company was trying to innovate in various ways. Finally, on inquiring about the software system used in the plant, the manager informed me that they are going to switch to SAP in few months. The plant was going all the way to become very efficient. It was very impressive.

After a delicious lunch, we visited CORFO Chile for an introduction to Start Up Chile. This was the most interesting site visit for me. The Start Up Chile is one of the best incubator programs designed to attract entrepreneurs from across the world. It was started by the Chilean Government to convert Chile into an innovation and entrepreneurial hub of Latin America. We were presented with the ways in which an entrepreneur is selected for the program. Apparently, an expert team, including eminent people from USA, selects the best among the applicants. It was also interesting to know that the program has attracted people from India and China and that too, with minimal advertisements in those areas.

Through the Start Up Chile program, entrepreneurs work on their projects at Chile and are reimbursed up to $40,000 in cash. During 2011-2012, the program has attracted people from diverse industries including IT, e-Commerce, Energy, Cleantech, etc. The basic idea is to boost the confidence of the local entrepreneurs by sending a message that Chile supports such innovations. The incoming people are also required to earn around 4000 points to successfully complete the program. They earn points in various ways, including giving seminars to local universities and thus, they add value to Chile. I believe this is an amazing idea to boost the economy of a country which is presently dependent on only exports of raw materials. They are building a future which is not necessarily dependent on the export industry and thereby, Chile is on track to building a sustainable future.

Day Five

We visited the factory of Agricom, suppliers of fresh fruits, on the second last day of our tour. Not surprisingly, the USA is the biggest market for avocados, which are exported from this facility. The company also offers other fruits such as: Grapes, Drupes, Oranges, Apples, etc. Also, Agricom generates more than 2000 jobs for the Chilean labor market. Europe is also an important market for Agricom. As future plans, Agricom is planning to invest in walnuts. The factory visit was very informative and we could feel the urgency with which the workers go on with the various activities. The urgency can be directly attributed to the freshness factor of the fruits.

Then, we visited Kross, a microbrewery factory. The founder welcomed us and took the pain in explaining to us the whole process of brewing the beer. On asking whether the recipe can be easily replicated, Mr. Asbjorn explained that he can write down the recipe and give it to me but, it will be very difficult to replicate the same taste as he has the right equipment. He also mentioned that it is not a good business sense to copy another beer. I felt it was a valid point and I learnt an interesting lesson.
We, then, had an amazing barbeque lunch at a picturesque building at Vina Mar, which is a famous vineyard in Chile. Later, we visited another wine factory called the Vina Quintay and the Commercial Manager of the company guided us through some wine tasting.
Day Six

On the final day of the trip, we had the most important topic as presentation – Mining in Chile by a senior official from Kinross, a Canadian gold company. Starting up with some basic facts about Chile, the Vice President informed us that the corruption in Chile is really low and doing business in Chile is very easy. He goes on to say that 28% of the world’s copper reserves are in Chile and that Chile’s economy is heavily dependent on mining. The mining, he said, is concentrated in the northern parts of the country. The work force in Chile is well trained for the mining business and thus makes this an important factor for investing in the mining industry.
Chile is the world’s largest producer in copper. They also produce gold and Chile is the 13th largest producer. Interestingly, Chile is the largest producer of Lithium and the fifth largest producer of Silver. The mining industry contributes to 22% of the GDP and 60% of the exports. The mining industry directly employs around 70,000 people and indirectly employs more than 300,000. The Vice President goes on to say more on the challenges faced by the mining industry which includes the dwindling capacity of water, increasing demand for energy, increasing demand for specialized labor and so on. The trip ended on day six after the Kinross presentation.
Departure

Thus, I prepared to leave Chile after a wonderful trip with wonderful people. I probably learnt a lot of things about Chile in this short trip than I would have learnt if I had read through a book about Chile. I learnt a lot about the economics, the importance of the mining industry, the rich history and culture of Chile, the stable financial system, etc. Experiencing the culture was really important and if I start a business I would definitely look at Chile as the first option. Final lesson: if you pay your room rent and other expenses at the hotel with US Dollars you don’t have to pay sales tax.