CR Vol.16, No. 3&4, 2006

THE CHALLENGE OF VENEZUELA: A SWOT ANALYSIS
by Carolina Duarte, Lawrence P. Ettkin, Marilyn M. Helms, and Michael S. Anderson

EXECUTIVE SUMMARY Venezuela ranks fifth in the world in oil proven reserves and has the largest accumulation of liquid fuel in the world. With its importance as an oil country, many countries including the U.S. have expressed concerns about Venezuela’s current economic and political situation. Using the popular SWOT analysis, Strengths, Weaknesses, Opportunities and Threats facing the country, are identified. The discussion and conclusions summarize the observations and address the relative tradeoffs within the country. Finally goals and policies appropriate for Venezuelan reform are presented.

INTRODUCTION A Strategic Assessment Methodology Porter’s (1990) Competitive Advantage of Nations “National Diamond” model has been widely used when analyzing a nation’s competitiveness. Porter’s theory utilizes a multitude of factors including choosing industries, locations, alliances, and ways to be more competitive. Porter and van der Linde used the “cluster analysis” of strategy, rivalry, demand conditions, factor inputs, and related or supporting industries to identify two cluster profiles for Venezuela (see http://data.isc.hbs.edu/cp) -- the petroleum and petrochemicals cluster across the entire country and the entertainment or

“telenovelas” cluster in Caracas. This second cluster includes television advertising, music, recording, and beauty pageants. While these two clusters can aid competition and Porter (1999) supports the competitiveness of locations, he does agree factor endowments are less valuable in the global economy. Porter further states (p. 871), “the prominence of clusters suggests that much of competitive advantage lies outside companies and even outside their industries.” Thus most of Porter’s ideas are commonly applied to citizens and regions as well as firms and industries. No new clusters have emerged for Venezuela. Are there other resources and skills available? What are the factor and demand conditions in the country today? Before these questions can be addressed and placed into Porter’s Diamond of National Advantage, a closer look at the country as a whole is needed. Thus SWOT analysis was selected to study Venezuela due to its efficiency, ease in the basic scanning of a situation, and providing a macro situation of a country which then could lead to more indepth analytical breakdown via Porters model. SWOT, is an acronym from its Strengths, principal components: Weaknesses, Opportunities, and Threats (Glaister & Falshaw, 1999). In its simplest form, Kay defines the SWOT analysis as “simply a list” (1993, p. 268). In itself, it is not an analysis but, as a tool, it can aid in effectively performing a broad analysis. SWOT is a way to analyze the environment, allowing for the segregation of the environment into internal strengths and weaknesses and external opportunities and threats as well as positive and negative environments. Bullington (2005) agrees SWOT analysis can be effectively used in an early environmental analysis due to its categorical structure.

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CR Vol.16, No. 3&4, 2006 “Environmental scanning” and “situation analysis” are other terms often substituted for SWOT analyses, and help to describe what a SWOT analysis does, i.e., define what strengths can be used to build upon; what weaknesses should be covered; what opportunities can be captured; and which threats should be defended against. The strengths and weaknesses criteria include natural and financial resources, work force, education levels of the population, markets and products for trade opportunities, technological capabilities, capital structures, and similar factors. The opportunities and threats criteria include: demographics, economy, political and legal aspects, cultural and historical factors, environmental concerns, and sociological factors (Mercer, 1991). SWOT analysis was originally performed in complex business environments for the purpose of formulating business strategies (Xiaomin, 2000). Since its origination in the 1950s by two Harvard Business School graduates, George Albert Smith, Jr. and C. Roland Christensen, it has gained increasing success as a management tool (Panagiotou, 2003). Perhaps its bestknown success came in the 1980s when Jack Welch of General Electric implemented SWOT to analyze GE’s strategies, and helped GE triple its productivity (Slocum & McGill, 1994). Today, most major companies utilize SWOT analysis (Backman & Butler, 2003). SWOT analysis was also used effectively at the United Nations’ Office of Planning Services to analyze proposals and increase staff accountability. The result was an increase in the speed of proposal processing, greater staff participation, a more orderly process, better interdepartmental cooperation, and the reduction in the use of expensive, outside consultants (Dijkzeul, 2000). SWOT analysis has expanded to encompass larger territories. Brinkerhoff and Coston (1999) used SWOT analysis as a tool for International development management in the globalized world. Backman and Butler (2003) applied SWOT to the entire continent of Asia. And Rahnama, Samavati, and Dilts (1995) used SWOT to study business in developing countries. SWOT assists in the identification of environmental relationships as well as the development of suitable paths for countries, organizations, or other entities to follow (see Ansoff, 1965; Andrews, 1987; Porter, 1991; Hofer & Schendel, 1978; Valentin, 2001). This conceptual framework can assist policy makers in identifying key forces affecting this country. SWOT has been used extensively in a number of developed as well as developing economies to aid in understanding a variety of decisions including: Succeeding in business and manufacturing location decisions in China (Helms, 1999); penetration strategies for UK and Chinese exports promotions and joint ventures (Zhang & Kelvin, 1999); regional economic development in Australia (Roberts & Stimson, 1998); performance and behavior of new micro-firms in Scotland (Smith, 1999), and business opportunities and strategic planning in Bahrain (Khan & Al-Buarki, 1992). SWOT analysis has also been applied by government agencies to analyze expansive regional projects such as India’s offshore outsourcing in the state of Kerala (Nair & Prasad, 2000); India’s commuting and transportation systems (Vijayaraghavan, 1995); the Zhongguancun Science Park in China (Xiaomin, 2000); entrepreneurship in Japan (Helms, 2003), and the competitiveness of Spanish industry (Ahijado, Begg & Mayes, 1993). Another use of this analysis tool is a study of multi-

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CR Vol.16, No. 3&4, 2006 sectoral qualitative analysis for assessing competitiveness, core competence, economic and trade possibilities, and economic risk of regions (Roberts and Stimson, 1998). These international studies identify the complex environmental relationships and formulate a solution for the country, building on the advantages and opportunities presented. These studies confirm a SWOT analysis of Venezuela is both suitable and useful and should advance intellectual understanding about the country. estimated a further 45 TCF and 36 TCF respectively represent probable and possible reserves. A new natural gas regime, OGL (Ley Organica de Hidrocarburos Gaseosos), was approved in late 1999. The OGL creates a modern, legally secure framework for a market-oriented gas business. Without a required national oil company involvement, the sector will be open to international private, domestic private, and state participation (Uisdean and Lujan, 1999). Mining Venezuela includes one of the largest mining reserves in the world, as well as one of the largest areas of resources. Venezuela has important coal deposits in the Eastern and Western parts of the country. Most of the country's gold, diamond, iron, and other base metal exploration and exploitation occur at the Guyana Shield, in the southern state of Bolivar. The Ministry of Energy and Mines (MEM) indicates proven reserves of minerals are: iron, 15.000 million metric tons; coal 8,270 million tons; nickel, 56 million metric tons; Gold, 10.000 metric tons; and diamond with no overall estimates. Attractions The shores of Venezuela, discovered by Christopher Columbus during his third voyage to the New World in 1498, were his first sightings of the American mainland. The beauty of the landscape impressed Columbus to name the new territories "Land of Grace." His reports of bounties led to the exploration of ...

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