- Business Risk Analysis: Market Risk
- Marketing tactics includes the practice of planning and conducting transactions into Argentina in order to create interactions that satisfy the objectives of the organization and Argentina. There is some ambiguity about the risk impact entering into the Argentinean market. When entering into an international market, a corporation has to take into consideration the organizations and individuals affected directly or indirectly by economic and political developments that occur in the international market. However, equally importance must be given to the socio-cultural factors when developing marketing strategies. To ease this risk, strategies will be evaluated as needed for its focus on eliminating the remaining market barriers. The periodic evaluations of the marketing strategies should be successful if the following questions are answered:
- How will the product continuously fit into the Argentinean market?
- What marketing adjustments are or will be necessary?
- What threat from global competition should be expected?
- How can these threats be turned into opportunities?
- Marketing U.S. products and services in Argentina requires a higher level of research, preparation, and involvement than marketing products domestically. A primary source used in the research will be The U.S. Commercial Service in Buenos Aires, which prepares Industrial Sector Analysis (ISA), and other market research reports on an ongoing basis. The U.S. Commercial Service in Buenos Aires puts forward a Flexible Market Research (FMR). The research can be customized to answer detailed questions such as: the overall marketability of a product or service; market trends and size, customary distribution and promotion practices; market entry requirements; regulations; product standards and registration; key competitors, and potential agents, distributors, or strategic partners. (U.S. & Foreign Commercial Service, 2003) The cost of marketing campaigns will be sized on the basis of the expected benefits to ensure that the marketing strategies will be economically practical.
- Legal Environment: Argentina’s Legal Culture
- The legal culture of Argentina is changing. Written contracts where almost non-existent in pre-globalization Argentina. Contracts were verbal and accepted as the norm owing to the philosophy that a man’s word was bonding. Even to this day, verbal contracts are accepted but due to the complexities of exchanging technology and trade processes, written contracts are necessary.
- Also, gone is the era of restrictive tariffs and cutthroat competition between neighboring trade partners and other nations seeking to do business in Argentina. This began with the foundation of MERCOSUR.
“Since 1995 full members trade almost all items with no duties, and have established a common external tariff scheme. Associate members enjoy trade preferences and are gradually converging towards full member status” (Author not cited, 2000, p.1).
- In times before intense globalization property ownership by foreigners was prohibited. This has also changed. “Foreign and domestic investors have free and equal rights to establish and own businesses, or to acquire and dispose of interests in businesses without discrimination. Secured interests in property, including mortgages, are recognized and common in Argentina. Such interests can be easily and effectively registered. They also can be readily bought and sold” (Author not cited, 2002, p.3).
- Other practices that were the business norm have changed as well. Among these changes are patent-right, trademarks and trade processes that are now better protected. The phrase “better protected” is used because Argentina still needs some progress in this area. “Argentina has no specific law on trade secrets, although penalties for unauthorized revelation of secrets are applied to a limited degree under commercial law” (Author not cited, 2002, p.3).
- Argentina is making huge steps to encourage FDI. Their currency (Argentinean Peso) is relatively stable due mostly to the fact that its central bank is in control of setting its value. “Under the Convertibility Law of 1991, the Central Bank of Argentina maintains the value of the Argentine Peso at one-to-one parity with the U.S. dollar in free market conditions. Legislation enacted in June 2001 calls for a move to back the Peso with the Dollar and the Euro (value equal to the arithmetic average of the two currencies), but only after the Euro reaches parity with the American dollar” (p.3).
- Repatriation of invested funds has also been provided for in legislation by Argentina’s legislature. In accordance with Article 3 of Decree 1853/93, foreign investors may, at any time, repatriate capital and remit earnings abroad. (P.3) Decree 1853 has also removed all restraints on foreign investment. Foreign entities may own 100 percent of Argentine companies and may repatriate capital and remit profits back to the home country without limit. In general Argentine laws, regulations, and policies do not interfere at all with foreign investment. Finally, another factor that in times past has been of major concern to foreign investors was expropriation or nationalization of investments or facilities. Argentina has entered into agreements with trading nations providing that this practice will not take place. The Argentine Government has not resorted to expropriation in recent years. Article 4 of the U.S. - Argentina Bilateral Investment Agreement states that investments shall not be expropriated or nationalized except for public purpose upon payment of prompt fair-market value compensation. (Author not cited, 2000, p.1).
- Trade Barriers
- Poverty is perhaps the greatest trade barrier in doing business in
Argentina. Reports indicate that between 51% and 57% of the population of Argentina is considered to be living below the poverty level.
- Economic insecurity has been a barrier to foreign trade. The economic crisis of early 2002, which lead to the Government of Argentina (GOA) freezing bank accounts in an effort to reduce pressure on the peso, which was trading at a rate of 1:1 with the US Dollar, undermined the financial base for much foreign investment in the country at that time. The GOA’s subsequent default on its foreign debt further destabilized the economy.
- Legal uncertainties with creditors, contracts, and property rights diminished the attractiveness of Argentina for foreign investment.
- The end of the 1:1 convertibility of the peso to the US Dollar and the imposition of capital controls by Argentina created another trade barrier.
- Pacification of bank accounts, loans, and contracts that had been denominated in US Dollars further barriers to US trade with Argentina.
- A ban on contracts indexed to foreign inflation indexes, a freeze on foreclosures, and substitution of indexation in some cases to inflation, and in other cases to wage growth created further barriers to trade.
- Lack of shared and integrated economic policies with members of MERCORSUR (customs union) also creates trade barriers for trading with Argentina. Although MERCORSUR provides a framework for Argentina’s revamped international free trade policy, economic policies that conflict with MERCORSUR’s other members, especially Brazil severely limits opportunities that would otherwise exist.
- Trade Support
- Argentina through its membership in MERCORSUR is an active member of Free Trade Area of the America’s (FTAA), MERCORSUR-US “Four Plus One” program encouraging trade related issues through Argentina-US Bilateral Counsel for Trade and Investment (BCTI).
- Through MERCORSUR Argentina continues to pursue active trade with the European Union and Mexico. Appreciation of the Euro will likely help Argentina’s access to the European Union market.
- Protection of intellectual property has been a support to new opportunities for trade with Argentina; books, film, software, trademarks and patent protection is available although enforcement of violations is uneven.
- Argentina has improved its distribution channels and has established a system of distributors who will assume the risk of sales of products to third parties, reducing risk to the exporter. US Commercial Services (CSBA) is an organization that assists in matching export products with Argentine distributors.
- Argentina’s Customs Code Law 22,415 provides basic legislation to govern import and export activities. GOA has eliminated most tariff barriers as well as non-tariff barriers to free trade activity with very few exceptions. The automotive and defense industry still have GOA protections in place.
- Argentina’s Tax Rate
- The calculated tax rate across the Latin American Region has separate implications. Each country within the region sets its own individual country tax rate across the region. Each country acts independently with a different tax rate for individuals within the perspective countries and corporate taxation levels. The tax year is determined and set on an annual cycle that runs from January to December. (Author not cited, 1999, pg. 1).
- According to the HR & Tax Alert (Author not cited, 2004, pg. 1), The following is a sample of several individual tax rates that currently apply to the perspective countries within the Latin American region:
- Argentina - 6 to35 percent
- Brazil - 20 percent with a ceiling
- Chile - 5 to 40 percent
- Ecuador - on a graduated system
- The tax rate for corporate industries has a separate tax rate according to the same sources (Author not cited, 2004. pg. 1).
- Argentina - 30 to 35 percent
- Brazil - 10 to 34 percent
- Chile - 17 percent
- Ecuador - 25 percent
- The Tax Year
- The Federal Government must set taxation. No organization or individual has the freedom from tax liabilities. Though the Government sets the tax rate in the country, it does not solely have all the rights to complete power over the country’s tax system. “The National Constitution divides the power to impose taxes between the Federal Government and the Provinces” (Author not cited, 1999, Pg. 1).
- The Federal Government has the power to inflict taxes on most taxes paid within Argentina today. It imposes the following taxes:
Income Tax
Value Added Tax
Personal Assets Tax
Excise Taxes
Custom Duties
All income is taxed in Argentina and there is no distinction for business or Individuals. “The Income Tax Law of Argentina has a principle of worldwide taxation” (Author not cited.1999 Pg1).
References
Author Not Cited, 2004, HR & Tax Alert, The Ernest &Young Human Capital HR & Tax Alerts Newsletter. Retrieved on November 30, 2004 from http://www.pardine.us/worldtax/countriesAF.html
Author Not Cited, 1999, Taxation in Argentina, Principles of Taxation in Argentina. Retrieved on November 30, 2004 from http://www.horcdan.com.ar/taxation/tax_comp.htm
Author not cited, 2000, FindLaw, Business Entities and Formation (Argentina). Retrieved from the web on November 29, 2004. http://www.invertir.com/argentina/investment.html
Author not cited, 2002, International Trade Administration, U.S. Dept. of
Commerce, Country Commercial Guide FY2002: Argentina. Retrieved on November 29, 2004 from http://www.world-digest.com/Guides/ar/
Author Unknown (n.d.) Investment Risk Analysis of Argentina. Retrieved December 4, 2004 from http://www.researchandmarkets.com/reports/74412/74412.htm
PRS Group (2003). Argentina Country Conditions Investment Climate
Political Risk Services. Retrieved December 4, 2004 from
http://www.invertir.com/argentina/c05-57.html
U.S. & Foreign Commercial Service (2002) Argentina Country Commercial Guide FY 2003 Retrieved December 3, 2004 from http://www.exporthotline.com/upload/B63C5546-A835-4773-84D2-57F78F8E8F04.html
