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Earth Moving Equipment in Argentina: A Strategic Reference, 2007


Description: How to Strategically Evaluate Argentina Perhaps the most efficient way of evaluating Argentina is to consider key dimensions which themselves are composites of multiple factors. Composite portfolio approaches have long been used by strategic planners. The biggest challenge in this approach is to choose the appropriate factors that are the most relevant to international planning. The two measures of greatest relevance to earth moving equipment are “latent demand” and “market accessibility”. The figure below summarizes the key dimensions and recommendations of such an approach. Using these two composites, one can prioritize all countries of the world. Countries of high latent demand and high relative accessibility (e.g. easier entry for one firm compared to other firms) are given highest priority. The figure below shows two different scenarios. Accessibility is defined as a firm’s ease of entering or supplying from or to a market (the “supply side”), and latent demand is an indicator of the potential in serving from or to the market (the “demand side”). Framework for Prioritizing Countries Demand/Market Potential Driven Firm Relative Accessibility Accessibility/Supply Averse Firm In the top figure, the firm is driven by market potential, whereas the bottom figure represents a firm that is driven by costs or by an aversion to difficult markets. This report treats the reader as coming from a “generic firm” approaching the global market - neither a market-driven nor a cost-driven company. Planners must therefore augment this report with their own company-specific factors that might change the priorities (e.g. a Canadian firm may have higher accessibility in Canada than a German firm). Latent Demand and Accessibility in Argentina This report provides a detailed overview of factors driving latent demand and accessibility for earth moving equipment in Argentina. Latent demand is largely driven by economic fundamentals specific to earth moving equipment. This topic is discussed in Chapter 2 using work carried out in Argentina on behalf of American firms and authored by the United States government (typically commercial attachés or similar persons in local offices of the U.S. Department of State). I have included a number of edits to clarify the information provided. Latent demand only represents half of the picture. Chapter 2 also deals with micro-accessibility for earth moving equipment in Argentina. I use the term “micro” since the discussion is focused specifically on earth moving equipment. Chapter 3 is also a stand-alone report that I have authored. It covers proxy pro-forma financial indicators of firms operating in Argentina. I use the word “proxy” because the provided figures only cover a “what if” scenario, based on actual operating results for firms in Argentina. The numbers are only indicative of an average firm whose primary activity is in Argentina. It covers a vertical analysis of the maximum likelihood balance sheet, income statement, and financial ratios of firms operating in Argentina. It does so for a particular Standard Industrial Classification (SIC) code. That code covers “construction, mining and materials handling machinery and equipment”, as defined in Chapter 3. Again, while “construction, mining and materials handling machinery and equipment” does not exactly equate to “earth moving equipment”, it nevertheless gives an indicator of how Argentina compares to other countries for a proxy adjacent category along various dimensions. Chapter 4 deals with macro-accessibility and covers factors that go beyond earth moving equipment. A country may at first sight appear to be attractive due to a high latent demand, but it is often less attractive when one considers at the macro level how easy it might be to serve that entire potential and/or general business risks. While accessibility will always vary from one company to another for a given country, the following domains are typically considered when evaluating macro-accessibility in Argentina: Openness to Trade in Argentina Openness to Direct Investment in Argentina Local Marketing and Entry Strategy Alternatives Local Human Resources Local Risks Across these domains, a number of not-so-obvious factors can affect accessibility and risk. These are covered in the Chapter 4, which is a general overview of investment and business conditions in Argentina. Chapter 4 is also presented from the perspective of an American firm, though is equally applicable to most firms entering Argentina. This chapter is also authored by local offices of the U.S. government, as is Chapter 2. Likewise, I have included a number of edits to clarify the provided information as it relates to the general strategic framework mentioned earlier.


Contents: 1 INTRODUCTION & METHODOLOGY 1 1.1 What Does This Report Cover? 1 1.2 How to Strategically Evaluate Argentina 1 1.3 Latent Demand and Accessibility in Argentina 3 2 EARTH MOVING EQUIPMENT IN ARGENTINA 5 2.1 Latent Demand and Accessibility: Background 5 2.2 Latent Demand: Market Composition 5 2.2.1 Construction 6 2.3 Market Data 6 2.4 Key Players 8 2.5 Accessibility: Key Factors 9 2.6 Key Contacts 10 2.6.1 Trade Publications 10 2.6.2 Industry Associations 10 2.6.3 Trade Event 11 3 FINANCIAL INDICATORS: CONSTRUCTION, MINING AND MATERIALS HANDLING MACHINERY AND EQUIPMENT 12 3.1 Overview 12 3.1.1 Financial Returns and Gaps in Argentina 13 3.1.2 Labor Productivity Gaps in Argentina 16 3.1.3 Limitations and Extensions 16 3.2 Financial Returns in Argentina: Asset Structure Ratios 17 3.2.1 Overview 17 3.2.2 Assets - Definitions of Terms 17 3.2.3 Asset Structure: Outlook 20 3.2.4 Large Variances: Assets 21 3.2.5 Key Percentiles and Rankings 24 3.3 Financial Returns in Argentina: Liability Structure Ratios 39 3.3.1 Overview 39 3.3.2 Liabilities and Equity - Definitions of Terms 39 3.3.3 Liability Structure: Outlook 41 3.3.4 Large Variances: Liabilities 42 3.3.5 Key Percentiles and Rankings 45 3.4 Financial Returns in Argentina: Income Structure Ratios 58 3.4.1 Overview 58 3.4.2 Income Statements - Definitions of Terms 58 3.4.3 Income Structure: Outlook 60 3.4.4 Large Variances: Income 61 3.4.5 Key Percentiles and Rankings 64 3.5 Financial Returns in Argentina: Profitability Ratios 79 3.5.1 Overview 79 3.5.2 Ratios - Definitions of Terms 79 3.5.3 Ratio Structure: Outlook 81 3.5.4 Large Variances: Ratios 82 3.5.5 Key Percentiles and Rankings 85 3.6 Productivity in Argentina: Asset-Labor Ratios 100 3.6.1 Overview 100 3.6.2 Asset to Labor: Outlook 101 3.6.3 Asset to Labor: International Gaps 102 3.6.4 Key Percentiles and Rankings 105 3.7 Productivity in Argentina: Liability-Labor Ratios 120 3.7.1 Overview 120 3.7.2 Liability to Labor: Outlook 121 3.7.3 Liability and Equity to Labor: International Gaps 122 3.7.4 Key Percentiles and Rankings 125 3.8 Productivity in Argentina: Income-Labor Ratios 138 3.8.1 Overview 138 3.8.2 Income to Labor: Outlook 139 3.8.3 Income to Labor: Gaps 140 3.8.4 Key Percentiles and Rankings 143 4 MACRO-ACCESSIBILITY IN ARGENTINA 158 4.1 Executive Summary 158 4.1.1 MERCOSUR Trade Pact 158 4.1.2 Protection of Intellectual Property 158 4.1.3 Investment Climate 158 4.2 Political Risks 159 4.2.1 The Political System 159 4.2.2 Economic Relationship with the U.S. 162 4.2.3 Politics and the Business Environment 162 4.3 Marketing Strategies 163 4.3.1 Distribution Channel Options 163 4.3.2 Direct Marketing Options 166 4.3.3 Market Research 167 4.3.4 Franchising Activities 167 4.3.5 Licensing Arrangements 168 4.3.6 Joint Ventures and Licensing Options 168 4.3.7 Creating a Sales Office 169 4.3.8 Legal Structures Commonly Used by Investors 169 4.3.9 Selling Strategies 170 4.3.10 Pricing Issues 170 4.3.11 Advertising and Trade Promotion 171 4.3.12 Public Sector Marketing 174 4.3.13 Procurement from Local Companies (Buy Local Regime) 175 4.3.14 Hiring Local Counsel 178 4.4 Import and Export Regulation Risks 178 4.4.1 Trade Barrier Risks 178 4.4.2 Tariff Barriers 178 4.4.3 Non-Tariff Barriers 184 4.4.4 Documentation Requirements and Restrictions 185 4.4.5 Methods of Payment for Imports 185 4.4.6 Valuations on Imports 186 4.4.7 Licenses Required for Imports 187 4.4.8 Controls on Exports 188 4.4.9 Documentation Required for Trade 189 4.4.10 Entering Temporary Imports 191 4.4.11 Labeling Issues 192 4.4.12 Restrictions on Imports 194 4.4.13 Local Standards 194 4.4.14 International Trade Agreements 196 4.4.15 Free Trade Zone Options 198 4.4.16 Additional Trade Issues 204 4.4.17 Adherence to Free Trade Agreements 206 4.5 Investment Climate 208 4.5.1 Openness to Foreign Investment 208 4.5.2 Dispute Settlement 209 4.5.3 Performance Requirements and Incentives 209 4.5.4 Right to Private Ownership and Establishment 209 4.5.5 Intellectual Property Risks 210 4.5.6 Transparency of the Regulatory System 210 4.5.7 Capital Market Risks 211 4.5.8 Corruption 211 4.5.9 Bilateral Investment Agreements 211 4.5.10 OPIC and Other Investment Insurance 212 4.5.11 Free Trade Zone Options 212 4.5.12 Foreign Direct Investment 212 4.6 Trade and Project Financing 213 4.6.1 Foreign Exchange Control Risks 213 4.6.2 Financing Export Strategies 214 4.6.3 Multilateral Financing 214 4.6.4 Overseas Private Investment Corporation 215 4.6.5 Trade and Development Agency 216 4.6.6 Private Sector Banks 216 4.6.7 Banks with Correspondent Banking Arrangements 216 4.7 Travel Risks 216 4.7.1 Local Business Practices 216 4.7.2 Language 217 4.7.3 Currency 217 4.7.4 Time Zone 217 4.7.5 Electric Current 218 4.7.6 Security Assessment 218 4.7.7 Visas 218 4.7.8 Work Permits 218 4.7.9 Infrastructure for Conducting Business 219 4.7.10 Temporary Entry of Personal Laptops and Exhibit Materials 220 4.7.11 Geography and Environment 220 4.7.12 Country Data 221 4.8 Key Contacts 221 4.8.1 U.S. Embassy Trade-Related Contacts 221 4.8.2 AmCham and/or Bilateral Councils 225 4.8.3 Trade and Industry Associations 225 4.8.4 Argentine Government Agencies 227 4.8.5 Market Research Firms 231 4.8.6 Banks 233 4.8.7 Law Firms 237 4.8.8 Consultants 239 4.8.9 Transportation-Related Contacts 241 4.8.10 Hotels in Argentina 248 5 DISCLAIMERS, WARRANTEES, AND USER AGREEMENT PROVISIONS 253 5.1 Disclaimers & Safe Harbor 253 5.2 Icon Group International, Inc. User Agreement Provisions 254




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