Jacqueline Jones Assignment Unit 4
Zip-6 Scenario: International Trade
MT220: Global Business
Jacqueline Jones
Professor Henrique Barreto
October 13, 2014
Gentlemen:
Zip-6 management has been approached with a proposition to buy out a Venezuelan soft drink manufacturer and bottler. The selling price, however appears to be slightly below book value for the assets. There are wide spread concerns that Zip-6 should consider when making a decision to do any business in Venezuela. Currently the concerns include a weakening of democratic institutions, political polarization, a politicized military, rampant violent crime, overdependence on the petroleum industry with its price fluctuations, foreign exchange controls that discourage private-sector investment, high inflation, a decline in the quality of fundamental human rights, and widespread scarcity of consumer goods.(cia.gov) Below is a report detailing my investigation of the legal, political, and economic climate in that country that Zip-6 management needs be made aware of.
The Political Risks: Research has shown that a change in political regime can result in the enactment of laws that are less favorable to international business. (Hill, pg. 82) Currently the government and all those who serve are controlled by the President. The populist socialist politician Hugo Chávez won power in 1998, was reelected as president in 2000, and was reelected again in 2006. Chávez has declared himself to be a “Fidelista,” a follower of Cuba’s Fidel Castro. He has pledged to improve the lot of the poor in Venezuela through government intervention in private business and has frequently railed against American imperialism, all of which is of concern to Western enterprises doing business in the country. (Hill, pg. 82)
The Economic Risks: One visible indicator of economic mismanagement tends to be a country’s inflation rate. Another is the level of business and government debt in the country. (Hill, pg. 82.) The economy is not strong in Venezuela. There
MT220: Global Business
Jacqueline Jones
Professor Henrique Barreto
October 13, 2014
Gentlemen:
Zip-6 management has been approached with a proposition to buy out a Venezuelan soft drink manufacturer and bottler. The selling price, however appears to be slightly below book value for the assets. There are wide spread concerns that Zip-6 should consider when making a decision to do any business in Venezuela. Currently the concerns include a weakening of democratic institutions, political polarization, a politicized military, rampant violent crime, overdependence on the petroleum industry with its price fluctuations, foreign exchange controls that discourage private-sector investment, high inflation, a decline in the quality of fundamental human rights, and widespread scarcity of consumer goods.(cia.gov) Below is a report detailing my investigation of the legal, political, and economic climate in that country that Zip-6 management needs be made aware of.
The Political Risks: Research has shown that a change in political regime can result in the enactment of laws that are less favorable to international business. (Hill, pg. 82) Currently the government and all those who serve are controlled by the President. The populist socialist politician Hugo Chávez won power in 1998, was reelected as president in 2000, and was reelected again in 2006. Chávez has declared himself to be a “Fidelista,” a follower of Cuba’s Fidel Castro. He has pledged to improve the lot of the poor in Venezuela through government intervention in private business and has frequently railed against American imperialism, all of which is of concern to Western enterprises doing business in the country. (Hill, pg. 82)
The Economic Risks: One visible indicator of economic mismanagement tends to be a country’s inflation rate. Another is the level of business and government debt in the country. (Hill, pg. 82.) The economy is not strong in Venezuela. There
References: Hill, C. (2013). Global Business Today 8th Edition. McGraw-Hill Higher Education. VitalBook file. Lee, B. (24 April 2014) Council on Foreign Relations. Venezuela’s economic fractures, Article. Retrieved from http://www.cfr.org/economics/venezuelas-economic-fractures/p32853 The World Factbook. (2014). U.S. Central Intelligence Agency (C.I.A.) Venezuela Retrieved from https://www.cia.gov/library/publications/the-world-factbook/geos/ve.html