KFC In A War Zone

Via Ozy, an interesting look at companies that operate in conflict-ridden markets:

South Sudan is not exactly renowned for its business-friendly climate. Neither are Afghanistan or, for that matter, Iraq. But Hugh Morris, a former British army officer, sees plenty of ventures diving in, for better and for worse.

From oil and gas corporations to fast-food franchises, a surprising number of companies are moving into countries hit by internal strife or political turmoil — and finding that the high-risk strategy can pay off handsomely if calm gets restored. Yes, that’s a big “if,” but the potential upside is big, too: Every now and then, the risk of entering a difficult country is overstated. Besides, a dearth of competition gives the brave business time to get established for (hopefully) better days. “There is an element of first in wins the day,” says Morris, managing director of TDI, a company that provides land-mine clearance and remote logistics support.

Having a local partner that understands the market is key.

Of course, corporations are usually looking for new markets and resources, but these days some are also incentivized by an “open for business” development strategy — which can come with multilateral loans at preferential rates. In some cases, logistics are thornier than physical threat. Are the ports viable? Are the roads good? Is the price of electricity competitive? When analyzing growth markets, businesses say they look at a variety of factors, including whether they can actually secure and then import the supplies that they need, hire staff and, of course, keep those employees safe. When Gap became the first American retailer to enter Myanmar, formerly Burma, after the end of U.S. sanctions, it required an enormous amount of planning among government officials, trade union leaders and nongovernmental organizations, says Gap spokesperson Courtney Wade. 

Syrian women walk past a KFC restaurant, now shuttered, in Damascus.

In Iraq, meanwhile, parts of the country have been ravaged, but some areas have been largely unaffected by conflict — and there, residents dine out. Fatburger, a California-based burger chain with more than 150 locations globally, found a local franchise partner who is Kurdish and opened a restaurant because it sees growth potential even in an unstable climate. Now it wants to open more. “That has really been our key — having a local partner that understands the market,” says Andy Wiederhorn, chief executive of Fatburger. Indeed, between the help of its local partners and security consultants who monitor certain markets, Fatburger says it has learned whether to send in team members who are Lebanese, or Sunni or Shiite Muslims, depending on where the company is expanding within the Middle East. It now plans to open in Libya and Tunisia — countries that were at the center of the Arab Spring unrest. 

Oftentimes the best retail spots become the center of protest.

Major oil companies like Shell and BP also are among those that are pushing ahead with their operations in Iraq despite widespread concerns about the Islamic State group. While Shell wouldn’t comment on specific measures that it’s taking, its spokesperson for the Middle East and North Africa, Nureddin Wefati, says the company closely monitors security developments in Iraq and has put mitigation measures in place, and that its “business continues to run effectively across the region.” Over in western and central Ukraine, away from where the worst fighting between government and rebel forces has been taking place, some businesses have shown interest in opportunities when it comes to grain and shale gas, says Ted Cowell, assistant manager for Russia and the Commonwealth of Independent States at Salamanca Group, a global risk-management consultancy.

But there are certainly challenges, too. Many local businesses are struggling in eastern and southern Ukraine, where international businesses are reluctant to move in. “It’s a very challenging place to operate,” says Cowell. And dealing with political upheaval isn’t easy. In Syria, KFC, which declined to comment, was among the last foreign businesses to close its doors when the fried chicken chain pulled out of Syria in 2013. And in Cairo and Istanbul, Fatburger had to relocate stores after mass protests and violence broke out near their original locations. That’s the irony of exotic locales: “Oftentimes if you pick the best retail spots, those same spots become the center of protest,” says Wiederhorn. 

To help businesses navigate tricky territories like these, Salamanca’s crisis-assessment pros try to update maps that break out the likelihood of war, political violence or terrorism and combine both qualitative and quantitative metrics, such as corruption indexes or the number of industrial enterprises that had been forcibly taken over by government groups. They then come up with a grade for different countries. But even these types of approaches aren’t an exact science. In fact, TDI’s Morris says that in addition to having a well-planned entry into a country, “we always have an exit plan that can be exercised very rapidly if required.”

This entry was posted on Thursday, January 15th, 2015 at 10:19 am and is filed under Uncategorized.  You can follow any responses to this entry through the RSS 2.0 feed.  Both comments and pings are currently closed. 

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Wildcats & Black Sheep is a personal interest blog dedicated to the identification and evaluation of maverick investment opportunities arising in frontier - and, what some may consider to be, “rogue” or “black sheep” - markets around the world.

Focusing primarily on The New Seven Sisters - the largely state owned petroleum companies from the emerging world that have become key players in the oil & gas industry as identified by Carola Hoyos, Chief Energy Correspondent for The Financial Times - but spanning other nascent opportunities around the globe that may hold potential in the years ahead, Wildcats & Black Sheep is a place for the adventurous to contemplate & evaluate the emerging markets of tomorrow.