Differences in Political Economies
Honduras, Chile and Mexico’s economies and political environments contrast sharply. At the outset, Mexico was ranked 50th in terms of economic freedom in early 2013. This reflected substantial improvements in terms of wooing foreign direct investors.
It also demonstrates the government’s intention of expanding trade and monetary freedoms. Mexican economy showed some resilience especially at the height of 2008-09 global economic crises. According to Baer & Miles (2013), Mexico’s political leaders have initiated reforms targeting microeconomic environment of the country.
This is in addition to instituting measures aimed at enhancing investments, open markets and a proactive private sector. Although the country has experienced considerable improvements in regulatory frameworks, amendments in the reforms have undermined the benefits of such bills as The Labor Reform Bill of 2012 (Baer & Miles, 2013). Despite a promising economic future, Mexico has shown complacency in promoting the rule of law and other judicial structures.
As such, the country’s judicial and legal frameworks are weak and suffer from manipulation and interference from political leaders (Hill, 2007). Notwithstanding the abovementioned challenges, Mexico has a population of about 114 million and a GDP of $1.7 trillion according to World Bank report of 2012 (Baer & Miles, 2013). As such, Mexico has a substantial market for our firm’s new products.
Second, Chile has an impressive political economy. Farole & Akinci (2011) assert that the country ranked seventh across the world in terms of economic freedom. In fact, Chile is the freest economy in Latin America. The rationale is that the current political regime has supported the rule of law.
This has made judicial and legal frameworks efficient and autonomous. Despite its modest GDP ($299.6 billion), the country has expressed an intention of liberalizing its market in order to lure foreign direct investors (Farole & Akinci, 2011). Besides, Chile has continued to play a proactive role in Trans-Pacific Partnership agreements as an illustration of commitment to liberalizing Chilean economy.
The country’s tax regime is flexible considering the fact that income tax constitutes approximately 40% of aggregate tax. Value added tax and corporate taxes have remained relatively low. This is in lieu of the fact that overall tax burden of the country is approximately 18% (Baer & Miles, 2013).
In addition, the government has been in a position to keep public debt below 10% level. Despite impressive attributes of the Chilean economy, the country adopts capital-intensive production system in the sense that its population stand at 18 million. In addition, over 50% of the GDP is attributable to exportation of natural resources. It is important to mention that Chile is the world’s largest producer of copper.
Honduras’ political economy is different from Chilean and Mexican economies. According to economic freedom survey, Honduras ranked 96th in 2013. The overall ranking reflected a worse result than in the previous year. Despite the apparent efforts to liberalize the economy, such issues as corruption have deprived the economy a competitive edge over other regional economies (Baer & Miles, 2013).
Honduras private sector is flourishing at the expense of public sector that continues to provide poor services to the population. The rationale is that Honduras’ tax regime remains attractive for investors and private sector (Farole & Akinci, 2011). Nonetheless, the country recorded a modest GDP of about $35.7 billion. Coupled with low population, the country has no substantial market for our new firm.
Cultural Barriers in the Three Countries
A new firm may experience various cultural barriers in the three countries. In Honduras, it is important to point out that a firm may experience inefficiencies owing to high levels of corruption (Hill, 2007). In fact, the country ranked highly in terms of Corruption Perception Index. Corruption levels stand at 26% according to various surveys.
Being an agricultural-based economy, a manufacturing company in Honduras may experience substantial difficulties when making an entrance. The rationale is that the government may attempt to protect local industries by imposing high taxes on foreign companies. In Mexico, a firm may encounter relatively low number of challenges. The reason is that the country has continued to set up measures that enhance market freedom and openness (Farole & Akinci, 2011).
Despite high possibilities of succeeding in Mexico, it is apparent that corruption has continued to plague the economy. Economists assert that money laundering and drug trafficking are major challenges that the economy faces (Hill, 2007). Subsequently, its freedom from corruption index rank is just above 30% (Hill, 2007). On the other hand, Chile suffers from low population notwithstanding the country’s impressive efforts to fight corruption, institute reforms and liberalize the economy. The country is hugely free of corruption.
Recommendations
From the above macroeconomic analysis, it is important to venture in Mexico. The firm should consider the following:
- Mexico provides a huge market for goods and services that the company aims at producing. It is imperative to highlight that the sole aim of any business is to increase the wealth of shareholders by increasing its sales revenues. As such, Mexico has the highest number of people that can allow talent and skill acquisition by a new company.
- The firm should also consider Mexico due to moderate corporate taxes and liberal regulations as compared to other countries.
- Mexican economy, which was affected by global economic crises demonstrated high level of resilience and was able to recover immediately. This implies that a new company will enjoy a relatively predictable economic future.
References
Baer, W. & Miles, W. (2013). Foreign Direct Investments in Latin America: Its Changing Nature at the Turn of the Century. Washington DC: Routledge.
Farole, T. & Akinci, G. (2011). Special Economic Zones: Progress, Emerging Cultures and Future Economy. New York: McGraw Hill.
Hill, C. (2007). Global Business Today. Irwin, New York: McGraw Hill Publishers.