Guatemala offers investment opportunities that are diverse.
Those businesses that are found in this country are organized in many forms. These forms include the corporation with a purpose of common corporate, sole-proprietorship, or as a company. The businesses could be either the private businesses or public businesses activities. Guatemala signing treaties with the United States and some other Central American countries has led to great influence on some of the businesses which are undertaken in the country.
Guatemala has signed the Central American Free trade Agreement (CAFTA) with the United States of America and the other Central American countries. Under the free trade agreement all sort of the barriers have been banned. The barriers can either be the tariff or non tariff barriers. This has an implication that goods either from Guatemala or from the United States have no exit or entry restriction respectively.
The consequences of the signing of such treaty on Guatemala, has had both effects on the way of conducting businesses. The weak sectors in Guatemala have been affected negative while on the other hand such agreement has stimulated to businesses strategies development. Such strategies have been formulated for the purpose of utilizing the available opportunities arising from the free trade among the Guatemala itself, Central American countries, and the United States (Nevaer, 1995, 53).
Poor Agricultural Country
Since the fact that, Guatemala is a poor agricultural country and the United States does well in this field, it has led to establishment of many businesses in Guatemala to the processing and redistribution of the agricultural products from the United States. Being that the businesses owners in Guatemala can access those products at cheaper cost, it results to formation of a wider base to which more business activities can be established to make sure that such good can reach to the final consumers at a cost that is cheaper than if they were to imported with tax inclusive. Although this might be the case, it is true that those business owners depending on the few produced agricultural products within their country will be eliminated from the market. The cost of production of the agricultural products from Guatemala is higher compared to the cost of production of the same products from United States.
This means that those products made from the agricultural products from the Guatemala will tend to have a higher final price compared to those made from the same products imported from United States duty free.
This has actually led to exposition of those businesses which existed before the signing of the free trade agreement to a steep competition which has led to collapse of some of them. The same effect has also been felt by those businessmen who take their exports of the agricultural products to the Central American countries. The United States has dominated all those market since they have comparative advantage in production of the agricultural product compared to the Guatemala (Cullather, 1999, 81).
Due to the formation of the free trade agreement the business people in Guatemala have enjoyed the incentives offered by the government in promotion of the courier services, software development, and medical and engineering equipments manufacturing which are aimed at expansion of export base. This has provided a better opportunity for the business expansion in Guatemala due to the government support in terms of finance and infrastructure.
The increased software development has led to advancement in the modes of conducting businesses since the E-commerce has been employed in many of the businesses activities. The involvement of Guatemala in the free trade agreement has contributed to the ramping up of the businesses. This has resulted into increase in the number of the employed staffs who are high skilled in the business firms leading to efficiency in production.
This has been possible under the free trade agreement because, the firms can recruit staffs from other countries which are in the same agreement with Guatemala without restriction.
The volume of exports has increased due to efficiency in production which on return has contributed to increased export earnings.
The realized money from the exports is now being used by the business people to improve their firm infrastructures and the quality of their products to meet the international standards. In Guatemala after signing of the free trade agreement there has been a swift and easy trade of the consumer goods. This has actually led to increased sales and the profits because of the removal of the trade barriers and costly restrictions such as the quotas, and the tariffs.
This is also encouraging the foreign direct investors who feel that the environment for doing business in Guatemala is conducive due to the low cost in running most of the business activities. The use of less expensive labor and material for doing business has increased the profit margin, when the prices of the sale s are not lowered. The same effect has also been felt on the side of sales which have increased greatly as a result of low selling prices attributed to less cost of production.
The increased profits and sale facilitate further growth of the business, which stimulate demand for the middle class higher wage jobs, which are necessary to facilitate further increase in the business sale (Schneider, 2001, 120).
Most of the Guatemala business owners have now formed joint venture with the other business owners from United States and the Central America which has now made the Guatemala business owners to exploit some of the resources which were too expensive or in which they lacked skills for exploitation. The foreign investors have transferred technology from their countries thus offering a good learning opportunity to the people of Guatemala to start new businesses on their own. It has led to production of quality product which has become very competitive in the international market (Nevaer, 1995, 55).
The availability of cheap materials and labor has resulted to faster expansion of the small scale businesses. Before the formation of the agreement the large businesses had the good opportunity in investing in some of the expensive business activities, which had led to stagnation in the growth of the small business.
There were few large businesses by then which implied there were low exports to the neighbor countries. Due to the fact that most of the large businesses were established in the urban centers, there was limited supply of the consumer goods to those residents living in rural areas.
This increased the cost of production due to higher transport cost and infrastructure establishment. With establishment of free trade agreement many businesses which processes most of the consumer products have been established allover the country making the good cheaper and available to the consumers at the right time. This has offered the small businesses with an ideal environment unto which they can expand and be competitive even in the international market.
The small business could also not even afford funds that could enable them to build large infrastructures before the free trade agreement.
The large enterprises could establish this, and thus they could use it as a way of avoiding the old trade restrictions.
The small businesses could also not afford to pay the export tariffs. The formation of Central America Free Trade Agreement has played a very vital role in growth of the small businesses since they could access some of the materials and labor at a lower cost (Schneider, 2001, 122).
Free trade agreement in Guatemala has led to specialization in production of some goods which it has comparative advantage. Cotton is one of the products which Guatemala produces in large quantity. Its specialization in production of cotton has encouraged many business people in Guatemala to establish more knitting factories which are now producing quality products. The knit garments now have become the chief export of Guatemala.
The business owners in Guatemala are earning a lot of profit in this field of production, providing them with funds which have been used in establishing more infrastructures which has enabled them to be efficient in production and have increased volume of their exports.
Despite some of the positive effects Guatemala business owners are encountering, there are also threats that they are facing in the process of conducting their business. The United States being that are much ahead in terms of technology compared to Guatemala, this is really a challenging factor to the growth of many business in Guatemala. Most of the products from the business owners from Guatemala are facing steep competition from most of the products from United States.
The United States products are relative cheaper compared to the Guatemala products. This actually offers a problem to the business owner in Guatemala in relation to the free trade agreement that has been established (Nevaer, 1995, 55).
- Cullather Nick. Secret History: The CIA’s Classified Account of Its Operation in Guatemala. United States, Stanford University Press, 1999, pp. 81
- Nevaer louis. Strategies for Business in Guatemala: Free Trade and the Emergency of North America, Inc. Mahwah, NJ. Quorum Books, 1995, pp. 53, 54, 55
- Schneider Ronald. Business in Guatemala. Mahwah, NJ. Praeger, 2001, pp. 120, 122