Evaluating the opportune moment to scale up a business is essential but equally paramount to the success of a business operation is knowing when to scale down. The case for multinational companies operating out of Venezuela – a country despite having the world’s largest oil reserves, has an economy in complete shambles – is a great example of this quandary. This has been exacerbated by recent U.S. economic sanctions which prohibits any American institutions from lending more money to Venezuela. MNCs such as Clorox, Kimberly-Clark, General Motors, Harvest Natural Resources and General Mills have removed their operations from Venezuela entirely, abandoning their assets or selling them for cheap. While walking away from an unpredictable landscape is often regarded as the safe choice, these cases are also where high risk, high reward opportunities could be hidden.
MNCs that have chosen to remain in Venezuela are slowly scaling back their operations due to a scarcity of raw materials and decreased demand for their goods and services. This is complicated by strict labor laws in Venezuela that forbid mass layoffs. MNCs usually work around this by giving many of their employees a paid leave of absence or incentivizing their voluntary termination. With reduced schedules and cutbacks in production as well as a limited selection available in the market, Colgate, Ford, Johnson & Johnson, Fiat Chrysler are among 150 other MNCs that have stayed back in Venezuela. In certain instances, these companies have attempted to support their employees and provide assistance.
Other places in Venezuela, MNCs have struggled to adapt to other government commands, including strict cost guidelines on products and services that the Venezuelan government deems as necessities such as milk and soap. The prices cannot keep up with constant inflation. Colgate recently adapted to this with the production of a price-controlled toothpaste that is packed in brown cardboard that is more cost-effective than its normal red packaging.
If Venezuela ever were to recover from its current economic frenzy, the MNCs that have continued to be present there will be in position to benefit strongly. The ability and freedom to adapt to changing circumstances of a high-stakes economic landscape are dominant.
Bibliography:
Valerio, Pablo González AlonsoAlejandro. “When Should Multinationals Move Back into Venezuela?” Harvard Business Review. September 01, 2017. Accessed April 04, 2019.
Pons, Corina. “From Unilever to Ford, Companies in Venezuela Cling on by Cutting…” Reuters. August 31, 2018. Accessed April 04, 2019.