Argentina Business Law

International Business Law

Final Project

Genco Argentina

November 2007

Eurodollars is an Investment banking firm specializing in researching and structuring foreign investments on behalf of large companies. Genco is a multinational corporation based in the USA, licensed as a publicly traded company. The primary business purpose of Genco is to develop, manufacture and distribute pharmaceutical products in a rapidly growing global marketplace. Genco is interested in penetrating the South American market with their new generic drug for the treatment of AIDS. As such, Genco would like establish itself in Argentina where they will conduct market research and analysis, build manufacturing facilities and ship their finished products outside the country to international markets. Genco would like to know and understand the business climate in Argentina including and the risks, rewards, policies and procedures in place.

Argentina business climate

Argentina has made considerable strides in the last six years to establish itself as a player in the global market place. The government has taken steps to show a strong interest in attracting Foreign Direct Investment and grow both as an economy and as a nation. If there are some concerns among international investors it is a volatile regulatory climate (US Dept of State, 2007). However this concern seems to be outweighed by a climate fueled for growth.

Argentina's economy was off to a favorable start at the beginning of the 1990's when it converted it's paso to match the dollar. Doing so led to an initial fire of economic development but the flame was soon extinguished when poor accounting disciplines and clear lack of regulatory standards led to a rush of indiscretionary borrowing. This borrowing was the result of both the government and businesses to financing growth fueled by export demand. As a result of overleveraged credit, and the Asian financial crisis of 1998, the government finally collapsed the economy, defaulting on $82B in debt in 2001, mostly to foreign government's bond holders. With private bond holders unwilling to settle the government finally settled in debts for 30% on the dollar to foreign nations (US Dept of State, 2007).

GDP has soared for the past four years largely fueled by aggressive domestic demand and resulting growth. The government has structured a strong monetary redistribution policy, combined with favorable interest rates, strong international commodities prices and general trends in global growth have resulted in success during recent years (US Dept of State, 2007).

Industrial activity has played a leading role in the economic drive of Argentina. While industry only accounted for 16% of GDP in 2001, it surged to more than 23% in 2005. Furthermore, 4.1m foreign tourists visited Argentina in 2006, an all-time record high. Unemployment also fell by more than half from 2002 to 2006, signaling impressive corporate earnings and their confidence to reinvest. Most impressive has been Argentina's ability to further pay down their $9.5B debt to the IMF. As a result of growth driven exports and favorable exchange rates, Argentina was able to stock pile reserves of foreign currencies making it possible to relieve this debt.(US Dept of State, 2007).

It seems clear that Argentina could be an attractive climate for FDI. Most firms seem to express some concern over the lack of regulatory processes in place to enforce existing legislation as well to evaluate and implement new policies.

In considering the downside of constant regulatory changes one must remember that the country is making a considerable efforts over a relatively short period of time to provide a stimulating climate for economic growth. Those firms which can produce creative solutions to these logistical roadblocks will benefit in the long run from having established themselves early on. Furthermore, in an effort to recognize Genco's goal of market dominance in South America, time is certainly of the essence. The cost of diving into a slightly more risky environment now will soon be outweighed by the benefit of more time compounded growth while the economy becomes appealing to more conservative FDI. As the economy ripens, potential competitors will not have had the additional time to grow in a less crowded industry and will realize increased difficulty in maintaining the same rates of growth.

Business structure of Genco in Argentina

Business may be carried out as normal and no unusual restrictions seem to be in place. The government of Argentina provides no subisidies to foreign companies as they feel the economy strong and attractive to investors. In considering the legal structure of the entity the same factors are in play as one would expect in the US, UK or any other developed free market economy. Primary concerns are limited to the type of entity which may hold ownership and the liability of such owners/partners. While Genco could register a branch office in Argentina this would leave Genco exposed to unnecessary risks and as such a separate entity should be established to provide a corporate veil.

Genco should establish itself as a Sociedad Anonima, or S.A. This type of structure is comparable to an LLC in the US where share holders and owners are protected from liability beyond their investment. In addition Genco must consider other aspects of their potential exposure to liabilities including but not limited to; the construction and operation of manufacturing facilities and the employment of a local labor force exposed to the pharmaceutical manufacturing process. Given the inherent liability in the pharmaceutical industry it would be in Genco's best interests to form a separate entity shielding themselves from liability and exposure to assets outside of Argentina.

S.A.'s are structured the same as a LLC is the US. Operations are governed by statutes under which the name, object, duration, capital, election and powers of the board of directors are established. The term "SA" must be included in the name of the company. As such Genco would register a company called "Genco South America, S.A." which would do business as "Genco". (PriceWaterhouseCoopers, 1996 - 2007)

The Process of setting up Genco South America, S.A.

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