Business Finance
MGT 321 SEU Venezuela Under Hugo Chavez and Beyond Case Study Questions

MGT 321

Saudi electronic university


Question Description

I don’t understand this Management question and need help to study.

  • Analyze the effects of culture, politics and economic systems in the context of international business (Lo 1.9 & 2.1)
  • Identify the major components of international business management (Lo 1.2)
  • Carry out effective self-evaluation through discussing economic systems in the international business context (Lo. 3.6)

Assignment Question(s):

  • Under Chávez’s leadership, what kind of economic system was put in place in Venezuela? How would you characterize the political system?
  • How do you think that Chávez’s unilateral changes to contracts with foreign oil companies will affect future investment by foreigners in Venezuela?
  • How will the high level of public corruption in Venezuela affect future growth rates?
  • During the Chávez years, many foreign multinationals exited Venezuela or reduced their exposure there. What do you think the impact of this has been on Venezuela? What needs to be done to reverse the trend?
  • By 2016, Venezuela’s economy appeared to be on the brink of total collapse. What do you think needs to be done to reverse this?

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Final Answer

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Critical Thinking
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Critical Thinking

Economic System under Chávez’s leadership in Venezuela
Under Chávez’s leadership, Venezuela adopted a socialist economic system focusing on
even distribution of resources. As dictated by the facets of a socialist economy, Chávez
established control over the markets and particularly the oil and petroleum industry. Oil was
considered one of the main income generating sectors of the nation. Chávez used the generated
revenues from this sector to redistribute wealth to the poor (Teske, 2018). Socialist economic
system also limits the power of private enterprises given that most major industries and
companies are state-owned (Estrin et al., 2019). This was likewise experienced in Venezuela
under Chávez given that the leader took hold of large enterprises and further turned privateowned firms into state-owned cooperatives while citing unproductiveness as the primary reason
for undertaking such drastic socialist measures.
These punitive actions were similarly observed within the political environment as the
leader moved the country away from representative democracy to a fully-fledged dictatorship.
Dictatorship can further be illustrated by the leader’s efforts to curb the powers of the legislature
while eradicating any hopeful succession strategies (Teske, 2018). Hence, a crude form of
socialism was adopted in Venezuela under Chávez and the leader also established authoritative
political power.
Effect of Chávez’s Unilateral Changes to Contracts with Foreign Oil Companies on Future
Investments in Venezuela
Future investment by foreigners in Venezuela is bleak given Chávez’s handling of
previous investment-related contracts. In the leader’s ambition to nationalize the oil industry,



Chávez adopted unilateral changes to contracts implying that contracts were not approved by all
the affected parties, which in this case, majorly comprised of private investors. Such measures
disrupt the security of the business environment characterized by high associated risks and
uncertainties. Investors are deterred from venturing in projects that are highly risky (Hoinaru et
al., 2020). Thus, it is expected that given the high risk of conducting business in Venezuela,
future investors are likely to shy away from investing in Venezuela.
Effect of High Level of Public Corruption on Future Growth Rates in Venezuela
The high levels of public corruption are likely to result in slow future growth rates in
Venezuela. Under Chávez’s leadership, public corruption increased tremendously despite the
ruler’s reiteration on reducing corruption levels. On the contrary, Chávez worsened the
corruption levels by giving out hand-outs to loyal followers, bribing organizations and silencing
opposition thereby plunging the country further into economic demise. Even so, recent reports
reveal that Venezuela is one of the most corrupt countries across the globe. Such information
reveals deleterious economic effects that could be experienced in the foreseeable future. These
sentiments are further backed by the revelation that corruption is highly associated with a
shadow economy where there is slow economic and sustainability devel...

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