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Japan’s Quake, Mexico’s Financial Crisis Hitting U.S. Firms

January 21, 1995

NEW YORK (AP) _ The powerful earthquake that struck western Japan this past week and the financial crisis that continues to grip Mexico seem at first blush to have little in common.

After all, they’re disparate events half a world apart.

But big U.S. companies have already begun to report losses because of the natural disaster in Japan and the man-made disaster in Mexico, and more shortfalls are expected to be announced as corporations sort out their affairs.

The effects may not be overly severe, but they are significant. As a whole, they highlight the vast scope and exposure of U.S. business abroad.

Following Tuesday’s earthquake near Japan’s port city of Kobe, U.S. firms immediately began working to assess damage to their facilities there.

Pharmaceutical maker Eli Lilly & Co. reported it was forced to leave a damaged headquarters building in the Kobe area and said the start of production at a new facility had been delayed until summer.

Caterpillar Inc., the construction equipment maker, said work was knocked out temporarily at a design center in a plant near Kobe run by its joint-venture company, Shin Caterpillar Mitsubishi Ltd.

Even U.S. firms operating far from the Japanese islands felt the quake’s jolt.

American International Group Inc., a large insurance company, said it expects to lose at least $50 million on personal accident policies written in Japan. A spokesman for insurer Cigna Corp. said it also may have some policy exposure.

But quake losses are not expected to be devastating from a business point of view, and companies appear to be taking word of them _ as well as news of losses from the financial crisis in Mexico _ in stride.

``I think many corporate executives are viewing this as a natural business risk,″ said Greg Owens, managing partner of the logistics strategy practice at Andersen Consulting in Atlanta.

Owens said pressure on business leaders today to provide consistent profit growth has prompted many to move abroad to reach untapped markets. The pace of those activities has picked up in recent years.

And while any work abroad involves additional risk, companies seek to evaluate it and move only when prudent, he said.

The earthquake in Japan was clearly unpredictable. Man-made events like the Mexican financial crisis, however, are not.

Nevertheless, the troubles that began in late December with the Mexican peso’s devaluation and the subsequent market chaos that followed as the currency lost more than one-third of its value against the dollar are hurting some U.S. companies.

Kimberly-Clark Corp., the diaper and tissue maker, said fourth-quarter earnings fell 25 percent due largely to an accounting charge that reflected the peso’s devaluation.

Chicken producer Pilgrim’s Pride Corp. said fiscal first-quarter profits fell 93 percent due in part to the peso’s decline.

Others are expected to follow.

``The U.S. economy is more open and more exposed to the world’s events than most American consumers tend to realize,″ said David Blitzer, chief economist at Standard & Poor’s, a credit rating company in New York.

For example, Blitzer noted that more than one-quarter of America’s gross domestic product is accounted for by exports and imports.

That represents a huge amount of money moving in a tangled web of production, marketing and sales that involves U.S. companies, foreign firms, joint ventures and strategic alliances. Those who operate in that realm are aware that lightning can strike at any time.

Some hedge on financial markets and through alliances with foreign companies; others simply swallow the risk. The promise of profit, especially in emerging markets like Mexico, is great.

``If you really invest in Mexico for the long-term benefits of a company, I think it’s still worth it,″ said Allen Shiau, an international economist at the Wefa Group, a consulting and forecasting firm in Bala Cynwyd, Pa.

While Mexico’s current crisis makes it appear an unwelcome place for U.S. capital, recent government efforts to keep inflation in check, build a strong industrial base and welcome trade have made the nation a good bet for the future, Shiau said.

He expects Mexico to resume growth next year, making the current debacle little more than a one-year blip.

``The bottom line is: If you want to really improve your bottom line, you have to globalize, you have to go to emerging markets,″ he said. ``But to do that you have to accept the high-risk, high-return scenario _ and you have to be able to manage that risk.″

TICKER:

Caterpillar Inc. and the United Auto Workers agreed to hold negotiations to end a seven-month strike ... Bankers Trust New York Corp. wrote off $72 million in derivatives transactions and said fourth-quarter earnings fell 40 percent ... General Electric Co. said the sale of its troubled Kidder, Peabody brokerage cost $917 million in the fourth quarter and prompted a 48 percent decline in quarterly earnings ... Chrysler Corp. reported the most profitable year in its history with 1994 earnings of $3.7 billion ... Kmart Corp. removed Joseph Antonini as chairman, although he will remain as president and CEO ... Turner Broadcasting System Inc. said it ended talks to buy NBC from General Electric.

COMING UP:

International Business Machines Corp. reports earnings Monday ... The National Association of Realtors reports existing home sales for December and the Commerce Department reports third-quarter personal income on Wednesday... The Labor Department releases weekly jobless claims and the Commerce Department reports durable goods orders for December Thursday ... The Commerce Department puts out fourth-quarter gross domestic product on Friday.

End advance for weekend editions Jan. 21-22

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