Comparative Location Analysis

Belem, Brazil and Maracaibo, Venezuela located in South America are both examined in regards to the potential of sustaining a successful lumber industry. Although particular locations are portrayed as more favourable within the lumber industry, this industry has skills, technologies, and methods of operation that are adaptable to different temperatures, soil, humidity, labour skills, and economic conditions. Furthermore, after careful research that looks into the different aspects of the two cities location determinists, entry modes, exporting, globalization, transportation, and foreign direct investment.

According to World Guides (2015), the exporting route on the Atlantic Ocean from the Amazon River to the harbour in Belem is an important piece in Brazil’s importing and exporting system. Therefore, due to the frequency of the imports and exports coming through the waters of Belem, this city must maintain a good level of infrastructure standard for roads to get the exports to and from the loading dock and to their desired destination in order to maintain a quality service that will keep exports up.

The Para and Belem History (2013), states that Belem started expanding on the development of roads to help accommodate and direct the busy flow of people and the vehicles containing various goods that were coming to and from the river port. Road building promoted the use of the Belem/ Amazon River route for importing and exporting goods. Also, during the time of road construction, Belem began constructing buildings to create a foundation for the growing city and developing communities (2013). The development of roads and buildings is an important contributor to the lumber industry because the trucks that carry trees for milling and the lumber itself are very large and cannot easily navigate through small roads. Therefore, with ongoing improvements the delivery to ports has increased production.

Similarity with Belem, Maracaibo uses a main trade route that also runs along the Atlantic Ocean. The channel of Lake Maracaibo connects through the Gulf of Venezuela and is the main export route (Encyclopaedia Britannica, 2015, B). A concern that arises with using Lake Maracaibo derives from Platts International Coal Reports (Byline, 2012); during the period when the were traffic restrictions involving large vessels the businesses were affected because they were unable to gain the required access in and out of the port. The lumber industry requires large shipping vessels to export their products and the lingering possibility of another traffic restriction of a large vessel containing their goods is a concern that may stop many countries from wanting to trade with Maracaibo. This type of issue could limit, and restrict, the amount of countries that are willing to create and enter into trade agreements with Maracaibo for their lumber. Another factor that may obstruct the lumber industry would be the inadequate infrastructure that may result in difficult and timely deliveries because of the poor road conditions (Byline, 2012).

Exporting would be improved and enforced by a lumber industry in Belem and Maracaibo as the locations of the two cities both have access to the coastal waters which adds to the convenience to the worldwide export of lumber (Encyclopaedia Britannica, 2015). The location would help the two cities connect with other cities and even countries.

Also, during the process of exporting, the globalization would gradually improve. When other countries have a high demand for lumber, and do not have the local resource to start a lumber business, or do not have the ability or natural resources to build a lumber industry, they would benefit from importing lumber from other countries such as Belem or Maracaibo (Hill, 2015). Furthermore, Belem and Maracaibo would benefit on the demand of lumber from other countries that are located closely.

Although globalization and exportation would bring profits to Belem or Maracaibo, they would also bring various risks. First of all, there are different legislations between countries that may create trade barriers for Belem and Maracaibo. When the two cities export lumber to another country, they must ensure they respect and abide by the country’s trading law (Brokers, 2015). Belem and Maracaibo will need to ensure that they are not violating any of the trading legislations found within other countries, otherwise this may lead to high fines that could be costly. Therefore, they may have to prepare the lumber they are exporting in different ways for different countries. They will also have to consider the different tariff amounts for the different countries they plan to serve, which can relate to how much they will need to charge each exporter to still be making profit.

Invest in Brazil (2013) states that a large portion of Belem is covered by rainforest, and this is a great opportunity for foreign investors. According to Brazil.org.za (2015) their native forests occupy just over 517 million hectares, and the planted forests occupy approximately 6.6 million hectares, of tree filled space. Therefore, with such large amount of available forest access this appears to be an attraction for foreign investors in the lumber industry. In previous years the forest industry was booming in Belem, therefore we may be able to acquire existing assets available within the lumber industry and take advantage of the vast amount of resources available in the rainforest.

Compared to Belem, Maracaibo has a very dry forest area. The World Wildlife Fund (2015); explains that the degradation and conversion to the dry forest has been caused by the large amount of exploitation that agriculture and grazing has on the land. According to Mongbay.com (2011), Venezuela has been losing forest coverage at 0.55% per year, an average of 287,000 hectares. Looking at these facts, it appears that Maracaibo is an unattractive city to host a lumber industry. The climate and acreage issues of Maracaibo lead us to believe that the idea of investing in the lumber industry a risky Greenfield decision.

According to Trading Economics (2015, A), the Gross Domestic Product (GDP) is measured within a stipulated period of time and is equal to the total expenditures for all final goods and services produced within the country. In order to make a judgment on the value of our investment dollar we will take a look at the GDP for Canada (A), Brazil (B), and Venezuela (C). Trading Economics (2015) states in 2014 the Gross Domestic Product is as follows: o Canada – 1786.66 billion USD, representing 2.88% of the world economy * Brazil – 2346.12 billion USD, representing 3.78% of the world economy * Venezuela – 509.96 billion USD, representing 0.82% of the world economy.

Galan (2006), states that exports depend on the world economy. Knowing that the calculation of the GDP includes exports and eliminates imports a lumber industry would benefit the growing economy of Belem. In contrast, the Maracaibo market is struggling, this particular city will want to focus on improving its economic state before investing in a new industry such as lumber.

According to The Money Converter (2015, A, B) on November 29, 2015 $1.00 CAD (Canadian Dollar) is equivalent to: * $2.85 BRL (Brazilian Real, A) and; * $4.71 VEF (Venezuelan Bolivar, B).

Therefore, in exchange for a $100,000 CAD investment in the lumber industry we would receive: * $287,392.14 BRL and; * $474,551.88 VEF.

Our initial investment would go farther in the Maracaibo, Venezuela market. Therefore, to extend our CAD to its fullest potential, in this instance, our choice would be to invest in Maracaibo.

According to Photius Coutsoukis (2004) the only two constants since World War II, in Brazil, are the very low wages of unskilled labour and the wide spread disparity in the wage scale. He goes on to state that a substantial number of Brazilians are poor because Brazil has a large population. Meaning if we were to invest in a lumber industry in Brazil we would have to invest a lot of money into training.
On the other hand, Infoplease (2015), states that Maracaibo is a large commercial and industrial center that rapidly expanded and modernized after the foreign interest in the petroleum resources. Therefore, we would not have to spend as much in training because of the amount of factory and labour workers in the area.

In conclusion, after analyzing both cities, it becomes evident that Belem is seen as a more ideal location, as opposed to Maracaibo, for creating a lumber industry. Belem dominates in almost aspect in this comparison from the land the lumber grows on, to the transportation journey the finished product takes.

References

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Brokers, T. (2015). Advantages and Challenges of Exporting - an article by Training Expert Tekle S. from Brentwood, United States - The Knowledge Brokers. Expertbase.org. Retrieved 30 November 2015, from http://www.expertbase.org/a238-advantages-and-challenges-of-exporting

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