International Marketing Western Hoteliers Owning

International Marketing

Western hoteliers owning property in Venezuela should consider selling those properties. There is a high degree of political risk in Venezuela, and this relates to the Chavez government's positioning itself as a champion of socialism. Several industries and companies have been nationalized in recent years, and the rhetoric from the regime is staunchly anti-capitalist. The greatest political risk is to assets that have strategic and visible value to the regime's political ambitions. This may mean that Western hotels are not in the government's sightlines as of now, but there remains a high degree of political risk associated with having a presence in Venezuela.

The risk of nationalization is significant in Venezuela. There are two components to this risk. Downside risk is high, in that a lost property not only involves a loss on the original investment, but also on the revenue streams provided by that hotel. However, it is also worth noting that even if the company retains the property, there could be a loss of revenue as the political climate reduces the amount of business travelers and tourists to Venezuela. Selling the properties may allow the company to retain at least some value from the properties in question.

With respect to the risk of nationalization, the Venezuelan government has indicated that it does not respect the property rights of foreign firms in Venezuela. However, the hotel industry does not typically affect the average Venezuelan, so is not valuable as a political tool. Also, the high degree of fragmentation in the industry also means that a nationalization program would need to be widespread. Thus, it would be difficult for the Venezuelan government to target the hotel industry, and such a move would have low political value. However, if revenues are reduced as a result of decreased travel to Venezuela, then certainly this particular type of political risk can be hedged through higher prices. Only if the company believes that decreased revenues are going to be permanent should it sell its properties in Venezuela.

If one company does liquidate its properties in Venezuela, this could potentially create an opportunity for another firm to acquire those properties and build market share. Such a strategy would make sense if the political risk decreased the purchase price and was believed to be either minor or short-term in nature. However, it is unlikely that a macroenvironment that one firm considers to be unfavorable would be considered favorable by another firm in the same industry. Only if there are specific conditions in the second firm that the first firm does not have -- in this case special connections to government would be one -- would it make sense for another hotel company to increase its presence in a market that was being abandoned by a close competitor.