A World of Risk

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

The company sued the Mexican government under Chapter 11 of the North American Free Trade Agreement; it won on the legal merits and was awarded $58.4 million in damages, which it finally collected this year. “Had we just been an American company shipping into the local market, we would not have had [that] outcome,” says Beebe. “If you’re employing local citizens in what generally are well-paying jobs, you’re not considered an interloper.”

In addition, “while we were very persistent and professional about having our day in court, we did not rub the Mexican government’s nose in it,” Beebe says. “We wished to be viewed as a good citizen in Mexico.”

Pack Light

Corn Products International’s strategy is not the only way to go. As a service provider, for example, Brightpoint limits its physical presence in the overseas markets it enters. It usually uses a shared-services model in finance, centralizes distribution and warehouse facilities regionally, and buys and sells in the local currency. Shared services means that, in-country, the wireless company needs only a commercial marketing team and support staff. And regionalized “hub” warehouses for the wireless products it resells provide efficiencies and allow the company to invest in automation that it couldn’t necessarily afford in each individual country, Boor says.

A small, local footprint also limits potential losses if the company has to pull out of a country when the political or regulatory climate gets volatile. “If [Brightpoint] finds a business model is not working, because the risk environment or the economy is different than was thought, [the company] will quickly develop a plan to exit that country,” says Boor.

Brightpoint has a luxury that some other firms don’t: it’s growing and has enough headroom to avoid geopolitical hot spots. “Its in only 27 countries today,” says Boor. “If there are 40 or 50 on the high-end risk scale, the company is not in a position where it has to enter those countries. It can get a more than adequate return by looking elsewhere.”

Indeed, Brightpoint exited China in 2002 because of heavy governmental ownership and influence in the telecom sector. Despite China’s huge and fast-growing wireless market, “the risk-and-reward balance doesn’t yet justify [the company] going back into a country like that,” Boor says. “Companies with a bigger global footprint, however, might have less leeway [to pass it by].”

And there is the dilemma. If CFOs want to profit from burgeoning economies, they must be able to stomach political discord, citizen uprisings, and sea changes in national leadership — and be prepared to deal with those hazards. Otherwise, they’d be smart to stay close to home.

Vincent Ryan is senior editor for capital markets at CFO.

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