In Search of Stable Markets

By Christopher Byron.

Risk analysts try to reduce the danger of investing overseas

Doing business abroad can be an invitation to agony. From the uncertain politics of such advanced countries as France and Canada, to the nationalizations and revolutions that have convulsed Iran and Nicaragua, a lack of sensitivity to local conditions can exact a high penalty from the unprepared businessman.

As worldwide economic and political conditions continue to churn, more and more corporate managers are turning to political risk analysts for advice. Large oil companies and banks have always had in-house analysts to weigh the stability of nations and regions. But a survey last year by the Conference Board, a New York business study group, found that smaller and less wealthy firms are now beginning to seek out specialists as well.

The analysis ranges from assigning junior executives to keep watch over a potential foreign hot spot, to the elaborate computerized system that American Can Co. set up in 1978 to rank investment risks in some 70 different countries. Many smaller companies hire outside consultants like Chicago's Associated Consultants International and Boston's Arthur D. Little Inc. to provide political risk assessments. Amartic Ltd. was founded two years ago by Talib El-Shibib, a former Arab League Ambassador to the United Nations, to advise companies on political conditions in the Middle East. Argen Ltd. of London is a savvy European consulting group that offers a broad range of security and risk management services to multinational companies.

Political risk analysts are often ex-foreign service officers with overseas experience in various Third World countries. But sometimes they are academics or even young graduates with degrees in political science. Their firms can be partnerships with only two or three consultants, or gigantic enterprises like New York's Business International, which has offices in 75 countries. The president of Business International is Orville L. Freeman, former Governor of Minnesota and Secretary of Agriculture in the Kennedy and Johnson Administrations.

The services offered are as varied as the firms themselves. Business International provides individual consulting for specific corporate clients by offering the Critical Issues Monitoring Service. The company recently concluded that in terms of overall risk, the safest country to invest in is Singapore, followed by Japan and The Netherlands. The U.S. is ranked fourth safest and West Germany ninth.

Probe International, a small Stamford, Conn., firm headed by Benjamin Weiner, a former foreign service officer, offers its own custom-tailored reports. When one American multinational asked Weiner to determine whether it was safe to set up an assembly plant in Sri Lanka, he spent months interviewing government officials and members of the opposition party in the capital of Colombo, then advised going ahead, though he cautioned that both the regime in power and the opposition should first make it clear that they would actually welcome the project.

Frost & Sullivan Inc., of New York, produces weighty monthly surveys of 61 countries, based on field reports from local correspondents. A yearly subscription to the firm's "World Political Risk Forecasts" costs $1,900, and clients include some 200 of the nation's largest corporations, including AT&T, Xerox, General Motors and General Electric.

Risk Insights Inc., also of New York, offers computer-based studies that attempt to boil down the subtle interplay of politics, economics and social stress on various countries. Its reports give the mathematical probabilities for nine different categories of business risk, including war, expropriation, price controls, import restrictions and labor strife. The cost: $3,000 for each country study. Conrad Pearson, the firm's managing partner, says confidently: "Interest in risk analysis is so great these days that we are adding at least one client per week to our list."

But are the surveys worth that much? Warns Professor Richard Robinson, a senior faculty member for international management at M.I.T.: "The services that are being offered by many of the more recently organized political risk firms come dangerously close to being fraudulent because the expertise is simply not there."

Analysts who try to gauge political risk around the world on the basis of mathematical probabilities or computer formulas can wind up overlooking differing cultural conditions from one country to the next, or even ignoring the specific nature of a client's corporate business. In Mexico, foreign investors may have little difficulty setting up an electronics plant. But investing in the highly politicized pharmaceutical or food industry could prove more risky. Says John L. Silak, a political risk analyst for Shell Oil Co.: "By far the most useful analysis is one that is tailor-made to a specific company in a specific country." Adds Stephen Blank, of New York's Multinational Strategies Inc.: "There is an awful lot of snake oil being peddled in this business, and buyers have to beware of what they are getting."

Many companies are finding that the best source of international expertise can be their own board of directors. Valuable international insights are readily on tap from onetime public officials like former Secretary of Defense Harold Brown, who was last week elected to the board of CBS, or former Federal Aviation Administration Chairman Najeeb E. Halaby, a member of the boards of the Bank of America and Chrysler Corp. Their experiences around the world can help management size up the political outlook for investment in such volatile regions as the Persian Gulf and Africa. Businessmen realize that such advice is now a vital part of making deals in a politically unstable world . --By Christopher Byron Reported by Laura Meyers/Chicago and Frederick Ungeheuer/New York

With reporting by Laura Meyers, Frederick Ungeheuer

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