A World of Risk

In emerging markets, the clash between politics and profits poses multiple threats.

In Mexico, where Cooper Industries has a large manufacturing presence, there were 15,273 drug-related murders last year. So, for that location, Cooper considers a disproportionately greater number of “what-ifs” around supply-chain risks. “What if a border crossing were to be closed because of crime, violence, or military intervention?” Barta asks. “You have to think about redundant manufacturing capabilities and other tactics that would help you get through a temporary curtailment in production.”

In manufacturing, political risk will be a greater factor in expansion-plan choices, predicts Barta. Companies have been more reliant on single facilities than they were 10 years ago, but growth will force them to choose whether to enlarge current overseas plants and warehouses or diversify the manufacturing footprint to minimize geopolitical risk. “Not many businesses have been in the mode of needing that capacity over the last couple of years,” says Barta.

“Good Citizens”

Corn Products International, a $4.4 billion maker of sweeteners and starches, thinks being a strong local presence in overseas markets is the best antidote. The Illinois-based company produces and sells locally across a wide geographic base, which includes Europe, South America, Asia, and Africa. Its subsidiaries have their own executives and operating teams, including finance, while headquarters determines policies and performs oversight.

“Instead of having everyone in Chicago reading The Financial Times, we have them living and breathing in local capitals,” says Cheryl Beebe, Corn Products International’s finance chief. “It’s a great way to manage political risk.”

Presidents of the national subsidiaries are heavily involved in local chambers of commerce, and the subsidiaries have names that are identified with the local market, such as Productos de Maiz Uruguay.

“Take Pakistan,” says Beebe. “Do you really want to be identified as a U.S. multinational?” Since Corn Products is in business-to-business markets, “there is very little value in trying to brand; it’s not like McDonald’s or Procter & Gamble,” Beebe explains.

Corn Products’s operating philosophy proved its worth in two major skirmishes earlier in this decade. In 2005, Canadian farmers led calls for a tariff on imported corn, accusing U.S. growers of “dumping” (selling below the cost of production) and the U.S. government of subsidizing the growing of grain corn. “The proposed tariff would have made our Canadian business unprofitable,” says Beebe, “which wouldn’t have been good for the Canadian farmers or the unemployment rate in Canada.”

Corporate and local executives from Corn Products sat down with Canadian officials and went through the facts, and “that reasoned discussion carried the day,” says Beebe. The company credits the fact that it had what a spokesperson describes as “smart, experienced people on the ground in Canada” for making those talks far more productive than they might otherwise have been.

The second instance occurred in Mexico in 2001, when the influential sugar lobby got politicians to pass what Beebe calls a “discriminatory” tax on beverages sweetened with corn sugar (as opposed to cane or beet sugar). The tax cost Corn Products 25% of its consolidated operating income.

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