Doing Business in Argentina

Doing Business in Argentina Argentina has a stable political structure and the government is working on developing economy. I would choose to produce and sell solar panels in Argentina through Joint Venture with an Argentina company, which is one of the Investment Entry Mode. And I would send 1 in sales, 2 engineers, 1 accountant, 1 in shipping, 3 technicians, and 2 managers. Market reasons: Firstly, Argentina has enriched solar resource. “Argentina’s eastern plains and north western regions are ideal for solar PV development.

However, only 10 MW of solar has been installed in Argentina to date, making it a huge untapped resource” (Grotz, Decundo and Ernst and Young). It indicates that the potential market for solar panels is huge. In addition, the efficient of solar energy is the most concern factor of solar panels, “solar energy installations began as simple contraptions in Latin America but are increasingly led by technologically advanced providers deploying sophisticated equipment and expertise that makes foreign participation almost indispensable” (Solar Daily).

And has the best electronics package on the market; it is a great opportunity for my product to take a major part of market share in Argentina. Secondly, solar energy is one of the major renewable energy that Argentine government trying to develop. Argentina is the third-largest economy in Latin America, and one of the emerging markets around the world. However, the shortage in electricity is the major obstacle of the development. “Electricity demand continues to grow steadily in the country and forecasts suggest an ongoing annual increase of 6%.

Estimates indicate that an additional 1 GW of new generation capacity per annum will be necessary to satisfy this growing demand” (Grotz, Decundo and Ernst and Young). To solve the problem, Argentine government not only passed a law to ensure that “8% of electricity demand should be generated by renewable sources by 2016”, but also developed the GENREN program to “contract at least 1GW of renewable energy capacity” (Grotz, Decundo and Ernst and Young). And 20 Mw of electricity are supposed to be converted by solar energy.

With the encouraging and supporting of Argentine government, it is the best timing to introduce my product into the renewable energy industry. Why Joint Venture? The very first concern is from the company’s interest. Since $5,000,000 has been spent in developing the electronics package and assembly machine, I need to reduce the costs of entering the new foreign market as much as possible. Through Joint Venture, I can access to existing resources that the local company has in Argentina; it takes less time for my company to get familiar with the market and actual start my business.

. Also, the advantages I have are the core technology of the business, human resource to train workers and jobs; all I need is the local facility and less required workforce. I will send 3 technicians to Argentina to train limited workers before hand and license my patents to the local company for a limited time. On one hand the business is able to operate smoothly once it started. On the other hand, given the fact that, Argentina is a country with high uncertainty avoidance, it shows my willingness of cooperating with the local company.

Also, it’s necessary to sign a very detailed contract with the local company. What’s more, Argentina has a high Human Development Index and ranked 45th among 187 countries (UNDP). Therefore, it will not take much time in training workers. Secondly, it helps my company to form a local image. Argentina is an achievement oriented country, with a local company entering the market; it reduces the effect of unfamiliarity. In the mean time, since Argentina is a multi-culture country, when dealing with culture issue, a local company can provide support and reduce risks that due to unfamiliar of the culture.

The most important is that, a local image represents local interests. The argument among nationalizing YPF S. A. , the oil and gas company owned by the Spanish energy giant Repsol (Romero), is the hottest issue recently. One reason for Argentine government to take over YPF S. A. is that “YPF, hasn’t produced enough to keep up with Argentina’s rapidly growing economy…the company’s proven reserves of oil and gas have also fallen substantially over the past few years” (Weisbrot). From Argentine government’s point of view, it means YPF S. A. somehow did not represent the country’s interests. When corporate interests are not aligned with national interests, when companies are concerned only with profits, that’s when economies fail, which is what happened globally in 2008 and what happened to Argentina in 2001” (Bronstein). In this case, it is crucial to form a local image in Argentina and being less foreign. Thirdly, it reduces the political risks in Argentina. IMF claims that there is no nationalization trend in South America despite the moves in Argentina, “it’s a very diverse region and we would not call what we are seeing a trend” (Palmer).

However, always being aware of potential political risks in Argentina is good to prepare ahead and reduce the loss as much as possible. Through Joint Venture, if a wide range of nationalization happens, it would reduce my loss of investing in establishing facility and share the risks with the local company. In addition, it allows me to be able to get involved into the relationship between the local company and local government. Fourthly, my company needs to get into the industry as soon as possible.

Since Argentina is a FDI favorable country and renewable energy industry is hot, it is a highly competitive industry currently. “Argentina attracted US$743m (€546m) in clean energy investment in 2010, ranking it 16th among G 20 members. Its five-year growth rate for clean energy investment is 115% which places it second among the G 20” (Grotz, Decundo and Ernst and Young). As for solar energy, there are already some big companies involve in, like Sequel Power and Onyx Service and Solutions, Inc. , they admitted that “South America is a tremendous growth region for utility-scale solar energy projects” (Solar Daily).

Not to mention when the EU begins to focus on the industry, “the EU is the biggest foreign investor in Argentina, accounting for about half of the FDI in Argentina with EU’s investment stocks worth € 44. 1 billion in 2008 and  important investments in areas such as telecoms, automotive or energy” (European Commission), the competition would be drastic. At that time, the key point to win the battle would focus on technology. Through Joint Venture, not only my company would provide the latest technology in the U. S. , but also the local company is able to distribute the competitive product to local market in time.

Fifthly, through Joint Venture, it would be easier to send money back to the U. S. The financial issue would be the biggest problem to do business in Argentina. Due to the crisis in 2001, “Argentina defaulted on its bonds and has since had difficulty accessing the international credit market”; therefore, even though Argentine government is trying to develop renewable energy, “A lack of support for project development from financial institutions continues to be a barrier to renewable energy development in the country” (Grotz, Decundo and Ernst and Young).

Without subsidiary from government, it is harder to develop a new company in a new industry. Therefore, the financial plan should be made in detail and carefully. The restriction on money transaction is tightened in Argentina; huge amount of money need to go through the Central Bank to transfer to outside of Argentina. It would be easier for Argentina residents to do so. Argentina has placed trade barriers, like limits on payment of import services, to protect local industry and its trade surplus.

And “the critics described the policy as ‘unbefitting any WTO member’ and ‘particularly troubling’ because they limit the growth-enhancing prospects for trade” (Miles). Also, the labor cost is much cheaper in Argentina than the U. S. , thus, I decided not to import products from the U. S. to Argentina, but to produce it locally. Last but not least, through Joint Venture, I am able to know the cost of living in Argentina, and provide my employees a reasonable salary while working in there.

And the local company can assist my employees to get used to the life in Argentina; it will allow them to feel less culture shock. I will keep their positions in the U. S. , and ask the first group of employees that go to Argentina to share their experiences in the help of next group of people to make full preparation. As the company in Argentina should be long-term, and I would like everyone in my company has the chance to work there, if I could. In this case, the coordination among the U.

S. company and Argentine company will be better. One group of 10 employees in Argentina is fixed. And technicians are the most important, it needs 3 employees; 2 engineers are able to develop our products suitable for Argentine circumstance; 1 in sales, 1 accountant, 1 in shipping, and 2 managers would be enough to cooperate with the local company. All in all, considering the market factor and the business environment in Argentina, I would like to sell and produce my electronic package.

I already have competitive advantage in my product, through Joint Venture; it enables my business to develop smoothly and steadily in such a foreign market. Works Cited Bronstein, Hugh. Hugh Bronstein. 4 May 2012. 4 May 2012 <http://articles. chicagotribune. com/2012-05-04/news/sns-rt-us-argentina-ypfbre8421gv-20120503_1_argentina-risks-ypf-spain-s-repsol>. European Commission. Argentina. 18 April 2012. 3 May 2012 <http://ec. europa. eu/trade/creating-opportunities/bilateral-relations/