Reflection

During my time in Panama, I can say with confidence that I learned more about international business and logistics than I have in any other semester of my four year college career. The sheer volume of businesses, organizations, and places that we visited was astounding, learning something extremely valuable at each location. Getting to see the Panama Canal as well as hear from all kinds of business professionals in Panama was truly an eye opening experience. I am excited to take this newly acquired knowledge and apply it to my studies in the International MBA Program at the University of Memphis this fall.This trip has undoubtedly reinforced my desire to work in international business, more specifically in emerging Latin American markets.

I’d like to thank my classmates for their hard work, out of the box thinking, questioning, and just being an all around fun group. I wouldn’t have wanted to spend every waking moment of the past three weeks with anyone else. I’d also like to thank Dr. Terry Esper for making all of this happen. His ability to organize so many visits and lectures for us during this three week period while still making it an extremely enjoyable and friendly experience is almost unfathomable, so a huge thank you. While I can say the thought had previously crossed my mind several times, having him as a professor has definitely made teaching on a university level a distinct possibility for me in the future.

Signing off,

Dalton Evans

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Monday, June 1: Panama Canal Railway and the Panama Canal Miraflores Locks

June 1st was the day we had all been waiting for. We were going to see the Canal! But first, we had to make a pit stop at the Panama Canal Railway Company to hear about this integral part of the logistics system of Panama.

We began our day at the Panama Canal Railway Company. The Panama Canal Railway is a 47 mile long track that runs parallel to the Panama Canal from Balboa on the Pacific side to Colón on the Atlantic side and is owned by Kansas City Southern. The railway is pivotal in the smooth operation of the Panama Canal because it moves containers across Panama from Post-Panamax cargo vessels that are too large to traverse the Canal. Additionally, it provides economies of scale as well as increased connectivity between ports on the Atlantic and Pacific sides. One of the main questions on everyone’s mind was, “What would the expansion of the Canal mean for the railway since the larger vessels that were once unable to use the canal would soon be able to?” The answer was actually pretty surprising. The CFO of Panama Canal Railway Company said that they were looking forward to the expansion saying that it was expected to actually help business, not hurt it. His reasoning was that with even larger vessels being constructed that won’t be able to navigate the Canal, there will still be a need for the railway. Additionally, MAERSK takes up about 75% of the rail capacity for the railway and they are committed to it. However, only time will truly tell as to what will happen to the railway.

This was it. The moment that we had been anticipating for months now. We were finally heading to see the Panama Canal. Upon walking out on to the observation deck the only word I was able to muster was “Wow”. I think that was a fairly appropriate considering the magnitude of the operation that was occurring right in front of me. What was even more impressive was that it began operations 100 years ago. The sheer engineering genius and manpower that it took to construct is astounding. While I had an understanding of how the locks functioned, raising and lowering ships from lock to lock, one thing I learned was that every ship coming in to the Canal is operated by a Canal Zone Authority pilot. It seemed like every day we spent in Panama we found out something new about the complexities of the Panama Canal.

Thursday, May 28th: CEVA Logistics and DHL

Thursday, May 28th marked nearly the end of our second week in Panama. Our destination this day would be Parque Sur, a multipurpose strategic location in eastern Panama City. The primary function of Parque Sur is to serve as a  logistic, commercial, and industrial hub in the area.

Our first stop was CEVA Logistics, a 3PL (Third Party Logistics) service provider. A 3PL service provider is essentially a logistics firm that is outsourced by a larger firm to perform a customized order. These orders can range from inventory management, value-added services, and actual transportation. CEVA’s reasoning for operating in Panama consisted of four factors: geographic location, uncomplicated customs regulation, ease of access to Latin American markets, and the size and efficiency of Panama’s warehouse management system. CEVA currently provides a wide array of services including: warehouse and distribution services, inventory management, repacking, local transportation, custom logistic services, and value added services.

Our second stop in Parque Sur was DHL. Being the largest courier service in the world, its no wonder that DHL has such a large office and warehouse in Panama. Our visit was insightful from a logistical standpoint because we were given the opportunity to see the other side of logistics, that of the large scale operation as opposed to the 3PL side. While a decent amount of time at DHL was spent hearing about the company culture and what they stand for, we also heard arguably the single most important statement about logistics during our time in Panama. The DHL Warehouse Manager stated, “Its all about how you handle the exceptions, both company wide and on an individual level” when discussing how to be the best logistics provider. When I heard this its almost as if a light switch went off in my head. I think this has relevance for any business. As a business you’re going breeze through your normal operations but what happens when the unexpected happens? Do you panic or freeze up and potentially ruin future business with a customer or do you rise up to the occasion and show your customer that you truly are the best? Truly some food for thought for any working professional and those who are on their way to be one.

Wednesday, May 27th: Proctor & Gamble and Super 99~

We began May 27th with our visit to Proctor & Gamble’s headquarters for their Latin American operations. Proctor & Gamble is one of the world’s largest multinational conglomerates operating in roughly 70 countries with over 180 products sold. They serve approximately 5 billion consumers and in 2014 had a sales revenue of $83.1 billion. With only 39% of their market maturity in developing countries, it was interesting to get the P&G perspective of operating such a massive business within a region of primarily developing markets. Growing up in the U.S., having all of the P&G products just seemed second nature but here it seems to still be in the market growth stage of many products’ life cycles.

Our second stop of the day took place at Super 99’s headquarters. Super 99 is one of the major Panamanian grocery chain in Panama and is currently owned and operated by former U of A graduates, the Martinelli’s. When the Martinelli’s took over the failing company in 1981 there were only five store. Fast forward to 2015 and Super 99 is the top supermarket in Panama and operates over 40 stores. In our conversations with Mario Martinelli, he told us about the benefits of owning and operating the chain themselves. While Super 99 has been offered to be purchased by Walmart on a continual basis, they refuse every time. I believe it to be due to pride on the part of the Martinelli’s. Mario seemed to put it like this: “We built this place from a failing business to the number one supermarket in the entire country. Why would we sell if we’re obviously doing so well?”. Being in the office, you could also feel the non-corporate vibe that everyone seemed to give off. As we walked through the warehouse with Mario you could see how close his connection to the workers and the company itself were. Right before we left Mr. Martinelli said something that stuck with me that I think could be largely attributed to the success of Super 99. Speaking about the warehouse workers he said, “All of these people in here know more about this warehouse and their job than you or I ever could.” What I took away from that statement is that you have to trust in your workers to know what to do. If you micromanage for them you are just shooting yourself in the foot.

May 26th: Panamcham and U.S. Embassy Visits

On Tuesday, May 26th we had the opportunity to visit the U.S. Embassy in Panama City and Panamcham.

Our visit began with Panamcham, the American Chamber of Commerce to Panama, who is part of the international American Chamber of Commerce organization. Panamcham’s mission is to promote commerce and foreign direct investment between the U.S. and Panama, to promote and protect free enterprise, and to encourage ethics in bilateral business relations. Founded in October of 1979, Panamcham has been key in bringing commerce to Panama from the United States which is important to consider since 19.6% of Panama’s exports go to the U.S. and 22.8% of Panamanian imports are U.S. goods. One specific example of this is with Proctor and Gamble. Through facilitation by Panamcham, P&G has brought in over 1,000 foreign executives to Panama, which has directly led to the creation of several local schools as well as increased FDI.

We followed up our visit at Panamcham with a visit to the U.S. Embassy in Panama. On a personal note, this was one of my favorite visits of my time in Panama as it marked my first time to visit a U.S. Embassy. While our visit was almost exclusively Q&A, were able to learn about the specific functions of the U.S. Embassy in relation to businesses wanting to expand to Panama. The primary function of the embassy in that sense is to provide advice on location of operations and security. I was extremely impressed with the scope of tasks that the embassy takes part in and was also surprised to find out how many different collegiate backgrounds were there, from English majors to Economics.

Day 8: Monday, May 25th

Our second week in Panama has been focused on International trade, business, and government relations. We started the week off with a visit to the clearing house of Banco Nacional de Panama. The Banco Nacional de Panama is one of two government owned banks along with Caja de Ahorros and is the largest bank in the country. Although it is government owned, it is important to remember that Panama has no central bank but Banco Nacional serves some governmental functions that a central bank would typically do. One of theses primary functions is why we visited the Clearing House which oversees all end transactions done in Panama. The Clearing House of Banco Nacional is the department that oversees all monetary end transactions done in Panama. These transactions specifically focus on the processing of the roughly 65,000 paper checks it sees every day. The Clearing House serves as a “middle man” to all banks in Panama in that it facilitates all inter-bank exchanges and has 36 member banks. In order for non-member banks to execute transactions, they must be partnered with one of its member banks. This requirement is primarily for foreign banks and transactions. In addition to processing incoming checks, Banco Nacional is also responsible for the sorting and mailing of Social Security checks in Panama. Due to Panama’s eccentric banking system, it was really interesting to get to see some of the inner workings of one of the more private facilities in Panama and to gain a better understanding of how the country’s banking system operates without a central bank.

Our second stop of the day was at the Morgan & Morgan (MMG) office in Panama City (not to be confused with the Morgan & Morgan law firm operating in the southeastern United States). MMG is one of the top law firms in Latin America and even the world with recognition from those such as Chamber Global, IFLR 1000, and The Legal 500. They also operate in banking and trusts. Our trip to MMG was designed to gain a better understanding of the private banking sector in Panama but more so the legalities surrounding it. One of the most valuable/interesting facts we learned about Panama is that they operate under a territorial tax system. This is especially beneficial for businesses operating in Latin America or are headquartered in Panama. Under this tax system, any sale of products or services outside of Panama will only be tax in the country of sale. This differs from the U.S. tax system in which all transactions are taxed equally whether they occur inside the U.S. or outside of it.

Days 4-7 Weekend in the Interior

On Thursday, May 21 we departed for the interior of Panama to experience culture outside of the urban environment. Our first destination was the National Institute of Agriculture (INA) in the town of Divisa for a brief Q&A with the assistant director. INA is essentially a subsidized secondary school that focuses primarily on sustainable agricultural techniques designed for young Panamanians with an interest in farming. With the western half of Panama being an fairly dry region so being able to use water efficiently and keeping crops alive is an everyday struggle that INA helps its future farmers learn how to do. While this is a business focused trip, INA’s co-founder was a University of Arkansas agriculture professor so it was interesting to see just how wide and strong the University of Arkansas’ influence truly is.

Stop number 2 was a very quick one but was also one of my favorite. On our way to the city of Chitré, we stopped in the town of Parita to see the church Iglesia Santo Domingo de Guzmán which is nearly 300 years old.

Our next stop was the town of Chitré, the capital of the Panamanian province of Herrera. This city of only around 50,000 gave us a little bit better of an idea of how about half of Panamanians live (either in small towns/cities or in rural areas). We spent the day experiencing some of the local culture and cuisine. Our time in the actual city was brief but enjoyable.

The remainder of the weekend we spent at the beach in Las Tablas and La Playita Resort. La Playita Resort was probably the most eccentric resort I’ve ever stayed at for the fact that dogs, chickens, parrots, emus, and a deer roamed the property freely. While most of our time was spent relaxing on the beach, it was still very interesting and pleasantly surprising to see how modernized the Panamanian interior was.

Day 2 and 3

On day 2 and 3 of our time in Panama (May 19th and 20th) we traveled to the Universidad de Santa Maria Antigua in Panama City to hear from two of the university’s most prominent business professors: Dr. Eduardo Pazmiño, Dean of the Business College, and Dr. Donaldo Fong, Professor of Marketing. We began with Dr. Pazmiño and his lecture on the Panamanian banking system on Tuesday, May 19th. One of the most interesting facts about Panama’s banking system is the lack of a central bank, creating a completely market-driven money supply. Another interesting fact is that because the U.S. Dollar is the de facto currency of Panama and as a result, Panama cannot print money with the exception of their official currency, the Balboa, which they only produce in values up to 1. Because Panama uses this pseudo-dual currency system if you will, the Panamanian Balboa and the U.S. Dollar are on a 1 to 1 parity meaning they are essentially equal in value. While this may give the appearance that Panama’s banking system fluctuates as if it were another U.S. territory or state, this is not the case. It is more or less regulated by an independent non-governmental organization called the Panamanian Banking Superintendency. Other interesting facts from Dr. Pazmiño’s lecture include: in the past 100 years only 60 banks have failed in Panama, 50% of Panama’s banking activity is financed from the rest of the world namely Latin America, and there is no depositors insurance in Panama due to the fact that there is no central bank (a.k.a. no FDIC equivalent to pay you back if the bank you use goes under).

The following day, Wednesday, May 20th we heard from USMA’s Professor of Marketing, Dr. Donaldo Fong. This lecture may have been the most informative and important lectures due to its focus on the Panamanian consumers. Dr. Fong began with a few important facts for us to consider about Panama. They include: est. population of 3,608,000 in 2014, literacy rate of 94.1% ranked 65th globally, it is the 2nd largest economy in Central America behind Guatemala, its ranked 5th in Latin America in the Human Development Index, it is ranked as the 2nd most competitive economy in Latin America behind Chile, and it has the highest GDP per capita in Central America. The discussion then shifted to Panama’s service economy. Services represent approximately 80% of Panama’s GDP and primarily include: canal shipping, banking, and transshipping. Another massive part of Panama’s service economy is the Colon Free Trade Zone which is the 2nd largest free trade zone in the world second to only Hong Kong. However, as global competition is increasing and with the Panama Canal expansion looming in the near future, Colon is shifting from a commercial trade zone to a logistics zone to better compete internationally. This eventually led into our discussion of the actual Panamanian consumers. We were given a list of five factors affecting consumer behavior: social, cultural, economic, personal, and psychological. The cultural factor seems to have the most significant impact in Panama due to the near 100 year presence of the U.S. resulting in an “Americanized” feel to the country due to its extensive use of American products and services. This has given Panamanians a strong desire for traditional (or well known) brands. One of the most interesting facts about Panamanians as consumers actually has to deal with automobile and home ownership. With automobiles, roughly 75% of Panamanians buy their cars on a cash basis while only about 25% actually finance.  When it comes to home ownership, only 20% of Panamanians have a mortgage loan and nearly 30% rent their homes. While the these reasons can be argued, I think it can obviously be inferred that Panamanians definitely have a strong tendency to save along with a slight distrust of bank loans. This theory can be supported from Dr. Pazmiño’s lecture the previous day in which he stated that most lending in Panama is predatory and many Panamanians don’t qualify for loans by well respected banks. As a result, your everyday Panamanian usually has to turn to loan sharks who charge extremely high interest rates if they truly need a loan so most probably just opt to pay with their own cash.

Overall these two lectures were extremely insightful into the Panamanian banking system and nearly all aspects of Panamanian consumers. This general knowledge will definitely help in being able to understand more complicated business practices in Panama.

Day 1

Monday, May 18th marked our first full day in Panama and more specifically at the City of Knowledge, a former U.S. military base turned into an “… international community established for the purpose of business, academic, scientific, and humanistic collaboration.” Just a stones throw away from the Panama Canal, the City of Knowledge is in an extremely strategic location, especially for my groups’ studies of International Business and Logistics.

Our day began with a brief overview of the City of Knowledge followed by a quick tour of the area by one of the administrators followed by a visit to the Technopark at the City of Knowledge. The Technopark is an entrepreneurial development program that looks for promising business ideas, particularly in Panama, and provides funding and networking tools that enable entrepreneurs the ability to expand their businesses regionally and potentially even internationally. We were introduced to two of the entrepreneurs in the program, both of whom were Panamanian. The first, Alejandro, was the creator of an online/face-to-face tutoring program that allowed anyone with any level of knowledge on any range of subjects to tutor those desiring help. The customers then had the opportunity to browse through a selection of profiles to select the tutor best suited for their specific needs. The second business was a tourism based website/app called Te Gusta that allowed tourists to book tours, guides, or local events without having to pay extremely high commission fees to hotels. This was a great experience to see how the City of Knowledge is helping local entrepreneurs expand their businesses and aid in the further development of the Panamanian market as a global competitor.

After our tour of the City of Knowledge we met with a local guide named Gloria for a tour of Panama City. I didn’t realize the massive size of the city until I saw it up close. What we came to find however is that the massive amount of construction in Panama is causing two things: the first is that the demand for housing is unable to keep up with the rate of construction so only roughly 80% of residential buildings in the metro area are occupied. The second is that many of the impoverished areas of the city are highly valued areas of real estate. Many construction companies are attempting to drive out the people living in the areas but many of the people living there refuse to sell their homes because they now know how valuable their land is.

Introduction

Hi everyone. My name is Dalton Evans, a senior at the University of Arkansas from Memphis, TN. I am majoring in International Business Management and minoring in Spanish. This blog is going to be based on the International Business Seminar in Panama City, Panama that I will be attending from May 18, 2015 to June 6, 2015. I hope that attending this program will give me an increased knowledge of international business specifically in Latin America. I will be attending the International MBA Program at the University of Memphis this fall and want to work in emerging Latin American markets so I feel that this program will lay a solid foundation for my future studies and employment.