Why Mexicans Don't Drink Molson

by Andrea Mandel-Campbell

  Lavoie originally approached Lassonde with the idea of buying a secondhand juice machine it was trying to sell. He ended up cobbling together a joint venture in which the Quebec company chipped in the equipment while a Chinese partner supplied the bulk of the investment, some us$1.2 million, which included an idle cement factory and us$500,000 in seed money. They called the brand Rumeng, which roughly translates as “dreams of women” in Chinese, and its slick, black-labelled bottles of apricot, peach and strawberry nectars sold for us$10 a bottle in high-end restaurants.

  Within five years of its 1995 start-up, the hugely popular drink line was ringing in annual sales of more than us$15 million and was the third-largest juice brand in China. The operation boasted 30 offices around the country, with 500 employees, and its ubiquitous label could be found in remote corner stores along the historic Silk Road to supermarkets in Shanghai. Lassonde had paid little attention to the faraway operation, happy to let Lavoie and the Chinese run the show — until it realized that Rumeng, representing just 10 per cent of Lassonde’s revenues, was responsible for a whopping 40 per cent of profits.

  Suddenly, the Quebecers decided they needed to take charge and bought out the Chinese partner in 2000. They embarked on a costly spending spree, buying new equipment and replacing local management with a Canadian chief financial officer and a marketing manager from France. “They thought the Chinese were no good at running the business,” says Lavoie, who, with a 15 per cent stake, had no more say in daily operations. “We were doing too well,” he says. “When the Canadians saw that the Chinese were doing better than them, they didn’t like it. They wanted to get their hands on the profit and the money.”

  It took just a year for profits to flatline, and by 2003 Rumeng was losing money. Lavoie and the Chinese offered to buy back management of the company, but Lassonde refused, says Lavoie, who resigned soon after. The Quebecers turned down at least three other buyout offers, including one from China’s largest juice company, he says. Instead, Lassonde quietly cleaned out the company bank accounts and pressured its accountants in China to write off inventory and raw materials that Lavoie says were still perfectly good. Lassonde declared a $13 million loss on the venture — a tasty little tax writeoff — and left China still owing $4 million to the China Agricultural Bank and $2.3 million to its former Chinese partner. “The Chinese thought, this is impossible, especially from Canadian people,” says Lavoie, adding, “The Chinese would never do what Lassonde did to us.”

  The Lassonde case is emblematic of a pervasive belief shared by companies big and small that what happens outside of Canada is somehow irrelevant. And because little value is placed on foreign operations, there is a prevailing sense that other countries and cultures have little to contribute to the received wisdom of corporate Canada. Surprisingly, this is true of the country’s most multinational companies, like Bombardier, which despite having operations in dozens of countries is not quite as international as its corporate profile might suggest. “The problem is, Bombardier is still a very provincial and very parochial company,” explains a former executive. “They still believe you can go to Germany and tell the Germans or the Mexicans that they should do things according to La Pocatière. Instead, I think that La Pocatière could learn a few things from the Mexicans and the Germans. I think it’s changing, but they never try to glean things from other countries.”*

  The ex-employee illustrates his point with a small but telling example. He was asked to organize a dinner in Montreal between Bombardier executives and visiting Mexican dignitaries. When a high-ranking Bombardier lieutenant realized that the employee, following the regular social protocol, had seated the spouses together with the businessmen, he became angry and told him not to put a Mexican woman beside him. “He said he didn’t want to waste his time talking to women,” he explains. In fact, any time the Mexicans came up to Quebec, the company staunchly advised that it would pay for no more than one dinner, and no entertainment. In contrast, the Spaniards, from rival train manufacturer caf, did a fantastic marketing job, he says, taking Mexican subway officials on trips to Spain. “In Latin America, when you don’t know how to behave you are banned,” the employee says. “But Bombardier doesn’t want to learn.”

  Wining and dining is, in fact, a sore point for Canadian companies in general. They are often criticized for being cheap and unsophisticated when it comes to wooing potential customers. They seem to put very little stock in cultivating relationships, preferring to get straight down to business, a practice that outside of the United States and Canada is not only considered crass, but unrealistic. To a large degree, the brass tacks approach can be attributed to a strong legal framework in North America that allows for a higher degree of transparency and efficiency in business transactions. There is more implicit trust, making formalities less necessary. But while to Canadians that might make more sense, it won’t change the fact that the rest of the world operates according to a vastly differently set of parameters.

  “The biggest mistake Canadians make is not understanding the culture of business when they are in another country,” explains Mark Romoff, a former federal trade commissioner who has been posted to Japan, Mexico and Malaysia. “In most countries, relationships count first, business will come. For Canadians, business is first and the relationship comes later. The best price is what counts, and that’s what rarely counts in most other places in the world.”

  So what happens? Canadians do a five-day, five-country tour of Asia and then are surprised when they are unable to drum up any business. Or they send a still wet-behind-the-ears mba to be their marketing manager in Asia who “doesn’t know how to dress, talk or entertain,” says Milton Parissis, a Toronto-based corporate strategist who has worked in 114 countries. “North Americans are very self-cherishing. It’s my way or the highway. They can’t own up to the fact that things are done differently in other countries. And if they don’t understand, they delegitimize it.”

  Executives with Westcoast Energy had their own brush with Canadian parochialism when they tried to strengthen ties between British Columbia, where the company was headquartered, and Mexico, where it was looking to invest. When Mexican President Ernesto Zedillo visited Vancouver in 1996, the company had difficulty persuading B.C.’s premier, Glen Clark, to meet the Mexican head of state because he assumed Zedillo was in town for “a labour issue.”

  In 1997, the Mexican president returned to Vancouver to attend an APEC leaders’ summit, which included a dinner held in his honour with the CEOS from eighteen Asia-Pacific countries. During the dinner’s opening speeches, the Canadian hosts stumbled while trying to pronounce Zedillo’s name, recalls one Westcoast executive. The most embarrassing point, however, came when the head of the Vancouver Port Authority attempted to engage Mexico’s minister of commerce in conversation. “Do you own a car?” she asked, followed by: “Do you live in an apartment?” (Most Mexican cabinet ministers are educated at American Ivy League schools, perfectly fluent and quite well off, and their preferred mode of transport is a black chauffer-driven Ford Explorer.) The Westcoast Energy people were already squirming in their chairs when the head of the Port Authority managed to outdo herself. As the waiter came over to fill the water glasses, she leaned over to the Mexican minister, lightly touching his elbow, and confided, “In our country it’s safe to drink the water.” As one company executive summed it up: “The Mexicans thought we were a bunch of yahoos.”

  International business veterans attribute this disconnect to the fact that Canadians simply aren’t big travellers. They don’t get out, so they cannot test their perceptions, either of themselves or of others, against reality. The problem is compounded by fact that Canadians are “language phobes,” argues one well-heeled business traveller. After enduring years of being force-fed one of the country’s two official languages, we seem to equate a new idiom with bad-tasting cough medicine. While Europeans easily glide between three or four languages, English Canadians, still haunted by high school French, stru
ggle to string a sentence together. French Canadians, denied the right to study in English if they so choose, are similarly handcuffed. Weighted as it is with politics and history, language, instead of being Canada’s window to the world, has for many become a dead end.

  How else to explain why, for example, a leading Canadian window manufacturer would send two unilingual Mennonites to drum up business in Latin America? “They didn’t speak Spanish, didn’t drink and didn’t smoke— in a place where wine is sustenance and a good cigar is savoured,” explains a marketing executive at the company. “It’s like going to Japan and not eating sushi.”

  One of Milton Parissis’s more gruelling experiences involved a pharmaceutical firm looking to strike a distribution deal in Saudi Arabia. The Canadian company sent a female marketing manager to hammer down an agreement with a Saudi sheik. The meeting had barely started when the sheik leaned over to Parissis and asked, “How much for her?” Parissis tried to placate the sheik by giving him his gold pen, and even offering him his cufflinks. The sheik was unmoved. “Everything has a price,” he said, “and I’ve made a request of you.” Says Parissis, “It was pretty sticky. The Saudis were offended. They were rejected, and you never reject someone in his own house in Saudi Arabia. Needless to say, we didn’t get the deal.”

  Parissis couldn’t even recoup his gold pen as a business expense because he didn’t have a receipt. In what he interprets as a telling indication of Canadian naïveté and his own personal pet peeve, most companies refuse to pay expenses without a receipt, even though most countries, especially developing ones, don’t have formal invoicing systems (try getting a receipt from a Mexican taxi cab).

  Ultimately, those in the field place the blame for Canadians’ approach to international markets squarely at the feet of corporate chief executives and their boards of directors. Described by one European observer as “clubby and indecisive,” Canadian executives rarely have international experience or the stomach for the raucous foreign markets so alien to cozy Canadian board rooms, where everyone knows your name. “ CEOS don’t have global experience,” admits Michael Stewart, former head of Westcoast Energy’s international arm. “I don’t think the capability is lacking, but the thinking is timid and narrow.” Prem Benimadhu, a corporate consultant and researcher with the Conference Board of Canada, agrees: “It’s the mindset we have at the top of organizations. They find it intimidating.” TransAlta’s Steve Snyder doesn’t dispute the problem: “It’s naïve to think a board and management team which has worked exclusively in Alberta is now going to have global brains.”

  As a result, Canadian companies seem to make the same mistakes over and over again. Either overly cautious, seeing a potential threat at every turn, or all too trusting, they move with glacial timidity when boldness is called for, or get duped by those who don’tplay by the straight-laced rules. Overwhelmingly, they underestimate the importance of culture and language, routinely sending people with no overseas experience, assuming that being good at your business is enough to make it work in another country. Consequently, they overestimate their own abilities in markets that are invariably more difficult and costly to operate in— at least if one is not used to them.

  “Canadians have a very immature, incomplete, biased, jaundiced view of what goes on in other countries,” says Ian Mallory, president of Calgary venture capital firm Pickworth Investments. “A lot of what we take for granted about our position in the world can be traced back to a blindness at head office, from people who don’t travel and don’t speak the language.” Adds Pierre Alarie, who worked in Latin America for fifteen years, representing both the government and the private sector: “We need to attune ourselves culturally. We should be the one people in the world able to take advantage of that, and we don’t.”

  Even Scotiabank, which has waded into markets that the rest of Canada’s banking establishment would never dare to enter, is guilty of the same lapses. While it was quite canny in its stealthy acquisition of its Mexican subsidiary, Inverlat, insiders acknowledge that Scotiabank succeeded in taking over the management of the technically insolvent bank almost despite itself. The Toronto head office sent down four rather waspish middle managers, about as culturally attuned to Mexico as Yorkshire pudding, to take charge of more than three hundred branches and eleven thousand employees. “None of us spoke a word of Spanish. None of us had worked in Mexico. We went in there naïve as anything,” admits Peter Cardinal, Inverlat’s former president and Scotiabank’s executive vice-president for Latin America. “We thought, where do we start? Particularly when communications is a problem.”

  To its credit, Scotiabank rode out Mexico’s 1994 currency devaluation, known as the Tequila Crisis, but it took a decade for the bank to gradually up its stake in Inverlat to its current 99 per cent ownership. The plodding paid off, but it nearly drove the Mexicans nuts when it came to Scotiabank’s attempts to buy a second bank — Mexico’s BanCrecer, which together with Inverlat would have given it a 9 per cent market share in the hugely profitable and growing Mexican banking sector. But Scotiabank’s dithering, compounded by the troops of lawyers and interpreters sent down from Toronto, finally exhausted the Mexicans’ patience, says a bank insider. “You just don’t know how to deal with us,” Mexico’s finance minister complained to Scotiabank officials. “You deal with us like we were North Americans. You don’t know how to deal with Mexicans.”

  In the wave of banking consolidation that swept through Mexico, BanCrecer was picked up by another Mexican bank while Citibank, HSBC and the Spaniards scooped up the country’s other major financial institutions. Despite its five-year head start over other foreign entrants, Scotiabank missed the opportunity to buy cheap when it had the chance and as a result, with its Inverlat subsidiary commanding a meagre 6 per cent of the market, has fallen short of its own stated goal of carving out the 10 per cent stake it says it needs. “You need to ask yourself, where are they now? Where were they when BanCrecer was for sale? When Banorte [another Mexican bank] was for sale? Why didn’t they go whole hog and put the banks together?” asks one former executive. “They could have bought far more cheaply six or seven years ago if they had been less Canadian about it.”

  To be fair, Scotiabank had to weigh its Latin American ambitions against those of its shareholders. Corporate executives are often discouraged from taking global markets more seriously by Canadian shareholders who are even more squeamish than they are. When Labatt struck out in 1994 and bought a 30 per cent stake in the Mexican brewery femsa, pension fund managers and institutional investors went berserk, accusing the brewer of being “unfocused, undisciplined” and “too bold.”102 In the wake of a veritable coup d’état, Labatt executives engineered the company’s sell-off to Interbrew, whose Belgian owners looked favourably on the Mexican investment.

  To keep shareholders at bay, companies either downplay their foreign investments, burying them at the back of the annual shareholders’ report, or set unrealistically high benchmarks for their return on investment. One manager of a Canadian asset in Latin America recalls how his company had gone to great pains to keep its foreign venture out of the spotlight for fear its stock price would get pummelled. The company was eventually sold, and two weeks before the ownership transfer the board of directors came to visit the asset for the first time. One of the directors, surprised by what he saw, took the manager aside, confiding: “If I’d seen this before, I wouldn’t have voted in favour of the sale.”

  To offset the risk and assuage the market, Canadian companies routinely insist on a premium when investing abroad, usually in the neighbourhood of 25 per cent. “At that rate you might as well stay home,” says Stewart. “The market is not going to allow you to earn that kind of return on a sustained basis. If you believe you need a 25 per cent return on equity to justify the premium of operating in Mexico, for example, you’re better off saving your money.” Which is why so many companies are ready to pack their bags and head home at the slightest hint of trouble. Before the Tequila
Crisis, the Canadian bottled-water brand Naya was very popular in Mexico. When the peso started to plummet, the water disappeared from the shelves. Naya’s French and Italian rivals, Evian and San Pellegrino, stayed the course, but the Canadians have never been back. *

  To be sure, Canadian companies don’t have the same resources or access to long-term financing as the Europeans and Americans do (which is discussed in the next chapter), but the cost of cutting and running is often far dearer than many realize. “Commitment is a huge thing,” explains Mallory, especially in developing markets, where relationships are key, and trust, in the absence of a reliable legal system and volatile economic conditions, is paramount.

  Foreign businesspeople often remark that they are reluctant to get involved with skittish, attention-deficient Canadians for fear they might bolt when the going gets tough, or just lose interest. “There’s an image among the Japanese that we only want to do business with them once in a while and that we can’t be counted on because we are going to lose interest and disappear on them,” says Chris Lindal, executive vice-president of Viceroy Homes. “They were always worried about that.” Boris Rousseff, the Belgian-based president of the Canada Europe Round Table for Business, agrees. “They act like they’re doing you a favour — there’s an underlying sense they don’t really need the business. If they are in Europe it’s because of goodwill, but they don’t really need it to make a living. There needs to be a 180-degree about-face in the mentality.”

  If not, Canadian companies will continue to falter in international markets. As it is, the track record is less than stellar. “I hear of more failures than successes,” admits TransAlta’s Snyder. The mistakes are not only costly, even fatal, for the companies, but with so few Canadian firms active internationally, high-profile slip-ups threaten to tar the whole country with a reputation for being a global lightweight. “It’s terrible because foreign markets not only write off the company in question, they write off all Canadians,” says Lorna Wright, an associate professor of international business at York University’s Schulich School of Business.