News stories abound about the current crisis facing Venezuela and its impact on the country’s citizens, economy, and yes, General Motors. If you sit in any international business class, one of the major concepts that you will discuss is PEST. PEST stands for the Political, Economic, Social, and Technological factors that impact one’s ability to conduct business in a country. In our present scenario, General Motors has come to discover that its plant has been taken over by the Venezuelan government. The result of such a hostile action is the termination of the entire staff at the plant and the pursuit of legal action by General Motors, to the highest degree. But our friendly car manufacturer is not the only business being affected by the political climate in the tumultuous country.
As witnessed in the video above, other multinational corporations are also experiencing financial difficulty due to the riots and dissent. So, what would possess a government to even think that it could control a private enterprise? Why was General Motors in Venezuela in the first place?
The answer to the second question is to reduce cost by shifting production to a lower cost region. Well, maybe that is more along the lines of one of the reasons… it could also be to manufacture cars for the Caribbean and South American markets. No matter how you look at it though, the cost will remain one of the principal motives. Lesser developed countries (LDCs) such as Venezuela often engage with multinational corporations through the establishment of factories and plants within the LDC. This form of foreign direct investment has long been used as a tool for growing the LDC’s economy.
The issue that General Motors is finding itself in is the emboldened moves of a government that is attempting to consolidate all assets within the country. You see, the Maduro government is being accused of becoming more dictatorial in nature and as a result of policies, economic conditions, and social tensions, the country is facing a humanitarian crisis.
A quick internet search will reveal hundreds of images of protests, demonstrations, and even deplorable living conditions for many of the citizens within Venezuela. There are numerous challenges in providing food, water, and jobs for Venezuelans; healthcare has also not been left unscathed. Despite a significant amount of public outcry, President Nicolás Maduro has maintained that this is truly a conspiracy against his government led by the opposition and external countries like the U.S. With such a conviction, it should then become apparent why U.S.-based companies like General Motors have been caught up in the crossfire.
The seizure of plants and other foreign assets should be taken as a signal from the government that it does not intend to back down from its current stance. The victim of a conspired coup d’état. If we go back to our discussion on PEST, then what does this mean for the future of Venezuela? What about other countries that have certain degrees of political and social instability? The truth is that investors will always be weary of working in LDCs. Even if the Maduro government manages to turn things around and stabilize the country and the economy, the international brand of Venezuela has been severely tainted.
General Motors’ decision to exit the country and pursue legal remedies will result in thousands of job losses and millions of dollars worth of lost revenues and incomes for the country. This situation will negatively impact Venezuela’s ability to seek foreign direct investment or even loans on the international markets, making an already untenable situation worse. While Venezuela benefitted from having oil as an export resource, without the power to set prices the country will forever be at the mercy of market forces on its major revenue earner.
I believe that it is moments like these that politicians lose sleep over in trying to avoid. Coming from a small open economy called Barbados, I can empathize with the pain that poor economic prospects can lead to. News stations have been covering the General Motors seizure because of the direct impact it has on the U.S. economy. However, I want to close off by looking at it from another perspective. Can we not use this ordeal as a starting point to discuss the inherent power imbalances between the developed countries and the lesser developed countries? I am not advocating for the use of extreme force by LDCs to gain assets but rather, I would like to challenge the dependency that the world economy creates.
Politics and business are so interlinked that at many points, the line separating them begins to blur. It is easy for us to sit back and think that we would not want to invest in Venezuela anytime soon, even after the crisis has passed. However, maybe we should actively look for ways to help other countries reduce their dependency. It may help to create more stable societies across the globe and provide one less factor to give rise to anarchy and dissent. Regardless of your position about General Motors and its plant seizure in Venezuela, the real pest in all of this is the continued pain of people living in countries dependent on external economic factors.
[Featured Image by John Moore/Getty Images]