Oakland%20University%20International%20IT%20Country%20Presentation%20Venezuela%20Team%20Members:%20Leonard%20Babajan%20Walter%20Cooke%20Terry%20Johnson%20Srimala%20Pai%20October%204,%202005

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Oakland UniversityInternational ITCountry
PresentationVenezuelaTeam MembersLeonard
BabajanWalter CookeTerry JohnsonSrimala
PaiOctober 4, 2005
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Venezuela
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Flat World

• South America

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60 of the population lives in the coastal and
Andean region
60 of the population lives in the coastal and
Andean region
Capital
Low lands
Coastal Range
Andes
Orinoco River
Orinoco Basin with Llanos Grass covered plains
Guiana Highlands
Silicon Valley
Great rain forests
40 0f the population is in the 8 major cities
Only 1.5 of the population lives south of the
river
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Name of Venezuela

• In the picture you can see houses over the water,
  in the Sinamaica lagoon (Zulia state), close to
  Maracaibo. When the first explorers arrived,
  those houses reminded them of the city of Venice.
  That is why they called the region "Little
  Venice", which in Spanish would be Venezuela

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Venezuela

• Country (long form) Bolivarian Republic of
  Venezuela
• Federal Nation with 23 states and 1 federal
  District
• Capital Caracas
• Major cities Maracaibo, Valencia, Barquisimeto
• Total Area 352,144.47 sq mi
  912,050.00 sq km(slightly more than twice the
  size of California)
• Population 24.7 million (2004 est.) 87 is urban
• Estimated Population in 2050 37,106,394
• Life Expectancy 70.29 male, 76.56 female (2001
  est.)
• Weather tropical, hot, humid more moderate in
  highlands
• Venezuela Time GMT- 4

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Economic Picture

• highly dependent on the petroleum sector,
  accounting for roughly one-third of GDP, around
  80 of export earnings, and over half of
  government operating revenues.
• A disastrous two-month national oil strike from
  December 2002 to February 2003, temporarily
  halted economic activity.
• The economy remained in depression in 2003,
  declining by 9.2 after an 8.9 fall in 2002.
• Despite continued domestic instability, output
  recovered strongly in 2004, aided by high oil
  prices. Both inflation and unemployment remain
  fundamental problems
• Currency 1 bolivar (Bs) 100 centimos
• 1 US Dollar 2,148.30 Venezuelan Bolivar
• GDP/PPP (2004 est.) 115 billion per capita
  4,400.
• Real growth rate 16.8. For 2004 and estimated
  to grow by 6.0 percent in 2005 and 4.1 in 2006
• Gini coefficient 0.618 (2003)
• Inflation 22.4. (2004)

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Economic Picture (cont.)

• Labor force 12.25 million (2004 est.)
• agriculture 13, industry 23, services 64
  (1997 est.)
• Unemployment 17.1.
• Industry petroleum( 25of GDP), iron ore mining,
  construction materials, food processing,
  textiles, steel, aluminum, motor vehicle assembly
• Manufacturing (21.5 of GDP) Types--iron and
  steel, paper products, aluminum, textiles,
  transport equipment, consumer products, and
  petroleum refining
• Agriculture(5 of GDP) corn, sorghum, sugarcane,
  rice, bananas, vegetables, coffee beef, pork,
  milk, eggs fish

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Economic Picture (cont.)

• Arable Land 4
• Natural resources petroleum, natural gas, iron
  ore, gold, bauxite, other minerals, hydropower,
  diamonds.
• Exports 41.0 billion (2004) petroleum (34 B),
  bauxite and aluminum, steel, chemicals,
  agricultural products, basic manufactures.
• Imports 15.8 billion (2004) raw materials,
  machinery and equipment, transport equipment,
  construction materials.
• Major trading partners U.S., Netherlands
  Antilles, Dominican Republic, Colombia, Brazil,
  Mexico (2003).

Venezuela contains some of the largest oil and
natural gas reserves in the world. It
consistently ranks as one the top suppliers of
U.S. oil imports and is among the top ten crude
oil producers in the world
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Socio-cultural Picture

• Languages Spanish (official), numerous
  indigenous dialects
• Literacy 91.1 total, 91.8 male, 90.3 female
  (1995 est.)
• Religions nominally Roman Catholic 96,
  Protestant 2, other 2
• Ethnic groups Most Venezuelans are of European
  Spanish, Italian, Portuguese, Arab, German,
  Indigenous, and African descent
• Popular Drink Beer, Rum, and Scotch whiskey
• Popular Food Arepas a type of round cornmeal
  bread
• Popular Music Salsa and Merengue

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Business culture

• Punctuality is expected on business and social
  occasions. Moreover, arriving at least five
  minutes early will also be viewed favorably
• Generally, the working week is Monday though
  Friday 800 a.m. to 500 p.m., with at least an
  hour break for lunch some executives take a
  two-hour lunch
• The lunch period in Venezuela is usually between
  noon and 2 p.m. This meal will consist of five or
  more courses, including soup and dessert,
  followed by strong coffee.
• Dress Men should dress conservatively, in dark
  business suits made of lighter wools. In
  business, Venezuelan women tend to be meticulous
  dressers who closely follow European fashion

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Business culture

• People who do not have professional titles should
  be addressed using courtesy titles like Mr.
  Senor, Mrs. Senora, Miss Senorita Surname
• Business dinners, in particular, are usually
  purely social occasions, so refrain from
  discussing work-related matters
• Be sensitive to the fact that Venezuelans tend to
  stand extremely close to others. The best policy
  is to respect this practice.
• In the course of a conversation, Venezuelans
  sometimes touch each other's arms or jacket

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Transportation

• Railways total 682 km (2002).
• Highways total 96,155 km paved 32,308 km
  unpaved. 63,847 km (1999 est.).
• Almost all of Venezuela can be reached by bus,
  the least expensive way to see the country!!
• Waterways 7,100 km Orinoco River and Lake de
  Maracaibo navigable ocean going vessels.
• Ports and harbors Amuay, Bajo Grande, El
  Tablazo, La Guaira, La Salina, Maracaibo,
  Matanzas, Palua, Puerto Cabello, Puerto la Cruz,
  Puerto Ordaz, Puerto Sucre, Punta Cardon.
• Airports 369 (2004 est)?9 International

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Telecommunication Infrastructure

• Communications Telephones main lines in use
  2,841,800(2002) mobile cellular 6,463,600
  (2002).
• Radio broadcast stations AM 201, FM n.a. (20 in
  Caracas), shortwave 11 (1998). Radios 10.75
  million (1997).
• Television broadcast stations 66 (plus 45
  repeaters) (1997). Televisions 4.1 million
  (1997).
• Internet Service Providers (ISPs) 16 (2000).
  Internet users 5.6 million (2004).

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Politics

• chief of state President Hugo CHAVEZ Frias
  (since 3 February 1999) Vice President Jose
  Vicente RANGEL Vale (since 28 April 2002) note -
  the president is both the chief of state and head
  of government
• cabinet Council of Ministers appointed by the
  president
• elections president elected by popular vote for
  a six-year term election last held 30 July 2000
  (next to be held NA 2006)

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IT Strengths

• The government is very supportive of IT, and has
  initiatives in place to promote internet use and
  e-commerce across all of Venezuela
• Some of these initiatives include a free trade
  zone and special tax breaks to corporations such
  as Microsoft to promote the creation of a Latin
  American headquarters in Venezuela
• Telecommunications industry is completely
  deregulated
• Investments will become very lucrative in the
  telecommunications industry due to this
  deregulation.
• Participating with several countries (Ecuador,
  Colombia, Peru and Bolivia) in building an
  international fiber optic network

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IT Strengths (cont.)

• Very strong R D in Merida, The silicon valley
  of Venezuela
• The governments free trade initiative will likely
  have significant positive impact on the research
  and development industry
• Highly competitive free education, leading to
  very knowledgeable IT professionals
• There are over 30 universities that offer IT
  related degree programs as well as over 150
  research facilities

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IT Weaknesses

• Venezuela currently pays IT professionals 1/3 of
  the salary that IT professionals in other
  countries receive.
• The majority of IT professionals are finding more
  lucrative jobs abroad, others are dropping their
  profession and turning to taxi cab driving and
  peddling on the streets as these jobs are more
  profitable
• The financing industry is very expensive and
  inefficient in Venezuela, making it very
  difficult for firms to raise needed funds
• IT corporations looking for funding cannot do so
  very easily within Venezuela as the
  infrastructure lacks the efficiency needed to be
  reasonably priced.
• Firms that seek venture capital funding must look
  to countries such as the United States and
  Europe.

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Technology Scene

• The teledensity of Venezuela as of 2003 was
  estimated at 10.932 main lines per 100 habitants.
• The education system is heavily involved in IT
  making for a highly skilled training environment
• Most of these knowledgeable IT professionals
  migrate to countries such as the UK and the USA
  as the average Venezuelan IT salary is very low.

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Technology Scene (cont.)

• The IT industry represents 4.5 of the total
  labor force of 12.25 million in Venezuela.
• The major IT users in Venezuela are, The petrol
  industry, banking and finance, telecommunications,
  government, and the manufacturing and industrial
  sector.
• As of 2004 there were roughly 5.6M internet users
  in Venezuela

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IT Industry Producers HW

• Hardware
• No real manufacturing presence in Venezuela
• Some no name clone manufacturers assemble PCs
  in Venezuela
• Distribution centers and resellers provide the
  hardware for the Venezuelan IT industry

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IT Industry Producers SW

• Software
• The government is promoting Open Source software
  development
• Venezuelas state oil giant Petroleos de
  Venezuela SA (PDVSA) had a JV with SAIC for IT,
  however they did not renew
• PDVSA is moving towards Open Source Software

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IT Industry Producers SW (cont.)

• Software
• 50 of the Governments Software is to become open
  sourced by 2007
• Opportunity for investment? Start a consulting
  company for support and development of open
  sourced software in Venezuela

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IT Industry Producers

• The main provider of telecommunications services
  is
• started out as a Public entity and
  started to become privatized in 1991
• The fixed line aspect of telecommunications was
  opened up in 2000

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IT Industry Consumers

• Banking and Finance Sector
• Banco first to offer
  online banking
• Provider of online service to bank
  is located out of Miami FL
• Insurance Sector
• Telecommunications
• Wireless and Broadband? DSL
• 211k subscribers June 2005

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IT Industry Consumers (cont.)

• Government and Customs
• Manufacturing and Industrial Sector
• Individual or Personal Use
• lt10 of the population can afford new tech?
  Percentage of users considered sophisticated
  users

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IT Industry Consumers (cont.)

• Oil and Derivatives Industry
• Heavy Consumers
• Mostly Import all Hardware and Software Required

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IT in Venezuela

• Education
• Workforce
• Government
• Internet
• Online Media

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IT in Venezuela Education

• Education
• 30 universities
• 10 higher education programs related to
  technology
• 48 technical education institutes
• 150 research facilities
• Most popular university diploma -gt Systems
  engineering
• Most popular technical education program -gt IT

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IT in Venezuela Workforce

• Workforce
• 20,000 IT professionals
• 60,000 young Venezuelans being trained
• Relatively low salaries -gt brain drain

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IT in Venezuela Government

• Government
• Ministry of Science and Technology (MCT)
• Venezuelan Center for Information Technologies
  (CNTI)
• Fundacite - Mérida
• National Telecommunications Commission (CONATEL)

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IT in Venezuela Internet

• of internet users 5.6 million

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IT in Venezuela Online Media
Online TV
Venezuelana de TV 102 kbps Venezuelana de TV 102 kbps RCTV 35 kbps RCTV 35 kbps
Online Radio City Genre Player Software
Angel FM Caracas Adult contemporary wmp
Circuito National Belfort Caracas Venezuelan music wmp
Fiesta 106.5 Caracas Latin music mp3
Hot 94.1 Caracas Top 40 wmp
Kys FM Caracas Adult contemporary mp3
La Romantica Caracas Love songs wmp
Planeto 105.3 Caracas Top 40 wmp
Radio National (YVKE) Caracas News mp3
95.5 Stereo Aciragua Top 40 wmp
91.9 FM Center Unknown Oldies mp3
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Sample of IT industries

• Telecomm. Infrastructure
• E-Commerce
• Hardware Software
• IT Services
• Sample of Venezuelan IT industries

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Sample Website in Spanish

• Bolsa de Valores de Caracas
• (Caracas Stock Market)

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Sample Website in English

• Venezuela Analysis Venezuelan Views, News,
  Analysis

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Business climate of country and region

• Country Venezuela
• Economy (GDP, industry, FDI, etc.)
• Politics (stability, regulations, etc.)
• Social cultural (language, attitudes, etc.)

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Business climate of country and region

• Region South America
• Economic alliances (MERCESUR, etc)
• Regional oil agreements
• Petrocaribe
• Petrosur Petroamerica
• Petroandina
• Political issues
• Organization of American States (OAS)
• Social cultural

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Potential business opportunities evaluated

• Business categories B2B vs. B2C
• Sectors
• Investment types

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Opportunities B2B

• Investment by customer business sector
• Petroleum
• Telecomm
• Government
• Education

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Opportunities Petroleum

• 1/3 of GDP, 80 of export earnings
• Oil reserves 78 billion barrels (7th in world,
  2nd in western hemisphere)
• Gas reserves 148 trillion cubic feet (8th in
  world, 2nd in western hemisphere)
• Venezuela is 4th largest exporter of oil to the
  U.S. (12 of US oil imports)
• Petróleos de Venezuela S.A.(PDVSA) is Venezuelas
  state owned oil company
• Citgo is a subsidiary of PDVSA
• 60 foreign companies from 14 countries

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Opportunities Petroleum (cont.)

• Crude production capacity 4 million barrels/day
• Current crude production 3 million barrels/day
• Crude refining capacity 1.3 million barrels/day
• Pros major national sector, growing global
  demand
• Cons state owned

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Opportunities Telecommunications

• Telecomm is the fastest growing sector in
  Venezuela (3.4 of GDP in 1999)
• Basic services cellular telephony, rural
  telephony, data transmission, paging
• In 2001, 84 of non-petroleum investments were
  directed to telecomm
• Foreign investment in sector close to 50
• Major foreign investors ATT, Bell Canada Int.,
  British Telecom
• Pros fastest growing, promising
• Cons smaller capacity, lack of
• solid infrastructure

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Opportunities B2C

• Telecomm
• Fixed lines
• Mobile phones
• ISPs
• eCommerce
• Limited due to credit card fraud

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B2B vs. B2C Analysis
B2B B2C
Advantages Vast resources Established infrastructure Younger population 65 lt 30 years old (87 urban) Continued rise in internet and phone use
Disadvantages Political instability Poverty 75 of population considered poor Cultural challenges
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Investment Method

• FDI seems to be the best investment method
• Advantages of FDI in Venezuela
• Foreign investments are protected by
  constitutional mandate, and encouraged in the
  Investment Promotion and Protection Law, which
  establishes
• Equal treatment for national and foreign
  investors
• 100 foreign-capital ventures are allowed,
  except for Spanish- language media
• Express stipulation that no prior authorization
  is required for investments
• Free repatriation of capital and profits
• Legal stability agreements pledging the State to
  maintain special tax conditions on private
  ventures for up to 10 years
• International arbitration accepted as
  alternative mechanism for contractual dispute
  settlement
• Unrestricted currency convertibility

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Contrasting country Colombia
Venezuela Colombia
GDP 115 billion 95 billion
Population 25 million 45 million
Proved oil reserves 78 billion barrels 1.7 billion barrels
Daily oil production (2004) 3,000,000 barrels 550,000 barrels
Change in daily oil prod. From 2003 13.8 -2.1
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Why investing in this country would be different
from investing in Colombia

• Political
• More instability in Colombia
• Economic
• Per capita GDP 2 times more in Venezuela
• Geographic
• Colombia has direct access to Pacific Ocean
• Logistics
• Transportation restrained in Colombia by rebels
• Security bigger concern in Colombia
• Cultural
• Similar language and overall culture

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Recent Headlines
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Recommendations

• Business categories B2B
• of poor not likely to decrease (too early for
  B2C)
• Sectors petroleum
• Major role in Venezuelan economy regardless of
  government orientation
• Increased global concerns about supply and prices
  of energy
• Recent expansion into Latin American market
• Investment types
• Foreign direct investment

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Recommendation Summary

• Venezuela would be an excellent place for foreign
  direct investment into IT firms that support the
  petroleum industry.
• The petroleum industry is by far the largest
  business sector in Venezuela. Global demand is
  projected to continue to rise. Venezuela has the
  capability and the will to produce, refine, and
  export more petroleum.

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Q A

• Questions Preguntas