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Posh Pastries and Economic Environment Proposal

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Updated: Jul 5th, 2019

The economic environment in Colombia is more promising than that of Venezuela. Colombia now boasts of a GDP of $365.4billion, which makes it the 29th largest economy in the world.

In 2012, it grew by 4.3% and was a continuation of growth rates of 4% and 5.9% in 2010 and 2011 respectively (CIA, 2013). Venezuela has a GDP of $402 billion, which leads to position 34 in the world rankings.

The country experienced a growth rate of 5.7% in 2012 but this was a dramatic shift from negative growth patterns in the previous years. In 2010, Venezuela reported a decline of 1.5% in its economy followed by an increase of 4.2% in 2011.

Therefore, Colombia appears to have a more stable economic environment in comparison to Venezuela. An international business such as Posh Pastries needs to select a country that has sustainable economic growth rather than peaks and plunges at different times.

Inflation is a significant problem to Venezuela as this reached a record 26% in 2011 and reduced slightly to 21% in the subsequent year. Conversely, Colombia has a manageable inflation rate of 3%.

High inflation rates are never desirable for businesses because entrepreneurs could get less value for their money irrespective of their input. Obtaining foreign exchange will also be a problem for businesses. Posh Pastries needs to consider this fact before it expands into Venezuela.

Venezuela is highly dependent on oil as its source of revenue. In fact, only 5% of the country’s exports come from non-oil related industries. Therefore, the country is increasingly vulnerable to fluctuations in international fuel prices.

Even the high growth rates that have been reported recently are due to increases in oil prices. Similarly, Colombia depends on oil exports. The country has also suffered from changes in crude oil prices.

However, it has mitigated this vulnerability by promoting other exports that include coffee, bananas and flowers. While both countries are oil dependent, one of them is worse off than the other.

This implies that consumers may appear to flourish in one year and then do poorly in the next year. Such a pattern could cause them to cut back on luxurious spending. Some people may consider pastries luxurious and this could hurt Posh Pastries.

The political environment of Venezuela has been relatively tumultuous over the past decade. The country’s key political stakeholders disagreed with their leader President Chavez concerning his socialist leanings. This led to a series of infrastructural and communication failures.

Furthermore, the country has undergone unconventional political decisions. In certain instances, the executive authorized nationalization of key business sectors and instated price controls. This has led to a high degree of mistrust from foreign and local investors (CIA, 2013).

Colombia’s political situation is quite promising. Their government has entered into free trade agreements with several countries around the world, including the US. Therefore, Posh Pastries could benefit from doing business with such a partner.

Additionally, the country’s political leadership is moving towards privatization as seen through the sale of Ecopetrol, which was the nation’s oil corporation.

Foreign direct investment is much higher in Colombia than Venezuela as a result of the political decisions that the country’s leadership has made. If foreign investors lack goodwill and support from the political leadership, then Posh Pastries may not do so well in that country.

Political stability also guarantees the security of the business when it targets any potential foreign market.

One should note that insecurity is a serious problem in Colombia. The country has struggled with rival armed groups that stem from the drug trade (Verma and Soydemir, 2006). One such entity is known as the FARC.

Colombia’s leadership is trying to promote dialogue with the group but this has not yielded lasting results. The groups sometimes attack civilians.

Furthermore, because Colombia has one of the highest unemployment rates in the region, it is susceptible to violence and other social ills like drug trafficking. In fact this country is the largest supplier of cocaine to the US.

Conversely, Venezuela’s security situation is not as problematic as Colombia’s. The country has a lower unemployment rate, and this makes it less complimentary to social ills.

Posh Pastries will need to consider the relative safety of its employees and partners prior to selection of a target market.

Transportation and infrastructural challenges exist in both countries. However, Venezuela has a worse record than Colombia. Venezuela is still struggling with a housing crisis that stems from the unfavorable social policies of the Chavez regime.

Additionally, the electricity producer is inefficiently managed thus leading to a series of blackouts in 2010 and 2011 (CIA, 2013). This crisis in electricity production also emanated from an overreliance on one organization for provision of all electricity needs in the country.

Conversely, Colombia has not reported any infrastructural crises. However, it is still relatively undeveloped compared to western nations. The country must invest in infrastructure for it to compete with key production centers of the world.

Posh Pastries should consider a country that has stable electricity supply and transportation systems that work. Transport capabilities might be at par in both countries but Colombia fares better with regard to electricity supply.

Cultural environments in both countries are somewhat similar to each other but different from the US market where Posh Pastries is based. Both countries speak Spanish and have strong Latin American cultures.

They are relatively friendly people who have collectivist traditions and pay attention to indirect communication. Even their food preferences are quite similar, their national diets consists of a range of dishes combined in one plate.

They often place meat at the heart of their meals and even use it to make pastries. In Colombia, famous desserts include the Arroz con Coco, which is a pudding made from rice, coconut, lemon and cinnamon. Most pastries are deep fried rather than baked.

In Venezuela, Arepa is one of the famous dishes; it comes from baked, fried or grilled cornmeal. Many of the pastries consist of meat or other types of fillings.

Posh pastries would fill a gap in both markets as minimal western-style baked goods exist. The company would have an edge over locals as it would be offering something they have not encountered (Teixeira et. al., 2008).

In conclusion, Colombia would be a better foreign market than Venezuela. The country has enjoyed sustainable economic growth and political stability. Furthermore, its infrastructural climate is better than Venezuela’s.

Nonetheless, Posh Pastries must take caution because of its insecurity. It can address this by choosing a city or location that is relatively safe.

When entering the market, this organization must also market the exclusivity and exotic nature of its products as they are significantly different from the local diet.

References

CIA (2013). The world fact book. Washington DC: CIA.

Teixeira, M., Klotzle, M. and Ness, W. (2008). Determinant Factors of Emerging Markets Risk: A Study of Specific Country Risk. Bogota, D.C.: Colombia

Verma, R. and Soydemir, G. (2006). Modeling country risk in Latin America: A country beta approach. Global Finance Journal, 17(2), 192–213.

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IvyPanda. 2019. "Posh Pastries and Economic Environment." July 5, 2019. https://ivypanda.com/essays/posh-pastries-and-economic-environment/.

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IvyPanda. (2019) 'Posh Pastries and Economic Environment'. 5 July.

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