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Venezuela is located in northern South America with a population of 29 million people. It has the world's largest proven oil reserves and oil exports account for most of its GDP. However, the economy is overly dependent on oil and subject to volatility in oil prices. Business opportunities exist in oil/gas, construction, food processing, and other industries, but the business environment also faces challenges like high inflation, crime, and strained foreign relations.
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Ib venezuela-group-9
- 1. VENEZUELA International Business Ameya Beri (09) Alankar Apte (07) Dhaval Savla (19) 1
- 2. 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 2
- 3. LOCATION 3
- 4. GEOGRAPHY • Bordered byGuyana 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) 4
- 5. DEMOGRAPHICS 2.00% 10.00% Distribution Mestizos/Pardos(mixed European & Indian ancestry) White(European descent mainly 21.00% Spanish, Italian,Portuguese) 67.00% Black(African & Caribbean descent) Indian(Native Americans) • 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) 5
- 6. ECONOMIC INDICATORS 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 ore Major Imports consumer goods, machinery and transport equipment, construction materials Major trading partners United States, Colombia, Brazil, Cuba, Japan, China Credit Rating B+ (S & P) HDI index 0.734 6 Source: www.euromoneycountryrisk.com
- 7. ECONOMIC TRENDS 7 Source: www.euromoneycountryrisk.com
- 8. 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 8
- 9. HISTORY 1498 - ChristopherColumbus lands on Paria Peninsula 1681 - Spanish crown takes over control of the colonies 1739 - Political and military unification of Venezuela 1811 - Venezuela proclaims independence from Spain 1812 - Simón Bolívar establishes the Second Republic; is proclaimed Liberator 1823 - Spanish are defeated in Battle of Carabobo 1830 - Dissolution of Gran Colombia (Colombia, Ecuador and Venezuela) 1845 - Spain recognises independence of Venezuela with Treaty of Madrid 1922 - Venezuela discovers oil transforming agrarian economy 1958 - Overthrow of dictatorship of Perez Jimenez; beginning of democratic era 1960 - OPEC created through Venezuelan initiative 1989 - 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.9 Official name of the country is changed to: Bolivarian Republic of Venezuela
- 10. HISTORY 2000 - Presidentialelections: won by Hugo Chávez Frias 2002 - President Chávez temporarily ousted by coup; returns to power two days later 2002 - 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 power 2005 - 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. 10 2011 - New National Assembly convenes on 5 January for the period 2011-2016
- 11. 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 11
- 12. 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 12
- 13. POLITICAL SYSTEM • FormOf government: Federal Republic • 2 party system - United Socialist Party of Venezuela & UNT. • Current President: Hugo Chavez • Legal System – Civil law 13
- 14. POLITICAL IDEOLOGY • Inspiredby 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 14
- 15. TRADE BLOCS Associate Member 15
- 16. OTHER AGREEMENTS • InternationalAtomic Energy Agency (IAEA) • Organization of American States (OAS) • United Nations Educational, Scientific and Cultural Organization (UNESCO) • World Health Organization (WHO) • United Nations (UN) 16
- 17. INFRASTRUCTURE Soft Infra Hard Infra Education Roadways, Rapid Transit System (95% literacy) (Primary mode) Ports (38 ports Health Care across Venezuela) Airports (400) & Telecommunication Network (8.8 million users) 17
- 18. FOREIGN RELATIONS USA Friendship 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. 18
- 19. OIL DEPENDANCE • 5thlargest 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 19
- 20. OIL EXPORTS Venezuelan CrudeOil Exports By Destination, 2010 Other 3% Carribean 34% United States 43% Europe 7% Other Asia China 7% 6% 20 Source: EIA, APEX Database, Facts, Global Energy
- 21. ECONOMIC STABILITY • DutchDisease • 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 21
- 22. RISK ASSESSMENT • Countryrisk 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 22
- 23. WHY VENEZUELA • Has a coastline of 2800 km. Surrounded by three countries. 38 Location ports. 400 airports. • Developed modes of transportation Infrastructure • 36 hour week, well educated with 95% literacy rate Labor Condition • Majority of population 65.1% in working age of 15-64 years. • 93% of total population is urban. Urbanization • 20% of total oil reserves Oil Production • Large amount of oil sands. 23
- 24. SWOT ANALYSIS Weaknesses Strengths 1) Economy too dependent on hydrocarbons 1) Major oil, gas, and mining resources, with considerable 2) Opaque and discretionary management of oil revenues oil reserves in the Orinoco delta 3) Production capacity of the public oil 2) Hydrocarbon wealth provides economic strength to company, PDVSA, limited by insufficient investment extend Venezuela’s regional political influence 4) State interventionism 3) The United States is the main market for Venezuelan 5) Crime oil, despite political differences 6) Low IPR Compliance 7) Low English Speaking Population Opportunities Threats 1) Sector opportunities: oil and gas, IT, Retail, consumer 1) Fluctuations in Oil prices goods, Agriculture 2)Energy crises 2) Social reforms for the upliftment of the poor section of society` 3) Volatile currency 3) Growing Tourism Industry 4)Nationalization 24
- 25. 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. 25 Source: www.cia.gov The World Fact Book
- 26. VENEZUELA PORTERS DIAMOND Innovation Firm, Strategy, Structure, Rivalry High oil demand from Porters 95% Literacy rate, 65.1% population in working USA Diamond age, many oil sands. Systemic Diamond Improved Infrastructure & Logistics 26
- 27. GE MATRIX Maximize Collaborations HIGH Commitment Attractiveness Country Individualized MEDIUM Strategies Individualized Minimize LOW Strategies Commitment HIGH MEDIUM LOW Competitive Strength 27
- 28. MAJOR MNE’s 28
- 29. MNE OPPURTUNITIES Major Sectorswhich MNE’s can target: • Oil and Gas Sector • IT Sector • Tourism Industry • Telecommunication Industry 29
- 30. THANK YOU 30
Editor's Notes
- #2 Perhaps the most important thing to know about Venezuela is that it is an oil exporting country, the fifth largest in the world, with the largest reserves of conventional oil (light and heavy crude) in the western hemisphere and the largest reserves of non-conventional oil (extra-heavy crude) in the world. This fact is of immense importance to understanding Venezuela because it has shaped practically every aspect of the country, its history, its economy, its politics, and its culture.
- #4 Venezuela was a Spanish colony from 1499 to 1821. A federation of GranColombia was formed that included the countries that had fought togetherunder Simón Bolívar to defeat the Spanish. This federation comprisingVenezuela, Colombia, Ecuador and Panama did not last long. Panamawas annexed in 1821 and Ecuador and Venezuela seceded in 1830 to formindependent countries.
- #6 Venezuela is mainly made up of four groups: mestizos, or pardos, (mixed European and Indian ancestry), comprising 67 percent of the population; white (European descent, mainly Spanish, Italian, and Portuguese), 2l percent; black (African and Caribbean descent), 10 percent; and Indian (Native Americans), 2 percent.
- #10 The current Venezuelan nation as such appeared in 1829. Venezuela had three brief republican configurations before 1829. The first Venezuelan republic was a short-lived rule forged in 1810 by Venezuela's Francisco de Miranda; Miranda surrendered to the Spaniards in 1812 and died in exile in 1816. The second republican junta (1813) was led by Simón Bolívar himself but was as short-lived as the initial republic. Finally, Bolívar was able to oust the Spanish colonial empire in the Battle of Carabobo on 24 June 1821, and proclaimed Venezuela part of the Republic of Gran Colombia (which included the contemporary states of Colombia and Ecuador). Because of internal political conflicts and Bolívar's waning health, however, Venezuela proclaimed itself an independent republic on 5 July 1829.
- #11 Recent HistoryFollowing independence from Spain, military rule persisted until the trienio (a democratic experiment) in 1945-48. Military control was resumed in 1948 after a coup against the AcciónDemocrática AD) Government. Oppression under the military regime led to AD and their rival political party, the Comité de OrganizaciónPolítica Electoral Independiente (COPEI), joining forces to remove the military government in 1958.President Rómulo Betancourt (1958 to 1964) is said to be responsible for establishing democracy as the norm for Venezuelan Government. Between 1958 and1988 the country was politically stable with AD and COPEI dominating national elections. Sharp fluctuations in oil prices from 1973-83 were partially to blame for Venezuela's period of recession in the 1980s. In response to the economic crisis of 1989, the Government of President Carlos Andrés Pérez started to implement a programme of free market reforms. The stabilisation and economic structural adjustment measures were deeply unpopular with a significant sector of the population. The situation reached breaking point on 27 February 1989 when there were widespread protests and severe civil unrest, now known as the Caracazco. The Government responded with force and introduced an extended state of emergency.The ultimate result was a political crisis that undermined the Government and created the conditions for the attempted coup of 1992 led by Lt Col Hugo Chavez. The coup failed, but Chavez emerged on to the political scene. He appeared on national television to instruct his co-conspirators to stand down and said he had failed 'porahora' (for now). Chavez's supporters grasped this phrase as a sign that his time would come, and waited for his return from prison.In 1998, 6 years after the attempted military coup, Chavez won Presidential elections. Voters approved a new constitution in 1999 that launched the 'Fifth Republic' and a process of reform. Chavez consolidated power in the presidential elections of 2000. He survived a coup attempt in April 2002 that removed him from power for two days. Chavez's opponents then focused on collecting a sufficient number of signatures to stage a recall referendum. They did so, but in August 2004 Chavez won the vote and is therefore still in power.Chavez was re-elected for a second 6-year term in December 2006. After this victory the President asked his allies to merge into a single party: the Venezuelan United Socialist Party (PSUV), which had its Foundational Congress in early 2008. In December 2007, voters rejected a constitutional reform project drafted by the Government (by a narrow margin – 51% against, with 49% in favour).On 15 February 2009 Venezuelans voted by 54.9% to 45.1% in a referendum to accept a constitutional amendment to allow elected officials to stand for an unlimited number of terms. Chavez has stated his intention to stand for re-election in late 2012.Following their gains in the September 2010 elections, the opposition returned to the National Assembly in January 2011 after a 5 year absence. With 67 deputies this now creates a blocking minority against the 98 deputies of the PSUV. However, on 20 December 2010, following severe flooding across Venezuela, the outgoing National Assembly granted President Chavez exceptional legislative powers for 18 months through the passing of an Enabling Law.
- #12 time-consuming process and may require several trips to strengthen the bonds. Similarly, whether people think you are worth knowing and trusting oft enweighs much more strongly than how competent you are or what proposals you may have to make. Third party introductions can be very helpful asa starting point to building a trusting relationship with a potential partner. Men are supposed to be assertive, ambitious,and tough; women tender and take care of relationships.Males fight back when attacked while females shouldn't.One should strive to be the best and failure is a disaster.
- #13 Many businesspeople speak at leastsome English, but being able to speak Spanish is a clear advantage. When communicating in English, speak inshort, simple sentences and avoid using jargon and slang. People in this country usually speak softly. Venezuelans generally converse in close proximity, standing only two feet or less apart. Silenceis oft en a way to communicate a negative message. Eyecontact should be very frequent, almost to the point of staring. This conveys sincerity and helps build trust. They prefer to say norteamericanos or North Americans. Perhaps the most visible consequence of Venezuela’s reliance on oil is that it has fostered a rentier and clientelistic mentality among Venezuelans. That is, the oil wealth has promoted the idea that one can do well in Venezuela, as long as one has access to the country’s oil wealth. The consequence was that rather than engaging in creative entrepreneurial activity, Venezuelans were encouraged to ally themselves with the state, seeking either employment or contracts from the state, which had a monopoly on Venezuela’s oil income.
- #16 Founder member of OPEC-1960Was a member of ANDEAN block
- #23 Elections in 2012.
- #29 In February 2007 Chavez announced a new law-decree to nationalize the last remaining oil production sites that are under foreign company control, to take effect on 1 May, allowing the foreign companies to negotiate the nationalization terms. Under the new regulations, the earlier joint ventures, involving ExxonMobil, ChevronTexaco, Statoil, ConocoPhillips, and BP, were transformed give PDVSA a minimum 60 percent stake. The process completed a government initiative begun in 2005, when the Chavez administration transformed earlier “operating agreements” in Venezuela’s older oil fields into joint ventures with a wide variety of foreign companies. Thirty out of 32 such operating agreements were transformed by the end of 2005 - only two challenged the transition in court, and no guesses as to who the companies were. Most foreign companies accepted the new arrangements, including Chevron, Statoil, Total and BP, but ExxonMobil and ConocoPhillips refused.