Interview with William and Wilson Ling
William and Wilson Ling are shareholders and board members of Petropar S.A., one of the major producers of aluminum beverage cans and plastic closures in Brazil, and the world’s second largest supplier of lightweight spunmelt nonwovens fabrics for disposable hygiene applications.
Kaizen: To start with your background and how Petropar began. You were born in Brazil?
Wilson: All four Ling siblings are Brazilian—Winston (born 1955), William (1957), Rosa (1959), and Wilson (1961).
Kaizen: Your parents immigrated from China in the 1950s?
William: Our father, Sheun Ming Ling, was born in Beijing in 1921 and was raised in Wenzhou. He left China in 1948, in the wake of the communist revolution, first to Taiwan. In early 1950 he went to Hong Kong where he met Lydia Wong who was born in 1928, in Shanghai.
Our father wasn’t educated in a formal school; he was homeschooled. It was usual at that time for families to do homeschooling. So basically his education was at home with private tutors.
He lost his father when he was young—at age 12. So he stopped studying and started working as an apprentice. He joined the China Vegetable Oil Company (CVOC), which was a large entity with state and private ownership that had a virtual monopoly in the vegetable oil industry. It was there where he acquired all his experience in this industry. But he always worked as an accountant or as an auditor. He wasn’t involved in operations. He knew the operations from his work as an auditor.
Kaizen: His initial goal was to go to the United States, but he wasn’t able to get a visa?
William: Yes. Since he never went to school, he wanted to attend college, to get a degree. So he went to Taiwan, visited a university, interviewed with a professor, and the conclusion was that he already knew so much about accounting that he was able to teach instead of study. The professor told him, “If you want to get further knowledge, go to the U.S.” Then he thought, “Okay, I need to go to the U.S.; I need to get a visa.” So he went to Hong Kong and applied for a visa.
Wilson: It was during the Korean War, in 1950.
William: He wasn’t able to get a visa in Hong Kong. He and a group of friends were told that it would be easier for them to get a visa at the U.S. Embassy at the Vatican in Italy, because 1950 was a special year, a “Holy Year”.
Wilson: Rome was receiving people from everywhere. If you could claim you were a victim of religious persecution, you would be granted entry. So there were a lot of refugees in the Vatican that year.
William: He went to Rome, but his visa was denied. After six months, unable to get the visa, our father and his fellow Chinese emigrated to Brazil.
Kaizen: Why did they choose Brazil?
William: His former coworkers at CVOC acquired Incobrasa, a vegetable oil company based in Porto Alegre, the capital of the state of Rio Grande do Sul. Regarded as a very competent, high potential and trustful young executive, our father was invited to join the group and move to Brazil. With no family and nothing to lose, he ended up here. He was 30 years old, had little money, and couldn’t speak a word in Portuguese.
In 1953, after drifting between Porto Alegre and Buenos Aires, he got married to Lydia. He moved to Santa Rosa to start his own business, a small factory called IGOL, with the support of his partner, Mr. Charles Tse.
Kaizen: Growing up, what was your formal schooling like?
Wilson: Except for William, who attended the Military School of Porto Alegre, we all went to private schools in Porto Alegre. Our mom was a traditional Chinese “tiger mother” and ensured good academic performance; Winston and I always excelled at school.
Kaizen: Where did you go to college and what did you study?
Wilson: The four of us went to college in Porto Alegre: Winston studied economics and engineering; William has a BA in Business Administration; Rosa is an architect; I have a degree in Systems Analysis.
Kaizen: At that age, what were you thinking your likely career would be?
William: There was an expectation that we would go into the family business. When we were younger, they never explicitly told us, “You’ll succeed us in the family business.” But when we started thinking about working, this issue came out. Even when we were very young, our father used to take us to plant tours and to spend time at his office. We used to spend school breaks doing internships, learning the work flow in the office and the industrial processes in the factories. This exposure influenced our career choices.
Kaizen: You studied in the United States for your MBA degrees, at Stanford University and the University of Chicago?
William: Winston did graduate studies in economics at the University of Chicago. Wilson got his MBA from Chicago Booth in 1983. I went to Stanford GSB to earn an MSc in Management in 1992.
Kaizen: Why Stanford, William?
William: The weather! I didn’t want to face Chicago’s winter. We went in different stages of life. Wilson graduated from Chicago at age 22. Winston was there in his early 20s. They were single. In my case, I was married with two young boys. I chose the location thinking of them.
Kaizen: For your master’s degrees, did you specialize, or was it general management training?
Wilson: I took finance at Chicago, but as a concentration. I was always thinking about general management. You need a specialization or credentials for an entry-level job.
William: In my case, the focus was on strategy and organizational development. I went to Stanford in 1991.
I was the first to work at the family business, in 1975, as a trainee in the commodities trading office. Later I was transferred to CRA, a fertilizer company acquired in the late 70s. I became deputy director of Olvebra Group after working in a major organizational restructuring in the company. With the creation of Petropar, I became its executive vice president.
Kaizen: Wilson, when you finished your MBA at Chicago, you went and worked for some other organizations?
Wilson: I had brief stints in the financial industry after Chicago, first at Citibank’s investment bank Crefisul in São Paulo, and after at Terramar, a brokerage firm controlled by the Ling family. When Petropar was formed, I joined as CFO.
Kaizen: Over the last decade or so, Brazil has been experiencing an entrepreneurial boom—plus it is hosting the World Cup of Soccer in 2014 and the Olympics in 2016. With all of this activity, Petropar is well positioned for growth?
William: Yes, we are well positioned for growth in both emerging and mature markets. We are well diversified geographically and operating in sectors of the economy that are anticyclical and somehow insulated from Chinese price competition.
Kaizen: Petropar was founded in 1988?
William: Yes. Petropar is a spin-off of Olvebra Group, founded in 1955 as IGOL.
Our father started the business with Charles Tse, his boss and mentor at CVOC, where he spent most of his career in China. They bought IGOL, a small soybean processing plant in Santa Rosa, in the Missionary Region of Rio Grande do Sul, the southernmost Brazilian state. They grew the business aggressively by acquisitions. IGOL became one of the largest soybean oil and meal producers in South America. Later on, it became a diversified industrial conglomerate and was renamed Olvebra Group.
In 1988, Olvebra Group was split into two different branches. Each of the controlling families, Tse and Ling, ended up with one group of businesses in a very friendly process.
Kaizen: Who in your family was involved in the business at this point?
William: Four of us. My father, myself, who had been working with our father since 1975, Wilson joined in 1988, and Winston was involved in the Fitesa business at the time. Fitesa was basically in fibers and textile fibers and had recently started in nonwovens. So Winston was involved on some occasions with Fitesa.
Wilson: The year 1995 marked the transition of generations—William took over as CEO, and I as VP and CFO. Father kept chairmanship of the Board of Directors. He fully delegated his authority to us and has not interfered since then; he has let us run the show.
In 2005, we stepped down and non-family executives were promoted as CEO and CFO. William and I sit on the Board of Directors, and on the Executive Committee. I also sit on the Tax Planning Committee and oversee the financial and legal aspects of the business. William is active in the Human Resources Committee and corporate and family governance issues.
Kaizen: What was the initial business plan for Petropar?
William: After Olvebra’s restructuring, the goal was to grow aggressively in petrochemicals and plastics.
Our plans changed with President Collor’s administration in 1990 and the Real Plan in 1994. The Collor Plan opened the economy and removed protection to local companies. The Real Plan eradicated inflation and raised interest rates to record highs. Petropar’s old business model was successful in the past due to low competition, there being no need to invest heavily in innovation, the availability of tax incentives, and subsidized credit from government development banks. The new macro environment changed the critical fundamentals for business success.
Kaizen: Was the transition challenging for you?
William: [Laughs] We had to reposition everything; re-shuffle everything.
Kaizen: Why did you choose to move away from the food-based businesses?
William: The Olvebra Group was very diversified, which was an outstanding learning opportunity for us. During the Brazilian Miracle years of the 1970s and into the 80s, we diversified into plastics, textiles, packaging, navigation, petrochemicals, food and agriculture, financial services, and forestry. We were driven by market growth, cheap and easy credit, and vertical integration opportunities.
Some of the key opportunities we invested in were: metal cans to pack soybean oil; woven plastic bags to pack soybean meal and fertilizers; fertilizers to leverage strong relationships with grain producers; and ships to lower the logistics costs of bulk soybean oil and meal.
Wilson, Winston, and I knew from experience that diversified conglomerates probably weren’t the best way to structure a business because it would be very hard to be competitive in all of these activities. We didn’t have the expertise needed across the board and were not willing to bear the level of risk, especially in the commodity side of the businesses. We wanted to act less as operators and more as strategy-setters for all the businesses. We didn’t want to get involved in operations. We wanted to be what here we call entrepreneurs: “empresarios.”
Kaizen: You saw strategic opportunities in petrochemicals?
Wilson: Not really. The reason why we had that portfolio in 1988 was because we needed to split the company. The industrial conglomerate named Olvebra Group was equally controlled by the Ling and Tse Families. The Ling Family had developed other businesses outside Olvebra, among them a Benetton franchise and microcomputers. The Tse family was basically interested in the soybean business, so they kept the food-related businesses. We took the other businesses.
William: Our partners were the operators, did the trading, and the day-to-day operations of the soybean business, which was the largest business of all.
Wilson: And they liked it, they were comfortable with it. In 1988 the two families, Ling and Tse, split. Olvebra Group restructured into Olvebra and Petropar divisions. Each family ended up controlling one branch. Olvebra retained the food-related business: soybean, metal packaging, and food. Petropar kept the chemical-related operations, thus the name (petrochemicals participations): the polypropylene joint venture, fertilizers, and plastics-related businesses.
William: We invested in petrochemicals in the late 70s as a backward integration of our textile business. It was a joint venture with Hercules to build a polypropylene resin operation in Brazil. At that time Hercules was the owner of the leading technology in polypropylene.
And there was a professional management team running the petrochemical business—very profitable, very successful, and very intensive in technology and capital expenditure. We had other companies, also operated by professionals, which were doing fine, so we thought this should be the right model for us in the diversified portfolio.
And our former partners didn’t like that model very much. They wanted to be involved in operations. This was a fundamental difference in terms of business philosophy. We thought it would be very difficult for us, as 50-50 partners, to be in a situation where we have to control our partners’ operations. We knew that this could potentially lead to a problem.
So we parted ways. The cake was big enough to be split in two, and each one kept a nice piece of the business. By default, we kept the chemical-related business because our partners wanted to operate the soybean business. For us, it was fine. We don’t like this type of business: too risky, too volatile then. So we kept the other businesses.
Kaizen: What does Petropar focus on now?
William: Petropar is a holding company that operates through subsidiaries in rigid packaging and lightweight nonwovens. Both sectors are intimately related to the consumer goods markets, especially disposable diapers, feminine napkins, beer and soft drinks, and household, health, and beauty products. With inflation tamed in Brazil and an ascending middle class with more disposable income, eager to consume, all markets served by our customers have been posting strong growth in recent years.
Last year we acquired businesses in the nonwoven industry in Western Europe, China, and the U.S., and our former partner’s stake in a joint venture with assets in the U.S., Mexico, Brazil, and a greenfield project in Peru. Prospects in all these geographies are positive.
Kaizen: You started out as a relatively small family business, but you are now among the world’s largest in your fields. Currently you have two major businesses—aluminum cans and nonwoven fabrics. With the cans, you’re in a joint venture partnership with Crown Holdings in America. They’re the world’s largest?
William: They are the world’s largest in metal packaging. But the joint venture is only in Brazil. Crown operates globally, and in certain geographies it has joint ventures. For instance, in Colombia they also have a joint venture with local partners.
Kaizen: How long has this joint venture been in place?
William: Since 1995.
Kaizen: You are also in the nonwoven fabric industry. What are nonwoven fabrics?
Wilson: [Holds up a disposable diaper] Here’s an example. You know our product.
William: This fabric is ours. The cover stock is also nonwovens and it’s laminated with another plastic.
Wilson: All fabrics in this diaper are nonwovens.
William: Also in medical disposables such as surgical masks and gowns. Many types are used in agriculture to protect the crops, and in packaging.
Kaizen: What raw materials go into these fabrics?
William: We basically produce polypropylene nonwovens. But you can do it in polyester or polyethylene.
Wilson: Polyester nonwovens are known as fabric softener: Bounce, Downy. That’s all nonwoven. But the biggest applications are in disposable fabrics and feminine hygiene.
William: Also, for the ageing population, incontinence diapers. In mature markets the growth is in incontinence. In emerging markets the growth is in baby diapers. In Western Europe and the U.S., growth is driven by the need for adult incontinence products. And in China, there are huge opportunities ahead with the intensification of urbanization and usage of diapers.
Kaizen: My understanding is that you now have about 1,180 employees?
William: We acquired businesses on December 30th of 2011, adding 600 employees, and are building new plants in Peru and Brazil, so we are at almost 2,000.
Kaizen: In the first year or two, how many employees did the company have?
William: Roughly 2,800 people. The textile and fertilizer operations were labor intensive ones.
Kaizen: If I can ask, what are Petropar’s revenues in the recent years?
Wilson: We’ve been growing at more than 16 percent a year, for the last five years. 2011 consolidated net revenues were $783 million (BRL), a 25 percent increase over 2010. With the acquisition of the nonwoven assets and the full utilization of the new plants built in the last year or so, we’ll be able to generate an annual turnover in excess of $1 billion (USD), more than doubling our size.
Kaizen: How would you characterize your current roles at Petropar—what are your primary responsibilities?
William: We are the guardians of the organizational values and culture. We set the strategic direction: which businesses we want to be in, how fast we want to grow. We define the corporate governance and organizational model. And we groom management leadership and appoint the top management of each business.
Kaizen: You’re now a global company operating on four continents, so how much time do you spend reading about what’s going on in the political economies of various parts of the world?
Wilson: A lot.
William: We can do it at home. Basically, at least once a month Wilson and I sit with the CEO and the CFO of Petropar and we go through the issues that the board follows and that we want to discuss with the board. We have seven board meetings a year and we chair these meetings. We have monthly review meetings with the management of all operations in person or by video. We have other functional committees: Financial and Tax Planning Committee, Human Resources Committee, where we also participate. When we meet the CEO and CFO, it is in their shared office. Nobody in the company has a personal office.
Kaizen: Is that to facilitate communication?
Wilson: Yes—a constant flow of information.
William: This has been like this since the beginning, 25 years ago.
Wilson: One of the first things we did was bring down the walls.
William: There is no policy in the company for this. We started doing this at headquarters, so they started copying. Today, all plants and all offices are built this way, and there is no policy. There is no smoking in our facilities, but there is no policy saying that there is no smoking. This is the way we do things. There is very little written policy or manual of procedures.
Kaizen: So your management philosophy is to lead by example and to choose people whom you can trust who will then exercise good judgment?
William: I would say we grow people compatible with our culture inside the organization. Let me give you one statistic: 77 percent of our managers are promoted from within the company. We follow this metric closely. We believe the single most important aspect to rate the quality of a company as a working place is the real possibility for a young professional in the lowest ranks to become the CEO of the company through his or her own merit and hard work.
Kaizen: Part of your job is to define company strategy. How do you approach doing strategy?
William: We are constantly following the environmental trends. What’s going on in the industry? What are the competitors doing? What are the threats and opportunities?
Wilson: I think our advantage is that, at the same time, we sit on the board, the Executive Committee, and at the meetings with the operations management to evaluate performance.
William: And we are also controlling shareholders.
Wilson: So we can make decisions very quickly and implement very fast. Usually, in other companies, when a team sees an opportunity, they have to make a report, they have to convince management, who has to convince the board, who has to convince the shareholders, and it’s a lengthy process. It’s all filled with bureaucracy and budgets and all kinds of constraints.
In our case, when an opportunity is identified, we move through the process very quickly. In the last few years, in all these strategic moves, I think our great advantage was that we were first to act.
William: Yes, fast movers. To give you an example, in the second half of 2010, everything was doing great: we were beating records year after year and expanding the business. Profitability was fine and the outlook was fine.
But we sat down and said, “Something will go wrong.” From our experience, we knew there would be a black swan event. We asked ourselves: What can go wrong that will hurt us a lot? And how can we avoid it or preempt it?
Through this discussion came the idea of bidding for our partners’ assets. A British company, Fiberweb, was our 50-50 partner in a joint venture in nonwovens in the Americas: U.S., Mexico, and Brazil. They had separate assets in Europe and Asia not involved in the joint venture. So we ended up buying their 50 percent stake in the joint venture and also certain assets in the disposable hygiene industry in Europe and Asia. Fiberweb still exists as an independent company in nonwovens, but not for disposable applications, for industrial applications.
Kaizen: Why did it make sense for you to buy the other 50 percent? How did that connect to thinking about what could go wrong?
William: One risk that we identified was that our partner, Fiberweb, could be acquired by a private equity or a competitor. Some of the biggest players in the industry are owned by private equities.
Kaizen: How much time did it take from reaching that conclusion to closing the deal?
William: A little more than one year, from the first insight to closing.
Wilson: Which was delayed because of last year’s crisis.
William: It took some time to structure the funding.
Kaizen: In the early 1990s you were in petrochemicals, fertilizers, and plastics. Now you’re focused on aluminum cans and nonwovens. How do you make the decision to get out of certain lines?
William: Fertilizers was a very difficult industry; a lot of interference from the government because it’s related to agriculture, therefore a politically sensitive business. The market is cyclical, regulated, dependent on official credit for strategic reasons, and very dependent on imports of some key raw materials, for instance, potash. Most of the potash is imported. Brazil doesn’t have good quality potash.
Wilson: There was a whole set of negatives and no positives, so it was an easy decision.
Kaizen: Too volatile, too risky, and too political?
William: Yes, and very competitive. There were a lot of players, so we didn’t like it. It doesn’t meet our attractiveness criteria. We want to be in a business with few players, formal players, and unregulated.
Our strategy is simple and straightforward: we operate in dynamic and formal markets; in industries with a low level of rivalry and not subject to regulatory agencies. We don’t want to be dependent on the public sector as a supplier or customer; ours are business-to-business manufacturing operations. We compete by being the lowest cost, best service player in the industry.
Kaizen: How would you describe your leadership style inside the company?
William: “Educational” leadership: leading by providing guidance, experiences, and example, with full delegation and autonomy with accountability.
Kaizen: What do you look for in appointing or hiring colleagues for senior positions or to the board? Aside from knowledge of the area, intelligence, and commitment are there particular character traits you look for?
Wilson: Diverse and complementary skills and contributions; adherence to company’s values and ethics; independently minded.
Kaizen: How much has innovation been a part of your strategy with Petropar?
William: We focus on continuous improvement instead of breakthrough technological innovations. Therefore, we spend resources in developing processes, people, and management. We establish close ties with the leading developers of technology in each field, and improve from the technology we acquire. For example, in beverage cans our joint venture partner is Crown Holdings, the world leader in metal packaging. In the plastic closure business we have exclusive technology rights from GCS, one of the largest global producers. All our plants operate at the industries’ benchmarks, with state-of-the-art equipment.
Kaizen: You have another brother, Winston, in Shanghai, and a sister, Rosa, in Hong Kong. Are they part of the family business, or have they gone in a different direction?
William: All the siblings are part of the family business. Wilson and I have management roles at the company. Winston and Rosa pursue personal initiatives in Asia. All of us are active in the family governance structure as members of the Ling Family Council. We jointly define the strategic goals of the family as a family business owner, and all major decisions are made by consensus.
Kaizen: Recent statistics show that Brazil’s economy has been growing at twice the rate of Western European countries, and in 2011 Brazil became the world’s sixth largest economy. What is Brazil doing right to make that happen?
William: Things have been going well since Itamar Franco took office in 1992, after the reinstatement of popular elections for president and governors, in the mid-1980s. The Real Plan, banking reform, the privatization of some key industries—namely telecom and electric utilities, banks, railroads and highways—and the Fiscal Responsibility Act limiting government spending all happened in the 1990s.
Wilson: Over the last 10 years, China lifted the tide and Brazil has surfed the waves.
William: We did some things right and some things earlier than other countries. For instance, bank reform.
Wilson: It all started before the crisis.
William: Yes. The Brazilian banking system didn’t suffer from the banking crisis of 2008. Most banks in many countries are bad. Look at the capitalization of the banks. Today, if you look at the 10 largest banks in the world, two or three are Brazilian. A very strong financial system, very efficient—arguably the world’s most efficient banking system is in Brazil. All transactions are instant; everything is online, monitored by the central bank. For instance, if I receive a deposit of larger than 5,000 reais ($2,500 USD) in my account, the central bank will know. And in some cases they will ask, “What’s the origin and the nature of this transaction?”
Wilson: That is the way it is today. The origin of this is hyperinflation. When inflation ended in Brazil, several banks that went bankrupt were restructured, and there was a set of regulations put in place at that time which still work today.
William: And the Fiscal Responsibility Act meant fiscal responsibility reform for the federal government that cannot spend more than a certain amount.
Wilson: A lot of these reforms were put in place by the government of Fernando Henrique Cardoso. And the first rules the government offered were some microeconomic reforms.
Kaizen: You mentioned the Collor Plan?
William: Fernando Collor was the first directly-elected president after the so-called “re-democratization.” When the military rule ended, the first president, Mr. Tancredo Neves, was appointed; there weren’t direct elections. Unfortunately he died before taking office. It was a tragedy. His vice president took over, and after him came Collor, which was a disaster.
But one major change Collor made, which was very badly executed, but basically in the right direction, was the opening of the economy. Allowing importation of cars, for instance. You couldn’t import cars. Still today it’s very expensive to have an imported car in Brazil, but at that time it was forbidden.
Kaizen: Brazil had also suffered from hyperinflation?
William: Yes, 30 percent monthly inflation. It made business planning very difficult. But many businesses did survive because they had ways to protect themselves from inflation. Not the ordinary people. In Brazil at that time we had different inflation rates that indexed interest rates. More affluent people would have access to financial assets with higher interest rates and would lose less to inflation. Businesses could always adjust prices and keep salaries low.
Some companies had access to government-subsidized loans. So that was basically the structure for us and for many companies. More than 90 percent of the savings in Brazil was controlled by the government. So capitalists would get cheap loans from the government, invest in building and equipment, and after paying back the loans with negative real interest, you would still own a factory—and in an environment with low competition. So it was a very good deal.
All this changed with the opening of the economy and the end of high inflation. The end of inflation came with the Real Plan, which was implemented by Collor’s successor, Itamar Franco. Collor was deposed and his vice president, Itamar Franco, took over. Itamar’s Minister of Finance was Fernando Henrique Cardoso, the father of the Real Plan. They implemented the Real Plan: inflation was over, but the real interest rate was 30 percent a year. Our business model collapsed.
Kaizen: Is the current Brazilian economic boom spread across economic sectors, or are some sectors especially flourishing?
William: Agriculture and mineral commodities have benefited the most in the last decade. More recently, real estate, oil and gas, retail, and consumer staples have grown. Manufacturing has suffered lately due to appreciation of the real (the local currency), though some sectors are still growing, such as automobiles. The relatively low indebtedness of the private sector suggests there is still room for sustainable growth.
Kaizen: Is there more of an entrepreneurial culture in Brazil compared to 20 or 30 years ago?
Wilson: [Laughs] People are making money, yes. There are a lot of opportunities.
William: With the crisis in Europe and the U.S., a lot of people are coming from abroad to start businesses in Brazil.
Kaizen: In the U.S., for example, each decade there is a higher percentage of young people who want to start their own business. Is that happening in Brazil?
William: Yes, there are entrepreneurs in Brazil as well. But entrepreneurship is not a first choice for most. The public sector is one of the favored career choices of good students: very high starting salaries, less demanding, generous benefits, and paid sabbaticals.
Kaizen: What is the Brazilian political environment like?
William: We have to rely on short-sighted political leadership; weak political institutions; rising corruption; tarnished legal system.
Kaizen: Human capital? Many companies in the U.S. complain how difficult it is to find enough qualified workers. Is that a challenge in Brazil?
William: Poor education and our lack of engineers are challenges. But we have good managers due to little brain drain to high-tech sectors and entrepreneurship. Brazilians are very creative people: there are opportunities in design, fashion, advertisement, and media.
Kaizen: Are there efforts in Brazil to change the technical education of people?
William: Yes, the federal government launched a program called Science without Borders. Its goal is to send 100,000 or more students to do technical studies abroad in the next four years. I think this is unfeasible, but at least there is awareness that we have a problem.
Kaizen: Another way to solve the problem is through immigration. Is Brazil relatively immigrant-friendly toward people bringing in technical skills?
William: I don’t think so. I think there are a lot of obstacles for foreigners to work in technical areas in Brazil.
Wilson: But it is happening.
William: Yes. The circumstances will force this to happen.
Kaizen: How about brain drain? If you send bright, young Brazilians abroad …
William: Most of them come back. Many of them, after graduation, spend a couple of years abroad to get international experience and then come back.
Kaizen: Brazil is also strong in natural resources. What would you say are its special strengths there?
Wilson: We have a competitive advantage in agriculture and forestry: plenty of water—the world’s largest reserves—land, sun, climate, and technology intensity. We also have untapped pre-salt oil and gas reserves.
Kaizen: Are there any special problems or disadvantages to doing business in Brazil?
William: Too much bureaucracy, very high taxes and labor “social charges,” obsolete and very inefficient infrastructure: the so called “Brazil Cost“.
Kaizen: While things are overall good now, Brazil has had many booms and busts economically over the last century. Are you confident or worried about Brazil’s economic future over the next decade?
William: Some of the positives are: the demographic dividend, natural resources—not only oil, gas, and minerals, but water—clean, renewable energy such as sugar cane ethanol, wind, and solar, in addition to hydroelectricity; grains and protein. We are a very adaptive, pragmatic people, capable of dealing with diversity. We have no religious, racial, or ethnic conflicts. We are the only true “melting pot” society. Although the vast majority of political parties favor government intervention and can be labeled either “communist” or “social-democratic,” there are only a few ideology-stained, radical ones.
Wilson: Some negatives are: the institutional framework that blocks any attempt for more fundamental reform; the “Brazil Cost” that off-sets the country’s natural competitive advantage; and the risk of “Dutch disease” when pre-salt becomes fully operational.
Kaizen: For foreigners who are looking to Brazil for business opportunities: aside from learning some Portuguese, what unique features of Brazilian culture would you recommend foreigners be aware of?
Wilson: One should notice that Brazilians are very pragmatic, “smart” people. Brazilian managers understand better how to navigate the hurdles and ambiguities of local laws and regulations. Expats have difficulties dealing with the “Brazilian Way” (jeitinho), so use local management.
Kaizen: Does Petropar also do business in other countries?
William: We do business in five Brazilian States. We have a greenfield near Lima, Peru, due to a start-up in mid-2012. In North America, we operate in Mexico and in three locations in the U.S. (Simpsonville, SC, Green Bay, WI, and Washougal, WA). In Europe we have plants in Sweden, Germany, Italy, and also one important operation in Tianjin, China.
Kaizen: When doing business internationally, what are the biggest challenges—language barriers? politics? geographical distance? cultural differences?
William: Language is not an issue: English is the “lingua franca.” The use of video-conference, email, and telephone mitigate geographical distances. Cultural differences are our major concern: the challenge is to implement the company’s culture and values, while respecting the individual and local cultures.
Wilson: It’s too early for us to give you examples, because we did the closing of the acquisition less than four months ago. We are basically trying to understand better what we acquired and to start the integration process.
Kaizen: You say English is the lingua franca in the business world. Is English taught in primary schools in Brazil?
Wilson: Very little, basic English. But children also learn it from games and movies. You can tell people can understand English when you watch music festivals, for instance U2 or the Rolling Stones, and everybody sings. Everybody knows the lyrics.
William: One thing that we will do is to bring the top management of all operations to a corporate event in August in Rio, to work with the son of Professor Geert Hofstede, who was a researcher who did a project for IBM in the 1950s.
IBM was expanding internationally and needed to understand the cultural aspects of each of its operations. So it funded professor Hofstede’s research that resulted in a five-dimensional model to understand how different societies handle power relations and inequalities among people, the conflict between collectivism and individualism, the uncertainty about the future, the preferences for cooperation and caring for the weak, or the ambition to perform and tendency to polarize, and the temporal orientation.
Brazil is high on uncertainty avoidance, meaning that Brazilians have problems dealing with ambiguity. You need to have very strict rules and very strict enforcement in order to get things done in Brazil. If you drive in Brazil, for example, a red light doesn’t mean anything.
Wilson: It can mean a lot of things. [laughs] It depends.
William: Or a zebra crossing. It depends on a lot of things. If there is a cop around, maybe you will stop if the cop is looking at you. Otherwise the pedestrians will wait for you.
Wilson: That doesn’t mean that people are dishonest.
William: Professor Hofstede is gone already, so we are bringing his son, who has continued his work.
Kaizen: How many managers are you talking about?
William: About 60 people. Wilson and I will be there. Maybe one of my sons will be there. We always bring other family members—the next generation—to participate in these events. We will discuss the Hofstede model and the company culture and see what happens.
Kaizen: Last year was a big change for you with the major acquisition. Now you’re operating in several countries around the world. Do you have a sense for how your business culture will spread across the world? Obviously you can’t be there in person in all of these places and the places you’ve acquired have pre-existing ways of doing things. How will that transition go?
William: We don’t know. [laughs]
Wilson: It remains to be seen. We think it should be okay because in the Americas we bought half of a joint venture, which we already managed.
William: The joint venture was managed by our team already, except one plant in Green Bay, Wisconsin.
Wilson: A small plant. And all three plants in Europe and the one in China, they’ve each $50-60 million (USD) in sales. It’s not a huge operation.
Kaizen: Your family has roots in China, and the Chinese have a strong record of emigrating to other countries and being successful in business. Is there something about Chinese culture that lends itself to business success?
William: I don’t know if our business was influenced by the Chinese culture. Maybe. The Ling Family is from Wenzhou, a city known for being the most entrepreneurial in China. It’s on the southeast coast, between Canton and Shanghai. In Wenzhou, the climate is favorable for entrepreneurship. The gray, underground, banking system in China is all backed by Wenzhou people.
Wilson: If you go all over the world, if you see some Chinese guys on the corner selling whatever, they’re most likely from Wenzhou.
Kaizen: Your family began the Ling Institute in 1995. What is its purpose?
William: Confucianism states that one needs to give back to the community that allowed him or her to prosper. The Ling family is grateful to the Brazilian society for being so hospitable. Our father and mother moved to Santa Rosa in 1955 and started from scratch with the support of the local, friendly community. Besides generating jobs and economic value to the Brazilian society, we feel we should do more by investing in the education of underprivileged Brazilian students.
Kaizen: You award scholarships for Brazilian students to study for the MBA or MPA in the USA and Europe. How many students is that?
Wilson: One hundred as of 2011. By July 2012 we’ll nominate this year’s scholars. Chicago, Harvard, Wharton, and London Business are the schools with largest number of scholars.
Kaizen: You also have scholarships for Brazilian students to study law in the USA and Europe?
William: Thirty students so far, mostly to Harvard, Stanford, Columbia, and NYU.
Kaizen: In 2007 you started a partnership with Chicago’s Illinois Institute of Technology to send students who want to train in engineering?
Wilson: We have partnerships with several top schools. At Georgetown University there is the Global Competitiveness Leadership Program, sponsored by the Latin American Board. Instituto Ling recruits and co-sponsors Brazilian candidates.
At IIT we started sending engineering students and trainees for a one-semester program in Chicago.
At Columbia we recently signed an agreement to sponsor Brazilian journalists to attend a Master’s Program in Latin American Studies.
At Instituto de Empresa from Madrid, Spain, we co-sponsor MBA candidates. We also provide a scholarship to a Master’s Program in Business Journalism.
Kaizen: The Institute has also partnered, as of 2012, with the consulting firm McKinsey & Company. What is the nature of the partnership?
William: We are very proud having McKinsey supporting our MBA scholarship program. As a business consulting company, McKinsey is one of the major recruiters of MBAs at the top schools. By partnering with Instituto Ling, McKinsey will be able to access excellent candidates earlier in the process.
We also have the support of: Gouvêa Vieira Advogados, a traditional and distinguished law firm that supports our LLM and journalism scholarship programs; Vale, the Brazilian mining giant; Localiza Rent-a-Car; Braskem, the leading petrochemical company in the Americas; Suzano, one of the largest pulp and paper companies in Brazil; Lojas Renner, a major retailer. All are supporters of our Journalism scholarships.
Another important partnership is with the Brazilian-American Chamber of Commerce of New York. They selected us as their partner to establish the Person of the Year scholarship program, benefiting young Brazilian graduate candidates in top U.S. universities.
Kaizen: The institute’s website mentions that you’ve given over $2.5 million in scholarships so far. That is impressive.
Wilson: That is for students abroad. We have other programs domestically that are much smaller ones.
Kaizen: From the website, your guiding principle is: “If your plans are for a year, sow the grain. If for ten years, plant a tree. If for a hundred years, educate the people.” Is that a traditional saying that you adapted?
William: Yes. That is a Chinese proverb.
Kaizen: Is there an expectation or hope that the scholarship students will return to Brazil after graduation?
William: The vast majority do return. Some are working for Brazilian companies abroad. Others are at institutions such as the World Bank, Inter-American Development Bank, and indirectly contributing to Brazil.
Given the current economic situation, one can expect more Brazilians returning for better opportunities at home. They know that the purpose is to benefit Brazilian society.
Wilson: We found out that the contracts are not enforceable anyway, but 99 percent return.
Kaizen: I like this statement of the Ling Institute’s value philosophy: “The Family Ling believes that business activity is the main driver of wealth creation and welfare for a society. The freedom of initiative, access to knowledge, and the existence of an institutional framework that protects the fundamental rights of individuals are the pillars so that millions of people can give vent to their creativity and entrepreneurial energy.” Who wrote that value statement?
William: [laughs] Probably I did, but it doesn’t matter. It reflects the family philosophy.
Kaizen: How did that become the family philosophy?
William: But before Winston was going to Chicago, there were a lot of discussions among our generation about what’s happening to this country. What can we do about it? What should we do about it? There were few opportunities for political activism at the time. Everything was oppressed.
And when Winston went to Chicago, during his visits home, we started putting some structure on all these discussions and thinking. We ended up founding the Instituto Estudos Empresariais (IEE) in 1984, a leadership institute aimed at forging a new generation of businessmen committed to the ideas of liberty and to the conviction that entrepreneurial action is the main driver of economic and social progress. IEE is the promoter of Fórum da Liberdade, now in its 25th edition. The so-called business leaders at that time wanted protection from the government and exchanged favors with the government.
We Ling siblings spent our childhood hearing stories about China, the horrors of the Japanese invasion, and the communist and cultural revolutions. During our adolescence and college years, Brazil was under a military dictatorship and had no political liberties. Neither system would bode well for the Lings.
Winston’s studies in Chicago were instrumental to providing the conceptual framework for our value system. We became advocates of free markets, individual rights, the rule of law, and all institutions necessary to create a prosperous, open society.
In 1983 we joined Instituto Liberal, one of the first institutions in Brazil promoting the ideas of freedom. We founded the Rio Grande do Sul chapter of Instituto Liberal, which was first presided over by Winston.
We also support the Junior Achievement Association in Brazil. Wilson was President of the Rio Grande do Sul chapter of JA.
Kaizen: Are you still actively involved with Junior Achievement here?
Wilson: I’m on the board of directors of Brazil’s national chapter.
Kaizen: Do you do anything at the college or university level?
William: Yes. We are sending engineering students to IIT. We sponsor events at local universities for undergraduate students. There is one going on now during the Liberty Forum—The Language of Liberty program. A former scholar of the Ling Institute, who is doing a master’s program in Europe, is organizing this event for the first time in Brazil. So we support initiatives that promote the ideas of freedom and open society in Brazil, such as the Mises Institute event in São Paulo.
Kaizen: You have accomplished a lot with Petropar. What are your plans for the next few years, if I may ask?
William: To grow the business in a sustainable way and to prepare the next generation of leadership in the business and in the family in order to perpetuate the business and ensure the family values will continue guiding the company in the future.
Wilson: We want to make money. We don’t want an empire.
William: We want to sustain our competitive position and to grow the dividend flow to shareholders.
Wilson: We’re not interested in top-line growth just for the sake of it, just to grow numbers, to build empires. We only advance if it makes sense financially and economically. So if the economy doesn’t grow and there are no opportunities that appear, fine, we won’t do anything.
Kaizen: Looking back, what has been the most enjoyable thing to you personally about your business career so far?
William: Doing the joint venture with Crown. The original joint venture was broader. It involved PET bottles, plastic caps, and aluminum cans. Today it is only aluminum.
Kaizen: You mentioned that aluminum can be infinitely recycled. Do you see aluminum replacing plastic or taking over a big share of the market? Or with respect to competition from glass, there are indefinite amounts of sand.
William: There is a space for all types of packaging.
Wilson: It’s in the bottlers’ interest to have alternatives.
William: For instance, wine and champagne. It’s hard to imagine the French no longer using glass bottles.
Wilson: The most enjoyable project for me was the acquisition last year.
William: These two milestones were turning points in the history of the company. We spent the first years basically selling and closing things. Fertilizer was a big operation. We closed and sold the pieces. Petrochemicals was a major business and we sold it in 1994.
We ended up with a very small operation, which was Fitesa, basically fibers and textiles. Fitesa had $50 million (USD) in sales. We had a lot of cash, a lot of receivables off the sale of assets. But as an operating business, it was very small. This was in 1995.
And then we closed the joint venture with Crown and started investing in PET bottles and cans. So that was one very important moment.
Regarding Fitesa, we continued rebuilding the company. While we were building the packaging business, we were repositioning Fitesa.
Kaizen: Again looking back, what has been the most challenging or difficult thing for you about business?
William: All this turnaround process of selling old businesses and building new ones was very challenging. None of the businesses at the origin of Petropar exist today: we sold the stake in the polypropylene resin company; we closed and sold fertilizers operations; we discontinued the fibers and textiles business. We built new businesses from scratch: PET preforms and bottles that are no longer in the portfolio for not matching our attractiveness criteria; two-piece aluminum cans and plastic closures; and nonwovens. We went from local to global players. We empirically verified the Schumpeterian creative destruction concept.
Wilson: There is not a most challenging aspect [laughs]. Every day was a challenge. The complete overhaul and turnaround of the company: it was like replacing the four turbines of a loaded Jumbo 747 flying at cruising speed.
Kaizen: When you think of all the things that go into doing the strategic thinking about business, are there parts of it you find you struggle with, that are especially difficult for you? Or is it just all part of the package—you enjoy doing the work and you have the skill set necessary to make it happen?
William: We don’t have all the skills. We bring in the skills that can combine with ours.
Wilson: Entrepreneurship is a discovery process.
William: We believe in creative destruction, division of labor—the basic principles.
Kaizen: Successful business professionals have to have judgment, initiative, guts, resourcefulness, perseverance, the ability to recover from setbacks, and so on. If you had to choose, what character trait would you say is the most important?
William: All the traits you mentioned plus the ability to attract and lead the right people. We are not looking for the brightest people; we want the people with talents and attitude that will match our needs.
Kaizen: What advice would you give to young people about how to cultivate those traits in themselves?
William: Know oneself. Be candid. Focus and build on your strengths. Try to be a real expert in one or two areas. Communicate well. Treat people with respect.
Kaizen: In closing, what advice would you give to young people just starting out in their careers?
William: Understand that to be truly an autonomous individual one must conquer three distinct freedoms: physical or material freedom, which is the ability to support your life; emotional freedom, to act on behalf of your interests and not to please others; and intellectual freedom, to think with your own mind.
And, most important, be prepared to fail. Chaos rules the universe. Failure is the natural outcome. Human action, creativity, management skills, courage, and resilience are necessary ingredients for success.
Kaizen: What freedoms do you find are the most difficult to achieve?
William: Basically, the traditional educational system is geared towards preparing the young for the marketplace and to be politically correct. I think intellectual freedom and emotional freedom are the most difficult to achieve because nobody talks about them. This is why Junior Achievement, IEE, and Language for Liberty are so important, because they address more conceptual issues and stimulate students to think outside the box, to be contrarians.
Kaizen: What do you mean by “chaos rules the universe”?
William: This is the history of the universe. Before the big bang everything was completely in order. After the big bang, the universe is expanding at a faster rate. Everything moves toward entropy; the chances of something going wrong are much higher than something going right. Things will go wrong if you don’t do anything, if you just let it go.
Wilson: Nature will take its course; government will take its course.
William: Things will go wrong, so you need to act on nature with creativity, skills, courage, and so on, with the right set of values and institutions, the right governance—that is why this concept is so important.
© 2013 Stephen R. C. Hicks. All rights reserved.