Venezuela Roils Multinationals

Many multinational companies are continuing to face challenges as they are trying to chase growth markets outside the U.S. and Europe and focus mainly on Latin American countries. Doing business overseas can bring many challenges such as unstable currencies and political turmoil, a prime example of this is Venezuela. Venezuela’s currency had devalued twice over the past year, sending the bolivar from 2.15 bolivars a dollar to 4.3 bolivars a dollar. These devaluations of the currency have led to numerous amounts of reductions in pretax earnings and decline in sales for several companies.

To offset the costs associated with the bolivar’s devaluation, companies like Tupperware Brands Corp. is importing fewer products into Venezuela and is increasing production in the Venezuelan plants. Doing this reduces a company’s reliance on importing, which has become more expensive with the devaluation of the bolivar. Another tactic companies are going with if they can to offset currency issues and inflation is raising the prices of their products. Not all companies are able to do this because half the items in the country’s consumer-price index are subject to price controls. This puts a limit on a company’s ability to raise prices.

Another reason why some multinational companies are facing challenges with trying to operate in Venezuela is because of the threats of expropriations by President Hugo Chavez. Mr. Chavez has already expropriated glassmaker Owens-Illinois Inc. without any real reason and he has threatened the expropriation of Toyota Motor Corp. In essence, Hugo Chavez is making it really difficult for companies to do business in Venezuela. Chavez should realize that he is really damaging the Venezuelan economy.

Despite the difficulties and challenges of doing business in Venezuela, it still remains an important Latin American region for multinationals. Many companies recognize how important the Venezuelan market is despite its current issues and they hope to see an...