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Economic Diplomacy and the Private Sector: Helping IBM Expand into Latin America

In 1984 Donald Lyman left the State Department after seven years of service. Although it was a brief stint compared to many Foreign Service Officers, Lyman did not spend that time mulling around. He built relationships with prominent U.S. and foreign figures and became familiar with foreign commercial and political processes.

IBM logo (1972) IBM  | Wikimedia
IBM logo (1972) IBM | Wikimedia

This type of expertise is important. For example, if a private company wants to do business abroad, people like him can serve as key allies. As more and more private businesses try to push their production and sales internationally, they need to develop working relationships with the countries in which they want to be involved.

In the United States, it’s nothing new for private businesses to operate in foreign markets; in fact, it has been going on since the nineteenth century, if not earlier. At that time, the rapidly growing economic and industrial base combined with a U.S. foreign policy based on the expansion of commercial interests made it only natural that business leaders played a large role. This was further compounded when the U.S. dropped protectionist policies at home after World War II, allowing businesses to more easily expand their supply chains abroad.

In today’s globalized world, economic diplomacy is an essential mission for U.S. diplomats and policymakers. Today more than ever, global influence and power often rests on economic strength and integration rather than military ability. Economic diplomacy not only helps promote economic growth at home, but also strengthens the U.S. as a leading commercial partner and spreads American values. Businesses play an integral role in this mission. While diplomats can help navigate red tape, it’s often up to the private sector to negotiate directly with foreign governments.

This is where people like Donald Lyman come in. Lyman spent his entire Foreign Service career in Latin America and built important relationships with local government officials, business leaders, and U.S. embassy staff. He was hired by IBM (International Business Machines) when they were having trouble negotiating with Latin American governments. In the following excerpts, Donald Lyman details his transition from government to the private sector and the role he played in helping IBM expand into Latin America.

Donald Lyman was interviewed by Charles Stuart Kennedy on October 14, 2016.

Read Donald Lyman’s full interview HERE.

Drafted by Merrill Rabinovsky

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Excerpts:

“Two months later, IBM called me up for an interview, and they said they were getting more interested in Latin America”

           
Mexico City Federal District (2013) Lidia Lopez | Wikimedia
Mexico City Federal District (2013) Lidia Lopez | Wikimedia

Q: What did you want to do when you left?

LYMAN: When I left, I was torn between working in government or business—I had an offer from the Department of Commerce to be a Deputy Assistant Secretary focused on Latin America, working mainly on trade issues, and that was an attractive offer. But I was leaning towards working in business. I had done a quite a bit of economic and trade related work in Bogotá, on the desk, and in Mexico, and I liked the challenges I saw for international business working with or dealing with in Latin America.

I did find, when I started looking for jobs, that I had much to learn about the corporate world and how it worked. Ambassador Gavin suggested I meet with a friend of his, who was a very well-known headhunter, search firm guy, and a very blunt one.

….

LYMAN: So what happened was, initially—around March, April of 1984—I received a wonderful offer from a pharmaceutical company in Miami to manage their government relations in Latin America. And I already knew one person in the company from Bogotá, they’d had a good reputation, and this person was a great guy. He wasn’t in charge, but I really relished working with him. They made me a good offer, and I went and started house hunting in Miami. Took a long weekend to do it.

All of a sudden, I got a letter from them saying, “Our Latin America division has been abolished. The head of it, who made the job offer to you, has been fired. We’ll be in contact in about a year when we figure this out.”

This was the negative side of what the headhunter had told me. On the positive side, which kind of worked out in a strange way. The Ambassador had written IBM on my behalf, and IBM had written back saying, “We don’t hire people like Don. We hire
people when they get out of college and they start working in a branch in Hartford or Baltimore or Buffalo, and they work in a branch for four or five years and then they move into other jobs at IBM. We don’t hire people from outside for mid-level jobs. People start, and then they work for us for their entire careers.” It was a lifetime employment type of company, they said.

I said, “Okay, fine.” I’d wanted to work for IBM (International Business Machines) almost my whole life, because I grew up in IBM territory in the Hudson Valley, and a lot of my friends had worked for IBM. I always thought it was the kind of company I wanted to work for. But after I got that letter I forgot about it. Two months later, IBM called me up for an interview, and they said they were getting more interested in Latin America. They weren’t sure what their plans were, but they wanted an interview. I went up and did that, and again I didn’t hear anything for a month or so.

Then all of a sudden, I got a call saying, “Hey, we’re forming a new Latin America division at IBM, and we’ve been having terrible problems working with Latin American governments. Would you come up to New York tomorrow and have an interview? We’ll
also give you a physical.” A lot of companies gave employees physicals before hiring in that period. So, I figured if they were giving me a physical, they were probably pretty sure they were going to hire me.

And sure enough, I went up there, did the interview, and a week later I had a job offer. A few months later I ended up working for IBM in New York. I personally think what people do in the Department of State, whether it’s political, economic, consul, or admin
work, is tremendous preparation for business. But many businessmen didn’t realize that, and there weren’t that many people then who had come from State and made successful careers in truly a business job. There were people who’d come in to State after working as lobbyists or attorneys and resumed that work; some Ambassadors have been on boards or been consultants, but there wasn’t a long history then—which I think has changed a bit— of people going from the Department to actual business-related jobs.

IBM did get more open, mainly because they had had some very bad experiences in Latin America that showed them they didn’t have a clue how to deal with governments, and in the ‘80s, governments were highly regulating computers, pharmaceuticals, autos, and all of the other foreign-owned business in Latin America. So, around ’84, ’85, it was really important that companies deal effectively with government. I think the pharmaceuticals were the first to realize that, and IBM wasn’t too far behind.

….

“The government relations part was some of the most interesting work I’ve ever done in my life, and was very involved with the Department of State, with USTR (United States Trade Representative), with the Mexican government, the Brazilian government.”

           
ITA Logo (2007) DOC | Wikimedia
ITA Logo (2007) DOC | Wikimedia

LYMAN: So, there were a lot of great things about IBM, and I was there for 16 years. I learned an incredible amount. I started out in government relations, stayed there for about four years, and then I switched over to the business side. The government relations part was some of the most interesting work I’ve ever done in my life, and was very involved with the Department of State, with USTR (United States Trade Representative), with the Mexican government, the Brazilian government.

So, I felt like I was using my experience in a productive way. And I wasn’t using it much in term of leveraging relationships, although that’s a part of anything you do, but what I was trying to use was the knowledge I’d picked up in my years in the Department. And, I think we made some progress on some really important issues for IBM. Looking back on it years later, I’m really proud of what I did and what we did as a team. I could tell you about a couple of those issues; both of them have had articles written about them.

Q: Could you tell me them?

LYMAN: Yes. The first one that hit was just as the personal computer was just starting to take off in late 1983, ’84. Even within IBM it wasn’t used very widely, as I found when I arrived. But it was starting to take off as a business and it was going to be the future of computing. To penetrate the Mexican and Latin American markets, and to have reasonable labor costs. IBM felt that it was important to manufacture the personal computer in Latin America. They selected a site in Guadalajara, Mexico, and came up
with a seemingly attractive proposal for the Mexican government in late ’83 for creating thousands of jobs, developing Mexican suppliers, and most important perhaps, exporting thousands of these PCs (Personal Computers) from Mexico to Latin America and even to the U.S. So the proposal created jobs, raised skills, and increased exports, all desperately needed by Mexico in 1984.

Going against the backdrop of Mexico not yet agreeing to a subsidies pact, going through all the political turmoil in this period in Mexico, instead of the Mexican government going, “Great, this is what we need,” they were rather reluctant. No one at IBM could
quite figure it out, and frankly in the Embassy we had been having a little trouble figuring it out, too. But right around the time, about a few weeks before I joined IBM, they got the approval from the Mexican government, they thought.

They received a letter that sounded very positive, so the head of the Latin American division, told me as I started , “Don’t worry, Don, you won’t have to work on Mexico. We know you’ve been there three years and you probably want to get into some different
issues. We are getting the approval and it’s fine.” About a week after I joined, it was very clear that the Mexican government (GOM) wasn’t approving it. The GOM never really said why.

It took about another three or four months of conversations back and forth, and the message we finally got from the Mexican government was, “Look, we really want this. But politically, it’s kind of tough for us, because you’re an American company.” You
know the history, and as I mentioned in our other discussions, history went back to the 1840s. There was this real fear of appearing to get taken advantage of by American government, American companies, American individuals. There was a feeling that even if they knew it was a good deal, it was too risky in that it could be construed on the left as taking advantage of Mexico or being one-sided.

           
Miami downtown (2006) Derek Jensen | Wikimedia
Miami downtown (2006) Derek Jensen | Wikimedia

So, what the Mexicans finally did was, they finally said to us, “Look, you’re a very active, positive corporation. We know you do a lot of charitable activities, you do educational activities, you do a lot of human resource training and development. Why don’t you take all that you plan to do over the next two or three years, that you planned to do anyway, and put that into a proposal. And the other element we want you to put in the proposal is, we want you to put a semiconductor plant in Mexico.” The Embassy had
helped us try to understand what was going on and to tell the Mexicans privately that if they didn’t approve IBM, other potential foreign investors would be discouraged. That set off a lot of fireworks, because a semiconductor plant in those days was at least a
billion-dollar investment, and you needed a lot of high-level skills in the country to make it work properly. It just didn’t really make sense, given what IBM had elsewhere, to put that in Mexico. So, what we tried to do in IBM was take a creative look at what they asked, and this was an exciting kind of thing to do.

We took a look at Mexico, where it was in terms of development and training in the high tech sector, and said, “Where could we add to our proposal some really aggressive training programs that would help Mexico develop a competitive tech sector?”

What we came up with were three types of training. We said we’d do some semiconductor design and teach people how to do that in Mexico, we just wouldn’t manufacture semiconductors there. That at least gave them something in the semiconductor area, which was hot at the time, Intel was making buckets of money and it was something everyone wanted to be in. Second, we said we’d do was what we called a scholarship program working with Monterrey Tech, which was the best technology university in Mexico. I think it had ten or fifteen campuses and was a really fine engineering and science-focused, university. We worked with Monterrey Tech on a scholarship program where people would, while they were at school, do internships at IBM and be on a fast track to be hired by IBM. Third was a promise that if the factory was implemented, we would truly train the workers of the factory. They all wouldn’t be only assembling pieces without picking up marketable skills. There was a real effort to train the people not to be engineers but to be skilled technical workers.

And then there was also some discussion of, if it worked out, future IBM manufacturing missions could come to Mexico. So finally, I think it was probably early in ’85 or mid ’85, Mexico approved the factory. This turned out to be a real success story. Not only were most of the people who had been running IBM Mexico the past ten or fifteen years from the scholarship program, but the factory ended up being a tremendous well-rounded, effective factory that ended up with probably, at one point, I think, employing twenty thousand employees and got other missions for IBM that exported over $10 billion dollars annually all over the world.

Ten billion dollars in the late 1980s or early 90s was a lot higher share of Mexico’s exports than of course it would be today after NAFTA (North American Free Trade Agreement). The factory ended up with a tremendous amount of skilled factory workers.
Eventually, many years later, IBM sold the plant to a third-party manufacturer, but I think that was well after 2000, when IBM was getting out of manufacturing.

….

“So, for about two years, during late ’84, ’85, and ’86, I found government relations was busy at IBM.”

           
IBM Head Office (2014) IBM Canada | Wikimedia
IBM Head Office (2014) IBM Canada | Wikimedia

Q: Well, Brazil of course—I’ve never served there, but from all the consulates, going through this period of, “We want to produce everything in our country,” India was trying to do the same thing.

LYMAN: Yes, and Argentina was, too. Argentina was trying to have not only what we used to call performance requirements for local content if you wanted to sell in the country, but also punitive tariffs.

There were stringent price controls in some of the countries, which was difficult during times of enormous inflation. The price controls were especially tough on the pharmaceutical industry and the auto industry, but also hit high tech.

So, for about two years, during late ’84, ’85, and ’86, I found government relations was busy at IBM. In the group I managed at IBM Latin America, I had about ten people working on government issues. But I also had the feeling towards the end of that period the governments in Latin America were starting to liberalize and more free market leaders were coming in. I also felt that government relations wasn’t really where I wanted to spend my career.

I wanted to get over to the business side, so I abolished my own job and my owndepartment and I moved over to the business side of IBM, and I’ve been in business mostly in Latin America ever since.

Q: How did you find, initially, that it went developing the market in Latin America?

LYMAN: It was a good market. IBM had probably a 90% share of the mainframe margin, and that was incredibly lucrative, but, aside from regulation, the economies of the region were very volatile. In 1985 in Brazil, there was 5,000% inflation. A hotel bill
would change price every day. Restaurants had their menus written in chalk or crayon because you couldn’t have a printed menu, because you had to keep changing your prices.

So, doing business in that environment was very difficult, and IBM luckily had some brilliant financial people. They actually would make as much or more money hedging as they would on the real business. But that’s not always the greatest business model to have, because it’s risky, but also, it’s not going to continue forever. So justifying new investments was not always easy, even within IBM.

Still the potential for growth was high in Latin America. The adoption of computers lagged far behind the United. The economies continued to be very cyclical in Argentina and Brazil. Mexico had its ups and downs. In 1995, Mexico had a huge economic crisis.
That year, I went to Mexico over 40 times instead of going to Washington 40 times, because I had a Mexico-focused job.

Argentina had tremendous ups and downs politically and economically. In Colombia, the late 1980s and early 1990s were a perilous time because of narco-terrorism. Venezuela was a mass of corruption and government regulation. So, it was a super difficult environment. But if you planned for it and managed it properly, you could do well, and IBM did well.

           
São Paulo Downtown (2009) Felipe Mostarda | Wikimedia
São Paulo Downtown (2009) Felipe Mostarda | Wikimedia

IBM recognized the volatility, so the business plan each year would assume that either Argentina, Mexico, or Brazil was going to have a crisis, and then if one of them did, they would still make their business plan. If two of them did, it was going to be pretty tough. If none of them did, it would be a great year. I was really glad I learned financial planning at IBM. I spent one rotational assignment there. The next ten years were all spent on the business side, in Latin America, mostly working in the PC business, which was very different from the mainframe business.

Q: Where were you working from?

LYMAN: I spent 5 years in New York, and then I moved to Boca Raton, Florida. In New York, once I left government relations, I first did a rotational job to help me learn IBM’s business side. I spent about six months in finance, I spent six months in operations. And then I came to Boca and worked first on product management for software for the PC and then on hardware and the business side of the PC, focusing more on Latin America, on taking the products that IBM was developing and manufacturing in Boca, and developing the right products for Latin America, when we could, and marketing them properly in Latin America

TABLE OF CONTENTS HIGHLIGHTS

Education
BA, University of North Carolina at Chapel Hill 1967
MA in History, University of North Carolina at Chapel Hill 1969
PhD in Diplomatic History, University of North Carolina at Chapel Hill 1976
Entered the Foreign Service 1977
Bogotá, Colombia — Consular and Economic-Commercial rotation 1977-1979
Washington, DC —Mexico Desk Officer 1980-1981
Left Foreign Service, July, 1984
Latin American Division, IBM — government relations 1984-1999