Raquel Fernandez PorrasJournal #1
I am already at week three of my internship at the Costa Rican Ministry of Trade and so far this experience has been extremely enriching. I have been assigned to work for the Director of Investment and Cooperation in various topics ranging from commercial free trade negotiations to developing new commercial legislation. In addition, I have been attending various meetings sponsored by NGOs and private firms.
In effort to supply a brief history, Costa Rica is a small country in Central America economically dependent on exports and less on Foreign Direct Investment. In the last years; however, the administration has tried to attract multi-national companies that currently employ thousands of Costa Ricans in effort to increase the country’s productivity. Even though in the last few administrations the country has faced corruption scandals involving three out of four of its past presidents, electorate apathy has increased to new records. The country has resisted the populist pressures affecting its neighbors of Latin America. Moreover, in the midst of a global financial and political crisis faced by Latin America and the world, Costa Rica is at a crossroad that will forge its future in the next decades to come.
When I took the course International Development and the Private Sector with Professor Fisman, I joined the quest to find the reasons why nations are poor. After a rigorous analysis of different factors we concluded that part of the problem has to do with the lack of capital in poor countries or K; the same variable studied in our Macroeconomic classes related to the production formula. This concept, the importance of K, was reaffirmed to me yet a third time when I was able to accompany the Director of Investment and Cooperation to a panel about a reform on a legislation proposed to Congress. At the time I didn’t know there was also another important underlying lesson to be learned.
Currently, Costa Rica has among its policies the ability to attract capital; a Free Zone regime of which 52% of all national exports and 22% of FDI happen. The World Trade Organization is demanding Costa Rica to abandon export subsidy practices in these regimes which go against its beliefs. If K is mostly attracted through a Free Zone regime, what should Costa Rica do? Alberto Trejos, former Minister of Trade, was the main speaker in the conference and explained the importance of reforming the regime to please the WTO while avoiding unnecessary changes that could damage the attraction of direct foreign investment. Complying with an international organization like the WTO in an ever globalized international market is not only a political move, but an economical one. The legislative reform dropped the export subsidies and maintained the benefits for FDI firms. There was a clear understanding among all parties that Costa Rica’s success was no longer dependant on exports only, as it traditionally has been, but in its capacity to prioritize FDI and the attraction of more sophisticate K while remaining a complying member of the world market. The solution was evident, and seeing that the strategy was somehow supported by various sectors was comforting.
As we have learned in many strategy classes, there are different ways to compete in private businesses. Can we apply the value stick to a government and a country? Is Costa Rica cost effective or does it differentiate itself? Is the country a Gucci, a Wal-Mart or a Zara? My belief is that through the right attraction of K, Costa Rica could compete both through cost and differentiation strategies. The ideal place for an investor is one that offers cheap inputs such as labor and resources, while at the same time offering efficient, innovative and sophisticated processes protected by a legal framework and enforced by the central government. Costa Rica is in a position where it can compete internationally by offering cheaper inputs than developed countries and with an investment climate that is at par with them. In fact, one of its main efforts is to improve its investment climate and attraction with innovative legislation and the negotiation of free trade agreements with the biggest countries and areas in the world including the United States, the European Union and most recently, China.
I realized the good news as of this last month is that Costa Rica has the core competencies to succeed. The bad news is that there is still a lot to be done, especially in the leadership and coordination fronts. Lack of infrastructure, excessive legislation and education dropout rates remain important threats to our potential development which also influence FDI. Coordinated efforts like the one I witnessed while facing the Free Trade Zone regime dilemma is what this country needs to succeed. The Ministry of Trade prides itself in being one of the highly functional public entities in this nation. I guess one of the most important lessons that I have learned so far is that the attraction of capital, K, is only an ingredient for our success. The ability to coordinate and execute the recipe remains the true solution for our country’s problems.
Journal #2
About a week ago I was invited to be part of the team in charge of negotiating the chapters of Intellectual Property and Cooperation for the Free Trade Agreement between China and Costa Rica. It was a great learning experience that allowed me to appreciate negotiation from an angle I had never seen before. All the techniques we learned in the course Leadership Development were put to practice and the whole situation reminded me of the most intellectually challenging and sophisticated game of cards.
Imagine this: two big groups of people get together sitting in opposite directions. There is minimum signaling of gestures; diplomacy rules the environment, and there is a constant assessment of each other’s interests and goals. Each of the parties has their own cards and is waiting for the minimum sign of hesitation or doubt to strike their best ace. This is not a description of what happens in Vegas or Monaco, but what happens in negotiation rounds around the world that mold our global economies. As an observer, this dynamic is extremely interesting, and as a business student it allowed me to appreciate tactics we learned in the classroom to real life scenarios. In order to better understand these set of skills, I was able to arrange an interview with the Costa Rican Chief Negotiator, Mr. Fernando Ocampo, to further clarify this dynamic.
Mr. Ocampo has worked as a negotiator for 15 years and has six free trade agreements under his belt. He has a bachelor degree in Law from the University of Costa Rica and a master’s degree from the London School of Economics. According to Mr. Ocampo, a good negotiator has a set of skills that are teachable and can be learned. They are skills that are developed through the years. However, there is not one single recipe for negotiations even if the subject matter is similar across trade agreements. For example, negotiating with Central American countries is completely different than negotiating with China. In Central America everyone negotiates in Spanish and the sense of style is very similar given our cultural background. On the other hand, negotiating with China is more formal and conversations take place in multiple languages (Mandarin, Spanish and English) creating occasional confusion and language barriers.
I realized from observing this dynamic that the concepts we learned in class are used every single time. Mr. Ocampo talked about the preparation that the Costa Rican teams have before the rounds. How they meticulously study other agreements that China has had with different countries and adapt them to the needs of the Costa Rican economic sectors. He also told me how the team develops a strategy that takes into account the opponent’s “pay-off table” and the national goals we have; and how important it is to take into account who initiated the negotiation to better asses each parties’ bargaining power. Finally, the teams develop contingency plans and tailor responses to anticipated counter arguments.
Even though this seems like a pretty straightforward method, negotiation is also an art. Since the text is really a legal contract, the interpretation of words has to be done in a cautious manner, and it may vary across cultures and languages. A rigorous study of your opponent’s culture is key for a successful outcome. Language is not the only variable to be taken into account; differences in social interactions, are also important. For example, Central Americans tend to have a lot of physical contact among each other (hand shakes, hugs and eye contact) which would be considered impolite in China. Therefore, a complete understanding of cultural differences and the capacity to intuit your opponent’s thoughts and reactions make the difference.
Costa Rica’s export activity is the cornerstone of its economy. Opening our trade barriers to regions like Europe, China and most recently Singapore will be a catalyst for our success as a nation. Thankfully, we can learn the art of negotiation. Moreover, having witnessed the great impact that these set of skills can have in economies and companies, I encourage everyone to take classes in negotiation to help you tune up these set of skills.
Journal #3
A few months ago the New York Times published an article “Drill, Baby, Drill” about Costa Rica’s exemplary approach to sustainable investment. The article referred to Costa Rica as the only nation that puts energy, environment, mines and water all under one minister in order to bring economic growth and environmentalism under a single umbrella. Now the Ministry of Trade is engaging in similar strategies with their trade policies, and I was lucky to witness this effort.
The Ministry of Trade is in charge of five main areas: promoting national exports, attracting foreign investment, engaging in commercial negotiations, administering free trade agreements and serving as a communicator of actions with the country’s economic sectors. Given our economic nature, most of the nation’s productivity is a reflection of the Ministry of Trade’s day-to-day business. Therefore, having acknowledged that Costa Rica is internationally positioned as an environmentally friendly country, sustainable development and green initiatives are the inevitable transversal axes to manage our economic activities.
As a matter of fact, Costa Rica was the first country to make the green pledge – become the first carbon-neutral country. The country has definitely walked-the-walk as it maintains twenty five percent of its area as protected reserves. Furthermore, it has over eighty percent of its energy generated through renewable resources, and it has been a pioneer in the use of sophisticated financial instruments like “debt-for nature” swaps in historical deals with the United States. Due to all of this, it was the Ministry of Trade’s realization that this green trend should be part of Costa Rica’s commercial strategy.
According to Miss Alejandra Aguilar, Chief Negotiator of Sustainable Development, the Costa Rican Ministry of Trade has not only followed the precepts required by the WTO and incorporated similar chapters in its commercial negotiations, but it is also launching an initiative to market green goods and services abroad. The Ministry has identified several companies with green products and services from organic food to waste management services and is ready to make it part of its economic strategy.
In Michael Porter’s Competitive Advantage of Nations, the HBS professor, offered a model to understand the competitive position of a nation in global competition through 4 advanced factors: firm strategy, demand conditions, related supporting industries and factor conditions (specialized labor or sustained investments – none easy to replicate). It is my belief that Costa Rica has the 4 factors to develop a sustainable industry in environmentally friendly portfolio of goods and services. Furthermore, the government has demonstrated to actively “act as a catalyst and challenger; it is to encourage or even push – companies to raise their aspirations and move to higher levels of competitive performance”.
I think Costa Rica is in the right track toward differentiating its economic strategy, and I think that the Ministry of Trade has played a fundamental role in this initiative. Sustainable Development, green initiatives, environmentalism and other new and interchangeable terms will be bullish markets in the next decades to come given global warming and international pressures from Copenhagen to Washington D.C. I firmly believe our generation has been given a great gift despite the terrible situation we are facing. We can be the parents of an industry meant to reverse what previous generations ignorantly engaged in. It is not only the chance to lead redemption, but an opportunity to finally engage in a profitable industry and a win-win situation for Costa Rica and the world.
