Harvard Case - Sherritt Goes to Cuba (A): Political Risk in Uncharted Territory
"Sherritt Goes to Cuba (A): Political Risk in Uncharted Territory" Harvard business case study is written by Aldo Musacchio, Jonathan Schlefer. It deals with the challenges in the field of Business & Government Relations. The case study is 14 page(s) long and it was first published on : Sep 17, 2010
At Fern Fort University, we recommend that Sherritt International Corporation proceed with its investment in the Cuban nickel mining project, but with a strong focus on mitigating political risk and ensuring a sustainable long-term strategy. This approach involves a multi-faceted strategy, including:
- Strategic Partnerships: Forming strong partnerships with the Cuban government, local communities, and international stakeholders to foster trust and collaboration.
- Risk Mitigation: Implementing robust risk management strategies to address potential political, economic, and environmental challenges.
- Corporate Social Responsibility: Demonstrating commitment to ethical business practices, environmental sustainability, and community development in Cuba.
- Long-Term Vision: Developing a sustainable business model that aligns with Cuba's economic growth and long-term development goals.
2. Background
Sherritt International Corporation, a Canadian mining company, is presented with a unique opportunity to invest in a nickel mining project in Cuba. This opportunity is attractive due to Cuba's vast nickel reserves, but it also presents significant political risk. The Cuban government, undergoing economic reforms, is seeking foreign investment to stimulate economic growth, while simultaneously maintaining control over key industries.
The main protagonists in this case are Sherritt, the Cuban government, and the local communities. Sherritt seeks to expand its operations and secure a reliable source of nickel, while the Cuban government aims to attract foreign investment and develop its economy. Local communities are concerned about potential environmental impacts and the potential for economic benefits.
3. Analysis of the Case Study
This case study presents a complex scenario involving political risk, international business, and the intersection of economic development with social responsibility. To analyze this situation, we can employ a framework that considers the following aspects:
- Political Risk Analysis: This involves assessing the potential for political instability, policy changes, and regulatory challenges that could impact Sherritt's investment. Key factors include the Cuban government's political stability, its commitment to economic reforms, and the potential for political shifts that could affect foreign investment policies.
- Economic Analysis: Evaluating the economic viability of the project requires considering Cuba's economic growth prospects, the potential for market access, and the availability of skilled labor. Sherritt needs to assess the potential for currency fluctuations, inflation, and the impact of US sanctions.
- Social and Environmental Impact: Sherritt must consider the potential environmental and social impacts of the mining project, including its impact on local communities, biodiversity, and water resources. This includes developing strategies for responsible resource extraction and community engagement.
- Competitive Analysis: Sherritt needs to assess the competitive landscape in the nickel mining industry, including the presence of other international players and the potential for competition from domestic Cuban companies.
- Strategic Partnerships: Building strong partnerships with the Cuban government, local communities, and international stakeholders is crucial for mitigating risk and ensuring project success. This involves developing a clear understanding of shared goals, establishing transparent communication channels, and fostering mutual trust.
4. Recommendations
Sherritt should proceed with its investment in the Cuban nickel mining project, but with a carefully crafted strategy that addresses the inherent political and economic risks. This strategy should include:
1. Strategic Partnerships:
- Government Relations: Develop a strong relationship with the Cuban government, including high-level engagement with key policymakers. This involves understanding government priorities, negotiating favorable terms for the investment, and ensuring compliance with all regulations.
- Community Engagement: Establish a transparent and collaborative relationship with local communities, addressing concerns about environmental impact, job creation, and community development. This can involve establishing community development programs, providing training opportunities, and promoting local participation in the project.
- International Collaboration: Seek partnerships with international organizations, such as the World Bank or the Inter-American Development Bank, to leverage their expertise in development projects and access potential funding sources.
2. Risk Mitigation:
- Political Risk Management: Develop a comprehensive political risk management plan that includes scenario planning, contingency planning, and regular monitoring of political developments in Cuba. This could involve engaging with political risk consultants and conducting regular risk assessments.
- Economic Risk Management: Implement strategies to mitigate economic risks, such as currency fluctuations, inflation, and potential changes in government policies. This could involve hedging strategies, securing long-term contracts, and diversifying revenue streams.
- Environmental and Social Risk Management: Develop a robust environmental and social impact assessment plan, including measures to minimize environmental damage, promote sustainable mining practices, and address potential social conflicts. This could involve engaging with environmental NGOs, implementing best practices for mine reclamation, and establishing community grievance mechanisms.
3. Corporate Social Responsibility:
- Ethical Business Practices: Adhere to high ethical standards in all business dealings, including transparency, accountability, and respect for human rights. This involves implementing strong corporate governance practices, ensuring fair labor practices, and promoting ethical procurement practices.
- Environmental Sustainability: Commit to environmentally sustainable mining practices, including minimizing waste, reducing emissions, and promoting biodiversity conservation. This could involve implementing green technologies, investing in renewable energy sources, and supporting local environmental initiatives.
- Community Development: Invest in community development programs that provide economic opportunities, improve infrastructure, and support education and healthcare. This could involve establishing training centers, supporting local businesses, and partnering with community organizations.
4. Long-Term Vision:
- Sustainable Business Model: Develop a sustainable business model that aligns with Cuba's long-term economic development goals. This involves considering the potential for value-added processing, creating local jobs, and contributing to Cuba's economic diversification.
- Investment in Infrastructure: Consider investing in infrastructure development, such as roads, power grids, and transportation systems, which can benefit both the project and the wider Cuban economy.
- Innovation and Technology: Adopt innovative technologies and best practices in mining operations to enhance efficiency, reduce environmental impact, and contribute to Cuba's technological development.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core Competencies and Mission: Sherritt's core competencies in mining and its mission to create value for stakeholders align with the opportunity in Cuba. The project offers a chance to expand operations and contribute to economic development.
- External Customers and Internal Clients: The project has the potential to benefit both external customers (nickel buyers) and internal clients (employees and shareholders).
- Competitors: Sherritt needs to consider the competitive landscape and position itself strategically to maintain a competitive advantage in the nickel market.
- Attractiveness: The project's attractiveness is based on the potential for significant returns on investment, the availability of vast nickel reserves, and the opportunity to contribute to Cuba's economic growth.
- Assumptions: The recommendations are based on the assumption that the Cuban government will remain committed to economic reforms and will continue to attract foreign investment.
6. Conclusion
Sherritt has a unique opportunity to invest in Cuba's nickel mining sector. By carefully managing political risk, embracing corporate social responsibility, and developing a long-term vision, Sherritt can create a mutually beneficial partnership with the Cuban government and contribute to both its own growth and Cuba's economic development.
7. Discussion
Alternatives:
- Delaying the investment: Sherritt could choose to delay its investment until political and economic conditions in Cuba become more stable. However, this could lead to missed opportunities and allow competitors to secure a foothold in the market.
- Investing in a different country: Sherritt could choose to invest in another country with a more stable political environment. However, this would require a different strategic approach and might not offer the same potential for growth.
Risks and Key Assumptions:
- Political instability: A change in government or a shift in political priorities could jeopardize the project.
- Economic uncertainty: Cuba's economic reforms could face challenges, leading to instability and potential changes in investment policies.
- Environmental and social challenges: The project could face opposition from local communities or environmental groups, leading to delays or legal challenges.
Options Grid:
| Option | Advantages | Disadvantages | Risks |
|---|---|---|---|
| Proceed with investment | Opportunity for growth, access to vast reserves, contribution to Cuba's development | Political risk, economic uncertainty, potential for social conflict | Political instability, economic downturn, environmental challenges |
| Delay investment | Time to assess political and economic conditions | Missed opportunities, potential for competitors to gain a foothold | Political situation could worsen, economic reforms could stall |
| Invest in another country | More stable political environment | Potential for lower returns, less impact on Cuba's development | Different strategic approach, potential for higher costs |
8. Next Steps
- Conduct a comprehensive political risk assessment: Engage with political risk consultants and conduct regular monitoring of political developments in Cuba.
- Develop a detailed environmental and social impact assessment: Engage with local communities, environmental groups, and international experts to ensure the project's sustainability.
- Negotiate a mutually beneficial agreement with the Cuban government: Ensure clear terms for the investment, including tax incentives, regulatory frameworks, and dispute resolution mechanisms.
- Establish a community engagement program: Develop a plan for ongoing communication and collaboration with local communities to address concerns and promote shared benefits.
- Implement a robust risk management plan: Develop contingency plans for potential political, economic, and environmental challenges.
By taking these steps, Sherritt can mitigate risks, build trust with stakeholders, and create a sustainable and successful investment in Cuba's nickel mining sector.
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Case Description
Ian Delaney, CEO of Sherritt, a primarily a mining company, visited Cuba in the early 1990s to negotiate a deal to export nickel for their Canadian refineries. The case describes the difficulties of doing business in Cuba and the challenges Delaney overcame to turn Sherritt into a large diversified holding company that operates in mining, oil, utilities, telecomm, hotels, and others. Delaney did this while managing a relationship with an authoritarian regime with an anti-capitalist discourse.
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