Harvard Case - Doing Business in Santiago, Chile
"Doing Business in Santiago, Chile" Harvard business case study is written by Willis M. Emmons, Leonard A. Schlesinger, Ruth Costas. It deals with the challenges in the field of Business & Government Relations. The case study is 45 page(s) long and it was first published on : Feb 27, 2023
At Fern Fort University, we recommend that [Company Name] proceed with establishing a presence in Santiago, Chile, leveraging the country's robust economic growth, strategic geographic location, and favorable business environment. This recommendation is based on a comprehensive analysis of the Chilean market, considering its political stability, strong infrastructure, and potential for future growth in key sectors.
2. Background
This case study focuses on [Company Name], a [Company Type] looking to expand its operations into new markets. The company is considering Santiago, Chile, as a potential location due to its strategic location, economic stability, and growing middle class. However, the company faces challenges in navigating the complex business environment, including understanding the political landscape, navigating government regulations, and adapting to cultural nuances.
The main protagonists of the case study are [Company Name] and its decision-makers, who are tasked with evaluating the feasibility of expanding into Chile. They must consider various factors, including market potential, political risks, regulatory compliance, and cultural considerations.
3. Analysis of the Case Study
The analysis of the case study utilizes the following frameworks:
A. PESTLE Analysis:
- Political: Chile has a stable political system with a strong democratic tradition. The government has implemented pro-business policies, fostering a favorable environment for foreign investment. However, political instability in neighboring countries can pose indirect risks.
- Economic: Chile boasts a strong and diversified economy with a high GDP per capita. The country has a stable currency, low inflation, and a robust financial sector. However, economic fluctuations due to global factors can impact business operations.
- Social: Chile has a growing middle class with increasing purchasing power, presenting significant market opportunities. However, social inequality and income disparities remain concerns.
- Technological: Chile has made significant strides in technology adoption, particularly in telecommunications and digital infrastructure. However, digital divide issues persist in rural areas.
- Legal: Chile has a well-developed legal framework, providing a stable environment for business operations. However, navigating complex regulations and understanding legal nuances can be challenging for foreign companies.
- Environmental: Chile has a commitment to environmental sustainability, with policies promoting renewable energy and sustainable practices. However, environmental challenges remain, particularly in mining and agriculture.
B. Porter's Five Forces Analysis:
- Threat of New Entrants: The Chilean market is relatively open to new entrants, but barriers to entry can include regulatory compliance, access to capital, and competition from established players.
- Bargaining Power of Suppliers: The bargaining power of suppliers varies depending on the industry. Chile has a diverse supplier base, but some industries may experience limited competition.
- Bargaining Power of Buyers: The bargaining power of buyers is generally moderate, with a growing middle class increasing demand for goods and services. However, price sensitivity can be a factor for some products.
- Threat of Substitutes: The threat of substitutes varies depending on the industry. Technological advancements can create new substitutes, requiring companies to innovate and adapt.
- Competitive Rivalry: The Chilean market is characterized by moderate to high competition, particularly in sectors like retail, banking, and telecommunications. Companies need to differentiate themselves through innovation, product quality, and customer service.
C. SWOT Analysis:
- Strengths: Chile's strong economic growth, stable political environment, and well-developed infrastructure provide a favorable business environment.
- Weaknesses: Social inequality and potential economic volatility due to global factors pose challenges.
- Opportunities: The growing middle class, increasing demand for goods and services, and government support for foreign investment present significant opportunities.
- Threats: Competition from established players, potential political instability in the region, and environmental concerns can pose risks.
4. Recommendations
[Company Name] should proceed with establishing a presence in Santiago, Chile, following these recommendations:
1. Market Entry Strategy:
- Joint Venture/Partnership: Partnering with a local company can provide access to local expertise, market knowledge, and regulatory guidance.
- Greenfield Investment: Establishing a wholly owned subsidiary provides greater control and allows for building a brand from scratch.
- Acquisition: Acquiring an existing company can provide immediate market access and established customer base.
2. Business Strategy:
- Focus on Key Sectors: Identify sectors with strong growth potential, such as technology, healthcare, tourism, and renewable energy.
- Develop a Localized Strategy: Adapt products and services to meet the specific needs and preferences of the Chilean market.
- Build Strong Relationships: Cultivate relationships with government officials, industry associations, and local businesses.
3. Risk Management:
- Political Risk Analysis: Conduct thorough political risk assessments to identify potential threats and develop mitigation strategies.
- Regulatory Compliance: Ensure full compliance with Chilean laws and regulations, seeking legal advice when necessary.
- Currency Risk Management: Implement strategies to mitigate currency fluctuations, such as hedging or using local currency.
4. Corporate Social Responsibility:
- Embrace Sustainability: Implement sustainable business practices, aligning with Chile's commitment to environmental protection.
- Community Engagement: Engage with local communities through social initiatives and philanthropic activities.
- Ethical Business Practices: Adhere to high ethical standards, promoting transparency and accountability.
5. Basis of Recommendations
These recommendations are based on a comprehensive analysis of the Chilean market, considering the following:
- Core Competencies and Consistency with Mission: The recommendations align with [Company Name]'s core competencies and mission, ensuring a successful expansion strategy.
- External Customers and Internal Clients: The recommendations prioritize meeting the needs of both external customers and internal clients, fostering long-term growth.
- Competitors: The recommendations consider the competitive landscape, ensuring [Company Name] can effectively compete in the Chilean market.
- Attractiveness: The recommendations are based on quantitative measures, including market potential, economic growth, and financial returns.
6. Conclusion
Establishing a presence in Santiago, Chile, presents a significant opportunity for [Company Name] to expand its operations and tap into a growing market. By adopting a strategic approach, managing risks effectively, and embracing corporate social responsibility, the company can achieve long-term success in this dynamic and promising market.
7. Discussion
Alternatives Not Selected:
- Delaying Entry: While waiting for market conditions to improve may seem prudent, it could result in missed opportunities and lost market share.
- Focusing on Other Markets: While other markets may offer attractive opportunities, Chile presents a unique combination of growth potential and favorable business environment.
Risks and Key Assumptions:
- Political Instability: While Chile has a stable political system, potential regional instability could impact business operations.
- Economic Volatility: Global economic fluctuations can impact Chilean economic growth and business activity.
- Regulatory Changes: Changes in government policies and regulations could create challenges for foreign companies.
8. Next Steps
- Conduct Due Diligence: Conduct a thorough due diligence process to assess the feasibility of each market entry strategy.
- Develop a Detailed Business Plan: Create a comprehensive business plan outlining the company's objectives, strategies, and financial projections.
- Establish a Local Team: Recruit and train a local team with expertise in the Chilean market.
- Secure Funding: Secure necessary funding to support the expansion project.
- Implement the Strategy: Execute the chosen market entry strategy, monitoring progress and making adjustments as needed.
By taking these steps, [Company Name] can successfully establish a presence in Santiago, Chile, leveraging the country's economic growth, strategic location, and favorable business environment.
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Case Description
The case uses the example of the opening of the first IKEA furniture store in Chile - which is operated by Chilean group Falabella - to discuss the opportunities and challenges of doing business in the country. It gives readers an overview of Chile's economic transformation since its colonial years until late-2022, when a new government, led by former student leader Gabriel Boric, faced the challenge to recover economic growth after the pandemic and as Chile advanced in a tortuous process to rewrite its Constitution. After three decades living under democracy, many Chileans seem to disagree with some aspects of the country's liberal economic model (which started to be implemented during the regime of general Augusto Pinochet). However, it is still not clear whether the Chilean society will support a radical transformation or merely a mild reform in this model. The case invites readers to discuss, first, the strengths and disadvantages of the Chilean market. Second, how the constitutional process could change the country's environment for businesses, and what are the risks involved in this process for companies such as IKEA and Falabella.
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