Three Insights Into Doing Business in Venezuela

This week I ran a program on “influencing” for 240 managers and entrepreneurs in Colombia. Although, as usual with my travels, I don’t get to stay as long as I would have liked, (I only stayed in Caracas for a little more than 24 hours), I did get the chance to ask many people what it is like to do business that region. Colombia’s geographical neighbor is the always-interesting Venezuela. Learning about South American business had to include some information about the country, and I got a lucky break. That evening I had dinner with an old college friend of mine – a former Senator in Venezuela – and got more of an inside peek behind the Hugo Chavez curtain. The dynamics are fascinating. Understanding them could lead to significant wealth for those willing to take the risk and those with the long-term perspective needed to pursue it. Below is a list of the key takeaways from my dinner. Maybe this can benefit those of you interested in moving into the South American market, or perhaps there are smaller lessons that can be applied closer to home. 1.Making money in Venezuela is tough. The country lacks an active, formal currency exchange. If you earn Venezuelan Bolivars, you do not know if and at what rate you will be able to convert that money into U.S. dollars or Euros. 2.The country could be worth the wait. With 30 million people, Venezuela is one of the largest Latin American countries. It is too large to overlook. This is why multinationals from HP, Sony and others are continuing to build their businesses here, even though extracting profits in a timely manner is difficult. 3.You must be able to withstand the swings. Venezuela’s economy depends excessively on the price of oil. When Hugo Chavez took the presidency in 1999, many worried his policies would sink the price of oil. But instead the price of oil soared from less than $10 a barrel to over $145 per barrel. Now that oil prices are on their way downward again, the government’s hold on power seems to be weakening. No risk, no reward. We’ve heard it all before. But there is truth in that statement because it is those who were willing to risk a lot – Jobs, Gates, Buffett - who have the ultimate success. Ask yourself the questions below to see how you can take a calculated risk. 1.What market have I been interested in entering? 2.What is the true cost (overhead, marketing, security, risk management, etc.) of entering that new segment, country or industry? 3.What are the potential rewards for entering that market? 4.Which number (reward vs. costs) is higher and by how much?

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  • Nadia Laurincikova

    Thank you for a very interesting blog post Kaihan. Coming from a post-socialist country in Eastern Europe (Slovakia), I can appreciate the challenges associated with doing business in a tightly controlled market. However, as you pointed out, where there is risk, there is a possibility for high return. Shortly after the regime changed, entrepreneurs who knew the market intimately well were able to act quickly. And in situations like these, speed is everything. They got the right people together and created business that immediately filled the gaps created by the inefficient rule of the previous government. They became millionaires overnight.