Taking The Opportunity With Argentina

Taking the Opportunity with Argentina
Taking the Opportunity with Argentina:

Winds of Change
Amber Knapp
Asmir Sabljakovic
Christopher Otey
Ellen Pham
Prepared for:
IMS 3310
Thomas Henderson
University of Texas at Dallas
Executive Summary:
Winds of Change is an organization dedicated to providing renewable energy solutions and
establishing sustainability within challenged environments. The principal location that we are
seeking to expand our business to is the rapidly developing country of Argentina. Our principal
form of energy for this particular market is targeted towards wind energy due to the faultless
environments made viable for this success. Argentina possesses over 70% of landscape, creating
useful and abundant conditions for the high opportunity of developing wind energy, allowing less
fluctuations and inconsistencies in energy generation. Due to multiple and recent defaults that the
country has encountered, the current state of the economy is viewed as a promising opportunity
for development in terms of long-term growth. Our key objective is to enter their market and
acquire a strong portion of market share, in order to create profit and assist with internal
development. Although there is high possibility that we may face the barriers and risks to entry
due to the recent defaults, programs that are currently in place to support this initiative has
received general support and sponsorship by the government in addition to the World Bank. By
pricing below market for the entry period it would allow us to obtain the majority market share
from other countries/companies seeking to enter as well. The primary impediment to relocating
and operating in our desired location of Argentina, will be facing new competition and obtaining
a required contract, as there are few internal competitions. By gaining the required contract in
order put in place our desired practice, it will remain valid for years on end, which would
guarantee a consistent demand for electricity through Argentinas communities. The total
benefits overall outweigh the risks involved, providing us with the belief that our decision to be
present and involved in this specific marketproves to be a solid and viable opportunity.
Argentina: The Opportunity

Section 1: Background Analysis: Why Argentina?
Argentinas demand conditions prove to be feasible and practical due to its location in the globe.
Energy analysts state that the country itself is naturally blessed with strong, powerful winds that
blow across vast stretches of the Southern areas as well as Patagonia. By 2025, Argentina would
like to have at least 20% of all of their energy to come from renewable energy. (Turner, T. (2016,
May 18). Argentina Launches Major Push for Renewable Energy. Retrieved July 30, 2016, from
http://www.wsj.com/articles/argentina-launches-major-push-for-renewable-energy-1463611609)
As for facing challenges that may be encountered through related and supporting industries, our
opportunities to advance and excel at an increasing rate, are less than likely to occur, as the
country itself is currently only receiving less than 2% of their energy from renewable sources.
Nevertheless, wind power has increased considerably in Argentina within the last decade.
Overall, the operating wind power capacity in the year of 2005 stated only to be 26.6 MW,
shared collectively by 13 plants. This proves to position about 0.05% of the theoretical potential
of wind energy in Argentina. However, China has recently emerged as a willing financer as an
active player in this renewable energy initiative. Whilst the involvement and support plays
important to the goals of Argentina, Chinese banks offer and come with competitive interest rates
and the high cost of investment and usage of Chinese equipment only, leading to be an obstacle
and challenge for the country. (Argentina. (2016, April). Retrieved July 30, 2016, from
http://www.nortonrosefulbright.com/knowledge/publications/134763/argentina#section2)
With the factor in the cost benefit of resources, raw materials in Argentina are comparatively
inexpensive and adorable, in addition to economical labor rates. Argentina is an attractive market
for American exporters, with a large (42 million) and educated population, plentiful natural
resources such as in agriculture, mining, and important infrastructure needs. As Argentina

continues to work through its current economic challenges, opportunities will increase, leading to
its external views as being an exceptional time to begin exploring the market potentials of the
market and establish long lasting relationships as necessary. As for the facing difficulty with
suppliers: Argentina will provide all the resources locally and they have an incentive with their
new law that provides financial assistance to investors who seek to aid the government with its
initiative. Under the protection of this law, businesses will be given the opportunity to receive
credit for sourcing resources locally. (Doing Business in Argentina: 2015 Country Commercial
Guide for U.S. Companies. (2015, November 6). Retrieved July 30, 2016, from
http://2016.export.gov/argentina/build/groups/public/@eg_ar/documents/webcontent/eg_ar_0918
50.pdf )
With the new Argentinian President Mauricio Macri, changes in terms of regulations and laws
are to be taken place. Under direction of the new leadership, the country of Argentina will
achieve the new opportunity of receiving regulations that will not only grow side by side and
assist the projected growth of the economy, but also the growing demand of power generation.
Argentina's GDP growth is forecast is to reach 3% annually by 2018, boosted by Macri's marketfriendly policies which have already seen the country's controls on capital and foreign exchange
lifted. As a result, Buenos Aires assesses hat the country will need to rise domestic power
generation by 900 MW/y to meet demand. (Parkes, R. (2016, June 20). Argentina: The new
frontier. Retrieved July 30, 2016, from
http://www.sciencedirect.com/science/article/pii/S1755008416300370)
Considerably, the new household leadership of Argentina also devises to gradually level out or to
significantly diminish subsidies that may have contributed or branded to Argentina's power
market within the past decade, having influenced the oil and gas production at the expense of
renewable energy. Equally, the power subsidies have also ensued in prolonged underinvestment
in Argentina's fossil fuel-fired power generation fleet, which also presents an opportunity for
Developers within the renewable energy industry. Considering that Argentinas conventional
installation practices have aged, it has undergone few updates within the last few decades and
has reached a rate of 70% obsolete. With the expenses of maintenance proving to be costly, it is
inevitable that changes are in need to be implemented. As promotion and press exposes
organizations that specialize in renewable energy, there is a high chance of follow-through and
success. (Turner, T. (2016, May 18). Argentina Launches Major Push for Renewable Energy.
Retrieved July 30, 2016, from http://www.wsj.com/articles/argentina-launches-major-push-forrenewable-energy-1463611609)
External Analysis (Industry Dynamics and External Uncontrollable Factors):
For insight relating to the positive aspects for investing in renewable energy, there are a variety
strong dynamics that supports the growth of seeking opportunities within this sector. The first
dynamic looks at how the industry moves beyond current regulatory and monitory frameworks
into ones that create a union that works for global developers and grid-system operators. The
second dynamic identifies the need to look at new standards for collaboration between all
regulators, systems operators, and developers. Renewable energy today is often sold as-available
at on the spot prices and organizations simply have to accept schedules and plan around them
despite the uncertain output from renewable sources. New guidelines or financial disbursements
to secure energy-supply programs makes delivery of renewable energy more predictable could
contribute to simplifying challenges for all energy systems operations. The third dynamic deals
with un-denying issues with confirming expansion for renewable energy locations.
Although industry dynamics help contribute to the booming growth of the renewable energy
business, there are a multitude of uncontrollable external forces that may hinder business efforts.
With the government regulations constantly changing and abiding to support different
environmental needs and instances, there may be limitations in regards to how much space we
may be required to work with in order to build and develop any of our windmills or facilities in
order to operate and function successfully. Another uncontrollable factor is that we cannot
control the energy itself, so there will be uncertainty in the amount of energy that can be created
because of its unpredictable state, therefore stating it to be difficult to know or foresee the
chances of our service profitability. For example, if an area is known and capable of producing
strong winds, we can consider utilizing the prospective area, but we cannot guarantee general
success and productivity.
In addition to government regulations and non-controllable factors of the source of energy itself,
natural disasters such as typhoons, earthquakes, volcanoes and overall weather conditions can
negatively affect the business, leading to ultimate disruption and loss.
National Differences:
Politically speaking, there are few differences between the United States of America and the
country of Argentina. Argentinas government functions and operates fully within the framework
of a federal system that is similar to America. The federal system itself is a presidential
representative Democratic Republic. The President of Argentina is embodied as both the Head of
State and Head of the Government, as the primary executive power is exercised by the President
itself. Total legislative power is assigned in both the Executive and the National Congress, as the
Judiciary is independent from the Executive and from the Legislature.
High inflation has been the primary weakness for the Argentine economy for the last few
decades. It has recently become the main cause of trouble again in 2013 with rates ranging
between 10.2% to an estimated 25%, causing heated turmoil over manipulated statistics within
the country, where as the United States of America has a steadily low inflation rate hovering of
just slightly over 1.0 %, occasionally leaning towards 2.0 %. In regards to the astronomically
high range of inflation within the Argentine market, it will play as an important factor cost-wise
for our service. In a hypothetical manner, should inflation surge, our organization will increase
cost of our energy within due time, in order to remain consistent and to persevere with inflation.
The inflation will play as one of the largest factors towards our business both negatively and
positively. As the value of the Argentinian currency declines, the country must exhaust and spend
more in order to import goods and products. so undeniably, it would be considered illogical to
spend more on renewable energy services outside of the country, leading it to play as an
advantage for our services to receive continued utilization. This rush in interest has its origins in
new legislation, passed in October 2015 by Argentina's previous administration and finalized in
earnest by the new President of Argentina, in March 2016, known as Law No. 27,191, leading to
new legal matters within the system of Argentina. The new legislation lays out obligatory
renewable energy targets in the form of a purchase obligation on energy buyers with annual
demand of more than 300 kWh fundamentally utilities and large manufacturing users. The
targets entail these buyers to source at least 8% of their energy from renewable sources by the
end of 2017, with the target rising by 4% every two years to reach 20% by 2025.
One of the initial objectives of this new law, was to establish a reliable framework to strengthen
public and private investment to adopt clean energy sources. Two laws were enacted in this
context: law No. 7823 Promotion scheme for Renewable Energies and law No. 7824 Net
Metering Residential and Industrial Electricity Generators. Both laws were passed in 2014 and
their equivalent protocols were completed in February of 2015.
The law No. 7823 encourages the use, production, research, development and sustainable use of
Renewable Energy. The government allows and gives a variety of different benefits to natural or
legal entities/persons who develop, manufacture and install technologies for Renewable Energy
Initiatives. The three benefits include exemption from provincial taxes (up to 100% for a tenyear timeframe), tax credits that range up to 70% of values invested in equipment with a
minimum of five years of grace with no interest, and assistance with obtaining credits that assists
with the maintenance and growth of all economic, technological, administrative and financial
aspects. (Camargo, L. R., Franco, J., Babiari, N., Belmonte, S., Escalante, K., Pagany, R., &
Dorner, W. (2015, December 16). Technical, Economical and Social Assessment of Photovoltaics
in the Frame of the Net-Metering Law for the Province of Salta, Argentina (A. Wright, Ed.).
Retrieved July 30, 2016, from http://www.mdpi.com/1996-1073/9/3/133/htm)
Section 2: Benefits and Risks of Entering Argentina
Incentives to Entry:
Law 27,191 further allocates a series of tax breaks for installing renewable sources of energy.
This law includes value-added tax returns for capital goods purchased as well as accelerated
amortization of income tax. In addition, the new law anticipates a fixed price for energy
purchased in renewables endeavors calculated on a project-by-project basis. A government trust
10
fund, Fondo para el Desarrollo de Energas Renovables, utilizing savings made on fossil fuel
purchases, has been established with the purpose of financing these ventures. The fund will also
grant subsidies with a feed-in tariff of $0.005/kWh for wind, geothermal, biomass, biogas and
hydro projects producing up to 30 MW. To date, $800 million in capital funding has been
pledged by the Argentinian government (Parkes, R. (2016, June 20). Argentina: The new frontier.
Retrieved July 30, 2016, from
http://www.sciencedirect.com/science/article/pii/S1755008416300370).
Infrastructure Considerations
Argentina has a daunting history of being unreliable in both the political and economic realms. In
order for the country to reach its renewable energy goals, newly appointed President Macri must
follow through with explicit regulatory and financial reforms. Renewables projects are capitalintensive, especially in the initial stages of development. As such, Argentina relies heavily on
foreign investments. While Chinese institutions most recently agreed to finance the 200 MW El
Angelito wind farm in Patagonia, they have thus far been unsuccessful in acquiring the interest
of other countries. Argentina's wider economy as well its domestic finances have proven to be
volatile as the country went into default for the eighth time in its history in 2014. Another
obstacle to outside investors is the controls in place on the Argentinian peso. Though it was
intended to strengthen their currency, these controls inadvertently inhibited many international
companies who trade solely in dollars when doing global business. Likewise, the investment risk
of a country that might prevent them from taking their money out again has a waning appeal
(Parkes, R. (2016, June 20). Argentina: The new frontier. Retrieved July 30, 2016, from
11
In regards to the political realm in Argentina, the unpredictability makes the investment climate
further cause for hesitancy. In 2012, President Cristina Fernndez de Kirchner proposed to
expropriate 51% of shares of Yacimientos Petrolferos Fiscales oil and gas owned by Respsol, a
global energy company based in Madrid, Spain, in an attempt to nationalize its oil and gas
production. The Republic of Argentina's YPF Act was passed that summer, thereby asserting
their stance on contract loyalty. Moreover, Argentina has a long history of neglecting to put into
effect renewable energy policies and regulations; 2005's National Strategic Plan for Wind never
came close to being carried out (Parkes, R. (2016, June 20). Argentina: The new frontier.
Government Policies Regarding Trade
As mentioned previously, laws preventing profits from being removed from the country have
been enforced in the past. With Argentinas sometimes erratic decisions, one risk lies in that law
resurfacing.
Strategy Consideration (Strategic Analytical Tools)
At present, there is no viable competition in the renewable energy sector of Argentina due largely
to the risks already discussed. The country is currently in the process of bidding and auctioning
investments from other countries, resulting in a first come first serve basis. Our strategy will be
to out outbid the other countries and companies competing for the contracts, to essentially take
advantage of the little to no competition.
12
Entering Foreign Markets

Our approach into the Argentinian market will be an equity entry. We need power plants on site
and want complete ownership over what happens. As is, there are two few companies and none
with the desired potential to acquire or join ventures with.
Mode of Entry
The operational vision for our business mode of entry is a direct foreign investment, as our home
market is stabilized in North America. Our direct goal is to directly enter Argentina, utilize its
resources, and combine it with our specialization of renewable energy services.
Selection of Clients, Distributors or Partners
Our primary client is going to be the government; upon winning the bid on the service contract,
we would move in to the country in order to establish and conduct business. As a non-acting
partner, the government sets goals we are obligated to meet with the consequence of purchasing
our company from us should we fail to achieve the requirements.
Which Institutions can help or hinder your business?
Argentina currently holds only eight oil/gas/energy companies in their region, but they are still
considered reasonable competition for us as we choose to enter the market. Of the current energy
production, wind companies make up less than 1% of the market resting at a low .5% (Nuclear
Power in Argentina. (2016, July). Retrieved July 30, 2016, from http://www.worldnuclear.org/information-library/country-profiles/countries-a-f/argentina.aspx). One of the few
energy firms in Argentina presently is US chemicals firm Dow. Together, Dow and Argentinian
developer INVAP pledged $123 million for the development of a 50 MW wind farm in the Rio
13
Negro region of Patagonia, where the wind is most active (Parkes, R. (2016, June 20). Argentina:
The new frontier. Retrieved July 30, 2016, from
http://www.sciencedirect.com/science/article/pii/S1755008416300370). Local wind developer
Genneia also pledged $500 million over 5 years to broaden its Patagonian wind portfolio,
including the 77.4 MW Rawson wind farm and a new 220 MW wind farm at Puerto Madryn
(Parkes, R. (2016, June 20). Argentina: The new frontier. Retrieved July 30, 2016, from
http://www.sciencedirect.com/science/article/pii/S1755008416300370). While these seem like
large numbers to pledge, the market is not saturated. With the government on our side, we should
also have an advantage over some of the other completely privately owned companies.
Nationalization and Privatization Issues
As mentioned in the case of Repsol and YPF, nationalization is still a risk in the market of
Argentina. Our contract through the government contains a clause indicating that if we fall short
of the performance requirements as set, they have the option to buy the company from us at the
fair market value of our assets.
Country Risk Assessment
According to Global Edge, a knowledge web-portal ran by the International Business Center at
Michigan State University, Argentinas current risk assessment lays at a scale grading of C. This
leads to a highly uncertain level of political and economic outlook as well as a weak business
environment with many troublesome weaknesses. The business environment and the institutional
framework itself is difficult, causing intercompany transactions to carry more risk. Many of the
weaknesses include other factors such as:
Low dependency regarding prices of agricultural commodities
14
Non-rigorous budgetary policies

Insufficient investment in energy and transport sectors
No access to international finance markets since 2001
Debt collection is unpredictable
Furthermore, Corporate financial information is often unavailable, and when available is often
unreliable. This makes it difficult to accurately predict and evaluate risk effectively. No company
wants to take a completely uncalculated risk with large amounts of money and reputation at stake
(Argentina: Risk Assessment. (n.d.). Retrieved July 30, 2016, from
http://globaledge.msu.edu/countries/argentina/risk).
Section 3: Marketing Strategy

Other Marketing Factors
By comparing prices to our competition in the local areas, we are able to offer better quality at a
lower price. One of our prominent strategies is to sell prices during the first few years at a loss
due to extension of income tax loss credits to 10 years, versus the normal 5 years. By doing this,
we are gaining market share and eliminating competition. As their economy continues to grow,
we will then be able to match and raise our pricing in order to become more sustainable (Nadia,
T., Sewell, A., & Avila, J. (2016, June 30). Argentina Launches Innovative Renewables Program.
http://www.renewableenergyworld.com/articles/2016/06/argentina-launches-innovativerenewables-program.html).
15
Positioning
Our positioning in the market is to appeal to both the government and the citizens of the country
in order to gain trust and loyalty. We also plan to offer discounts to companies and individuals
that sign contracts for terms longer than a year. This allows us to have a steady stream of revenue
while we build a customer base, in addition to leveraging with average base household income
levels. We will be able to reach more people than ever with this strategy.
Section 4: Summary
Our goal is to reach a profitable status after operating for 5 years. At this point, we will start
branching out to other renewable sources of energy, initially focusing on solar. As our company
continues its sustainability, the economy and currency in Argentina will begin to stabilize and
grow. Inflation will level out and the value of their peso will increase. The standard of living for
its people will in effect increase as electricity is readily available and affordable to a majority of
the population, thereby furthering the development of the country overall. Not only will our
company help the economy and the Argentinian people, but it will also aid in the fight against
climate change. The more renewable energy we can provide, the more the carbon footprint will
decrease and we can begin to slow the damages caused by traditional uses of oil and fossil fuels
that Argentina has been dependent upon thus far. When our company succeeds, we will help
Argentina succeed.
16
Citations:
Argentina. (2016, April). Retrieved July 30, 2016, from
http://www.nortonrosefulbright.com/knowledge/publications/134763/argentina#section2
Argentina: Risk Assessment. (n.d.). Retrieved July 30, 2016, from
http://globaledge.msu.edu/countries/argentina/risk
Camargo, L. R., Franco, J., Babiari, N., Belmonte, S., Escalante, K., Pagany, R., & Dorner, W.
(2015, December 16). Technical, Economical and Social Assessment of Photovoltaics in the
Frame of the Net-Metering Law for the Province of Salta, Argentina (A. Wright, Ed.). Retrieved
July 30, 2016, from http://www.mdpi.com/1996-1073/9/3/133/htm
Dezem, V., & Gonzalez, P. R. (2016, March 10). Argentina Completing Law to Boost
Consumption of Clean Energy. Retrieved July 30, 2016, from
http://www.bloomberg.com/news/articles/2016-03-10/argentina-completing-law-to-boostconsumption-of-clean-energy
Doing Business in Argentina: 2015 Country Commercial Guide for U.S. Companies. (2015,
November 6). Retrieved July 30, 2016, from
http://2016.export.gov/argentina/build/groups/public/@eg_ar/documents/webcontent/eg_ar_0918
50.pdf
Nadia, T., Sewell, A., & Avila, J. (2016, June 30). Argentina Launches Innovative Renewables
Program. Retrieved July 30, 2016, from
http://www.renewableenergyworld.com/articles/2016/06/argentina-launches-innovativerenewables-program.html
17
Nuclear Power in Argentina. (2016, July). Retrieved July 30, 2016, from http://www.worldnuclear.org/information-library/country-profiles/countries-a-f/argentina.aspx
Parkes, R. (2016, June 20). Argentina: The new frontier. Retrieved July 30, 2016, from
http://www.sciencedirect.com/science/article/pii/S1755008416300370
SABER COMO - INSTITUTO NACIONAL DE TECNOLOGIA INDUSTRIAL. (2005,
September). Retrieved July 30, 2016, from http://www.inti.gov.ar/sabercomo/sc32/inti9.php
Turner, T. (2016, May 18). Argentina Launches Major Push for Renewable Energy. Retrieved
July 30, 2016, from http://www.wsj.com/articles/argentina-launches-major-push-for-renewableenergy-1463611609

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