8/10/2019 4a. Political Economy Issues

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POLITICAL ECONOMY ISSUES

According to Hill (2014, p.80), 'the benefits, costs, and risks associated withdoing business in a country are a function of that country's political, economic, and legal systems'. Hence, in determining whether Myanmar or Chile should be the export destination of its FrutyMix product, a key question FruGenix will consider is which country's political, economic and legal system more favourably influences the benefits, costs and risks of doing business in that country? Hill (2004, p.86) suggests that the guiding principle FruGenix can apply in navigatingthis 'benefit-cost-risk trade-off' between Burma and Chile is as follows:

other things being equal, the benefit-cost-risks trade-off is likely to be mostfavourable in politically stable developed and developing nations that have freemarket systems and no dramatic upsurge in either inflation rates or private-sector debt. It is least likely to be favourable in politically unstable developingnations that operate with a mixed or command economy or in developing nations where speculative financial bubbles have led to excess borrowing.

Examining Myanmar and Chile against the above principle reveals important similarities and differences between the political and economic systems of the two potential export destinations. Comparatively speaking, both countries are currently 'politically stable' to an acceptable degree from FruGenix' point of view though under different political systems, both having come from under dictatorshipsor 'command economies' in the past, Burma more recently. As to whether either co

untry is seeing a 'dramatic upsurge in either inflation rates', both the IMF and the World Bank have reportedly warned against 'runaway inflation' in Myanmarwhich has 'doubled over the past year' despite the country's bright economic prospects (Htike 2014, Mahtani 2014). Htike blames Myanmar's increasing inflation on macroeconomic mismanagement by the government, quoting a local independent economist as saying that 'the government recently took some actions that could havecaused primary food prices to go up. This can accelerate inflation and make poor people poorer' and, citing a local price index adds that ' the prices of meat,fish, vegetables, fruit and other basic foods have increased by about 20pc' ina certain month (Htike 2014)', exemplifying the 'economic' and 'political' risksthat Hill (2014, p.82) warns 'can harm the profit and other goals of a particular business enterprise'. Unless FruGenix can retail FrutyMix at a low price , this inflation situation in Myanmar could likely impede its overseas sales and pr

ofitability goals.

Conversely, the 'average inflation of Chile in 2014 is 4.14%' (Inflation.eu 2014) which is in keeping with one analyst's prediction that 'Chile will continue its...low inflation growth in 2014' (Mallen 2014). Because Chile has been more democratic for a longer time than the recently reformed Burma, FruGenix is less likely to have to pay off 'politically powerful entities' there than in Burma whichhas only recently come out from under decades of military rule, since 'the needto pay what are essentially bribes is greater in closed totalitarian states' (Hill 2014, p. 81) reducing the costs of doing business in Chile relative to Myanmar.

FruGenix Inc. will also need to rely heavily on contract law in all the export a

greements and strategic alliances neccessary for entry into either Chile or Myanmar. This brings up the matter of 'legal risks' which arise 'when a country's legal system fails to provide adequate safeguards in the case of contract violations' (Hill 2014, pp.82-83). In Chile 'contract enforcement takes 480 days, costs28.6% of the value of the claim and requires 36 procedures' (World Bank Group 2014a, p.79) compared to '1160 days, 51.5% of the value of the claim and 45 procedures' in Myanmar (World Bank Group 2014b, p.79). So on the legal front, comparatively speaking, Chile will likely present less legal challenges than Burma as astarting point to FruGenix' efforts to globalize its enterprise.