Venezuela's_Membership_in_Mercosur

Venezuela’s Membership in Mercosur Abstract As a Venezuelan business owner of a Financial Services Company I have a interest in the fact that Venezuela has recently been accepted as an associate member of Mercosur. This paper is my preparations of a business plan which i will need to be able to implement as Venezuela becomes part of Mercosur. Venezuela’s Membership in Mercosur Mercosur Mercosur is the Southern Common Market which was created by Brazil, Argentina, Uruguay, and Paraguay in 1991. Mercosur is promoted by member countries in order to pool resources in hopes of encountering other economic powers such as the FTAA and the NAFTA. Merrcosur has a population of over 200 million and a GDP of $850 bm; making it the third largest integrated market; with the European market and NAFTA leading the way. By combining resources under Mercosur; member countries have been provided more negotiation power when dealing with other counties and organization as well as a larger market (Mercosur Trade Center, n.d.). Benefits and Drawbacks for the country of Venezuela as a result of their membership in Mercosur Strongmen who had control over the military power in Venezuela ruled until 1959; during which time less social development and economics took place. Petroleum is the only abundant resource in Venezuela; therefore the rulers of Venezuela concentrated mainly on the petroleum industry. This resulted in the underdevelopment of other industries causing Venezuela to become over dependent on their petroleum industry. The petroleum Industry has remained in the spot light even after 1959 when an elected government came into power. Mercosur finally accepted Venezuela as an Associated Member in July of 2004 (Guerrero, 2004). Benefits for Venezuela as a result of membership in Mercosur Mercosur currently controls $851bn of GDP and promotes free trade with its member countries while working on having a common external tariff. Mercosur has agreed on having coordinating macroeconomic policies as well as a common foreign trade policy. By Venezeula becoming a member of Mercosur they will have a very strong foreign trade policy which will be backed by the other members of Mercosur as well as having access to a larger market. The membership will increase Venezuela’s bargaining power while dealing with economic organizations such as NAFTA as well as economically developed countries. This membership will also allow Venezuela to have technological and economic collaborations with member countries. Venezuela government will gain access to greater resources allowing them to develop industries besides the petroleum industry; as well as enable them to boost per capita income and GDP; allowing for further growth (Mercosur Trade Center, n.d.). Drawbacks for Venezuela as a result of membership in Mercosur It is important to note that Venezuela faces drawbacks as a member of Mercosur as well. Open trade among member countries is promoted in Mercosur; therefore Venezuela has to have an open door policy for the member countries; some of the member countries are more efficient such as Brazil. Venezuela is not a founding member of Mercosa so it will not have very strong negotiating power in Mercosure; and Mercosur does not have any type of agreement to protect IPR which could be very bad for Venezuela. Considering the fact that Mercosur is a union of South American developed countries; Mercosur does not yet posses great economic advantages or technological position. Therefore economic collaboration and technology may be limited for Venezuela (Petrash, 1996). Benefits and Drawbacks for Financial Services Business as a result of Venezuela’s membership in Mercsur IMF assists developing countries; however they impose many conditions on the borrowing country. In order for Mercosur to help the countries which are frustrated with all of the conditions imposed by IMF and in order to receive assistance they have proposed the formation of a Regional Bank in which member countries have already committed $70 million towards; with the hope that this Regional Bank will fund business investments and infrastructure projects with less conditions and lower interest rates (Pearson, 2010). With the formation of this Regional Bank will come opportunities for Financial Service Sectors to be created around it. The intent of this Regional Bank is to lend money at lower interest rates; therefore the cost of debt should come down for many companies allowing for more projects to be viable. Venezuela is currently only doing business with a few countries; as a Mercosur member Venezuela will open their doors allowing for MNC’s to enter the market. This open trade will create more jobs and business opportunities in Venezuela; resulting in per capita income and GDP to go up; while Financial Services grow in demand (Guerrero, 2004). Plenty of MNC’s will enter the market creating stiff competition for Venezuela once they become a member of Mercosur. There can’t be a very high entry barrier to prevent new entrants in the financial Services Sector; so many companies will see opportunity and will enter the market. The Financial Services Sector in Venezuela is unorganized and highly fragmented; therefore Venezuela will not be able to compete well (Pearson, 2010). My Financial Services company would have an advantage as first mover; however if a company is inefficient they would not be able to withstand the stiff completion and could be completely wiped out. What adjustments will need to be made to my Financial Services Business as a result of this membership By Venezuela being a member of Mercosur they have to open their doors to other countries; this also allows Venezuela to enter other countries where there are opportunities in new markets (Petrash, 1996). My Financial Services Company will need to develop a business plan in order to enter member countries; a joint venture with local companies in member countries being the most reasonable way. This will help my company when competing with foreign Financial Services companies. My company will also need to identify its strengths in order to be able to collaborate with other companies where synergy is generated; allowing my company to become more competitive and more efficient. My Financial Services Company will have to make the necessary adjustments with the changing government policies. Although the Petroleum Industry will remain the main area for the government in future; government will also be pushing other industries. This will allow for more export oriented and industry friendly policies from the government; therefore my Financial Services Company will need to be able to adjust accordingly in order to reap the maximum amount of benefits from these changing government policies in Venezuela caused by their membership with Mercosur. References Guerrero, M. E. (2004, July 9). Venezuela’s Triumph in Mercosur | venezuelanalysis.com. venezuelanalysis.com | Venezuela News, Views, and Analysis. Retrieved January 30, 2011, from http://venezuelanalysis.com/analysis Mercosur Trade Center. (n.d.). Mercosur Trade Center. Retrieved January 28, 2011, from http://www.mercosurtc.com/index.html Pearson, T. (2010, August 5). Mercosur Summit Discusses Venezuela-Colombia Situation | venezuelanalysis.com. venezuelanalysis.com . Retrieved January 29, 2011, from http://venezuelanalysis.com/news Petrash, V. E. (1996, November 9). Venezuela And Mercosur: The Conquest Of The South Or; Are We Being Conquered By The South. Analitica.com. Retrieved January 30, 2011, from http://www.analitica.com/archivo/vam1997.02/ipext1.htm