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  • MARKETING STRATEGY RECOMMENDATIONS FOR URUGUAYAN FREE ZONES

    Final Report

    Bureau for Private EnterpriseU.S. Agency for International Development

    Preparedfor: USAID / Uruguay and the

    Direccionde Zones Francas

    Preparedby: The Services Group

    Sponsored by: Private EnterpriseDeelopment Support ProjectH. ProjectNumber 940-2028.03 Prime Contractor: Arthur Young

    July 1989

    Arthur Young A MEM6ER OF ARTHUR YOUNG INTERNATIONAL

    http:940-2028.03

  • MARKETING STRATEGY RECOMMENDATIONS FOR URUGUAYAN FREE ZONES

    Final Report

    Bureau for Private Enterprise U.S. Agency for International Development

    Preparedfor: USAID / Uruguay and the

    Direccion de Zones Francas

    Preparedby: The Services Group 1815 N. Lynn Street, Suite 200 Arlington, VA 22209 (703) 528-7444

    Sponsored by: Private EnterpriseDevelopment Support Project 11 ProjectNumber 940-2028.03 Prime Contractor: Arthur Young

    July 1989

    http:940-2028.03

  • TABLE OF CONTENTS

    Page

    EXECUTIVE SUMMARY

    I. INTRODUCTION 1

    A. Purpose 1

    B. Methodology 1

    C. Acknowledgements 1

    II. THE REGIONAL SETTING 3

    A. Demand Trends 3 1. Establislied Sectors 3 2. Ne,. Sectors 5

    B. Supply Trends 6 1. Profiles of Zone Development Programs 7 2. Emerging Trends in Zone Supply 10

    III. COMARATIVE ADVANTAGES OF URUGUAY: IMPLICATIONS FOR FREE ZONES 12

    A. Overview of the Economy 12 1. Structure 12 2. Performance 13

    B. Fundamental Assets and Constraints Affecting Export Sector Development 15

    1. Basic Production Factors 15 2. Infrastructure/General Services 20 3. Assistance Programs 23 4. Stability of Investment Climate 23 5. Living Conditions for Expatriates 25 6. Access to Regional Markets 26 7. Access to International Markets 30

    C. Sect,rs With Intrinsic Potential for Uruguayan Free Zones 30

    1. i-ethodology for Assessing Sector Potential 30 2. Identification of Priority Sectors 31 3. Identification of Priority Uruguayan Regions

    for Zone Development 43

  • TABLE OF CONTENTS (continued)

    IV. A COMPETITIVE ASSESSMENT OF THE URUGUAYAN FREE ZONE PROGRAM 47

    A. Background on Uruguayan Export Sector Institutions and Programs 47

    1. Free Zone Program 50 2. Temporary Admission Program 51 3. Industrial Promotion Program 53

    B. Competitiveness of the Uruguayan Free Zone Program Relative To Other National Export Regimes 57

    1. Benefits Package 57 2. Identified Constraints 60 3. Conclusions Regarding Zone Competitiveness Relative

    to Alternative Export Regimes 61

    C. Competitiveness of Uruguayan Free Zones Relative to Other Zones in the Region 61

    V. INDICATORS OF FUTURE DEMAND FOR URUGUAYAN ZONES 65

    A. Summary of South American Market Survey Findings 66 1. Responses of Prospective Zone Occupants 66 2. Responses of Prospective Zone Development Partners 72

    B. Summary of North American Survey Findings 74 1. Responses of Prospective Zone Occupants 75 2. Responses of Prospective Zone Development Partners 80

    VI. STRATEGIC DECISIONS TO PROMOTE EFFECTIVE MARKETING OF URUGUAYAN ZONES 83

    A. Overview of Zone Promotion Experiences in Other Countries 83

    B. Guidelines fo- Successful Zone Marketing 84 1. Developing a Marketable Product 84 2. Building Tnstitutional Capabilities for Promotion 84 3. Selecting Cost-Effective Methods To Reach

    Potential Users 85

    C. Implications of Project Analysis for Uruguayan Zone Promotion Strategy 85

    1. Cr.eating a Marketable and Distinctive Free ,one "Product" 85

    2. Development of Businesslike and Knowledgeable Promotion Institutions 91

    3. Selection of Cost-Effective Media 93

  • VII. RECOMMENDED ACTIONS 98

    A. Public Sector Actions 98 1. Ministry of Economy and Finance 98 2. Direccion de Zonas Francas 101

    B. Private Sector Actions 103 1. Potential Uruguayan Zone Developers 103 2. Potential. Uruguayan Zone Users 105

    C. Possible Roles for Development Assistance Providers 105 1. Support for Public Sector Institutional Development 105 2. Support for Opportunities Assessments 105 3. Assistance With Preinvestment Studies 106 2. Support for National Investment Promotion Efforts 106

    BACKGROUND NOTES 107

    ANNEXES

    A. Sector Profiles 1. Apparel Manufacturing and Assembly 2. Electronics Manufacturing and Assembly 3. Fruit and Vegetable Processing 4. Commercial Warehousing and Distribution 5. Emerging Informatics Sectors

    B. Operational Zones

    C. Potential Growth Poles

    D. Emerging Zone Initiatives

    E. Structuring Zone Development Ventures

    An additional Spanish language supplement to this report is also available concerning the effect of preferential trade agreements on Uruguayan export potential.

  • LIST OF TABLES AND FIGURES

    Table III-la Traditional Free Zone Sector Assessment Matrix: Apparel

    Table III-lb Traditicnal Free Zone Sector Assessment Matrix, Electronics

    Table III-Ic Traditional Free Zone Sector Assessment Matrix: Fiaits/Vegetables Processing

    Table III-2a Emerging Free Zone Sector Assessment Matrix: Data Entry (Slow)

    Table III-2b L:nerging Free Zone Sector Assessment Matrix: Data Entry (Fast)

    Table III-2c En.rging Free Zone Sector Assessment Matrix: Computer-Aided Design

    Table TII-2d Emerging Free Zone Sector Assessment Matrix: Software Services

    Table III-2e Emerging Free Zone Sector Assessment Matrix: Voice Operator Center

    Diagram IV-i Executive Branch Institutions and Their Functions In Overseeing Uruguayan Export Sector Regimes

    Diagram IV-2 Other Agencies Related to Export Sector

    Promotion in Uruguay

    Table IV-3 Growth of Uruguayan Free Zones

    Table V-i Sectoral Breakdown of Surveyed South American Zone User Prospects

    Table V-2 South American Market Survey Summary: Potential Free Zone Users

    Table V-3 South American Market Survey Summary: Potential Free Zone Development Partners

    Table V-4 Sectoral Breakdown of Surveyed North American Zone User Prospects

    Table V-5 North American Market Survey Summary: Potential Free Zone Users

    Table V-6 North American Market Survey Summary: Potential Free Zone Development Partners

  • EXECUTIVE SUMMARY

    I. Purpose

    This report presents recommendations on positioning the Uruguayan

    free zone program to compete effectively in world markets, following recent major reforms in the country's free zone legislation and implementing regulations. It is intended to assist the Direccion de Zonas Francas of the Ministry of Economy and Finance and other institutions committed to export sector development in Uruguay.

    II. Regional Setting

    Competitive forces are moving multinational corporations to locate production and distribution systems in countries offering the most favorable factor endownents, business climates, and access to markets. Free zones have proven especially attracti%. to such firms -- most notably to small and medium sized export enterprises

    that lack the inclination and negotiating stamina to establish operations in complex and highly regulated environment.

    In recent decades, assembly and light manufacturing operations

    have eclipsed commercial/warehousing activities as the main occupants of free zones, producing labor-intensive apparel,

    electronics, pharmaceutical, and agro-industrial items for the world market. In the Dominican Republic, as an example, employment in industrial park-style "export processing zones" has risen from 20,000 in 1983 to approximately 90,000 today; Mexico's duty-free

    maquila industries have grown from 100,000 to 400,000 since 1980.

    New service sector industries also are beginning to appear in export p~ocessing zones. More than 15,000 data entry and document processing workers now are employed in companies operating under duty-free status in Jamaica, Mexico, the Dominican Republic, and Barbados. High value-added information services, including computer graphics and software development, are also being

    attracted to free zones in the region. Leading informatics companies have estimated that more than 100,000 jobs will be created in Latin America to serve the North American market.

    Competition among Latin American and Caribbean countries to attract such firms in recent years has generated a notable improvement in both the quality and quantity of the region's free zones. Countries such as the Dominican Republic, Mexico, Costa Rica and Jamaica have established free zones with specialized

    subcontracting and shelter plan capabilities, offering foreign

    firms alternative forms of business relationships to direct investment in a zone. Specialized training programs, imparting

    practical skills in demand by zone occupants, have also been created in these countries. Physically, many of the newest free zones in the hemisphere have gone "upmarket," offering highquality industrial and office buildings and attractively

    landscaped grounds. Ownership and management of these parks is

  • almost invariably undertaken by private zone developers, primarily indigenous developers but in some instances actively assisted by foreign investors.

    A recent noteworthy change in the pattern of free zone development in the region has been the advent of zone-based satellite earth stations or "teleports," offering dedicated low-cost international telecommunications services. Free zones with operational teleports now exist in the Dominican Republic and in Jamaica. Similar facilities to promote informatics exports are now in advanced planning stages for free zones in Costa Rica and Trinidad.

    III. C

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