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March 16, 2010

Competition, Profits in Latin America

Kabir Masson ’10
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Drawing on their industry background and experience, Columbia Business School’s Chazen Fellows are a group of students selected to report on events and activities relating to international business. In the most recent edition of the Chazen Web Journal, two fellows explore competitive advantage in old and new industries — energy and social networking — in Latin America.

James Walsh ’10 examines the emergence of socialism in Venezuela and its effect on the energy industry. He brings a unique perspective to this issue: before business school Walsh worked in economic and market analysis at Citigroup, researching domestic and international economic issues. After he graduates, he plans to return to his native Texas to work on energy-related matters. Exxon’s decision to pull out of Venezuela, Walsh argues, was one that put the energy company at a “disadvantage relative to its competitors, who clearly still find operating in the increasingly difficult Venezuelan market profitable.”

Walsh says the larger geopolitical risk for the United States is less volatile and concludes that a symbiosis exists that is mutually beneficial. “The U.S. needs foreign oil and will continue to purchase it from Venezuela and other not-so-friendly regimes,” he writes. “Conversely, Venezuela needs the U.S. as the closest large-scale consumer of its energy resources and as a source of institutional and operational expertise in the exploration and production industry.”

This issue also features a report on an emerging industry in Latin America: online social media. Lauren Frasca ’10 examines the battle between Orkut and Facebook for social networking dominance in Brazil. She draws on her prior experience developing television and digital content for major broadcast networks, along with her business school studies and a newfound interest in Brazil.

Frasca argues that although Orkut currently has dominance in Brazil, it would be mistaken to overlook Facebook as a major player in the near future. Indeed, Orkut once had dominance in India as well, but “recent numbers released show Orkut’s unique visitors in India falling by 800,000 within the month of August, while Facebook grew its unique visitors in India by 700,000 during the same time period. Indeed, Facebook has launched a few strategies to aggressively pursue Orkut’s user base in Brazil.” While both companies also need to focus on monetizing their businesses, Frasca concludes that the number of users is as important. “The key battle in winning the social networking war is that of developing a scalable, profitable business model.”

Read more in the March issue of the Chazen Web Journal.

Photo credit: Beatrice Murch/Flickr

Comments

by Gonzalo Hurtado | March 16, 2010 at 8:59 PM

Brief comment on Venezuela and Exxon, I personally belief that Chavez means a great deal of systematic-politic risk for any foreign company in Venezuela specially companies within the energy industry. He is strongly driven by political tendencies and diplomatic relations. We have to recognize that Venezuela is a big player in the energy industry, specially oil. In order to add insight to this issue, I encourage any interested readers to research on the current situation that Spanish companies (i.e. Repsol, BBVA, etc) are encountering due to political issues, and the political issues themselves (the Spanish King and Chavez's quarrel in the Hispanic-American convention and the recent alleged, consented hiding of Spanish terrorists and FARC Colombian guerrilla members in Venezuela). Regards, Gonzalo Hurtado.

by Gustavo Vasquez-Caicedo | March 17, 2010 at 10:38 AM

The words "Latin America" correctly refer to a region, a group of languages, and a set of countries with relatively similar backgrounds. However, I believe that some important distintions should be made in economic analysis. Not all the countries work the same way. In my opinion, Latin America can be divided in 5 or 6 groups: The leftist countries (Venezuela, Bolivia, et al). They are resource rich, but not very safe for investments. The market friendly countries (Colombia, Peru, Chile, Costa Rica, etc). Of course, Chile is far ahead compared to the rest. In general, investments are relatively safe and offer good returns. Central American Countries. Historically they have been doing ok, but their economies proved a bit dependent on what happens in US. There is too much synchronization with US due to remittances, tourism and probably mainly regional proximity. Mexico. Fairly advanced economy (OECD member) that is also synchronized with US (exports, FDI, remittances, and FX). We can see that during the crisis it had a different fate than Brazil. Brazil. The star these days. May not be the safest bet in the whole region or the most advanced, but its size and wealth of opportunities make it very attractive, even when compared to other BRICs. Its financial market probably is the most sophisticated in the region. Argentina. I did not forget about Argentina. But I cannot classify it because it has a bit of everything. It will be a very attractive market once it sends the right signals to foreign investors. Of course this is how i see it.

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