Nature’s Bounty

March 14, 2009 at 4:46 pm | Posted in School, Travel | Leave a comment
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Behind the Vale

Time to get serious. To the business of business.

logo_valeOur first visit was with Vale, a $60B Brazilian mining company focusing on the extraction of iron ore, nickel, copper, and, recently, coal. Having seen their revenues skyrocket since they transformed from a government run business to a privately managed company, it was nice, for a change, to hear a story about the success of a free-market system rather than the heralding of its impeding doom.

We listened to our speaker tell us rather enthusiastically about the 40% and 50% price increases that Vale had gotten for their materials as the commodities market soared, but noticed a distinct change in tone when the prospect of this years pricing was raised. I suspect, that like many other manufacturers right now, the spectre of 2009 price increases (or lack thereof) looms menacingly over their head as a generation of managers raised in the the boom times begin to accept the reality of coming price decreases.

It was also refreshing to hear a business discuss the use of coal in a non-emotional manner for a change. We may not like it, it may not be the cleanest source of energy, but the reality is this: it is cheap, it is safe, and it is prevalent. Green, not green, regardless; we will be using this material for quite some time.

Lastly, a lengthy discussion of the substantial cash reserves the company was sitting on. What contrast to the heady days of just a few short years ago (read: pre-financial collapse) when large corporations like ABB were executing their CEO’s for sitting on too much cash and not expanding quickly enough. The stakes have changed, the world is unsure, and cash is king once more.

Closing remarks, a trip into Vale’s Google-esque “decompression chamber” in their office building, and we were on our way. Perhaps with a little more of the Captain in us after leaving that silly, silly room, perhaps a tad too decompressed.

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Texas Tea

Next up was a visit to Petrobras, a Petrochemical company that existed in Brazil as a monopoly until 1998 when the market was first opened to imagesoutside competitors. Naming their sixty-two new competitors rather offhandedly, one can understand how they may find it difficult to take these upstarts, like Exxon and Shell, serious when you’ve had a 45 year head start.

Petrobras walked us through the two main drivers of their business: technology and supply. An exhilarating review of the decade-long improvements to their offshore drilling capabilities, leading to the recent discovery of an undersea oilfield of unfathomable size, ending with a question:

“Had we not invested in offshore drilling in the late 70’s, we would currently only be producing 15% of our own oil. Can you imagine a country like that?”

To a group of American MBA students, he asked this question. Many sighs and shaking of heads soon followed. It must be said, in reflection, that these are the effects of the long term decisions that our rather myopic government delays year, after year, after year. No we cannot drill. No we cannot develop. No we cannot put that there.

Petrobras recent oilfield discovery will create 139,000 new jobs in Brazil during 2009. As we gear up for the highest unemployment in years back in America, I worry that the people we choose to make these decisions are rarely looking beyond their next campaign.

It was refreshing to see a country where such long term vision is indeed paying off.

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