Pepperidge Farm Product Into Costa Rica

Pepperidge Farm Product Into Costa Rica

Marketing and Management Assessments:

To understand the business situation in any country one has to understand the situation of the country and its people. This particular country is a success story of the South Americas. This is a relatively peaceful country and since the 19th century there has been only two brief periods of violence that has interfered with its democratic development. There has been a development of the country in terms of the technology sectors and in the area of tourism. This is primarily because it is very close to the United States and near the Panama Region. The main production of the country comes from agriculture and the country has been suffering in that sector. The problem is not connected with land ownership as that is widespread. In terms of popular occupations, agriculture still employs 20% of the population, industry employs 22% and services employ 58%. This estimate is of the year 1999. (The World Fact Book)

The estimated total population as of today is about 3,896,000 and is still growing. This tells us that we should have no trouble in finding people to work in a business opportunity in Costa Rica. The total country is slightly smaller than West Virginia and in terms of area is 51,100 sq km. The country consists of coastal plains separated by rugged mountains and some of them are volcanic -- over a 100 of them. The basic climate is tropical and subtropical, with the dry season from December to April and the rainy season from May to November. This has made the country rich in hydropower and also developed a keen interest in conservation. There is a lot of interest within the country in deforestation and land use change, and this has happened due to the clearing of land for cattle ranching and agriculture. The country is also affected due to soil erosion and coastal marine pollution and that is because of the importance the country gives to its fisheries. (The World Fact Book)

The attention to pollution also affects the ambient air quality and management of solid waste. Thus it seems clear that the establishment of any business within the country has to be considered very carefully. It is not correct to assume that people in the rest of the world are hungry fools, lusting after a few dollars, but would like to develop and support industries that help in their growth and long-term viability. We would thus like to look into the possibility of setting up a business that ties up with the natural bonanza that is available within the country. This is in terms of the climate, availability of natural, pure water, sun and educated potential employees. This will help us also get the necessary help and support from the government of the country and its leaders. At this stage, it is important to remember that the country has been a democracy for a large part of its history. (The World Fact Book)

In history, the economy of Costa Rica has depended on a diet of tourism, agriculture and electronics exports. This has made it a relatively stable country over the years and has also helped in the reduction of poverty during the last 15 years. The country is thus economically stable and is able to provide a strong social safety net to its people. The growth in income has not however been able to solve the problem of unequal income among its people and this is often reflected in social movements. Most foreign investors are happy with the investments they have made within the country as the political stability is high as is also the education levels. There is also not much problem in the foreign exchange sector as tourism to the country brings in a lot of foreign exchange. The other exports from the country are however hurting and are not contributing to the growth of stability of the economy. This is due to the low coffee prices and the large surplus in the availability of bananas for export. The government is finding it difficult to finance its own deficit and very high internal debt. The government also has to finance the modernization of the electricity and telecommunication sectors which are owned by the government. These deficits are now leading to high inflation.

Physical Forces:

Costa Rica has been historically pro-U.S., as also its financial institutions. Regarding the financial security and tax laws also the country has maintained a totally continental stance. The main aim behind this stance has been to get the American high technology corporations to invest in the country and provide employment for the computer literate and disciplined labor. The country knows that it has to change its economy and remove the total dependence it has on coffee, banana and cattle. The investment friendly climate and the present government policies has made it similar to the Silicon Valley and important organizations like Acer, Microsoft, GE, Abbott Laboratories, Continental Airways and Intel to invest in sizeable amounts in the countries economy. This has been going on now for the last 5 years and from 1998, the country has earned more from its high technology exports than from the agricultural exports, or even from the high growth tourism industry. This has also been appreciated by the World Bank and they have appreciated the excellent political and economic health that the country has. (Investing and doing business in Costa Rica)

The Bank has also lauded the country as one of the most stable and robust democracies in Latin America in its annual conferences. The country has been having one of the best economic growth rates along with the best social indicators in the entire continent of Latin America. The country has always supported continental free trade at all forums and has been developing its own agreement with Mexico and other countries of the region. The country provides a lot of benefits for new units through the free trade zones and different tax holiday opportunities. These benefits are through exemption of import duties on raw materials, capital goods, parts and components, repatriation of profits by companies without restrictions, tax exemptions on profits for as long as eight years, followed up by a 50% exemption for another four years. (Investing and doing business in Costa Rica)

The country has recently done a study through the Ministry of Foreign Trade and that has shown that the country will have been increasing its export earnings to a figure of $15.7 billion by next year. The growth has been from $5.1 billion in 2002. This sort of growth is expected to take care of the deficit it has had in 2002 of $1.3 billion in its import-export parity. This will also be a growth of about four times from 1998. This is happening primarily due to Intel which has three manufacturing facilities in the country and is expected to export $3.5 billion already. The country has already designated an organization called the Costa Rica Investment and Development Board for the purpose of promotion and advice for the foreign investors. (Investing and doing business in Costa Rica) This is a private, non-profit organization which is in a position to provide complete and up-to-date information on the country's economy and business environment. It is expected that potential foreign investors will establish the first contacts with this organization, and for this purpose, it has established an office in New York. The office in New York will be used to provide the tailor made service to the potential investor. The industry that is being targeted here will require a certain amount of land, and obtaining it is no problem in Costa Rica, where all individuals and private companies can own land whether they are local or foreign. There are some restrictions and the most important among them are the physical occupancy and a 50 meter limit from the beach on oceanfront property. (Investing and doing business in Costa Rica)

Economic and Socioeconomic Forces:

In the question of development of a new industry in Costa Rica, we have looked at different questions and now let us look at the specific industry that we are talking about. This is an industry in the very forefront of the latest development in the area of bio-technology. The industry closest to this in the realm of conventional industry is that of forestry. To judge whether this type of industry will be sustainable, we have to see the success of the Costa Rican policy in this regard. An important point in this area is the sustainability of the forests. The traditional attitude in Costa Rica had been to reduce the forest cover at any cost, and this had led to a very high rate of reduction in its forest cover. In 1900, as much as 85% of the territory of the country was covered by forests of the tropical nature. (Lessons on sustainable development from Costa Rica's forests)

By 1950, this ratio had reduced to 56% and by 1987 to 29%. It is estimated that there are now 1.5 million hectares of remaining primary forest and of this 400,000 hectares are not in primary protected area and are thus being used for producing timber. It is also estimated that deforestation rates had been decreasing from 50,000 hectares a year in 1980s to 17,000 hectares a year in 1990s. In 1998, the Ministry of Environment and Energy also made a declaration that the deforestation had stopped. This was made with the assumption that secondary forests were being regenerated naturally. The forests of Costa Rica had been killed by many enemies like large-scale commercial farmers, agribusiness and ranch owners. (Lessons on sustainable development from Costa Rica's forests)

The Government also contributed to this deforestation by the subsidies to increase the production of cotton, sugar and meat -- mainly for export. Farmers were also shifted on to heavily forested parcels of land through the agrarian reform agency. Another practice has been to certain logging practices like taking of the high grade of timber which reduces the value of the balance forest. There has also been legal and illegal removal of timber for the domestic market. The consciousness about the harmful effects of removal of forests has been coming up since 1950. The main focus had been on the preservation of the diverse flora, fauna and watersheds of the country, as also on the stoppage of soil erosion. First this was sought to be achieved through control of timber production and habitat preservation. (Lessons on sustainable development from Costa Rica's forests)

Another important element in the area of preservation of ecology in Costa Rica was the system of National parks, and these were created by the original environmentalists. They were a group of people who had a common knowledge rooted in a scientific vision, a common background and a lot of shared experiences which had come to them from the University days. They were a very important force in convincing the successive presidents that the creation of national parks was the best possible method to stop deforestation, and thus protection of the environment. They often acted like a common group and cut across all party lines to ensure environmental protection. They have succeeded in putting Costa Rica among the top nations in the bio-diversity movement in the entire world of developing nations. (Lessons on sustainable development from Costa Rica's forests)

Their influence can also be seen in the fact that they have succeeded in getting environmental education in the curricula in the country. This had a lot of effect in the country, but not only were the parks to be managed, but also the environment was to be used wisely, and that effort was to exist all over the country. This was not easy to achieve and this can be seen in the fact that the rates of deforestation continued to be high in the 1980s. This also resulted from the initial policy in Costa Rica of unrestrained land use and its changes. The controlling ministry then had a very narrow focus. At that time, the country itself was in the process of stabilizing its own economic position, and for this purpose it was a lot dependent on international funding. These different international organizations championed some pilot projects as being sustainable in the long-term. These projects were in the areas of community forestry and reforestation for timber and fuel wood. These projects also tried to provide resources for wildlife and protected area management. The dependence on foreign aided projects also trained up a lot of Costa Ricans in the concepts, techniques and administration of community forestry and in reforestation. (Lessons on sustainable development from Costa Rica's forests)

These projects also helped solve the environmental and socio-economic problems in the different regions of Costa Rica that had suffered a lot due to the drop in value of the markets of cotton, sugar, beef, and banana. In some areas of Costa Rica, this was very important. At the same time, this led to a situation in which the different donors almost split up the country among themselves. The major donors were all from Europe and the United States. Most of the donors had projects for a limited time, and when the project ended, the country itself faced very serious problems. The proposals were submitted by the Costa Rican groups, but the funding came from the foreign partners. When the priorities of the foreign partners changed, the projects were in trouble. Most of the experiments did not become self sustaining and gradually disappeared when the official project period, supported by the international donor ended. (Lessons on sustainable development from Costa Rica's forests)

In the meantime, the National Assembly continued its deliberations on the laws, and the most important of them was the Environmental Services Act. These were subjects of enormous debates on policy. The purpose of these Acts was to legalize and institutionalize the system of funding from the Government for the sustainable development of forests. This was sought to be done through payments for environmental services. This has been done, and most of it has gone to the large organizations in the field. The peasants earlier had state support from the government agencies and funds to support agro-forestry and small scale native species reforestation. This has happened due to the downgrading of the Department of Peasant Development to a small program within the MINAE, from a full fledged government agency. This has removed the organization built on the ideals of community forestry to an unimportant position, and also lost it support from the government. (Lessons on sustainable development from Costa Rica's forests)

The funds for community forestry have ended and what is now available is the system for the payment for environmental services. This system favors the large landholders. The project that we have in mind is a concept of multiple uses of the forest, and emphasizes the use of forests for a lot of uses beside the extraction of timber. We would show that the plan for sustainable development of forest areas and the value of the project is not based on timber extraction. The plan is based on the sustainable development of the area without using the land as a timber stand. This is also different from the traditional view of combining forestry with small scale agriculture, husbandry, growing honeybees, ornamental plants, or growing cash crops in the shade provided by the trees. This is a concept that will be tried out in a totally new concept. (Lessons on sustainable development from Costa Rica's forests)

Socio-cultural Forces:

In Costa Rica, the businesses are of different types; general partnership or razon social, limited partnership or compania, limited liability company or sociedad de responsabilidad limitada, and corporation or sociedad anonima. Of these different types, the sociedad anonima or SA is the most popular form, and is somewhat similar to the Inc. In the United States. The holders of SA types of companies have the right and the obligation to carry out corporate business in Costa Rica. The entire process of setting up a company is legal, like in any other country, and it is better to seek the assistance of a commercial attorney. A qualified, competent attorney can be recommended by commercial sections of the embassies and consulates. Failing this, one can look in the Yellow Pages of the telephone books under the heading "Abogados." One may also seek the assistance of persons who have gone through this route before. Anyway, it is advisable to appoint a person who has experience with the Costa Rican legal system. The system in Costa Rica is different from certain other Latin American countries where it is essential to have a partner from the local country. (Business in Costa Rica)

The people establishing the company have their own rights and one must not feel pressurized to have a native Costa Rican as a partner, but in the case of the industry that we are talking about, it may be better to have one. After, there will be a lot of Costa Rican employees, and one must be able to understand and control them. To start a SA type of company, there must be at least two stock holders mentioned in the application, and three officers of the company. The required three officers of the company are the President, Secretary and Treasurer. There names have to be mentioned. Another officer who has to be named is the fiscal, and he is really the corporate controller. Another person to be named is the Resident Agent and he is the person responsible for the entire judicial and administrative functions of the company throughout the life of the company. He has to be a resident of Costa Rica, but not compulsorily an attorney. (Business in Costa Rica)

It is also important to choose a company name, and the name has to be in Spanish and not similar to any name that is already being used. This aspect has to be very carefully checked by the attorney concerned and the registry of corporate names must be well studied. This particular and unique name will be the exclusive property of the company. After the company is registered, there will have to be an immediate request for a Cedula de Persona Juridica. This is something similar to a federal tax number of the United States, and this gives the permission to operate freely in different markets as defined in the charter of the company. Another important aspect is to keep the corporate books up-to-date -- Minutes of the Board of the Directors' meetings, Minutes of the Shareholders' meetings, Registrar of the Shareholders and the three accounting books of Mayor, Inventario and Diario. These are expected to accurately reflect the activities of the corporation. If any tampering in the books is detected, there will be fines, or even imprisonment for the officers of the company. (Business in Costa Rica)

The total cost of this incorporation is from $300 to $600. The costs may be reduced by searching around. When any foreigner sets up a company in Costa Rica, he has to deposit an amount equal to the value of the stock in a special colones account, with the government. The total time for incorporation takes place between two to three months. The company cannot be active till the entire process is over. It is of course possible to buy out brand new and clean companies from some attorneys, but there will obviously no choice of names in these cases. The other important question is of finding suitable persons to work in the company, and this is solved to an extent by the general permission that owners and stockholders of registered Costa Rican companies have to work in Costa Rica. Anybody who owns any amount of stock in the company can work in any capacity in that company. They will also be able to get the required residency permits. In the case of transnational companies, many are granted temporary residencies for a period of two years rather than work permits. It is not possible to work without a residency permission or work permit. This will not normally give rise to problems with locals as the unemployment figures for Costa Rica are low -- currently at around 4.5%. This is very low by Latin American standards, and Costa Ricans prefer to work relatively hard for low wages, even when the economic growth is slow. (Business in Costa Rica)

Competitive and Distributive Forces:

The major challenge that Costa Rica faces is similar to most developing countries and is in the process of its economic development. The benefits of the open and modern society that Costa Rica has now built up are not reaching the rural areas. Like most other agrarian societies, the living conditions in the rural areas are connected with the situation in the agricultural activities, as it is agriculture which provides the maximum income in these areas. The living conditions are also highly affected by the ability of the state in providing the basic services of life that they require. This means things like potable water, electricity, telecommunications, healthcare and basic education. The population of this country is highly disbursed and thus naturally less organized. On top of this, most of these facilities are owned by the government and they are responsible for providing it. Of course, the situation is changing now, as the government is trying to become a controller of suppliers who will be providing these facilities. The poverty is seen to be higher in isolated rural areas like the North Pacific areas and South Pacific Regions, as also the extreme north of the country. (Conceptual Proposal for a National Action Plan)