Coffee

Introduction There are many different varieties of coffee, but there is two types used in today’s market, Arabica and Robusta. Arabica coffee is the more flavorful of the two, and it is considered a higher quality type of coffee bean. Robusta on the other hand, although higher in caffeine, is lacking in both flavor and quality compared to the Arabica bean. This being the case, as a firm we have chosen to produce Arabica coffee beans for the true coffee lovers. Our company has also decided to implement a joint venture with an established international coffee plantation. Mixing all of our available resources, with the Venture Company’s knowledge and expertise in the production of coffee, we as a corporation will create a flavorful coffee the world will enjoy! Coffee beans are actually the seeds of a fruit that look similar to a cherry in shape and color. Each one of these berries produces two beans. These coffee beans grow in a tree that belongs to a variety of tropical evergreens. Throughout the tree’s entire life span they can reach anywhere from 16 to 40 feet high. But these trees are maintained at six feet in plantations since they are more manageable and easier to hand pick. These types of coffee evergreen trees produce a full yield of berries until its sixth year and the prime production of trees last for ten years. In order to produce high quality coffee beans, trees need to be planted in areas containing temperatures of 65 to 75 degrees Fahrenheit. As well as areas that offer plentiful rain, sunshine, and a constant weather switch between the two. Furthermore, the trees need a type of soil to nurture properly that is fast drying, contains a little moisture, and is never soggy. In today’s market there are two known ways to properly plant coffee, the traditional method and the nursery method. The traditional method includes 20 seeds planted per hole. The traditional method is an old method developed a long time ago. The science of planting coffee beans has advance far from the old method and it has been shown that the traditional method will yield less coffee beans for harvest. Planting coffee beans the traditional way will actually eliminate up to 10 seeds per roll because the coffee beans will not have enough space to mature. Giving the seedlings enough room so that each seed will get adequate nutrition from the soil and sun will help maximize coffee bean production. The nursery method entails seeds being raised in a nursery and after six to twelve months the plants are planted on outside plantations. This second method effectively developed and used in Brazil is a more efficient way to produce coffee beans than the traditional method. Moreover, coffee farming originally was done under the shade of trees (little to no deforestation to the natural environment) which provided a habitat for wild life but affected the quantity of coffee berries by keeping them to a minimal when picked. This was considered by most to yield a higher bean quality in taste and flavor however. Starting in the 1970s, coffee farming changed to a process where there was little to no forest canopy (more deforestation) and where farmers increased the use of sunlight, fertilizer, and pesticides to increase the quantity of coffee beans produced. Even though this type of farming was more efficient, it had a high negative effect on the natural environment and caused more health problems. There are many ways to properly process coffee berries that are much better compared to using pesticides and fertilizers. The most common includes stripping of coffee by machines or humans without separating coffee beans by their ripeness. After they have been picked then the berries are separated by color and ripeness and the flesh is then removed by machines. Thereafter, the coffee seeds are set into water tanks to eliminate the slimy layer that remains on the seeds. Then the seeds are washed with large quantities of fresh water and set on drying tables to be dried and become the coffee been we are all familiar with. As a joint venture our group will own the distributions rights of the coffee beans. The main focus will be to export Arabica coffee to the top ten coffee consuming countries (Finland, Denmark, Norway, Belgium, Sweden, etc.). Our firm will then focus on exporting the coffee beans to the rest of the world. This includes the becoming of the organization as one of the top suppliers to the major coffee brands like Folgers, Starbucks, Maxwell House, and Millstone. Of course, we will have our coffee available to the locals in the country in which we choose to operate in. The company has also decided not to own land rights in the beginning years of the business operations abroad. This was decided based on our research revealing that a foreign company has no right to create a leasing contract with either the Ethiopian or Columbian government for land. In the near future, things might start to change and owning land rights can become an option worth pursuing for the company. Especially if the land offers many rights like the right to grow crops, residential development, and even the right to mine minerals which add value to the land. This decision was based on the awareness of land rights that can be limited by government regulation, zoning ordinances, and conservation easements. Country Analysis: Ethiopia Social and Cultural Factors There are many social and cultural factors that can affect business in Ethiopia. One of the many issues the country faces is the many different languages spoken across the country. Communicating effectively to the local population is crucial for all foreign companies looking for new business ventures or investment opportunities in another country. Ethiopia has many indigenous languages present today, between 84 to 77 according to an Ethnologic survey and the Ethiopian 1994 census. Some of those languages are Nilo-Saharan but most are Afro-Asiatic. In the past Amharic was the primary language in schools, but now it has been replaced by other languages such as Oromifa and Tigrinya. Another social factor is the people. The people of Ethiopia are very multi-cultural individuals. In terms of religion, most Ethiopians belong to the Orthodox Church and the others belong to the Muslims faith. There are few that are practicing an ancient form of Judaism. Family is another aspect to take into consideration that can affect business as well. Family in Ethiopia by tradition is very important to its people. For example, people who married tend to join their families in order to have someone to rely on when hard times occurred in the future. As a foreign firm establishing new business, having this information in mind will allow for a smoother integration of the company’s goals. Ethiopians also abide by different etiquette and customs depending on the specific ethnic group. These customs can include distinguishing formal greetings from informal greetings. Formal greetings consist of a handshake that is lighter than ones in western cultures, accompany with direct eye contact. A more informal greeting, once a personal relationship has been established, consists of people of the same sex kissing three times on the cheeks. If you’re a male greeting a female, always wait for the women to extend her hand otherwise avoid or disregard the action. One very important specific never to forget in greetings is to always address Ethiopian elders first. This is very vital information when starting a new business and wanting to have a good first impression with people in the county. A custom very common to Ethiopian is coffee drinking. Coffee is a national drink and there is a proper way to formally invite people for a drink. While drinking it is proper for individuals to sit on pillows to relax and enjoy the coffee. There is also up to three different round of coffee drinking, each with a proper title distinguish from the other that the Ethiopians use (“awol”, “tona”, and “baraka”). One thing to remember is to serve elders first and to drink the coffee slow as a form of politeness and respect. This is a very crucial fact for a foreign firm to know if it plans on getting involved in the Ethiopian coffee industry and expects to succeed. Finally communication style in Ethiopia can affect business as well. Ethiopians by nature tend to be very sensitive to communication. Since it has been recently that they started doing business with foreigners and exporting goods to different countries. Most Ethiopians are humble people that respect others and generally speak with a soft tone. Loud tones are seen as too aggressive. Furthermore, Ethiopians are individuals who avoid confrontations at all cost. Political and Legal Factors The war between Ethiopia and Eritrean that lasted from 1998 through 2000 had been the primary political issue affecting the business environment. In December 2000 a peace agreement was reach that ended the war. Although Ethiopia is at peace right now is still viewed as risky for potential new firms that are afraid to invest because of the countries long history of wars. Moreover, there is much dissatisfaction from the private sector which is concern over the fact that businesses in Ethiopia must maintain a political favoritism. So home party affiliated enterprises have a great amount of advantages in areas and have easy access to credit. They also receive other benefits such as fast customs clearance and other key process that all enterprises should have access to in order to compete. Ethiopia’s politics and laws is another factor that can affect business in the country. One issue that arises is its economic relations with the United States. The United States, for a long period of time, has had important cordial relations with Ethiopia’s citizens. The U.S. has been promoting a market economy for Ethiopian, developing democratic institutions and promoting the understanding of the rule of laws and respect for human rights. This political factor is very important for any firm, especially for an American firm to better understand the risk when diversifying in foreign markets like Ethiopia. Furthermore, politics and the government regulation on the business environment also have a direct effect on how business is done in the county. Exporting out of the country will require the company to pay a substantial amount of money in order for it to be allowed out of the country. With documents cost, custom clearance, shipping and handling, and inland transportation the total is going to be a huge factor in considering FDI for Ethiopia. According to Table 1a, a standard 20 foot shipping container will cost approximately $1,890 USD and 44 days to export from Ethiopia to the United States. Table 1a Nature of Export Procedures (2010) | Duration (days) | US$ Cost | Documents preparation | 25 | 500 | Customs clearance and technical control | 7 | 290 | Ports and terminal handling | 5 | 400 | Inland transportation and handling | 7 | 700 | Totals | 44 | 1890 | http://www.doingbusiness.org/~/media/fpdkm/doing%20business/documents/profiles/country/db11/eth.pdf Agents and distributors are political issues that have substantial weight for business investment decisions. The U.S. Embassy in Ethiopia advised U.S. firms to appoint local agents to represent their products in Ethiopia, in order to have a successful operation in the country. For this, the Embassy generates a list available for all firms which include experience local representatives interested and willing to assist U.S. companies. One final legal problem effecting business is law dealing with joint ventures and licensing options. In Ethiopia investment inflows through joint ventures are welcome and promoted as long as certain criteria are met. For example, if foreign firm improves utilization and development of the countries resources, including the generations of local employment and development, these firms will have easier access to such market. Technological Factors A technological factor that can affect production in Ethiopia was the introduction of the Internet in 1997, which increased access to world wide information resources to most of its people. There has been a recent move by the government to increase the bandwidth to 1 M-bites from 256kbps. The computer business in Ethiopia has grown drastically as well since 1995. Even though home computing and office computing has become more common to the people, 83% of the computers capacity is often underutilized. Ethiopia also lack networking institutions that could server to help the country establish local area network. With the lack of networking institutions it is more difficult for companies to provide consumers with easier communication. This is evident with the 2,500 internet users who are provided with one of the worst internet services. Economic Factors The main goods being exported from Ethiopia are mostly agricultural goods produce by government owned companies. The economy is heavily privatize and depends on raw coffee beans as its main crop for export. The country provides a good environment for coffee beans to be grown, ripen, and picked. The country exports raw coffee beans that are shipped to roasting companies in other parts of the world. Recent droughts and poor irrigation systems have lead to decrease production of coffee beans in the country. It suffer huge economic lost from its climate instability which resulted in the country not being able to export as much coffee beans as recent years. Table 1b shows the overall GDP of Ethiopia. The county has seen a GDP growth rate of only 7% last year and its per capita GDP totaled $1,000 USD. Its overall GDP is 84.02 billion with its agricultural sector accounting for 42.9% of the country’s GDP. Table 1b GDP (purchasing power parity) | $84.02 billion (2010 est.) | GDP (official exchange rate) | $30.94 billion (2010 est.) | GDP - real growth rate | 7% (2010 est.) | GDP - per capita (PPP) | $1,000 (2010 est.) | GDP - composition by sector | Agriculture: 42.9%Industry: 13.7%Services: 43.4% (2010 est.) | The World Fact Books: Ethiopia Economic, CIA, April 19 2011 . The economy is also highly privatized with land only allowed to be owned by the government. The government lease land to local farmers if they agree to grow crops for exports. Coffee beans are one of the money crops that many choose to produce as it is easy to grow and needs to be handpicked. The economy depends on coffee beans as it is one of the top agricultural goods being exported from the country. Many farmers choose to grow which leads to the increase of coffee bean’s production in the region. There is demand for coffee within the country’s boarder and it has become a lucrative product to export for sale in foreign countries. However, even with a strong agricultural market the country’s economy is not very strong as most of the population lives in poverty. The high GDP growth is offset by the low income per capita for Ethiopia. Many of the country’s citizens are not able to support themselves and struggle to make ends meet. With many places within the country plagued with drought, it has decrease the amount of coffee beans being exported out of the country. The economy has not seen much growth over the years as well due to dealing with other problems affecting the country. There is a huge market for coffee beans in the country but as many of the population are struggling to feed themselves, the country is not producing as much coffee beans as it could. Environmental Factors Ethiopia is located in the middle right region of Africa bordering Djibouti, Eritrea, Kenya, Somalia and Sudan. The country measures 1.1 million square kilometers which makes it about double the size of France. Most of the land in Ethiopia is government owned so few of it is used for coffee bean cultivation. Ethiopia’s capital city, Addis Ababa, is the third highest capital in the world with an altitude of 7,546 feet. With the high altitude, the capital creates an ideal place to grow Arabica coffee beans. A high altitude location can help improve the aroma and quality of the coffee beans. Not only the capital but most part of Ethiopia can provide a good condition for coffee beans to be grown making it the most exported product in the country. The biggest environmental factor facing Ethiopia for coffee bean production is drought since it affects the country’s ability to produce its main crop. Coffee beans need to be planted before the rainy season to get enough moisture in order to grow and ripen. With recent droughts, many seeds die off before they even get the chance to grow and farmers suffers from the lost of crops. The lost in production of coffee beans due to recent droughts could have been minimized by having a proper irrigation system. Ethiopia is home to Africa’s largest water reserve which could be used to grow coffee beans even through droughts. With only 1% of the water reserve being used for power production and 1.5% used for irrigation, a better irrigation system can result in improve production of coffee beans. Demographic The size of the country is double that of France, yet the population of the country gained a small lead over the French population throughout the years. As a 2007 Census states, there were 88 million living in the county with 46% being 0-14 years old, 51% being 15-64 years old, and 3% being 65 and older. Life expectance for the county’s population is not long due to famine, violence, and droughts. Poverty supports the low income per capita of the country’s population as jobs are hard to find in the area. Ethiopia is a highly diverse country with many different ethnic groups living throughout the area. It has a diverse culture with all the different ethnic groups living within the county. Amharic and Oromigna are the two dominant languages for the people of Ethiopia with English being the most spoken foreign language. Generally speaking, there are two main religions in the country, Christianity and Muslim, while there are many different type of animalistic religion in the country as well. Education in the country consists of primary school and secondary school. Primary school is the basic but most of the population does not finish it. It is teach in the Amharic language for during primary school. Secondary school is taught in English but few of the population attend. The countrywide literacy rate is 42.7%, 50.3% for males and 35.1% for females. Almost half of the population is illiterate which decrease the quality of the workforce in the country. There are many different races in the country, as many as 80 different ethnic groups that has claims of at least 1,000 members. The different races mean a variety of different cultural customs in Ethiopia and should be noted how the different ways each group handles social interactions. Keeping up with Ethiopia’s culture requires knowledge of the ethnic groups around the targeted area. There are many different ethnic groups living in the country, some of which accounts for a small portion of the population but are present in the targeted regions. Table 1c shows the different ethnic groups and their percentage of the population. As the table suggest Ethiopia is home to a great number of different ethnic groups that represent the diverse mix of culture present within the country. Table 1c EthiopiaEthnic Group (2007) | Population | | Number | Percentage | Oromo | 25,488,344 | 34.5 | Amhara | 19,867,817 | 26.9 | Somali | 4,581,793 | 6.2 | Tigrie | 4,483,776 | 6.1 | Sidama | 2,966,377 | 4.0 | Guragie | 1,867,350 | 2.5 | Welaita | 1,707,074 | 2.3 | Hadiya | 1,284,366 | 1.7 | Afar | 1,276,372 | 1.7 | Gamo | 1,107,163 | 1.5 | Summary and Statistical Report on the 2007 Population and Housing census, CSA, April 19, 2011. Country Analysis: Colombia Social and Cultural Factors Based on statistics from May 2009, Colombia has a population of 44.91 million with an annual population growth of 1.4%. The language spoken is Spanish, and the main religion practiced is Roman Catholic. With 90% of its people who practice Catholicism, it is simple to understand that religion has a huge impact on society as a whole. In fact, “to the average Colombian, such primary rites of the church as baptism, first communion, marriage, and extreme unction marked the main turning points in the life cycle and identified him or her as a social being”. Catholicism is a large part of their social and cultural lives, and is instilled in them from the time they are born. The church is what brings the community together, and Priests are highly respected and seen as an authority figure. Aside from religion, the structure of the society is highly hierarchal. In urbanized areas of Colombia, there is a larger middle class, and class status does not have as big of an impact on social influence as in the rural regions. It is extremely difficult in these rural areas to move up in class, and it “regulates the interaction of groups and individuals”. However, there are a few rural regions where this is not the case. In coffee growing regions there are “sizable segments of the population exhibiting the traits of a rural middle class”. The coffee business gives more people a chance to move up the social ladder, and can bring about relationships through society seeing each other more as equals. While starting a coffee business in Columbia, it is important to know some of the social norms, and business etiquette used there. Upon meeting someone, it is important to shake hands as well as shaking hands again when they depart. If a man were to shake a woman’s hand, he should always wait for the woman to initiate the handshake. Eye contact is highly respected and should be used when speaking to someone formally. Relationship building is also extremely important in starting a business. Asking about their family and health is appreciated and can help build a strong working relationship which is vital to the best results for a company. The Colombian people are not as open and straight to the point as people in the United States, so it is important to read body language, and to not be so blunt. It is easy to ruin a relationship and lose face, but if these norms are followed, a great work relationship will bloom. Political and Legal Factors Colombia has had a long history of violence whether it is drug trafficking or fighting for democratic reform. Fortunately, in 1991 a new constitution was brought about which kept the presidential and three branch systems of government, but “created new institutions such as the Inspector General, a Human Rights Ombudsman, a Constitutional Court, and a Superior Judicial Council”. Legal mechanism was also established which allows individuals to fight for their constitutional rights if the government is conflicting with them. In 2002, Alvaro Uribe was elected president, and his goal was to restore security to Colombia. He continued with “Plan Colombia” which was a plan established previously “to combat narco-terrorism, spur economic recovery, strengthen democratic institutions and respect for human rights, and provide humanitarian assistance to internally displaced persons” . Uribe was reelected in 2006 and since his presidency “Colombia saw a decrease in homicides by 44%, kidnappings by 88%, terrorist attacks by 79%, and attacks on the country's infrastructure by 60%”. Today drug trafficking and other violent crimes are still relevant, but the Colombian government is still implementing Plan Colombia and seeking to push out all illegal activities in their rural regions. The areas that have more government presence have the least violence and illegal activities, and the government is looking to establish their presence throughout the country. Exporting out of the country will require the company to pay a substantial amount in order for the container to get clearance out of the country. With documents cost, custom clearance, shipping and handling, and inland transportation the total is going to be a huge factor in considering FDI for Columbia. According to Table 1b, a standard 20 foot shipping container will cost approximately $1,770 USD and 14 days to export from Columbia to the United States. Table 2a Nature of Export Procedures (2010) | Duration (days) | US$ Cost | Documents preparation | 5 | 350 | Customs clearance and technical control | 2 | 250 | Ports and terminal handling | 3 | 170 | Inland transportation and handling | 4 | 1000 | Totals | 14 | 1770 | http://www.doingbusiness.org/~/media/fpdkm/doing%20business/documents/profiles/country/db11/col.pdf Technological Factors Colombia’s technological capabilities include manufacturing, assembly, and construction. The resources used from coffee production helped sprout these other technological advances, and lucky for our company Colombia has coffee production down. After the red ripe cherries are handpicked they are sent to the coffee pulping machinery. The pressure from the machine pushes the cherries against a screen with sized holes, which is only big enough for the coffee bean to fit through. This process pushes the bean through, and the cherry behind. They also use fermenting machines to take off the remaining residue from the cherry before they are sent to dry. Economic Factors Colombia first became an exporting region in the sixteenth century, under the Spanish system of mercantilism. Under the Spanish colony, Columbia started exporting raw materials. Its socioeconomics was highly structured on slavery which limited its foreign contact. However, its modern economy is based on a free market system whose exports largely involve coffee and other agricultural goods. In the twentieth century coffee contributed to the total growth of exporting from 7 percent to 75 percent by the end of the century. A coffee production boom in Colombia coincided with a poor harvest in Brazil and rising international prices. The overall effect was a stronger national economy, which benefited most sectors and classes. GDP grew by 4.5% in 1987, thanks in part to a particularly strong contribution by the construction industry. For the near future, analysts predicted continued growth and stability. Nevertheless, Colombian planners advocated diversification of the economy to reduce its dependence on coffee, so that future downswings in the industry would not have equally severe consequences. According to a World Bank report, business is easiest in Manizales, Ibague, and Pereira, while Cali and Cartagena are more difficult. The economy has seen impressive growth in recent years, reaching 8.2% in 2007. Table 2b shows the country’s GDP in 2010. GDP growth dropped back down to 4.4% while the per capita for the citizens in Colombia totaled $9,800 USD. The overall GDP for the country is $431.9 billion USD. Table 2b GDP (purchasing power parity) | $431.9 billion (2010 est.) | GDP (official exchange rate) | $283.1 billion (2010 est.) | GDP - real growth rate | 4.4% (2010 est.) | GDP - per capita (PPP) | $9,800 (2010 est.) | GDP - composition by sector | Agriculture: 9.3%Industry: 38%Services: 52.7% (2010 est.) | The World Fact Books: Colombia Economic, CIA, April 19 2011 < https://www.cia.gov/library/publications/the-world-factbook/geos/co.html>.   Colombia's manufacturing sector was dominated by local industries that were only loosely linked to other regional businesses. National development proceeded from improved transportation facilities, financed directly and indirectly by the coffee industry. Greater economic integration soon became evident with the heavier concentration of industry and population in the six largest cities. Coffee's success, therefore, was ultimately responsible for a reliable transportation network that hastened urbanization and industrialization. The growth in industry and construction, supported by both public and private funds, led to the emergence of a genuine working class that soon learned to unionize. Environmental Factors Columbia is located in the northwest corner of the South American continent and encompasses an area of more than 1.1 million square kilometers. It is the only country in South America with both Caribbean (1,760 kilometers) and Pacific coastlines (1,448 kilometers). Colombia also has international borders with five Latin American nations: Panama, Venezuela, Brazil, Peru, and Ecuador. There were no major outstanding international boundary problems between Colombia and its neighbors. Most of the productive agricultural land forests are privately owned. Structure of owner-operator relationship varies with coffee being grown on small plots of land by sharecroppers.  It is best produce in the country’s temperate regions, elevations between 1,000 and 2,000 meters. The striking variety in temperature and precipitation results principally from differences in elevation. Temperatures range from very hot at sea level to relatively cold at higher elevations but vary very little with the season. The high elevation makes this region an ideal place to produce Arabica coffee beans. Rainfall in the hot zone is heaviest in the Pacific lowlands and in parts of eastern Colombia, where rain is almost a daily occurrence and rain forests predominate. Precipitation exceeds 760 centimeters annually in most of the Pacific lowlands, making this one of the wettest regions in the world; in eastern Colombia, it decreases from 635 centimeters in portions of the Andean piedmont to 254 centimeters eastward. Extensive areas of the Caribbean interior are permanently flooded, more because of poor drainage than because of the moderately heavy precipitation during the rainy season from May through October. The cold or cool zone constitutes about 6 percent of the total area, including some of the most densely populated plateaus and terraces of the Colombian Andes; this zone supports about one fourth of the country's total population. The mean temperature ranges between 10°C and 19°C, and the wet seasons occur in April and May and from September to December, as in the high elevations of the temperate zone. Demographic Four classes and their relative proportions could be distinguished in the mid-1980s: upper class, 5 percent; middle class, 20 percent; lower class, 50 percent; and the masses, 25 percent. There were also two important transitional subdivisions: the new rich, who constituted perhaps 3 percent of the total and were tenuously members of the upper class; and the upper lower class, organized blue-collar workers, and poorer white-collar workers, who made up about 15 percent of the total. The literacy rate was approximately 88 percent in 1987. Private schools accounted for 15 percent of the enrollments at the primary level, 40 percent at the secondary-school level, and 60 percent at the university level. But the principal reason for the rapid expansion of the education system was the massive increase in public outlays for education. There are over 40 universities in Colombia while national universities receive funding from the government because of a 1958 constitution mandate to spend at least 10% of the national budget on education. Higher education is considered necessary to achieve goals and prosperity.  The universities however are only attended by the middle and upper classes who can afford it. This serves to reinforce social stratification of classes. Various studies of the education system in Colombia have demonstrated its highly stratified character. A disproportionate number of secondary-school students came from the upper-income brackets, and higher education further amplified this socioeconomic bias, even though all public universities and many private ones had adopted admission requirements based solely on academic performance. The bias in favor of higher-income students was slightly higher in private than in public institutions. The population is descended from three racial groups--Indians, blacks, and whites--that have mingled throughout the nearly 500 years of the country's history. No official figures were available, but according to rough estimates by the CIA World Fact Book shown on Table 2c, mestizos (white-Indian mix) constituted approximately 58% of the population, whites 20%, mulattoes (black-white mix) 14%, Zambos (black- Amerindian mix) 3%, Blacks 4%, and Amerindian 1%. Table 2c Colombia’s Ethnic Group | Percentage of the Population | Mestizo | 58% | White | 20% | Mulatto | 14% | Black | 4% | Zambos (Black-Amerindian) | 3% | Amerindian | 1% | The World Fact Books: Colombia Economic, CIA, April 19 2011 < https://www.cia.gov/library/publications/the-world-factbook/geos/co.html>. In summary Table 3 list out the main key points in the country analysis for each country. From the table we can see that Colombia has a better economy, lower competition, and lower export cost making it the ideal place for the company to invest in. Table 3 | Ethiopia | Columbia | Government Type | Federal Republic | Republic | Type of Economy | Heavily controlled by government | Free market economy | GDP (Purchasing power parity) | $84.02 billion USD (2010 est.) | $431.9 billion (2010 est.) | GDP (official exchange rate) | $30.94 billion USD (2010 est.) | $283.1 billion (2010 est.) | GDP (real growth rate) | 7% (2010 est.) | 4.4% (2010 est.) | GDP (per capita) | $1,000 USD (2010 est.) | $9,800 (2010 est.) | GDP (composition by sector) | Agriculture: 42.9%Industry: 13.7%Services: 43.4% (2010 est.) | Agriculture: 9.3%Industry: 38%Services: 52.7% (2010 est.) | Avg. Inflation Rate | 2.8% | 3.19% | Total Export Cost | $1,890 USD; 44 days | $1,770 USD; 14 days | Religion | Ethiopian Orthodox Christian 43.5%, Muslim 33.9%, Protestant 18.6%, remainder indigenous | Roman Catholic 90%, Other 10% | Language | Amharic (official), Tigrinya, Arabic, Guaragigna, Oromifa, English, Somali. | Spanish | Climate | Temperate highlands, hot lowlands | Tropical on coast, cool in highlands | Risk Analysis After performing a thorough analysis on both countries (Ethiopia and Columbia) it is now possible to perform a risk analysis with all the information gathered from the report. In the research to finding the best county for the cultivation of coffee beans there are many factors that the company must consider in order to be able to determine the best location for the venture. There are six main factors to consider that will help our organization decide which country will be more favorable for a foreign direct investment from the company. These factors are listed out on Table 4 and are the following; political stability, economy, currency, environment, education, and population. Table 4 Factors | Risk (%) | Ethiopia | Colombia | Political Stability | .30 | 7 | 2.1 | 6 | 1.8 | Economy | .20 | 9 | 1.8 | 5 | 1.0 | Currency | .10 | 5 | 0.5 | 4 | 0.4 | Environment | .30 | 7 | 2.1 | 5 | 1.5 | Education | .05 | 9 | 0.45 | 4 | 0.2 | Population | .05 | 5 | 0.25 | 4 | 0.2 | Total RIsk | 1.00 | | 7.2 | | 5.1 | We have determined that these factors are important for the company to consider when deciding whether to invest in either country. Political stability is a huge factor as well as the environment of the potential country. Having a stable political system will ensure that the country will not be in turmoil which can hamper with the production of the company’s goods. Also, a country with a stable political system is less likely to seize control over the company’s assets in the country for their own personal gains. The environmental factor is also important because the business the company plans to enter is in the agricultural industry. Agriculture depends on having the perfect environment for the goods to be planted, grown, and harvested. It is essential that a country has the environment necessary for coffee bean seeds to gather the nutrients they need to sprout. For the company to become successful in its venture it must ensure that the goods it must maximize the amount of goods it can produce from the space it is allocated. With harvest season restriction and the amount of time it takes to grow coffee beans, having an ideal environment to ensure that each seedlings gets the adequate amount of nutrients for it to grow to its potential will help maximize the company’s investment and revenue. The other factors are also important but slightly less important than political stability and the environment. Picking a country with a strong economy is important because it shows how far technology and production has advance in the country. It also shows the kind of markets the company’s goods will have in the country which can allow the company to save on exporting cost by selling to local residents. Currency, education, and population are notable factors to consider. It is important to know the type of currency being used in the country and how the exchange rates will affect the company. Education and the population can determine what type of work force is available in a specific country and how skilled the working population is. It is not so important because for the product, the company only required field laborers and can outsource coffee bean experts to determine the quality of the beans being produce. For each factors, our firm assigned a different set of numbers ranging from 1 to 10. The higher the number assigned to a country, the higher the risk factor associated with that particular country is. Based on the numbers assigned, our group can create an idea of how risky Ethiopia may turn out to be as compared to Colombia. Furthermore, the significance of several high numbers under several factors for Ethiopia means that the country represents a high risk for a foreign direct investment. Ethiopia has an unstable political system and the country has experienced wars throughout its long history. It is in peace now but it is unsure how long the peace will last. Its environment also poses a huge risk for the company. With sever draughts affecting the area and an inadequate water irrigation system, Ethiopia is indeed a high risk for the company to invest in. The country also suffers from a weak economy that although seems to grow at a higher rate is still considerably low compared to the economy of Colombia. Colombia has a lower risk than Ethiopia but that does not mean there it is without fault. The political instability in the country is also up in the air as the government is battling with rebel forces and narcotics kingpin rampant throughout the country. The environment, however, is ideal for coffee bean production, with adequate water supply and temperature for the coffee bean to prosper. The country also has a strong economy that can support businesses looking to invest in the country. Colombia also boast a great work force that are more educated when compared to Ethiopia which can benefit overall production and productivity of the company’s plantation. From our analysis on both countries to determine which would be a suitable location for coffee bean production, Colombia is the less risky choice with a risk factor of 5.1 according to Table 4. Ethiopia scored a 7.2 making it more risky than Colombia if we take into account all the factors that can affect the production of coffee beans. Colombia is the ideal location with the least risk involved for the company to invest in. With the environmental benefits of the country’s high elevated regions, the coffee bean seedlings will be in a nurturing environment to promote its growth. Although the country stability is shaky with rebel forces opposing the establish government, the United States have express some concern over the unease tension in the area and has provided support to help settle the matter. The company can benefit from a foreign direct investment in Colombia for the harvesting of premium, quality coffee beans. Decision & Rationale Based on our risk analysis, we have decided to create a joint venture in Colombia. The overall risk of a joint venture in Colombia is 5.7 compared to Ethiopia’s 7.20. Although both countries have ideal climate for creating Arabica coffee beans, we could potentially be setting ourselves up for disaster upon entering a business in Ethiopia. We understand that the society in Colombia today might not be so stable, as there are still some unethical and even illegal activities that are present within the county. However, they have close ties with the United States, who are fully supportive and assist to help bring down narcotics and terrorism in the area. This relationship has actually shown tremendous results, but going into business here we must realize it is still present in less urbanized areas. Colombia also has a free market economy whereas Ethiopia is highly controlled by their government. Without a seconds notice, the Ethiopian government can come in and take over everything we have worked towards. We also notice that Colombia seems to be taking the correct steps to creating a better economy, and attempting to mirror some of the same policies as that of the United States. With this great relationship, it will be easier to transition into that country. We also believe the language barrier in Colombia would not be as great as it could be in Ethiopia. More and more people in the United States today are learning Spanish, which luckily is the native language in Colombia. In Ethiopia there may be a larger language barrier seeing as how there are so many different languages spoken in the area. We can also benefit from the decrease in the amount of time it will take to ship the coffee beans from Colombia to the United States. Compared to Ethiopia, it is approximately a month faster which means we can get our product quicker with less hassle. The export cost is also cheaper so the company will benefit from exporting from Colombia as oppose to Ethiopia. Overall, while working in a free market economy we will be able to run the business in the fashion we please. We will not have to worry about government intervention, and we see the government is attempting to reach a place where they are narcotics and terrorist free. We realize this does not happen overnight, but we believe it is the better choice of the two countries to start a business in. Business Model: After we went over our options, and considering the risk analysis, we decided that doing a joint venture is the best option for the company. Before moving forward, we need to determine and explain why we wish to enter into a joint venture, and what you hope to achieve. Define involvement (managerial, capital, etc.) of the parent companies and how long the JV will last. Put in place strategies to define governance, accountability, decision-making process, and conflict- and issue-resolution procedures. Ensure buy-in and participation at the highest level. Consider outcomes: what could cause you to terminate the joint venture, and what is the preferred exit strategy. A joint venture will give the opportunity to develop an entity and assets by contributing equity. Doing business in a foreign country will limit our capabilities since the company will encounter new laws, new policies , cultural differences and even a new language. A joint venture provides companies with the opportunity to obtain new capacity and expertise. It will also allow us to have feasibility, especially for market entry fee, financial and non-financial, also synergy for integration of new resources and capabilities as well as digestibility for post-acquisition integration cost. Our main purpose in doing a joint venture is to reducing 'entry' risks by using the local partner's assets, inadequate knowledge of local institutional or legal environment, access to local borrowing powers and influence of local partners on government officials or 'compulsory' requisite. There are also some strategies that need to be considered as well, such as: * Human Resources (HR) Strategy. Develop HR strategies that align and support the goals of the JV: develop a distinct identity and culture for the new organization; communicate aggressively to employees; and establish distinct career paths, management, and a means of return for employees transferred to the JV. Create compensation, incentive, and retention programs tied to the success of the JV. Maintain open communication between the HR departments of the parents and the JV. * Leadership. Define a process for leadership selection that's seen as fair and credible, and name top-tier leadership as soon as possible. Look for key indicators of leadership potentials such as behavior, past experience, and measurable outputs. * Communication. To engage and motivate your employees, communication should be frequent and used to create a common vision, establish a connection with leadership, explain the new rules, support the individual transition process, aid in retention, and ultimately, define the new organization in terms of "We" instead of an "It" or "They". Share as much information as you can, and never sugar-coat or make false promises. * Talent. Make the identification, retention, and motivation of the key talent a top priority. As times of uncertainty can lead to defections, take strong counter-measures to prevent them. Paying close attention to the specific skills, knowledge, and behavior that will be required to achieve the new organization's business objectives, identify the key players in both the parent companies who will be needed during the transition to a joint venture organization and beyond. Be aware of which employees are most at risk for recruitment by other organizations and collect data on the causes and costs or turnover that might influence which employees to target and which retention practices to implement. Conduct employee research to help the new organization determine what matters to employees and can serve as the foundation for all programs and incentives. Work Citied Charrier A, Berthaud J (1985). "Botanical Classification of Coffee". In Clifford MH, Wilson KC. Coffee: Botany, Biochemistry and Production of Beans and Beverage. Westport, Connecticut: AVI Publishing. Dennis M. Hanratty and Sandra W. Meditz, editors. Colombia: A Country Study. 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