MGT321

Assignment 2

Deadline: 03-04-2020 @ 23:59

For Instructor’s Use only

Instructions – PLEASE READ THEM CAREFULLY

· The Assignment must be submitted on Blackboard (WORD format only) via allocated folder.

· Assignments submitted through email will not be accepted.

· Students are advised to make their work clear and well presented, marks may be reduced for poor presentation. This includes filling your information on the cover page.

· Students must mention question number clearly in their answer.

· Late submission will NOT be accepted.

· Avoid plagiarism, the work should be in your own words, copying from students or other resources without proper referencing will result in ZERO marks. No exceptions.

· All answered must be typed using Times New Roman (size 12, double-spaced) font. No pictures containing text will be accepted and will be considered plagiarism).

· Submissions without this cover page will NOT be accepted.

Assignment Regulation:

· All students are encouraged to use their own word.

· Assignment -2 should be submitted on or before the end of Week-09 in Black Board only.

· This assignment is an individual assignment.

Assignment Structure:

Learning Outcomes:

· Analyze the effects of culture, politics and economic systems in the context of international business (Lo 2.1)

· Identify the major components of international business management (Lo 2.4)

· Carry out effective self-evaluation through discussing economic systems in the international business context (Lo. 3.1)

Critical Thinking

Please read Case 2: “Venezuela under Hugo Chávez and Beyond” available in your e-book (page no.611), and answer the following questions:

Assignment Question(s): (Marks: 05)

1. Under Chávez’s leadership, what kind of economic system was put in place in Venezuela? How would you characterize the political system? (word limit: 100, Marks: 02)

2. During the Chávez years, many foreign multinationals exited Venezuela or reduced their exposure there. What do you think the impact of this has been on Venezuela? What needs to be done to reverse the trend? (word limit: 100, Marks: 02)

3. By 2016, Venezuela’s economy appeared to be on the brink of total collapse. What do you think needs to be done to reverse this? (word limit: 150, Mark: 01))

Answer:

1. Under Chavez’s leadership socialist economic system was put in place in Venezuela. He came to power in 1999 and all the Latin America came under a micro shockwave.

Hugo Chávez proposed and enacted economic policies known as the Bolivarian Revolution under which his government took over all the private businesses (70%) and started to distribute the wealth amongst the poor of the society.

Chávez believed that production systems should remain in the hands of the government for the growth of poor people in the country.

It should be noted that under his rule farmers got tractors and equipment’s for farming, poor people who had nothing before Chavez's rule got land for their survival, free houses were given to people who were not able to afford it. Free clinics and hospitals were set up and the economy boomed under his rule in the initial phase of his rule.

In the later years of Chávez rule the government became semi-authoritarian and hyper-populist and had all the powers over the economy, nothing was set free for other businessmen to pursue.

If you ask my personal perspective, I don’t consider Venezuela to be a truly socialist nation under Chavez’s rule as under a true socialist political system the majority of its assets to be in the hands of the people which never landed up in the hands of the people of Venezuela rather it was Chavez’s government who held the ownership of those assets.

In the later period of Chavez’s rule, the country suffered a lot of trade embargoes and sanctions and which later took a toll on the Venezuelan economy. High inflation and unfriendly environment for private businesses, and the risk of default prevented the entrance of powerful economies to enter into Venezuela which resulted up in an economic turmoil.

I personally characterize the Venezuelan economy to be corrupt and an overspending economy which saved nothing for its bad times and later succumbed due to its public policies set by one of its dictators Hugo Chavez.

2. The impact of foreign companies withdrawing from Venezuela had be the low economic growth rate in the country. It also gave a monopoly to the public sector companies which increased their power and thereby corruption. There was an increase in the unemployment rates and with no foreign exposure, the level of innovation and technological changes reduced which kept the country in low ranks of business of doing index. The business environment of the country is also dry and without any incentive.

To reverse the situation, Venezuela can:

a. Conduct elections which are free and fair, bring in a responsible government and restore the rule of law.

b. Initiate economic reforms that will help in removing the unwanted regulations and bring in competitiveness in the economy and also encourage businesses.

c. Be more adaptive towards private sectors and create friendly business structure that will attract foreign businesses and investment.

d. The profits from public sectors should be used to enhance the capabilities of the firms and machines and not used for the populist measures of the government.

5. The Venezuelan government can adopt the following policies to save itself from collapse:

a] Accept foreign aid which would help to alleviate the economic crisis immediately.

b] The government should shift from its over- dependence on oil and try to encourage investments in other sectors.

c] Fiscal measures should be initiated to correct the fiscal imbalances and government should keep a check on the high inflation rates along with rampant corruption existing in the country. The government will have to first abolish the price controls which has brought in expansive black market where the goods are sold at many times to official price. this has caused high rates of inflation in the country.

d] The government should also cut down on it subsides which is a major reason for the weakening of the economy as the government spends more than what it earns and this results in perpetual debt.

3. The crude oil prices started melting down in 2014. Venezuela had the largest oil reserve in the world and 95% of the revenue was coming from the export of oil. Only 5% of the revenue was coming from the other sources. Due to the fall of the oil prices internationally Venezuela was stuck into trouble.

In my opinion, the country should adjust to the lower international oil prices. The country should expand its economic activities into other markets as well. This will bring revenue to the country. Since the country is dependent only on oil they must look after other sectors as well and start exploring and exporting. The country should not rely on a single market as this will not have the capability to sustain the nation. The government should start building and repairing relationships with other countries. They will have international trade relations and the situation will be better.

The above steps are only possible when the country has strong political stability which will strengthen the economic policies for the country.

Other answer for Q3:

While there doesn't seem to be a quick fix to the multidimensional crisis of Venezuela, these are few points I think could bring out a change in the current situation. Debt Restructuring and Effective fiscal management is the need of the hour for the cash strapped Venezuelan government. A cut down on social services expenditure which plunged the crisis, resolving the political crisis by resolving economic crisis, moving towards a sustainable economy where communities produce what they need locally, elimination of Venezuela’s byzantine currency system which is a key source of corruption and shortages and allowing the currency to float, set up a food-stamp-type system under which people are protected from price increases.