Trade with Bolivia - Risks and Impacts

Research: New Operations in Bolivia

Report and Recommendation to Fonterra Company

First Name: Sergio

Family Name: Dantas de Souza

Lecturer: Jacob Kettoula

Introduction – Who we are? Fonterra is a multinational company New Zealander originated from South Island of the country. It has been working over the last 140 years produced 22 billion litres of milk per year. It is collected each year and sharing it with the world. (Fonterra, 2014).

Exportation is the most important business in the company. Over 95% of the production is designated to trade international market, including Asia, South Africa and Oceania. (Fonterra, 2014). Our business is based on sourcing secure, high quality milk and unlocking it has natural goodness in ways that add real value to our customers and consumers around the world. (Fonterra, 2014). The main product

Fonterra has been producing condensed milk to the national and overseas market.

Condensed milk is essentially evaporated milk with sugar added. The milk is then canned for consumer consumption and commercial use in baking, ice cream processing, and candy manufacture. (How products are made, 2014) A new research was enquired from our international marketing department to explore a new market in the South America. This research must indicate which country shows the best conditions to stars a new market, included aspects as political, economic, cultural, technological, competitive, physical and demographic environments.

The selected country was Bolivia. Follow below the aspects, risks and comments about this country.

Aspects

1 – Political/Legal First of all, Bolivia has a turbulent political and legal background in his history. Popular revolutions, military governments, dictatorship and populism and finally the democratic experiment are deep marks in his history. A historical register made for James Dunkerley, mainly about the democratic experiment brings some important information.

“Twenty four months dedicated to the establishment of constitutional government saw no less than three elections, six presidents, three coups, that succeeded and twice as many that failed to get off the ground, a notable worsening of the economic crisis and increasing polarization between the forces of left and right.” (Dunkerley, 1980).

The current President of Bolivia is Evo Morales, since 22 January of 2006. He has used property confiscation and nationalization to redistribute wealth. A new constitution has expanded executive power and given the state greater control of key natural resources and industries, including gas and electricity. Re-elected in 2009 with 64 percent of the vote, Morales promised to move Bolivia toward communitarian socialism. (World Diplomacy, 2013)

“Both foreign and local private investment have dropped, and approximately half of Bolivia’s people still live in poverty. Nearly 60 percent of working arrangements are informal, and drug trafficking has increased.” (Index of Economic Freedom, 2014).

What is possible to see in Evo Morales’s government is a fervent trend to keep the legal power in his hands and to keep the country in the same economic situation for long time.

Comments

The political history of Bolivia has indicated a strong trend to socialism parties and it still brings some dictatorship and populism way to lead the country. Even though the new national policies are indicating an open market and increase the interest in trade international relations, some actions are showing a turbulent political background, including instability and possibilities to great changes.

The democracy system is questionable and the international relations are relatively recent in the Bolivia’s history. It brings a high risk to legal and political relations to international business. 2 – Economic

Since the 2005 Bolivia has been decreasing its economic freedom. Before it was increasing moderately, however the Evo Morales’s government brings certain instability to the freedom international market. High commodity prices have driven recent strong economic growth, but long-term economic development remains constrained by institutional shortcomings. (Freedom House, 2014).

However, Bolivia recorded the highest growth rate in South America during the 2009. The recent years show us a moderate economic increasing, but some sectors has been affected for political conflicts and social groups interests.

Comments

Bolivia has brought an instable economic, even though it has increasing since 2009, however another neighbors countries as Brazil, Peru and Chile has increasing their economy faster. It is totally clear that the political background and the Evo Morales’s government has practiced strong influence in the economy of the country.

These aspects are quite relevant and bring together an important recommendation to avoid heavy investments in commercial relations with that country.

3 – Culture 3.1 – Food

The typical diet is abundant in carbohydrates but deficient in other food categories. In the highlands, the potato is very important base to the typical dish. The Bolivia’s people have been cultivating dozens of varieties. The grains are the second important resource follows of maize, legumes and especially the broad bean. Favorite national delicacies include guinea pig (also consumed during important ceremonial occasions) and deep-fried pork. Meals are served with hot pepper sauces. There are few food taboos, and almost all animal parts are eaten, although reptiles are not consumed. (Every Culture, 2014) In cities and towns, the early-morning meal usually consists of coffee and tea served with bread. In the countryside, breakfast sometimes consists of toasted ground cereals with cheese and tea, followed by a thick soup. The major meal is lunch.

A large number of desserts are made with milk and chocolate. Also, many recipes use different types of products like evaporated milk and condensed milk in their “dulce de leche” and “manjar de leche”. (Every Culture, 2014). Comments

The government has supported the milk production with programs to increase the production and consumption of milk and cheese. It shows us a great market to explore because the Bolivians already have the culture of consumption of milk and they used to prepare large numbers of desserts using condensed milk.

On the other hand, this aspect brings a competitive market because the national productions are receiving from the government a large investment since 2013. It can create high level of competitive and difficulty establishing trade agreement between the company and the Bolivian government.

3.2 –Identification Bolivia is named after Simón Bolívar, a leader in the nineteenth-century wars of independence against Spain. The national culture is a mix of Hispanic and pre-Hispanic elements with three cultural traditions: Quechua, centered in the highlands, Spanish or Hispanic derived from the cultural heritage of the conquering Spaniards and several dozen small Amazonian ethnic groups in the eastern lowlands. (Every Culture, 2014). Comments

This multicultural background is a positive aspect because the results are a country with open mind to foreign investment and products. This is because the Spanish culture and Quechua, both are consumers of milk and cheese. Is not necessary insert a new habit to introduce the product to the population.

4 – Technological Aspects Bolivia does not have a massive story of investment in science and technology in comparison with the South America countries. However it has changed recently. The principal regional mechanism to develop science and technology was a forum in Cartagena in 1996. This forum starts a Plan of Action for addressing priorities and coordinating the investments in science and technology cooperation. Since this decision a program was created and it resulted in a large technological developing in a country.

“According to The Global Information Technology Report 2013, prepared by the World Economic Forum, Bolivia ranks number 119 of 144 in technological development.” (Bolivian Thoughts in an Emerging World, 2013).

This study above is very important cause collects survey data and statistics from each country in four main areas: regulatory aspects and companies, access, infrastructure, and digital content; the use of individuals, institutions and companies; and finally the social and economic impact in development. Comments

Despite of the historical of less investment in the technological area during the ages, Bolivia has changed his history and the last decades have been different. It shows us a scene of a country in developing technology but for some actions it will not be enough to count as ideal for businesses. A possible solution would be the Fonterra brings contribution to the technological development of the country, adding knowledge and funds for this development.

5 – Competitive

Bolivia has a large number of sheep and cattle. Despite a growing production of beef and milk the country is a net importer of both commodities.

The trade market between the countries of South America has increased. The National Cooperative of Milk Producers from Uruguay was the main exporter of dairy products in Latin America in 2006, included business with Bolivia.

Nationals companies as Gloria Group from Peru has consolidated his operation with Bolivian Companies to produce dairy products, mainly the milk and it’s derivatives. In December 2004, the Gloria Group acquired 100% of the shares of stock of the Bolivian company Algarra S.A. The company processes long life milk, whole milk and milk cream under the trademarks Algarra, under license agreement. (Gloria Group, 2014).

Comments

Two markets show very competitive in the production and distribution of dairy products such as milk, the national Bolivian market and the Latin America.

As already mentioned, the Bolivian government has invested in the growth of the national production of milk and meat. It creates high risk for trade relations export. Furthermore, the countries that are geographically close have easy and inexpensive access to establish trade relations.

6 – Physical and Natural Aspects Bolivia has borders with Brazil, Peru and Chile on the west and Argentina and Paraguay on the south. The capital of the country is La Paz with an altitude of 3,630 meters. It is the highest administrative capital city in the world. The Lake Titicaca has an altitude of 3,822 meters and it is the highest commercially navigable body of water in the world. (Every Culture, 2014). Two of every three Bolivians live in the highlands or, as they call, the Altiplano, which has an average elevation of about 3,650 meters. Temperatures on the Altiplano are cool, with little seasonal variation but with strong contrasts between night and day. During the winter (June, July, and August, exactly the same that New Zealand), the thermometer may drop to freezing, but snow is not common because the winters are dry. Strong winds that sweep down from the icy peaks of the Andes make the season uncomfortable. The rains begin in November and last through February, often bringing serious landslides, especially in La Paz where much of the working population lives on the slopes of the valley that surrounds the city. (Every Culture, 2014).

The common cattle in Bolivia is the Dutch breed that adopt best to cold climates and in the highlands. However production is still affected by pests. The technology currently adopted in Bolivia is still insufficient to solve this problem.

Comments

Bolivia already has a massive farmer industry, specifically in livestock and milk production. It can decrease the interest and the opening from the government to international market.

On the other hand, the fact of Bolivia does not have technology enough to solve your questions about pests and a massive production it can be an advantage to offer solutions and to create a great space to negotiations between the company and the local government.

Furthermore, even though New Zealand does not provide such high altitudes as Bolivia, winter and temperatures are very similar which does not require massive research to invest in the production of milk.

7 – Demographic environments

Bolivia has been predominantly rural, with most of its Quechuas living in highland communities. The 1992 census confirmed that 80 percent of the people live in the highlands and noted increasing rural to urban migration. (Every Culture, 2014).

Spanish is the most speak language by the population, over the 60 percent of the population. However, the Spanish, Quechua, Aymara, Guarani languages, as well as 34 other native languages are the official language of Bolivia. (Sublet, 1999).

The predominant religion is Christian which comes from the Spanish influence.

As in all Latin America, Bolivia is also growing migration to urban centers each year. The fastest-growing urban centers include Cochabamba, Santa Cruz, and La Paz, which account for over a third of the population. A low population density of fifteen inhabitants per square mile is paralleled by a young, fast-growing population (over 41 percent less than fifteen years old). (Every Culture, 2014).

Comments

The country still faces social problems with high level of unemployment and low wages. The population has migrated to the urban centers but it does not means that the life conditions are getting better.

Demographic scene does not present a very promising consumer market.

Possible actions to manage the risks

First of all, the political environment is quite instable in Bolivia. The democracy is questionable and it can bring a large barrier to the international relations. However, we can see it as an opportunity to start a new relation with the country, helping the Bolivian government to understand all economic advantages that an agreement so may bring to both countries. Historically these international agreements in Bolivia were not relevant until now. It points to a new and fertile field to be explored.

The recommendation is the Fonterra should hire native professionals from Bolivia to integrate and to help the team to understand better the culture. It will help the team to find the best approach to start the conversation with the Bolivian government.

Secondly, another important risk to manage is the competitive aspects. The research shows us that the national and the Latin America markets constitute a strong opponent to be faced.

The recommendation is offer to the national market a more advantageous partnership they have with South American companies. Probably the initial investment wll be larger than in a common international trade market, however it will show great advantage in the future.

One opportunity to be explored is the Bolivia is the poorest country among the countries that maintain partnership. It results better deals for the richer countries. If we offer more fair and profitable agreements for Bolivia, that help carry out our partnership.

Finally, we have to consider that the country still face a great social problem. The economy is instable and they have a high level of poverty and unemployment.

Again, to change it the Fonterra should invest one high amount with social programs which could include professional education, social development and to create better opportunities to the Bolivians. However the results will take time to happen.

Final Recommendations

After this research was very evident that Bolivia has two contradictory characteristics. The social problem, political background and high competitive market show us one difficult market to be explored.

On the other hand, because Bolivia is the poorest country between the South America countries that it maintain partnership, if the Fonterra could establish a consistent international relation it can brings new opportunities to increase another partnership in that continent. In this case, Bolivia will be an experiment and relatively cheap investment for future partnership.

The research points to high level of risks, however also includes a huge potential to be explored. Our final recommendation is to start the process of diplomacy with the Bolivian government and study the best terms of trade relation being offered for this country.

References

1. Demographics of Bolivia. (2014). Wikipedia – The Free Encyclopedia. Retrieved from http://www.en.wikipedia.org/wiki/Demographics_of_Bolivia

2. Dunkerley, J. (1980). Bolivia: Coup d’Etat. London, England: Latin America Bureau.

3. Every Culture. (2014). Countries and their cultures – Bolivia. Retrieved from http://www.everyculture.com/A-Bo/Bolivia.html

4. Fonterra, Daily for Life. (2014). About Fonterra – Company Overview. Retrieved from http://www.fonterra.com/global/en/About/Company+Overview

5. Freedom House. (2014). Countries at the Crossroads – Bolivia. Retrieved from http://www.freedomhouse.org/report/countries-rossroads/2007/bolivia#.U54uRmQ7Jdg

6. Grupo Gloria. (2014). History of the Gloria Group. Retrieved from http://www.grupogloria.com/historiaE.html

7. How Products are Made. (2014). Evaporated and Condensed Milk. Retrieved from http://www.madehow.com/Volume-6/Evaporated-and-Condensed-Milk.html

8. Index of Economic Freedom. (2014). The Heritage Foundation. Retrieved from http://www.heritage.org/index/country/bolivia

9. Sublet. (1999). Bolivian Information. Retrieved from http://www.sublet.com/information/bolivia.asp

11. Technological backwardness in Bolivia. (2013). Bolivian Thoughts in an Emerging World. Retrieved from http://bolivianthoughts.com/2013/05/06/technological-backwardness-in-bolivia/
12. World Diplomacy. (2013). President of Bolivia. Retrieved from http://www.worlddiplomacy.org/Countries/Bolivia/LeaderBol/Morales1.html