We visited the U.S. commercial services today. And by “we” I mean everyone else because I was as sick as a dog with a bacterial infection in my stomach.
The U.S. commercial services is a business that works with American companies helping them do business in Ecuador. They talked to “us” about the advantages and disadvantages of doing business in Ecuador.
Advantages of doing business in Ecuador:
- Labor is plentiful and inexpensive.
- Ecuadorians like the U.S. generally. They like our products but they don’t like our big businesses. Coca-Cola is cool. Wal-Mart is not.
- The U.S. dollar is the national currency so there are no exchange rate adjustments.
- First mover advantage possibility. Few other developed nations are doing much business in Ecuador.
Quito by day
Disadvantages of doing business in Ecuador:
- Ecuadorians have a bias against “Big American Businesses”
- The Political situation is unstable. Ecuador has had 9 presidents in the last 8 years. The president they have now is trying to dissolve the congress and write a new constitution that might make him a dictator.
- Ecuadorian president is a friend with our enemy Heugo Chavez.
- Ecuadorian legal system is complex and corrupt. If you want to do business here you need a good lawyer.
Quito by night.
The hotel doctor paid me a visit Monday morning and put me on an antibiotic. My fever broke and I felt up for going to Liquor’s that afternoon.
These bottles are from damaged cases. They are used by the marketing department for promotions.
We visited Liquors, an import and distribution company that imports liquor, shoes, clothes and Monster Energy Drinks. Jaun Carlos one of the executives, is a recent alumni of UMHB and he gave us the ground tour of their wear house and Quito HQ. As much as some of the students wanted we did not get any samples.
These guys unloaded this dolly in no time flat.
Juan Carlos talked about some of the challenges to doing business in an unstable country.
Challenges to Doing Business in an Unstable Country:
- Delivery trucks need armed escorts to make sure they are not hijacked and robbed.
- Inventory must be kept at a high level because new deliveries are uncertain. If there was an international crisis Liquors could continue distribution for 4 months. Wal-Mart on the other hand would start to have shortages within 18 hours and would have nearly emptied their supply chain within a week. The inventory costs here are much higher since just in time inventory is not an option. I would suspect that this is one of the reasons the prices are higher here.
- Taxation here is very high and unevenly enforced. Juan Carlos said that 78% of their competitors products are contraband products that were smuggled into the country in order to avoid paying the astronomic import taxes. In order to compete with their competitors Liquors must operate on thin margins and high volume.
That evening we went to a restaurant in the old city. The view was amazing.
Hope you get well soon and still have a great trip!
So, high import taxes that result in 78% non compliance! I wonder how high these import taxes are? Unreasonable, I shouldn't wonder.
This reminds me of the 1999-2000 debate topic of abolishing the 16th amendment and replacing it with something else. That "something else" often mandated a NST, or national sales tax. In these debates you argued that NST rates would need to be around 25% to maintain current government spending. Adding state & local sales tax would total more than 33%. Other counties have found that sales tax noncompliance begins at 19%, and the black market with all its trappings takes over the economy. Noncompliance breeds a system of bribes, smuggling, corruption, lawlessness, and before long tumbleweeds and sleeping hound dogs will populate the main streets of America.
We studied the theory of law in my 1st law class. In order for a population to abide a particular law, they must first understand it, know about it, be enforceable, it must be fairly enforced, etc., but most of all, it must be reasonable.
C.S. Lewis: Logic! What do they teach at these schools nowadays?