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Venezuela. Presented to: Aussie Shampoo Presented by:. Location. Mathematical Location: latitude: between 8 and 0 degrees north longitude: between 66 and 0 degrees west Situation:
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Venezuela Presented to: Aussie Shampoo Presented by:
Location • Mathematical Location: latitude: between 8 and 0 degrees north longitude: between 66 and 0 degrees west • Situation: Northern South America, bordering the Caribbean Sea and the North Atlantic Ocean, between Colombia and Guyana • Formal Region: South America • Functional Region: Caracas
Demographic Analysis • Venezuela’s life expectancy rate is high compared to Guyana and Brazil, and is even with Columbia, and the infant mortality rates are low compared to Guyana and Brazil, which shows that it has enough resources to take care of its people. In addition, literacy is the highest of the four countries, which shows the majority of people are educated and can work hard. Also, since urbanization is the highest of the four countries, you can see that Venezuela would have good infrastructure, so transportation and communication would be easier and cheaper. Venezuela has the highest rate of people in secondary industries out of the four countries, which provides already experienced factory workers. • Unfortunately, Venezuela also has a high population growth, so workers would have more children, and that requires better benefits to take care of the families. Also, the per capita GDP is higher by, on average, about $4,000 dollars than surrounding countries, so there will be higher required wages. • Overall, though, the country is developed enough to have good conditions, but not so developed that profits would be lower due to required higher wages. Money would not be saved, though, by possible benefits required for large families.
Demographic Transition Model • Venezuela is in Stage 3 of the demographic transition. This makes them perfect for industry because people are starting to move to cities and work in factories instead of on farms. Less money will have to be spent on hospital bills and health insurance for workers, because the medical revolution has diffused here and people are healthier. There are a lot of people in Venezuela from 20-54, so there will be plenty of people to work in the factory. Also, locating a factory near the market, like in Venezuela, is more productive because shampoo is a bulk gaining product, meaning it is composed of small things that are shipped in, but is bigger when it leaves, so you save on shipping if it’s nearer where it needs to be shipped to. • Venezuela’s birth rate, though is high and the death rate is low, so NIR is high. Because of urbanization, NIR starts to even out, but it is still high, so the large population would make it harder for the government to give benefits to the people. That means the employer may have to spend more money on employees so they will have enough to live.
Economic Development • In the Primary sector, people grow corn, sorghum, sugarcane, rice, bananas, vegetables, and coffee. People also raise animals for beef, pork, milk, and eggs. People fish, as well. The Secondary sector includes, construction materials, food processing, textiles steel, aluminum and motor vehicle assembly. In addition, a third of the GDP is from Petroleum. • Because Venezuela is a popular to tourists, service jobs include healthcare, education, retail trade, and transportation. • The labor distribution is perfect for factory work because the economy is not too focused on agriculture and other primary industries, but instead on manufacturing, so experienced workers will be available. And since a lot of people work in services, there will be sufficient transportation, and good retail to sell Aussie Shampoo.
Site Factors: Labor • Putting a factory in Venezuela would cut labor costs because the required minimum wage is more than $12,000 less than the required minimum wage in the US. • In addition, all health care in Venezuela is paid for by the government, through taxes, though the tax rate for a worker with minimum wage is still only about 6%, while in the US, employers can pay up to $15,000 dollars for a worker’s health insurance, and taxes are about $1675 more.
Site Factors: Land • As Venezuela is a tourist country, land in the more popular and beautiful cities is extremely expensive at $4,000,000 dollars. In contrast, land in rural areas is only $3000-4000 dollars per acre. Unfortunately, Aussie Shampoo is a bulk gaining product and would be more suited to being in urban areas to save on shipping. Construction prices have lowered since Chavez became president in Venezuela, and may go down further. Money could definitely be saved in construction in Venezuela.
Site Factors: Resources • Shampoo is made mainly of water, various fragrances, and chemicals that make up soap. Most chemicals in consumer products are actually made of corn—one of the main agricultural products in Venezuela, so money would be saved on shipping. In addition, fragrances often come from walnuts, herbs, etc., which are also grown in Venezuela. The most important ingredient, water, would not have to be shipped if the factory was located near water, so a lot of money is saved that way. Both fragrances and soap chemicals would have to be shipped. Aussie Shampoo is a bulk gaining product, so it should be located near good transportation networks, and since water is the cheapest form of transportation, another good reason for the factory to be located near the coast and Lake Maracaibo, which is also in one of Venezuela’s largest cities, opening up more forms of transportation, and a potential market.
Situation Factors • A major market near Venezuela would be the U.S. The U.S. is in Rostow’s stage of mass consumption, where consumer products are in demand, products like shampoo. The distance from Caracas, Venezuela to New York City, New York is 2125 miles or 1846 nautical miles. It takes about 2700 gallons of gas to go about 1800 nautical miles, and the average cost of gasoline around the world is three dollars per gallon. So the cost for sending one ship out would be $8100. Sending the product out over land would be more expensive because one truck carries a lot less than one ship, and one truck would cost about $700 to travel from Caracas to New York City. Venezuela is located near the sea, so shipping the shampoo over sea would save money and would be possible. But the market for Aussie Shampoo is also very wide in Venezuela itself, so at least half of the shampoo produced could be sold in the larger cities of Venezuela, saving even more on shipping.
Infrastructure Explanation Venezuela could have better infrastructure. The country doesn’t have many railways, so cheap shipping on land would be hard to come by. There also aren’t many airports, but air travel is expensive and unnecessary anyway, as shampoo doesn’t expire. As for communication, there are a lot of phone lines and cell phones in Venezuela, making communication more convenient. On the other hand, the amount of internet hosts and users is low, so phone bills may get pretty high for long distance calls to headquarters.
Social Stability • Rights: Right to private property, slavery is prohibited and freedom is a right to all people, people 18+ can vote for public office, right to religious freedom, no draft, right to a jury, and nobility are treated the same as everyone else. • Corruption levels are high in Venezuela, and have been for 150 years. A long history of dictator-presidents have lied to get in office, then increased the national debt by placing themselves above the law and stealing money from the country. The current President, Hugo Chavez, has tried to rewrite the constitution so he can be “president for life,” and has already tripled the country’s budget. (from $22,000,000,000 to $70,000,000,000) In addition, Chavez has imposed sanctions on the one TV news channel that opposes him, so there must not be a lot of freedom of speech.
Social Stability (cont.) • Political opposition in Venezuela is virtually non-existent, because President Hugo Chavez has been known to imprison people who don’t agree with him. It is also expected that the government has set up assassination attempts to mayors of major states that oppose Chavez, as two murder attempts on one mayor alone has sent him into hiding. • Despite all of this, Venezuela’s history of free and open elections has earned it the reputation of one of the more stable democracies in Latin America.
Conclusion: Benefits • Benefits: High literacy and urbanization means that experienced and intelligent workers will be available, but for cheap, as the country is not so developed. It’s a stage three country, so it is in the perfect stage for industry. Minimum wage is cheap, and all health care is provided by the government (paid by taxes) so costs will be lower for the employer. Another cost lowering factor is the construction price, which is lowering over time. Venezuela definitely has the most important ingredients for Aussie Shampoo, water and corn, so money could be saved by locating it near one of Venezuela’s many water sources and purchasing corn from farmers in Venezuela. Venezuela also has enough waterways to save money by shipping the shampoo over seas, to a nearby major market: the U.S. Venezuela would not need any investments in its infrastructure, as it has the waterways and roadways. Corporate tax rates are very low in Venezuela, so a lot of money could be saved by locating the factory there. Property taxes are not the lowest, but still not as high as the neighboring country, Brazil. Venezuela is also usually considered a stable democracy, so civil unrest will most likely not be a problem.
Conclusion: Drawbacks • The high NIR in Venezuela may make benefits cost more, as people have larger families to take care of. In addition, land is very expensive in urban areas, which are better places for the factory to be located. Communication would also be insufficient in Venezuela, as limitited internet access would cause phone service to be more expensive. Social stability is definitely not very good, with the history of dictators, corruption, and money laundering. Opposing the government is a very bad idea.
