Argentina and Its Economy - Term Paper Example

 Argentina and Its Economy Argentina is the second largest and most populous country in South America; the nation’s landscape is varied, from large metropolitan cities to fertile Pampas of the south and west which are rich in agricultural and livestock husbandry practices, respectively, that support the population. Buenos Aires, the nation’s capital city has a population of more than 14 million people, who are enjoying a metropolitan lifestyle. This nation is a viable market for our company’s range of vehicle production as the metropolitan cities’ population presents a sizeable potential market for our company’s line of sophisticated cars and motorcycles series, while the rural south and west provide a market for farming machinery such as tractors and combined harvesters. Most of the city’s population comprises of youth between the ages of 17 to 40 who form the majority of our target market in any environment because their high income levels produce high purchasing power (Brown, 1999). We note that the nation’s economy has a high nominal GDP per capita which provides for a high purchasing power of its citizens, which is suitable for our entrance into the market. Moreover, the nation boasts of the latest technology in infrastructure, in the world. The land, air and water transportation systems are well developed, even in the rural areas. This will enable safe and effective transportation of our exported vehicles to and within this nation. In addition, the country’s proximity to the Atlantic Ocean presents an added advantage in transporting the exports to our customer(s). Argentina has some of the biggest and busiest ports and harbors in the world, these include Port of Mar del Plata, Port Belgrano and Port of San Antonio Oeste. All of these ports are located on the Atlantic Ocean, making shipping exports to the country our most effective option. Moreover, Buenos Aires serves as a key distribution hub for the South American continent thereby expanding our company’s market potential (Brown, 1999). Customs requirements in Argentina are different among different groups, such as citizens, diplomats and visitors. Seeing that our potential buyer is a resident of Argentina not only owns a national car dealership business, but Diplomatic Franchise as well; he is also involved in importing cars for his diplomatic clients. We should, therefore, meet the requirements of exporting diplomatic and conventional vehicles. Argentinian customs requirements for exportation of diplomatic vehicle maintain that any person importing diplomatic cars must be licensed by the Ministry of Foreign Affairs; I have confirmed our potential client’s registration with the ministry, so this will not be a hindrance in doing business with him. The ministry is also mandated with ensuring that all imported diplomatic vehicles are brand new or less than 5 years old. Argentinian laws also require that the vehicles and all its documentation should be under the importer’s name; therefore, we must ensure that all the documentation pertaining the vehicle's registration is done under our client’s name. The requirements further stipulate that the vehicles should be shipped into the country six months after the arrival of the importer; thus, we cannot export vehicles to the nation if our client is out of the country. Moreover, the Argentinean government requires that the importer owns an original passport and at least two original bills of lading; he should also possess the original vehicle(s) purchase invoice and have the property title registered in his name. Vehicle taxation in Argentina is based on the Cost Insurance and freight (CIF) values of the vehicles. The rates are 80% of the CIF for conventional vehicles, 100% for diesel cars and 65% for motorcycles. Importation of vehicles that do not have local equivalents in Argentina attracts quotas to limit importation and encourage purchasing of locally manufactured vehicles (Rock, 2001). On the other hand, the UK customs requirements for exportation of vehicles require all old vehicles exported from the UK be registered with the Driver and Vehicle Licensing Agency (DVLA), in its place we will receive a Certificate of Permanent Export (V561) as proof of registration. Exportation of new vehicles, however, must meet the direct export criteria which require that any new vehicle exported from the UK should not have been used on the UK roads, so our company will not be required to a vehicle tax or the first registration fee. Once our customer in Argentina receives the vehicles exported, signed duplicate copies of the direct export certificate (the V308) must be returned to the local DVLA offices for record keeping. All importation and exportation documents that are not in Spanish must always be translated by an official Argentinean translator, certified by the Argentine College of Translators (Rock, 2001). The Argentinean government enacted foreign exchange controls in 2001 by imposing various restrictions on cross-border transfers and foreign trade. These restrictions manage the country’s economic policies which the government views as tools to increase the nation’s dollar reserves in the Argentinean Central bank and limit capital flight to other nations. All sales and purchases and cross-border transfers from Argentina must be done through a licensed Argentine financial organization or foreign exchange house. The rates used in these exchanges are controlled by market forces, although we note that the Argentine central Bank has the right to buy and sell foreign currency. The government policies require that Argentinean residents sell for Pesos all currency proceeds from non-Argentine residents. This means that foreign financing is subject to an annual mandatory deposit in U.S Dollars with a local financial institution. However, we note that there are exemptions to this rule such as international trade financings and loans from multilateral credit companies. Such loans must be repaid one year after disbursal to the Argentinean, therefore, in case our client acquires a credit facility from one of these institutions for the vehicle payment, but is unable to repay the loan within one year, the vehicles are liable for repossession (Rock, 2001). In foreign trade, the Argentinean policies require an Argentinean to bring and sell goods for Pesos in the Argentine market. Argentinian cannot, therefore, buy foreign currency to make payments of transactions without permission from the Central Bank. UK, foreign policies, on the other hand, do not impose any foreign exchange controls; thus, we are free to transact in as much foreign exchange as we wish. As a member of the EU, there are no controls in transferring or receiving money from foreign nations. However, fluctuations in foreign exchange rates present a high risk in the exportation front. It is, therefore, crucial for our company to watch closely the exchange rates before pricing our products to limit exposure to losses. The policies also provide for taxation of all proceeds from foreign trade through taxes. In addition to such risks, the company is faced with non-payment risks from our clients especially new customers such as the proposed Argentine consumer. In order to limit our exposure to such risks, the company should implement measures aimed at safeguarding itself and ensuring all its operations remain profitable. For instance, the company should insure all exports with a viable insurance company that guarantees returns in case of non-payment. Although the cost of such insurance is expensive, it is effective in reducing the company’s exposure. Moreover, contract terms such as payment for order should be implemented into the sales and importation department. This will ensure that no exportation or sales are made before the products are fully paid for; thus, ensuring no exposure to non-payment after goods have been delivered. However, this terms may be reviewed once the company becomes well acquainted a client. Terms such as easy monthly payments encourage a client to pay, as the costs are lower than one time payments. However, such a payment scheme should be charged an added interest to protect the company against loss of income in the slow payments. Moreover, the inclusion, in the sale contract documents, a stipulation that all cost, freight and insurance costs of the exported vehicles are met by the client and not the company. This will reduce exposure to added costs and control non-paid amounts in case of default. The terms of sale should also include the company’s mandate to repossess all vehicles that have not been fully paid for by the time of contract expiry. This will encourage clients to make regular payments as required by the contract. Physical movement of our vehicles to the Argentine market is facilitated by Argentina’s proximity to the Atlantic Ocean. It is, therefore, easier to transport the products via water transportation systems to the country. The Argentine Ports Authority requires all ships transporting goods into the nation have valid permits. On arrival in the ports of Argentina, railway transportation is the most viable option in transporting the exported vehicle to our client’s outlets. The Argentine railway system is quite sophisticated with over five rail freight carriers operating in the nation; they include Nuevo Central Argentino, Ferroexpreso Pampeano, Ferrosur Roca, América Latina Logística and Belgrano Cargas. These freight service providers offer competitive rates in railway transport. Railway cargo transportation in Argentina requires that the products being transported are registered under an Argentine national. Passes are required to ensure free movement of goods along the nation’s railways system. The company should, therefore, ensure that all original import and export documents accompany the products. The country also has a vast array of cargo trucks that deliver goods to all designated points. These trucks may be used in the delivery of the exported vehicles to the customer’s outlets. Such trucks are not only affordable, but also effective in product delivery as they promise timely delivery and safe transportation of products within the country, both in the urban and rural areas. While the nation’s distribution systems are quite effective, it is necessary for us to obtain tracking numbers for all forms of transport, especially the shipping process which takes more than three months before the goods arrive at Argentina. In addition, river transportation is widely used in the country. However, the various rivers that connect Uruguay and Buenos Aires require the use of ferries, which effectively transport cargo within the country and its neighboring nations, (Lewis, 2000). High speed ferries ensure timely delivery of cargo to the designated points within the nation. Marketing our company’s products are critical in ensuring high product sales in any market. Marketing methodologies determine the final prices of goods; thus, the company should employ relatively cheap methodologies. The company may choose to market its products through the internet. This is referred to as e marketing for the company employs the services of the internet system to educate and inform potential clients on its products. The internet is a viable marketing methodology as it is cheap and highly effective as it reaches potential customers all over the world. Here, the company can display its products to the markets and include the product prices and purchasing procedures. Direct and indirect exporting can also be employed in marketing the company’s products. In direct exportation, the company markets its products to the foreign market on its own behalf. This will give the company control over its brand in the foreign market and regulate its operations in the market. Indirect exportation, on the other hand, employs the services of an exporting company to handle exportation to the foreign nation. Under piggybacking, the company could use marketing and distribution systems used by existing companies in Argentina. Moreover, Export Management Houses (EMHs) are well versed in the country’s marketing strategies, thus, could be employed to manage the marketing of our company’s products. Forming consortia, on the other hand, can help our company market its products. This is through grouping together to develop and market related products produced by different companies and nations (Naresh, 2005). Licensing as a form of marketing methodology can also be employed by the company. This involves franchising, Turnkey contracts and contract manufacturing. Franchising will involve our organisation providing or receiving expertise and branding concepts to and from other companies to facilitate operations. Turnkey contracts, on the other hand, refer to strategies for the company builds plants in the foreign country and deploys qualified personnel to manage it. Contract manufacturing will encourage other companies in Argentina to use our brand and technology in developing its products, and we, in turn, receive royalties for this use. International agents and distributors can also be used in marketing the company’s products. These agents are companies that could be employed to market products on our behalf; they are low-cost methods of marketing in foreign nations as they take a percentage of the total sales. It is paramount that the contract with any international agents allows the company to reacquire direct control of our products when dissatisfied with their services. International distributors will take ownership of our products; thus, they have an incentive to effectively market our company’s products as they are subject to profit from them. Joint ventures with key players in the motor vehicle industry in Argentina will enhance our company’s marketing strategy as it will be introduced to the best markets and gain essential information in the sector. The company may also consider owning an overseas manufacturing plant as a viable form of marketing itself in the foreign nation. The company may choose to build a new company or purchase an already existing one and rebrand it. This will serve to bring the company’s products closer to the foreign market and tailor make products suit the preferences of the new market (Naresh, 2005). References  Naresh K. M. 2005. Review of Marketing Research: Special Issue - Marketing Legends. UK: Emerald Group Publishing.  Lewis, P. (2000) The Argentine Capitalism. University of North Carolina Press. Rock, D. (2001). Argentina: 1516–1998. London: Oxford University Press. Brown, J. (1999). A Socioeconomic History of Argentina. Cambridge: Cambridge University Press. Read More