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VENEZUELAInternational Business

Ameya Beri (09)Alankar Apte (07)Dhaval Savla (19)

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AGENDA

• Location & Geography• Demographics & Economic Indicators & Business Opportunities• History• Culture & Communication• Political System & Ideology• Trade blocks & Agreements• Infrastructure & Foreign Relations• Oil dependence & Oil exports• Economic Stability• Risk Assessment• Why Venezuela• SWOT analysis• GE matrix & Porter’s Diamond

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LOCATION

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GEOGRAPHY

• Bordered by Guyana to the east, Brazil to the south, Colombia to the west, and the Atlantic Ocean and Caribbean Sea to the north.

• Area – 912,050 sq. kms• Coast line – 2800 km• Capital – Caracas • Divided into four main regions :1. The Maracaibo lowlands(northwest)2. The Andean mountains (along Caribbean sea) 3. The Central Orinoco plains (llanos)4. The Guiana Highlands(southeast)

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67.00%

21.00%

10.00% 2.00% Distribution

Mestizos/Pardos(mixed European & Indian ancestry)

White(European descent mainly Spanish, Italian,Portuguese)

Black(African & Caribbean descent)

Indian(Native Americans)

DEMOGRAPHICS

• Population: 29 million (2010 UN estimate)• Median Age: 26.1 years, 65.1% of country in the age group of

15-64• Language: Spanish• Religion(s): Roman Catholic• Currency: Bolivar Fuerte (VEF)

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ECONOMIC INDICATORS

Source: www.euromoneycountryrisk.com

GDP US$ 344.2 billion (2010)Annual GDP growth rate -1.9% (2010)

GDP per capita US$ 12,600 (2010)Inflation Rate 27.2% (2010)Major Exports petroleum, aluminium, steel, chemical products,

iron oreMajor Imports consumer goods, machinery and transport

equipment, construction materialsMajor trading partners United States, Colombia, Brazil, Cuba, Japan,

ChinaCredit Rating B+ (S & P)

HDI index 0.734

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ECONOMIC TRENDS

Source: www.euromoneycountryrisk.com

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BUSINESS OPPORTUNITIES

Venezuela remains highly dependent on oil revenues, which account for roughly 90% of export earnings, more than 50% of the federal budget revenues, and around 30% of GDP.

• Key Industries:Petroleum, Construction Materials, Food Processing, Textiles, Iron Ore Mining, Steel, Aluminum, Motor Vehicle Assembly

• Key Imports:Raw Materials, Machinery and Equipment, Transport Equipment, Construction Materials

• Key Exports:Petroleum, Bauxite and Aluminum, Steel, Chemicals, Agricultural

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HISTORY

1498 - Christopher Columbus lands on Paria Peninsula1681 - Spanish crown takes over control of the colonies1739 - Political and military unification of Venezuela1811 - Venezuela proclaims independence from Spain1812 - Simón Bolívar establishes the Second Republic; is proclaimed Liberator1823 - Spanish are defeated in Battle of Carabobo1830 - Dissolution of Gran Colombia (Colombia, Ecuador and Venezuela)1845 - Spain recognises independence of Venezuela with Treaty of Madrid1922 - Venezuela discovers oil transforming agrarian economy1958 - Overthrow of dictatorship of Perez Jimenez; beginning of democratic era1960 - OPEC created through Venezuelan initiative1989 - Numerous protests and riots in Caracas and surrounding area. Led to state

of emergency 1992 - Two unsuccessful coup attempts including one by Lt Col Hugo Chávez Frias 1998 - Lt Col Hugo Chávez Frias wins Presidential elections 1999 - Referendum approves new constitution. Establishment of the 5th Republic. Official name of the country is changed to: Bolivarian Republic of Venezuela

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HISTORY

2000 - Presidential elections: won by Hugo Chávez Frias2002 - President Chávez temporarily ousted by coup; returns to power two days

later2002 - Two month long general strike begins in December. Paralyses the economy

and in particular the oil industry.2004 - President Chávez survives recall referendum and remains in power2005 - Pro Chávez coalition wins all seats in elections for National Assembly as opposition withdraws.2006 - President Chávez wins a second term in Presidential elections.2007 - Government’s Constitutional Reform proposals narrowly rejected in a referendum.2009 - Government’s Constitutional Reform proposals to allow elected officials to

stand indefinitely approved in a referendum.2010 - September - Opposition win 67 seats in the National Assembly elections.2010 - December - National Assembly passes Enabling Law to allow President Chavez to rule by decree for 18 months.2011 - New National Assembly convenes on 5 January for the period 2011-2016

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CULTURE

• Homogenous• Limited exposures to other cultures• Younger generation is open minded• Collectivism, high power distance, masculinity• Trust, commitment, liking, relationship building• Business exist between people & not companies• Respect associated with status, rank & education

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COMMUNICATION

• Language-Spanish • 40 other languages• Dislike loud & boisterous behavior• Comfortable in maintaining close proximity• High context• American OK sign – Obscene gesture• Hard bargainers & leverage long-term benefits• Sensitive to the term Americans

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POLITICAL SYSTEM

• Form Of government: Federal Republic

• 2 party system - United Socialist Party of Venezuela & UNT.

• Current President: Hugo Chavez

• Legal System – Civil law

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POLITICAL IDEOLOGY

• Inspired by Bolivarianism and Socialism• Implementing social reforms that favor the poor people• Recent Constitutional reforms:

– nationalization of several key industries– annulling presidential terms limits – land reforms– guarantee workers fundamental rights – workday would be limited to six hours– abolish the autonomy of the Central Bank– make impossible the privatization of the nation’s natural

resources

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TRADE BLOCS

Associate Member

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OTHER AGREEMENTS

• International Atomic Energy Agency (IAEA)• Organization of American States (OAS)• United Nations Educational, Scientific and

Cultural Organization (UNESCO)• World Health Organization (WHO)• United Nations (UN)

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INFRASTRUCTURE

Soft InfraEducation

(95% literacy)

Health Care

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FOREIGN RELATIONS

USAFriendship with Cuba, Iran and Iraq has severed relationship

Higher oil prices for US, Largest export market for Venezuela

Latin America• Formation of Bank of South with Argentina, Brazil

& Bolivia.• Severed relationships with Colombia.

China• In 2010, China has agreed to extend $20 billion loan.• The loan amount is to be invested in oil sector and

China would seek oil supplies – Tied in Aid.

Iran• Strong ties in energy production, economic and industrial

cooperation.• Join ventures in sectors like, energy, agriculture and housing

infrastructure.

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OIL DEPENDANCE

• 5th largest oil exporting country in the world• 20% of global oil reserves• 2.3 mn barrels of oil produced per day• Oil revenues account for approx 95% of export

earnings which is 30% of GDP• 7% of total OPEC oil production

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OIL EXPORTS

United States43%

China6%

Other Asia7%

Europe7%

Carribean34%

Other3%

Venezuelan Crude Oil Exports By Destination, 2010

Source: EIA, APEX Database, Facts, Global Energy

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ECONOMIC STABILITY

• Dutch Disease• Poor economic diversification• The stability of the oil industry • The growth of its GDP was contracted to -3.3%

in 2009 and -1.3% in 2010. • Absence of entrepreneurial activity• Increased government spending• Inflation at 30% in 2010

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RISK ASSESSMENT

• Country risk rating for Venezuela: C• Reasons:– Sluggish growth in 2011 in South America–Public finances under strain - Expansionary

budgetary policy –A deteriorating banking sector–A precarious political environment

Source: http://www.coface.com/CofacePortal/COM_en_EN/pages/home/risks_home/ country_risks

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WHY VENEZUELA

Location •Has a coastline of 2800 km. Surrounded by three countries. 38 ports. 400 airports.

Infrastructure •Developed modes of transportation

Labor Condition •36 hour week, well educated with 95% literacy rate•Majority of population 65.1% in working age of 15-64 years.

Urbanization •93% of total population is urban.

Oil Production •20% of total oil reserves•Large amount of oil sands.

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SWOT ANALYSIS

Strengths1) Major oil, gas, and mining resources, with considerable oil reserves in the Orinoco delta

2) Hydrocarbon wealth provides economic strength to extend Venezuela’s regional

political influence3) The United States is the main market for Venezuelan oil, despite political differences

Weaknesses1) Economy too dependent on hydrocarbons

2) Opaque and discretionary management of oil revenues

3) Production capacity of the public oil company, PDVSA, limited by insufficient investment

4) State interventionism5) Crime

6) Low IPR Compliance7) Low English Speaking Population

Opportunities1) Sector opportunities: oil and gas,

IT, Retail, consumer goods, Agriculture

2) Social reforms for the upliftment of the poor section of society`3) Growing Tourism Industry

Threats1) Fluctuations in Oil prices

2)Energy crises3) Volatile currency4)Nationalization

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ISSUES

• Inflation – 30%• High Crime rate• Energy crises• Fluctuating oil prices• Declining oil production• Strained relations with partners: US and Columbia• The unemployment rate has reached 8.6% in 2010• Importing more than 70% of its needs.

Source: www.cia.gov The World Fact Book

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VENEZUELA PORTERS DIAMOND

Porters Diamond

Innovation

Systemic Diamond

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GE MATRIX

Maximize Commitment

Collaborations

Individualized Strategies

Individualized Strategies

Minimize Commitment

HIGH

MEDIUM

LOW

HIGH MEDIUM LOW

Coun

try

Att

racti

vene

ss

Competitive Strength

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MAJOR MNE’s

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MNE OPPURTUNITIES

Major Sectors which MNE’s can target:• Oil and Gas Sector• IT Sector• Tourism Industry• Telecommunication Industry

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THANK YOU