Course title:

International Business
Title of the assignment:

The Ecuadorean Rose Industry Case

Submitted by: Mauricio Bedón, Sabrina Bonilla

Matriculation Number(s):      2010573019, 2010573033

Cohort:      IML2020 - A

Lecturer:   Dr. Manfred Bräuchle

Institution: Lauder Business School

Hofzeile 18-20
1190 Wien
Austria

Vienna,     02. 11. 2020

Bedón, M ; Bonilla, S.
Petrobras Case

Questions:
1. What is the basis of Ecuador’s comparative advantage in the production of
roses?

Developing countries have an advantage in terms of labor costs, since production is

intensive at each stage (planting, fertilizing, spraying, pruning, cutting thorns, arranging by
size and variety of the rose, and finally packing). The unemployment rate present in Ecuador
makes its labor cheap. Ecuador has almost unique advantages due to its geographical position
receiving the sun almost directly all year round which accelerates growth. South of Quito, it
receives mineral-rich snow water, so Ecuadorian roses develop very large buds on stems
almost 1-meter-long, bright colors and a longer vase life. Thus, Ecuadorian growers sell them
at about a third of the highest price imposed on Colombian export roses.
Ecuador has several comparative advantages for slash production. Starting with the
favorable climate and fertile land. Two conditions that provide the crop throughout the year.
The labor is low cost and has a lot of supply. Through time the population has increased due
to the availability of work. There are few labor and environmental regulations.
The basis of Ecuador's comparative advantage in this business is, first, its geographical
location. The combination of intense sunlight, fertile volcanic soil, equatorial latitude, high
altitude and, clearly, an appropriate availability of cheap labor. These are the factors that favor
a continuous production of high quality roses.
Ecuadorian exports consisting mainly of roses have become very important for the
local economy. Ecuador has approximately 300 rose farms, which have a mix of cooperation
and competition. In terms of the former, they cooperate through an association of producers,
Expoflores, to better negotiate air freight rates and find ways to improve production methods.
In terms of the latter, they compete strongly with each other for foreign customers, and it is
common for them to sell below cost.

2. Most Ecuadorean roses are sold in the United States or Europe. Who in these
countries benefits from the importation of Ecuadorean roses, and how do they
benefit? Who loses? Do you think the benefits outweigh the costs?

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Beneficiary: Seller or intermediary, luxury stores that sell these roses in their
countries. They benefit by charging extra for handling and distributing the product. The
consumer who can access luxury and prestigious roses in his country also benefits. Who
loses: National producers (countries that import). Benefits v/s Costs: The benefits of
international trade are always greater than the costs.
The main beneficiaries in the United States and Europe are the marketers of these
flowers since the profit margin compared to their costs is much higher. This means that in
Ecuador the production of roses has a very small cost and when they arrive to the United
States or Europe the seller can commercialize this product increasing its value as many times
as he wants. Therefore, in the case of the United States or Europe the benefits are greater (in
money) than the costs, but for Ecuador the opposite is true. The environmental damage and
the health of the Ecuadorian workers is a cost that definitely exceeds the benefits of the
export.
Ecuadorian producers depend on distributors to promote sales to the final consumer. In
fact, many journalists advertise in various media, and a quick review on the internet indicates
that some specifically promote Ecuadorian roses. Therefore, for producers to increase their
exports, they must convince imports and wholesalers to promote the final demand, such as
through retailers for Ecuadorian roses that are sold at special prices. Together Ecuador and
Colombia also dominate export sales of cut roses, some other markets such as Canada and
Spain but these markets are small compared to the US and Russia. So, there is a question
whether there is still an untapped market.
Some growers are considering the Middle East as a possibility to expand their sales
due to new air services linking Ecuador to Iran via Venezuela. In any case future export sales
of Ecuadorian cut roses will be pink or not, it seems to have nothing to do with their
production capacity; it will depend on the tendency of consumers located in other countries to
buy their roses.

3. How does the rose export industry benefit Ecuador? Do these benefits have any
implications for the United States and Europe?

In the United States or Europe, traders benefit from lower prices, which allows them to
marginalize more in their sales. Their local market does not have the same characteristics
because it does not have such good geographical conditions. Local producers, who ultimately
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have less demand, lose out because they cannot compete on price. Ecuador also loses in the
face of the lack of regulations. The land is chemically treated, which produces irreparable
environmental damage. And labor abuses, where there are concerns about workers' health or
the use of minors on the job. In our opinion the costs outweigh the benefits, since the damage
these practices produce is irreparable to the Ecuadorian population and the environment. A
social conscience has to be made both in Ecuador and in the countries that buy the roses.
Ecuador is positioned as the 4th largest producer of roses in the world. Roses are
Ecuador's 5th most important export product. They generate sales for USD 240 MM, they
mean tens of thousands of jobs. Highly employable women who devote the resources to
educating their children. The related taxes have served to pave streets, build schools and
irrigation systems. Benefit to USA, EUROPE Yes, they benefit from the growth and
technological advances of Ecuador, seeing reflected in the quality and delivery of the
products,
Ecuador benefits from work for the population and wages above the minimum wage.
This leads to a higher per capita income. These benefits impact the countries of the North
because of lower demand as they are not competitive. These effects can affect American and
European producers, causing them to go bankrupt. But they have no effect on the economies,
since they are not an item with a large share in the countries' income.
The rose export industry benefits Ecuador by placing it as the 4th largest producer of
roses in the world, and is the fifth product of the country's exports, which generates sales of
240 million dollars, currency adopted by the country after a great financial volatility in the
past decade that have managed to reverse "stabilizing" their policies and increasing
government spending so that the country grew by 7.8% during 2011. The consumption of this
product in the United States and Europe does not cause a great impact on their economies
because of their size (developed economies v/s export product not of 1st need).

4. How should developed nations respond to reports of poor working conditions in

this industry? Should importers in some way certify Ecuadorean producers, only
importing from those who adhere to strict labor and environmental standards?

Given the high social costs of the Ecuadorian rose industry, developed nations should
take action and strongly disapprove of the poor labor and environmental conditions generated
in Ecuador. Since Ecuador does not have efficient labor legislation, developed countries
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should develop mechanisms to disapprove of labor abuse and not encourage it as has been
done through imports. The idea of certification is good, since it is a measure to control bad
habits and the domination exercised by the producers of slash-and-burn products over the
workers. In this way, only good performance is encouraged and the social costs of production
are limited, while local producers are also favored and competition is made healthier and less
socially harmful.
Developed nations should issue quality certificates of good working conditions and
also of environmental quality conditions and these should be required of importers of roses to
be traded in these nations. They should certify these importers so that customers can
distinguish roses that do not comply with these certificates.
Due to the image of the industry they should do this, as some of the Ecuadorian
companies that export and have this certification seal have already done, now without a doubt
this would increase production costs since it means greater labor investment, but not
complying with this seal could even become a problem when it comes to investment. The
countries or developed nations that have this kind of standards should condemn the deplorable
conditions of workers and environment, in addition socially people are becoming more aware
of these aspects and even stop consuming brands for the same.

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References
Graphic Maps (n.d.) Available from: https://www.graphicmaps.com/ecuador [Accessed 3
November 2020]

Hill, C., 2012. International Business. Boston: McGraw-Hill.