ECONOMY OF KOREA (October 4th)

1. Concepts

Source: South Korean Flag. [Online]. Available at: http://www.gettyimages.com/detail/86805622/Comstock-Images

Newly industrialized countries (NICs): these are countries that recently increased the portion of their national production and exports, derived from industrial operations. In the Asiatic case most important example of NICs is “four tigers” that include Hong Kong, South Korea, Singapore and Taiwan. (Wild, 2004: p. 133)

Knowledge based economies:  these are economies which are directly based on the production, distribution and use of knowledge and information. [...] economic growth is based on high-technology investments, high-technology industries, more highly-skilled labour and associated productivity gains. The term “knowledge-based economy” results from a fuller recognition of the role of knowledge and technology in economic growth. Knowledge, as embodied in human beings (as “human capital”) and in technology, has always been central to economic development (OECD, 1996)

2. Question

 Which have key factors been in Korea’s economic development?

History of South Korea was marked by the relationship with North Korea, a country which has a different economy and political system. But after the partition of the Korean territory, in 1948, South Korea has increasingly becoming in a country with a strong economic performance and with a high level of industrialization. According to The World Factbook of the CIA (2010), “Since the 1960s, South Korea has achieved an incredible record of growth and global integration to become a high-tech industrialized economy. Four decades ago, GDP per capita was comparable with levels in the poorer countries of Africa and Asia”

Nowadays, South Korea is the third largest economy in Asia and the 13th in the world (BBC, 2010) and one of the most exporter countries of electronic goods and cars. But it is the result of a transition process that has been supported by international institutions such as the World Bank (Korea is member since 1955) and the Organization for Economic Cooperation and Development (OECD), in which Korea access in 1996.

In a book called “Korea and the Knowledge based economy: making the transition” the OECD and The World Bank (2000) identified the key areas for the Korean development and all of them response to be knowledge-based economy, that is, increases in scientific understanding and very rapid advances in Information and Communication technologies (ICTs) oriented to gain more competitiveness. The transition included four main areas:

• Economic incentives and institutional regime: to have a more flexible economy and to become in a market economy. This area implied reforms in products, financial, labor, knowledge and industrial markets. 
• Education, training and human resources management: the country has one of the highest investments in education. 
•  Information infrastructure: in this area, the country has strength because of the production of electronic goods for telecommunication. The country captured advancing technologies to create a competitive advantage. 
•   Innovation system: it comprises firms, science and research centers, universities and other organizations that facility knowledge appropriation.

 On the other hand, as most of emerging or new industrialized countries. Korea has a long term strategy that supports its aims and its inversion in strategic sectors such education and innovation and gives it a way to face economic challenges. 

3.  Point of view

I have always believed that investments in education, technology, science and cultural activities are the best way to achieve development, not only economic but also social development. For this reason, I think that Korea is an amazing example of this:  A country that understands the importance of “human capital” into its economy as the best engine for progress and tries to use its capabilities and strengths in order be a better position internationally.

Besides, I think that South Korea is an excellent example for Latin countries, since, many scholars talk about the similarities among Korea and Latin countries and I think that like Korea, Latin countries can be stronger economically using all potentials of the region, including the “Human Capital”. On the other hand, I think that Latin countries should have a closer relation with Korea, because it could be a partner for commerce and cooperation in order to transfer knowledge in several topics.

BIBLIGRAPHY

BBC (2010). South Korea country profile.[Online]. Available at: http://news.bbc.co.uk/2/hi/africa/country_profiles/1123668.stm

CIA (2010). The World Factbook- South Korea. [Online]. Available at: https://www.cia.gov/library/publications/the-world-factbook/geos/ks.html

OECD (1996) the knowledge-based economy. [Online]. Available at: http://www.oecd.org/dataoecd/51/8/1913021.pdf

OECD and World Bank (2000). Korea and the Knowledge based economy: making the transition. [Online]. Available at:

ooks.google.com/books?hl=en&lr=&id=WS8xNmGBncYC&oi=fnd&pg=PA10&dq=knowledge-based+economy+Korea&ots=oYToo_mkSy&sig=AAr51LrIXHCW6Z2MAPhaJ-2-JTY#v=onepage&q&f=false

Wild, Jj. (2010) .International Business the challenge of Globalization. Pearson. Pag.463

Airline alliances (September 27th)

1.  Concepts.

Global alliances: it is a strategy that has traditionally involved various co-operative arrangements (such as codesharing, blocked space, co-operation in frequent flyer programmes, joint marketing, service and purchasing, and franchising) to strengthen or expand their market presence and to redefine or consolidate their position in an increasingly competitive environment (OECD, 2000). Currently, most important global alliances are: OneWorld, Star Alliance and Skyteam.

Scale economies: it occurs when unit costs go down as total production is increased. They involves mostly from the spreading of fixed cost over an increasing volume of output […] Economies of scale have been divided into “technological economies” (based on large scale production or large plants), “managerial economies” (improve division of labor) and “financial economies” (reductions in unit cost when purchases, sales and financial transactions are made on a large scale). (Kleymann and Seristö, 2004).

2.Question

Why are Airline alliances used to reach economies of scales?

Since the 90’s airlines alliances are increasingly common and they have been developed in different ways according to the needs of companies which are participating in the cooperative links and the scope of each alliance. Kleymann and Seritö (2004) said that airline alliances can be classified into 9 types where main alliances are: Cost sharing ventures (for purchasing equipment), asset pools (in maintenance areas), Codesharing, Marketing alliances and joint ventures.

However, the most important type of alliance is “global Alliance” because it is generally led by the biggest airlines in the world that definitively have great control on the airline industry. So, “Global Alliances”, such us OneWorld, Skyteam or Star Alliance, have most of the passenger, most of the flights and routes and most of the profits of the sector. But, which have the factors been driving the creation of alliances?

Firstly, is important to consider that airline sector has been very protected by governments in order to ensure participation of local airlines in some routes because “countries have always seen airlines as a key industry” (Daniels, 2004: p 512). So, government intervention was, according to Oneworld, one of the main determinants of alliances in the 90’s. Oneworld says that one reason for the emergence of alliances was that “More people want to fly to more places more easily and for greater value – but government restrictions and business economics make it impossible for any one airline to serve all these markets by itself”. So, having a shared code allows companies to access to countries where their flights were restricted.

 

Source: Star Alliance. three airplanes operated by Star Alliance Members airlines. [Online]. Available at: http://www.staralliance.com/en/about/

But, regulatory order is perhaps a less important reason than the possibility of reaching scale and scope economies. The OECD (2000), mentioned that “economies of scale and scope in the airline industry give rise to key observable features of airline competition. Airline networks tend to be organized into a hub-and-spoke structure. There are important economies of scope associated with the provision of services at a hub. Airlines foster demand-side economies of scope through loyalty programs (such as frequent flyer plans and travel agent incentive schemes). These economies of scale and scope give larger airline networks advantages over smaller networks and give rise to a strong tendency towards hub dominance”.  Economies of scale for alliances can be represented in each one of categories mentioned in the item 1 but, according to Oretti and Latrau (2007), the most common are:

• More efficiency from the acquisition of larger aircrafts.
•  Higher bargaining power in purchasing aircraft, spare parts, fuel, maintenance, catering or other services. 
• Specialization in relation to the learning and sharing of best work practices. 
•   Fixed costs (sales offices, airport ground and handling, maintenance), that can spread by the increase utilization, are shared by alliance’s parts and so it can reduce the overall costs for all partners. 
•   Joint procurement: negotiations with suppliers in order to get better prices by increase volumes. It is one of the most important categories because the alliance can take great advantages from the relationships with suppliers and consequently, it can reduce its cost or be more efficient. 
•  Labor cost reductions: labor force represents one of the biggest costs for an airline.

Last items show the reasons why airlines see alliances as the best way in a very competitive industry where the most important thing is to improve the efficiency and the frequencies of the flights and it can be reached working as a block.

3. Point of view

In my opinion, alliances are a reality and a need not only for airline industry but also for companies in many sectors where collaborative and cooperative strategies improve the performance of the economy. Currents market conditions require that companies implement strategies in order to satisfy the customers that every day look for something new. In this sense, sometimes alliances are a good option for companies that are unable to compete effectively.

However, in many cases alliances can have too power and therefore they can make decision that affect other small companies that are excluded, for example big alliances have power to pressure small companies to achieving unfair acquisitions or absorptions. For this reason, I consider that the creation of a regulatory order is very important. Governments and other institutions must ensure fair conditions in every sector because monopoly is banned for most of laws around the world. So, I think that governments should act as observers and regulators of all activities carried out by the airlines and alliances so as to preserve the conditions of free competition.

In conclusion, I agree with the position of the OECD about alliances and their regulation, that is; it’s very important to promote and protect in the airline industry and it includes careful review of proposals for mergers and alliances, careful use of remedies to offset anti-competitive effects and consideration of divestiture or separation in cases of dominance and careful control over predatory behaviour and other anti-competitive practices.

BIBLIGRAPHY

Latrau, K. and Oretti, M. (2007) Airlines choices for the future: from alliances to mergers. [Online] Available at: http://books.google.com/books?id=Isqt3GATUEoC&pg=PA117&lpg=PA117&dq=scales+economies+in+airline+alliances&source=bl&ots=cj2xN0BndQ&sig=GUNqxidtEDcdsGH5u7nJKy35dY8&hl=en&ei=9RWxTIC1OoOKlwecx8zmDw&sa=X&oi=book_result&ct=result&resnum=2&ved=0CBYQ6AEwAQ#v=onepage&q&f=false

Kleymann, B. and Seristö, H (2004). Managing strategic airline alliances. [Online]. Available at: http://books.google.com/books?id=kWNR-T7a8isC&printsec=frontcover&dq=airline+alliances&hl=en&ei=6-mwTO7LLIGBlAee_LzlDw&sa=X&oi=book_result&ct=result&resnum=1&ved=0CC8Q6AEwAA#v=onepage&q&f=false

OECD (2000). Airline mergers and alliances. [Online]. Available at: http://titania.sourceoecd.org/vl=6336608/cl=14/nw=1/rpsv/cgi-bin/fulltextew.pl?prpsv=/ij/oecdjournals/15607771/v2n2/s4/p122.idx

OneWorld. (2010) An introduction to oneworld:The alliance that revolves around you [Online] available at: http://www.oneworld.com/content/factsheet/W1_2010-08-02%20Introduction%20to%20oneworld.pdf

ENTRY MODES –FRANCHISING- (SEPTEMBER 20th)

1. Concepts

Franchising: it is a specialized form of licensing in which the franchisor nor only sells an independent franchisee the use of the intangible property (usually a trademark) essential to the franchisee’ business but also operationally assists the business on a continuing basis, such as through sales promotion and training. (Daniels, 2004: p. 498).

Franchise format: it comprises a contractual relationship between the franchisor and the franchisee, both of which are legally independent businesses. According to Cox and Mason, the franchise format can be group into four components:

•   Product/service deliverables: these are the unique features of the format which make up the ‘concept’ of the business (such as a unique menu in a fast food franchise) and give the format its competitive niche in the marketplace.
•  Benefit communicators: these are the intangible and unobservable benefits for the consumer, such as quality, reliability and professionalism which create the confidence in the product/service (e.g. clean uniforms in fast food outlets). 
•  these are visual and auditory elements that link the individual unit within a system or chain (e.g. trade name or trademark, colour schemes, de´cor, architectural features, uniforms).
•   Format facilitators: these are the policies and procedures which enable the format to function efficiently at both the individual unit level as well as at the system level (i.e. the managerial and operational infrastructure necessary for format implementation, covering store-level elements such as specification of equipment, layout and design plan, plus the system-level elements like financial reporting systems, royalty payment methods and training procedures). Format facilitators are largely invisible to the consumer except for their indirect effect on the other components, but are critical because they comprise the management and operational infrastructure for the entire franchise system.

2. Question

Why are franchises becoming in one of the most important entry modes to international markets?

Nowadays, more and more companies want to spread their operations to international markets as a form for reach more profits and more market share because of the high level of competition in each economic sector. For this reason, companies implement the strategy that better adapts to the company’s objectives and structure. So, franchises are a good option when a company wants to have an equilibrated relation between control risk and returns and it is a powerful business model around the world.

As Hoskinsson, et al. (2008) explained, franchising and other international cooperative strategies allow geographic diversification and promote firm growth of the company because sometimes they can be more attractive than mergers or acquisitions because they require fewer resources commitments and permit greater strategic flexibility. So, statistics show the great growth of franchising strategies: for example, in 2005 the International Franchising Association (IFA) indicated that inside the United States there were 909,253 franchising establishments and these establishments amounted to 3.3 percent of all business establishments in the United States. Franchised businesses provided 11.0 million jobs, met a $278.6 billion payroll, and produced $880.9 billion of output. the growth of franchising internationally has maintained a similar trend to that of the United States.

On the other hand, Franchising is becoming is a good strategy for small and medium enterprises. Although there is an implicit presumption that international expansion equals a large franchise network which equals large budgets (Simpkin, 2010), small and medium size companies are accessing new markets because of conditions such us saturation of home market and good growth expectations abroad. However, expansion for SMZE could be more difficult because they have fewer resources and generally less experience and information about global markets. So, according to Simpkin, (2010) “The challenge then for an small to medium-sized franchise network is achieving this expansion in a structured way, on   a limited budget and without losing control of the business both at home and in the target market”.

In order to reach expansion in this structured way, it’s important to consider that success in a foreign market must be supported in the pursuit and analysis of the market conditions and differences from home country because, as Asbill and Goldman (200) mentioned, a franchise system’s success in one community, state, region or country is not necessarily an indicator of success elsewhere because of differences on language, demographics, politics, legal system, and culture, as well as distances from franchises. So, analysis of these aspects could help a (large, medium or small) company to make a decision about the franchise format and the local strategic (adaptation or standardization).

Finally, another reason for growth of franchising model is that it offers different alternatives and modes that can be more appropriate for some companies: that is, franchising can be not only a business format (with a complete method to conduct business, trademark, infrastructure) but also it can be a “product distribution franchise” that just establish a supplier-dealer relationship, for example, Pepsi or Exxon. (IFA, 2010).

3.  Point of view

I think that franchising is a very interesting business model that benefits not only franchisor companies but also franchisee companies that have opportunities of growing with fewer risks than if they invest in new business because of the “Good Will” of franchisor companies that supported cooperative and licensing strategies. In Colombia, for example, franchises are increasingly becoming in a successful model for all type of companies inside the country and, in some cases, in foreign markets. So, Colombian companies are achieving more participation in recognized markets of North America or Europe. Maybe, the most important example is “Juan Valdez Café” that, with a combined strategic between exports to retailers abroad and franchises for coffee stores, is now a recognized   brand in all America’s continent. In my opinion, Juan Valdez expansion is an example of how a company can use its brand as a key factor to reach more market participation with less risk.

Besides, I think that the most important thing when a company is thinking in a franchising as entry mode is to try to keep and equilibrated relationship between standardization and adaptation, because in some cases or economic sectors (as Food) adaptation should be a fundamental characteristic of the franchise format, but there are other characteristics that can not be different in each franchise, such us service, quality and, maybe, design in the location. So, both franchisor and franchisee need clarity about the way in which 4 component of Franchise format will be organized in order to protect brand and therefore the aims of companies.

    

BIBLIOGRAPHY

Alon, I. (2006).  Service Franchising: a global perspective. [Online]. Available at: http://books.google.com/books?id=tyeA7U8m11UC&pg=PP13&dq=franchising+model&hl=en&ei=1BywTMvoOIaKlwee1OyEDw&sa=X&oi=book_result&ct=result&resnum=3&ved=0CDYQ6AEwAg#v=onepage&q=franchising%20model&f=false

Asbill, RM. and Goldman, SM. (2001). Fundamentals of international franchising. [Online] available at:

http://books.google.com/books?id=-5qP0m2Jr0cC&pg=PA390&dq=franchise++international+strategies&hl=en&ei=OiSwTMnlKsOblgfC-sz3BQ&sa=X&oi=book_result&ct=result&resnum=7&ved=0CEsQ6AEwBjgK#v=onepage&q=franchise%20%20international%20strategies&f=false

Cox, J. and Manson, C.(2007) Standardization vs adaptation: Geographical pressures to deviate from franchise formats. Retrieved from the EBSCO host database: http://search.ebscohost.com/

Daniel, J.  (2010).International Business: Environments and operations. Pearson. Pag704.

Hoskinsson, RE. et al. (2008). Competing by advantage. [online]. Available at: http://books.google.com/books?id=ptLXkW9lT2gC&pg=PT218&dq=franchise++international+strategies&hl=en&ei=OiSwTMnlKsOblgfC-sz3BQ&sa=X&oi=book_result&ct=result&resnum=1&ved=0CCoQ6AEwADgK#v=onepage&q=franchise%20%20international%20strategies&f=false

IFA (2010). An Introduction to franchising. [Online]. Available at: http://www.franchise.org/uploadedFiles/Franchise_Industry/Resources/Education_Foundation/Intro%20to%20Franchising%20Student%20Guide.pdf

________(2005). Economic impact of franchised business. [Online]. Available at: http://www.franchise.org/uploadedFiles/Franchisors/Other_Content/economic_impact_documents/EconImpact_Vol2_HiLights.pdf

Simpkin, A. (March, 2010). Successful international expansion for small to medium sized franchise network. [Online]. available at:

http://www.franchise.org/Franchise-Industry-News-Detail.aspx?id=50116

GOVERNMENT INCENTIVES – FDI INCENTIVES IN CHINA. (September 13th)

1. Concepts.

FDI incentives: it may be defined as any measurable advantages accorded to specific enterprises or categories of enterprises by (or at the direction of) a Government, in order to encourage them to behave in a certain manner. They include measures specifically designed either to increase the rate of return of a particular FDI undertaking, or to reduce (or redistribute) its costs or risks. Examples of such measures include liberalizing the laws and regulations for the admission and establishment of foreign investment projects; providing guarantees for repatriation of investment and profits; and establishing mechanisms for the settlement of investment disputes. Tax incentives are also part of these promotional efforts. (UNCTAD, 2000)

Export-Oriented FDI: it is one type of FDI that mainly looks for cost competitiveness in the host country (Tseng and Rodlauer, 2003: p73). These costs can include cost of labor, cost of raw materials, and other cost of operation.  According to Easson (2004) “it is also frequently insulated from the rest of the host country, often being located in segregated export processing zones”.

Open economic zone: it is a strategy from the China’s Government to offer a more liberal investment and trade regime than other geographic areas, as well as special tax incentives. […] these zones have played an important role in attracting FDI (Tseng and Rodlauer, 2003)

2. Question

What is the role of FDI incentives in the Chinese economic development?

Source: Shangai Skyline (2005) [Online]Available at: http://www.gettyimages.com/detail/200277241-001/Stone

Currently, China is the country that receives more FDI and, According to the Wall Street Journal only in the first two months of 2010 China attracted US$14.09 billion in foreign direct investment (FDI) what represents an increase of 4.9%  that is largely export-oriented FDI and the country is now the second largest economy in the world (The economist, 2010). For this reason, China is considered as an example of rapid economic growth and the role of government is very relevant to reach these levels of growth, exports and FDI, because it has made reforms that have become China in a perfect scenario for international business.

As the Organization for Economic Cooperation and Development (OECD) mentioned, these initiatives begin after the economic reforms in the 80’s when the government liberalized some sectors and decentralized state policies. These reforms and other factors has become China in a very attractive country to receive FDI. These factors can be classified into three groups: economic structure (Market size, abundant supply of cheap labor force, infrastructure, and scale effects), liberalization and preferential policies and cultural and legal environment (Tseng and Rodlauer, 2003).

Main policies are concentrated in two groups: the creation of special geographic zones for FDI and exports activities and the implementation of Tax incentives. Tzeng and Rodlauer describe the main types of Open economic zones in China and they are:

·         

• Special economic zones (SEZ’s): these are zones that have enjoyed considerable autonomy in their investment policies regarding both infrastructure projects and investments approvals and they can offer preferential income taxes treatment and exemptions for imports. 
•  Open coastal cities (OCC’s): these areas are less independent than SEZ’s but they have enjoyed greater flexibility in investment and tax polices than other regions in China. There are 14 OCCs. 
•  Economy and Technologic Development Zones: offering tax incentives similar to SEZs. 
•  High technology Development Zones: HTDZs have placed particular emphasis on attracting investment in High Technology industries by providing additional tax concessions. 
•  Free Trade Areas: exports and imports can be traded freely in FTAs, and enterprises are free to engage in export-oriented production.

On the other hand; the OECD (2005) explains the tax incentives as a complex system and a tool of the government to attract FDI in pursuit of national development priorities. Most of these incentives are not available to Chinese enterprises. Currently there are 14 taxes related to FDI, including corporate income taxes, personal income taxes value-added tax and business and consumption taxes. […]For example, the 33% corporate income tax rate may be reduced to 15% or 24%, depending on the geographic location and the type of foreign investment and generally 15% rates is applicable to enterprises located into the SEZs, high technology companies and companies engaging designated industries in western and central regions.

3. Point of view.

I think that definitively China is the best example of economic growth in recent years and it is a result of an excellent analysis of the internal capabilities and strengths to offer the lowest operational cost and to take advantages of current international conditions (globalization and internationalization of companies) in order to be one of the most exporter countries and the most important recipient country of FDI flows. 

Besides, I think that China shows clearly the importance of governments in the economy as a policy maker who incentives or no some economic sector or activities which are a key factor in the economic and social development of people. I think that if a country wants to reach more competitiveness it must create enough infrastructure and incentives that support enterprise activities and China government has had an effective strategy, not only in implementation of political incentives but also in the urban development that ensures the access to facilities (for example ports).

However, I think that is important to take into account that development is mainly concentrated in the eastern region that obviously is the most developed zone and central and western regions, with a high proportion of rural lands, have less production and FDI and consequently have less economic development. For this reason, I think that China’s government should implement mechanism that improve the conditions of people in these zones and reduce the inequality between regions. For example, Chen and Ravallion from the World Bank (2004) analyze the inequality in China and suggest the strengthening of key sectors as agrarian sector and the creation of macroeconomic stability in the country in order to reduce poverty and inequality.

BIBLIOGRAPHY

Chen, S. and Ravallion, M. (2004). Learning from success: Understanding China’s progress against poverty. World Bank. [online]. Available at: http://econ.worldbank.org/WBSITE/EXTERNAL/EXTDEC/EXTRESEARCH/0,,contentMDK:20634060~pagePK:64165401~piPK:64165026~theSitePK:469382,00.html

Easson, A. (2004) Tax incentives for  Foreign Direct Investment. [Online]. Available at: http://books.google.com/books?id=pte5y2rXc64C&printsec=frontcover&dq=Easson+(2004)&hl=en&ei=4RiwTJvxFoSBlAfIid3kBQ&sa=X&oi=book_result&ct=result&resnum=1&ved=0CCYQ6AEwAA#v=onepage&q&f=false

OECD. (2005). Governance in China. [Online] available at: http://books.google.com/books?id=nErORPJ6v74C&pg=PA447&dq=FDI+incentives+in+China&hl=en&ei=ArSvTOTfJMSqlAefupznDw&sa=X&oi=book_result&ct=result&resnum=2&ved=0CDQQ6AEwAQ#v=onepage&q=FDI%20incentives%20in%20China&f=false

Tseng, W. and Rodlauer, M. (2003) China: competing in the global economy.  Washington: International Monetary Fund. [Online] available at: http://books.google.com/books?id=H1JgRt5qDf8C&pg=PA84&dq=government+incentives+for+export+in+china&hl=en&ei=xqevTLe-MMOclgfL8rG9Ag&sa=X&oi=book_result&ct=result&resnum=9&ved=0CF0Q6AEwCA#v=onepage&q=government%20incentives%20for%20export%20in%20china&f=false

UNCTAD (2000). Tax incentives and Foreign Direct Investment. [online]. Available at: http://www.unctad.org/en/docs/iteipcmisc3_en.pdf

MINISTRY OF COMMERCE, INDUSTRY AND TOURISM (SEPTEMBER 6)

1.    Concepts

Ministry of trade, Industry and tourism (MCIT, by the Spanish acronym): It is department of Colombia’s Government that has as main objective to promote the economic development of the country although support to business activities in the industry, tourism and trade sectors. Besides, the ministry is responsible to formulate, adopt, manage, implement and coordinate general policies, programs and projects related to these sectors in order to reach competitiveness. (Ministerio de comercio, industria y turismo, 2003).

Foreign Trade Department: it’s a unit of the Ministry of Trade, Industry and Tourism involved in the design and implementation of polices related to foreign trade. Besides, it seeks for the establishment of commercial treaties and the increase in National exportations.

Source: Presidencia de Colombia (2010). Ministry of Commerce, Industry and Tourism- Sergio Díaz Granados. available at: http://wsp.presidencia.gov.co/Gobierno/Ministros/Paginas/MCIT_SergioDiazGranados.aspx

2.    Question

What is the importance of MICT for Colombian exporters? And which are its most important programs and projects to support exports?

After the process of economic opening in the 90’s, Colombia has improved its participation in international markets especially with the traditional exports such us coffee, coal, flowers, petroleum and bananas. According to the National Department for statistics (Dane) during 2009 Colombia had exportations for more than 32000 million dollars and traditional exportations represented the 54.78% of the total volume.

In this way, to promote better conditions for Colombian exporters and producers to reach more access to international markets is a duty of the Public Sector because it is considered as an important part of economic development and competitiveness of countries.

In this context, Ministry of Trade, Industry and Tourism has a very important role for many reasons:

·         

source: Ministry of Commerce, Industry and Tourism (2010). Comercio Exterior. available at: http://www.mincomercio.gov.co/eContent/minihome.asp?idcompany=7

• Firstly, it’s a policy maker that defines the parameters and the fair conditions to access international markets. On the other hand, the Ministry establishes the tariffs and other customs decisions that define conditions for imports and FDI. 
• The ministry develops specific government’s programs in order to promote exports for Colombian companies, not only for the big companies but also for small and medium enterprises, such as “Exporta Facil” that is a “program that is aimed at contributing to the development of the Micro-, Small- and Medium-Sized Enterprises in the international market through a simplified exports system that uses the postal service network as its logistic platform” (IRRSA, 2009). It has the support of IDB (Inter-American Development Bank) and the assistance of Brazil’s Government. 
•  The ministry, and especially the Foreign Trade Department, is a negotiator in international discussions about topics such as Free Trade Agreements. In this way, the ministry is responsible for finding benefits for Colombian producers in treaties and agreements. 
•  The establishment of Laws anti-dumping (sell a product at an unfairly low price) that creates the right conditions for competition between foreign and domestic products in the country. 
•  The Ministry, as other institutions for promoting foreign trade such as proexport, develops market research in order to create economic and commercial profiles of several countries that give exporters mechanisms for their decision making processes in international business.

So, Ministry represents the government in programs and negotiations for the establishment of bilateral and multilateral agreements. The most important example is the sign of the FTA with the European Union on May 19^th that, according with Forbes (2010), “will have important symbolic significance for Colombia. Its economic implications will be even more significant, but felt gradually” and the most important benefits for Colombia’s economy, are provided by:

• level playing field with other Latin American countries (e.g., Chile) that have negotiated FTAs with the E.U., or are likely to do so;
• Long-term certainty for exporters that currently benefit from the E.U.'s "Generalized System of Preferences Plus" program, which is scheduled to expire for Colombia in 2015; 
• Reduction of tariff and non-tariff barriers across a range of export and import sectors; and
• Closer, more formalized collaboration with the E.U. on sensitive issues, such as labor and human rights.

But, it is not the only important negotiation in which is participating the Ministry: the official website of it shows the projects and negotiations that are in process which include the FTA the Republic of Korea, agreements with Panama, European countries that aren’t part of the EU (For example Switzerland, Norway, and Iceland).

On the other hand, the Government of Colombia and the Ministry of commerce, industry and tourism are developing strategies that ease the foreign trade processes and paperwork for exporters and importers although information and communication technologies. This initiative is called VUCE (from Spanish acronym of Window for Foreign Trade)  is a digital integration of entities related with international procedures (imports-exports)  in order to give right information to exporters and importers and be faster the paperwork. (Ministerio de Comercio, Industria y Turismo de Colombia, 2007).

In conclusion, last information gives and idea about the importance of public entities for international business because governments must to provide information and an adequate scenario for the private sector to increase economic development.

3.    Point of view

The classical economics theories suggest that, in a market economy, the government must exist because markets economies need that the government enforces the rules and maintains the institutions that are a key to a market economy. Economy needs institutions to enforce property right and to correct market failures. So, governments can improve market outcomes. (Mankiw, 2008).

This theory explains my point of view because it shows why, although the fundamental role of private sector in an open economy, a country must provide fair rules and right conditions that support the relationships among countries and ensure economy’s efficiency and equality. Besides, it’s important to take into account that governments and public institutions establish a general framework for economic activities to reach the development and the inclusion in international markets.

So, public institutions as the Ministry of Commerce, Industry and Tourism of Colombia and the Department of Foreign Trade have a key role in the improvement of economic indicators, since, after the economic opening in the early 90’s, foreign trade has increasingly become in an important part of GDP and now, participation in international business with exports is an aim for many Colombian companies and promotion of exports is one of the most important strategies of Colombian government.  In this sense, the efforts of the companies must be support by the public sector as the best way to ensure fair conditions.

Finally, I think that,  one of the most important duties of the Ministry is to encourage participation of small and medium size enterprises in international markets because, the Colombian economy is based in this type of companies. So, if the country wants to be more competitive and to improve its position in Latin America economy it needs to strength national production and employment and small and medium size enterprise are essential in this issue. 

BIBLIOGRAPHY

 Forbes. (May, 2010). Colombia-E.U. Trade Makes New Advance.[Online]. Available at: http://www.forbes.com/2010/05/22/colombia-exports-trade-business-oxford-analytica.html

 IIRSA (2009). Launch of Exporta Fácil Colombia Pilot Project.  [Online]. Available at: http://www.iirsa.org/BancoConocimiento/N/noticia_lanzamiento_exportafacil_colombia/noticia_lanzamiento_exportafacil_colombia_ENG.asp?CodIdioma=ENG

 Mankiw, J (2009). Principles of economics. Fifth edition. [online]. Available at: http://books.google.com/books?id=oRgQ2goeFzwC&pg=PA10&dq=principles+of+economics:+the+role+of+governments&hl=en&ei=6ZCvTPrWLMWAlAeLtM3kDw&sa=X&oi=book_result&ct=result&resnum=1&ved=0CCYQ6AEwAA#v=onepage&q=principles%20of%20economics%3A%20the%20role%20of%20governments&f=false

Ministerio de Comercio Industria y Comercio de Colombia (2003). Decreto  210 de 2003. [Online] available at:

http://www.mincomercio.gov.co/eContent/Documentos/Normatividad/decretos/2003/decreto_0210_2003.pdf

________ (2007) VUCE-Ventanilla Única para Comercio Exterior. [Online]. Available at: http://www.vuce.gov.co/