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Two Cases of Doing Business

Abstract

This paper deals with two cases of doing business: one in Venezuela and another one in the U.S.A. and Japan. The first case describes investment activities in Venezuela where certain political risks present a threat to investors. And the second one describes the business activity of AFLAC, the company that specializes in supplemental insurance both in the US and Japan.

Venezuela

The article “Risky Business in Venezuela” presents a short description of the situation in the Venezuelan economy. The author explains how the intervention of the government, headed by President Chavez, led to significant changes in the financial life of the country.

Under the present political structure it would be quite dangerous to make investments in large industrial productions and foreign companies, since they are likely to be nationalized or the government can introduce regulatory sanctions which can limit their activity and thus, cause havoc in the profits.

As an employee of a pension fund that has been asked to lend $100 million to PDVSA, one would have to be very careful and start with analyzing all the risks before making such an investment. Although the company is the world’s fifth largest exporter of oil, it is state-owned and part of its cash goes towards funding government-sponsored social programs.

Investing in Venezuela may present the following political risks: changes in the country’s political system, anti-American sentiments, military tensions with Columbia and government’s intervention in economic activity and the following breaches of contracts. Despite the economic recession, the President's position is still quite stable and he has support of the population, especially of the largest low class. Therefore, no changes in the political system are expected any time now. Anti-Americanism looks as the biggest threat; however, it seems to be only facade for the present government to have support of the population before the election. President Chavez’s speeches against the U.S. are mainly directed at the internal audience and pose no real risk. Military tensions with Columbia have been somewhat eased but threat of a military conflict still remains. That may be one of the biggest threats. And, lastly, the government’s intervention in economic activity and the following breach of contracts may also present a threat, although the government of Venezuela is interested in investments in the state-owned branches of economy.

Under present circumstances it is quite difficult to reduce political risks. Investing in the major branches of economy run by the government may be safer than investing in other small industries. On the other hand, to restore the confidence of potential investors, Venezuela has to become a predictable country. Investors need to be sure that their money will be producing profits and will not be taken by the government.

AFLAC

AFLAC is a $21-billion insurance company based in Columbus, Georgia. It is a unique company since its domestic profit is lower than international. AFLAC is a small player in the U.S. market and its annual revenue is $5.1 billion dollars, whereas its Japanese revenues reached $16 billion in 2010.

AFLAC specializes in supplement insurance – insurance that covers specific types of problems, such as cancer, disability or accidents. The company was founded in 1955 in the U.S. and in the early years it struggled through many crises. Its big break came in 1970, when one of its founders visited Japan. AFLAC became very successful in Japan and has an army of about 115,000 licensed sales associates, working through 19,600 independent insurance agencies.

In 2000, the company launched an attention-grabbing advertising campaign that featured a duck. The duck’s efforts appeared to be successful and 90% of Americans are now aware of the AFLAC brand. Moreover, the company brought the duck to Japan in 2001. The survey conducted among Japanese consumers showed that TV commercials featuring the AFLAC duck ranked first or second in the popularity in the insurance category.

Although the company’s mascot was quite popular in the U.S., AFLAC shouldn’t use the same advertising campaign in Japan as it does in the United States. The two nations have quite different mentalities. Having identical advertising in both nations may have negative effect on one of the two company’s branches. The AFLAC duck was introduced in each nation in the way that is characteristic of each audience’s reception. Blending duck with traditional maneki neko creating the maneki neko duck would probably prove to be a failure in the U.S.

It is very important for AFLAC to adapt its business practices to the Japanese way of doing things and, at the same time, remain a company with American flavor. For example, it proved effective when AFLAC switched to the Japanese job-based reward systems when salaries are based upon the skill requirements and difficulties of the job. However, granting stock options to the Japanese employees was an American thing and it strengthened their commitment to the company’s future.

AFLAC’s dominant position in the market was challenged by the Financial Big Bang policy. The company managed to maintain its position through streamlining its operations with the help of online techniques and alliances with other insurance companies.

Although AFLAC is a rarity among U.S. companies, it has more than 70% of its business in the Japanese market. The company seems to be successful in two countries. There is a saying: don't put all your eggs into one basket. That may prove to be true for this company. The company’s reliance on two markets presents unique opportunities for development.