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The BMW is one of the undisputable well-to-do car companies. It is based in Germany with its headquarters in Munich, Bavaria. The BMW Company produces both motorcycles and automobiles and also used to manufacture aircraft engines until 1945. The company currently produces automobiles in China, United States, Germany, South Africa, India, and Germany (Kiley, 2004). In 2015 the company was ranked the twelfth largest motor vehicles producing company in the world. The motorcycles are marketed under the brand name BMW Motorrad while the automobiles are marketed under BMW which includes the BMW I for electric plug-in electric cars and BMW for performance models, Rolls-Royce, and Mini. The BMW Company enjoys significant profit margin as well as the consistent sale of products (Kiley, 2004). For this reason, the company is highly praised by the monitoring press. The company also has the status of the industry benchmark due to its production and marketing strategies. Additionally, the company is considered as authentic and consistent. In 2016, the company exported mainly in China, United States, Germany, Great Britain, France, Italy, and Japan. This paper, therefore, discusses the reasons why the BMW Company should export to Chile. In so doing, the discussion on Chile’s economic situation will also be a major area of focus for this assignment.
Chile’s Economic Situation
Apart from the crude petroleum (imported from Ecuador, Brazil, and Angola) and the refined petroleum (imported from the US) cars are the third largest imported commodity in Chile. Car importation makes up to 5.5 percent of Chile’s imports. Chile’s top car suppliers include the US (10%), South Korea (26%), and Japan (22%). The World Bank ranks Chile as a higher income economy and is the most stable and prosperous economy among South America’s nations. The Chilean economy is thus characterized by few incidences of corruption, competitiveness, economic freedom, high GDP, and globalization (Baez, 2014).
Chile’s population totaled to 1 million people in the year 2015. Her current GDP is recorded as $422.4 billion which was a 2.1 percent increase in 2015. In 2016, Chile’s economic aspects were as follows. GDP per capita was $13, 792.93, Gross domestic product $247 billion, 1.6 percent GDP growth rate, 23,270 PPP dollars GNI per capita, and 416 billion PPP dollars Gross national income (Baez, 2014). Chile’s international trade volume has opened many avenues for trade thereby taking the country’s economy a notch higher. Chile’s economy is therefore highly dependent on international trade which contributes about 56 percent of Chile’s GDP. Chile has entered into many Free Trade Agreements with such economies as the United States, European Union, South Korea, and China. Similarly, Chile’s comparative economic advantages had gained her access to the largest markets of Asia-Pacific, Europe, North America, and some of the South America countries.
In addition, Chile’s corporate tax rate has had dramatic turns with the current tax rate standing at 24 percent. Between 1997 and 2016, the country’s corporate tax rate averaged 17.5 but fell to 15 percent in 1998 (Baez, 2014). While the Corporate tax rate is critical to Chile’s income, the tax collected from each company depends on the company’s net income obtained in their business year income. Additionally, the country’s infrastructure poses affluent opportunities for the foreign investors. Currently, Chile’s government has set apart investment capital worth $2 billion. The budget is meant for infrastructural investment projects scheduled by 2021. Even as the country focuses on improving the infrastructures for domestic benefits, there is also the target on the companies and investors from across the world. It is inarguable that Chile’s current infrastructures are attractive. The government has also put some strategies to implement the large-scale investment in infrastructure. The infrastructural advancement is seen as a strategy through which the country’s prosperity and economic development will sky-rocket. In particular, Chile’s government is seeking to reach its goal of recording per capita income above the US $30,000.
One of the reasons why the BMW should export to Chile is the country’s openness to the global trade. Chile’s embrace of the global trade forms a rigid foundation for its economic dynamism (Baez, 2014). The country also has an open regulatory environment which is further reinforced by the efficient security of the property rights. For this reason, therefore, the exporter will be provided with commercial security. Another development that is likely to benefit the BMW export in Chile is the implementation of the Chilean New Foreign Investment Act. The Act resulted in the abolishment of the Decree Law (DL 600) of 1974. Formerly, the DL 600 required the foreign investors bringing physical or capital goods to Chile to apply for authorization from the Foreign Investment Committee. After the approval by the Foreign Investment Committee (usually on behalf of the State of Chile) the foreign investor was entitled to a Foreign Investment Contract with Chile. It was then that the investor’s rights and obligations were established.
Conversely, the new law made certain modifications. One of them is the redefinition of direct foreign investment. According to the new law, a direct foreign investment is the transfer of foreign assets or capital into Chile. The capital or the assets include those either controlled or owned by a foreign investor and which is equal or more than USD 5,000,000. The new Act, however, dictates that foreign investors will be guaranteed protection against discrimination, return of profits and capital once they meet the tax obligations as well as have access to the exchange market upon meeting the tax obligations. See more analysis of Chile’s economic aspects in the figures provided in the appendix.
Steps that the Company should take
Before exporting to a new foreign country, it is crucial to undertake the analysis of the business environment in the country in question. The analysis is essential in providing information on aspects such as the international institution, the government departments, newspapers and banks that produce surveys and profiles, and the world economic forum. Although it is indisputable that market research in a foreign market is necessary, the exporter company cannot disregard the cultural, economic, and political environment of the country. A favorable environment is a key to the success of the business as well as the reputation and the profitability of the company. Such analysis also helps in preventing the risks that may hinder success, profitability, and development of the company’s reputation. Therefore, to enter the foreign trade with Chile, the BMW Company should take a few strategies that will see the success of the new business establishment. The first thing that the company should decide on is the type of the market entry mode that will suit it (Neelankavil & Rai, 2014). The market entry mode is crucial for an international company entering a foreign market primarily because all the operations for the expansion are based on it. Again, foreign market entails competition, the speed of entry, risks, market costs, profit potential in each option, varying levels of control, and investment. For this reason, there is the need for the company to engage in market research, analysis, and debate before deciding on the suitable market entry mode.
The BMW Company export to Chile may not necessarily cause a change in BMW’s structure. The company’s leadership structure and the organizational structure is a complex one. It reflects the enormous size of the business and its operations on the global scale. The organizational structure comprises numerous management layers which are a reflection of the complex reporting structure. Each of the employees, therefore, has specific operational roles that they should fulfill. According to Neelankavil and Rai (2014), a proposal of a new operation in a foreign country is a matter taken with all the seriousness of the BMW organizational structure. The BMW thus involves its functional divisions in place in the coordination of the new venture. The BMW’s functional entities ensure there is adequate communication in the development of a new strategy.
In conclusion, Chile’s thriving economy, political stability, and openness to global market offer an opportunity for foreign marketing. When these factors are compounded by the BMW reputation and quality product, it is inarguable that export to Chile could be a thriving one. Chile already imports and exports to major world economies and this makes it a potential target for BMW Company.
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- Baez, A. (2014). Chile’s Exports/Imports 2000–2011 is having a free trade market helping Chile’s economy? Month.
- Kiley, D. (2004). Driven: Inside BMW, the most admired car company in the world. John Wiley & Sons.
- Neelankavil, J. P., & Rai, A. (2014). Basics of international business. Routledge.