Nearshore Americas Interview with Frank Holder

nearshoreslogoWhile public security is one of the more notorious risk factors when it comes to doing business in certain parts of Latin America, there are other factors that potential investors need to pay greater attention to. High levels of public security do not always go hand in hand with political and economic stability, while weak or inefficient judiciaries and institutions, insufficient human resources, divergent cultural values and a lack of appropriate compliance assets can all seriously hamper any business operation in the region, according to Frank Holder, chairman in Latin America of FTI Consulting, a global business advisory firm dedicated to helping organizations protect and enhance their enterprise value.

Nearshore Americas: What are the biggest risks that affect companies investing in emerging markets like Latin American?

Frank Holder: I think the biggest risks are related to insecurity, but there are many kinds of insecurity. The most difficult to deal with are juridical or institutional insecurity. In most emerging markets, things like the rule of law, a fair playing field for all, free movement of capital goods, etc. are not as straight-forward, understandable or efficient as in more developed markets. So there are very significant risks for someone coming into a market like that – in particular if they’re trying to come in without a local partner or they’re acquiring 100% of some other company that’s already functioning, because there can be additional cultural issues that they are not aware of. If a company doesn’t have a specific track record in the emerging market in question then it can be quiet risky from that standpoint.

NSAM: So what measures can companies take to mitigate the risk posed by juridical or institutional insecurity?

Holder: Well I think the best way they can mitigate the risk is to ensure that they do an extremely thorough amount of due diligence. Or if they’re going to acquire something in the market it’s incredibly important to do not just your standard financial, legal and tax due diligence, but to also supplement that with FTP due diligence or an anti-corruption due diligence of some kind, an overall anti-money laundering or compliance-type due diligence and a reputational due diligence, in order to avoid surprises later on, post acquisition. We’ve seen a number of cases where an acquisition will happen and then the multinational that’s acquired the local firm will end up paying the price for things that happened maybe in previous periods or that continued on after the acquisition and that they were unaware of.

The second measure is to make sure that you have the ability to put adequate controls and compliance in place in the post-acquisition integration period, or if you’re doing a startup right from the beginning or a joint-venture with another partner then I would always try to insist on having management control rather than devolving that to the local partner because of these cultural issues and the risk that presents. In some cases you can’t do that, but if it’s a minority investment then I would at least ensure that you have a lot of rights and that you do a lot of diligence upfront.

NSAM: Which are the best and worst ranked countries in your 2013 Latin America Public Security Index?

Holder: Just to be clear, this is focused on physical security, whether it’s personal or physical assets, and it’s focused on the business community, so it takes into account not only homicide rates, petty theft rates, home invasions, merchandise-in-transit thefts, kidnappings, violent crime, organized crime, etc., but also things that corporations and investors are very concerned about as well, so we pick up some of the information directly from our corporate clients.

Public security is a concern in the region and it does generate additional costs in terms of securing your assets and your people, and it does influence and sometimes change decisions about where an investment is going to be made. What we’ve seen is that the better ones are traditionally Panama, Costa Rica, Uruguay and Chile, while Haiti normally comes out with a very bad score in public security for obvious reasons: natural disasters coupled with the government situation and extreme poverty. But among the bigger and wealthier countries, Venezuela by far gets the worst ranking.

Read the Full Interview 

The Evolving Global Risk Landscape: Moving Beyond Bubbles


In the aftermath of the “Great Financial Crisis,” there remains concern about speculative bubbles which may pose a systemic threat to the global recovery. How can we identify and prevent the formation of financial bubbles in the future? What types of regulatory reforms are most effective in helping consumers and investors better protect themselves from excessive exposure to risks and corrections in the market? Going forward, what lessons can be taken from the subprime mortgage and sovereign debt crises in the U.S. and Europe, respectively?


Moderator
Frank L. Holder, Chairman, Latin American Region, FTI Consulting

 

Speakers
T. Timothy Ryan, Jr., Global Head, Regulatory Strategy and Policy, JPMorgan Chase & Co.
Raimund Röseler, Chief Executive Director Banking Supervision, Federal Financial Supervisory Authority (BaFin), Germany
Warren Jestin, Senior Vice-President and Chief Economist, Scotiabank
Nicholas Sargen, Chief Investment Officer, Western & Southern Financial Group
Sam Stovall, Chief Equity Strategist, S&P Capital IQ, and Chairman, S&P Investment Policy Committee

Connect with Frank Holder