Edward Verl Fielding.

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

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ceived stabilization in the regulations, and some revocable
divestment arrangement may be inducement factors established
investors are interested in.

A problem posed by some of the respondents was the pos-
sibility of the company agreeing to an acceptable divestment
agreement, but then not finding any local capital willing
to make the investment. It was suggested that a plan be
considered whereby the foreign company could create an
escrow to hold the stock certificates until a buyer was
found. Such a program would allow the foreign company to
comply with the divestment requirement without being forced
to sell at a bargain price.



56

The question of the revocable divestment agreement is
an* interesting consideration, although this may not be in
harmony with the long run goals of the host governments.
Divestment seems to be an area of uncertainty that could
be somewhat stabilized.

It is my impression from the interview responses, that
U.S. investors are not in favor of having foreign partners
on a fade-out joint venture basis. A high degree of uncer-
tainty as to the stability of the region, coupled with the
prospect of being tied to a partner in an unfavorable eco-
nomic situation, makes changing to regionalization almost
intolerable. However, it seems that this contingency can
be mitigated. A buy/sell agreement where both parties agree
either to buy or sell at some price that is determined by
the guidelines of the agreement could lessen the long term
impact of divestment.

Perhaps this buy/sell agreement could be part of the
initial divestment agreement whereby the local investor
acquires equity at a price determined in accordance with
the procedure of the agreement. The local buyer would have
the option of buying down to a certain level of equity,
probably the minimum requirement. The foreign owner would
have the option of selling additional equity beyond the
minimum required; on the basis of this method or under cer-
tain conditions he could buy back the interest of the local



57

investor. Such a buy/sell agreement could be very beneficial
in* reducing this area of uncertainty.

SUGGESTIONS FOR FURTHER STUDY

In this attempt to be descriptive of a very small
segment of the decision process, we have only touched some
very interesting questions. It was suggested that the model
of the study may be useful in evaluating the Franko data to
gain a better understanding of the nature of proprietary
technology and utilization of scarce resources.

The descriptive question of what might be considered
scarce resources and how their limitations might affect an
investment decision would be a useful study, as would a
detailed development of the behavioral considerations of
the FOJV as compared to the opportunity to enter as a
minority interest in a new venture.

A complementary study of the nature and influence of
control on the investment decision process would be an im-
portant element in constructing a decision.

A major normative question underlying the whole area is
the conflict between foreign ownership and nationalistic
needs of self direction.

Philosophically the free enterprise system and inter-
national trade concepts give strong support to an investor
entering a market and developing it to his economic benefit.



58



However, many people feel a laissez faire system may not work
for the long run good of the majority.

In a similar sense, Hirschman presents three major ob-

1
jections to foreign investors. He concedes that foreign

investors may make positive contributions by supplying one

of several missing factors of production (capital, entre-

preneurship, management, etc.), and such is truly beneficial

if these are scarce resources. The teaching function of

foreign investors exposing the local market to new methods

and technology may also serve to improve the quality of the

local factors of production. His first objection would be

that this inflow of foreign investment could be seen as a

stunting or impediment to what might otherwise be vigorous

local development of the so-called missing or scarce factors

of production. Concomitantly, the host country would be

concerned about becoming specialized in certain factors of

production, e.g., low skilled labor.

The second problem with allowing foreign investors to

have significant control in the economy is their lack of

firmness in demanding certain actions which are necessary

for the long run economic growth of the country. To build

up infrastructure for industrialization, there is a need

for large amounts of overhead and educational capital to

be generated from taxes, new domestic markets need to be

opened, foreign markets made more attractive, institutions



59



hampering growth reformed, and powerful social groups anta-
gonistic to development neutralized. Such changes are
facilitated if the new industrialist speaks with a strong,
influential and even a militant voice. Hirschman is saying
there needs to be more insistence on development in order
to accomplish it.

Finally, even if the foreign investor realizes the need
to insist on changes being made to enhance development, he
is also aware, as are the policy makers, that it is politi-
cally unsound to force nationals to sacrifice when the
benefits are accruing to foreigners.



60



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Online LibraryEdward Verl FieldingSome strategic ownership considerations for foreign investors in the Andean pact region → online text (page 4 of 5)