1. What threats does Empresas Polar currently face in its economic and political
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1. What threats does Empresas Polar currently face in its economic and political environment? 2. What strategies is Empresas Polar using to stay in business? Do you think the company will survive? Why or why not? Full text: CARACAS, Venezuela -- To most Venezuelans suffering food shortages, Lorenzo Mendoza and the company he runs, Empresas Polar SA, are trusted providers of everything from pasta to beer. But to an embattled populist government, he is a traitor responsible for the scarcities. "You parasite," President Nicolas Maduro said recently in a televised speech in which he accused Mr. Mendoza and Polar of hoarding products as part of "an economic war" to topple his government. "Your mistake can end very badly for you, parasite, oligarch, long-haired one." The insults, lately accompanied with threats of expropriation, are part of the mounting troubles for Venezuela's largest privately held conglomerate and Mr. Mendoza, a wiry 50-year-old chief executive known for recalling the names of line workers and machinists in visits to far-flung plants. After 17 years of Socialist rule, Venezuela's economic woes run so deep that Mr. Mendoza's government enemies may not even have to resort to expropriation. Polar says it is quietly choking on price controls and a tangle of red tape, prevented from access to government-controlled dollars it needs for raw-material imports and forced to periodically suspend operations in one factory after another. In April, the company shut down its four Venezuelan breweries, unable to import barley, before securing an offshore loan that will permit it to restart in July. "This is very serious. I am very worried," Mr. Mendoza, who had been reticent to publicly speak about his company's troubles, said in a recent interview with The Wall Street Journal. "At the moment, the government is strangling us." It is all part of a vicious downward spiral for Venezuela, which has larger proven oil reserves than Saudi Arabia but is now so cash-poor that it can't pay for the food imports needed to feed 30 million people.With the steep fall in the price of oil, imports are down 60% this year compared to 2012, the biggest fall in the country's modern history, Bank of America Corp. says. A third of Venezuelan households consume only two meals a day, the pollster Venebarometro recently said, while 13% eat just once daily. Lines snake for blocks around markets; looting of food shops is common. For years, Polar has survived as a bastion of free enterprise in a country headed in the opposite direction. The World Bank ranks Venezuela No. 186 of 189 on its list of the easiest countries to do business, just ahead of South Sudan. The company has withstood withering public criticism by Mr. Maduro's administration and that of his predecessor, Hugo Chavez, who in threatening to expropriate some Polar installations in 2010 told Mr. Mendoza "you are the rich one, you are going to Hell, to Heaven you will not go." Even as the state seized 1,200 farms, companies and other private businesses, the Chavez and Maduro administrations stopped short when it came to Polar. Now, in speeches broadcast across several state TV stations, government officials blame Mr. Mendoza for helping sink an economy the International Monetary Fund says will contract 8% this year. William Contreras, the superintendent of a state agency called Costs and Just Prices, said last week that Mr. Mendoza should face criminal charges. Emails and phone calls to top government officials to discuss policy toward Polar weren't returned. Mr. Mendoza, who has avoided lashing out at the government, denies doing anything to weaken the economy and said he will accept any invitation from officials to sit down and discuss solutions. What he doesn't get are the personal insults, which he says scare his small children. "I am not accustomed and it's not natural, this level of, let's call it, aggression," said Mr. Mendoza, who does wear his hair a little long. "What they have done is insult me, discredit me without reason. Sometimes it's because I'm conspiring who-knows-where. And here I am in Caracas." But Venezuela's most prominent private businessman has an ace up his sleeve: the Venezuelan public. Venezuelans relate to Polar, a company that began as a brewer on the outskirts of the capital and then grew by making timely acquisitions and introducing affordable products that became daily staples. A March poll by Consultores 21, a Caracas pollster, showed that 80% of Venezuelans have a positive image of the firm and that 81% reject government intervention in the company. "The attacks against Polar make no sense," said Iraida Fuentes, 55, who lives in a working-class district of the capital. "They provide food for us. If they leave the country, we are going to die of hunger." Mr. Mendoza, whose grandfather founded the company in 1941, began working at Polar factories and warehouses during his summer vacations. Now he spends his time huddled with executives trying to ensure Polar's survival. Much is riding on the beer branch, which operates without price controls and is the company's one profitable division. Though closed for weeks, Polar's four breweries may reopen in July now that the company says it has secured a $35 million loan from Spanish bank BBVA to pay for imported malted barley, a transaction permitted by regulators because barley doesn't fall under the rubric of products only the state can import. Polar executives though, say the solution is only temporary, which has raised questions inside the company about how it can keep making other products like precooked corn flour, the staple used by Venezuelans to make the ubiquitous corn cakes known here as arepas. "The profits from the beer is what enabled them to produce food and sell it at controlled prices," said Robert Bottome, a business analyst who for 34 years ran Veneconomia, an economy magazine here. If Polar is nationalized or closes its doors, it could tip Venezuela over the edge, say food experts and ordinary people who have grown up consuming the company's products. At stake is an economic pillar that employs 30,000 and indirectly benefits another 180,000 workers. Putting them on the street would greatly stoke social tensions in a country where uprisings are common. "I don't want Polar to close, not just for me but for my country, because Venezuela is already hurting badly," said Laura La Rosa, 44, who has worked at Polar since she was 18. To Venezuelans, Polar is Nestle, General Mills, and Anheuser-Busch InBev wrapped in one: It brews 80% of Venezuela's beers, produces 18% of the government-set nutritional basics and up to 14% of processed foods, far more than the next biggest producer, which accounts for 4%. It bottles Pepsi, the market leader in sodas, and water and makes juices. Its researchers developed hybrid seeds and a yogurt that doesn't need to be refrigerated. Polar says it generates 3.3% of the country's non-oil output. And its corporate taxes and the sales tax consumers pay for its products together have topped $23 billion since 2003, according to the firm. The government's antagonism toward Polar is part of every workday, say Polar managers and workers. To move imported raw materials from port to plant requires a special transport license and, from the plant to a warehouse to a supermarket, two more. Government inspectors audited Polar facilities more than 600 times last year, so much so that the company has set aside office space in some plants for state inspectors, say company officials. "All the visits are intimidating," said a plant manager, Abiud Cordero. "They tell us that if we don't provide the necessary information, they can arrest a manager." The 500 people Polar has working on the transport licenses and inspections know the government can ask for just about anything, from the size of inventories to invoices on purchases. Managers at a plant producing corn flour were once asked for paperwork on all improvements made to the factory over 50 years, said Alessandra Stelluto, a Polar lawyer who heads a team that responds to government requests. Over the past few months, the company has periodically closed whole lines of production, from rice to pasta to detergents to mayonnaise, because of the lack of raw material. "They're closed for a time, raw material comes and you reactivate," said Jose Anzola, operations director for the food division. "And [then] you close again." Tamara Herrera, chief economist at Caracas-based consultancy Sintesis Financiera, said the offensive on Polar is a conscious government strategy to dismantle the company, but not in one swoop. "I believe by the end of the year, Polar will have fewer plants than it does today," she said. "It won't be called expropriation, and it won't happen all at once. It will be a gradual process of dismantling the dominant player in the food-processing industry." The government's enmity for Polar -- and particularly for Mr. Mendoza -- gained steam months after Mr. Maduro won the presidency in April 2013, say Polar executives and two former high-ranking officials in Mr. Maduro's government. Food officials were told to increase inspections of Polar plants "and find whatever you can," said one of the former officials, who frequently spoke to Mr. Maduro about Polar. Mr. Maduro became incensed when Mr. Mendoza privately and then publicly offered to help the government run failing state food operators in 2013, the official said. "For the government that was a slap in the face," said the former official. Mr. Maduro's antipathy toward Mr. Mendoza came to a head in August 2014 when the president told his aides, "Lorenzo Mendoza, that long-haired one, wants to be president," the former official recalled. The Polar chief then "became a political objective," even though Mr. Mendoza has publicly denied having designs on the presidency, the ex-official said. "He wants Polar to fall," the former official said of Mr. Maduro. "They believe that with the bankruptcy of Polar they will get rid of its leader and they'll have a lock on the mass of [Polar] workers and put a manager in place, put in someone who will substitute for Lorenzo Mendoza."
Explanation / Answer
1.
The biggest threat that Empresas Polar faces is of expropriation, due to Venezuela’s bad economic condition, and the political enmity that the President holds for the company and its owner. Venezuela has seen a Socialist rule for 17 years, which has worsened the economic condition of the country, and hence the company based in Venezuela faces and economic threats like price controls and red tape policies, leading the company to lose any access to dollars, which are under government’s control, needed for raw material imports to run the company, forcing the company to suspend its operations in the plants one by one.
The political threat the company is facing is the socialist rule, and its policies favouring expropriation. The only dependence of the economy on its oil reserves, the country faces a dim future as the oil prices are falling creating havoc in the law and order situation the country, and lack of food for the population to consume. The current leadership of the country, the President seems to have personal enmity with Mr. Mendoza , the owner of the Polar, due to the popularity of the company, as the case states: “A March poll by Consultores 21, a Caracas pollster, showed that 80% of Venezuelans have a positive image of the firm and that 81% reject government intervention in the company”.
2.
To stay in business currently Polar is just stopping operations when the raw material is not available and gain resuming the operations when they receive the raw material. For example, the breweries are have been shut down till July, as they will be able to import barley, it not being one of the materials that only state can import. To make sure Polar is able to import barley to restart its breweries operations, Polar had to secure an offshore loan.
If the country’s political leadership doesn’t change soon, the company will not survive as the President himself has created an enmity to owner of the Polar, being threatened by Mr. Mendoza’s popularity in the public of Venezuela and by the perception that Polar’s owner Mr. Mendoza wants to go for Presidential position of the country. Hence, for the company to survive, the red tape of the government and targeted attack to company’s operations will have to stop, otherwise the company might not survive.
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