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Entrepreneurial potential in Argentina: a SWOT analysis

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Entrepreneurial potential
in Argentina: a SWOT analysis
Entrepreneurial
potential
in Argentina
Marilyn M. Helms
School of Business, Dalton State College, Dalton, Georgia, USA
269
Martı́n A. Rodrı́guez
External Business Research Division, Escuela de Negocios,
Universidad Católica de Salta – Argentina, Salta, Argentina
Lisandro de los Rı́os
Research Department, Escuela de Negocios (Business School),
Universidad Católica de Salta – Argentina, Salta, Argentina, and
William (Bill) Hargrave
School of Occupational Studies, University of Georgia,
Smyrna, Georgia, USA
Abstract
Purpose – The purpose of this paper is to examine the external macro-environmental forces
along with the internal country-specific attributes of Argentina as they influence entrepreneurship.
The experiences with Argentina’s financial crisis of 2001-2002 have highlighted concerns as to
whether the past prosperity can ever be regained. Entrepreneurial ability has received much attention
in public discussions as a means to revitalize the lagging economy.
Design/methodology/approach – The popular strategic management tool of strengths,
weaknesses, opportunities, threats (SWOT) analysis is used to group a number of current and
emerging issues for the country. Their impact on entrepreneurship is then evaluated.
Findings – Argentina has numerous natural resources that can be developed into new businesses.
The slow growth of new venture creation in Argentina can be attributed to the difficulties in obtaining
capital financing as well as the new business start-up licenses and procedures. Further limiting
entrepreneurship is corruption, the lack of copyright protection, and difficulty hiring employees.
However, the government of Argentina has implemented monetary changes to provide funds and
other services for supporting new start-up companies and a key strength of Argentina for
entrepreneurship is the country’s resources and products. Major opportunities exist in tourism and
investments in the growing wine production industry. The major threat to new venture creation,
however, is the current worldwide recession.
Research limitations/implications – Research implications for applying SWOT analysis to a
country are discussed. While this tool is largely focused on companies and their issues for strategy
development, this paper discusses ways to use the methodology to include ranking or weighting
variables in their importance to entrepreneurship. A larger sample of experts is suggested for future
research along with surveys of industry leaders to refine the ordering of variables.
Practical implications – Implications for practitioners and policy makers within the country and
areas for future research are discussed.
Originality/value – The paper adds value to the existing research about new venture creation and
start-ups in Argentina. In addition, the use of SWOT as a country-analysis methodology is also
extended.
Keywords Entrepreneurialism, SWOT analysis, Economics, Culture, Business development, Argentina
Paper type Research paper
Competitiveness Review: An
International Business Journal
Vol. 21 No. 3, 2011
pp. 269-287
q Emerald Group Publishing Limited
1059-5422
DOI 10.1108/10595421111134859
CR
21,3
270
Introduction
Entrepreneurship is often cited as the key to a country’s growth and economic
improvement. As entrepreneurs take controlled risks and pursue innovation, they
personally prosper along with the country in which they found their business
(Timmons and Spinelli, 2007). In the USA, for example, small businesses contribute
significantly to the economy, employing more than half of the total private workforce
and accounting for about half the country’s sales and gross domestic product (GDP)
(Popkin, 2004). In Argentina, however, the situation is different.
According to the global entrepreneurship monitor (Bosma et al., 2008), countries are
grouped by their phase of economic development as either efficiency-driven, innovation
driven (i.e. the USA) or factor-driven economies. Argentina is grouped with
efficiency-driven economies and ranks third in early-stage entrepreneurial activity
behind Peru and the Dominican Republic but above Mexico and Brazil. Bertranou (2007)
found 23.5 percent of Argentina’s total employment was from self-employment – one of
the lower percentages in Latin America. Many of these entrepreneurial businesses have
been formed from necessity and often are not driven by market opportunities and
consequently have high failure rates.
How could entrepreneurial activity level in Argentina be improved? Why has
Argentina not reached its economic potential in terms of new, small business growth? The
purpose of this paper is to use the popular strategic planning methodology of strengths,
weaknesses, opportunities, threats (SWOT) analysis to answer these questions.
SWOT analysis
SWOT analysis or categorizing issues into strengths, weaknesses, opportunities, and
threats is one of the most respected and prevalent tools of strategic planning (Glaister
and Falshaw, 1999). SWOT is used to identify cultural impediments and advantages
and external governmental roles as well as internal company issues. It has been used
for identifying and exploiting opportunities in a wide variety of situations. For nascent
entrepreneurs, SWOT is an appealing methodology for both its brevity and precision.
While SWOT analysis is based on a seemingly simple framework, its application for
complex situation analysis is widely respected. SWOT examinations are a useful
strategic tool to fill gaps in the assessment of economic conditions facing an entity as
well as categorize internal variables. SWOT analysis assists in the identification of
environmental relationships as well as the development of suitable paths for countries,
organizations, or other entities to follow (Proctor, 1992). Valentin (2001) advocates
SWOT analysis as the traditional means for searching for insights into ways of crafting
and maintaining a profitable fit between a commercial venture and its environment.
SWOT analysis was first described by Learned et al. (1969) and has grown as a key
tool for addressing complex strategic situations by reducing the quantity of information
to improve decision-making. Internal issues can include image, structure, access to
natural resources, capacity and efficiency, and financial resources while external issues
can include customers, competitors, trends in the market, partners and suppliers, social
changes and new technology, and various environmental issues including economic,
political and regulatory. From the list of SWOT, a firm, country or other entity can
determine how to leverage its strength, improve its weaknesses, seize opportunities and
avoid potentially harmful threats or at least monitor them through more consistent
environmental scanning.
Advantages and uses of SWOT analysis
Researchers (Ansoff, 1965; Andrews, 1987; Porter, 1991; Mintzberg et al., 1998) agree
SWOT provides the foundation for realization of the desired alignment of variables or
issues. By listing favorable and unfavorable internal and external issues in the four
quadrants of a SWOT analysis, planners can better understand how strengths can be
leveraged to realize new opportunities and understand how weaknesses can slow
progress or magnify threats. In addition, it is possible to postulate ways to overcome
threats and weaknesses (Hofer and Schendel, 1978; Schnaars, 1998; McDonald, 1999;
Kotler, 2000).
Applications of SWOT have been used as a tool to assess the implementation of an
environmental management system (Lozano and Vallés, 2007), a regional economic
development public works project (Lai and Rivera, 2006), interconnections of retail
technology (Bielski, 2006), industry global competitiveness (Shinno et al., 2006),
non-governmental organizations as trade development partners (Domeisen and de
Sousa, 2006), competitive advantages of government (Chang and Lin, 2005), hotel
reform (Yu and Huimin, 2005), country concentration in a major industry (Tam et al.,
2005), outsourcing (Nair and Prasad, 2004), strategic development in higher education
(Dyson, 2004), and for company performance and quality (Ahmed et al., 2006).
SWOT has also been used in the analysis of a number of developed and developing
economies. It has contributed to an understanding of a plethora of decisions and
issues including: manufacturing location decisions in China (Helms, 1999); designing
a penetration strategy for UK and Chinese export promotions and joint ventures
(Zhang and Kelvin, 1999); regional economic development in Australia (Roberts and
Stimson, 1998); performance and behavior of new micro-firms in Scotland (Smith,
1999), strategic planning for firms in Turkey (Dincer et al., 2006), in Taiwan’s
information industry (Lin and Hsu, 2006), and for strategic planning in the island
country of Bahrain (Khan and Al-Buarki, 1992).
SWOT has been used to profile challenges of entrepreneurship. Helms’s (2003)
study of entrepreneurship in Japan suggested changes to encourage entrepreneurial
growth and overcome cultural impediments to new venture creation. Bernroider
(2002) used SWOT analysis to study micro, small, and medium enterprises in Austria.
Morris (2002) asserts the situation is in fact, a large factor in the development of
entrepreneurs – that is, the SWOT influence who will actually engage and succeed
in entrepreneurship. Panagiotou (2003) contends SWOT analysis is used more than
any other strategic planning tool. Hitt et al. (2001) suggest identifying and exploiting
opportunities are a crucial part of entrepreneurship.
Disadvantages and limitations of SWOT analysis
With all its uses and advantages to planners and strategists, SWOT analysis has a
number of disadvantages and limitations. The success of SWOT analysis depends on
the thoroughness of the internal and external analysis which is a function of
time-devoted to the task, the number of experts involved, and the level of expert
consensus.
In addition, categorization of variables into one of the four SWOT quadrants is also
challenging. Strengths that are not maintained may become weaknesses. Opportunities
not taken, but adopted by competitors, may become threats. The classification of a
variable also depends on the purpose of the exercise. In this paper, classification is
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based on an assessment of the variable as it relates to encouraging or improving
entrepreneurial potential in Argentina. Criteria to assign a variable to one of the four
quadrants may be more difficult to clarify if the methodology is not used for a
company but for a country, for example. In this paper, focused on the country of
Argentina, classification of variables is different than for an individual company.
Macro-environmental forces that would be an external threat or opportunity for a
company are components that would exist within a country and are thus classified as
internal strengths and weaknesses.
Also while SWOT is useful to profile and enumerate issues, it does not provide
actual strategies to implement to take advantage of opportunities while leveraging
strengths. Kangas et al. (2003) agree SWOT provides the basic framework to perform
analyses of decisions situations, they recommend adding multiple criteria decision
support (MCDS) methods along with SWOT to determine analytical priorities for the
identified factors. Using a case study, they illustrate using MCDS for prioritizing
information from the SWOT analysis and ranking various proposed strategic
recommendations. In an earlier study, Winer (1983) suggested multi-strategic planning
(MSP) should follow SWOT analysis and objectives should be ranked by logical
reasoning rather than subjective priority setting. In MSP, a long list of possible
strategies is developed and matched with objectives and results from SWOT analysis
to result in a hierarchy of selected strategies. While ranking variables seems an
appropriate next step, there is a dearth of studies suggesting methodologies for
prioritizing variables derived from SWOT analysis.
Thus, the purpose of this paper is to employ the popular strategic tool of SWOT
analysis, and apply strategic thinking toward new business creation in Argentina.
SWOT analysis will aid in the identification of internalities and externalities
interacting for, and more importantly, against entrepreneurship. By uncovering and
reviewing the issues, policy makers can enact changes making the process for
self-employment easier while simultaneously working to change the culture and
encourage entrepreneurial growth.
Methodology
Using an expert panel of four business faculty – two from the USA and two from
Argentina – a thorough review of secondary literature on the economic situation
of Argentina was conducted from literature from the past five years as reported in
ABInformw, Lexis-Nexisw, EBSCOHostw global databases as well as the internet and
local newspaper articles within Argentina. The two US business faculty from Georgia
Board of Regents Colleges participated in a summer faculty study abroad to Argentina.
The faculty met with local industry leaders in Salta and Buenos Aires and were
paired with two Argentine faculty teaching in the Business School at the Catholic
University of Salta. The Salta-based faculty remain involved in external business
research projects with a variety of Argentine businesses and industries in addition to
their business teaching duties. During multiple meetings in person and then
electronically, the team used reduction techniques to group and summarize the
variables related to entrepreneurship emerging from their own expertise and from the
comprehensive literature review. The variables were then grouped into the four SWOT
categories based on their potential to encourage or impede new venture creation in
Argentina.
SWOT analysis of Argentina
Internal analysis: strengths
Government policy supporting new venture creation. The government of Argentina has
encouraged privatization and policy reforms favoring the development of
entrepreneurship since 1989. Privatizing formerly government-owned industries has
opened more companies to entrepreneurship and the benefits and rewards of private
ownership and control. Also liberalizing the economy and currency stability has helped
to encourage new venture creation (Dana, 1997), freeing up funds for investment and
signaling to would be investors the existence of a more secure market within which to
develop their business ideas. The national government, through the sub-secretary of
the small and medium enterprises (SMEs) and regional government has developed
tools to support the creation and growth of new enterprises. Programs include financial
assistance through subsidized interests rates and public sector financing; subsidies for
production and technical assistance in SMEs; development of a regional products
complex or business clusters; and an entrepreneurial development program designed
to promote the creation and development of new ventures with high-growth potential.
Such programs assist entrepreneurs with start-up issues and provide support during
the critical nascent period of business formation.
Resources and products. Argentina is a large country with many natural resources
that make it unique in the world. These strengths include a surface area of over
3.7 million square kilometers. Located on the South American continent, Argentina is
the second largest country in the region after Brazil. Argentina has a favorable climate
and geographic diversity: however, it has a relatively small population for its size.
Of the approximately 40.3 million inhabitants in Argentina (Central Intelligence
Agency, 2007), some 13 million live in the federal capital city of Buenos Aires and its
surrounding area (Buenos Aires, 2007). In addition, the geographic concentration finds
some 60 percent of Argentine citizens live in three of the other 23 provinces.
These natural resources provide opportunities for a number of different businesses
given the climate and geography diversity and support entrepreneurship through
exports of these resources. The high altitude climate is a strength for growing varieties
of wines unique to Argentina. Wehring (2006) used SWOT analysis to profile
Argentina’s wine industry and has continued to study the industry as it has grown in
size and reputation, particularly for the growing popularity Malbec grapes which
create sought-after wines.
The country’s other varied natural resources include more than 31 million acres of
native forests; great mineral reserves in the Andes Mountains (metals including gold,
silver, zinc, magnesium, copper, sulphur, tungsten, and uranium, other minerals, and
semiprecious stones); petroleum and gas reserves; 16,000 square kilometres of
coastline; 30,200 square kilometres of territorial sea, and an enormous reserve of fresh
water (fisheries).
Agriculture is a major component of Argentina’s economy with 27,200,000 hectares
(67,210,000 acres) of arable and permanent crop land. Between 70 and 95 percent of
export earnings come from agriculture and animal husbandry. Current exports include
edible soybean and vegetable oils, fuels and energy (oil and natural gas), cereals, feed,
commodities (soybeans, wheat, and corn), other agricultural products including cotton,
livestock, sheep and wool, and even motor vehicles (Argentina Agriculture, 2007).
Many of these agricultural products are in demand in the world market and Argentina
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is an important producers and exporters. Increases are projected in both agribusiness
and biodiesel developments. These various industries and products can be further
developed for export and thus support entrepreneurial growth.
High literacy rate and universal health care. Some 95-97 percent of Argentina’s
population is literate (Central Intelligence Agency, 2007) with nine years of mandatory
schooling. In 2001, the most recent year for which figures are available, 17.5 percent of
the population had completed 13 or more years of school and only 14.8 percent of the
population had six or fewer years (INDEC, 2007). Free education, which includes
college means Argentina has a ready population of potential employees to staff new
start-ups. As of 2004, almost 1.3 million students were enrolled in the 36 universities of
the national university system, and another 233,821 were enrolled in private
universities (INDEC, 2007). The public universities have seen recent cutbacks in
funding but private education is increasing for the middle and upper-income citizens
who can afford it. This high literacy rate has attracted companies like Googlee,
Motorolae, and Intele to the country (Cassia, 2007).
Socialized health care and medicine is provided free to all citizens. There is no
payment and no discrimination, even if citizens can afford private health care. Life
expectancy in Argentina averages 76.32 years. Small business start-ups can benefit
from universal health care and compete with larger businesses for the same quality of
labor since there is no additional expense to providing employee health care.
Internal analysis: weaknesses
Political instability. The continuous political-economic crises in Argentina during the last
50 years saw 27 presidents in succession which resulted in non-existent long-term
planning. Each new government’s different model of management substantially modified
the previous one. The Argentineans live in a continuous state of ever-changing “game
rules” resulting in limited forward economic progress. Lack of government follow-through
remains a weakness. Elected officials often do not represent the people’s best interests.
Difficulty planning for the long-term has negatively influenced credit and investment
decisions. The successive governments have demonstrated high-levels of corruption and
personal benefit for the politicians at the cost of the state. The officials have not received
punishment for these felonies, causing most of the population to distrust the government.
This is reflected in the corruption perception index, where Argentina climbed from
number 57 in 2001 to 93 in 2006 (Transparency International, 2006).
Government regulations. The reemerging markets in Argentina remain in a
recovery state following the past financial crises. Governmental policies and other
underlying factors that led to the crisis and its aftermath remain foremost in the minds
of business leaders and consumers (Maniam et al., 2004). Also, prior to the 1989 election
of Carlos Menem, Argentina experienced decades of economic and political instability
and uncertainty. The government nationalized many businesses and passed detailed
economic regulations. These policies led to low growth, trade and budget deficits,
hyperinflation, and currency devaluation (Conklin and Knowles, 2006). Continued
emphasis by the current administration on government regulation and control threaten
entrepreneurship. In particular, the country must avoid fixed exchange rates, a weak
banking system, politically-driven political decisions, political irresponsibility,
bureaucracy, poorly defined property rights, and the use of bribes (Selim, 2005),
if entrepreneurship is to thrive.
President Fernandez de Kirchner is a member of the Peronist party and most believe
her policies only serve to maintain the economy’s 8 percent growth rate which includes
increasing inflation (at 10 percent). Her policies include product price fixing, including
beef and vegetables, which discourage investment and make conditions more difficult
(McClatchy, 2007). These policies coupled with a current worldwide recession further
limit entrepreneurship. The country’s perception of slow privatization and weak
shareholder rights still exist.
Corruption, copyright problems, and the informal economy. Argentina faces
problems from illegal production, lack of adherence to copyright laws, and an active
informal “black-market” economy. Some 40 percent of the country’s occupied
population participates in the “informal market,” without participating in the national
health system or contributing to retirement programs via taxes and social security
withholding and losing important value-added tax advantages. Informal workers also
lack benefits including family allowances and risk protection from workplace
accidents. This informal economy has increased as a result of the economic crisis and
represents a strain on the public sector that must allocate a substantial part of its
budget to care for 1,000 of retired workers who never contributed to the social security
system (Bertranou, 2007).
Distribution of wealth and high unemployment. Distribution of wealth is another
weakness. Income distribution in Argentina has changed drastically over the past
20 years. In greater Buenos Aires, the “Gini coefficient” or measure of income
inequality (in which zero equals perfect equality and one equals perfect inequality
where only one person has all the income), has risen from 0.38 in 1980 to 0.522 in 2002,
the latest data available from the 2001 census (United Nations, 2009). As the country’s
income distribution has worsened, the rates of poverty have risen as well, even with the
high rates of economic growth in the early 1990s.
Interestingly, in the early twentieth century, Argentina was one of the richest
countries in the world with a higher per capita income than France and Germany.
Argentina was one of the top ten richest countries in the world due primarily to an
export-led economy from 1880 to 1916, yet after the 2001-2002 economic collapse, over
half the population fell below the poverty line and Argentineans lost trust in their
politicians. Today inequality in wealth is a key concern as is political instability which
is a major obstacle to business growth.
Newell and Muro (2006) agree the economic crisis in 2001 and 2003 marked a
significant turning point for Argentina and prompted new debates and interests about
the role of business and entrepreneurship in poverty alleviation. Moreno et al. (2007)
found the business self-confidence and perception of the improvement in the economic
situation of 1,314 small businesses started by Argentine entrepreneurs depended on
the type of business, the sector of activity and the regional location of the firm.
Unemployment in Argentina remains high and part of the problem is that
open jobs are in high tech fields and the country lacks the expertise to fill them.
Educational providers must match training and educational programs with needed
workplace skills demanded by the available jobs and for new job growth from
entrepreneurship. Postigo and Tamborini (2005), in a study for the International
Council for Small Businesses agree Argentina’s high unemployment, economic
instability, high bureaucratic barriers, and economic recession hinder entrepreneurship
but state an entrepreneurial culture could reverse these problems.
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Lower use of information technology. Pels et al. (2004) agree that overall, Argentine
firms tend to have lower use of information technology instead relying on face-to-face
interaction for marketing. Nevertheless, a study done by the Argentine National
Institute of Statistic and Census in 2005, analyzed the degree of diffusion, use and
investments in information and communications technologies (TICS) from Argentine
industrial companies, reveals 95.2 percent of companies had internet connections,
70 percent owned a web site, and 43.3 percent received purchase orders via the internet.
Also marked growth in the use of TICS from the companies – large, medium, and
small – was reflected from 2001 to 2005 levels. Without significant technology, it will
be impossible for companies to export. Technology is also necessary to support the
growth of tourism and web sites must be of the scope and professionalism to reassure
and educate tourists. Technological investments and training are also needed to
support the continued growth of call centers and attract other major companies and
industries to the country.
Inflexible labor relations. In addition to high unemployment, inflexible labor
regulations limit employment creation and productivity. The non-salary cost of
employing a worker is expensive and dismissing a redundant employee can be costly.
The 2009 index of economic freedom-cited key problems of political interference as well
as the complicated process of dismissing employees as a hindrance to economic
flexibility and entrepreneurship.
Labor freedom in Argentina needs improvement. Employing and dismissing
employees is difficult, expensive, and complicated in Argentina and the lack of
employment and dismissal “at will” hinders flexibility and limits entrepreneurial
growth. Also, it is challenging to create new jobs due to the high costs of severance
pay, pension payments and required contributions to a union-run health plan,
mandatory holidays and even overtime. The index of economic freedom ranks
Argentina’s labor market flexibility as one of the 20 lowest in the world. Argentina
ranks zero (on a 0-100 scale) for difficulty of firing employees and is the worst of the
181 countries studied (Doing Business, 2009).
New business start-up procedures and financing. O’Grady (2007) reports the average
time, it takes to start a business in Argentina is too long and she points to other
regressive programs including weak minority-shareholder rights, slow legal regimes
and a punishing tax system. International Finance Corporation’s 2009 “Doing Business
(2009)” survey found that Latin America was a slower reforming region and Argentina
ranked at 135 out of 181 countries in ease of doing business. The report indicated
15 procedures are required and the process takes some 32 days. Obtaining a business
license is difficult due to regulations and their variations. The index of economic
freedom ranks the economy of Argentina as only 52.3 percent free. Lowest scores
are given to freedom from corruption (29 percent), property rights (20 percent), and
investment freedom (50 percent).
In Argentina, small and medium-sized companies and owners face difficulties from
the moment financing applications are made. In addition to the requirement for
accessing credit, the high interest rates discourage entrepreneurship. Interest rates rise
from 20 to 40 percent annually depending on the financial organization and the
background or profile of the client. Owing to the difficulties in obtaining investment
income that exceed the high interest rates available to entrepreneurs, many new
businesses fail. Financing – both finding financing and the cost of financing – is seen
as an obstacle to doing business. Few businesses have a loan or line-of-credit with a
bank and collateral required is often 160 percent of the loan value. Argentina’s tax
system is also punitive to legitimate, law-abiding businesses. For example, a company
that pays all its taxes owes the equivalent of 113 percent of its profits. Lack of
meaningful reforms and also complicated the insolvency process (O’Grady, 2007).
It is also challenging for foreign investors in Argentina since there is legal
uncertainty about property and contract rights and capital flow is restricted and often
repatriated. The Heritage Organization ranks Argentina’s business freedom at only
62.1 percent and customs delays, a high tax rate of 35 percent, high inflation, rules that
prohibit foreign investment, dominance of state-owned financial institutions (Index of
Economic Freedom, 2009).
Infrastructure. Argentina lacks the road, rail, and air transportation necessary for
business growth. While the country’s internal market is large, the geographic distance
between major cities remains an obstacle. Similarly, Argentina is distant from
developed-country markets (Argentina Economy, 2007b) for export. With only 6.1 miles
of paved roadway for every 100 square miles of territory, transportation to all regions
of the country remains a major constraint. However, large-scale highway projects are
planned to improve market connections with other Mercosur nations. In addition, lack
of dependable electricity is a major constraint, particularly among the rural population.
Delays in connection to the electrical grid hinder business growth and current demand
for electricity is rapidly overtaking capacity.
Lack of national unity. Another frequently mentioned weakness is the country’s low
self-image and the citizen’s lack of national pride. Argentine citizens lack a profound sense
of national unity. Cultures, heritage, and interests differ sharply in the provinces,
particularly between the population living in the major cities, especially in Buenos Aires,
and the rest of the population in other isolated, primarily agrarian-based provinces. These
differences may make it more difficult for entrepreneurs to develop a standard product for
the entire country. In addition, differentiated products or services may not find a large
enough in-country market segment to be profitable for entrepreneurs.
Lack of international marketing expertise. Pels and Brodie (2003) in their study of
Argentina’s emerging economy, grouped firms into five clusters and found the firms in the
“traditional” and “local” clusters used only the most basic marketing methods with one
group serving business markets and the other consumer markets. This predominant
growing cluster needs assistance with marketing and promotions to better compete with
the other more progressive entrepreneurial clusters, including foreign-owned firms, using
state-of-the-art business and marketing practices. In a later study, Pels et al. (2004) found
Argentine firms operating in the traditional business environment continue to place less
emphasis on marketing. Before and during the economic crises, the businesses have not
been exposed to more advanced international business practices. This limitation in
international marketing will be an on-going weakness for start-ups who lack these skills.
Entrepreneurs will need to attract employees who have this expertise or must obtain such
international marketing training.
External analysis: opportunities
Wine industry investment. Stein (2008) reported Argentine wines were exported to
116 countries in 2007 and noted the US market received almost 40 percent of all
Argentine wines exports with exports growing in several additional international areas.
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Upgrades in technology and changes to a more consumer-centered industry model have
helped the industry to grow and differentiate its product as unique, thus garnering
premium prices and awards. These changes support Porter’s (1998, p. 67) views that
“creating advantage requires insight into new ways of competing and the willingness to
take risks and to invest in implementing them.” Thus, more sophisticated technology,
upgraded methods and investments in production equipment and processes are further
opportunities to support the recognition, growth, and profitability of this key export.
Tourism. Since the Peso’s devaluation in 2002, (US$1 ¼ $3.2 pesos), the increase in
tourists visiting Argentina has grown considerably. Between 2001 and 2006, foreign
tourists have increased approximately 60 percent, especially those visiting from Chile,
Brazil, Europe and the USA. This constant to growing tourism has led to the
establishment of a number of companies supporting tourism including hotels, hostels,
travel agencies, hiking or trekking companies, restaurants and artisan shops selling a
variety of authentic, local products including native clothes, regional products, art,
artisan weavings, and handcrafts. Tourism is a dynamic sector, generating a large
number of new jobs and has allowed more entrepreneurial participation. Also, it is
often possible to start a new tourist business with a lower initial capital investment
than other service or manufacturing ventures. Argentina is seen as a safe, affordable
tourist destination and the growth of wineries, diverse landscapes, and a mix of
cosmopolitan cities and rural settings appeal to a variety of tourists.
Opportunities exist in tourism for new venture creation. In particular, while the
wine industry is not new to Argentina, it is growing and exports are rapidly increasing.
The Malbec grapes, unique to the country have seen an increase in popularity and
interest. Growth and recognition within the wine industry has encouraged
wine tourism to Argentina. Further investments in remodeling wineries and adding
wine tasting tours and gift shops will support further positive economic growth. The
Mendoza Province of Argentina, for example, is a top tourist destination for wine
tasting. The indigenous “torrontes” grapes from the high altitude Cafayate region
are attracting tourists to learn more about how these grapes are grown.
With the increase of tourists to study and taste the local wines, other recreational
venues can be developed to capture additional tourism dollars. With health trends
supporting the value of wine, this industry is positioned to attract entrepreneurs and
investors for the immediate future. Tourists are also attracted to the music and tango
dances of Argentina. The popularity of reality and talent shows focusing on
entertainment has increased and showcased the indigenous dance of Argentina –
the Tango. Tourists to Buenos Aires typically visit a tango show and given the
favorable exchange rates, stay to tour other parts of the country and experience the
architecture and various social and cultural and nightlife events. As the tango
continues to be showcased in reality shows in England and the USA, interest in the
birthplace of the dance should continue. Argentina is also a major producer of motion
pictures and films, which may support additional tourism. Opportunities as location
for film and movie production are abundant in Argentina given the landscape diversity
and the lower costs for production.
Tourism too benefits from the varied geography and topography of Argentina
including the Andes along the western border, Pampas in the central region, Punas or high
plateaus in the northwest corner, and forest and tropical forest in the northeast corner
as well as other arable land. Pastures are suitable for raising beef and sheep for export,
which can be grown into a larger industry. Some 3,100 miles of coastline also attract
tourists. The climate is similar to the USA but at opposite times of the year which can
attract US visitors looking for a different weather experience. Patagonia is a key locale
for exploration of Antarctica. Tierra del Fuego is the last sight in Argentina and the
South America continent for tourists visiting Antarctica. Argentina too boasts a number
of high altitude archaeologists and popular discoveries including the well-preserved
mummies of frozen Inca children on the summit of Mount Llullaillaco, which are displayed
in the Museum of High Altitude Archaeology of Salta. The current interest in Antarctica as
well as the green movement worldwide which supports ecotourism is expected to continue
and companies that capitalize on these strong natural resources will have a number of
opportunities for new tourism packages and services.
New products and services. New products including leather goods and the
development of biofuels are opportunities for new businesses. Services too represent
opportunities include additional call centers and software companies. The current
growth in call centers and software companies within Argentina is a reversal of the
“brain drain” of the 1990s when jobs were limited and most trained engineers and
business experts left the country for available jobs in other countries. Call centers,
for example provide jobs to diverse workers and take advantage of the present
educated workforce. These jobs can be distributed across the country and provide
entrée for other units of a company within the country including other ancillary and
support industries. Argentina is a re-developing country and a vast majority of the
emerging companies are small or medium size. The exposure to small businesses by
Argentine consumers should increase the acceptance of familiarity of entrepreneurship
and add opportunities for new, private businesses.
Mercosur nations trading bloc. As a member of the Mercosur trading bloc along
with the nations of Brazil, Paraguay, Venezuela and Uruguay and associate members
(without voting rights) Bolivia, Chile, Columbia, Ecuador and Peru. Formed in 1985 by
Argentina and Brazil, Mercosur includes all the major economies of South America
with the entry of Venezuela in 2006. Mercosour is well supported and Argentina can
benefit from the alliance and low cost transactions. A proposed common currency,
the merco, could also facilitate financial transactions and improve trading against the
world’s major currencies (Malamud and Label, 2002). For entrepreneurs, the advantage
of being part of this trading bloc is opportunities for trading partners, international
growth within Mercosur, and additional alliances that can support new ventures.
Entrepreneurship education and programs. Entrepreneurship centers in universities
in Argentina as well as the emergence of business plan competitions for business
students are growing and this represents an opportunity for new ventures. MIT’s
Global Start-up Workshop was centered on Argentina in 2006 (www.mitgsw.org/
2006/). Further support of business careers and their value by the Argentine society are
needed and would support the rise in educational programs and provide the cultural
foundation needed for business growth. Argentinean universities should work to
increase the number of students interested in entrepreneurship and governmental
education policies should also support this view (Postigo and Tamborini, 2005; Postigo
et al., 2006). Such programs as the Instituto de Emprendimientos Cientificos y
Technologicos or the Institute of Scientific and Technological Entrepreneurship
(www.iecyt.com.ar) and the Argentina Entrepreneurs Association or Emprear
(www.emprear.org.ar) have encouraged entrepreneurship within the country and
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should be enhanced and broadened to encourage individuals to engage in research,
business training and other activities to incubate and sustain new start-ups.
Entrepreneurship access is not equal and a 2006 study of female entrepreneurship
and female participation in business consortiums in Argentina found women were less
likely to participate in consortium training and activities than their male counterparts.
Walker (2006) calls for more female representation in emerging entrepreneurial
consortia to further encourage their new venture creation.
Incubators with low-cost business services and office and manufacturing space are
needed to support start-ups. Programs that link businesses partners across the
Mercosur national trading bloc to support new business growth also represent
opportunities. Entrepreneurship classes and majors at colleges and universities
throughout the South American region must grow to train these future business
leaders in the thought processes of business creation.
External analysis: threats
Brain drain. Some 600,000 Argentineans live abroad and it is estimated that one-third
of these have immigrated to Spain, Italy, and the USA. These individuals tend to be
trained, innovative and highly educated. Some left during the economic crises of 2002
and today working abroad remains a popular option. While new, often unskilled
undocumented immigrants are moving to Argentina from Peru, Paraguay, and Bolivia,
the “brain drain” of skilled individuals who possess the necessary traits for
entrepreneurship remains a challenge (Argentina Economy, 2007a). In addition to the
loss of expertise, the Argentine society and culture does not value entrepreneurship
and corresponding motivation and educational support are lacking. Role models and
entrepreneurial leaders are needed to change the culture.
Worldwide recession. While Argentina’s internal economic crises caused the
country’s industrial base to experience a drastic restructuring, layoffs, and changes in
many corporate practices, today’s worldwide recession will continue to slow business
growth. In Argentina, population growth is below the Latin American average. This
demographic trend is coupled with a rising percentage of the population over age 65.
The solvency of the social security system is in question due to insufficient
contributions. While economists, government officials, and business leaders continue
to debate the current condition and prognosis for the economy, entrepreneurship is a
means to achieve much needed growth. Argentina’s per capita GDP of US$14,200 at
purchasing power parity remains one of the highest in the region, even considering the
effects of devaluation of the peso and recession (Argentina Economy, 2007b).
Improvements in personal income and changes in consumer-spending patterns that
were emerging have been thwarted by the current global recession and the impressive
average growth rate of 8 percent over the prior five years in Argentina is much lower
today. While entrepreneurs typically emerge during a recession, the difficulties of
starting a business within Argentina may deter such start-ups.
Discussion and conclusion
Findings from the SWOT analysis are summarized in Table I.
As previously discussed as a weakness of the SWOT methodology, without ranking
or weighting of the SWOT variables, planners and entrepreneurs may assume each of
the variables influencing new venture creation are equal in their scope and importance.
Strengths
Government policy supporting new venture creation
Resources and products
High literacy rate and universal health care
Opportunities
Wine industry investment
Tourism
New products and services
Mercosour national trading bloc
Entrepreneurship education and programs
Weaknesses
Political instability
Government regulations
Corruption, copyright problems and the
informal economy
Distribution of wealth and high unemployment
Lower use of information technology
Inflexible labor relations
New business start-up procedures and
financing
Infrastructure
Lack of national unity
Lack of marketing experience government
Threats
“Brain Drain”
Worldwide recession
However, for new venture creation in Argentina the most important strength,
according to the expert panel is the natural resources and unique products. Abundant
natural resources and geography represent the greatest strengths of Argentina that
can be leveraged into new business opportunities. Leveraging these strengths would,
therefore, allow new start-ups to capitalize on opportunities in tourism and new
services which are the most important opportunities.
The key weaknesses our panel suggests for immediate correction are the
governmental policies and structural issues that make starting a new business both
difficult and risky. Coupled with this top weakness would be the next major weakness
of corruption, copyright problems, and the challenges with the informal economy that
make hiring and recruiting new employees difficult. Correcting these weaknesses
would make the start-up process less complicated and lengthy and could assuage
entrepreneurs’ fears of risk-taking in the country.
Improving the national competitive environment is a logical first step for Argentina.
Government policy toward industry, particularly those policies that support national
advantage can improve factor conditions. National industry competitiveness can affect
demand in Argentina. Once firms and entire industry clusters are recognized for their
products, global customers will take note. Logical clusters are wine and tourism.
Success in these clusters will have a multiplier effect on related and supporting
industries along the value change including suppliers, transportation, and other
partners. Government policies too should consider the various stages of competitive
development. Even strategically targeting a few industries can be seen as a path for
success. While governmental planning has been limited in the past with frequent
changes in administration, current stability may see improvements.
With an educated population, emphasis on more university research into targeted
industries will help. Research grants and other means of support can lead to
improvements in key sectors that are unproductive now. Improvements in public
infrastructure, particularly transportation is key for manufacturers to more easily
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Table I.
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transport raw materials to their production facilities as well as more easily ship
finished goods to major cities for distribution throughout the USA and beyond to
international customers.
Governmental policies must change in regards toward employment. Lucrative
social programs and benefits to unemployed workers have led to a strong
“black-market” for workers who labor for cash and do not contribute taxes to fund
education and national health care. New policies to encourage legal employment are
also needed and this should be a top priority. Without this key change, the growth of
small businesses and the entrance of new entrepreneurs and venture creation will
continue to be stymied. Continued privatization of government owned industries will
also improve competitiveness and encourage entrepreneurship.
Real concerns include the lack of long-term plans, lack of improvements in
infrastructure, and inflation. Limited changes in the role and policies of the government
under Ms Kirshner’s administration may prove to be the most important and
challenging issues. While annual growth is strong at 8 percent per year, double-digit
inflation is a key issue to solve. Policies and measure to increase investments and
control government expenditures remains a priority along with fewer price controls
and energy shortages, which discourage investment (Lynch, 2007). Infrastructure to
support both trade and tourism must also increase and without improvements in roads,
railways, ports, and other logistic efficiencies, the annual growth rate cannot be
sustained.
In addition, the described weaknesses in Argentina have a direct influence on the
entrepreneurial potential, which cannot be overcome in the short-term and demands
participation from both the public and private sectors. A joint effort supported by
effective and efficient public policies and a collective national agreement to respect and
value such laws could reverse the balance between weaknesses and strengths,
generating a long-term planning horizon that the country has not experienced for many
years.
Next, ranking the external SWOT variables, the key opportunity is tourism.
The country’s proximity to North American as well as the favorable exchange rate
position Argentina as a popular tourist destination. The addition of more businesses and
services catering to visitors can assist in developing the country as a key vacation area.
The next most important opportunity is investment in the wine industry.
The government of Argentina should heed the seminal advice of expert strategies
Porter (1998) and continue to push national industries to compete globally and structure
incentives for key firms and industries to aggressively invest in the resources,
equipment, and other skills to be competitive in a global market. The geographic
concentration of the wine industry and its evolution to a more globally competitive
industry via investments in production technologies is one example of an opportunity of
using national advantage to global advantage.
When ranking the threats, the key deterrent to new venture creation in Argentina is
the same economic trend influencing the limited growth of new businesses
worldwide. The worldwide recession limits business growth. Throughout North and
South America, Argentina’s key trading partners for exports, the recession will limit
the growth of businesses because demand for all products in general are lower and this
is much pressure to lower costs. This deters new business start-up as entrepreneurs
realize new businesses may be less profitable or have a higher risk of failure.
The SWOT analysis reveals there are more weaknesses than strengths but, at the same
time, there are more opportunities than threats. These opportunities must be exploited
while considering that the opportunities are dynamics and could vary over time.
Areas for future research
The SWOT analysis is a “snapshot” of a point in time. Because the environment is
constantly changing and new strategies also change internal strengths and weaknesses,
environmental scanning is needed on a regular basis to update the SWOT analysis.
To expand the current SWOT analysis of Argentina, additional perspectives are needed.
The analysis could be expanded with the inclusion of a broader scope of viewpoints
including interviews with key company stakeholders, governmental leaders, and other
policy makers. Additionally, an enlarged “expert panel” could improve the
classifications of factors into the four SWOT categories. While classification of
factors is somewhat arbitrary by definition of the analysis, a larger panel could be polled
not only on the issues to record but as to their view of the proper classification. While
awareness of the factors is often more important than their classification (opportunities
not taken, for example, can become threats), future research should focus on the
development of a strategic plan for the Argentine government as well as for key industry
sectors to use the identified factors to best advantage.
Once additional variables are added to the SWOT analysis in future research,
ordering the variables and moving toward weighting them will help add focus for
decision makers. With ranked variables, prioritization of strategies will be improved
and ways to close the key gaps internally and externally can be addressed.
Continuation of the SWOT analysis over time can lead to additional knowledge of the
country and improve strategic positioning and leverage.
This exploratory works represents an initial profile of the entrepreneurial potential in
Argentina to better understanding the myriad of issues impacting new venture creation.
Additional research on the policies and structure of Argentina is needed to more fully
understand the legal, social, political, economic, and demographic barriers to
entrepreneurship. Profiles of characteristics of successful entrepreneurs in Argentina
are also needed to examine similarities and differences to counterparts in other
South American countries and in the USA and the world in general. More research on
entrepreneurship in Argentina with corresponding statistical data is needed. Longitudinal
analysis is needed to plot the changes in entrepreneurial growth. Also, case studies of
entrepreneurial leaders to serves as role models are necessary and such cases could
contribute to the entrepreneurship education programs at colleges and universities.
Research is also suggested to extend the SWOT analysis methodology. Building on
the work of Kangas et al. (2003), work to prioritize and rank SWOT variables and the
strategic recommendations that result from the analysis is another avenue of research
and is particularly needed as SWOT continues to expand in usage beyond individual
businesses to countries, regions, and trading blocs. Winer (1983) also recommended
MSP to create new strategies derived from SWOT analysis by ranking the variables by
logical reasoning versus the traditional subjective priority setting.
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Corresponding author
Marilyn M. Helms can be contacted at: [email protected]
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