You are a management consultant. On Sunday afternoon you get a message from James, an old business school classmate.
“My family business, Globo Corp, is eyeing a potential partnership in Colombia.
Our B2B publishing arm is looking to develop a Spanish-language division, and we have a potential partner in Medellin. Right now, our Spanish-language product is based in Mexico City, but we’re not getting much bang for the buck. Part of the problem is that we are trying to reinvent the wheel by doing everything ourselves, but we’ve also been shocked by the pricing. Between the currency shift, the cost of labor, internet, rent, and – we’re getting killed on costs – and most of our real work is done by online contractors.
There’s a company in Medellin that looks very promising for us. They publish business news & content to the LatAm market, so they know the market we are looking for and already have technical and sales teams in place. We have their financials but need context on the economy, market, and business culture. Half the people I talk to tell me I’ll be killed on my first day, and the other half tell me that it’s the next big thing.
All I know about Colombia is that I’ve been spelling it wrong up until now. Help.”
What’s the project?
In this scenario, you are an objective, highly trained management consultant confronted with a new situation. Is your first step to draw broad conclusions based on biases, vague recollections, memes, Netflix, and hearsay? Is it? No? Good for you. No, that is NOT your first step.
Your first step (Phase 1) is to break down the situation into a progression of business decisions.
- Does it make sense to proceed with the analysis? We want a “yes”, but if the answer is “no” then we want to know as early as possible. In Phase 1, the only bad answer is “not sure / unclear”. In the preliminary test, we are looking for clear NOs – usually indicated by laws, finance, or likelihood of violence. This step is the pre-emptive emergency shut-down button.
- Does it make sense to proceed with the business investigation? Even though we’re not “putting boots on the ground” just yet, there will still be costs and risks to undertaking a full BEA. This question is usually decided by profit potential. Is the potential increase in revenue / reduction of costs going to put this project at the top of the to-do list?
- What data and information do we need to process to get a 360-degree view of the business environment?
We will conduct our BEA in three phases.
Remember that this is Phase 1 – Feasibility Decision. Our goal is a thumbs up-thumbs down on further analysis.
Phase 1: Feasibility Study. Does the project make sense, is it possible, etc.?
Phase 2: Business Plan. What’s the best way to build and execute our business?
Phase 3: Strategic Plan. How can we secure a competitive advantage in our new market?
Today we are starting with Phase 1, which like many BEAs starts with a surprise.
Our raw material: Data and Information
Our raw material is data. In the early stages of desk research (i.e.: SEARCH), general economic statistics and media headlines are fine. At this stage we are interested in objective data and in metadata. What the general crowd considers important, relevant, true, beneficial, and trustworthy is a key observation. Later, we’ll get much more specific and will look for more objective data, but for now general trends are important to us.
We start by collecting data, statistics, and descriptions about the broadest possible range of categories until we can SURFACE trends and systems. In our first pass, we are going to scan the entire internet for our information and keep asking naïve questions until we understand what locals consider to be obvious and clearly apparent. We’ll use a simple STEEPLE framework that we learned last week to structure and organize our data. (1) BEA (Business Environment Analysis): The Science of Site Selection | LinkedIn
END OF The STORY Notes on MY 1st Pass:
Colombia gets a THUMBS UP to move to the next phase of the analysis. I’ve determined that Colombia is relatively secure, stable, and has good economic prospects. There are risks to both the economy and the government on the horizon, but there are plenty of reasons for optimism as well.
I’ll go through the process and analysis in step-by-step detail next week, but here is a general overview of my first pass.
- Economy. The first thing I do is check specific macro factors. I look at GDP growth, per capita GDP, inflation, and unemployment. I like high growth, lowish inflation, and moderate unemployment.
Colombia’s economy is in middle of the pack. Its econ is strong by LatAm standards, though its growth numbers are a bit anemic by Asian standards and its unemployment rate is high. Inflation is high at 12.65%, but that has been trending downward Per capita income is about half that of Mexico, which tells me that markets here have upward potential. Prices are low, labor is available, and infrastructure / logistics seem adequate for now.
Colombia | Mexico | USA | |
GDP Growth 2022 | 7.3 % | 2.4 | 3.4 |
Per Capita GDP | 6,546 US$ | 12, 673 | 80, 034 |
Unemployment | 11.4 % | 2.83 | 3.7 |
Inflation | 12.6 % | 5.84 | 4 |
Ave monthly salary | 766 USD | 1,324 USD | 5,390 USD |
- The economic test is PASS – but monitor.
- Verdict: Colombia may be a management center for LatAm. The salaries are low, skilled labor is available, and their Spanish is the best in South America.
- The client company will need a lot of office & knowledge workers, so we are focusing on those indictors and skill-sets going forward.
- Safety / Security. This is basic due diligence. For me, the best way to test if a new city is safe is to search, “CITY NAME, digital nomad, safety”. The international community of pale, English-speaking computer programmers are very sensitive to danger and discomfort, and will give you their real opinions – and not some salesy PR nonsense. The digital nomad survey: safety test is a PASS.
- Verdict: Its seems that Bogota and Medellin are safe – at least in the expensive AirBNB-equiped environs of expat Bogota.
- This is only a first pass, and we’ll grind down to specifics and neighborhoods in pass #2.
Ok, so once the prelim categories of ECONOMIC VIABILITY and SAFETY passed, I moved on to the STEEPLE framework. Remember that steeple is just a general checklist of:
- Society
- Technology
- Economics
- Ethics
- Political
- Legal
- Environment
We want to run through a few searches to assess two things:
- What do we feel are the big-picture events and trends?
- What do LOCALS feel are the big important events?
We’re just observing and reporting – not coming up with great ideas. Here’s what my first pass was like.
- Society. There’s A LOT. Colombia has a new president, political shifts, a peace treaty with a rebel army, and economic worries. But nothing pressing, no violence, no crises, nothing that looks to undermine the government or the economy.
We don’t like instability, and a quick scan of the SOCIETY headlines raised a couple of red flags. Colombian politics were rocked by the election of Gustavo Petro in a dramatic shift to the left for the country. Political change is a coin with two sides. Always watch new administrations in areas with a history of instability or interference by outsiders. I’ll be watching this aspect of Colombia carefully.
The “deal with rebels” looked a little scary at first, but a quick check indicated that the problems with rebel factions is largely over. This deal was actually a good sign.
Verdict: No social reason to reject Colombia, but we are watching the new government and the economy.
- Technology. Tech is a tricky category to measure since it has become such a big part of our businesses and lives. I usually handle tech this way: in the Pass #1, I look at how the target economy USES technology. Do they have access to mobile tech, internet, and WWW? Is it affordable? Does the whole country have coverage? In Pass #2 we’ll look at their ability to use technology for business.
- Popular platforms: Facebook, WhatsApp, Android
- Mobile phone (voice) penetration is 147%
- Internet penetration of 65% is low for Asia but high for LatAm.
- Freedomhouse.org gives Columbia a 64 on the Freedom of the Net scale. (100 is most free). (Mexico gets a 60, China a 9, the US an 83)
Verdict: No technological reason to reject.
- Economics. I usually start with an economic scan to make sure that the country justified continued research. In this case, Colombia gets a qualified thumbs up. The key here is that Colombia has a lot of potential – assuming it can maintain stability.
- Bottom line: Costs and unemployment are good, inflation is a problem, GDP is suspicious.
- Economy gets a pass, but we’re going to dig a little deeper into the underlying structure of the economy.
Colombia | Mexico | USA | |
GDP Growth 2022 | 7.3 % | 2.4 | 3.4 |
Per Capita GDP | 6,546 US$ | 12, 673 | 80, 034 |
Unemployment | 11.4 % | 2.83 | 3.7 |
Inflation | 12.6 % | 5.84 | 4 |
Ave monthly salary | 766 USD | 1,324 USD | 5,390 USD |
Verdict: Ok to move to the next step, but we’ll be investigating GDP growth, unemployment, and inflation to emerge trends more clearly. My background is in Asia where these numbers – particularly inflation and unemployment – would not impress investors. But in LatAm, we are used to playing longer trends (especially political / legal ones).
- Ethics: The good news here is that we know the bad news. Colombia is slightly above average for LatAm, but that’s still not very good.
TransparencyOrg rankings – 91/180 for a 2022 score of 39 out of 100.
Transparency.org RANK:
85 Tunisia
91 Belarus
91 Colombia
91 Moldova
94 Argentina
94 Brazil
126 Mexico
180 Somalia
Verdict: It’s not good, but it seems to be a feature of the neighborhood. A rank of 91/180 seems bad, but Colombia is still better than Mexico or Brazil.
- Political – Colombia is a major success story for democracy and freedom in LatAm – but that only counts if they can keep the progress going. The big event of 2022 was the election of Gustavo Petro and Francia Marquez as Pres & VP as reformers who aim to clean up the finances, corruption, and healthcare systems in the country. Security is still a problem as the government continues to negotiate with the armed dissident groups.
- Verdict: Colombia squeaks by here. Our optimism about the potential of the new government is tempered by concerns about social unrest. Monitor this category.
- Legal – Colombia is very pro-business / pro-foreign money. This is one of the strong points for Colombia – it goes out of its way to attract foreign businesses, big and small.
Verdict – Legal system is not a problem.
- Environment – Colombia faces 2 classes of environmental challenges. The first is natural disasters, like earthquakes, hurricanes, and volcanoes. The second is manmade degradation through unsustainable farming.
Verdict: The natural environment of Columbia doesn’t seem significantly worse than other vibrant economies. Volcanoes and earthquakes sound scary, but not business killers.
Bottom Line:
Based on a quick preliminary scan, Colombia passes to the next phase. My Phase 1 analysis based on the STEEPLE framework did three important benefits.
- It forced me to get an overview of Colombia – a country I knew less than nothing about, because I was still working under “Netflix Assumptions” about Colombia.
- I now have a working knowledge of Colombia’s economy – but even more important I now have a roadmap for my Information Plan. I know that I’ll be investigating GDP growth, unemployment, and inflation rates.
- Thumbs up – I can proceed without the fear of wasting time or following a dead end. I know what I must investigate, but also that so far Colombia is a valid target for continued research.
What I DON’T know – I don’t know if Colombia is suitable for my (or my clients’) needs right now, nor do I understand the internal dynamic of the country’s industrial structure. In the second pass (next), I’ll start building an operating plan, focusing on market conditions, competitors, and industrial conditions. Assuming that I can move my plan forward, I’ll look at ways to extend my competitive analysis in Phase 3
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Part 1: Intro to Business Environment Analysis. (1) BEA (Business Environment Analysis): The Science of Site Selection | LinkedIn
Written by Andrew Hupert, June 28, 2023 for Globalism2.com .
You can reach Andrew at [email protected]