SpiCey: Macroeconomic Analysis for Peru Market Entry Strategy

This report provides a comprehensive analysis of SpiCey's market entry strategy into Peru, focusing on macroeconomic factors through a PEST analysis. It examines political and legal factors such as trade agreements and import requirements, economic conditions including GDP growth and trade balances, social and cultural aspects like consumer preferences and cultural influences, and technological advancements and challenges. The report also addresses ethical business practices in Peru and proposes an exporting market entry strategy, evaluating the associated risks and challenges. SpiCey, a Sri Lankan spice producer, aims to expand its Ceylon cinnamon and other spice product lines into the Peruvian market, capitalizing on Peru's growing spice import market and the Ceylon Cinnamon Certification mark's recognition. The analysis includes detailed data on import/export figures, potential political risks, and opportunities within Peru's e-commerce sector, concluding with a strategic overview to guide SpiCey's global expansion.

Table of Contents
Introduction.........................................................................................................................................2
PEST Analysis......................................................................................................................................3
Political and Legal factors...............................................................................................................3
Economic Factors............................................................................................................................5
Social and Cultural factors.............................................................................................................6
Technological Factors......................................................................................................................7
Ethical Business Practices in Peru..................................................................................................8
Market Entry Strategy........................................................................................................................9
Exporting..........................................................................................................................................9
Risks/Challenges for Export.........................................................................................................10
References..........................................................................................................................................12

Introduction
Sri Lanka is a country rich with wide varieties of spices. Some of the spices have very unique
taste to them. Since its inception SpiCey has been a quality spice producer. Started as a small
spice manufacturer with small spice mill in 2016 SpiCey came long way over the last 5 years
to become one of the most trusted and authentic spice brands. Sri Lanka is a country where
people use spices daily basis. And Sri Lanka is a producer of top-quality spices in the world.
Mission of the SpiCey is to get the raw spices directly from farmlands and turn them in to top
quality spice products. Spicey specialises in Chillies, Chilli powder, pepper, pepper powder,
curry powder, cloves, turmeric and top-quality cinnamon.
Over the course of 5 years SpiCey has been awarded with local SLS quality certificate for
ground spices, ISO 9001:2000 and The Soorya – Singha award for its exceptional and quality
product line. Started with small spice mill, SpiCey now operates state of the art spice
production facility in accordance to top notch quality standards. Inhouse laboratory and well
qualified personnel constantly testing all products to assure the quality standards. SpiCey is
proudly embraced green manufacturing concepts and align themselves in to those concepts to
reduce the carbon footprint of the organization.
After launching and successfully winning the hearts of the consumers of local market SpiCey
groomed in to a household name for their products. The growth of the SpiCey shows with the
profit margins for the last financial year (FY 2020/21). Since SpiCey gained well established
foothold on local market, management of the organization is evaluating the potential for
taking the SpiCey brand to a global market. This report will elaborately present the detailed
analysis on macro-economic factors. SpiCey is proud producer of a Pure Ceylon Cinnamon.
Started with simple household spices like chillies, pepper, curry powder, and turmeric;
SpiCey later understood the potential of the Cinnamon and cloves. Since then the
organization strived towards acquiring top quality raw material for their products.
As mentioned SpiCey is aiming to become a global brand. The organization plans to enter the
markets of Peru (South American country). The organization is presenting themselves as
Ceylon Cinnamon prominently. With all other SpiCey products are lining up with Cinnamon.
The reason behind choosing the Peru as the initial export destination was Peru has been
seeing rapid growth of spice imports since 2018 to 2020. Even in value terms spice imports
surged in significant values. And in terms of values of spice imports done in the Peru, Sri

Lanka stands in the number one position (Peru: Spice Market Overview 2021 - IndexBox,
n.d.).
PEST Analysis
We use PEST to determine the macro-economic factors for the undertaking of taking SpiCey
in to a global brand. With this we will be able to determine the threats and weaknesses’ that
the organization would have to face in this new engaging market. In this PEST analysis we
will be analysing below factors.
1. Political and Legal factors
2. Economic policies
3. Social and cultural factors
4. Technological factors
5. Ethical business practices that prevail in the market
Political and Legal factors
Peru's international commerce business contributes significantly to the country's economic
output and is one of the driving forces behind the country's rapid expansion. The importance
of Peru's free trade agreements (FTA) to the country's worldwide economic success cannot be
overstated. Peru is a World Trade Organization member and has free trade agreements with
Mexico and Chile, mainly among other Latin American nations.
Importation Requirements in Peru
Before beginning operations, the following importing criteria linked to Peru's foreign trade
must be met:
1. The company needs to be registered as a unique taxpayer (Registro Único de
Contribuyentes – ‘RUC’).
2. The company’s tax domicile stated in the RUC shouldn’t be conspicuous of
non-compliance with tax regulation.
3. The importing company needs to be able to exhibit the documents required for
importing merchandise.

Import Taxes and tariffs
All imported goods are subject to a 16% general sales tax, a 2% municipal marketing tax, and
a tariff of 0%, 6%, or 11%, depending on the subheading of the commodity imported. In
order to find out which product belongs to which tariff subheading, The Superintendencia
Nacional de Aduanas y de Administración Tributaria (‘SUNAT’) provides detailed
information. Every merchandise is allocated a specific 10-digit number and a product
heading.
Non-tariff related barriers.
Some products need the obtaining of a license or authorization before they may be imported.
Such standards are upheld in line with local legislation or international responsibilities
concerning open ethics, human life, sanitation, creature and vegetation preservation, natural
preservation, or fundamental economic interests.
Political risk is the chance that the profits on an investment will decrease as a result of a
country's political turmoil or instability. Instability can be caused by changes in government,
legislative bodies, other foreign politicians, or military force, all of which can have an impact
on investment returns. Political risk, often known as "geopolitical risk," becomes more
significant as the investment horizon lengthens. They are classified as a type of jurisdiction
risk.

Economic Factors
Peru's economy has been among the fastest growing in Latin America since 2002, and the
country is known for its prudent fiscal policies. Through structural improvements and sound
macroeconomic policies Peru gained high growth, low inflation, and a dramatic drop in
poverty rates from 52.2 percent in 2005 to 20.5 percent in 2020. Peru's GDP (GDP)
increased at a six percent annual pace from 2002 to 2013, then fell to 2.5 to 4 percent, and
then increased by 2.2 percent in 2019, far higher than the regional average of 0.6 percent
(International Trade Administration, 2020c).
Peru is a WTO member and extremely open to foreign trade, which accounts for 47 percent
of the country's GDP in 2019. Copper (27.1%), gold (14.7%), petroleum oils (6.3%), and zinc
ores (4.5%) are the most common exports, while petroleum oils (15.2%), motor cars (3.5%),
radio-telephony transmission equipment (3.4%), and automatic data processing devices and
units are the most common imports (2.1 %) (Crédit Agricole Group, n.d.).
Figure 01: Imports and Exports in Peru
Source: World Trade Organisation (WTO) ; Latest available data

Peru's trade surplus was US$7.5 billion in 2018, the highest in the previous five years. Goods
exports decreased to USD 47.6 billion in 2019 due to a drop in the export of extraction
products. Imports decreased as well, at USD 42.2 billion. According to the World Trade
Organization, commercial service imports were USD 10.5 billion in 2019, exceeding exports
of USD 7.7 billion, resulting in a lowering the overall trade balance.
Social and Cultural factors
Peru is the sixth largest economy in Latin America and the fourth largest population in South
America, with a population of around 30 million people. It is well known as the historic Inca
empire's capital. It has enjoyed great economic progress over the last fifteen years, surviving
the financial crisis in 2009 by maintaining a 3% growth rate. Regional disparities, however,
remain substantial between Lima, the coastal area, the nation's north, and the Andean
mountains, where poverty still affects 70% of indigenous people.
Peru's population is very diverse as a result of massive waves of immigration since the
republic's inception. Mixed-ethnic Peruvians make about 47 percent of the population. They
maintain the elements inherited from the indigenous Inca Empire, but they largely adopted
the European lifestyle and beliefs. This contrasts with the fact that majority of Peruvian being
catholic (MicroWorld.org, n.d.)
Peruvian food is often referred to as “Criolla” or “Creole” food because of the blend of
Spanish, Asian, Incan and other European cuisine influences which are integrated into their
cooking. Potatoes, beans, rice, pork, eggs, lamb, fish, maize, chicken, and, most importantly,
Aji (chile) are often utilized. Since their Food culture is a blend of spices grabbing an
exportin portion in the market is viable. Also, Cinnamon is a highly valued spice and Ceylon
Cinnamon Certification mark has been registered in Peru. This will be an added advantage.

Technological Factors
Peru typically conjures up memories of Machu Picchu's magnificent views, rather than a
thriving technical Hub. Furthermore, the country invests just 0.08 percent of its GDP in
R&D. But growing economy and moves toward more advanced technological aspects, Peru
will be an interesting destination for entrepreneurs.
The StartUp Peru program is a government initiative of the National Innovation Program for
Competitiveness and Productivity. It includes funding and competitions for firms that are
innovative, dynamic, and have a significant effect. It had already invested in around 400
promising ventures about 35 million Soles (around 10Million USD) all around the country.
Peru's e-commerce sector is bracing for upheaval. According to statistics, just approximately
5% of Peruvians presently shop online (by comparison this number jumps to 40 percent in
Chile and 70 percent in Mexico). Although a sizable percentage of the population remains
unbanked, the market for new e-commerce solutions remains relatively open.
Peru's technological growth is slower than that of its neighbors, yet this means there are
several opportunities for businesses in the area (Launchway Media, n.d.).
Degrees of investment in research and development — When there is a high investment with
in technology development sector, there is a good possibility of creating a self-sustaining
atmosphere which promotes innovation. The Peruvian election may be used to recruit finest
individuals throughout the firm.
Technology transfer and licensing concerns for Peru's Election - The legislation and culture
of IPR and other digital asset licensing must be thoroughly examined so that Peru's Election
can prevent extortions and IPR thefts.
Individual Rights and the Preservation of Technology-Oriented Assets – The Peruvian
election must examine the regulatory state of different property rights and intellectual
property rights safeguards which are widespread within the country (Richard et al, 2018).

Ethical Business Practices in Peru
Peru's present boundaries place this one on the west coast of South America, entirely south of
the equator and next to the Pacific Ocean. Colombia and Ecuador border the nation on the
north, Brazil on the east, and Bolivia and Chile on the south. Peru, unlike other small
countries, has both a range of climates, with the Amazon rainforest covering the half of the
electorate.
Peruvian administration would be a constitutional republic with three branches: executive,
judicial, and legislative. Its intelligence community was led by Peru's President, whom was
elected for such a five-year term and could be re-elected.
Although it is vital to arrive on time to scheduled appointments, Peruvians are less likely to
stick to timetables. Attend both official and casual conferences with the expectation that their
colleague would be delayed. That should not be seen as a show of contempt, as that is not
always the case. When a meeting starts, plan to spend some time in informal chat before
heading off to work. In order to advance commercial connections, Peruvians, like other Latin
American cultures, place a premium on confidence and connection among partners
(Ethisphere, 2014).
The usage and conservation of natural sources became a more controversial subject as Peru's
industry grows as well as the state brings new to more international investments. Protests
were planned and conducted out in order to defend indigenous peoples' homes and natural
resources (such as the Amazon rainforest). Like a consequence, there have been an increasing
number of deadly conflicts between protestors, authorities, and companies. As little more
than a consequence of such disagreements, foreign direct investment could be held back.

Market Entry Strategy
International marketing is generally approached with caution by businesses. Companies
should assess both the market potential and its core competencies in order to identify
whatever method is the greatest match. Frequently, organizations begin using a lower-risk
approach and then advance to other strategies that require more investment, risk, and
potential after demonstrating first success. The most prevalent characteristics and dangers of
exporting to Peru are listed beneath (Lumenlearning.com, 2019).
Exporting
Exporting is the sale of goods manufactured in one country to the another. Firms feel
exporting is a low-risk strategy for a range of factors. To initiate with, mature products in a
home market might uncover new growth opportunities overseas. Second, certain companies
think that exporting existing products becomes less difficult and more valuable than inventing
new. Third, firms with seasonal domestic demand might strive to market their goods globally
in order to counteract the effect of market conditions on their revenue sources. Finally,
because there is less competition in other nations, some firms may opt to trade.
Importing and exporting to Peru, like the rest of Latin America, may be highly profitable.
There are several prospects for exporters from Canada and the United States from all around
the world. Customs rules and import restrictions, on the other hand, might vary significantly
from nation to country and are continuously changing. Apart from being updated, the
necessity of collaborating with a competent freight forwarder when beginning to export to
Peru cannot be overstated. Understanding of the target language, culture, and, most crucially,
customs rules will be crucial to the success of any exporting venture (LAC Blog, 2020).

Risks/Challenges for Export
Despite the fact that the World Bank rates Peru as the second-easiest country in Latin
America and the Caribbean to do business in, there are challenges to encounter while
exporting into Peru.
 The very first thing to understand is that spontaneity occurs on various levels in Peru.
 Second, government bureaucracy, especially locally, may create substantial delays in
getting your concept off the ground.
 Peru's transportation infrastructure is of low quality, as per the World Bank, with a
score of 2.28 in 2018 (1=low, 5=high). Particular geography is indeed a challenge due
to thick vegetation and steep hills.
Import Restrictions and Prohibitions
There seem to be minimal limitations and limitations for exporting to Peru, particularly about
used items including such worn clothing and shoes (save as charity gifts) or automobiles and
equipment.
It is illegal to import second-hand automobiles and tires that are more than 5 years old. The
same may be said for second-hand buses and vehicles older than two years. Damaged
vehicles and trucks, on the other hand, are permitted in specific export zones if they are
through a refurbishing procedure (in Ilo, Matarani, Tacna). Individual physicians could only
purchase second-hand medical equipment for their personal purposes.
The Peruvian administration has embraced the principles of free trade and free exchange.
There are still no exchange restrictions nor quantitative restrictions in place. Weapons,
pesticides, and non-organic fertilizers were amongst prohibited products for health and safety
reasons. In certain instances, you might well be obliged to identify through the Ministry of
Health. Many veterinary products, cosmetics, and perfumes must be licensed.
Peruvian government expenditure grew by upwards of 25% in 2010, when President Alan
Garcia's administration proceeded to pursue a budget surplus throughout the wake of the
global financial collapse. Several experts, along with a representative including its central
bank's board of directors, have expressed concern about the excessive amount of government
expenditure, claiming that it might cause inflation. However according projections depending

upon the final budget, the rise in government expenditure would decelerate to about 9% by
2011 (Staff, 2011).

References
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overview
Ethisphere. (2014, February 25). Global Compliance: Peru. Ethisphere Magazine.
https://magazine.ethisphere.com/global-compliance-peru/
International Trade Administration. (2020, October 11). Trade Barriers | International Trade
Administration. Www.trade.gov. https://www.trade.gov/knowledge-product/peru-trade-
barriers
LAC Blog. (2020, July 24). Export to Peru- A Trade and Export Guide. LAC Blog.
https://www.latinamericancargo.com/exporting-to-peru-a-trade-and-export-guide/
Launchway Media. (n.d.). 10 Facts about Peru’s Growing Technology Scene. Launchway
Media | Tech PR and Digital Marketing for Startups. Retrieved July 28, 2021, from
https://www.launchwaymedia.com/blog/facts-about-perus-growing-technology-scene
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Miracle or Just a Mirage? Harvard Business Review Case Study. Published by HBR
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Staff, R. (2011, March 28). Peru’s economy and risks. Reuters.
https://www.reuters.com/article/us-latam-summit-peru-idUSTRE72R1WM20110328