MNC Analysis: Venezuela
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MNC Analysis: Venezuela
- 1. MNC ANALYSIS Venezuela Mark, Mike, Zaneta, Will
- 2. Labor Force • Agriculture: 7.3% • ( Corn, Sugarcane, Rice, Vegetables, etc.) • Industry: 21.8% • (Petroleum, Textiles, Steel, etc.) • Services: 70.9% • ( Public services, Electric, Maids, etc.)
- 3. Exports/Imports • Main Imports: Agricultural products, Raw materials, Machinery, medical equipment and chemicals. • Main Exports: Petroleum, Aluminum, Minerals, Basic manufactures.
- 4. Exports/Imports Cont. • 40% of Venezuelan exports go to the United States. • 10.5% of exports go to China • 95% of export earnings are oil
- 5. Unemployment/Poverty • In 2011 Venezuela’s unemployment rate was 8.2% • In 2011 the World’s average unemployment rate was 8.5% • Although unemployment is lower than average, 27.4% of Venezuelans live below the poverty line.
- 6. GDP • GDP is approximately $12,700. U.S. dollars per capita. • Earning a higher yearly wage than 12,700 would require obtaining a high-stress job in the capital of Caracas • Lately, minimum wages have been risen in order to boost the economy; causing a 28% inflation rate in Venezuela.
- 7. Overview of AES • • • • Founded January 28, 1981 AES originally stood for Applied Energy Services One of the worlds largest power companies In 2010 total revenue was 16.6 Billion U.S. Dollars
- 8. AES’s Entrance into Venezuela • • • • AES purchases Electricidad de Caracas in 2001 Controlled 14% of the electricity consumed in Venezuela Supplied 1 million customers in Caracas Company was fully staffed, inserted CFO Andres Gluski (Venezuelan)
- 9. Reason for purchase • • • • AES saw Venezuela as a market saturated with talent Also saw potential growth from the economy Lower income families could provide a large customer base Applied same strategies to Sal Palo Eclectic company and a Cameron Electric company
- 10. Marketing and Production • • • • • Negotiated initial prices with regulators upon acquisition. Production of Electricity in five main plants All coal Fired plants Had a production capability of 2,616 megawatts AES refereed to Electricidad de Carcass as ECD
- 11. Human Resources • Venezuelan’s who were in place before Chavez proved to be extremely well qualified • Almost all had transferable skills around the world • American companies saw this as a reason to invest • Chavez fired many of these employee’s who fled to other MNCs
- 12. Exit strategy • In 2005 AES began to apply it’s exit strategy to the Venezuelan market • To diversify its investor base they offered stock on the Venezuelan stock exchange • One year later they applied the same tactic and sold stock on the Spanish Stock exchange. • When PDVSA became nationalized sped up plan
- 13. Cont.. • As AES sold stock also began to move essential personal out of Venezuela and into other countries • This included Andres Gluski, who is now the current CEO of AES • Once Verizon lost its investment AES went to the government to negotiate their sale • Sold company to PDVSA of 739 billion US dollars
- 14. Intro to PepsiCo • US Conglomerate • Formed in 1902 • 300,000 employees worldwide • Distributed to over 200 countries • Net revenue 43.3 billion • Entered VZ in 1939 • VZ headquarters: Caracas
- 15. Marketing http://www.youtube.com/watch?v=tEmLedmcTVo • A marketing push in 1969 gained PepsiCo the majority • That majority was greatest in 1985 when Pepsi controlled 85% of the Venezuelan soft drink market • Currently PepsiCo reaches its VZ consumers by promoting blackberry giveaways, music contests, and baseball. • Additionally Pepsi recently marketed the Miss Venezuela pageant on its soda cans.
- 17. VZ vs. US Pepsi Products
- 18. Venezuela’s Food & Drink Risk/Reward Rating • Venezuela is ranked 11th and thus last in BMI’s Risk/Reward Ratings matrix for the main markets of Latin America. • The country’s composite score is just 41.6, well below the average for the region. • Both foreign and domestic companies face a number of challenges in Venezuela’s food and drinks marketplace
- 19. Top 3 in VZ Drink Market Empresas Polar is the VZ company that PepsiCo has a partnership with.
- 20. Pros and Cons for Pepsi in VZ • Sales of alcohol and soft drinks are expanding rapidly, driven by increased consumer spending in recent years. • High per capita consumption of coffee, beer and soft drinks. • Since 2003, the food and drink industry has endured price controls introduced by the government at the retail level, as well as from agreements on guaranteed prices for primary producers, with both measures endangering margins. • Foreign investors are likely to remain cautious about entering the Venezuelan market until the political situation stabilizes and the business environment improves. • Bolívar devaluation will continue to undermine companies
- 22. References • Jay Kloosterboer, Executive Vice-President of Business Excellence ( At the time) • "Venezuela and Verizon Reach Deal." Los Angeles Times. Los Angeles Times, 13 Feb. 2007. Web. 13 Nov. 2012. http://www.latimes.com/ • "AES to Collect USD 98.6 Million in Profits from Electricidad De Caracas." EL Universal. N.p., 1 Mar. 2007. Web. 13 Nov. 2012. <http://www.eluniversal.com/2007/03/01/en_eco_art_01A84 0179.shtml>. • Venezuela food & drink report - Q1 2012. (2012). (). London, United Kingdom, London: Business Monitor International.
Notas do Editor
- The Labor Force in Venezuela consists of 7.3% of working Venezuelans employed in Agriculture, 21.8% employed in Industry (Auto, textile, machinery) and 70.9% are employed by the service industry. Agriculture is a fading industry because of how little income it produces. Agriculture has very little imports or exports compared to other industries in Venezuela. Petroleum is the main export of Venezuela, many workers work for close to minimum wage in factories. 70% of the employed work in the services industry where wages are mainly low. This is how the labor is Divided in Venezuela.
- The main imports of Venezuela are Agricultural products, raw materials, machinery, medical equipment and chemicals. Venezuela imports and exports agricultural goods but transform the raw materials into finished products. Machinery and chemicals are used to turn these imported raw products into finished products. The main exports of the Venezuelan economy are Petroleum, aluminum, Minerals and basic manufactures. Venezuela relies heavily on the revenue from the petroleum exports, in fact it is 95% of Venezuela’s export revenue making most of the other exports irrelevant.
- 40% of Venezuelan exports go to the United States(Oil) and about 10 and a half% goes to China. Venezuela gets about the same percentage back in imports from the before mentioned countries. Hugo Chavez has almost all of the control of the imports and exports coming in and out of the country, he is very anti-American but does business with America when it comes to petroleum.
- Venezuela’s unemployment rate is surprising lower than the world’s average unemployment rate at an acceptable 8.2% . Although many people are working in Venezuela it is for a very low income. In fact 27.4% of Venezuelans live in poverty. Mostly everyone in Venezuela, outside the capital of Caracas is living in poverty, simply because the money isn't there, it is going into Chavez’s national fund. Many Venezuelan’s care about social status more than the money they make a year. i.e. buying blackberry’s for $400 instead of saving what they earn or buying a cheaper phone.
- The average yearly salary for a normal Venezuelan individual is $12,700 dollars a year. This is per capita. Persons who obtain higher wages than this usually work in high-stress, high-level jobs in the city or high-end areas of Venezuela. Chavez, knowing that people make very little a year, has recently raised minimum wages, thus causing very high inflation. 28% inflation rate has caused many problems with the Venezuelan economy, especially with the prices of average goods. The yearly wages in Venezuela are obviously too low for a family to live comfortably and prices are going up in the economy
- AES was founded in 1981 as Applied Energy Services by Roger Sant. AES is a Fortune 200 company. It is one of the worlds largest energy companies. It controls power companies around the world. Has 8 main subsidiaries: AES Eletropaulo, AES Energy Storage ,AES Gener, AES Solar, AES Wind Generation, DPL Inc., Indianapolis Power & Light Company, Premier Power. In 2010 it had a total revenue of 16.6 Billion U.S. dollars. The CEO of the Company at the time was Paul Hanrahan.
- In 2001 AES saw Venezuela as an emerging market and invested in the market. To do this they purchased one of the largest electric companies in Venezuela, Electricidad de Caracas. The company came fully staffed. AES determined that those in charge of the company were extremely well qualified and had done an exceptional job running the company. By buying the company it immediately gave AES a recognizable name in the country and gave them legitimacy. Andres Gluski is a Venezuelan national he knew the country and how things worked. By putting him in such a high position the company was able to keep their legitimacy because it had handed a significant amount of power to a national.
- When AES entered the Venezuelan market they saw it as an emerging economy. The Employees of Electricidad de Carcass as highly motivated and highly educated people. At the time AES was implementing a strategy of buying electric companies in emerging economies. They also bought power companies in Sal Palo and Cameron. They saw the lower income families as their main customer base. This market did involve some risk but AES saw it as a limited risk.
- When AES originally bought Electricidad de Carcass they were able to negociateinitally prices with government regulators. This limited the economic risk. Because AES was able to predict there profits at first.
- All of the people employed before Chavez came to power were extremely capable and had transferable skills around the world. After Chavez took over he began to fire many of these people as they opposed him and though outside the box. Most of the people Chavez has replaced them with are not able to hold nearly as high of standard.
- In 2005 AES began to implement its exit strategy for the Venezuelan market. They began to see a need to exit of the market because of Hugo Chavez’s rise to power and his desire to nationalize foreign companies. Two years before the official sale of the company AES held a stock offering on the Venezuelan stock exchange. One year later they did the same thing on the Spanish stock exchange. They did this to diversify their investor base. By doing so they gained barging power over the government.
- When PDVSA was acquired by the government, AES began to accelerate their exit strategy. AES did this by starting to pull essential personal out of Venezuela and put them into foreign subsidiaries. This included the CFO they installed Andres Gluski, who is now the current CEO of AES. In February of 2007 the Venezuelan government purchased NacionalTelefonos de Venezuela a subsidiary of Verizon. After the take over of Verizon, AES approached a deal to sell ECD to the oil giant PDVSA who is owned by the Venezuelan government. AES walked away with 739 billion US dollars.
- PepsiCo is a Us Conglomerate that was formed in 1902. It employs nearly 300 thousand worldwide, and distributes its product to over 200 countries. This past year, 2011, PepsiCo brought in a whopping 43.4 billion in net revenue. The company entered the Venezuelan market in 1939, establishing its headquarters in the capital city, Caracas.
- PepsiCo has used creative marketing to reach potential consumers. Currently, they are promoting free blackberry giveaways won through codes on their products. This is a smart marketing campaign because, as we learned from our ELS partners, blackberries are worshiped in Venezuela. Venezuelans would go without food to have a blackberry.
- A comparison of the different drinks offered in the US and VZ. From this list one can see how PepsiCo has tailored their product line to suit the taste of its local consumer in VZ. This includes the use of the same brand name as the American product, or a more localized product name.
- Venezuela is ranked 11th and thus last in BMI’s Risk/Reward Ratings matrix for the main markets of Latin America. The country’s composite score is just 41.6, well below the average for the region. Both foreign and domestic companies face a number of challenges in Venezuela’s food and drinks marketplace. Venezuela’s Country Reward rating is very low owing to the economy’s reliance, to a large degree, on the oil sector. In addition, Venezuela’s population size is slightly below the regional average, and GDP per capita is comparatively low.Chávez has made nationalization of food production a priority and introduced price caps for many basic food products. These policies currently make Venezuela a very unattractive place for food and drink companies to do business, and our risk ratings are unlikely to improve until a new leader is given a mandate to reverse them.
- Empresas Polar is the company which PepsiCo works through in Venezuela, after PepsiCo acquired it in 1941. As you can see by the numbers, the company has a gross majority of the market in its favor. It brought in over 3 billion in sales, 2 billion more to its closest competitor, which is not Coca-Cola.
- There are several pros and cons that PepsiCo, and any other foreign firm, must take into account with business affairs in Venezuela. The pros of the Venezuelan market for beverages is that the sales of beverages have expanded rapidly because of the rise in consumer spending in recent years. Additionally, there is a high per capita consumption of beverages. On the contrary, there are cons to the beverage industry. This includes the price restrictions placed upon the food and beverage industry by Chavez. With this, the intentional currency devaluation by the government, may urge firms to wait until more political stability.