Deluxe Household Chemicals Report on Manufacturing in Chile Political Economy of Latin America...
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Transcript of Deluxe Household Chemicals Report on Manufacturing in Chile Political Economy of Latin America...
Deluxe Household Chemicals
Report on Manufacturing in Chile
Political Economy of Latin AmericaMathias Schatt and Rob Sheldon
DHC: The Mandate
» About Deluxe Household Chemicals
» The Problem: US Manufacturing too Expensive
» The Mandate: Find an Alternative Country
» Country Criteria:» Stable Enough Macro Environment » Favorable International Trade Environment» Low-cost, Sufficiently Skilled Labor» Developed Chemical Industry» Overall Benefits Must Outweigh Logistical Costs
DHC: The Chile Report
Part I: Chile’s Macro Environment1) Nation and State2) Inflation and Foreign Exchange3) Labor Environment4) Infrastructure
Part II: Chile’s Household Chemical Industry1) Industry Landscape2) Potential Partners
Part III: DHC Logistics and Entry Strategy1) Joint Venture2) Foreign Branch & Capital Imports
3) Logistical Partners
Chile: Nation & State
» President: Ricardo Lagos Escobar
» Center-left Coalition
» Commitment to Free Market Economy
» Other Factors:» Market-oriented Economic System» Many International Trade Agreements» Few Restrictions on Foreign Investment» Small Number of State-owned Enterprises» High Domestic Savings Rate» Balanced Budget
Part I: Chile’s Macro Environment
lowest (Aug 9): 692.21
highest (Oct 11): 756.56
El dólar trepa hasta los $755
25 de Febrero de 2003
Chile: Inflation and FX
» Banco Central de Chile
» Grow Economy at Fastest Possible Pace
» Maintain Inflation level between 2-4%
» Considerable Volatility Against the US Dollar:
Part I: Chile’s Macro Environment
Chile: Labor Environment
» Unemployment Around 10%
» Relatively High Investment in Human Capital
» Good Local Education
» 48 Hour Work Week
» Lower Wages
Part I: Chile’s Macro Environment
Chile: Chem Industry
» Well-established: $578 Million in 2001
» Dominated by Large Foreign Firms
Possible Partners:
» Quimicas Reno
» Perez & Jacard
P&J is the Better Fit: Location, Size, Infrastructure, Foreign Experience
Part II: Chile’s Household Chemical Industry
DHC: Entry Strategy (A)
» Sign JV Agreement with P&J
» 3 Year Renewable Contract
» Capital Improvements and Guaranteed Orders in Exchange for DHC Ops Manager at P&J
Part III: DHC Logistics and Entry Strategy
» DHC Opens a Foreign Branch in Santiago
» Import Capital Through Decree Law 600
Terms:
» Minimum $1 Million Investment
» No Capital Repatriation for One Year
» Repatriate Profits Immediately
» Unlimited Access to FX Market
» No VAT Until Capital Improvements Done
» 42% Tax Rate Set for 10 Years
Part III: DHC Logistics and Entry Strategy
DHC: Entry Strategy (B)
DHC: Logistical Partners
Potential Partners:
» CSAV: Global Shipper
» Royal Vopak: Specialty Shipper
Royal Vopak is the Better Fit: Specializes in Chemicals, International Network, Small Shipments
Part III: DHC Logistics and Entry Strategy
Conclusion
Chile Meets the Country Criteria:» Stable Enough Macro Environment » Favorable International Trade Environment» Low-cost, Sufficiently Skilled Labor» Developed Chemical Industry» Overall Benefits Must Outweigh Logistical Costs
Main Point: The combination of Chile’s macro environment coupled with the presence of solid industrial and logistical partners makes it a good bet.