Barbara Murray is Consultant Editor of Families in Business magazine.
Honduras is pulling itself up by its own bootstraps from being a third world state and demonstrating that it can manage the first world's forces of globalisation
Flying over Honduras at the end of the rainy season leaves an image in the mind of colour and contrast. A palette of colour dazzles the eyes: heavy black storm clouds giving way to azure blue skies and seas; every shade of green imaginable from plantations, mountains, gardens and rain forest. As the aircraft shudders its way through the clouds, the pilots seem unperturbed about the thunder, lightning and the prospect of landing in what looks from the air more like a canal than a runway. On the ground, chaos abounds as people pile into the backs of overloaded trucks trying to get to their destinations amid the torrents of water.
Being in business in Honduras means carrying on regardless of what's going on around you. Like the pilots landing in a storm, people and their businesses make the most of their environment, rely on their tools of the trade, and push ahead with the intention of getting by and getting on. Passengers land safely (if a little shaken sometimes) and businesses grow and thrive.
A recent meeting in Honduras shed some light on how similar, and yet how very different, being a family business in Honduras can be. Roberto Leiva, a retired serial entrepreneur is now Executive Director of the Honduras Business Council for Sustainable Development. He recently organised a seminar for a group of family businesses dealing with succession issues. In a roundtable discussion with Roberto and some family business owners, the history and evolution of family business in Honduras was discussed along with their opinions of how to deal with future challenges.
Family businesses in Honduras have proven themselves to be especially adept at getting ahead, despite what's going on around them. They overcome the challenges they face by drawing on their personal resources and connections as entrepreneurs and on the resources that are provided by their location on the Caribbean coastline in Central America.
Roberto explained, "There are no PLCs in Honduras and no stock exchanges. Businesses are private. They are also relatively young, with many still at the entrepreneurial founder stage where the founders are still active and involved, but their adult offspring are working out what forms of family and business governance can help them to stay together in business. This is based on the belief that 'unity is strength'. Many are dealing with the transition of power, control and resources from the first generation to the second at the same time the third generation is considering entering the business."
As with family businesses all over the world, Honduran families aspiring to continuity of their businesses face two challenges: to find or develop enough business opportunities to continue meaningful engagement of the growing number of eligible family members; and to find ways of relating as family members who are in business together in order to manage the issues around equity, fairness, wealth creation and distribution, and being connected to a common dream for the family's enterprise. What is different for family businesses in Honduras, though, is the context in which they are working through these challenges.
For Hondurans, the concept of "stability" correlates to predictability. There have been seven democratically elected administrations in charge of the country since the last coup d'etat in 1963, and no one is expecting political turmoil of this sort again. Ricardo Maduro, elected in February 2001 on the back of a campaign to make Honduras a safer place to live, visit and trade with, has the challenge of eradicating organised crime and diminishing the real fears of kidnappings and of gangs of youths creating terror in the neighbourhoods. The last eight years have seen a transition from a military police force to a civilian run police force. The armed forces have also been engaged in combating crime and security problems, and people are beginning to notice a change for the better.
Then there are natural disasters to contend with. "We had hurricane Fifi in 1974 which was a major natural disaster in our history, and hurricane Mitch in 1998," recalls Roberto. "Many thousands of people were killed and the damage in the private sector, to bridges and the infrastructure amounted to US$5 billion. It really halted the development of the country – some say it set us back a few decades."
One of Honduras's greatest competitive advantages is its location. Honduras is two hours by air and 48 hours by ship to the USA, and boasts the best port facilities in the Atlantic Coast of Central America. "This has been exploited to great economic advantage by the formation of a 'cluster' of companies involved in 'maquila' or assembly of textile products for companies such as Gap and Fruit of the Loom," says Roberto. "Maquila represents $700 million of added value and has created work for 7,000 people. Because of the excellent levels of efficiency, Honduras is ranked as the top apparel supplier to the USA, first among the Central American and Caribbean companies and second in the world." Realising the benefits of making Honduras an attractive place to invest, it offers a permanent tax holiday, negligible succession or inheritance taxes and secure foreign investments.
Jacobo Kattan, CEO of Grupo Inhdelva, has the view that offering competitive labour costs and having a location advantage is not enough to sustain a competitive advantage in the long run. "Assembling goods cheaply and shipping them faster is not enough to stay ahead in the global economy. We have to cover more of the value chain. It's evident that we have to get closer to the sources of design, to R&D and manufacturing machinery. So we're working on creating alliances, for example, with Taiwan for machinery advances and with Italy for design innovation."
Jacobo continues: "We also have the challenge of education here in Honduras. Globalisation has really put us under the spotlight because it controls our economy and we have to develop, in our people, the skills and competencies that our business need to grow now in the future. The unions have a strong impact here, especially in education. In Costa Rica, teachers have incentives to help pupils do well. Here, we should be putting computers into homes, but we're not. There's a big divide between the rich and poor."
Although economists may not realise it, another competitive advantage that Honduras has is its dedication to "family" – and this originates in the heritages of the main cultures who originated or settled in Honduras. Although there are, of course, indigenous Honduran entrepreneurs, the last century saw an influx of Arabic families from Palestine, and this has created a legacy of entrepreneurship which is really the driving force of the Honduran economy. The immigrants were seeking to start again in a new land, juxtaposing their high aspirations for their own lives and for their future generations with often very humble businesses.
Farid Handal explained that for people of Arab descent, "family is like a religion. People are very close. Very organised. They galvanise resources and can work together towards objectives that benefit all. It's a very powerful resource." Reflecting on his own family business history, Farid explained how his grandparents got started in business in Honduras in the 1890s: "My grandfather came over just before the end of the 19th century. He was one of ten kids in Palestine, and there wasn't enough to go around so he left to find his own way in a new land of opportunities. He started by making rosary beads. Once he amassed enough cash, he moved into other areas that were more profitable and offered a future for his kids."
Gloria Hawit, CEO of Baprosa, described the different, yet powerful influence, of family from the Latin context. "It's hard for the family to stay together in Latin families. They are not as disciplined. You tend to find women as the head of the families, and often the men are absent. The women keep it together by controlling the flow of money and keeping people in the home." Until 50 years ago, mixed marriages between Hondurans and Arabs were rare, but that has all changed. "It's now very common. There are no tensions in mixed families or among employees of different backgrounds working in the same firms," says Gloria. "We're not affected by the events affecting people in other parts of the world. Gender and racial bias are not a big issue here."
"Another feature of Latin 'family-ness' is what we call 'la remesa familiar'," explains Roberto. "This is the money sent back to Honduras by family members who went to the USA for work. Mothers that left behind kids, relatives, etc. It's very significant as a source of currency for the economy as it brings in around $670 million a year (2002 estimate). We have 25% unemployment and our demographics are unusual because around 70% of the population is under 25 years old. So, how families find a way to finance themselves is very important, even though it means the family is split up."
"Unlike other countries," explains Roberto, "Honduras does not have many wealthy families with 'old money' who influence business and society. Many families have taken on franchises, for example, for beer, cigarettes, bananas, Coca-cola and so on, and they have done well, but we don't have any empires or Zaibatsu like in Japan."
By building a picture of entrepreneurial families developing their businesses, the key questions remain around how they can finance growth if companies are funded by private equity and there are few sources of outside investment. Since families grow in size very quickly, how can their businesses create opportunities for more and more family members, especially if there are funding restraints? And given the relative dangers of Honduras if the issues of organised crime and personal security are not resolved, will parents really want to plan for succession and continuity if this means keeping the family in Honduras?
Roberto explains how this is being worked out by some families at present: "Families do this by diversification. They seek out opportunities and fund them to the extent they can from within their own resources, effectively creating their own 'grupo'. This works out well as long as there are resources around to draw on, and opportunities to exploit. But when they hit hard times it doesn't work as well. There are a lot of opportunities now, especially in franchising and consumer goods on the back of our good links with the States."
Case study: Del Tropico
Husband and wife team Luis and Jeanne Marie Fernandez started in the furniture business in 1983. Later they founded Del Tropico. Now with 400 employees, the company exports 75% of the garden furniture it designs and produces to the USA and 25% to Europe. Theirs is a good example of how entrepreneurial families seek out the advantage that a tough environment offers, how they get by and how they get on.
In the 1980s, Luis was ready to stop working in a multinational firm and start a business with his wife, Jeanne Marie. He knew currency constraints were a real problem in import businesses and knew it made far more sense to export "because you could manage your own currency." After commissioning an assessment on the export potential of Honduras, which showed that the furniture industry had good potential, they focused on natural wicker products, based on their belief that the market demand for such distinctive products would endure. Having identified a product and a potential market, they needed to cultivate channels for distribution and concentrated on working with a small number of family businesses in the USA and were able to get their high quality goods to the final consumer.
After a few years, they developed the idea of producing a synthetic wicker that would allow them to create all-weather outdoor furniture for both the domestic and commercial markets. By targeting only the high end of the market, they were able to create a competitive advantage based on several factors. One factor related to the location benefits that Honduras offers: they can produce their goods at short notice and have them with the customer in much less time than their competitors in the Far East. The second factor related to the vision they developed from the outset of creating value along the chain and controlling this in-house. Luis explained, "We had to define where we wanted to compete. We're not the mass market – the Far East has that. We defined it as high end, very high quality products and designs. We can develop many pieces in one season. Most are deep outdoor collections, some with as many as 25 pieces, allowing consumers to meet all their needs with Del Tropico. Most suppliers don't do that. They supply the basic three pieces," contrary to the furniture "factory boutique" concept that Del Tropico offers.
Although it may appear that the Fernandez family have succeeded at creating a business just like any other family business who have defined their own niche, their achievement is different because of the Honduran context. Jeanne Marie explained: "Honduras is not known for exporting such premium products. Many people are surprised when they hear where our goods are made. People need to take into account where we are and how we do what we do. For example, we have to be competitive with the Far East, where they pay only one-third of what we pay here, and they pay no benefits. We have to budget carefully. We have very little staff turnover because we look after the staff, offer world class training and provide career opportunities.
"I would say that part of what we have achieved here comes from being able to work with a third world context and take our products to the first world and really compete on this level. We're competing in the big league. It's not easy for our local workers, many who live in very humble conditions, to understand where our furniture is going. It's going to a wealthy home, to an educated consumer, who pays for and demands high quality. We have to translate excellence right down the value chain."
Luis and Jeanne Marie have three children, and succession is clearly on the agenda for the family and for the family business, as the following recent conversation at their factory shows. The eldest child is Luis Rafael (22), studying Business Administration at the University of Miami who also works together in Miami with his fiancée Karla on developing marketing opportunities for the family business. Natalia is the middle child (19), currently studying design and marketing at Florida International University. Daniel is the youngest (10).
Barbara Murray (BM): What are your future aspirations as a family in business?
Luis Fernandez (LF): We wouldn't impose it on my son and our children. They can take it on if they want to.
Jeanne Marie Fernandez (JMF): We'd like them to contribute to it but in other parts of the business in the USA.
LF: There are three key areas there: Design and Development; International Marketing; and Manufacturing. We started the manufacturing here in Honduras but it makes sense to have the design and marketing where the market is. We want to turn it around: view it from the perspective of what the market wants.
BM: So you think a succession is possible?
JMF: Yes, they are already involved. We speak on the intranet every day along with the top non-family executives – everything is shared. Luis and Karla have gone to the trade show in New York and will be setting up the next one in Las Vegas.
BM: Would you encourage them to work elsewhere or to come in straight away?
JMF: I've always thought it would be better for them to work elsewhere for a while – to learn by working for someone else. But the problem is we need them as soon as possible and they seem to be inclined to come sooner rather than later.
LF: This business has space for many talents and it offers many opportunities.
JMF: They can work for the company without being under our constant supervision. They can have their own space. It allows us to work in harmony.
LF: We're educating our children not for Del Tropico or Honduras, but for the world. We're fortunate. They are intelligent, hard working, good students. There are many family businesses in our industry too – some are very large corporations. It's about being in business, not necessarily in the furniture business.
BM: As parents, do you want your kids to be in the business but not to be in Honduras?
LF: In this business we can encourage them to be in the family business wherever it is convenient for them. I'm encouraging them to think of the world as their opportunity. Our country has its limitations, we know this. We're educating our children to be citizens of the world. There's always room for excellence in the world. Strive for this and you'll get plenty of opportunities.
Getting by and getting on
Honduras is pulling itself up by its own boot straps from the third world state it still is by demonstrating that it can manage the first world's forces of globalisation through exploiting its advantages regardless of other constraints and setbacks society, nature or politics may throw its way. Some of the key players behind this success are the Honduran entrepreneurial families. Family businesses there have endured despite natural disasters, societal difficulties and an infrastructure not yet able to provide a level playing field for businesses operating in an international context. By leveraging the strength of family bonds and resources, the Honduran characteristic of getting by and getting on has led to success which stands alongside other world class family businesses.