In the many dimensions for supply chain disruption and risk, we sometimes cite geo-political events as a significant risk factor. Thankfully, this particular type of risk does not occur often, but this week provides a real-world example, in a country that has increasingly had tendencies towards seizing private assets and operations.
General Motors was forced to halt production operations in Venezuela after its plant in the country was unexpectedly seized by local authorities. Widespread political and sometimes violent street demonstrations have erupted in recent weeks after current political administration barred an opposition leader from holding political office for the next 15 years. At least nine people reportedly have been killed in these protests.
GM described the takeover as an “illegal judicial seizure of its assets” and that the seizure showed a “total disregard” of its legal rights. According to media reports, authorities had removed assets including cars from company facilities.
Venezuelan news reports indicated that the GM plant seizure stemmed from a lawsuit that dated to the early 2000s with a company in the western city of Maracaibo. But a GM spokesperson indicated that the plant had been shut down for the past 42 days because of a takeover by members of one of its labor unions.
In its reporting, the New York Times notes that the country was once among the most lucrative markets in Latin America for foreign businesses, but such times are long gone. According to the Times, the average Venezuelan must now wait in long lines for bread and medicine, and many are going hungry and unpaid, as the government struggles to avert default.
The GM plant in Valencia employed nearly 2,700 workers at its peak, but stopped producing cars in 2015 and has only been selling spare parts since then, according to a company spokesperson.
According to the U.S. State Department, the government of Venezuela has expropriated more than 1,400 private businesses since 1998. Manufacturers such as Bridgestone, Clorox, Coca-Cola, Ford Motor Company, General Mills, Kimberly Clark and Procter and Gamble have all since ceased production operations in the country.
Reuters reported that the country’s economic crisis has hurt many other U.S. companies, including food makers and pharmaceutical firms. A growing number are taking their Venezuelan operations into suspended states.
Because of the country’s volatile currency issues coupled with a severely declining economy, automakers produced only 4,900 vehicles last year, including heavy-duty pickups, down from 31,000 in 2015. In addition to GM, other automakers, including Ford and Toyota, have suspended operations for several months because of low product demand and an inability to get necessary supply chain parts.
Global based industry supply chains are indeed subject to geo-political risks as is being manifested in Venezuela and certain other countries. It is perhaps another tradeoff to forces of globalization.
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