MKT 502 CASE 5

MKT 502 Case 5

MKT 502 Case 5

Introduction

This paper determines from the perspective of political risk, if Starwood (Sheraton), Marriott, and Hilton should sell their properties in Venezuela or not. It also determines if Hilton decides to sell its properties in Venezuela then Marriott or Starwood should buy those properties or not.

Venezuela is a resource-rich country in South America. Because of large deposits of petroleum and other minerals, the country is among the wealthiest in the region. Venezuela is the world's fifth largest oil producer. Venezuela is a republic headed by a president who serves a six-year term. As chief of state and head of government, President Hugo Chávez governs with a Council of Ministers. Since the beginning of the Chavez government in 1999, the opposition has constantly said that Chavez is loosing popularity and that sooner or later this erosion will force him to "smooth" his rhetoric or face a possible early exit (either by a coup d'etat or a constitutional mean). The truth is that this assumption is only partially backed by any serious poll or survey. (Stefan 2001)

Discussion

Any business especially hotels planning to remain in Venezuela should be aware that, although political and economic tensions have eased, opinions remain polarized and tensions between pro- and anti-government activists could flare at any time. Such tensions often have led to violence and could do so again with little warning. Before discussing the topic, the definitions of Political Risk, Subsidies, Privatization and Nationalization are understood. (Carter 1998)

Definitions

Privatization and Nationalization

Privatization is the economic process of transferring property, from public ownership to private ownership. An opposite process is nationalization.

Political Risk

Political risk refers to the probability of loss for commercial market direct investment activity that can be attributed causally to noncommercial, or specifically governmental, politically motivated events or decisions. In other words, the financial risk that a country's government will suddenly change its policies.

Subsidies

Subsidies are payment or other favorable economic stimulus (such as remission of taxation) given by government to certain individuals or groups of economic entities, usually to encourage their continued existence, growth, development, and profitability. In other words, Subsidies are resources conveyed to individuals or firms to produce desired behaviors.

Private Companies Competition Against Nationalized Companies

There is always a competition between private and nationalized companies. Unfair Competition also exists when a government or quasi-government companies takes advantage of its tax exemption and other privileges to supply private goods to the market in competition with private companies.

Unfair Competition adversely affects all. When private enterprises are replaced with less efficient government enterprises national productivity and competitiveness are adversely impacted. (Golinger 2005) Private companies can compete freely against nationalized companies if all regulations which do not apply to government business entities but which do apply to private industry should be either abandoned or enforced uniformly. (Southern African Development Community)

It is recognised initially that private company statutes serve economic activities and purposes. In this instrumental role, they contribute to economic welfare.

Venezuela: Political Risk

Venezuela's political risk ratings, has been substantially downgraded with the short-term rating falling ...