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Medellin in the news for all the good reasons, again

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Medellin in the news for all the good reasons, again

Postby publicduende » November 26th, 2012, 9:51 am

Knowing full well some of you see a relocation destination as a potential hub for their business, here's what FT had to say about Medellin.

Colombia turns a new leaf

By Andres Schipani

A man looks from a window above a portrait of late Colombian drug lord Pablo Escobar, during the opening of the first mausoleum for victims of violence in Colombia at the Benedictine monks convent, in Envigado municipality, near Medellin, Antioquia department, Colombia on July 6, 2012. The place was once the prison known as "The Cathedral", where late Colombian drug lord Pablo Escobar was held.

Back in the days of drug kingpin Pablo Escobar, the option was stark and simple for many of Medellín’s businessmen: either plata (money), or plomo (lead). “One of my predecessors was shot out there,â€￾ says José Vélez, president of Grupo Argos, Colombia’s leading cement producer, pointing at the avenue across from his office.

The drug-fuelled conflict between the army, paramilitaries and the guerrillas made things worse. Across the street from Argos, Carlos Piedrahíta, who leads Grupo Nutresa, the country’s main food processing company, recalls: “When I was simply a manager here, my father was kidnapped and I had to be the negotiator of his release.â€￾

Colombia’s second city was once known as the world’s capital of kidnappings, murders and drug trafficking. But since the violence diminished Medellín has become known for an entrepreneurial spirit and culture that have made it the country’s business flagship. Features introduced by its corporate leaders – including a collective structure of cross-shareholding and a conservative approach to risk – developed against the backdrop of the narco wars of the 1980s and 1990s, have gained world recognition.

Few organisations embody this more than Grupo Empresarial Antioqueño, or GEA, a holding group popularly known as the Sindicato, or trade union. According to Mr Piedrahíta, the Sindicato Antioqueño does not exist as a structured organisation. “It is more of a philosophical construction; when the three of us meet, we meet for coffee as friends and share ideas on how the business should be run,â€￾ he says, adding: “What we have in common is a philosophy of austere business ethics.â€￾

Nutresa, originally known as the Grupo Nacional de Chocolates, Grupo Argos and Grupo Sura, one of the country’s biggest financial groups, are the three legs of the GEA, Colombia’s largest business organisation. This interconnected shareholding structure is regarded by some as being similar to a Japanese keiretsu, a series of conglomerates with interlocking business relationships.

The Sindicato contributes between 6 per cent and 7 per cent to Colombia’s $344bn economy and directly generates more than 110,000 jobs.

Unity, especially in rough times, has been the crux of success. “We were born as a group as a result of a move of a group of companies from this region to protect themselves from hostile takeovers in the late 1970s and early 1980s,â€￾ explains Mr Vélez. “We stayed united to survive the hostile takeover attempts from the mafia, now we stay united to survive the hostile takeover attempts from abroad.â€￾

Most of Colombia’s biggest publicly listed companies are from Medellín, which is not surprising. Traditionally, when middle and upper-class children are baptised or take their first communion, they are given shares in the city’s businesses.

The paisa, as the locals are called, are known for turning a profit in any business. Historically, Medellín was ruled by a handful of textile and mining industrialists and coffee landowners; then came the narcos; then global businessmen took the reins. “Businessmen here had to walk between car-bombs and pressures, but they did not sell their companies, they did not leave. On the contrary, these companies became a sort of institutional trench,â€￾ says Juan Sebastián Betancur, who heads Pro-Antioquia, a pro-business think-thank in Medellín.

Mr Vélez says the worst crisis was during the reign of Escobar, when not only were managers threatened but some narcos also pushed to take control of companies by buying shares.

“During the worst times of the violence we found more tenacity to go forward, because we knew that the only way to beat violence was to contribute to better the social conditions of the country,â€￾ says David Bojanini, the CEO of Grupo Sura.

Initially, outsiders believed the GEA would operate in the same way as the northern Italian business fiefdoms, where corporate power is exercised through amicable shareholder agreements and networks of cross-shareholdings. However, in Medellín there are no ties that come simply from the ownership of family firms, such as Benetton, Agnelli or Pirelli.

The three GEA leaders define themselves as “middle-class menâ€￾ who started as trainees and climbed to the top thanks to intellectual drive – the three studied overseas, in the US or Britain – determination and hard work. “It appears curious to many investors that the group is not run by any particular family, and that it is the democratic property of thousands of shareholders,â€￾ says Mr Bojanini.

Also unlike the northern Italian industrialists, who were mocked with the slogan “Agnelli, Pirelli, ladri gemelliâ€￾, or “twin thievesâ€￾, nobody calls the GEA leaders the triplet thieves. They are seen as a positive force behind Medellín’s survival through rough times and its subsequent boom. For Rupert Stebbings, managing director of the Medellín-based brokerage company Celfín Capital, the trio and their businesses are the “engineâ€￾ behind both the organisation and the city’s success.

The three companies have turned into leading examples of so-called multilatinas – prime local companies that can look at multinationals with schadenfreude. The GEA was criticised in the past for lack of leverage and conservative attitude, explains Mr Stebbings. “But that same behaviour has seen them ride out the tough global environment of recent years and move into an era of rapid expansion based on those same underleveraged positions that gave them access to cash exactly when it was most advantageous,â€￾ he says.

Last year, Sura paid $3.6bn for the regional assets of Dutch bancassurer ING Groep, and is currently buying a Chilean brokerage and Peruvian insurance company. Its banking wing, Bancolombia, is the country’s leading bank. Nutresa will acquire American Franchising in Panama, after buying Fehr Holdings in the US, producer of sweet biscuits such as Lil’ Dutch Maid. “Last year, we sold $2.8bn total, and almost $834m outside of Colombia,â€￾ says Mr Piedrahíta. Following the acquisition of French group Lafarge’s assets in the southeastern US for $760m, Argos is the fourth-largest concrete producer in the US, derives 26 per cent of its revenues from the country, according to Mr Vélez. He believes the GEA has gone from a focus on Colombia to geographical diversification and concentration on specific businesses.

“In the past few years we have prepared ourselves to compete in a globalised world, not just staying put in our Colombian trenches, waiting, but ready to face the global market,â€￾ says Mr Bojanini. “The issue was simple: we were already leaders in Colombia, so we needed somewhere else to try ourselves.â€￾
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Postby Jester » March 3rd, 2013, 8:16 am

Thanks for this excellent post. I had heard of this group before, but never before found detailed information about it.
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Postby publicduende » March 3rd, 2013, 5:58 pm

Jester wrote:Thanks for this excellent post. I had heard of this group before, but never before found detailed information about it.

My pleasure. These emerging tiger cubs should have a bit more exposure on the international press. But then, in times of globalised pain, it's easier for ailing first world countries to look inwards than to the few economies that are still moving forward, or trying to.
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Postby zacb » March 3rd, 2013, 6:49 pm

Thanks for the good article. I wish some of the companies in the US were like this.
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