Deluxe Household Chemicals Report on Manufacturing in Chile Political Economy of Latin America Mathias Schatt and Rob Sheldon.

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Presentation transcript:

Deluxe Household Chemicals Report on Manufacturing in Chile Political Economy of Latin America Mathias Schatt and Rob Sheldon

DHC: The Mandate » About Deluxe Household Chemicals » The Problem: US Manufacturing too Expensive » The Mandate: Find an Alternative Country » Country Criteria: » Stable Enough Macro Environment » Favorable International Trade Environment » Low-cost, Sufficiently Skilled Labor » Developed Chemical Industry » Overall Benefits Must Outweigh Logistical Costs

DHC: The Chile Report Part I: Chile’s Macro Environment 1) Nation and State 2) Inflation and Foreign Exchange 3) Labor Environment 4) Infrastructure Part II: Chile’s Household Chemical Industry 1) Industry Landscape 2) Potential Partners Part III: DHC Logistics and Entry Strategy 1) Joint Venture 2) Foreign Branch & Capital Imports 3) Logistical Partners

Chile: Nation & State » President: Ricardo Lagos Escobar » Center-left Coalition » Commitment to Free Market Economy » Other Factors: » Market-oriented Economic System » Many International Trade Agreements » Few Restrictions on Foreign Investment » Small Number of State-owned Enterprises » High Domestic Savings Rate » Balanced Budget Part I: Chile’s Macro Environment

lowest (Aug 9): highest (Oct 11): El dólar trepa hasta los $ de Febrero de 2003 Chile: Inflation and FX » Banco Central de Chile » Grow Economy at Fastest Possible Pace » Maintain Inflation level between 2-4% » Considerable Volatility Against the US Dollar: Part I: Chile’s Macro Environment

Chile: Labor Environment » Unemployment Around 10% » Relatively High Investment in Human Capital » Good Local Education » 48 Hour Work Week » Lower Wages Part I: Chile’s Macro Environment

Chile: Infrastructure Part I: Chile’s Macro Environment

Chile: Chem Industry » Well-established: $578 Million in 2001 » Dominated by Large Foreign Firms Possible Partners: » Quimicas Reno » Perez & Jacard P&J is the Better Fit: Location, Size, Infrastructure, Foreign Experience Part II: Chile’s Household Chemical Industry

DHC: Entry Strategy (A) » Sign JV Agreement with P&J » 3 Year Renewable Contract » Capital Improvements and Guaranteed Orders in Exchange for DHC Ops Manager at P&J Part III: DHC Logistics and Entry Strategy » DHC Opens a Foreign Branch in Santiago

» Import Capital Through Decree Law 600 Terms: » Minimum $1 Million Investment » No Capital Repatriation for One Year » Repatriate Profits Immediately » Unlimited Access to FX Market » No VAT Until Capital Improvements Done » 42% Tax Rate Set for 10 Years Part III: DHC Logistics and Entry Strategy DHC: Entry Strategy (B)

DHC: Logistical Partners Potential Partners: » CSAV: Global Shipper » Royal Vopak: Specialty Shipper Royal Vopak is the Better Fit: Specializes in Chemicals, International Network, Small Shipments Part III: DHC Logistics and Entry Strategy

Conclusion Chile Meets the Country Criteria: » Stable Enough Macro Environment » Favorable International Trade Environment » Low-cost, Sufficiently Skilled Labor » Developed Chemical Industry » Overall Benefits Must Outweigh Logistical Costs Main Point: The combination of Chile’s macro environment coupled with the presence of solid industrial and logistical partners makes it a good bet.