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Deluxe Household Chemicals

Deluxe Household Chemicals. Report on Manufacturing in Chile. Political Economy of Latin America Mathias Schatt and Rob Sheldon. DHC: The Mandate. About Deluxe Household Chemicals The Problem: US Manufacturing too Expensive The Mandate: Find an Alternative Country Country Criteria:

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Deluxe Household Chemicals

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  1. Deluxe Household Chemicals Report on Manufacturing in Chile Political Economy of Latin America Mathias Schatt and Rob Sheldon

  2. DHC: The Mandate • About Deluxe Household Chemicals • The Problem: US Manufacturing too Expensive • The Mandate: Find an Alternative Country • Country Criteria: • Stable Enough Macro Environment • Favorable International Trade Environment • Low-cost, Sufficiently Skilled Labor • Developed Chemical Industry • Overall Benefits Must Outweigh Logistical Costs

  3. DHC: The Chile Report • Part I:Chile’s Macro Environment • 1) Nation and State • 2) Inflation and Foreign Exchange • 3) Labor Environment • 4) Infrastructure • Part II:Chile’s Household Chemical Industry • 1) Industry Landscape • 2) Potential Partners • Part III:DHC Logistics and Entry Strategy • 1) Joint Venture • 2) Foreign Branch & Capital Imports • 3) Logistical Partners

  4. Chile: Nation & State • President: Ricardo Lagos Escobar • Center-left Coalition • Commitment to Free Market Economy • Other Factors: • Market-oriented Economic System • Many International Trade Agreements • Few Restrictions on Foreign Investment • Small Number of State-owned Enterprises • High Domestic Savings Rate • Balanced Budget Part I:Chile’s Macro Environment

  5. El dólar trepa hasta los $75525 de Febrero de 2003 Chile: Inflation and FX • Banco Central de Chile • Grow Economy at Fastest Possible Pace • Maintain Inflation level between 2-4% • Considerable Volatility Against the US Dollar: lowest (Aug 9): 692.21 highest (Oct 11): 756.56 Part I:Chile’s Macro Environment

  6. Chile: Labor Environment • Unemployment Around 10% • Relatively High Investment in Human Capital • Good Local Education • 48 Hour Work Week • Lower Wages Part I:Chile’s Macro Environment

  7. Chile: Infrastructure Part I:Chile’s Macro Environment

  8. Chile: Chem Industry • Well-established: $578 Million in 2001 • Dominated by Large Foreign Firms • Possible Partners: • Quimicas Reno • Perez & Jacard • P&J is the Better Fit: Location, Size, Infrastructure, Foreign Experience Part II:Chile’s Household Chemical Industry

  9. DHC: Entry Strategy (A) • Sign JV Agreement with P&J • 3 Year Renewable Contract • Capital Improvements and Guaranteed Orders in Exchange for DHC Ops Manager at P&J • DHC Opens a Foreign Branch in Santiago Part III:DHC Logistics and Entry Strategy

  10. DHC: Entry Strategy (B) • Import Capital Through Decree Law 600 • Terms: • Minimum $1 Million Investment • No Capital Repatriation for One Year • Repatriate Profits Immediately • Unlimited Access to FX Market • No VAT Until Capital Improvements Done • 42% Tax Rate Set for 10 Years Part III:DHC Logistics and Entry Strategy

  11. DHC: Logistical Partners • Potential Partners: • CSAV: Global Shipper • Royal Vopak: Specialty Shipper • Royal Vopak is the Better Fit: Specializes in Chemicals, International Network, Small Shipments Part III:DHC Logistics and Entry Strategy

  12. Conclusion • Chile Meets the Country Criteria: • Stable Enough Macro Environment • Favorable International Trade Environment • Low-cost, Sufficiently Skilled Labor • Developed Chemical Industry • Overall Benefits Must Outweigh Logistical Costs • Main Point: The combination of Chile’s macro environment coupled with the presence of solid industrial and logistical partners makes it a good bet.

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