Culture, Social, and Demographics:
When examining any company and their possible expansion into new markets you must first examine the culture, social, and demographic issues impacting foreign businesses. The Colombian culture has begun to show a bias towards American products as recently as 1998. As written in Carol Casper’s New York Times article, “There is a lot of interest in U.S. concepts and products...” in not only Colombia but also all of Latin America. The interest has caused more American firms to begin to see these developing attitudes and expand their businesses into Latin America. For Xerox to also take part in this expansion they would be able to take advantage of the new interest.
Colombians, although, are not welcoming these companies with open arms. There is an interest in the U.S. businesses but as Dianna Jean Schemo reports; it is not uncommon to be threatened by the cartels of Colombia. These cartels want in on the inflow of money and will get involved in kidnappings and murderer if they see it necessary. In 1996, the last year these figures are available, the Federal Bureau of Investigation reported 19,645 homicides while in Colombia there were 26,627. For the fear of being on the wrong end of such instances American businesses need to be extra careful when trying to penetrate the Colombian marketplace. Xerox would not be as impacted by the threat of cartel interference. The cartels become more involved with restaurants and oil companies that have developed in Colombia. They have not developed any interest in the technology industry as of yet.
Colombia has a population of 37 million Spanish-speaking people. The annual growth rate is 1.7% and 95% of the population is Roman Catholic. In the urban areas a 93% literacy rate was found, as opposed to a 67% literacy rate in rural areas. This is due to the fact that only five years of primary school are offered in rural areas. This information regarding the population is encouraging. Although the rural population’s literacy rate is low, the urban rate is quite high for a Latin American country. This rate leads me to believe that for Xerox to expand in this market with its technology/communication equipment would not be a problem. The majority of the targeted population where Xerox would be selling their products could understand the benefits of their product and would want to purchase Xerox products.
Colombia has both political and economic stability that is uncommon to Latin American countries. Colombia also enjoys low inflation as compared to other South American countries. The government of Colombia is a unitary republic, made up of an executive branch, National Congress, and Constitutional Court.
The government creates economic and social development plans annually. The executive branch of the government is responsible for forming the plans in detail. There is a trade barrier that must be registered with Incomex (official foreign trade institution). Payments of invisible imports such as acquisition of technology must be paid to them. The interaction of the government with economic and social issues will help Xerox to expand into this country. By Colombia having an Americanized government system in place that has become stable, it will greatly help foreign countries to become interested and to invest in this nation.
Colombia tries to also maintain and encourage foreign investment. The regulatory climate consists of National Planning Department, Central Bank, Ministry of Mines and Energy, Banking Superintendency, and Securities Superintendency. Foreign investment is permitted in all economic activities except those related to defenses or national security, and dangerous refuse. This lack of restrictions enables Xerox to freely move in and establish itself in Colombia.
Restrictions on goods imported to Colombia are minimal. The process involves preparing a pro forma invoice, effecting an import registration at Incomex, shipping the goods with a final invoice, clearing customs, and remittance of payment on the currency of the exporter or in U.S. dollars through an authorized exchange intermediary. Again the lack of restrictions would allow Xerox to enter the Colombian market with few barriers.
Macroeconomic issues :
In Colombia there are macroeconomic conditions that could impact Xerox and our decision to expand to the country. Since 1995 Colombia’s GDP growth percent has plummeted. In 1995 it was 5.7, down to 2.1 in 1996 and in 1997 it fell further to 2.0. This trend is quite alarming for not only Xerox but also other countries that wish to expand their market to Colombia.
Colombia also has an unemployment, which has steadily risen since 1995. The unemployment rate was 9.5% in 1995 then 11.3% in 1996 and finally 12.2% in 1997. This happened while the labor force rose in these years by 366,000. This will help us to be able to find workers but whether or not they are capable employees in the technology industry is yet to be seen. If the employment has occurred in the agriculture rather then in the urban area there is a better chance that the unemployed could be illiterate.
Advertising is also an interesting subject. At least 50% of programmed advertising broad cast on television must have local content. It is also required to have use of a Colombian trademark in order to exercise trademark protection in Colombia. These policies seem antiquated as compared to those of the United States and should definitely be addressed. As a company Xerox must determine whether they can get a Colombian trademark first and then whether they can advertise while involving local content. Advertising is a key part of our success in Colombia so these factors are of key importance.
The Colombian Peso has remained relatively stable in the past few years. This historic stability has been highlighted recently by a strengthening of the U.S. dollar as compared to the Colombian Peso. At the end of March 1998 the period principal exchange rate was 1,358.03 Colombian Pesos equal $1. This number has consistently been increasing since early 1997. This is appealing for us as a potential investor. With our U.S. dollars we can get more Colombian Pesos for our money. From past data it only seems that this trend will only continue so investment with regards to exchange rate issues is promising.
FIRM & INDUSTRY ISSUES
Firm’s Current Financial Condition :
As Xerox we have developed from the “Copier Company” to the “Document Company”. This conversion has taken us into newer and expanded markets. At year-end of 1998 our revenue was $19.4 billion. Of this revenue the United States accounted for $10.1 billion, Europe and other countries accounted for $5.8 billion and Latin America and Canada accounted for $3.5 billion. These numbers show the international interest that Xerox has pursued recently. In this pursuit, however, Xerox has maintained its strategic intent in being the leader in the global document market, and providing document solutions that enhance our customers’ business productivity. We plan on doing this by providing global document solutions that bring together our leading-edge technology, the widest array of digital hardware in the industry, sophisticated software, services, teams of industry-focused sales representatives and consultants, and a growing network of indirect sales channels.
Current Competitors in the Industry:
Production Costs for the Industry:
Tariffs and Trade Restrictions specific to the Industry :
Xerox is forced to deal with Colombia’s trade restrictions if we want to expand to this country. Colombia imposes a 7% tax on products other than foods and basic medications, along with a tax on income unless it stays in Colombia. The blunt of Colombian restrictions on imports, however, lies on the agricultural end. Due to this Xerox after registering with the government can receive relatively little resistance from the Colombian government to invest in the country.