Venezuelas Accession to Mercosur - Essay Example

The acceptance of Venezuela as an associate member of MERCOSUR in July 2004 posts new opportunities and challenges for the whole country and the business sector. As discussed above, this new external change will bring about important changes in how business organizations operate. This business plan will look at the response of a coffee manufacturer as a result of Venezuela’s acceptance as an associate member in MERCOSUR. The first part will look at the benefits and drawbacks of the acceptance to the whole country. The next section will be looking more closely at the micro-level by examining the results of Venezuela’s accession to a local coffee manufacturer.

Benefits and Drawbacks of Acceptance
Venezuela is expected by other MERCOSUR member nations to make “limitless contribution [to MERCOSUR] in the economic, commercial, cultural and political fields” (Bolduc 2006). Venezuela is currently one of the largest producers and exporters of oil globally. It should be noted that the petroleum industry accounts for almost one-third of the country’s gross domestic product and almost 80% of export revenue (Venezuela 2006). The trading partners of Venezuela will gain from the company’s resources. It should be noted that MERCOSUR’s goal is the reduction of trade barriers between member nations. Thus, Venezuela is expected to lower its tariff on oil which will boost the demand for its commodity. However, doing so will reduce the revenue of the government in the form of tariffs collected.

It can be seen that the acceptance of Venezuela will facilitate the inflow and outflow of goods as trade barriers are reduced and even eliminated. Venezuela will enjoy the influx of lower-priced commodities from its trading partners like Brazil. For instance, it should be noted that in order to support the higher demand for poultry products in the local market, Venezuela imports a huge portion of its poultry supply from Brazil. Trade liberalization also brings in more choices for local customers. The inflow of commodities is expected to give a higher level of utility to Venezuelans.

However, trade liberalization is a double-edged sword. Aside from providing the aforementioned benefits, trade liberalization can also harm the local industry as it creates more intense competition in the market. It can be seen that the flow of more competitive commodities from its trading partners local manufacturers by capturing their current market. For instance, lower-priced bags from Argentina can easily capture the price-sensitive segment in Venezuela to the detriment of the local bag manufacturers.

Changes in Business Plan
From being one of the highest coffee producers in the world, Venezuela’s coffee production now slumped to only 1% of the world’s total. This, together with the inefficiencies in the agricultural sector makes the prices of coffee beans skyrocket. It should be noted that Venezuela has been experiencing a shortage of manufactured coffee in supermarkets and specialty shops because of the extremely high prices (Morsbach 2006).

The acceptance of Venezuela in the MERCOSUR posts challenges and opportunities for the local manufacturing industry. It should be noted that the high price of coffee beans exacerbated by production inefficiencies disable local coffee manufacturers to produce higher quality and more competitively priced commodities. With the trade liberalization, coffee manufacturers can now source their coffee beans from other coffee-producing countries like Brazil. It should be noted that Brazil is the largest coffee producer in the world (Brazilian Coffee 2006). As it is also a member of MERCOSUR, Venezuela is an advantage due to lower tariffs. Venezuelan manufacturers can now opt to export lower-priced coffee beans from Brazil.

However, this also poses challenges as Brazil can also directly ship its coffee products in the Venezuelan market. With this, local coffee manufacturers are faced with more intense competition and are forced to pursue a device with a more efficient value chain in order to battle head-on with foreign players.