Oakland University

International IT

Country Presentation

Venezuela

Team Members:Leonard Babajan

Walter CookeTerry Johnson

Srimala Pai

October 4, 2005

Venezuela

Flat World

South America

Guiana Highlands

Low lands

Silicon Valley

AndesOrinoco Basin

with LlanosGrass covered plains

Great rainforests

Capital

Coastal RangeOrinoco River

Only 1.5 % of the population lives south of

the river

60% of the population lives in the coastal and Andean region

60% of the population lives in the coastal and Andean region

40% 0f the population is

in the 8 major cities

Name of Venezuela

In the picture you can see houses over the water, in the Sinamaica lagoon (Zulia state), close to Maracaibo. When the first explorers arrived, those houses reminded them of the city of Venice. That is why they called the region "Little Venice", which in Spanish would be Venezuela

Venezuela

• Country (long form) Bolivarian Republic of Venezuela• Federal Nation with 23 states and 1 federal District• Capital Caracas• Major cities Maracaibo, Valencia, Barquisimeto• Total Area 352,144.47 sq mi

912,050.00 sq km(slightly more than twice the size of California)

• Population 24.7 million (2004 est.) 87% is urban• Estimated Population in 2050 37,106,394• Life Expectancy 70.29 male, 76.56 female (2001 est.)• Weather tropical, hot, humid; more moderate in

highlands • Venezuela Time = GMT- 4

Economic Picture• highly dependent on the petroleum sector, accounting for

roughly one-third of GDP, around 80% of export earnings, and over half of government operating revenues.

• A disastrous two-month national oil strike from December 2002 to February 2003, temporarily halted economic activity.

• The economy remained in depression in 2003, declining by 9.2% after an 8.9% fall in 2002.

• Despite continued domestic instability, output recovered strongly in 2004, aided by high oil prices. Both inflation and unemployment remain fundamental problems

• Currency 1 bolivar (Bs) = 100 centimos• 1 US Dollar = 2,148.30 Venezuelan Bolivar • GDP/PPP (2004 est.): $115 billion; per capita $4,400. • Real growth rate: 16.8%. For 2004 and estimated to grow by 6.0

percent in 2005 and 4.1 in 2006 • Gini coefficient: 0.618 (2003)• Inflation: 22.4%. (2004)

Economic Picture (cont.)• Labor force: 12.25 million (2004 est.) agriculture 13%, industry 23%, services 64% (1997

est.) Unemployment: 17.1%.• Industry petroleum( 25%of GDP), iron ore mining,

construction materials, food processing, textiles, steel, aluminum, motor vehicle assembly

• Manufacturing (21.5% of GDP): Types--iron and steel, paper products, aluminum, textiles, transport equipment, consumer products, and petroleum refining

• Agriculture(5% of GDP) corn, sorghum, sugarcane, rice, bananas, vegetables, coffee; beef, pork, milk, eggs; fish

Economic Picture (cont.)• Arable Land 4%• Natural resources: petroleum, natural gas, iron

ore, gold, bauxite, other minerals, hydropower, diamonds.

• Exports: $41.0 billion (2004): petroleum ($34 B), bauxite and aluminum, steel, chemicals, agricultural products, basic manufactures.

• Imports: $15.8 billion (2004): raw materials, machinery and equipment, transport equipment, construction materials.

• Major trading partners: U.S., Netherlands Antilles, Dominican Republic, Colombia, Brazil, Mexico (2003).

Venezuela contains some of the largest oil and natural gas

reserves in the world. It consistently ranks as one the top suppliers of U.S. oil imports and is among the top ten crude oil

producers in the world

Socio-cultural Picture

• Languages Spanish (official), numerous indigenous dialects

• Literacy 91.1% total, 91.8% male, 90.3% female (1995 est.)

• Religions nominally Roman Catholic 96%, Protestant 2%, other 2%

• Ethnic groups Most Venezuelans are of European: Spanish, Italian, Portuguese, Arab, German, Indigenous, and African descent

• Popular Drink: Beer, Rum, and Scotch whiskey

• Popular Food: Arepas: a type of round cornmeal bread

• Popular Music: Salsa and Merengue

Business culture• Punctuality is expected on business and social

occasions. Moreover, arriving at least five minutes early will also be viewed favorably

• Generally, the working week is Monday though Friday 8:00 a.m. to 5:00 p.m., with at least an hour break for lunch; some executives take a two-hour lunch

• The lunch period in Venezuela is usually between noon and 2 p.m. This meal will consist of five or more courses, including soup and dessert, followed by strong coffee.

• Dress: Men should dress conservatively, in dark business suits made of lighter wools. In business, Venezuelan women tend to be meticulous dressers who closely follow European fashion

Business culture• People who do not have professional titles

should be addressed using courtesy titles like Mr. = Senor, Mrs. = Senora, Miss = Senorita + Surname

• Business dinners, in particular, are usually purely social occasions, so refrain from discussing work-related matters

• Be sensitive to the fact that Venezuelans tend to stand extremely close to others. The best policy is to respect this practice.

• In the course of a conversation, Venezuelans sometimes touch each other's arms or jacket

Transportation

• Railways: total: 682 km (2002).• Highways: total: 96,155 km; paved: 32,308 km;

unpaved:. 63,847 km (1999 est.). • Almost all of Venezuela can be reached by bus, the least

expensive way to see the country!!• Waterways: 7,100 km; Orinoco River and Lake de

Maracaibo navigable ocean going vessels. • Ports and harbors: Amuay, Bajo Grande, El Tablazo,

La Guaira, La Salina, Maracaibo, Matanzas, Palua, Puerto Cabello, Puerto la Cruz, Puerto Ordaz, Puerto Sucre, Punta Cardon.

• Airports: 369 (2004 est)9 International

Telecommunication Infrastructure

• Communications: Telephones: main lines in use: 2,841,800(2002); mobile cellular: 6,463,600 (2002).

• Radio broadcast stations: AM 201, FM n.a. (20 in Caracas), shortwave 11 (1998). Radios: 10.75 million (1997).

• Television broadcast stations: 66 (plus 45 repeaters) (1997). Televisions: 4.1 million (1997).

• Internet Service Providers (ISPs): 16 (2000). Internet users: 5.6 million (2004).

Politics

• chief of state: President Hugo CHAVEZ Frias (since 3 February 1999); Vice President Jose Vicente RANGEL Vale (since 28 April 2002); note - the president is both the chief of state and head of government

• cabinet: Council of Ministers appointed by the president

• elections: president elected by popular vote for a six-year term; election last held 30 July 2000 (next to be held NA 2006)

IT Strengths• The government is very supportive of IT, and has initiatives in

place to promote internet use and e-commerce across all of Venezuela– Some of these initiatives include a free trade zone and special tax

breaks to corporations such as Microsoft to promote the creation of a Latin American headquarters in Venezuela

• Telecommunications industry is completely deregulated– Investments will become very lucrative in the telecommunications

industry due to this deregulation.

• Participating with several countries (Ecuador, Colombia, Peru and Bolivia) in building an international fiber optic network

IT Strengths (cont.)

• Very strong R & D in Merida, “The silicon valley of Venezuela”– The governments free trade initiative will likely have

significant positive impact on the research and development industry

• Highly competitive free education, leading to very knowledgeable IT professionals

• There are over 30 universities that offer IT related degree programs as well as over 150 research facilities

IT Weaknesses

• Venezuela currently pays IT professionals 1/3 of the salary that IT professionals in other countries receive.– The majority of IT professionals are finding more lucrative jobs

abroad, others are dropping their profession and turning to taxi cab driving and peddling on the streets as these jobs are more profitable

• The financing industry is very expensive and inefficient in Venezuela, making it very difficult for firms to raise needed funds– IT corporations looking for funding cannot do so very easily

within Venezuela as the infrastructure lacks the efficiency needed to be reasonably priced.

– Firms that seek venture capital funding must look to countries such as the United States and Europe.

Technology Scene

• The teledensity of Venezuela as of 2003 was estimated at 10.932 main lines per 100 habitants.

• The education system is heavily involved in IT making for a highly skilled training environment

• Most of these knowledgeable IT professionals migrate to countries such as the UK and the USA as the average Venezuelan IT salary is very low.

Technology Scene (cont.)

• The IT industry represents 4.5% of the total labor force of 12.25 million in Venezuela.

• The major IT users in Venezuela are, The petrol industry, banking and finance, telecommunications, government, and the manufacturing and industrial sector.

• As of 2004 there were roughly 5.6M internet users in Venezuela

IT Industry Producers: HW

Hardware

• No real manufacturing presence in Venezuela

• Some “no name” clone manufacturers assemble PCs in Venezuela

• Distribution centers and resellers provide the hardware for the Venezuelan IT industry

IT Industry Producers: SW

Software

• The government is promoting Open Source software development

• Venezuela’s state oil giant Petroleos de Venezuela SA (PDVSA) had a JV with SAIC for IT, however they did not renew

• PDVSA is moving towards Open Source Software

IT Industry Producers: SW (cont.)

Software

• 50% of the Governments Software is to become open sourced by 2007

• Opportunity for investment Start a consulting company for support and development of open sourced software in Venezuela

IT Industry Producers

• The main provider of telecommunications services is

• started out as a Public entity and started to become privatized in 1991

• The fixed line aspect of telecommunications was opened up in 2000

IT Industry Consumers

Banking and Finance Sector– Banco first to offer online banking– Provider of online service to bank is located

out of Miami FL

Insurance Sector

Telecommunications– Wireless and Broadband DSL

211k subscribers June 2005

IT Industry Consumers (cont.)

Government and Customs

Manufacturing and Industrial Sector

Individual or Personal Use

• <10% of the population can afford new tech Percentage of users considered “sophisticated” users

IT Industry Consumers (cont.)

Oil and Derivatives Industry

• Heavy Consumers

• Mostly Import all Hardware and Software Required

IT in Venezuela

• Education

• Workforce

• Government

• Internet

• Online Media

IT in Venezuela: Education

• Education– 30 universities– 10 higher education programs related to technology– 48 technical education institutes– 150 research facilities– Most popular university diploma -> Systems engineering– Most popular technical education program -> IT

IT in Venezuela: Workforce

• Workforce– 20,000 IT professionals– 60,000 young Venezuelans being trained– Relatively low salaries -> brain drain

IT in Venezuela: Government

Government– Ministry of Science and Technology (MCT)– Venezuelan Center for Information

Technologies (CNTI)– Fundacite - Mérida – National Telecommunications Commission

(CONATEL)

IT in Venezuela: Internet

• # of internet users: 5.6 million

IT in Venezuela: Online Media

Online TV

Venezuelana de TV 102 kbps RCTV 35 kbps

Online Radio City Genre Player Software

Angel FM Caracas Adult contemporary wmp

Circuito National Belfort Caracas Venezuelan music wmp

Fiesta 106.5 Caracas Latin music mp3

Hot 94.1 Caracas Top 40 wmp

Kys FM Caracas Adult contemporary mp3

La Romantica Caracas Love songs wmp

Planeto 105.3 Caracas Top 40 wmp

Radio National (YVKE) Caracas News mp3

95.5 Stereo Aciragua Top 40 wmp

91.9 FM Center Unknown Oldies mp3

Sample of IT industries

• Telecomm. Infrastructure

• E-Commerce

• Hardware & Software

• IT Services

Sample of Venezuelan IT industries

Sample Website in Spanish

Bolsa de Valores de Caracas

(Caracas Stock Market)

Sample Website in English

• Venezuela Analysis: Venezuelan Views, News, & Analysis

Business climate of country and region

• Country: Venezuela– Economy (GDP, industry, FDI, etc.)– Politics (stability, regulations, etc.)– Social & cultural (language, attitudes, etc.)

Business climate of country and region

• Region: South America– Economic alliances (MERCESUR, etc)

• Regional oil agreements:– Petrocaribe– Petrosur Petroamerica– Petroandina

– Political issues• Organization of American States (OAS)

– Social & cultural

Potential business opportunities evaluated

• Business categories: B2B vs. B2C

• Sectors

• Investment types

Opportunities: B2B

• Investment by customer business sector– Petroleum– Telecomm– Government– Education

Opportunities: Petroleum

• 1/3 of GDP, 80% of export earnings• Oil reserves: 78 billion barrels (7th in world, 2nd in western

hemisphere)• Gas reserves: 148 trillion cubic feet (8th in world, 2nd in western

hemisphere)• Venezuela is 4th largest exporter of oil to the U.S. (12% of US oil

imports)• Petróleos de Venezuela S.A.(PDVSA) is Venezuela’s state owned

oil company• Citgo is a subsidiary of PDVSA• 60 foreign companies from 14 countries

Opportunities: Petroleum (cont.)

• Crude production capacity: 4 million barrels/day

• Current crude production: 3 million barrels/day• Crude refining capacity: 1.3 million barrels/day

• Pros: major national sector, growing global demand

• Cons: state owned

Opportunities: Telecommunications

• Telecomm is the fastest growing sector in Venezuela (3.4% of GDP in 1999)• Basic services: cellular telephony, rural telephony, data transmission, paging

• In 2001, 84% of non-petroleum investments were directed to telecomm• Foreign investment in sector close to 50%• Major foreign investors: AT&T, Bell Canada Int., British Telecom

• Pros: fastest growing, promising• Cons: smaller capacity, lack of

solid infrastructure

Opportunities: B2C

• Telecomm– Fixed lines– Mobile phones– ISPs

• eCommerce– Limited due to credit card fraud

B2B vs. B2C Analysis

B2B B2C

Advantages •Vast resources•Established infrastructure

•Younger population: 65% < 30 years old (87% urban)•Continued rise in internet and phone use

Disadvantages •Political instability •Poverty: 75% of population considered poor•Cultural challenges

Investment Method

FDI seems to be the best investment method

Advantages of FDI in Venezuela:• Foreign investments are protected by constitutional mandate, and

encouraged in the Investment Promotion and Protection Law, which establishes:

• Equal treatment for national and foreign investors• 100% foreign-capital ventures are allowed, except for Spanish-

language media• Express stipulation that no prior authorization is required for

investments• Free repatriation of capital and profits• Legal stability agreements pledging the State to maintain special tax

conditions on private ventures for up to 10 years• International arbitration accepted as alternative mechanism for

contractual dispute settlement• Unrestricted currency convertibility

Contrasting country: Colombia

Venezuela Colombia

GDP $115 billion $95 billion

Population 25 million 45 million

Proved oil reserves 78 billion barrels 1.7 billion barrels

Daily oil production (2004) 3,000,000 barrels 550,000 barrels

Change in daily oil prod. From 2003

13.8% -2.1%

Why investing in this country would be different from investing in Colombia

• Political– More instability in Colombia

• Economic– Per capita GDP: 2 times more in Venezuela

• Geographic– Colombia has direct access to Pacific Ocean

• Logistics– Transportation: restrained in Colombia by rebels– Security: bigger concern in Colombia

• Cultural– Similar language and overall culture

Recent Headlines

Recommendations

• Business categories: B2B– % of poor not likely to decrease (too early for B2C)

• Sectors: petroleum– Major role in Venezuelan economy regardless of

government orientation– Increased global concerns about supply and prices

of energy– Recent expansion into Latin American market

• Investment types– Foreign direct investment

Recommendation Summary

Venezuela would be an excellent place for foreign direct investment into IT firms that support the petroleum industry.

The petroleum industry is by far the largest business sector in Venezuela. Global demand is projected to continue to rise. Venezuela has the capability and the will to produce, refine, and export more petroleum.

Q & A

Questions… Preguntas…