Edward Verl Fielding.

Some strategic ownership considerations for foreign investors in the Andean pact region online

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tries. Pharmaceutical, petro-chemical, food, beverage,
finance and construction were the industries contacted. The
objective was to maximize the number of interviews within the
time constraints. The offices of the firms of the afore-
mentioned industries were so located as to reduce travel time,
and thus they became a convenient sample.

Seventeen interviews were arranged. Of this number, ten
involved the chief executive officers. Two interviews were
held with the person responsible for the new business analysis
for the firm and the other five interviews involved area sales



23

managers. The data reported was gathered from twelve of the
seventeen firms contacted.

The specific responses of individuals will not be associ-
ated with any company in accordance with the wishes of the
companies. The information referred to in this report comes
from the discussion with the twelve officers, and the infor-
mation gained from the interviews with the sales personnel
was primarily used to direct more meaningful questions to the
executive officers. The seventeen companies contacted were:
California Pellet Mill, Inc., Bemis, Inc., Dow Chemicals -
Latin America, Ralston Purina International, Abbott Universal
Ltd., Gulf Oil Company, Seagram Overseas Sales Company,
Pfizer Latin America, Rohm & Haas Company, Borden - Latin
America, Coca-Cola Latin America, Cargills America, The
Protane Corporation, Chicago Bridge & Iron Company, Ltd.,
Deltec International Ltd., Goodyear International Corporation,
and Goodrich International, Inc.

HYPOTHESES

Tables 1 and 2 depict a general reduction in the growth
of new investment for the members of the Andean region, even
in face of the expanded market opportunities of the region.
The information in Table 3 would lead one intuitively to con-
clude that the combining of these nations into a regional
market would increase the economic attractiveness. So how
does one explain the lethargy of foreign investment? Perhaps



the requirement for local ownership is seen as sufficiently
onerous to cause foreign investors to forego the market op-
portunity, or perhaps there is concern about the anticipated
continuity of benefits.

My a priori assumptions related to the initial questions
were:

1. The new regional market is seen by U.S. businessmen
■ as being of greater economic opportunity than the

national markets. Implicit in this statement is
an expectation for an acceptable continuity of the
benefits .

2. The local ownership requirement violates U.S.
business policy regarding method of operation
and investment.

3. As a result of the local ownership requirement,
U.S. businessmen would not regionalize their
present operations in the Andean region.



25





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31



FOOTNOTES



Chapter 1



1. John T. Lindquist, The Merits of For c ed Divest m ent: The

Experience of the Andean Group , mimeo , (Princeton,
N. J., 1972), p. 4.

2. Ibid . , p. hO.

3. R. D. Robinson, International Busine s s Management: A

Guide to Decision Making, (New YoTk^ 1973) , pT~3"it^ .



32

Chapter 2
THE REACTIONS OF SOME U.S. BUSINESSMEN

INTERVIEW RESULTS

When confronted with the question of regionalization,
only three of the twelve officers interviewed indicated that
their firms were considering some type of regionalization.
For two of the firms this move would involve the production
of a product they were not now producing in the region and
establishing a new venture. In both cases, the product it-
self required high volume to achieve competitive economies of
scale and was a high value to volume product. In both in-
stances the interviewed officers expressed the opinion that
the firm could achieve a monopoly production position and be
very profitable behind the tariff barriers. Both firms had
plans to enter the market as an acceptable mixed enterprise
rather than be subject to a "fade-out" divestment.

It is interesting that the officer of only one firm sug-
gested the possibility of his firm regionalizing their present
facilities. This was a commodity product with low value to
volume. The product had a very narrow profit margin which
could not be competitive going across tariff barriers.

All of the officers interviewed indicated that their
companies were continuing to invest in the facilities already
established within the region. This was even true in Peru
where higher profits meant a more rapid transfer of equity to



33

the "industrial community". However, some of the firms inter-
viewed had discontinued operations in Peru.

The question of whether or not a firm would accept local
equity participation through the divestment program of Deci-
sion 2^ is incumbered with complexity. Only three of the
twelve firms would be willing to consider establishing an
acceptable mixed enterprise in the area. One firm already
had a mixed enterprise- However, ten of the twelve firms
were currently involved as minority interests in joint ven-
tures with local participation somewhere in the world or would
consider becoming so involved.

The complexity of this local ownership question arises in
trying to reconcile the two positions, i.e . , the acceptance of
a minority position elsewhere, but reluctance to consider such
for the Andean region.

Of the firms that were not interested in considering local
equity nor regionalization, five of these expressed strong
feelings that the regional market would dissolve. One of the
three companies that would accept local equity had already
done so, but it did not plan to regionalize its production
because of the feeling that the regional market would not
last. One of the firms that was considering a new facility
for the regional market also expressed doubts about the
stability. So seven of the twelve firms expressed doubts
about the long run stability of the region; five that did
not plan to enter into a partial divestment program, one firm



31*

that already qualified as a mixed enterprise but did not plan
to regionalize, and one firm that was considering a new
regional venture .

Eleven of the firms not willing to take in local equity
in their present facilities mentioned that they were now ar-
ranged to serve the individual national markets and saw no
incremental advantage to regionalization.

Two firms, not included as part of the survey report as
they were represented by their sales managers, indicated that
the market opportunities were not sufficient to warrent
regionalization. One of these firms already had a company
in which it held the minority position with local equity in
the majority. The other firm's representative had indicated
the company did take a minority position in some cases, so
it may have made more than just a cursory evaluation of the
market.

As a result of the depth of questioning attained in the
interviews, it may be that the paradox of willingness to
enter into minority joint venture positions but the avoidance
of such in the Andean region can be explained at least in
part.

A willingness to enter as a minority partner in a joint
venture does not mean the firm is willing to give up nor
share proprietary knowledge or technology, nor anything else
which gives the firm its competitive edge in the world market,



3^

that already qualified as a mixed enterprise but did not plan
to regionalize, and one firm that was considering a new
regional venture.

Eleven of the firms not willing to take in local equity
in their present facilities mentioned that they were now ar-
ranged to serve the individual national markets and saw no
incremental advantage to regionalization.

Two firms, not included as part of the survey report as
they were represented by their sales managers, indicated that
the market opportunities were not sufficient to warrent
regionalization. One of these firms already had a company
in which it held the minority position with local equity in
the majority. The other firm's representative had indicated
the company did take a minority position in some cases, so
it may have made more than just a cursory evaluation of the
market.

As a result of the depth of questioning attained in the
interviews, it may be that the paradox of willingness to
enter into minority joint venture positions but the avoidance
of such in the Andean region can be explained at least in
part.

A willingness to enter as a minority partner in a joint
venture does not mean the firm is willing to give up nor
share proprietary knowledge or technology, nor anything else
which gives the firm its competitive edge in the world market



35



It was ray conclusion that the willingness to enter a joint

venture was more in the realm of an investment arrangement

and did not indicate a sharing of such scarce resources as

trained people, management, crucial patents or technology.

This explanation could reconcile some of the findings of the

1
Meeker study. He found most firms willing to enter joint

ventures but not favoring partial divestment of an estab-
lished venture.

While the generalization that firms are extremely reluc-
tant to enter into joint ventures with their own proprietary
technology may not be universally true, it would certainly
be reasonable to suspect such a requirement would only be
overcome by a higher level of market inducement. Here the
implicit Japanese requirement for majority local ownership
and the general willingness of U.S. firms to enter the market
comes to mind. The Brazilian case may be another good example.

IMPLICATIONS DRAWN FROM THE MODEL

Only one firm was even considering the possibility of
regionalizing its present operations. Two firms were con-
sidering new ventures which would be regionalized. But
another firm which would qualify as a mixed firm was not
considering taking the additional steps necessary to re-
gionalize production.






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Online LibraryEdward Verl FieldingSome strategic ownership considerations for foreign investors in the Andean pact region → online text (page 2 of 5)