U.S. Firms Find Patience Can Pay in Foreign Ventures : Investments: Shouldering some of the burden amid wild currency swings can yield loyalty--and profits later.

Just days after the Mexican peso crashed in December, Richard J. Heckmann, an American executive, boarded a jetliner for a meeting with Jorge Carillo Olea, governor of the state of Morelos.

“I said, ‘You’ve got a problem,’ ” recalls Heckmann, chairman of U.S. Filter Corp., which built a $22-million water-treatment plant in the state capital of Cuernavaca--and receives more than $1 million a year to run it. “What can we do to help?”

A little patience would go a long way, came the reply from the embattled governor. Heckmann said his Palm Desert firm could push the next two monthly payments all the way to the end of the 15-year contract.

“I wanted to show our good faith,” he explained in an interview. “For us it was an investment in the future.”

And now, it appears, the investment has an excellent chance of paying off. In just the past few weeks, Mexican officials have approached Heckmann about the possibility of his company operating additional water facilities in their country.

Clearly, Mexico’s one-two ordeal of peso meltdown and agonizing recession has provided Americans with more than a lesson in the volatile economics of emerging nations.

Indeed, the searing episode has been a case study of the differences between impatient, speculative capital--the sort that swishes through global financial markets and national boundaries in an instant--and ordinary companies that have little choice but to ride out a financial storm.

Unexpectedly, the crisis strengthened the ties between some U.S. firms and their partners to the south as both sides struggled to make it through the financial whirlwind, improvising seat-of-the-pants strategies to keep the relationship alive for a more profitable day.

U.S. companies in effect tossed contracts out the window, offering desperately needed concessions to their Mexican distributors, even hiking wages to calm traumatized production workers.

“The first thing that we did was take the pressure off,” recalls Charles Nevil, head of the Meridian Group in Marina del Rey, who allowed hard-pressed Mexican vendors to buy less of his swimming pool equipment than they had promised.

“Today is important--but tomorrow is equally important. Maybe more important.”

Such words always have drawn entrepreneurs to the world’s less-developed regions, where the prospect of tantalizing profits seems to make up for a raft of financial perils.

As the Mexico debacle showed, wrenching swings in currency can wreck the most careful plans of executives to exploit emerging economies. Edgy financial markets can prompt governments to overhaul national policy and even plunge their countries into recession by forcing up interest rates.

Yet unlike the speculators who routinely shift fortunes around the world in quest of lightning profits, manufacturers and other commercial enterprises seek a different sort of payoff.

Their whole range of investments--in the bricks and metal of buildings and technology as well as the intangible value of personal relationships and know-how about the foreign marketplace--pay out over time, executives said.

“Most companies are serious players,” maintains Barry K. Rogstad, president of the American Business Conference, a coalition of fast-growing, mid-size firms that are interested in overseas markets. “When they make a commitment, they go into it on a long-term basis.”

Turbulent emerging markets in Latin America, Asia and Eastern Europe often demand no less.

Just ask General Electric. After GE plunged into emerging Eastern Europe in 1990 by investing in a Hungarian light-bulb maker, financial crosscurrents soon jeopardized the goals.

Rampant inflation prompted government officials to prop up the exchange rate, a policy that cut into the heart of the venture’s export competitiveness.

“It was very frustrating,” recalls George Varga, retired president of the GE-Tungsram venture.

GE was patient, however, reportedly pouring more than $500 million into Tungsram’s antiquated facilities. Now it appears that that patience has been rewarded. Exchange rates have tilted more favorably, and rumor has it that Tungsram “is going to make a lot of money this year,” Varga said in an interview from his Atlanta home.

To be sure, an incendiary blend of finance and politics can threaten the most methodical plans to conquer new overseas vistas.

Just last year, Custom Building Products launched a promising new relationship in Venezuela, supplying a local retailer with mortar and other materials used to install ceramic tile. But within weeks, the government clamped down on the shaky economy, restricting dollar transactions in a bid to protect its embattled currency.

Abruptly, the Seal Beach firm found itself caught in a bureaucratic limbo, awaiting payment for its supplies. “What if we had a plant down there or had made Venezuela a central base of operations?” asked Griff Williams, a vice president.

While the restrictions have eased--and the firm is getting paid once again--memories of the episode remain a “bit of a blockade” toward expanding the relationship in Venezuela.

Another danger in a world of interlinked financial markets is that financial ills are contagious; a virus in one country’s economy can quickly spread disease to another.

The peso crisis dramatized that very risk, as anxious investors wondered which country might turn out to be the “next Mexico”--and placed their bets accordingly. The prime suspects: Any emerging nation with a large trade gap, budget deficit, shaky currency or low savings rate.

Speculators massed against Thailand’s baht currency, forcing authorities to push up interest rates almost five percentage points to defend it. Interest rates skyrocketed as much as nine percentage points in Argentina and five percentage points in the Philippines, to cite just a few examples.

By March, Brazil’s stock market had sacrificed a full third of its value, with dramatic stock slides also occurring in the Philippines, Hungary and Malaysia. From Eastern Europe to Latin America to Asia, stocks in emerging countries were hammered, currencies jeopardized and interest rates pressured upward.

“We saw it immediately,” recalled Joseph Quinlan, an international economist with Dean Witter Reynolds in New York. “Malaysia. Thailand. The Philippines. The impact was simultaneous--and instantaneous.”

Yet the lightning and thunder emanating from financial markets obscured a paradox: Despite the dangers of widespread economic upheaval, the electronic chain reaction had surprisingly little impact on U.S. firms outside Mexico.

The reasons speak volumes about the difference between edgy, speculative capital and the more patient variety in the world of everyday commerce.

National Semiconductor, for example, has facilities in the Philippines and Malaysia, countries that experienced the early fallout from Mexico.

Business went on as usual, however, and the reason derives from realities of the global economy, according to Vice President Michael Burger of the Santa Clara, Calif.-based firm.

Although National Semiconductor assembles products in Asian countries, local costs are just a fraction of the tab. Integrated circuits used in the final goods are shipped in from the United States and Scotland; plastic and other raw materials come from all over the world.

At the Cebu, Philippines, assembly plant, local labor, overhead and shipping expenses may add up to just 15% of a typical semiconductor’s overall cost.

“In the day-to-day manufacturing operation, it [the Mexico-related turbulence] had little effect, if any,” Burger said from the firm’s Hong Kong office.

On top of that, firms with far-flung activities forge strategies to keep from getting clobbered if a particular currency nose-dives. They can minimize risks by keeping expected income in a precarious currency in line with their expenses in the same currency--so ups and downs offset each other.

To protect themselves further, they often demand payment in hard currency for business in less-established countries. In addition, companies routinely hedge their bets on a currency’s future value by purchasing financial instruments designed to pay off if that currency weakens.

“A day doesn’t go by where I’m not monitoring all the currencies--and making sure that people have taken all the actions that need to be taken,” said Ronald R. Wambolt, senior vice president and director of worldwide sales for Fluke Corp., a maker of electronic test tools in Everett, Wash.

Sometimes, however, there is no quick antidote to the problems brought by economic turbulence.

Mexico’s drastic recession and cheaper peso have eviscerated consumers’ ability--and willingness--to buy this year, disappointing U.S. retailers that had grand hopes for the post-NAFTA era. One byproduct of the slump is that many Mexican distributors have been saddled with a crushing surplus of U.S. goods and faint prospects of being able to cover their debts.

This painful reality has given way to a little-noticed subplot of the financial drama: Mutual self-interest led many U.S. suppliers and their Mexican dealers to find extraordinary ways to survive the crisis.

American firms did everything from buying back excess goods from their overburdened dealers to offering them discounts and other incentives to stay afloat.

“You build dealer loyalty in times of crisis by saying, ‘I’ll shoulder some of the burden myself,’ ” said Kevin C. Brennan, the U.S. Commerce Department’s senior commercial officer in Mexico. “Dealers remember these sorts of things.”

The growing business ties between the two societies were tested on a very personal level.

Some U.S. firms voluntarily hiked Mexican wages to offset the peso decline, for example, a phenomenon that may have been most prevalent near the border, where the two nations’ economies blend.

Duane Mason, finance director of Laurel Engineering, remembers that the peso crash could have brought a minor windfall, because it suddenly cost the Chula Vista company fewer dollars to abide by its Mexican wage agreement.

At the same time, sticking to the pre-crash contract risked divisive morale woes at the Tijuana factory used by Laurel, where more than 40 workers saw their purchasing power after devaluation slashed by as much as 40%.

The question became, “Would we make them live by the contract or be flexible?” recalled Mason, whose firm manufactures conveyors used in mining and other industries.

Flexibility carried the day. “To keep the morale up--and keep the work force present--we had to adjust the pay scale,” he said.

Laurel executives also were thinking about the future. If other border-region employers hiked wages and they did not, the company might pay a long-term price by gaining a reputation as a bad place to work. In fact, other firms in the area did ultimately boost pay.

But by acting promptly, Laurel officials believe they helped their image--and are benefiting from the decision to this day. “We’ve maintained and improved the working relationship [at the factory] rather than running the risk of damaging it,” Mason said. “Productivity stayed high. Loyalty stayed high.”

Mexico’s problems tested the flexibility of executives in all kinds of ways. Seemingly ironclad protections to ensure that Americans would be paid in dollars fell apart when it became clear that many Mexicans no longer could afford to comply with them.

Fluke was among the many U.S. corporations caught in such a bind early this year. Its representative in Mexico City, Mexel, owed it half a million dollars. The predicament: what to do about it.

“They were a very good company, and this happened to them through no fault of their own,” Wambolt recalled. So Fluke offered Mexel a 12% loan for the payments due, an interest rate that was less than half that available at local banks.

Was it a prudent loan? “They paid us back in a few months,” Wambolt recalled approvingly. “They didn’t like owing us money.”