Filed Under:  U.S. & World

Venezuela Further Complicates Multinationals’ Global Plans

Contributed by on February 1, 2015 at 3:11 pm

Venezuelan moneyYou have to feel a little bit sorry for American multinational companies lately. Thanks to a slowing global economic growth, global demand for American products has been slowing down. Add to this the additional complication of a strong dollar, you can see why normally powerful growth engines like Proctor and Gamble are having a tough time. All told, the unholy combination of a strong dollar, weak global demand, and low oil prices can wreak havoc to the bottom lines of many US corporations. If you need further convincing, just take a look at the recent fortunes of Caterpillar.

If all this isn’t bad enough, there are regional political and economic factors that can add a further wrinkle in the fortunes of multinational companies. Take the case of Venezuela. Venezuela’s economy is in a free fall, thanks to the crashing price of oil. Venezuela’s socialist government is bankrolled primarily by oil. It is a monoculture economy. Sadly, the Venezuelan meltdown is also affecting multinational American companies that do business in that country. Kimberly-Clark Corporation is taking a $462M fourth quarter charge due to its ailing Venezuelan business. Ford has also taken a massive hit to the tune of $800M of pre-tax charges due to its Venezuelan operations.

Venezuela just proves that the global economy is not composed of hermetically sealed economies. What happens in one economy will have effects in the United States regardless of how seemingly distinct it is. One way to look at the global economy is it’s like a balloon: If you push on one end, eventually, another end will swell. Expect some of the economic turbulence American multinationals are experiencing in Venezuela to translate to real pain when it comes to earnings season.