Memo to Chiquita Brands International
Since the present problem is a serious nature threatening the existence of a big player in the banana market, I have tried to go back to history of the company of highly political nature of the international policy making in this trade. I have tried to understand the role of protectionism in the global banana market as it has created a lot of problems for players like Chiquita Brands International. After a careful evaluation of the whole issue threatening the existence of our company, I have tried to find the way out. Politics and Chiquita Brand International
It appears that Chiquita Brands International and politics have been intertwined with the birth of the company. The history of the company that dates back to 1870 has seen involvement of the company in trades to far off places. Right from the very first sale to North American markets the company seemed to move farther and farther to cater to newer markets and make big profits. Doing business in a foreign country brings in certain degree of uncertainty as the business has to work foreign legal framework governing business there.
The company enjoyed a position of unchallenged power in Latin American region where it produced banana crops on its own land. Through banana trade, the company virtually controlled economies of the nations in Latin America. The company owned not only vast expanses of land in these countries but also owned roads, rail tracks, transportation networks as these were very crucial in banana business. The sheer size of business operations of the company in the region brought company owners closer to the governments of these banana producing nations, and further led to company’s control over politics of the region.
Even the US government ensured business interests of the company in unstable areas by sending marines to safeguard company’s assets. The company not only enjoyed the ultimate power in its production base of Latin America but also ruled the European markets by taking over a 45% share. The present crisis of the company has a lot to do with politics as the European nations want to restrict US companies and give protection to their former colonies as regards banana trade is concerned. Although the company tried to solve the issue through political channels, the company must look into its overall functioning to assess the reasons for its downfall.
The restrictive and discriminatory conditions imposed by EU are common for all the players in the market but other players are not under similar adverse conditions of financial crisis. This proves that although politics has played a role for good as well as bad for the company, the problem lies somewhere else. The fact that the European market has given preferential treatment to ACP region as against Latin American and other non-preferred regions right from 1975 and still United Fruits Company managed to increase its volumes, its profits and its grip over the world.
The EU’s new banana regime seems to be unfavorable for the company but the fact that EU managed to break Latin American region by signing a framework agreement to give preferential treatment to certain nations and weaken GATT petition shows that Lindner’s political management is much poorer than the people who were managing United Fruit Company. In fact, Lindner understands the importance of politics in running such a big business empire and that is why has indulged in political funding and taking help of politicians and legal framework like section 301 of USTR.
He has approached the whole issue from a political thinking that became problem of international politics that needs to be settled through politics. Protectionism in global banana market – Good or bad? The present crisis being faced by the company seems to be a result of protectionism in the global banana market. Ideally there should be no restriction for free flow of goods and services but this is not true. There is hardly any field where restrictions are not present in trade as the nation/region imposing those restrictions wants to protect local economies from tough international competition.
Banana industry is no exception to this general rule. The world is still in a transition phase as regards real integration of the world trade into an ideal single market. Undoubtedly the protectionism has played a spoil sport for big players in banana market but at the same time provided much needed support to developing nations especially ACP region that formed former colonies of Britain and France. The trade barriers proved successful for the less-efficient producers as they got protection against bigger players. Such a strategy can provide control to smaller entities in growing bigger and providing tough competition in the market.
Despite the protectionist policies of European region as regards banana trade the US companies and those from other parts of the world have made good money out of it. The trade has been quite profitable through all these years and has rather stopped this industry from becoming a home-ground for one or two big players only. The fact that this business needs a lot of capital, this industry is likely to go into the hands of a few big corporations. These restrictions can be justified on the grounds that banana produce from less efficient production bases needs to be sold for the economic welfare of producing nations.
This has rather opened an opportunity for companies to foray into new production sites and develop those nations as Chiquita helped developing Latin American economies through its business empire. Company’s approach to EU’s Banana Policy Since the company, throughout its history, has enjoyed political support in the Latin American region and the US, Keith E. Lindner’s approach to solve the problem through political channels seems quite obvious. Instead of taking proactive action in securing its position in EU markets by securing more licenses or creating new production base in EU preferred regions, company depended more on political links.
However, the political power came under suspicion as EU prevented attempts of a strong GATT petition by dividing Latin American region by signing a Framework Agreement with a couple of nations and giving them better access to European markets. This should be considered as a political disaster for the company as it further restricted the company’s business in European region. Lindner filed section 301 petition with USTR only after the company had already lost a sizable market share to its competitors in the European region. Although the step was in the right direction but it was too late.
Instead of directly going for asking for action against Latin American signatories to the framework agreement the company should have used its political resources to lobby as one entity. Instead Lindner approached Bob Dole, Kansas Senator to put pressure on these countries as they seemed to soft targets against political pressure given the fact that they were developing nations and were dependent on US for a lot of things. Dole not only helped Lindner to get his section 301 application through but also put pressure on the US government to relate banana regime with passage of GATT.
Lindner and Bob Dole did their best to get the banana regime highlighted and corrective measures taken by the government but it failed as the two were exposed by the media. Due to political reasons Bob had to back out as he could not fully justify his all out support for a company that had major part of its operations and assets outside US. Although Bob backed out of the political game plan, his support and active campaigning lead to some developments at USTR asking for possible sanction against EU and Latin American signatories of Framework Agreement.
What’s next? Since the company over years had enjoyed a political support in its business and financed the political regimes, it approached the banana regime with same mindset. Instead of understanding the financial implications and finding ways out to neutralize negative implications through good business planning and action, the company relied more on political links and legal framework. Even on political front he could not keep the Latin American economies together to give a tough fight to the banana regime in Europe.
He should have used Germany in getting some relief from the restrictive banana regime as Germany had no areas to provide protection in this trade. The fact that Germany was against the regime could not be used by the company in its favor. Since the company has already invested a lot on political parties in the US, the company should continue lobbying for strict action against EU on banana regime and should put all its weight behind section 301 petitions with USTR. This will certainly provide company with some relief in the longer run. However, the company needs a short term solution to its problems as it is under severe financial pressure.
The company must look into its financial statements and try to find out the problem areas. While its US-based competitors are expanding into ACP region, the company cannot afford to be left behind. The company cannot think of such a measure as the company has a cash crisis. The financial statements show that the sales of the company have increased and so have operating income. The problem area seems to be heavy debt. The immediate solution lies in selling reserve land; part of transportation network and other assets in Latin American region and with the proceeds increase cash position and expand in ACP region.
This will lead to better market share in Europe and provide some insurance against uncertainties as the plantations would be spread across continents. The company should also try to expand its operations in other crops as it can provide better profitability. All the big competitors in the banana trade seem to be dependent less on banana sales as part of their total sales as compared to Chiquita. The company seems to be too much dependent on a single item and therefore diversification is another option that the company can resort to.