Every company in the world has considered or begins to diversify itself from the place it is founded. It is a good thing, there is no guarantee prosperity will always be in the town or city where the business is founded. In addition, as the company’s goodwill grows, more people will want to try the products and services, this is a good thing. For some companies they see the world as places where there are people to use their products. General Motors founded in Detroit is one of those companies (all the big auto companies fit the fold). GM reached out to any country where people could and would buy their automobiles and in some countries established auto plants to build vehicles. GM eventually built a plant in Venezuela and by 2007 it produced 172,218 vehicles. Times have changed in the country, the oil boom is gone, the country is cash strapped and since 2015 the auto plant has not produced any cars for it can not get parts to build.

In another sphere of the government finance, because Venezuela was an oil producing country it could easily gain access to credit including from the World Bank. The oil downturn and the US producing more of its oil has led to fewer oil sales and the World Bank asking for its money back.  The government has seized assets and in late April it seized GM’s auto plant which was likely something the government could talk about as  important to the welfare of the people of Venezuela. Meanwhile, the 2,700 workers and those that work in dealerships are worried about their jobs.

In relative terms, Venezuela is important but in the overall structure of GM worldwide was a small player for last year GM made $12.5 billion. In the South American structure which includes Venezuela the group lost $400 million on sales of 583,000 vehicles. GM has slowly being writing down the assets in the country for the past couple of years.

Linking to dividend paying stocks, diversification is a great thing until something blows up. In the case of GM, it is sufficiently large enough to absorb the downturn in the economy of Venezuela. In general terms diversification the more you do, the more complex it can get – for example you can easily diversify within your country and only have to worry about one currency. Going outside your country leads to currency risks which you have to consider as the size of diversifying gets larger. There are good things about staying within your country, there are good things going outside – it may make you better in the home market.

There are more questions than answers, till the next time – to raising questions.