The Argentinean Market - Report Example

International Marketing Report of Argentina ID Word count. 789 Introduction This report aims to provide a broad evaluationof the Argentinean market and lists some of the main factors a multinational company should take into account when deciding if to enter it. It will analyze the current position of the Argentinean economy and some key indicators. Argentina is slowly recovering from the 2001 financial crisis, and is an attractive market in the Latin American region context, this report recommends caution. Openness to trade is low; current economic policies are somewhat protectionist and the political environment is not reassuring. 2.Discussion of relevant economic and marketing factors. 2.1 Economy The economy is the large set of inter-related economic production and consumption activities that provide information and direction on how scarce resources are allocated. (Investopedia, 2010) 2.1.1 Openness to trade Openness in trade refers to the level at which countries or economies allow or have trade with other nations or economies. The trading activities include import and export, foreign direct investment (FDI), borrowing and lending, and repatriation of funds abroad. In general open economies provide greater market opportunities; on the other hand they also face greater competition from businesses based in other countries. Argentina, in the context of the Latin American region is certainly open to foreign investment. Nevertheless, the climate has degraded since the 1990s, when free market policies attracted significant foreign investment. (Bulmer-Thomas 2003). Since the crisis of 2001, the financial base of foreign investment has been undermined. There also exists some uncertainty around the issues of contract, creditor and property rights. (Benson, 2007) Controls on inward, and outward, investments are also in place and must be taken into account. The current period of uncertainty has marred the attractiveness of Argentina for foreign investors. However, some investment confidence can be obtained from the fact that Argentina has various bilateral trade agreements and an Overseas Private Investment Corporation (OPIC), and a program with the U.S Export-Inport Bank. These factors provide Australian businesses the assurance that international law will be applied, and that Argentina has the economic mechanisms in place to provide the business environment required for international trade. 2.1.2Consumer Confidence Consumer confidence is a measure of the optimism consumers feel about the shape the economy is in and their personal financial situation. This is index is obtained by extensive use of surveys of a countrys households. In Argentina this index dropped to 34 from 41 in March of 2010. This indicator is generally high when unemployment is low and the GDP is high. It is used as an indicator of the direction the economy is taking. The Argentinean unemployment rate is 8.5%, relatively low for the Latin American region which accounts for the relatively high consumer confidence. A high consumer confidence is a sign for Australian business that an economy is growing and that the population is open to new products and services. 2.1.3 GDP annual growth rate. GDP, stands for Gross Domestic Product. It is a basic financial measure of a countrys total economic output. It is defined by the total market value of all goods and services produced in a country in a year. The Argentinean economy increased its production by by 2.6% last year. The countrys Gross Domestic Product is $328 billion dollars (USD), the GDP per capita is $7,508 (USD) The Argentinean GDP annual growth rate is dropping; the rates of 2009 and 2008 were 4.1% and 9.1% respectively. However, Argentina has had the second largest GDP in Latin America for several years. Australian businesses should look carefully at the economic indicators of Argentinas recovery. Although the last years have been encouraging the recovery is slowing down and caution must be shown as a return to 2001 inflation levels and negative GDP growth are still a clear possibility. 2.2 Political Environment The political environment includes all laws, government agencies, and lobbying groups that influence or restrict individuals or organizations in the society. (Allbusiness, 2010) The political environment of a country is determined among many other factors by its stability, party structure, independence of the judiciary and perceived corruption levels. There have been various scandals and mishandling of protests and riots, which has drained the presidents popularity. Stop and go signals on the payment of outstanding debt to Paris Club (a group of the financial officials of the 19 wealthiest countries) and private lenders have done little to improve her image abroad. The political insecurity in Argentina is not a good sign for Australian businesses. The current economic growth is strongly linked to the political context of Argentina that could easily bounce back to the 2001-2003 financial crisis years. The current political context is also fraught with heterodox economic and political measures that do not encourage large business investment. 2.3 Social Factors Social factors of a country include aspects of education, health, religion, ethnicity, family structure and other although hard to quantify economically have a large impact on the economy. (Papaioannou 2007) Argentina has a large middle class, extremely high (+97%) literacy levels, and a long life expectancy. Australian businesses that invest in Argentina can therefore expect to find skilled workers, and a large base of middle class consumer. These factors are positive for service based companies that are looking for qualified workers and substantial consumer demand. A large middle class increases the base of consumers available to a market, and high literacy levels indicate the availability of a high quality workforce. 3. Conclusion: The current political and economic situation of Argentina requires international investors to be cautious. Argentina is still fighting to recover from a severe crisis and the political atmosphere does not inspire confidence. However it has one of the highest GDP levels in Latin America, a large middle class, extremely high literacy levels, and a relatively high consumer confidence. All of these factors make it an attractive option for a multinational company that wants a strong foothold in the Latin American region. I therefore recommend that Australian companies consider investing in Argentina, but with extreme caution. This is a market for established companies that have strong financial backing, and can afford the risk of investing in a large and promising market that is nonetheless, currently unstable. References Cavallo, Eduardo A. & Frankel, Jeffrey A., 2008. "Does openness to trade make countries more vulnerable to sudden stops, or less? Using gravity to establish causality," Journal of International Money and Finance, Elsevier, vol. 27(8), pages 1430-1452, December. Elias Papaioannou a,, Gregorios Siourounis 2007. Economic and social factors driving the third wave of democratization Journal of Comparative Economics 36 (2008) 365–387 Allbusiness Business Glossary, 2010  Sullivan, Arthur; Steven M. Sheffrin (1996). Economics: Principles in action. Upper Saddle River, New Jersey 074589: Pearson Prentice Hall. pp. 57, 305. ISBN 0-13-063085-3. Drew Benson (2009-02-13). "Argentina Unlikely to Pay Back Paris Club During Global Slump". Bloomberg. Retrieved 2009-05-26. Bulmer-Thomas, Victor. The Economic History of Latin America since Independence (New York: Cambridge University Press). 2003.  Thayer Watkins, San José State University Department of Economics, "Gross Domestic Product from the Transactions Table for an Economy" Concepts and Methods of the United States National Income and Product Accounts, chap. 2. Read More