International Business Term 3 : Batch 2016-18
A Project Report
On
Emerging Market Study Top 3 for business in South America
By
Saurav Das
SDM Institute for Management Development
Mysore, Karnataka, India
January 2017
Table of Contents
Pacific Alliance......................................................................................................................3
CHILE.......................................................................................................................................4
Country Overview................................................................................................................4
Macro-Economic Data.........................................................................................................4
Chile - Demography.............................................................................................................5
Environmental analysis........................................................................................................5
Social..................................................................................................................................5
Political/legal.....................................................................................................................5
Infrastructure, natural resources and industry scenario..................................................6
Swot analysis.........................................................................................................................6
Market suggestions for investment.....................................................................................7
Agricultural sector............................................................................................................7
Real estate..........................................................................................................................7
Mode of entry to Chile market:.......................................................................................7
COLOMBIA.............................................................................................................................8
Macroeconomic Data............................................................................................................8
Demography..........................................................................................................................8
SWOT ANALYSIS................................................................................................................9
Market Suggestions..............................................................................................................9
Healthcare Industry..........................................................................................................9
Construction..........................................................................................................................9
PERU.......................................................................................................................................10
Political environment..........................................................................................................11
Economic Environment......................................................................................................11
Social Environment.............................................................................................................11
Technological Environment...............................................................................................12
SWOT ANALYSIS..............................................................................................................12
Which Indian industry will you suggest for Peru and why?..........................................12
Bibliography...........................................................................................................................14
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Pacific Alliance
The Pacific Alliance is a trade coalition that is being formed with few countries of the Latin American
side. Where currently it includes 4 members, which includes Chile, Colombia, Mexico and Peru. Through
which we can observe all these countries share the same Pacific Ocean border. On April 28 th 2011, the
earlier president of Peru, Alan Garcia called for a consultation with the presidents of Colombia, Mexico
and Chile and other political leaders of the respective countries to decide on an issue called Declaracion
de Lima. This is a statement or declaration to decide and establish the Pacific Alliances initial goals and
future trade practices that needs to be practiced in the countries. And finally The Pacific Alliance Trade
bloc was organised on 6th June of 2012.
The Pacific Alliance (The Emblem)
The four member countries of pacific alliance will contribute around 36% of the total Latin Americans
GDP. But when accounted as a separate country, this group of nations will be counted as 6 th major
economies of the world with the Purchasing Power Parity GDP of greater than 3 trillion US dollars. In
accordance with the WTO, the Pacific Alliance nations together are seen in the export of more than $ 455
billion as of 2010. The political scientists have deemed the Pacific Alliance with a name called The
Pacific Pumas for their rapid development and mode of economic trade between the countries. The
official language common in all these countries. But why only four countries? The answer is Costa Rica is
on the way of finishing the process and they are ready to be incorporated as the fifth member of the
Pacific Alliance. For this organisation, a group of seven countries are present as the observers, they are
called the summit seven observers, and they are, , Ecuador, Dominican Republic, El Salvador, Paraguay,
Honduras, France and Portugal. But now there is a question why there are few European countries in the
South American formed organisation? Actually the Pacific Alliance currently constitutes of 48 countries
as observers where some of the European and East giants includes Germany, China, France, UK, US and
Japan. From the October 2016, 2 more countries has been the part of the Pacific Alliance which included
Costa Rica and Panama and Canada is also stated as a potential nations to join the association.
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The main reason the Pacific Alliance is formed to reduce the trade barriers between the countries, and
several additional projects such as including visa-free travel, regional integration, mutual stock exchange
and having combined embassies in numerous nations. The 4 nations hold the joint performances in
worldwide affairs, business circles and in the business rounds in the different parts of the world. Some of
the other projects include human capital training, entrepreneurship, oriented academic exchange and
environmental protection, youth volunteering. Sports diplomacy programs are created between the
countries and tourism support that is maintained.
CHILE
Country Overview
According to US Forbes magazine listing, one of the best countries for doing business is
Chile. It includes 129 countries by following certain parameters or indexes for growth which
are GDP growth, GDP/capita, trade balance, population and budget affairs. Since 1990 the
Chile economy was growing at an average annual rate of 5% or more, from the time it
switched over to democracy. The growth of the country declined in 1999 and in 2009.
Economic
In Latin America, Chile is found to be the best economy and the strongest in OCDE and a
stable economy by the foreign investors as 1/3 of the GDP is from exports. FDI have
quadrupled in the last four years but FDI fell to $7 billion in 2009 due to low investment
throughout the world. Chile currency is known as Chilean Peso, 1USD=659.3 (as of
15.01.2017)
Major exports from Chile are Industrial inorganic Chemicals, Lumber and Wine
Major Imports to Chile are Fuel oil, Industrial machinery.
Macro-Economic Data
A Free Trade agreement came in to picture between Canada and Chile in 1996 as the trade
increased by 226%. There is almost no political risk for doing business in Chile economy. It
is considered safe and reliable country for doing businesses. They received an A+ credit
rating in 2011. They bagged the fifth position for largest exporter of wine and the tenth in
largest world wine producer.
Chile GDP is 258 billion, growth rate of 2.9%
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GDP Per Capita is $14047 (2014)
GDP contribution sector wise- 5.1% Agriculture, 41.8% industry, 53.1% Services.
Chile Inflation percentage is 3.3%
11.7% of the population is below poverty line
Unemployment rate is 6.9%
Average net salary is about $7617
Main sectors operating in Chile are Transport Equipment, Copper, Lithium,
Foodstuffs, Fish Processing, Steel, Wood products, Cement and Textiles industry.
Ease of business - ranked at 34th
Chiles External debt is $140 billion.
Chile - Demography
Population of Chile- 17,094,270
Population growth rate is 0.8%
Urban Population 89.5% of population
Life Expectancy 79.57 Years ( For males- 76.26 Years and for females- 82.96 Years)
Birth Rate 13.7births/1000 Population
Death Rate 6.1deaths/1000 Population
Chile population growth rate is very low and large number of the population live in urban
areas
Environmental analysis
Social
For the young population the unemployment rate has decreased and the country with the
largest amount of informal labour in Latin America and Caribbean. Seasonal and casual
workers especially women are working under dangerous conditions without the basic labour
rights.
Political/legal
National Congress of Chile has approved a new law to reduce business incorporation costs to
zero, set up an online registration option thus reducing the time frame for any business
operation. Chiles economic reform was strengthened when democratic government took
over. The MSCI Emerging markets (EM) Latin America Index is used to represent large and
mid-cap representation across five emerging markets in Latin America.
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Comparing returns of the cumulative MSCI Emerging Markets Index
Infrastructure, natural resources and industry scenario
Infrastructure
A robust project pipeline across, transport, social infrastructure, residential, water and energy
supports our positive outlook for construction sector in Chile.
Natural resources
Chile is the worlds largest Copper producer. CODELCO which is largest copper company in
the world once told that Chile still has enough copper for another 200 years. It also has the
world's largest deposits of nitrate. It also has abundant timber, precious metals, nitrates, iron
ore, molybdenum, hydropower are other natural resources.
Industry scenario
In 2015 Chile experienced an economic slowdown of 2.5%. Fall in international copper
prices was the main reason behind this. Industrial and service sectors, together contribute
more than 96% of GDP. Those industries are copper, coal and nitrate industries manufactured
products like agro-food processing. In construction sector growth Chile government is highly
supportive and through public-private partnerships it created an open investment environment
Swot analysis
STRENGTHS WEAKNESSES
Market oriented economy-high level of Volatile stock markets but they offer high
foreign trade. returns.
Reputation for strong financial institutions Cost of living is high.
and sound policy. Cost of property going high.
High level of exports. Short of low cost fuel, produces no oil and gas
Strong and transparent financial system. on its own.
Strong base of natural resources. Difficult to get approval on new energy
More number of bilateral, regional trade projects.
agreements. Affected by corruption scandals and illicit
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financing of election campaigns.
Agricultural production accounts for less than
50% of their domestic needs.
OPPORTUNITIES THREATS
Entering the real estate market. High dependence on exports on copper.
Focus on faster delivery of goods and Risk of emerging foreign exchange volatility.
services.
Invest in people other than the mining sector.
Implement a package which stimulates
public investments.
Set up LNG terminals.
Market suggestions for investment
Agricultural sector
An open economy: The agricultural sector exports has increased to US $16,000
million and it accounts to 21% of total exports of the country.
Geographic benefits: The location of Chile and South Americas gives way for
counter-season supply especially in the main northern hemisphere markets.
Natural conditions: The 4300 Km coastline gives an atmosphere for aquaculture
especially salmon. Chile is 2nd largest producer of salmon in the world.
International markets: The products of Chile are spread all over the world.
Fruit farming, meat, diary, wine.
Real estate
As the land is more in Chile compared to Hong Kong and Singapore, the demand for real
estate sector is likely to increase.
Mode of entry to Chile market: One of the best ways to enter the market is through the
iShares MSCI Chile Capped ETF (ECH) or the local know how positioned in the country can
be of use for the company looking for businesses in the country. For an accountant or a
lawyer it would be feasible to get accredited in Chile and then start their business.
.
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COLOMBIA
Macroeconomic Data
Economic Indicators 2011 2012 2013 2014 2015
Population, in million 46.1 46.7 47.2 47.9 48.3
GDP per capita (USD) 7286 7932 8060 7940 6044
Unemployment rate 10.8 10.4 9.7 9.1 8.9
Inflation rate 3.4 3.2 2.0 2.9 5.0
Public Debt (% of GDP) 33.3 31.8 34.8 37.8 -
Exports (USD billion) 56.8 60.2 58.9 54.9 35.8
Imports (USD billion) 51.5 56.2 56.7 61.3 51.5
Demography
The demography of a country comes with the features of ethnicity, population density, education
level, financial status, and health, religious and further aspects. Colombia is the second most
populated country in South America and third in the Latin America after Mexico and Brazil. Even
though the significance of armed conflict in the country has resulted in pushing out millions of
people from the country for four decades, Colombia has experienced a rapid growth in population.
So, Colombia is a country with a population of 49,034,411 (as of 2017 census) with the population
density of 40.74 per square kilometre. The country is rich in cultural diversity and the region
encompasses Amazon rain forest, tropical grasslands of both Caribbean and Pacific coast lines. It is
one of the 17 megadiverse countries in the world. The Colombian country is covering with the area
of 1,141,748 km (sqr). Their largest cities include Bogota with the population of 7,963,379.
Medellin with the population of 2,457,680. Cali with the population of 2,358,302.
The climate of the country can be defined as, the country is in the terms of climatic zones of below
1000 meters (3281 ft) in elevation, a hot land, where the temperatures are above 24 degree Celsius.
The official language in the country is Spanish where more than 99.2% of the population knows
Spanish and also English is an official language in some parts of the country. When it comes to
religion majority are Roman Catholic (70.9%), Protestantism (16.7%) and the rest are unaffiliated
and others. The literacy ratio is very high of 93.4%. The current age structure is divided as 0-14
years (26.7%), 16-64 years (36.6%), 65 and over (7.6%) and the sex ratio as 1.03 male(s)/female.
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SWOT ANALYSIS
Strengths Weakness
Sustained GDP growth 4.7% Logistical short come
Large population Average Literacy rate
Low-cost labour Corruption
High Foreign Direct Investment since Poverty accentuation inter-ethnic
FDI in Colombia has grown more than tension
500% since 2001
Opportunities Threat
Huge growth opportunities for Pharmaceuticals. Corruption, and unclear regulation
Huge growth opportunities for construction sector No laws pertaining of
Intelectual property theft.
Market Suggestions
Healthcare Industry
One of the major issues in Colombia is the health issues. Tropical diseases are affecting the
Colombian people as it the major cause of deaths. Diseases like Malaria affects almost 85%
of the Colombian population. Other major diseases are Yellow fever, Dengue fever etc.
Malnutrition is also a major problem especially for the children under 5 years. In this case,
establishing hospitals and pharmaceuticals companies can be beneficial. Indian has a very
good background in pharmaceuticals so they can easily enter in the Colombian market by
partnership with local companies. Establishing hospitals in the major cities will be also
beneficial and profitable.
Construction
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Colombians construction sector currently growing at 5%-7% of GDP. This sector is showing
a tremendous growth aspects because of strong rural-urban migration. Almost 70% of people
lives in cities but there is 40% housing deficit. So there is a great opportunity for the Indian
construction companies to invest and expand their business overseas. Indian companies can
collaborate with the local companies and move ahead.
Offices are to be set-up in the major cities to control the operations of the service which the
company provides. The complaint and the business processing should be outsourced and the
data will be fed in an IT server which is advised to be hired. The IT services will be
maintained by the company but the IT software and other mobile applications are to be
outsourced. The finance or the investment should be acquired by the leasing institutions
PERU
Peru, a country in western America, in the north its bordered by Colombia and Ecuador,
by Chile by the Pacific Ocean in the west. The capital city Lima is also the largest city of the
country and in the south, in the east by Brazil, by Bolivia in the southeast. The geographic
coordinates are 12 03 S, 77 03 W. The official languages spoken are Spanish, Quechua and
Aymara.
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Peru is a multicultural country consisting of a multi-ethnic society i.e. the country is home to
people coming from many different historical backgrounds. Peru has an estimated total
population of 30,147,935 as of July [Link] data says that 27.9% of the population are of
the age 0-14, 65.3% are aged between 15-64 and the rest 6.8% are above 65. The ethnic
groups are 45% Amerindian who are the majority with 45%, Mestizo with 37% Whites who
comprise of 15% and the remaining 2% by other Asians.
The country spreads across 12, 85,216 sq. km of which 12, 79,996 sq. km is land and the rest
5,220 sq. km is water. Peru has habitats ranging from the peaks of the Andes
mountains extending from the north vertically to the southeast, the tropical Amazon
Basin rainforest in the east with the Amazon River to the arid plains.
The coastal and mountainous areas of the country has a vast range of prominent mineral
resources. Some of the natural resources available in the country are silver, copper,
petroleum, iron ore, timber, fish, gold, natural gas, hydropower, potash, coal and phosphate.
The coastal waters are excellent for fishing. Peru holds the pride of being the worlds 2 nd
largest silver producing and 3rd largest copper producing country.
The 7th largest economy in Latin America is the Peruvian Economy. Its economy is led by the
service sector (telecommunications, financial and other services) which contributes to nearly
60% of the total GDP. For the past five years the economy is growing at on an average of
5.6%. The export of metals and minerals comprise of 60% of the total exports of the country.
With high demand for Perus minerals, the prices in the International market rose and hence
played a very big role in its growth rate. The exchange rate has been stable and inflation is
keeping low.
Political environment
Peru has experienced a great political change in the last 10 years because of the incrimination
of President Alberto Fujimori in [Link] reason behind impeachment is high bribery and
corruption in the government. After that the current president ollante Humla and former
presidents Alenjandro Toledo and Alan Gracia have significantly reduced the bribery,
corruption and stabilized the political climate for economic growth. In late 2015, Perus trade
volume is increased by around 172.5 %( $14,324 to $39,036 million), which made Peru a
more attracting country for Investors and it increased the Peruvian economy. Peru-United
States Trade Promotion Agreement, 2009 and free trade agreement, 2011 guaranteed Peru for
its good access to the United States and European market respectively. Which eliminated the
tax complexity in many of the industries and reduced other barriers between countries. In last
5 years they made trade agreement with Australia, china and Canada.
Economic Environment
Nuevo Sol, the Perus currency has been increasing against the dollar for the past 7 years and
in 2013 Perus government injected more than $10 billion to the private investment. In the
last decade Economy of Peru was the largest expanding economy in the Latin America. They
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could achieve an average GDP rate increase of 5.75% and in 2008 and 2009 they achieved a
growth of 8.9% & 9.8% respectively, which is same as Chinese growth. Even during the
2008-2009 recession the growth remained positive i.e 9% and then went back to 8.8%. Peru
gained recognition for ease of doing business and they have ranked 41 st in the World Bank
survey, 2012.
Social Environment
Perus democratic republic divided in to 25 regions and has a growing population rate of 1%
to 2% since 1950. Peru succeeded on some of the social problems that affect the people and
the reason is the growth of the economy and strength of government. The major success in
the last decade was reducing the poverty rate, which is down from 53% to 31%.
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Technological Environment
In Peru, investment in infrastructure is advancing in rapid rate and it enhanced the growth of
Mining and gas industries. But there is a need of high electricity because of the presence of
mining industry. The success started in 1993, when the economy is privatised and there are
more than 15 internet providers and variety of television and radio stations.
SWOT ANALYSIS
Which Indian industry will you suggest for Peru and why?
In the last decade Peru has established itself as a worlds most interesting tourism destination
and the rate of international arrivals to the country have tripled, growing from a total of
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993,706 in between January and September 2005 to 2.6 million in the same period of 2015.
The sector profit also increased from $1.2 billion in 2004 to $3.9 billion in 2013, declining
slightly to $3.8billion in 2014. First half of 2015 has seen a 7.9% rise in foreign arrivals. The
quarter of 2015 witnessed a 1.6 million visitors and it creating 1 million jobs annually
The increase growth in the tourism sector will lead to high opportunities in hotel
management. Between 2014 and 2021 more than 100 new hotel project are expected to be
develop in the country. The hotel sector definitely benefit from the growing tourism sector
and international hotels are coming to invest in Peru. For example the French group Accor,
which have 3 hotels in Peru has going to add 10 more hotels in 2017. International hotel
group JW Marriot also have good presence in the country. Currently in Peru there is no Indian
chain of hotels and resorts. Mumbai headquartered TAJ hotels and resorts have a presence in
Asia, Africa and North America and they have a good opportunity in Peru also.
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