International Marketing part 2

February 16, 2016

Peru is a South American country found relatively to the East of Brazil. It is boarded by Ecuador and Colombia to the North West and North East respectively. To the South, it boarders Chile while the last neighbor of the country is Bolivia. Several factors make the country quite attractive for business. Both politics, economy and the History of the country reflect a country that has a great ability to respond positively to investment and one where establishment of firms can be quite rewarding. The capitalistic nature brought about by the European conquest makes the economic culture one that is similar to several other countries and thus at least manageable with regards to market penetration and the working of the market itself. These several factors intertwine to support each other in a complimentary network.

Political and Financial Background of the country

Peru is a multi-party representative democracy. It is headed by an elected president who only serves for a five year term and can’t seek immediate re-election. The president however can be re-elected later after a whole five year term elapses after his or her presidency. Bills are proposed either by the judiciary or the executive. The executive power is vested upon the government while the legislative power is exercised by both the government and the congress. The judiciary, like in many other countries, is independent of the other two arms. Besides the central government, Peru as well has regional governments which organize and manage 25 regions of the country. These governments have autonomy from the perspectives of politics, economy and administration in what pertains the subjects of their own matters.

Historically, Peru hasn’t had what can be said to be effective political stability. It has experienced wars with Spain and Chile where in the war of Pacific (1879 to 1883), Chile allegedly looted and brought the economy of the country to its knees. After this duration, Peru got into a dictatorship in mid 1920s and it was not over until 1945 with inauguration of President José Luis Bustamente y Rivero. Unfortunately, he served for only three years before being overthrown and the country got into a series of coups and counter-coups until the 1980 when the last civilian president, Belaúnde Terry, was elected again into office (Hunefeldt, 2010). Between 1980 and 2000, there were conflicts between the government troops and rebel groups with Human Rights issues increasingly becoming a matter of concern. All the way through, however, a fragile democracy still survived. The constitution was changed in 1993. Signs of political stability however have been shown with the duration between 200 and 2015 being relatively stable. However, corruption has been very rampant although crackdowns have shown that Peru is serious on the issue. This is especially so with the sentencing of the former president Alberto Fujimori, to a jail term of 25 years being evidence of this while one of the presidents, who resigned due to pressure, went to live in Japan to avoid trial in his homeland Peru. The very fact that he had held a Japanese passport secretly made it impossible for extradition. Despite holding massive economic resources and a boom in its economy, most Peruvians are poor. Advocacy by the current president, Ollanta Humala, who came to power in 2011, earned him a narrow presidential victory.

Peru is open to Foreign Direct Investment (FDI). This has seen several international companies flock into the country especially since the 2000s when the political landscape of the country proved to have relatively changed for the better. The US, Spain and the UK have been the main countries contributing to FDI through capital contributions. Most companies have invested in the rich mining sector. Such companies include Peru Copper Syndicate Ltd of the UK and Cyprus Climax Metals Company from USA. Notably, there are relatively fewer foreign firms that have invested in Agriculture related industries such as shoe manufacturing.

Over a long time, and especially during the 2007-2012 duration of economic recession, the Peruvian Nuevo Sol remained as the most stable currency in the South American Latin economies. However, in 2015, the currency depreciated considerably against the dollar and this prompted the government to bring about fiscal and monetary measures to get it back to stability. This stability has led Peruvian economists and the government to argue that the place is the best to invest in due to low volatility of the currency and of course, the booming economy driven by rich Agricultural and the mining sector. Opening up ma firm there thus, is quite in order noting that the country is open to FDI and has relatively stable currency as well.

General Demographics in Peru

The population in Peru is multiethnic. Amerindian are the infigi9nous people especially those of the once famous and successful Inca Empire. Most Peruvians though are of either Amerindian descent or European descent. Amerindians account for roughly 45% of the population while Mestizos, whom are people of mixed Amerindian and white descent, account for 37%. Whites are 15% of the population. There are small groups of blacks, Japanese and Chinese and other minor groups. These make up just a 3% of the population. While there are several native Indian ethnic groups, the Quechua language was chosen to be an official language of them all. It is to date famous having been the official language of the famous Inca Empire. Aymara as well is an official language in Peru. The other official Language is Spanish.

As of July 2015, Peru had a total population of around 30.5 million people. Individuals aged 0-14 years comprise 26.95%. Both males and females at this age level are relatively equal in number being around 4 million each. The number of males is slightly high by only a margin of over 100,000. The 15-24 age bracket as well has a similar trend with males and females being around 2.8 million each. This age group makes up some 18.93% of the population. At between 25- 54 years, females’ number exceeds that of the males. Of the 39.65% in this group, males are around 5.8 million while females make up about 6.2 million. 55-64 years olds have around 1.1 million for both sexes. They comprise a 7.45% of the population. Finally, the senior citizens, the over 65, are a close to similar 7.03% with females exceeding males by around 100,000 at 1.1 million while the males make about a million individuals. The population growth rate is around 0.97% (Sanders, 2015).

Lima is the capital of Peru. Its population as per of July 2015 was around 9.8 million inhabitants. It is the economic center of Peru and the most vibrant and economic active of them all. This is shown by the city’s population which is tenfold that of other similar cities that are considered to be major. Trujilo is the second largest city followed by Arequipa with respective populations of around 950,000 and 920,000. The city of Chiclayo too has close to a million people at around 810,000 inhabitants. Other notable major cities in Peru, all of which have populations of about half a million people and below include Piura, Iquitos, Cusco, Chimbote and Huancayo. Piura’s dwellers are around half a million. Iquitos and Cusco are a slight lower at around 470,000 and 430,000 people respectively. Chimbote and Huancayo are inhabited by approximately 380,000 and 360,000 in that order.

Employment Figures

Literacy levels among the adults are quite high in Peru at around 90% for both males and females. There is little problem regarding access to both primary and secondary education. However, there are not as many students who get to the university compared to some countries in Latin America such as Colombia and Brazil which rank better in terms of education and irrespective of their relative economies (Sanders, 2015).

In Peru, there could be problems with estimates of unemployment. This is because unemployment is measured as a percentage of people that are actively looking for a job against those that are within the active labor force i.e., the economic active labor force. Only around 58 % of the population in Peru is ‘adequately employed’. Unemployment rate is at 7%. Even so, there are part time workers and casual laborers who account for 11.4% and 23.5% respectively. Notably however, it is very hard to pinpoint appropriate employment figures. This is due to the huge informal and illegal sectors that employ labor that can’t be easily documented or accounted for. These include illegal mining, drug cultivation and drug mining, and other informal activities that can’t be captured in the country’s GDP. The Labor Ministry of Peru estimates that about 68% of the labor market is informal. The labor force in the country is roughly 13 million excluding the retired and the students in school as well as children below the legal employment age.

Current state of the economy

The GDP of Peru is based on Agriculture, Industry and Services sector. Exports of minerals and metal products accou8nt account for close to 60% of the GDP. Agriculture contributes 7%, Industry around 34.5% and services goes to around 58.5%. The current GDP is valued at $385.4 billion. The annual growth rate is around 2.4% down from around 5.6% in 2012. Inflation rate stands at 3.6% in the current estimates. The exchange rate is at 3.17 nuevo sols per US dollar (Sanders, 2015).

Major Industries and Transportation Data

Major industries in Peru are in the mining and processing of the mined products. Agriculture, Fishing and Petroleum follow in that order. Major imports include petroleum and petroleum products, plastics, vehicles, electronics, telephones and telecommunication equipment, iron and steel, wheat, corn, soybean products, paper, cotton as well as vaccines and medicines. On the other hand, exports include minerals that mostly comprise of copper, gold, lead, zinc, tin, iron ore, molybdenum, silver; crude petroleum and petroleum products and natural gas. There are also agricultural exports and services that are exported as well.

Competitors

Albania shoes is a company that has settled in Peru and has found competitive advantages already. Nisolo and Fortress Inca are also two other major competitors (Stepan, 2014). To gain market share in what is almost entirely their markets, my firm will use price discrimination and target lower prices for places that are less penetrated. While there are problems with road networks in the rural areas of Peru, innovative ways will be used by the firm to reach the unreached. Mainly, by opening distribution channels that will engage seller and distributors to go for the shoes from the factories. Secondly, I’ll open the factories close to the sources of raw materials to reduce the cost manufacturing. Finally, marketing the products abroad will be a way of getting past the competitors especially into Africa and Asia that are less targeted but have more populations that can afford cheaper goods.

References

Hunefeldt, C. (2010). A brief history of Peru. New York: Facts On File.

Sanders, T. G. (2015). Peru's economy: Underemployment and the informal sector. Hanover,

NH: Universities Field Staff International.

Stepan, A. C. (2014). The state and society: Peru in comparative perspective. Princeton, NJ:

Princeton University Press.