Transcript Oakland University International IT Venezuela Country Presentation

Oakland University
International IT
Country Presentation
Venezuela
Team Members:
Leonard Babajan
Walter Cooke
Terry Johnson
Srimala Pai
October 4, 2005
Venezuela
Flat World
South America
60% of the population lives in the
coastal and Andean region
Capital
Low lands
Andes
Coastal Range
Orinoco Basin
Orinoc
o River
with Llanos
Grass covered plains
Guiana
Highlands
Silicon
Valley
40% 0f the
population is
in the 8
major cities
Great rain
forests
Only 1.5 % of
the population
lives south of
the river
Name of Venezuela
In the picture you can see houses
over the water, in the
Sinamaica lagoon (Zulia state),
close to Maracaibo. When the
first explorers arrived, those
houses reminded them of the
city of Venice. That is why they
called the region "Little
Venice", which in Spanish
would be Venezuela
Venezuela
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Country (long form) Bolivarian Republic of Venezuela
Federal Nation with 23 states and 1 federal District
Capital Caracas
Major cities Maracaibo, Valencia, Barquisimeto
Total Area 352,144.47 sq mi
912,050.00 sq km
(slightly more than twice the size of California)
Population 24.7 million (2004 est.) 87% is urban
Estimated Population in 2050 37,106,394
Life Expectancy 70.29 male, 76.56 female (2001 est.)
Weather tropical, hot, humid; more moderate in
highlands
Venezuela Time = GMT- 4
Economic Picture
• highly dependent on the petroleum sector, accounting for
roughly one-third of GDP, around 80% of export earnings, and
over half of government operating revenues.
• A disastrous two-month national oil strike from December 2002
to February 2003, temporarily halted economic activity.
• The economy remained in depression in 2003, declining by
9.2% after an 8.9% fall in 2002.
• Despite continued domestic instability, output recovered
strongly in 2004, aided by high oil prices. Both inflation and
unemployment remain fundamental problems
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Currency 1 bolivar (Bs) = 100 centimos
1 US Dollar = 2,148.30 Venezuelan Bolivar
GDP/PPP (2004 est.): $115 billion; per capita $4,400.
Real growth rate: 16.8%. For 2004 and estimated to grow by 6.0
percent in 2005 and 4.1 in 2006
• Gini coefficient: 0.618 (2003)
• Inflation: 22.4%. (2004)
Economic Picture (cont.)
• Labor force: 12.25 million (2004 est.)
agriculture 13%, industry 23%, services 64% (1997
est.)
Unemployment: 17.1%.
• Industry petroleum( 25%of GDP), iron ore mining,
construction materials, food processing, textiles, steel,
aluminum, motor vehicle assembly
• Manufacturing (21.5% of GDP): Types--iron and steel,
paper products, aluminum, textiles, transport equipment,
consumer products, and petroleum refining
• Agriculture(5% of GDP) corn, sorghum, sugarcane,
rice, bananas, vegetables, coffee; beef, pork, milk, eggs;
fish
Economic Picture (cont.)
• Arable Land 4%
• Natural resources: petroleum, natural gas, iron
ore, gold, bauxite, other minerals, hydropower,
diamonds.
Venezuela
contains some
of the
• Exports: $41.0
billion
(2004):
petroleum ($34
largest oil and natural gas
reserves
in the world. It steel, chemicals,
B), bauxite and
aluminum,
consistently ranks as one the top
suppliers of U.S. oil
imports andmanufactures.
agricultural products,
basic
is among the top ten crude oil
producers in the
world
• Imports: $15.8 billion
(2004):
raw materials,
machinery and equipment, transport equipment,
construction materials.
• Major trading partners: U.S., Netherlands
Antilles, Dominican Republic, Colombia, Brazil,
Mexico (2003).
Socio-cultural Picture
• Languages Spanish (official), numerous indigenous dialects
• Literacy 91.1% total, 91.8% male, 90.3% female (1995 est.)
• Religions nominally Roman Catholic 96%, Protestant 2%, other 2%
• Ethnic groups Most Venezuelans are of European: Spanish, Italian,
Portuguese, Arab, German, Indigenous, and African descent
• Popular Drink: Beer, Rum, and Scotch whiskey
• Popular Food: Arepas: a type of round cornmeal bread
• Popular Music: Salsa and Merengue
Business culture
• Punctuality is expected on business and social
occasions. Moreover, arriving at least five minutes early
will also be viewed favorably
• Generally, the working week is Monday though Friday
8:00 a.m. to 5:00 p.m., with at least an hour break for
lunch; some executives take a two-hour lunch
• The lunch period in Venezuela is usually between noon
and 2 p.m. This meal will consist of five or more courses,
including soup and dessert, followed by strong coffee.
• Dress: Men should dress conservatively, in dark
business suits made of lighter wools. In business,
Venezuelan women tend to be meticulous dressers who
closely follow European fashion
Business culture
• People who do not have professional titles
should be addressed using courtesy titles like
Mr. = Senor, Mrs. = Senora, Miss = Senorita +
Surname
• Business dinners, in particular, are usually
purely social occasions, so refrain from
discussing work-related matters
• Be sensitive to the fact that Venezuelans tend to
stand extremely close to others. The best policy
is to respect this practice.
• In the course of a conversation, Venezuelans
sometimes touch each other's arms or jacket
Transportation
• Railways: total: 682 km (2002).
• Highways: total: 96,155 km; paved: 32,308 km;
unpaved:. 63,847 km (1999 est.).
• Almost all of Venezuela can be reached by bus, the least
expensive way to see the country!!
• Waterways: 7,100 km; Orinoco River and Lake de
Maracaibo navigable ocean going vessels.
• Ports and harbors: Amuay, Bajo Grande, El Tablazo, La
Guaira, La Salina, Maracaibo, Matanzas, Palua, Puerto
Cabello, Puerto la Cruz, Puerto Ordaz, Puerto Sucre,
Punta Cardon.
• Airports: 369 (2004 est)9 International
Telecommunication Infrastructure
• Communications: Telephones: main lines in
use: 2,841,800(2002); mobile cellular: 6,463,600
(2002).
• Radio broadcast stations: AM 201, FM n.a. (20
in Caracas), shortwave 11 (1998). Radios:
10.75 million (1997).
• Television broadcast stations: 66 (plus 45
repeaters) (1997). Televisions: 4.1 million
(1997).
• Internet Service Providers (ISPs): 16 (2000).
Internet users: 5.6 million (2004).
Politics
• chief of state: President Hugo CHAVEZ Frias
(since 3 February 1999); Vice President Jose
Vicente RANGEL Vale (since 28 April 2002);
note - the president is both the chief of state and
head of government
• cabinet: Council of Ministers appointed by the
president
• elections: president elected by popular vote for a
six-year term; election last held 30 July 2000
(next to be held NA 2006)
IT Strengths
• The government is very supportive of IT, and has initiatives in
place to promote internet use and e-commerce across all of
Venezuela
– Some of these initiatives include a free trade zone and special tax
breaks to corporations such as Microsoft to promote the creation
of a Latin American headquarters in Venezuela
• Telecommunications industry is completely deregulated
– Investments will become very lucrative in the telecommunications
industry due to this deregulation.
• Participating with several countries (Ecuador, Colombia, Peru
and Bolivia) in building an international fiber optic network
IT Strengths (cont.)
• Very strong R & D in Merida, “The silicon valley of
Venezuela”
– The governments free trade initiative will likely have
significant positive impact on the research and
development industry
• Highly competitive free education, leading to very
knowledgeable IT professionals
• There are over 30 universities that offer IT related
degree programs as well as over 150 research
facilities
IT Weaknesses
• Venezuela currently pays IT professionals 1/3 of the
salary that IT professionals in other countries receive.
– The majority of IT professionals are finding more lucrative jobs
abroad, others are dropping their profession and turning to taxi
cab driving and peddling on the streets as these jobs are more
profitable
• The financing industry is very expensive and inefficient in
Venezuela, making it very difficult for firms to raise
needed funds
– IT corporations looking for funding cannot do so very easily
within Venezuela as the infrastructure lacks the efficiency
needed to be reasonably priced.
– Firms that seek venture capital funding must look to countries
such as the United States and Europe.
Technology Scene
• The teledensity of Venezuela as of 2003 was
estimated at 10.932 main lines per 100 habitants.
• The education system is heavily involved in IT
making for a highly skilled training environment
• Most of these knowledgeable IT professionals
migrate to countries such as the UK and the USA as
the average Venezuelan IT salary is very low.
Technology Scene (cont.)
• The IT industry represents 4.5% of the total
labor force of 12.25 million in Venezuela.
• The major IT users in Venezuela are, The
petrol industry, banking and finance,
telecommunications, government, and the
manufacturing and industrial sector.
• As of 2004 there were roughly 5.6M internet
users in Venezuela
IT Industry Producers: HW
Hardware
• No real manufacturing presence in
Venezuela
• Some “no name” clone manufacturers
assemble PCs in Venezuela
• Distribution centers and resellers provide
the hardware for the Venezuelan IT
industry
IT Industry Producers: SW
Software
• The government is promoting Open
Source software development
• Venezuela’s state oil giant Petroleos de
Venezuela SA (PDVSA) had a JV with
SAIC for IT, however they did not renew
• PDVSA is moving towards Open Source
Software
IT Industry Producers: SW (cont.)
Software
• 50% of the Governments Software is to
become open sourced by 2007
• Opportunity for investment Start a
consulting company for support and
development of open sourced software in
Venezuela
IT Industry Producers
• The main provider of telecommunications
services is
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started out as a Public entity and
started to become privatized in 1991
• The fixed line aspect of
telecommunications was opened up in
2000
IT Industry Consumers
Banking and Finance Sector
– Banco
first to offer online banking
– Provider of online service to bank
is located
out of Miami FL
Insurance Sector
Telecommunications
– Wireless and Broadband DSL
211k subscribers June 2005
IT Industry Consumers (cont.)
Government and Customs
Manufacturing and Industrial Sector
Individual or Personal Use
• <10% of the population can afford new
tech Percentage of users considered
“sophisticated” users
IT Industry Consumers (cont.)
Oil and Derivatives Industry
• Heavy Consumers
• Mostly Import all Hardware and Software
Required
IT in Venezuela
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Education
Workforce
Government
Internet
Online Media
IT in Venezuela: Education
• Education
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30 universities
10 higher education programs related to technology
48 technical education institutes
150 research facilities
Most popular university diploma -> Systems engineering
Most popular technical education program -> IT
IT in Venezuela: Workforce
• Workforce
– 20,000 IT professionals
– 60,000 young Venezuelans being trained
– Relatively low salaries -> brain drain
IT in Venezuela: Government
Government
– Ministry of Science and Technology (MCT)
– Venezuelan Center for Information
Technologies (CNTI)
– Fundacite - Mérida
– National Telecommunications Commission
(CONATEL)
IT in Venezuela: Internet
• # of internet users: 5.6 million
IT in Venezuela: Online Media
Online TV
Venezuelana de TV 102 kbps
RCTV 35 kbps
Online Radio
City
Genre
Player Software
Angel FM
Caracas
Adult contemporary
wmp
Circuito National Belfort
Caracas
Venezuelan music
wmp
Fiesta 106.5
Caracas
Latin music
mp3
Hot 94.1
Caracas
Top 40
wmp
Kys FM
Caracas
Adult contemporary
mp3
La Romantica
Caracas
Love songs
wmp
Planeto 105.3
Caracas
Top 40
wmp
Radio National (YVKE)
Caracas
News
mp3
95.5 Stereo
Aciragua
Top 40
wmp
91.9 FM Center
Unknown
Oldies
mp3
Sample of IT industries
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Telecomm. Infrastructure
E-Commerce
Hardware & Software
IT Services
Sample of Venezuelan IT industries
Sample Website in Spanish
Bolsa de Valores de
Caracas
(Caracas Stock Market)
Sample Website in English
• Venezuela Analysis: Venezuelan Views,
News, & Analysis
Business climate of country and region
• Country: Venezuela
– Economy (GDP, industry, FDI, etc.)
– Politics (stability, regulations, etc.)
– Social & cultural (language, attitudes, etc.)
Business climate of country and region
• Region: South America
– Economic alliances (MERCESUR, etc)
• Regional oil agreements:
– Petrocaribe
– Petrosur
– Petroandina
Petroamerica
– Political issues
• Organization of American States (OAS)
– Social & cultural
Potential business opportunities evaluated
• Business categories: B2B vs. B2C
• Sectors
• Investment types
Opportunities: B2B
• Investment by customer business sector
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Petroleum
Telecomm
Government
Education
Opportunities: Petroleum
• 1/3 of GDP, 80% of export earnings
• Oil reserves: 78 billion barrels (7th in world, 2nd in western
hemisphere)
• Gas reserves: 148 trillion cubic feet (8th in world, 2nd in western
hemisphere)
• Venezuela is 4th largest exporter of oil to the U.S. (12% of US oil
imports)
• Petróleos de Venezuela S.A.(PDVSA) is Venezuela’s state owned
oil company
• Citgo is a subsidiary of PDVSA
• 60 foreign companies from 14 countries
Opportunities: Petroleum (cont.)
• Crude production capacity: 4 million
barrels/day
• Current crude production: 3 million barrels/day
• Crude refining capacity: 1.3 million barrels/day
• Pros: major national sector, growing global
demand
• Cons: state owned
Opportunities: Telecommunications
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Telecomm is the fastest growing sector in Venezuela (3.4% of GDP in 1999)
Basic services: cellular telephony, rural telephony, data transmission, paging
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In 2001, 84% of non-petroleum investments were directed to telecomm
Foreign investment in sector close to 50%
Major foreign investors: AT&T, Bell Canada Int., British Telecom
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Pros: fastest growing, promising
Cons: smaller capacity, lack of
solid infrastructure
Opportunities: B2C
• Telecomm
– Fixed lines
– Mobile phones
– ISPs
• eCommerce
– Limited due to credit card fraud
B2B vs. B2C Analysis
B2B
Advantages
Disadvantages
B2C
•Vast resources
•Established infrastructure
•Younger population: 65% < 30
years old (87% urban)
•Continued rise in internet and phone
use
•Political instability
•Poverty: 75% of population
considered poor
•Cultural challenges
Investment Method
FDI seems to be the best investment method
Advantages of FDI in Venezuela:
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Foreign investments are protected by constitutional mandate, and
encouraged in the Investment Promotion and Protection Law, which
establishes:
Equal treatment for national and foreign investors
100% foreign-capital ventures are allowed, except for Spanishlanguage media
Express stipulation that no prior authorization is required for
investments
Free repatriation of capital and profits
Legal stability agreements pledging the State to maintain special tax
conditions on private ventures for up to 10 years
International arbitration accepted as alternative mechanism for
contractual dispute settlement
Unrestricted currency convertibility
Contrasting country: Colombia
Venezuela
GDP
Colombia
$115 billion
$95 billion
25 million
45 million
Proved oil reserves
78 billion barrels
1.7 billion barrels
Daily oil production (2004)
3,000,000 barrels
550,000 barrels
13.8%
-2.1%
Population
Change in daily oil prod.
From 2003
Why investing in this country would be
different from investing in Colombia
• Political
– More instability in Colombia
• Economic
– Per capita GDP: 2 times more in Venezuela
• Geographic
– Colombia has direct access to Pacific Ocean
• Logistics
– Transportation: restrained in Colombia by rebels
– Security: bigger concern in Colombia
• Cultural
– Similar language and overall culture
Recent Headlines
Recommendations
• Business categories: B2B
– % of poor not likely to decrease (too early for B2C)
• Sectors: petroleum
– Major role in Venezuelan economy regardless of
government orientation
– Increased global concerns about supply and prices
of energy
– Recent expansion into Latin American market
• Investment types
– Foreign direct investment
Recommendation Summary
Venezuela would be an excellent place for
foreign direct investment into IT firms that
support the petroleum industry.
The petroleum industry is by far the largest
business sector in Venezuela. Global demand
is projected to continue to rise. Venezuela has
the capability and the will to produce, refine,
and export more petroleum.
Q&A
Questions…
Preguntas…