Opening a New Factory

Opening a New Factory

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Opening a New Factory

Differences in Political Economy

The Cold War period pitted the United States against several South American nations, including Chile. The Honduran case was a bit different since the country provided bases for Nicaraguan rebels who were being funded and trained by the United States. Mexico has never been in significant contradiction with the United States, and it has also never played a key role in the America’s intervention in other Latin American nations (Kingstone, 2013).

Lately, the political environments in the three nations, i.e. Honduras, Mexico, and Chile have been favorable to the business community from the United States. Indeed, it is notable that the right-wing authorities in Chile and Mexico have sought to foster closer ties with the United States of America. Such ties have made Mexico become the third largest trading partner of the United States, and this is mainly due to the signing of the North American Free Trade Agreement in 1994. Honduras and Mexico are, however, straggling with a higher rate of crime as compared to Chile, and the instances of political intimidation in the two nations are also apparent (Kingstone, 2013).

The Cultural Barriers

The most notable cultural aspect in Mexico is that individuals regard traditional and family values highly. For instance, many women consider working within their homes as being of more importance than working commercially in organizations. Children, especially those belonging in the middle and high income households, remain in their homes longer than is the case in the United States. This means that they do not have to work unlike is the case in the United States (Baer & Miles, 2013).

In Honduras, it is evident that there has been a significant integration of the Spanish and Native American cultures. The Chilean culture is mainly Spanish. Nonetheless, there are two contrasting strains: the cosmopolitan strain which belong to the urban and affluent population, and another strain which is regarded to be popular with the peasants. The urban strain is educated, and has actually adopted a Westernized lifestyle meaning that people begin working as soon as they complete college (Nicholls, 2013).

Corruptions Perceptions Index (CPI)

Chile is among the Latin American nations which have the least levels of corruption. Indeed, statistics indicate that Chile records lesser instances of corruption than Spain. According to Transparency International, corruption cases in government are isolated, and this makes service delivery more efficient than in such nations as Honduras. In Chile, the Freedom of Information Act makes it mandatory for the government of the day as well as its agencies to avail all the unclassified information to the public. In this regard, all ministries and government agencies possess web pages where information relating to operations and tendering is released (Baer & Miles, 2013).

According to Transparency International, corruption is increasing in Mexico. There have been reports of significant levels of bribery within the judiciary, the police force, and government. Corruption is, indeed, blamed for the escalating criminality in Mexico’s cities and the regions boarding the United States. An example of corruption in government is when Walmart was accused of bribing government officials in 2012 so as to facilitate the expediting of the awarding of construction permits (Nicholls, 2013).

In Honduras, endemic corruption has been affecting public institutions and state budgets in a manner that ends up derailing investment. Indeed, the civil society cites an increasing list of instances of bribery, especially in government ministries and agencies. Corruption was exacerbated following the 2009 coup and the constitutional crisis that ensued. Corruption in Honduras is so extreme that in some cases, it appears as if it has been institutionalized. Some of the worst cases are in the judiciary (Blake 2009).

Foreign Direct Investment Climates, FDI

According to the United State’s Department of State, foreign direct investment in Honduras is regarded as being crucial to development and economic growth. As from 2010, the government and the legislature in Honduras have been drafting crucial laws which are meant to enhance the country’s legal framework. The authorities hope that these laws will act as incentives for foreign direct investment and enable the economy recover fully from the 2009 coup as well as the global economic downturn. Nonetheless, corruption and unfavorable political environment has been derailing progress (Hamilton et al, 2012).

Mexico is considered to be open to FDI. Indeed, the country has been among the biggest recipients of such investments amongst the emerging markets. In spite of the high levels of corruption, the country has a relatively stable macroeconomic environment. This, together with its proximity to the largest market in the world, has attracted foreign investors. Mexico has also been expanding trading relations with the pacific nations, and his means that it can form an appropriate gateway to the pacific and South American region (Nicholls, 2013).

Chilean foreign direct investment shot-up from 1.41 in 2006 to just over 4.76 in 2011, and that marked a significant increment over a period of 5 years. Between 2011 and 2013, the country had a 63% rise to a record $28.2. These remarkable statistics have been realized since Chile has been turning outwards in search of foreign direct investments. Indeed, Chile is ranked third in Latin America as far as FDI is concerned. The government has instituted a policy where the gains of FDI are utilized in diversifying exports, encouraging technology related knowledge transfer, as well as upgrading the production capabilities. Chile is a reputed destination for the organizations which operate in sectors which are knowledge intensive (Nicholls, 2013).

Analyzed and Compared Regulations Utilizing CCGs

Mexico’s relationship with the United States is highly valued since it is founded on a mixture of common challenges, mutual interests, as well as growing interdependence. The extent of the United States-Mexican relationships is way beyond official and diplomatic contacts. I actually entail extensive cultural, educational, and commercial ties. The two nations have been cooperating on such issues as trade, narcotics, finance, labor, immigration, science, environment, culture, and technology. The main problems in relation to the Mexican market have to do with corruption and lack of political commitment (Becker, 2010).

The government of Honduras places limited restrictions to foreign investment. Nonetheless, American investors are at times forced to wait for long periods before being issued with environmental permits. Legislative and regulatory approvals do also take significant periods of time. The main challenges facing the investment climate include corruption, serious criminality, poor transport infrastructure, illiteracy, and ineffective judicial system (Becker, 2010).

Country Commercial Guides avail overviews of their commercial environments using market, economic, and political analyses. The guides are compiled annually in a mutual cooperation between the countries in question and the United States’ government agencies. The growth in the integration of Chile with the international capital markets as well as its macroeconomic stability has earned the country an A plus credit rating, and this is the highest amongst the countries in Latin America. Chile is among the most prosperous and stable developing countries and this has enabled it to consistently be ranked highly as far as the international indices are concerned. The country is known for its competitiveness, transparency, and economic freedom (Hamilton et al, 2012).

Recommendation

According to the analysis completed in this report, it is evident that Chile is the best country to open a new factory. Considering that the economy of Chile is not as big as that of Mexico, its level of foreign direct investment is noteworthy. This shows that there are several other factors which attract investment in the country, in spite of the distance from the United States.

Chile is more politically stable, and the market is also marked with openness. According to the United State’s State Department, Chile ranks 4.2 and 6.0 in terms of underlying vulnerability to social unrest and economic distress respectively. The figures for Mexico are 6.3 and 6.0 respectively while those of Honduras are 6.7 and 7.0. With regard to underlying vulnerability to social unrest and economic distress, Chile is actually in the league of such developed countries as South Korea (Holmberg & Rothstein, 2012).

In terms of corruption perception index, Chile scored 72% and was ranked in the 20th position out of 176 countries (with #1 being the least corrupt) in 2012. Transparency International ranked Mexico in the 105th position with a score of just 34%. Honduras was ranked in position 133 with a score of 28%. These figures show that opening a factory in Chile would be less likely to be hindered by corruption. This analysis does, therefore, show that Chile ought to be the destination of choice with regard to opening a new company (Hamilton et al, 2012).

References

Baer, W. & Miles, W. (2013). Foreign Direct Investment in Latin America: Its Changing Nature at the Turn of the Century. London: Routledge

Becker, T.H. (2010). Doing Business in the New Latin America: Keys to Profit in America's Next-Door Markets: Keys to Profit in America's Next-Door Markets. Santa Barbara, California: ABC-CLIO

Blake, C.H. (2009). Corruption and Democracy in Latin America. Pittsburgh, Pennsylvania: University of Pittsburgh Press

Hamilton, J.C. Garcia-Bolivar, O.E. & Otero, H. (2012). Latin American Investment Protections: Comparative Perspectives on Laws, Treaties, and Disputes for Investors, States and Counsel. Leiden, the Netherlands: Martinus Nijhoff Publishers

Holmberg, S. & Rothstein, B. (2012). Good Fovernance: The Relevance of political Science. Camberley, UK: Edward Elgar Publishing

Kingstone, P. (2013). The Political Economy of Latin America: Reflections on Neoliberalism and Development. London: Routledge

Nicholls, D. (2013). Foreign Direct Investment: Smart Approaches to Differentiation and Engagement. London: Gower Publishing, Ltd