Monopolies on oil companies PEMEX

THE EXPROPRIATION OF MEXICAN OIL

In 1938, Mexican President Lazaro Cardenas expropriated almost all foreign oil companies in the country, creating this way a state monopoly on oil companies called PEMEX (Petróleos Mexicanos). Cardenas took this drastic decision because of the deep depression the country was going through. He believed that the foreign companies where a threat for the economy and the sovereignty of the nation. This expropriation involved the reform of the Mexican Constitution in 1936 creating the Article 27 “The Expropriation Law” applied two years later to all the foreign oil companies.

PEMEX became one of the biggest oil companies in the world, lead Mexico to be the fifth largest oil exporter and the largest taxpayer in the country. On the positive side, Mexico became one of the major producer and exporter of oil in the world making 557 millions of barrels per day. The oil industry became the major source of economy for Mexico.

Cardenas rejected exportation strategies that were in favor of the growth of the national economy, the U.S stopped acquiring all Mexican oil and gave preference to Venezuela and also the United Kingdom took sever measures and broke diplomatic relations with Mexico and declare an embargo because of these factors the Mexican economy began to deteriorate again. In retaliation the oil companies created public campaigns against Mexico encouraging people to stop buying Mexican goods. Other governments closed the market to Mexican oil expecting that PEMEX would break. Since PEMEX was the result of the expropriation and has all the control of the country's oil it has been administered with corruption. The country loses a lot of international credibility and this leads to other foreign companies not invest in the country in the future, as foreign companies are the most affected by government decisions concerning foreign investment. Taking this as a reference future companies that want to invest in other countries should ask themselves some questions in order to succeed in that country and have low investments risks, like how stable is the political system of the country, how committed is the government about specific rules and if the government tends to be communist of capitalism.

It is important to emphasize that foreign companies can manage regulatory change by implementing strategies so they can face some of the most common political risks. To succeed in the global market the companies should always look forward and predict potentially positive and negative changes in the surroundings.

2. When a foreign company wants to invest in a country they must look the political environment and background of the entering country. International active companies have improved their risks strategies so they can understand and avoid risks and know how to manage them. Companies should ask themselves several questions before investing in another country such as

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