Proposal for Opening a Manufacturing Facility in El Salvador

PROPOSAL FOR OPENING A

MANUFACTURING FACILITY IN

EL SALVADOR

INTRODUCTION

Aqua-Tech's mission is to provide high quality SCUBA equipment to the rapidly growing international, recreational, commercial and technical dive community. SCUBA divers know no boundaries. They can be found in every corner of the world, from beneath the polar ice caps to nuclear containment systems.

Aqua- Tech currently has a small facility in its base state of North Carolina, manufacturing high-end, specialized diving equipment. Aqua-Tech has been very successful in meeting the needs of its customers; however because of high fixed and variable costs they have been unable to be competitive with larger, more established equipment manufacturers. It has been determined that setting up a manufacturing facility in El Salvador would decrease a number of costs, increasing the profitability of the company, while putting Aqua-Tech closer to the huge Caribbean dive equipment market.

ENVIRONMENTAL SCAN

Geography

El Salvador has an excellent geographic location for SCUBA equipment production. El Salvador is a small country, about the size of Massachusetts, found in Central America. It is bordered by the Pacific Ocean, Honduras and Guatemala. Though there is limited diving currently in El Salvador, it shares a border with Honduras. Honduras contains some of the top rated dive locals in the world, having access to the second largest barrier reef. Honduras is El Salvador's third largest export partner. By manufacturing in El Salvador, Aqua-Tech gains access to Honduran and other Caribbean dive markets. Having access to the Pacific Ocean also sets up Aqua-Tech for easy importing of materials and then the exporting of the final manufactured products (Background . . .). With the increased availability of SCUBA equipment in the region and access to the Pacific, there could be an increased interest in local diving.

Political/Legal

The history of El Salvador is a violent one. It gained its independence from Spain in 1821, and then gained its independence from the Central American Federation in 1839. During this period as an independent nation there were frequent revolutions. From 1980 to 1992, El Salvador was enveloped in civil war. More than 75,000 people were killed during this time period and the military had complete control of the country. Corruption and human rights violations were common. When a peace treaty was signed in 1992 by conflicting members the government greatly increased its stability. Civilians gained control of the military, the number of active duty soldiers was decreased and human rights violations were dealt with. Law enforcement was also handed over to a national civilian police force. The guerillas were allowed to form political parties and legally participate in government, having a voice through nonviolent means.

Since 1992 the government has steadily gained in stability. It is a democratic republic with an executive, legislative and executive branch. The president and the 84 members of the unicameral Legislative Assembly are elected by universal suffrage at the age of 18. Salvadoran law is based on civil and Roman law, with some common law.

Economic

With the increase in governmental stability that came in 1992 there has been a strengthening in El Salvador's economy. El Salvador has shown a very strong commitment to a free market and encouragement towards international trade. El Salvador was the first of the Central American nations to ratify the Central American Free Trade Agreement (CAFTA-DR). CAFTA-DR is a trade negotiation between the United States, El Salvador, Guatemala, Honduras, Costa Rica, Nicaragua and the Dominican Republic that is working towards the elimination of tariffs and trade barriers between member nations. El Salvador is also a member of the Central American Common Market (CACM), the Organization of American States (OAS), the United Nations (UN) and the World Trade Organization (WTO). Within El Salvador there are 15 free trade zones, encouraging foreign investment and resulting in offshore manufacturing being the largest export.

El Salvador is required to import most of its necessities such as raw material, consumer goods, fuels and food. Its exportable resources are limited to coffee, sugar, shrimp, textiles and chemicals. Though, El Salvador is limited in respect to its natural and local exports, as a result of its economic policy, it is very strong in offshore manufacturing and working with foreign investment.

The Salvadoran workforce is 2.75 million strong and respected as "a hardworking and enterprising labor pool" (Background . . .). The unemployment rate in El Salvador is 6.3% and 36.1% of the population is below the poverty line. Between the strong work ethic of the people, the well established relationship between El Salvador and the U.S., the free trade zones and the trade agreements, economically it makes a prime candidate for Aqua-Tech's manufacturing investment.