Essay on comparing autootive export/import to other countries

Submitted By jessrobinson07
Words: 1082
Pages: 5

Foreign Automotives is looking to expand by opening a manufacturing plant globally, specifically in Latin America. Although, Foreign Automotives is particularly successful in the United States, our sales have become stagnate and we think it is best to began expanding abroad. Foreign direct investment can be risky and costly but we can avoid certain pitfalls such as the transportation costs of exporting and the loss of operating control due to franchising. Our company is looking to become a global company, not limiting ourselves to exporting and think it is best to set up site in Latin America. We have narrowed the global market to three countries in Latin America: Argentina, Brazil and Mexico. In expanding in abroad, we are looking for specific requirements: cheapest land/building costs, low labor rates, government policies, market and transport cost. We are looking at these specific industry factors as our industry requires a large area of cheap, flat land to house automotives, mechanic and parts shop as well as an office. Cheap labor is very important for our labor intensive industry, we want to be sure we are offering fair wages but at the lowest cost. Industrial development is encouraged in some areas but restricted in some thus reviewing government policies is one of the many keys to success. The market is also important when selecting the location for our industry as we have to be sure our products will sell in that location and the costs to importing/exporting automotives are low. All of these factors are key in selecting the prime location for our manufacturing factory. Argentina has well developed automotive industry. During 2011, local production of vehicles exceeded 800,000 of which 81 percent were transported to Brazil and other Latin American countries.
The automotive market in Argentina is restricted due to an Automotive Industry Cooperation Agreement with Brazil which allows for the integration of bi-national production and limits imports of automobiles, trucks and parts from third countries. There is an even stricter restriction on used vehicles and parts, banning them outright. Vehicles in Argentina are significantly more expensive than in the U.S. It takes an average worker 15 months worth of salary to afford a vehicle while in the U.S. it is five. Although Argentina is heavily populated, leasing is not available, they have one of the highest traffic accidents in the world and there is significant car theft. The labor rates in Argentina are higher than other Latin American countries. The 2012 rate is 18.87 an hour which encompasses time worked, benefits and social insurance. The land and building cost is much higher in Argentina as well. The rate of real estate has rose 518% between 2002 and 2011, going at $1680.2 per square feet. Foreign Automotives would pay about $5,040,600 for the building plus the cost of land. Throwing in the cost of wages for about 100 workers, for 40 hours a week is $75,480 not including over time and the cost of doing business. Argentina would not be an ideal place for Foreign Automotives to expand in as the cost of doing business is way too high. Brazil is one of Latin America’s largest economies and is the fifth largest country in the world. Their economy is large and diversified which offers many opportunities for people looking to expand their business into Brazil. Foreign direct investment has increased in Brazil since 2009, up to $5,038,000 with imports up to $31,736,000. Brazil is a great market to invest in and they are large automotive suppliers to many Latin American countries such as Argentina, India and Africa. Most of the large global companies are present in Brazil; such as Fiat Volkswagen Group, Ford, General Motors, Nissan Motors, Toyota, MAN SE, Mitsubishi, Mercedes-Benz, Renault, Honda, Hyundai. In the last few years, the “Brazilian auto industry has grown quickly, attracting investments from the main global automakers. In 2007, Brazilian production…