Interview with Federico Zorraquin on Entrepreneurial Resilience in Argentina

[This is the full interview with Federico Zorraquin which was published in our Kaizen newsletter.]

Federico Zorraquin on Entrepreneurial Resilience in Argentina

Federico Zorraquin is President of Rheem S.A., a manufacturer of water heaters based in Buenos Aires, Argentina.

Kaizen: Zorraquin is an exotic, Spanish-sounding name—an adventurer’s name. Where were you raised?

Zorraquin: I was born in Buenos Aires in 1959. Most of my family came to this part of the world between the late 18th century and the beginning of the 19th.

Kaizen: Long time Argentinians.

Zorraquin: Most of them. About 70% of the family are French Basques and Spanish Basques. My great-grandfather and all the line that come from him—my grandfather, my father, and myself—have all been involved in business. I run today a company that was founded in the late 19th century.

Kaizen: An old company by new world standards.

Zorraquin: Yes, but it doesn’t resemble the business that it started as, though there is some spirit and tradition that comes from those times.

Kaizen: As it’s a multi-generation, family business, was there an expectation that you would go into the family business? Were you the eldest son?

Zorraquin: I was the eldest son. I have an older and younger sister, and the youngest was a boy. I was pretty much taught the business from the very beginning. I used to travel with my dad to visit different companies that we owned at the time. We had a large ranching operation, and I used to spend time in the ranches. I liked to see my dad being involved in business. I didn’t have a chance to consider becoming a doctor. I always say to my kids, I would have enjoyed being a good doctor.

Kaizen: What kind of businesses was your family involved in the time of your father? This would have been the 1960s and 70s?

Zorraquin: Yes, and the 80s. The company got various work in the steel trades in the Buenos Aires stock exchange. That started in the late 19th century. It became a publicly held company in 1946, with my grandfather and later my dad always being the controlling shareholders. From the 1960s to the 80s the business was one-third industrial companies, one-third banking, and one-third ranching. In the 80s, the chemical and petrochemical side of the companies became very big, as did the banking. The farming became relatively smaller.

In the mid-80s, we were the largest private group in petrochemicals and manufacturing of plastics in Argentina. We were probably the number one or two group in banking. We were a small player in farming.

The 80s was a very difficult time for Argentina because GDP growth was zero. The last three years with hyperinflation were very damaging for our business. By 1989, we had gotten rid of the banking business at a big loss. We came into the 90s basically without the banking business and as an industrial group with a small ranching operation.

Kaizen: Going back to your youth. You’re traveling with your father a lot, but what was your formal schooling like?

Zorraquin: I went to primary and high school in Buenos Aires. Then I went directly into industrial engineering school. Since we don’t have the liberal arts college education in Argentina, when you leave high school you have to choose if you will either be a doctor, a civil engineer, or a lawyer, and so on. You go into specific schools.

Kaizen: Professions.

Zorraquin:  Right. I decided to be an industrial engineer, because it gave me not only a technical background but also an in-road into management. I could go into the industrial companies we owned at the time and eventually get an MBA or management or financial degree.

Kaizen: Does anything stand out in your early education as especially formative or useful to you in your career and adult life?

Zorraquin:  I was probably very responsible and dedicated to anything I could learn. Every summer I would spend time at one particular large ranch that we still own. It was a very fun place to be, but I worked for most of the time in the summers.

Kaizen: In what part of Argentina is that ranch?

Zorraquin: It’s 300 miles south of the city in Buenos Aires province. I worked at the farm a few times a year. I was there during some audits that the company did in these farms, and I would travel with my dad and do the audit to work with him.

Kaizen: Was your university a blend of business and engineering education?

Zorraquin: No, with the industrial engineering school, you leave the school just knowing about how to run or optimize a manufacturing facility—logistics, organizing work, layout of factories, production. You are involved in human resources, people issues, economic issues, but this is all mostly related to the performance of a factory.

Kaizen: Was it when you finished that degree that you went to the United States to Wharton Business School?

Zorraquin: No. When I finished my degree, I worked in Argentina for two and half years.

Kaizen: This was when you were in your early 20s?

Zorraquin: Yes, and I went to the south of Argentina to work at a petrochemical complex for one year.

Kaizen: Somewhere in Patagonia?

Zorraquin: In Bahía Blanca, in the northern part of Patagonia, the tip of the province of Buenos Aires. That’s where the largest petrochemical complex of Argentina is today, as it was at that time. I worked in that facility and in Buenos Aires in finance.

Kaizen: You were just out of university at this point. What were your responsibilities?

Zorraquin: Since our business group was a very large group, I was convinced that to work my way through the ranks I would have to start from the very bottom, and I would have to learn and experience what it was to be working at a factory. This factory had shifts, and I worked in different shifts—day, night, et cetera—in different positions.

Kaizen: You had a sense for all of the aspects of the business?

Zorraquin: Yes. And what was more important for me was getting the respect of the people. The people knew that I was the son of the owner, but they also knew I was working hard to learn the basics.

Kaizen: You’re earning their respect.

Zorraquin: I think that really helped me a lot over the years. I felt confident with my work on the factory floor. And when I went up through the ranks in a fast way, there was some legitimacy on my end.

Kaizen: Now we’re into the 1980s, and your family company still has the three major divisions.

Zorraquin: Yes.

Kaizen: But it was a difficult decade—the banking and financial sector were very bad in Argentina.

Zorraquin: Very difficult.

Kaizen: You worked for a couple of years there, and then you went for the MBA? What was your motivation for that?

Zorraquin: I knew that I wanted more skills in finance. I went to Wharton.

Kaizen: Why Wharton?

Zorraquin: I wanted to start in January, and the only two of the top universities had a January admittance—Columbia in New York and Wharton. I was accepted in both schools, and I decided on Wharton because I knew a couple of people in Argentina who had gone there. Not for any other reason.

Kaizen: The Wharton MBA was a two year program?

Zorraquin: Yes. Before going to Wharton, our petrochemical operations in Argentina were run with a technology license that we got from Union Carbide Corporation. I spent time working in the Union Carbide labs in New Jersey. During that time, my wife and I lived in New York City and commuted every day to northern Jersey to work in technical labs that were doing some research on plastics.

I also got to learn that technology from the very basic aspects, and I got to know the people working in Carbide who were involved in the relationship with our company. From there, I went into business school.

Kaizen: What things did you find most valuable from your MBA experience? You mentioned finance was important.

Zorraquin: For me, finance was critical. I would say that I came out of school with a financial mind. For me, it was a big change. I really started to understand what was the P&L of a company, and not only finance and accounting. After school, I could read a balance sheet and could understand how to assess the state of a company and the value of a company.

Kaizen: Now you’re in your mid-to-late 20s. You have the hands-on experience from the ranches and working at the factory in Patagonia, both the agricultural side and now the technical side. You’ve spent some time with the research people in New Jersey. You have your MBA degree and know the financial side of things. Were there other issues of, say, leadership and human resources, being able to deal with people in a managerial way?

Zorraquin: Yes, and I took some of those courses in school. But it was interesting to know the science behind it. My training with people was more at home, because of the way I was raised, and from working with people on the factory floor.

Kaizen: Learning by dealing with your employees.

Zorraquin: Yes, becoming part of the teams. The other aspect of the school that was very rewarding was the learning from peers. Wharton was a very fun place to be in all aspects. There were a lot of very interesting people that I got to know and become friends with. The exchange of ideas was extremely powerful to me. I would say that probably the highlight of the school was the way all the MBAs interchange.

Kaizen: Nice.

Zorraquin: The social life was very rewarding.

Kaizen: After your MBA, you returned to an Argentina going though very difficult times politically and financially. Zero GDP growth and inflation. What were you doing in the company at this point, during this crisis?

Zorraquin: I had the opportunity, though I did not pursue it very strongly, to stay in the U.S. for a couple of years and work for a consulting firm. I regret not having done that, because I think the opportunity of working in a company where I was not seen as the son of the owner would have been important for my self-esteem. On the other hand, the problems that the company was facing in Argentina were very serious, and I thought that my dad needed some help. I would not say he needed my advice because he was an able and experienced business man, but I was very instrumental in a lot of things and decisions that were taken in those years with my little work experience and my MBA.

Kaizen: How old was your dad at this point?

Zorraquin: My dad was born in ’33, so he was maybe 55 or 56 years old. My age now.

Kaizen: Would he have been thinking about succession issues coming down the road?

Zorraquin: Not really in those years. He was active. I had always said my dad was never a manager and never a CEO—he was a deal maker. He was always thinking about buying this and selling that. Every time he faced major management issues—because a lot of company failures have a big management component—he would not do well in those. On the other hand, I have never seen myself as a deal maker, but mostly as a manager.

Kaizen: You complemented each other.

Zorraquin: We complemented each other very well. The fact that I came down from the U.S. after business school was important, because I helped him survive through the banking crisis. I helped him to make important decisions regarding the banking crises.

Kaizen: The decision to divest from banking and financial sector was huge. Then the company focused in petrochemicals and ranching?

Zorraquin: Yes, and other industrial activities like the one we still have today—the manufacturing of appliances: water heaters, and until recently, refrigerators. When I came home from business school, I was working with my dad in some of these strategic issues. My full-time work was the company I still run today.

Kaizen: The name of that firm is Rheem?

Zorraquin: Yes. I was involved in that company until 1993, and then in 1993 Argentina was becoming a more open country for the first time in many decades. Companies like our petrochemical company, for the first time in many years, had to compete with a much more open market.

Kaizen: Who is president of Argentina at this point?

Zorraquin: Carlos Menem. He passed a lot of interesting reforms. Argentina became a more competitive environment, and in that competitive environment, our petrochemical company started to look bad. Part of the reason was the culture of being a successful company in a closed economy with a lot of protection like most companies at the time. The company started, for the first time in 15 years, to lose money in ’93.

Kaizen: This is an adjustment to an open economy?

Zorraquin: The world petrochemical prices had come down, so margins were squeezed. We had made investment decisions that were significant, like starting a new poly property in Buenos Aires. All of those things combined. I was appointed as CEO of the petrochemical company. At the time, I was 34 or 35 years old.

Kaizen: How many people are working in the company at this point?

Zorraquin: 1000 people at the petrochemical company.

Kaizen: What is the name of the company?

Zorraquin: IPAKO. The company was initially started a U.S. chemical conglomerate.

Kaizen: In going from a closed economy with protections to a more open economy, what were the biggest challenges?

Zorraquin: Adjusting and changing the culture towards the market and the customers, because the customers now had more options to buy product from than just us. We had to get rid of the monopoly type of culture that we had. That was very important. At the same time, we needed to become a much more lean organization in all aspects. I conducted a major restructuring of the company that very rapidly provided a relief in overhead costs. In maybe a year or so, the company started to make money again. We were lucky because world prices stopped declining and started to come up. After having losses in ’93, by the end of ’94 the company was already very profitable.

Kaizen: Your peer companies in Argentina during this time—what was their overall track record of making the adjustment or going out of business?

Zorraquin: Most of the petrochemical companies at the time did very badly, and a lot went into bankruptcy. We were able to survive those two years of crisis, and in 1995 we sold the company to Dow Chemical for a very large amount of money.

Kaizen: IPAKO?

Zorraquin: Yes. At the time, it was considered the deal of the year in Argentina. It was a major success for the group.

Kaizen: And for you, as the new CEO.

Zorraquin: For me, as the CEO.

Kaizen: We’re now in the middle 90s?

Zorraquin: 95-96. We were left with all this cash, totally out of the chemicals business. We still have the appliance business, the ranching business, and a few other small operations. Those are our companies—very small and with a very healthy cash position.

Kaizen: The structure of the overall company at this point: is there one holding company for all of them?

Zorraquin: One holding company. Garovaglio. That’s still the name today.

Kaizen: You have CEOs for each major division?

Zorraquin: Yes, and I was the CEO of the holding company, overseeing everything.

Kaizen: What is your father’s position at this point?

Zorraquin: He was chairman of the board. It has been a successful partnership between him and I. Together with the board of the holding company, we started to look at investment opportunities.

Kaizen: Right, and from the sale you’ve got lots of cash?

Zorraquin: Yes. We didn’t want to liquidate the company and take the cash. We hired a consultancy firm, Bruce, Allen, and Hamilton, and we analyzed businesses in which we could be successful. There were some criteria. For example, we felt that we were not very able in the dealing with internal governments, so we would not get into very regulated industries because we felt that was not part of our culture. Also, we wanted to be in businesses in which an Argentine group could thrive locally. That’s when this very large meatpacking company came up. It was owned by a family-owned, privately held company, the largest meatpacking group in the country. In a matter of maybe six months, we negotiated a deal, and we bought 30% of that.

Kaizen: A natural fit with your ranching activities.

Zorraquin: Yes, we could fit the ranching activity with this large meat packer. The packing factories have a lot of industrial engineering and logistics, and that’s basically what we knew.

Kaizen: Right, so you had the human capital?

Zorraquin: Human capital. We took over the company in August ’97. Argentina was, for the first time in 60 years, having access to the U.S. market for fresh beef. We set up a company in the U.S., and we started to export beef.

Three years after that, the company filed for bankruptcy because, in November 2000, Argentina had a foot-and-mouth crisis. In one day, we lost all the fresh beef markets in the world. Basically, the running of the company shrunk 70% in one day.

Kaizen: Wow.

Zorraquin: We filed for bankruptcy protection in the end of 2000, and we had started to accumulate losses, and losses, and losses. To make a long story short, at the beginning of 2002, my dad could not handle the situation anymore. He didn’t want to continue, so he passed the shares on to me. I remained the controlling shareholder in the middle of the chapter 11, the negotiation with the creditors, and shutting down factories. It was a very complicated time for me personally. In the middle of 2003 we came out of the bankruptcy, and in one year or two we sold the company for $1. In five years we lost all the investments in this company.

Kaizen: That’s terrible.

Zorraquin: We lost, let’s say, $150-200 million in five years.

Kaizen: Amazing.

Zorraquin: Our money was lost, and all the shareholders lost money. But, surviving the process was very complicated, because it coincided with the largest economic crisis of Argentina in 2001. In 2002, the GDP of Argentina dropped 15%.

Kaizen: Just terrible.

Zorraquin: A terrible time.

Kaizen: Were the borders still largely open?

Zorraquin: No. The border was open, but there was a big movement to fight market economics. They said the experiment of the 90s doesn’t work, and we had to close the economy again. We had been able to kill inflation in the 90s, and we were back again. We had 60% inflation in 2002.

Kaizen: There had been the hyperinflation of the late 80s, and it’s back again.

Zorraquin: We had killed inflation; we had almost zero inflation between ’93 and ’99. Menem had the constitution changed, and he was reelected. He did all the things that you would have to do to free ride the political system. In 2003, I was able to sell the company for $1.

Kaizen: This is just the meatpacking?

Zorraquin: Well, meatpacking was, at the beginning of 2000, 80% of the assets. We took the asset out of the balance sheet, and we kept the appliance business. With the farming business that was part of the group, we were able to sell them, and they were kept in the family estate. We sat on one farm because, in late 2000 when this crisis contributed money to the company, my father was buying assets at fair market value. That was one way of bringing money into the company, and keeping some value.

That was never challenged, because it wasn’t very well. There were some open bids, and it was very cleverly put together. The farms remained in the family estate. I was left alone running what was left of the company—the bankruptcy process. By 2004, I would say I was drained. The appliance company was doing okay, but all of these processes had done quite a lot of damage to my psyche.

Kaizen: I’m sure.

Zorraquin: I decided that for two years I was going to slow down my work, and that’s what I did.

Kaizen: You took a recovery period.

Zorraquin: I went into History, did a History guide degree at the University of La Plata. Then I went into Theology and started at the Catholic University of Buenos Aires. The appliance business was run by a CEO all that time. I was involved in the meatpacking business, and it was very well run. I didn’t have to worry much. I remained the chairman of the board of the holding company until 2006.

What was left from the crisis was a legal suit from some shareholders. It was a suit I was able to win, but it took me 10 years to win. They accused me of wrongdoing and of taking money out of the company. I proved that this was not true. They were taking of a blackmail type of approach. Basically what they wanted was for me to personally buy their shares because they had lost money in it. I was out of this crisis by 2008 or 2009, but in 2006 I decided to leave the board of the holding company. I think it was a very clever move because I was being attacked by shareholders just for being the chairman of the board. I said it doesn’t make sense, so I voted on a professional chairman that took over from there on.

Kaizen: Distancing?

Zorraquin: Yes. From there the shareholders started to come to the shareholder meetings, and they started to be more polite and say, let’s think about the future. It was something personal with me.

Kaizen: That takes the personal issue out of it.

Zorraquin: Yes.

Kaizen: Looking back for a moment, the crisis of the late 1980s was largely hyperinflation. The one in early 2000 sounds like it’s a combination of natural disaster, the foot-and-mouth disease with the hyperinflation, and a political environment as well.

Zorraquin: Yes. The microeconomic collapse of the late 2000, and political. Now, Fernando de la Rúa was elected president in ’98. He only lasted two years, because the Peronist party ousted him. They made his life miserable, and he had to resign. From there on, we had five presidents in one week. First came the Vice President, and then came the President of the Senate. He resigned, and then became the President. Then came the President of the Supreme Court, and finally …

Kaizen: You have political chaos.

Zorraquin: Chaos.

Kaizen: It just becomes impossible.

Zorraquin: Impossible.

Kaizen: I believe in the U.S. there was a collapse of the NASDAQ market in 2001, so there’s turmoil at the international level as well.

Zorraquin: Yes, but Argentina was so disconnected with the national turmoil. We had so many issues at hand here.

Kaizen: What are the lessons to take away from going through that? Is there a medical lesson for the veterinarians about foot-and-mouth disease? How do you insulate yourself from the political pressures, indexing your monies to the hyperinflation problems? What would you say are the major business lessons from going through that?

Zorraquin: There are probably things I would not do again if I had to go back. I was too much involved directly with the banks and the negotiations, and the banks wanted to go after me. They wanted to secure some of their loans with personal guarantees, and a lot of them I did. This probably cannot be written, because in Argentina it would be against the law to do that, particularly in the position I was in.

But, I had no choice. If I had not done it, the company would have probably gone bankrupt and liquidated. It would have sucked the rest of the assets on the appliance business. But it was risky, so I would not do that. The other thing that I learned is that I could attract and hire someone to run the business through crisis with me who was the perfect person for a policy situation.

Kaizen: Who was that?

Zorraquin: He had previously been a manager of a bank. He was a risk taker. We had to make a lot of risky decisions while surfing through bankruptcy. We had lost most of the capital and needed to make decisions of partnering with this and that one to bring cattle into factories and to be able to put the machine to work again.

Kaizen: Can you say his name, or is that a private thing?

Zorraquin: That’s a private thing.

Kaizen: Fair enough.

Zorraquin: That was very important for me, and it helped me also to stay a little away from the front of that in some instances, not with the banks but probably with the farming sector that were the suppliers of cattle to these factories. It was just very traumatic.

Kaizen: That crisis comes to an end, and you take some years off and study some history and theology. At what point did you reenter business?

Zorraquin: I never left completely.

Kaizen: You were chairman of the board you said?

Zorraquin: I was chairman of the board, but I didn’t have a good time when I came to the office. I didn’t feel at ease, and I was a very frustrated with the process, so I wanted to stay away. I knew that the appliance business was being run well, and so I took a lot of time off and spent a lot of time on the farm. For the first time in many years, I spent time at home because I had been out of home for such a long time with my kids that were young. I regained a lot of quality of life, you could say, that I had lost through the crisis. I had always been very active in sports. In the middle of the worst part of the crisis, I was probably running 35-40 miles a week, and I felt like I could sleep for hours. I was lucky not to have a heart attack.

Kaizen: You’re in your middle 40s at this point?

Zorraquin: I was in my middle 40s, and I started to have more of a passive life, studying and reading. I didn’t need to go out and run like a kid anymore. I started to enjoy other aspects of life—going to the farms, going to pick the kids up from school, going to my theology class, and reading. I would take my finals, and when I would come home from a final exam and open the door of my house, all the kids were waiting to ask, “How did you do dad?”

Kaizen: Nice.

Zorraquin: It was a very nice time, and my self-esteem was a little shit through all of this process. But, over time I started to regain some confidence, and I started to come to the office almost every day. I started to enjoy what the company was doing and started to work with the CEO, who is still the CEO of the company, more closely.

Kaizen: Your zest for business is returning as well.

Zorraquin: Regaining more with time. I became with ESEADE University, and I joined the board of the ski club. Then I became part of the nature conservancy. But I almost left all business-type environments. I was out of the business conferences, the business groups, and the chambers. I wanted to stay out of that for a while.

Kaizen: How would you characterize the structure of the business now? What are your major operations? You’re chairman of the board, you said?

Zorraquin: I’m chairman of the board of Rheem.

Kaizen: Of Rheem.

Zorraquin: Right, not of the holding company. Rheem is an operating company that has two factories. It’s the number one manufacturer of water heaters in the region, in the southern corner of South America. Rheem U.S. is a minority partner of this company since 1947, for 70 years.

My primary job is looking more into the future and working broad development. I have a relationship with the partners in the U.S. That’s what it is best for the business, and that’s the way I feel more at ease now with what I do.

Kaizen: During your standard workweek, what range of activities do you engage in? Reading, meetings, and so forth?

Zorraquin: Yes, and I also spend some time with my personal finances. I manage the finances of a farm I have in Uruguay, for example. I typically come to the office every day. I enjoy being in my office. I read, and I write. I took a trip to New Zealand and Australia to look at the solar business that Rheem has in Australia, which is probably one of the best solar businesses in the world for water heating. We are trying to put together a business plan to make an investment in solar business. I am probably in the office if I am in Buenos Aires for the day.

Kaizen: You mentioned you work with ESEADE University, and the ski organization, and the nature conservancy. Can you say a more about ESEADE University—what is your interest in working with that university?

Zorraquin: My primary interest is to keep alive the think tank to spread ideas. That is my primary interest.

Kaizen: You’re characterizing ESEADE as a think tank?

Zorraquin: Well, it started as a tiny think tank, but it became, over time, a traditionally run university. Small, but it is a university that is involved in different careers, and not necessarily with the purpose of teaching economics. But, I still believe that’s part of the essence of ESEADE, and they should have a flag. One of my ideas is that they should have a flagship graduate program that teaches politics and economics, to make people understand what is a free society and what is a free market.

Argentina needs that more than ever. It’s very relevant for the changes that Argentina needs. There’s a lot discussion about whether this has to be the size of the state, if we need to have a very regulatory, what should be the level of protection of industries. What is the economic model that will bring more jobs and opportunity for people? Discussions are everywhere in the world. The U.S. is the same.

Kaizen: Absolutely.

Zorraquin: That’s on one hand. On the other hand, it’s an institution that has to make money to survive, so how do we improve the operation and bring more students so we can have a financially stable institution that will allow us to dedicate some resources to spreading ideas?

Kaizen: The think tank element of it as well. The nature conservancy, how long have you been involved with that?

Zorraquin: I’ve been involved for four years. Nature conservancy started in Argentina eight years ago with a group of U.S. citizens interested in protecting the grasslands of Patagonia. There are few places in the world where you have such a big extension of grasslands. Mongolia is one; Patagonia is another. That was the reason why they wanted to come here, and these eight or nine American citizens were all involved in Argentina in some capacity. Either they have a ranch in Patagonia or they came to fish in Patagonia. I have always been very active fishing in Patagonia. My family has a property in Patagonia. Just by coincidence I got to know the Nature Conservancy, and I got involved.

For the last two years, I have been the chairman of the board of the Argentine chapter in which we still have 12 members of the board. Four are Argentines, and eight are Americans. The program has grown from the grasslands to other areas of Argentina where we are actively working. Shell oil and gas is one. We’re helping to protect the biodiversity in places where you dig or rig. The riggers of Patagonia is another one. Sustainable culture in the north is another one. Those are areas where we are working.

Kaizen: Looking back on your career in business, you have said a lot of things go into being successful in business—a willingness to work hard, to learn the business and the all the business’ aspects as you rise up in the ranks, strategic thinking abilities, and leadership abilities. Particularly with the ups and downs, you mentioned a lot of psychological issues—being able to deal with really extraordinarily difficult things. Are there things you would single out as most important for young people to work on that maybe they wouldn’t be thinking about when they’re 20-25?

Zorraquin: One thing that helped me out through the process of growing a big company through a crisis was separating, in my mind, the property or the ownership from the company. Let me try to explain. I knew that the net worth was at risk, but I could not take the decisions based on that consideration because I had to think more about the survival of the company whether the shareholders would recover part of the assets or not. If I had always thought about how to recover the assets, I would have missed the business opportunity or the business aspect of the transaction. To put it in a more crude way, I knew that I could lose everything, and I was ready for it.

Kaizen: Would you characterize that as a mental toughness, a clarity of priorities, or courage in the face of risky decisions?

Zorraquin: Maybe it was prioritizing. I had no fallback position, basically. Because, if everything went wrong, then all that I have at stake there would be lost. I knew that could happen, so it’s a matter of trusting that things will develop in some way. You have to be patient, you need to know that the process is long, and you have to rush into taking decisions.

You have to be able to do something between what your lawyer suggests and what your management team suggests. Sometimes you cannot go only through your legal advice in a bankruptcy; you have to keep your business advice as well. You have to move from one chair to the other one. This is legally risky, but this is something that’s worth doing because you have some business advantages. Don’t go against the law but know that there is a fine line.

Kaizen: Exercising judgment.

Zorraquin: Right.

Kaizen: With competing values, so to speak.

Zorraquin: I would say also, now that you mention judgment, it’s relying in my judgment. Many times my wife has said, “You don’t rely on other people’s judgment, and you have to be able to get more advice.” That’s a very good point. But, on the other hand, I thought a lot and I studied a lot about the situation. In the end, I relied on my judgment.

Kaizen: That’s what a leader has to do, right?

Zorraquin: Yes.

Kaizen: I want to raise some questions about Argentina. It sounds like a lot of the business troubles and successes you’ve had are tied to what’s going on in Argentine culture, the political culture, and so forth. How would you characterize Argentina, in the international perspective, in terms of its core entrepreneurial culture? Healthy? Struggling? What would you say?

Zorraquin: I think the Argentines are very entrepreneurial, but they are trapped in a very short-term horizon because the microeconomic system of Argentina has been very unstable.

Kaizen: Argentina has great human capital, right?

Zorraquin: Yes.

Kaizen: There are lots of natural resources, but it does under perform?

Zorraquin: It under performs because there is always a very short-term horizon.

Kaizen: That’s driven by macroeconomic instability?

Zorraquin: Economic and political. But, if there is little stability, immediately what an entrepreneur knows that she or he can have a longer-term horizon elsewhere if the business can be established outside of Argentina. The idea is born here, but they immediately flourish elsewhere.

Kaizen: Outside of Argentina?

Zorraquin: Yes, immediately.

Kaizen: This ties to my next question about brain drain issues. There’s, anecdotally, so many really smart Argentines that come to the United States or Canada or wherever for University. A lot of them don’t go back to Argentina. Is that a challenge, or a problem?

Zorraquin: No, I don’t think that brain drainage is a really big problem. You could find that scientists have left for decades, but they left because there was no money put into science and research, and they wanted to be physicists, for example.

Kaizen: Physicists?

Zorraquin: If you wanted to be a physicist you had to go somewhere else, because if you stayed here you would probably starve. That’s a brain drain, but professionals have gone in and out and have come back over time.

Kaizen: Because there are opportunities.

Zorraquin: But, what is true is that a lot of Argentines that leave for some time or forever do very well because they can adapt very rapidly to different environments.

Kaizen:  Maybe the macroeconomic uncertainty trains a mindset that enables them to be adaptable wherever.

Zorraquin: Yes, to the point that they find some environments to be too slow and not very challenging because things typically work well.

Kaizen: That’s something from the entrepreneurial side of the mission. On the ethics side, Argentina also has a reputation for a high level of corruption politically. How are those challenges for doing business?

Zorraquin: That creates a very big challenge for business. You can run a company without becoming involved in any corruption, small or big, zero. You can do it, provided that you have a certain position. At Rheem we conduct business 100% transparent, and we have very good standards, but it’s probably the best brand in the market. The result is we can conduct business because we have such a grand reputation, a reputation that has been made up after many decades of consistent business philosophy.

Having said that, if you want to start a business from scratch, you will be confronted from the very beginning with a lot of ways to bypass or shorten your way through the system, and you will be confronted with corruption. I would say this is becoming less and less, thank God, because the culture is changing. People understand that corruption only benefits the corruptee and the corrupt, but it has a detrimental effect in society, very detrimental. That is coming to light and is being discussed.

But, for example, I have a friend that started a business and wanted to build a particular sophisticated device in Argentina. This was three or four years ago, and he could not import stainless steel screws that were particular for that application. He had some friend that brought the stainless steel screws in the bucket, but as the business grew…

Kaizen: It’s not sustainable.

Zorraquin: It’s not sustainable. He wasn’t going to drive; gas wasn’t efficient. He went to Uruguay and set up the factory in Uruguay. Now, he can do it here because things are changing. You can remain non corrupt, but your road will be harder.

Kaizen: Yes, good. That’s encouraging. Especially, if you say the culture is changing, and more ordinary Argentinians are aware of the corruption issues and resisting, then that’s promising.

Zorraquin: But, I have read some polls in the past that say 40% of Argentines believe that breaking the law is not so bad. That’s how high it is in the mind of people. If the law doesn’t adjust to their way of doing things, their behavior, and their idiosyncrasies, they think it’s okay to break it. That’s important, very important. How do you change that over time? Through education and leadership.

Kaizen: But, also not having corrupt laws.

Zorraquin: Yes.

Kaizen: That force people into awkward situations.

Zorraquin: Laws that are so detrimental for the functioning of society, and there’s no way to bypass the law.

Kaizen: A couple more questions, just to wrap up. You’re in your 50s now?

Zorraquin: 57.

Kaizen: You’re financially successful, but you come into the office pretty much every day, as you said.

Zorraquin: Yes.

Kaizen: You could, if you want to, just retire, read, do family time, and so forth. What, in addition to financial issues, motivates you to come to the office every day?

Zorraquin: I think that I have to close the circle. I have now, one project that will take three to four years to materialize, and I think it’s going to be a milestone for my professional career. I’m very motivated for that project.

Kaizen: Looking back to your 20-year-old self when you were preparing yourself for your career, what advice would you give to other young people who are in their early 20s? What do you need to know to get the most out of yourself?

Zorraquin: I think that the advice would be to try to experience with as much as you can with the things that you feel you like most. Out of the box thinking. One thing I regret is I was so focused on structure in the things I had to do. Looking backwards I think, what if I had considered this and that? What if I had traveled abroad after high school and spent a year? I think all of those things enrich your life, and if you can do that at an earlier stage, it’s a lot of human capital that you can then deploy over time.

Kaizen: Alright.

Zorraquin: My recommendation would be to try to come out of high school with a very open mind, and utilize trial and error. Try this, and if it doesn’t work let’s go to the other one.

Kaizen: Be aware of the structure that you need to follow, but look for ways to get outside that structure and experience as much as you can.

Zorraquin: Yes.

Kaizen: Be flexible and open, especially when you’re young.

Zorraquin: I think traveling is a phenomenal. Today, it’s so easy to travel. My children have traveled since they were very young, but today I have two who live outside of Argentina, and my daughter is getting married in three months. She has decided that she will go to Australia for two or three years.

Kaizen: Wonderful.

Zorraquin: Melbourne to work and study. Because, they have been so much immersed in this world culture, no? Travel, and see, and learn, and language. They are very open. That, not only enriches their lives, but I think it increases their potential for success, no matter where they live.

This interview was conducted for Kaizen by Stephen Hicks.

More Kaizen interviews with leading entrepreneurs are here at our site.

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