MGTU - 400
GLOBAL ENVIRONMENT OF BUSINESS
WEEK 7 – ASSIGNMENT 7
December 9, 2012
Chile’s Global Operations Management
With the rapid advancement of international economic activities, especially from the greatest contributor such as multinational companies in local economies, it has become increasingly important for enterprises to analyze the industrialization process in other countries as well as relevant changes that influence how business operate outside their homeland. Many advantages have been attributed to the globalization movement of many countries. In a country like Chile these advantages could be seen in the constant decrease of their unemployment and poverty rates, the increase of GDP rates, the economic status compared to its neighbor countries, the increase in educational standards that allowed technology to flourish, and many more benefits. In this paper I will analyze how these benefits paired with other factors like political and cultural conditions positions Chile in a good place to be the country of choice for possible manufacturing operations outside the U.S. When evaluating Chile as a future host for creating manufacturing operations outside the U.S. it easy to find many positive advantages that the country has created in order to attract businesses from outside its geographical borders. Companies need to consider many factors that are relevant to the business by gathering information through intellectual talent or otherwise by creating a network of contacts within their industry. These factors are called externalities and “can play an important role in deciding where to locate manufacturing activities” (Hill, 2011). Externalities that a company should consider when looking to outsource their productions are: political, economics, and cultural conditions. Chile has been successful in creating “a global web of value creation activities” (Hill, 2011). When outsourcing manufacturing operations to foreign destinations it is relevant to consider the economy of the country that will be hosting the operations. Chile has demonstrated through the last couple of years to have a solid economy with the prospect of a prosperous economic future. Chile has managed to increase their GDP over the years, registering GDP growth to 4.7% as reported on Economist.com. “With a gross national income of $173.2 billion and a per capita income of $10,120 (2010), Chile is classified by the World Bank as an upper-middle-income developing country” (International, 2010). Along with the economy of the country, companies should evaluate the value of the foreign currency compared to local currency. In comparing the currency between the U.S. and Chile it is important to keep the exchange rate in mind. “Currency appreciation can transform a low-cost location into a high-cost location” (Hill, 2011). This is an additional factor to consider when evaluating Chile as a host for goods and services production. As of December 8, 2012 the U. S. Dollar was worth 476 Chilean Peso (CLP). The lower value of the CLP compared to a USD makes Chile an attractive destination for manufacturing outside the U. S. considering that according to TuSalario.org, an official Chilean website dedicated to provide labor information, the minimum wages in Chile are 193,000 CLP with a yearly increase of 4 percent minimum per year. The Chilean monthly minimum wage is 405 USD compared to that of the U. S. median of 1,051 USD according to minimum-wage.org. Another area to consider prior to manufacturing outside the U. S. is technology and the human resources capacity to keep up with the manufacturing processes. In Chile “primary education is now almost universal and secondary and tertiary attainment rates have increased rapidly. Whereas only 16.6% of Chileans aged 55-64 have completed a tertiary degree, 34.9% of those aged 25-34 have done so” (Meyer, 2012). Chile has made strides as far as getting its...