EXPORT MARKET TO VENEZUELA
Venezuela:A Ripe Market for Food Products
Venezuela is thesixth largest economy in South America in terms of its physical size.The country is one of the major oil producers in the region and itseconomy is subsequently pegged to this oil trade. It has enjoyed arelatively positive balance of trade in the past where its exportshave been more than its imports, courtesy of the petroleum business.The state is, however, facing hard economic times due to the plungein global oil prices. There are numerous consequences that havearisen due to the problems that the nation faces. The high level ofinflation in the Latin American country has pushed the prices offoodstuffs in the country to unsustainable levels. There is thus agreat need for cheaper food products in the country.
Venezuela is aLatin American country that is located between Colombia, Brazil andGuyana. It also borders the Caribbean and North Atlantic Sea to thenorth. The country has an area of about 912,050 square kilometerswith 30,000 of this being in the seas (CIA, 2016). It is the sixthlargest country in South America and is comprised of a population ofabout 30 million people. The country was previously run by militaryoperations but has recently changed to a democratic state with thepresident as its head of state (CIA, 2016). Its current president isNicolas Maduro who was elected in 2013 through presidential electionsunder the United Socialist Party of Venezuela. Its economy is veryreliant on oil which is comprises of almost all of its exports andmore than half of the revenue that the government generates (CIA,2016). The falling oil prices since 2014 made a contraction of 10% inits GDP with the rates of inflation reaching to about 275%. One ofthe significant implications of this was a shortage of consumerproducts. The company imports a wide array of products fromagricultural produce, technology systems, construction materials andpharmaceutical products among others (CIA, 2016). China, Brazil, andColumbia are some of its principal import partners. Its primarycurrency is bolivars, but there are multiple restrictions on theexchange of currency, especially the dollar.
A look atVenezuela`s economic situation asserts that it is a ripe market forthe export of food products. The skyrocketing of food prices in thecountry makes it difficult for most to manufacture or access theseproducts. The Venezuelan population consists mostly of middle to apoor class community, making it wise to sell cheaper food products(Ferreira et al., 2012). The high rates of inflation in the countrymake it impossible for most of the population to access foodstuffs.This opportunity makes the export of food into the region a viablebusiness idea that may be profitable in the long run.
The preferredexporting channel is an indirect one, through the use ofintermediaries who do market research and get the clients for theproducts. This method will be useful in the initial stages of thebusiness but a more direct approach will be suitable in the future.The use of a direct approach where the company is involved in allaspects of the trade is challenging, but it is also the mostrewarding. The firm will engage in market research, planning,distribution of the product to the other country and collection ofpayments. The rewards for this channel includes a higher return, amore direct control over the trade, the ability to maintain ties withthe market and to learn from the challenges in order to become morecompetitive.
There is littlecompetition in the country and this may help to increase the sales ofthe business` products. Furthermore, there is a shortage of foodcommodities in the country, and the available competitors have beenunable to satisfy the needs of the market. According to BBC (2016),there is sufficient food in the capital, Caracas, but the growinginflation has continued to push these prices upwards making it moreinaccessible to most of the people.
One of theprimary reasons for investing in the country is the high demand forfoodstuffs in the region. Venezuela is facing one of the worstshortages of commodities and services in the world due to the poorstate of their economy. The country is confronted with a severefinancial crisis despite being a leading oil producer in the world.This dependence on oil as the key export product and the largestsource of revenue for the government is the primary cause of theeconomic woes that the country is facing (Hasse, 2016). Oil, in thecountry, accounts for about 95% of the total country`s exports andabout 40% of the state`s source of revenue. The dip in oil prices dueto an increase in supply has led to high inflation rates that theWorld Bank predicts will reach 700% during the year (Dhukaran, 2016).The high inflation has increased the demands for products in thecountry as most people are unable to afford them. The inability toproduce these goods has increased their prices, making it difficultfor a majority of the residents to buy food products (Mansilla,2016). The government has intervened through various ways such asallocating shopping days but it still does not guarantee theavailability of food supplies. According to Hasse (2016), there is amalnutrition rate of about 25 % of the population meaning there is ahigh demand for foodstuffs.
Thelegislations in the country are also conducive for exporting foodproducts in the region. A report by HoetPelaez Castillo &Duque (2011) asserts that the government does not place anyrestrictions on goods coming into the country but only requireslicenses for certain commodities. These include foodstuffs whichrequire a hygiene license to show the proper handling of foodproducts. PWC (2014) posits that is common for foreign companies tohire the services of custom agents. The customs agencies are firmsand individuals who take care of all the importing procedures anddocumentation for other enterprises. The legislation in Venezuelarelies on written codes and decrees made by the government, making itvery flexible in nature. The government may regularly adjust thelevel of imports coming in the country by deciding to raise or lowertariffs. This is often done through a decree by the president, andmay also be used to foster the products in a particular industry thatthe government feels are essential or to curb the flow of goods thatthe state feels are unnecessary luxuries (PWC, 2014). Informationcontaining policies on each product`s tariffs is contained in the"Arancel de Aduanas" or the Venezuelan Customs TariffsGuide.
The low level of competition in the country is also an attractivefactor that may prompt one to invest in the country. According toCIA (2016), price controls in the country, regulation of issuingdollars to businesses and individuals and rigid labor laws are someof the factors that have forced multinational enterprises to limit orshut their operations. Most of the companies that have set upgreenfield and foreign direct investments in the region have exitedthe country due to some of these challenges. An export channel isthus more likely to succeed as there is little contact with themarket and some of the challenge they bring. The reduction incompetition makes the country a good export option.
Venezuela is anoil rich country that is facing economic challenges due to itsoverreliance on the petroleum trade. The downward shift in globalcrude oil prices has had significant implications on the economy andpopulation of the state. It is a democratic country comprising ofabout 30 million people. Some scholars define it as a country underdictatorship due to the state`s involvement in every aspect of thecountry including business. The exportation of food products in thecountry is a viable business due to the numerous reasons given. Thehigh demand for goods and services in the country is the first reasonfor investing in the sector. The nation continues to experiencesevere food shortages and giving an alternative for cheaperfoodstuffs would help alleviate the situation. The policies andlegislation on imports and exports in the country are also suitablefor businesses that seek to explore these options. Furthermore, thereis little competition as many businesses have closed shop afterrunning into problems. These factors make Venezuela a ripe market forthe export of food commodities.
BBC, (2016). Venezuela: The most expensive Nutella in the world?– BBC News. BBC News. Retrieved 16 September 2016, fromhttp://www.bbc.com/news/world-latin-america-37342801.
CIA. (2016). The World Factbook — Central IntelligenceAgency. Cia.gov. Retrieved 16 September 2016, fromhttps://www.cia.gov/library/publications/the-world-factbook/geos/ve.html.
Dhukaran, M, (2016), CARIBBEAN ECONOMIC REPORT, Venezuela: TheResource Curse at its Finest, RBC Caribbean.
Ferreira, F. H., Messina, J., Rigolini, J., López-Calva, L. F.,Lugo, M. A., Vakis, R., &Ló, L. F. (2012). Economicmobility and the rise of the Latin American middle class. WorldBank Publications.
Hasse, J. (2016). Debunking Myths About the Crisis In Venezuela:An Insider`s Perspective. venezuelanalysis.com. Retrieved 16September 2016, from https://venezuelanalysis.com/analysis/12100.
HoetPelaez Castillo & Duque, (2011) A Guide to Doing Businessin Venezuela, Lex Mundi, Caracas, Venezuela.
Mansilla, D. (2016). Venezuela and the International Crisis. InLatin America after the Financial Crisis (pp. 193-227). PalgraveMacmillan US.
PWC. (2014), Doing Business in Venezuela,PricewaterhouseCoopers, Accessed fromhttps://www.pwc.com/ve/es/publicaciones/assets/pwc-venezuela-master.pdf.