The success of a business venture that plans to expand to new regions relies greatly on selection of a beneficial geographical location where its plant can be established. Research point out that selecting a plant site requires making of careful decision. Thilmany points out that in making decisions to move to new locations, there are various factors which a firm’s management should consider (42).
These include choosing an ideal location, considering investment climate of the selected location, size of target location, safe living conditions and favorable environment for expansion as well as the cost of production among others.
Following the desire by my company which is dealing with manufacturing specialized agricultural equipment to expand to Latin America, I undertook the process of examining Mexico, Brazil and Argentina as preferred locations. This paper analyses these locations and concludes by recommending the best location where the plant can be located.
Investment climates in Mexico, Brazil and Argentina
Mexico has been enjoying a free market economy over the years. Credible sources indicate that Mexico’s solid economic performance for this year has grown to about 3.5% and its consumer growth has grown up to 400% since 2000. This consumer growth according to Eakin (338) indicates that the nation has a GDP growth of 37% and a middle class that is quite healthy. Its investment climate is dominated by the private sector.
Besides, its economy comprises of a mixture of agricultural, outmoded and modern industries. Since NAFTA was implemented in 1994, the trading activities existing between Canada, the US and Mexico has grown tremendously. While its income distribution has been noted to exhibit disparities, the per capita income has steadily grown.
Some of the expansions have been in airports, natural gas distribution, electricity generation, telecommunications, railroads and seaports. Its corporate income tax rate has been greatly reduced to 29% while the market size includes 40 countries with which it has over 12 trade agreements in addition to a population of 39 million high income earners (Eakin 340).
In Brazil, reports from the World Bank present its investment climate as one of the best (Wilcox 368). This is largely due to its diversified economy. Other reports given by the United Nations indicate that Brazil is a nation which encourages foreign investments and happens to be the largest recipient of direct foreign investment (DFI).
In 2008 alone, Brazil received up to USD 42 billion in investments with the leading investor being the US. However, Wilcox indicates that the high levels of investments have not saved it from burdensome regulatory requirements and taxes which are a major problem (372).
Besides, since the global crisis of 2008, Brazil has not yet fully recovered. This was seen in its economic decline of 0.2% in 2009. Its growth in 2011 was nearly 4.5%. Brazil’s size in terms of land area is 8.5 million square kilometers with a population of 192 million people.
Lastly, Argentina is a country whose geographical area is 2.8 million square kilometers. Census reports of 2011 point out that the country has a population total of 41.77 million. Credible reports indicate that its GDP in 2010 stood at $380 billion while its per capita GDP was $9400 in the same year.
Its natural resources mainly come from minerals and fertile plains most of which are used for agriculture. In addition, its GDP in agriculture is 8.5% with a 58% value in terms of export. The country earns about $84.3 billion in exporting grains, fuels, cars, vegetable oils and oilseed by-product. Its market size is broad and encompasses Chile, US, China and the EU.
Argentina plays host to over 500 companies from the US, a factor which the US Department of State posits expresses the openness of Argentina to foreign investments (Boulanger and Penalba 551). Its GDP has grown to over 8.5%.
However, recent reports by the International Monetary Fund (IMF) indicate that the investment climate in Argentina is highly unpredictable (Boulanger and Penalba 551). This is probably due to the fact that its level of production has gone down.
Factors influencing the ability to export special components
Argentina’s high value agricultural sector has had a major problem of creating a strong relationship with the US in the area of exports. Thilmany points out that one of the causes of its weak presence and relationship with the US is its economic policies (44).
Argentina does not support an export based economy and as such relies on exporting traditional commodities. Other factors include quantity and range of available products, price and consumer preference of products from the US.
On the other hand, some of the factors influencing exports of special commodities in Mexico include government regulations which are not very tough, comparative advantage, capital flows and exchange rates. In Brazil, certain elements such as reliance on government export incentives, structural changes and competitive nature of international markets influence their export practices.
Recommendation and SWOT of preferred country
From the above analysis, it is clear that making a critical and influential decision on which location to site the plant might not be an easy matter. However, judging by the various presentations in terms of investment climate, market size and abilities to export special components, I recommend Mexico.
SWOT for Mexico
Strengths
One of the great strengths of Mexico is its attractiveness towards foreign direct investment. This is accompanied by security, limited restrictions, regulations and low taxes which are some of the factors that limit investments in other locations.
Besides, exporting our products from Mexico will be made easy due to the presence of massive infrastructure comprising of 27000 kilometers of rail, good roads, 85 airports and 16 international sea ports.
In addition, it is imperative to indicate that out of the 15 largest exporters in the world, Mexico ranks among those with large export base. Thilmany (45) points out that the country has low manufacturing costs than Argentina, Brazil, India and China. This will help reduce the cost of production in our company.
Weakness
One of the weaknesses is that it has a complex taxation system which may present huge challenges to our company. Besides, the country also grapples with considerable problems of labor and tax regulations, insecurity, insufficient infrastructure, corruption and excess government bureaucracies.
Opportunities
One of the greatest opportunities that Mexico as a location presents to our company is the high level of technological development. As a manufacturer of high value agricultural products, the presence of technology will reinforce massive production and independence.
Besides, the country has a population which is highly literate in both marginalized and rural areas. This will be advantageous to the company in terms of recruiting professional and skilled workers. In addition, Mexico has its regional centers located in areas of technology and manufacturing industries are developed.
Threats
One of the threats presented by this location is its dependence on the United States as the main trading partner. Besides, the country’s structural reforms are not very effective, a factor that may present labor, fiscal and energy issues. Lastly, Mexico’s trading climate has been known to be persistently insecure. This may present a problem in areas of transport and communication.
Works Cited
Boulanger, Jean-philippe and Olga, Penalba. “Assessment of climate information needs in the argentinean agro-business sector.” Climatic Change 98.3-4 (2010): 551- 563. Print.
Eakin, Hallie “Public sector reform and governance for adaptation: implications of new public management for adaptive capacity in Mexico and Norway.” Environmental management 47.3 (2011): 338-351. Print.
Thilmany, Jean. “Planning a plant.” Mechanical Engineering 125.2 (2003): 42-45. Print.
Wilcox, Robert. “Ranching modernization in tropical Brazil: foreign investment and environment in Mato Grosso, 1900-1950.” Agricultural History 82.3 (2008): 366- 392. Print.