Essay on Chauvco Analysis

Submitted By NupurP10
Words: 1256
Pages: 6

Chauvco Resources Ltd.:
The Argentina Decisions

Midterm # 1 Assignment

Submitted to: Brad Onofrychuk

By,
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INTRODUCTION
Chauvco resources ltd., as being the well established company of Canada, was growing quickly.
Chauvco quickly became one of the top 30 oil companies in Canada. Diminishing oil and gas reserves, high royalties and taxes, rising costs, escalation of land prices were some of the reasons, which led Chauvco to consider investing in other countries. In 1992, Chauvco showed an interest in an argentine oil and gas block which was being privatized. Chauvco's success in
Argentina was totally depended on country's future stability in all aspects. Before 1989 election of Carlos Menem, Argentina was facing extreme economic and political instability, and hyper inflation. The government of Argentina nationalized many businesses and imposed detailed regulations on set of policies that led to low growth, budget and trade deficits, hyperinflation, and currency devaluation. Whether Menem's new regulations could achieve long term success was remained to be seen. When Chauvco entered into the argentine market, they faced number of difficulties along with some positive aspects of the environment of business. Chauvco initially entered a joint venture partnership with one argentine company and one US based company, then
Chauvco developed an independent set of operations. By 1995, Chauvco had to decide in what proportions it should divide its future investments between Canada, Argentina and other countries, and what criteria it should consider in evaluating investment options.

PROBLEM:






Extreme economical and political instability.
Fifty percent of the economy was owned by the Argentina government
High import tariff.
Discrimination in taxation and rules & regulations for international companies.
Inefficiency, low growth, hyper inflation, and currency devaluation were major problems.

FACTS








Guy turcotte, an MBA graduate founded Chauvco resource ltd, which was from one of the top 30 companies.
The Calgary trade magazine oil week picked Chauvco as one of five companies that were
"Drilling to success"
Chauvco resource ltd decided to invest in Argentina.
In 1980, growth through acquisition in Argentina by Chauvco.
Economical and political instability in Argentina.
Chauvco did association with Bridas (local co.) and Coastal (U.S co.)
Argentina prefers to deal with Canadian company.

ANALYSIS
SWOT analysis
S---Chauvco was one of the top 30 oil companies of Canada. Company's reputation was the biggest strength for the company while entering into the foreign market. Pro Canadian attitude of
Chauvco helped the company to gain more profit through acquisition.
W---Hyperinflation was going on in Argentina was the biggest barrier for the Chauvco to increase their profits. Apart from that high inflation rate, outdated technology was another biggest problem because operating costs were so high and due to less technology they required more man power.
O---In Argentina, all the companies were being privatized so that was the biggest opportunity for
Chauvco to expand their business in that country. Chauvco had an option to update the technology to reduce the labour costs and maintenance costs of machinery.
T---Reducing oil and gas prices in Argentina was the biggest threat for the Chauvco. Reduced gas price can reduce their profits. Corruption and political instability might affect in Chauvco's steps towards the success.

PEST Analysis

Political




Economical




Social




Technological





Chauvco’s success in Argentina depends on the country’s future political stability and continuance of government policies.
Argentina’s set of policies that led to low growth, budget and trade deficit,
Hyper Inflation and Currency evaluation.
Its 30% to 50% more expensive to do business in the Argentina than in Canada
Bad economic Condition of Argentina and Uncertainty about the…