Analysis of Peckerman Model in Brazil and Argentina

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GM 6030 A3 Regional Business Environment: Latin America MIDTERM EXAM

The success of any business venture in Latin America depends on the ability of the company to find a country that will provide the right amount of incentives and benefits but that will also have a continued political stability and guarantees for property rights and investment security. Our analysis will evaluate the probability that Brazil and Argentina, as the possible site selections for K-FIT, will have this kind of business friendly environment and will enact market oriented reforms. We’ll evaluate the aspects in both countries that make them adequate or not to invest in them. We’ll also provide a recommendation of which country and region within them we see as the best option to set up operations. Argentina Argentina is a democratic republic organized as a Federation of 23 provinces and the Capital City of Buenos Aires. It has a total population of 42.19 million and has an area of approximately 1.07 million sq. miles in the southernmost part of America (Buckman, “The World Today Series 2012 Latin America” p. 35). To understand the current business environment in Argentina and the prospects of market friendly reforms going forward, we have to understand its cultural legacy and the way its society is structured. Since its beginnings as a nation, and even before it got its independence from Spain in 1816, Argentina’s society has been polarized between the “people from the Interior” that lived in the inland provinces and the “Porteños” or people from the city of Buenos Aires located in the eastern coastal area. The “interior people” are predominately Indian and Spanish descents that subsist from agricultural and cattle raising activities. Most of them are poor peasants that work in huge land extensions known as “Estancias” owned by powerful landowners. The “Porteños” are predominately European descents that established a society dominated by an elite class of entrepreneurs that seized power after the industrial revolution in the early XX century (Buckman, “The World Today Series 2012 Latin America” p. 37). This accentuated division in the Argentinian society grew into a conflict between a dominant group of wealthy “Porteños” and landowners, versus the poor peasants from the interior provinces and the Buenos Aires’ Working Class. This conflict reached a peak when the 1930’s world crisis hit Argentina. The

Military, an interest group on its own, decided to intervene to “restore order” and prevent further civil unrest. (Buckman, “The World Today Series 2012 Latin America” p. 38). Then, after the end of WWII, Juan Peron rose to power. An ex-member of the military that served as Secretary of Labor, and a gifted orator who understood the power of the masses, he practiced a populist policy that inspired millions of people that named him “The Leader”. With his highly popular, but irresponsible, economic policies of increasing salaries and out of control fiscal spending, he gained the unconditional loyalty of the Labor Unions that by now had become a powerful force representing millions of middle class and poor workers. After the inevitable consequences of the ill devised populist policies manifested themselves throwing the country into economic despair, the military once again stepped in to “put order”. The now empowered poor social classes and Labor Unions adopted a leftist view that didn’t sit well with the powerful Military class or the rich “Porteños”. For the past 4 decades, the power struggle between the leftist Labor Unions, different factions claiming to represent the true legacy of Peron’s political party, right wing oligarchs from Buenos Aires, the Military, some Paramilitary groups, Local subversive groups, and other interest groups, have submerged the country into a vicious circle of turmoil, bloody confrontations, a few years of relative stability that is followed by a painful burst after the short term and egocentric policies put in place...
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