international business

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College of Administrative and Financial Sciences

Assignment 2

Deadline: 03-04-2020 @ 23:59

Course Name: Intro to International Business

Student’s Name:

Course Code: MGT-321

Student’s ID Number:

Semester: II

CRN:

Academic Year: 1441/1442 H

For Instructor’s Use only

Instructor’s Name: Dr Ganesh Dash

Students’ Grade: Marks Obtained/Out of

Level of Marks: High/Middle/Low

Instructions – PLEASE READ THEM CAREFULLY
· The Assignment must be submitted on Blackboard (WORD format only) via allocated folder.
· Assignments submitted through email will not be accepted.
· Students are advised to make their work clear and well presented, marks may be reduced for poor presentation. This includes filling your information on the cover page.
· Students must mention question number clearly in their answer.
· Late submission will NOT be accepted.
· Avoid plagiarism, the work should be in your own words, copying from students or other resources without proper referencing will result in ZERO marks. No exceptions.
· All answered must be typed using Times New Roman (size 12, double-spaced) font. No pictures containing text will be accepted and will be considered plagiarism).
· Submissions without this cover page will NOT be accepted.

Assignment Regulation:

· All students are encouraged to use their own word.
· Assignment -2 should be submitted on or before the end of Week-11 in Black Board only.
· This assignment is an individual assignment.

Assignment Structure:

A.No

Type

Marks

Assignment-2

Critical Thinking

05

Total

05

Learning Outcomes:

· Analyze the effects of culture, politics and economic systems in the context of international business (Lo 2.1)
· Identify the major components of international business management (Lo 2.4)
· Carry out effective self-evaluation through discussing economic systems in the international business context (Lo. 3.1)

Critical Thinking

Please read Case 2: “Venezuela under Hugo Chávez and Beyond” available in your e-book (page no.611), and answer the following questions:

Assignment Question(s): (Marks: 05)
1. Under Chávez’s leadership, what kind of economic system was put in place in Venezuela? How would you characterize the political system? (word limit: 100, Marks: 02)
2. During the Chávez years, many foreign multinationals exited Venezuela or reduced their exposure there. What do you think the impact of this has been on Venezuela? What needs to be done to reverse the trend? (word limit: 100, Marks: 02)
3. By 2016, Venezuela’s economy appeared to be on the brink of total collapse. What do you think needs to be done to reverse this? (word limit: 150, Mark: 01))

Answer:

1.

2.

3.

&&&&

Cases 611

On March 5, 2013, Hugo Chávez, the president of
Venezuela, died after losing a battle against cancer.
Chávez had been president of Venezuela since 1999. A
former military officer who was once jailed for engineer-
ing a failed coup attempt, Chávez was a self-styled demo-
cratic socialist who won the presidential election by
campaigning against corruption, economic mismanage-
ment, and the “harsh realities” of global capitalism. When
he took office in February 1999, Chávez claimed he had
inherited the worst economic situation in the country’s
recent history. He wasn’t far off the mark. A collapse in
the price of oil, which accounted for 70 percent of the
country’s exports, left Venezuela with a large budget defi-
cit and forced the economy into a deep recession.

Soon after taking office, Chávez worked to consolidate
his hold over the apparatus of government. By 2012, Free-
dom House, which annually assesses political and civil
liberties worldwide, concluded Venezuela was only
“partly free” and that freedoms were being progressively
curtailed. In 2006, for example, Parliament, which was
dominated by his supporters, gave him the power to legis-
late by decree for 18 months. In late 2010, Chávez yet
again persuaded the National Assembly to grant him the
power to rule by decree for another 18 months.

On the economic front, the economy shrank in the
early 2000s, while unemployment remained persistently
high (at 15 to 17 percent) and the poverty rate rose to
more than 50 percent of the population. A 2003 study
by the World Bank concluded Venezuela was one of the
most regulated economies in the world and that state
controls over business activities gave public officials
ample opportunities to enrich themselves by demand-
ing bribes in return for permission to expand opera-
tions or enter new lines of business. Despite Chávez’s
anticorruption rhetoric, Transparency International,
which ranks the world’s nations according to the extent
of public corruption, noted that corruption increased
under Chávez. In 2012, Transparency International
ranked Venezuela 165th out of 174 nations in terms of
level of corruption.

Consistent with his socialist rhetoric, Chávez progres-
sively took various enterprises into state ownership and
required that other enterprises be restructured as “work-
ers’ cooperatives” in return for government loans. In addi-
tion, the government took over large rural farms and
ranches that Chávez claimed were not sufficiently pro-
ductive and turned them into state-owned cooperatives.

In mid-2000, the world oil market bailed Chávez out of
mounting economic difficulties. Oil prices started to surge
from the low $20s in 2003, reaching $150 a barrel by mid-
2008. Venezuela, the world’s fifth-largest producer, reaped
a bonanza. On the back of surging oil exports, the econ-
omy grew at a robust rate. Chávez used the oil revenues to

boost government spending on social programs, many of
them modeled after programs in Cuba. These included ultra-
cheap gasoline and free housing for the poor.

In 2006, he announced plans to reduce the stakes held
by foreign companies in oil projects in the Orinoco re-
gions, to increase the royalties they had to pay to the
Venezuelan government, and to give the state-run oil com-
pany a majority position. Simultaneously, he replaced
professional managers at the state-owned oil company
with his supporters, many of whom knew little about the
oil business. They extracted profits to support Chávez’s
social programs but at the cost of low investments in the
oil company, and over time its output started to fall.

Notwithstanding his ability to consolidate political
power, on the economic front, Venezuela’s performance
under Chávez was mixed. His main achievements were to
reduce poverty, which fell from 50 percent to 28 percent
by 2012, and to bring down unemployment from 14.5 per-
cent at the start of his rule to 7.6 percent in February
2013. Profits from oil helped Chávez achieve both these
goals. However, despite strong global demand and mas-
sive reserves, oil production in Venezuela fell by a third
between 2000 and 2012 as foreign oil companies exited
the country and the state-run oil company failed to make
up the difference. Inflation surged and was running at
around 28 percent per annum between 2008 and 2012,
one of the highest rates in the world. To compound mat-
ters, the budget deficit expanded to 17 percent of GDP in
2012 as the government spent heavily to support its social
programs and various subsidies.

Following Chávez’s death, his handpicked successor,
Nicolas Maduro, took over the presidency. Maduro con-
tinued the policies introduced by Chávez. Things did not
go well. By 2014, the country was in a recession. The
economy contracted by 4 percent that year, while infla-
tion surged to around 65 percent. The situation contin-
ued to deteriorate in 2015 and 2016. Exacerbated by a
sharp fall in oil prices and hence government revenues,
the economy was forecasted by the IMF to be 23 percent
smaller in 2017 than it was in 2013, the worst decline in
the world. By 2015, widespread shortages of basic goods
had emerged. In 2016, an estimated 75 percent of Venezu-
elans lost weight, averaging 8.7 kg per person, because of
a scarcity of food. Unemployment was rising. Inflation
increased to 741 percent by the end of 2016 (the highest in
the world). The poverty rate was back up over 30 percent.
To cap this litany of disaster, the value of the Venezuelan
currency, the bolivar, fell from 64 per U.S. dollar in 2014
to 960 per dollar by 2016.

Parliamentary elections held in December 2015 re-
sulted in large losses for the ruling United Socialist
Party. For the first time since 1999, the opposition
gained a majority of seats in Parliament. Maduro’s

Venezuela under Hugo Chávez and Beyond

612 Part 7 Cases

Case Discussion Questions

1. Under Chávez’s leadership, what kind of economic
system was put in place in Venezuela? How would
you characterize the political system?

2. How do you think that Chávez’s unilateral changes
to contracts with foreign oil companies will affect
future investment by foreigners in Venezuela?

3. How will the high level of public corruption in
Venezuela affect future growth rates?

4. During the latter part of Chávez’s rule, Venezuela
benefited from high oil prices. Since 2014, however,
oil prices have fallen substantially. What has the af-
fect of this has been on government finances and
the Venezuelan economy?

5. During the Chávez years, many foreign multina-
tionals exited Venezuela or reduced their exposure
there. What do you think the impact of this has
been on Venezuela? What needs to be done to
reverse the trend?

6. By 2016, Venezuela’s economy appeared to be on
the brink of total collapse. What do you think needs
to be done to reverse this?

response was to have the supreme court, which was
populated with Chavez appointees, exercise “parlia-
mentary power” while declaring the legislature to be in
contempt of the court. In effect, Venezuela has become
a full-f ledged dictatorship.

Sources
D. Luhnow and P. Millard, “Chávez Plans to Take More Con-
trol of Oil away from Foreign Firms,” The Wall Street Journal,
April 24, 2006, p. A1; R. Gallego, “Chávez’s Agenda Takes
Shape,” The Wall Street Journal, December 27, 2005, p. A12;
“The Sickly Stench of Corruption: Venezuela,” The Economist,
April 1, 2006, p. 50; “Chávez Squeezes the Oil Firms,” The
Economist, November 12, 2005, p. 61; “Glimpsing the Bottom
of the Barrel: Venezuela,” The Economist, February 3, 2007,
p. 51; “The Wind Goes Out of the Revolution—Defeat for Hugo
Chávez,” The Economist, December 8, 2007, pp. 30–32; “Oil
Leak,” The Economist, February 26, 2011, p. 43; “Medieval Poli-
cies,” The Economist, August 8, 2011, p. 38; “Now for the Reck-
oning,” The Economist, May 5, 2013; “Heading for a Crash,” The
Economist, January 23, 2016; Matt O’Brian, “Venezuela Is on
the Brink of Complete Economic Collapse,” The Washington
Post, January 29, 2016; “How Chavez and Maduro Have Impov-
erished Venezuela,” The Economist, April 6, 2017.