XPO: Growth strategy doesn’t include emerging markets

Corruption in certain parts of Africa, Latin America and Asia makes it too difficult for a U.S. third-party logistics provider to do business, according to XPO Logistics CEO Brad Jacobs.    XPO Logistics has become a major logistics and transportation provider in North America and Europe in less than five years, but don’t expect the company’s rapid expansion strategy to include emerging markets any time soon.
   CEO and founder Brad Jacobs said corruption in certain parts of Africa, Latin America, Eastern Europe and Asia makes it too difficult for a U.S. third-party logistics provider to do business in those markets.
   “I don’t want to go to jail,” he said Tuesday during a town hall-style session at the Council of Supply Chain Management Professionals’ annual conference in San Diego.
   The Federal Corrupt Practices Act makes it illegal for U.S. companies to offer bribes in foreign countries in order to win contracts and the U.S. government has stepped up enforcement in recent years. European laws outside of the United Kingdom are less strict when it comes to paying foreign officials for business, although there is a growing international anti-corruption movement.
   In many less developed countries the unspoken rule is “pay to play,” and Jacobs said he doesn’t know how to compete in those countries while still adhering to American rules.
   XPO went international this year with the acquisition of French trucking and warehouse provider Norbert Dentressangle. The company is also expected to close on a $3 billion transaction for Con-way Inc. next month. The Con-way deal includes Menlo Worldwide, a large contract logistics provider with facilities in 20 countries, including Brazil and China.
   Another business constraint in emerging markets is the potential for internal theft, according to Jacobs.
   XPO, which has rapidly built a huge organization with thousands of employees, prides itself on its internal controls and back office capabilities in areas such as account payables, account receivables, internal audit and credit collection.
   Those are the nuts-and-bolts functions that help determine a company’s success, Jacobs stressed. “And I’ve just been burned so many times over the last 30 years in some of those countries with the back office. In some of those countries I had a great business. It turns out I was looking at the wrong set of books. There’s another set of books.”
   United Rentals, a start-up firm that Jacobs built into a powerhouse equipment rental firm, had two locations in Mexico where the employees, vendors and others were all siphoning money from operations for personal gain. Because the scheme was so elaborate, it took three years for the company to figure out what was happening, Jacobs said.   
   “I’m not going to cross off at some point in the future that we either figure out a way to do business with proper controls in emerging growth countries, or those countries emerge, and over time the business practices, the business climate is such that I feel comfortable doing business there,” he added.