Sherritt Goes to Cuba (A): Political Risk in Uncharted Territory (Case study analysis)

Topics: Cuba, Strategic management, Joint venture Pages: 10 (3232 words) Published: November 9, 2014
SHERRITT GOES TO CUBA (A): POLITICAL RISK IN UNCHARTED TERRITORY

(Case study analysis)

EXECUTIVE SUMMARY

Investing in developing countries requires not only an in-depth assessment of the economic, political and cultural factors involved but also the reconsideration of the investor's long-term strategies. Based on Sherritt International entry into Cuba, this case study analysis evaluates how Sherritt approached the Cuban government and how well it negotiated the terms under which the joint venture was signed. As the new venture is associated with numerous risks related to the political and economic systems of the country as well as to the Cuban culture, these will be carefully considered and possible recommendations for their mitigation, where possible, will be outlined. However, as every new endeavour, Sherritt's entry is a source of various opportunities such as expanding the business and adopting new management practices. These possibilities will be contrasted to the aforementioned risks further on in the case study analysis. Finally, the case study analysis will focus on recognising the kind of strategies multinational companies (MNCs) should adopt to operate effectively in emerging economies with authoritarian regimes.

In nowadays-globalised world, where competitiveness means more than just a word, internationalisation is a prerequisite for a competitive advantage. Thus companies of all sizes must acknowledge the importance of partnerships with foreign nations and more in particular with emerging economies as a source of potential growth. Creating an unified global market, however, goes hand in hand with numerous threats. Therefore, when contemplating to enter a fast-developing market firms should thoroughly assess the economic and political factors in the host country and implement a sustainable strategy for a long-term success.

The economic growth of a country is considered to be contributed not only to the combination of numerous interrelated economic, political and demographic factors, but also to the welfare of the country's international partners. When the Soviet Union - Cuba's largest trading partner - collapsed Cuba's GDP decreased by 50% whilst its country investments fell by 57% leading the state to rethink its strategy towards attracting FDIs as a source of profit (Kaplowitz, 1995). It could be argued that land as a factor endowment is one of Cuba's biggest competitive advantages. The abundance of natural resources, and in particular its ore mines, is what prompted Sherritt International to engage in a long-term joint venture with General Nickel Co. - a state owned enterprise.

WHY DID SHERRITT INTERNATIONAL CHOOSE TO INVEST IN CUBA?

According to Hill (2013), the attractiveness of a country as an investment destination depends on the balance between the benefits and risks of entering a foreign market, and the costs associated with it. Limited for options, Sherritt was forced to choose between two communist countries - Russia and Cuba - where the political and economic ideologies were distinct from the Western.

Firstly, although Cuba and Russia had equal advantage regarding the supply of ore, the Cuban government's limit on salaries and office rents allowed for low labour and premises costs, which was not as a trade off to quality. The latest government investments in education greatly enhanced the skills and capabilities of Cuban employees. Since Cuba lacked an environmental policy, long-term costs incurred by Sherritt would include transforming the Cuban technology and premises into environmentally friendly work sites. However, considering Russia was geographically much further from Canada than Cuba, logistic costs would be substantially lower if invested in the latter. Another issue concerning the Canadian firm's choice was the potential threat of American companies suing Sherritt for expropriation of previously owned properties and the lack of protection of property rights in Cuba...
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