promoting regional industry : coffee & alpaca - · pdf fileleonardo mamani (cecovasa,...

March 28, 2012

Promoting Regional Industry :Coffee & Alpaca

Prof. Moon-Kyum Kim & Dr. Sunwoo Kim

KSP Peru 2011

Meet the Regional Government

Visit Cusco, Peru in July 2011

1. SuperficieTerritorial:71,891.97Km2.2. Población:1’171,403hab.3. Regionesnaturales:

• Amazonía(56%)• SierraAltoandina(21%)• SierraInterandina(23%)

Why Coffee & Alpaca fiber industries?

Interview the cooperative

70%

Why Coffee & Alpaca fiber industries?

Coffee Industry : Coffee Belt (1)

World Coffee Market

Coffee Industry : World Production by Region (2)

Source : ICO(International Coffee Organization) Annual Review 2009/10

World Coffee Market

Coffee Industry : Total Production(3)

in selected exporting Countries for 2010/11

Source : ICO(International Coffee Organization) Annual Review 2009/10

World Coffee Market

Coffee Industry : World Consumption per person (2008) (4)

World Coffee Market

Peruvian Coffee Market : Export Growth (1)

Export Growth of Peruvian Coffee 2002-2008

Peruvian Coffee Market

Peruvian Coffee Market : Export Destination (2)

Main Peruvian Export Destinations for Coffee 2008Country %Part. 2010German 35%America 21%Belgium 11%Sweden 4%

South Korea 4%Colombia 4%Canada 3%

Italy 3%England 2%Etc.(40) 12%


Peruvian Coffee Market : Main Export Firms(3)

Main Export Firms (Roast Coffee) %Part. 2010CAFE INCA DEL PERU SAC 67%CAFE BRITT PERU SAC 23%EMPRESA SOCIO SOSTENIBLE COMERCIALIZADOR 4%VIVA LATIN S.A.C. 3%CAFE RISSO PERU S.A.C. 2%COOPERATIVA AGRARIA CAFETALERA PANGOALT 1%SASIL EXPORT S.A.C 0%HYAYTA CASTRO SHIRLEY 0%MACHU PICCHU TRADING S.A.C 0%Otras Empresas(1) 0%

Main Export Firms (Bean) %Part. 2010PERALES HUANCARUNA S.A.C. 23%COMERICO & CIA S.A. 13%COMPANIA INTERNACIONAL DEL CAFE S.. 10%OUTSPAN PERU S.A.C. 6%CENTRAL DE COOPERATIVAS COCLA LTD.. 5%CAFETALERA AMAZONICA S.A.C. 3%LOUIS DREYFUS PERU S.A.C. 3%CORPORACION DE PRODUCTORES CAFE PERU SAC 3%COOPERATIVAAGRARIA CAFETALERA LA FLORID 3%Otras Empresas(99) 22%


Visit the COCLA (23 July 2011)

Coffee Industry in Peru

Interviews with Korean experts

•가배두림 이동진 사장•웅진식품 박옥함 1급연구원•아름다운 가게 엄소희 간사•까페베네 김차연 이사

Inquire Peru Coffee of Korea market

Policy Practitioners’ Workshop (1)

Visit BeanTree, Beautiful Shop, Korean Council on Latin America & the Caribbean (15~21 January 2012)

Carmen Leon (COCLA, Marketing Manager)Leonardo Mamani (CECOVASA, Project Manager)

1st Workshop and Discussion


Implications…

1st Workshop and Discussion

Policy Makers’ Workshop

Visit Bean Tree (11~18 February 2012)

2nd Workshop and Discussion

Coffee Industry : Peruvian Coffee Market (4)

Several Problems Peruvian Coffee Farmers must overcome

Old coffee farm : 30 to 40 years old and produce low quality coffee beansCompetition for labor problems between coca industry and coffee industry

Alternative trade organizations

To improve profitability by selling their product at specialty marketTo enhance strength of cooperatives and trust of its membersTo lead to formation of their own alternative trade organization

Korea Case : Beautiful Coffee

Cooperative Agraria indistrial Naranjillo LTDA produces and supplies coffee and cocoa to the Beautiful Store, which is sold as ‘Gift of Andes’. The Naranjillo cooperative was established in 1964 with support of local farmers, UNDP, development bank and Peru Cooperative Bank. It has built capacity of its members and became an advanced organization that produces organic coffee and cacao for export. Its members are located in central Peru jungle areas of Huanuco, San Martin and Ucayali at altitude between 1,200 and 1,800 meters. The Beautiful Store began purchasing produce from the cooperative since 2009.

Put discussions together (1)

SWOT

Strength Weakness

Opportunity Threat

• Good Quality• Organic Products

• FTA (Convention in 2010)• Fair Trade

• Brand Power• Marketing

• Economies of Scale• Management Skill

Put discussions together (2)

Action Plans

Conclusion

Plan 1. Business Strategy for Economies of Scale

Establishment and Management of Regional Business Corps for Coffee industryImplement advanced business management practice

Plan 2. Establishment of quality management system

Invest in quality management for product competitivenessDevelopment of products tailored for consumer needsDevelopment of A Information System for Product history managementImplementation of stakeholder-auditing system

Plan 3. Methods for Promotion of Regional Product Brands

Plan 4. Securing diverse sales routes

Provision of subsidy for international certification of their product Strengthening relationship with overseas fair trade organization

Development of original brands for regions

Plan 1: Business Strategy for Economies of Scale

Establishment and Management of Regional Business Corps for Coffee industry

Multiple cooperatives of coffee farmers are operating in a region, fiercely competing to secure buyers by lowering price.Creation of regional business corps of coffee farmers’ cooperatives can reduce loss from overheated competition and increase price negotiation capacity, leading to more reasonable sales price for coffee farmers.-Potential roles of regional business corps : adjustment of sales volume and timing, increased direct sales, long-term supply contracting, integration of order/sales operation-Allocate production quota under contract for better coordination of regional production

Implement advanced business management practice

Hire professional business managers for operational accountability.Allot number of directors that each cooperative can recommend to be members of the board of directors according to amount of financial contribution made by each cooperatives.Institute rules on allocation of profit and cost-sharing, proportional to business contribution made by each cooperative.Expenses associated with operation of business corps including sales and shipping shall be covered by the coffee farmers.

Invest in quality management for product competitiveness-Hire quality inspectors and implement collaborative coffee bean sorting practice

* Operate two tier quality management system with quality inspectors who conduct sampling test of all products and quality inspectors who conduct lot test of all beans at sorting house.* Implement performance-based pay scheme to increase effectiveness of quality management practice

-Establish rules on cross-inspection among cooperatives and penalty for violation of quality management standards

* In Korea, a warning is issued to farmers who ship sub-quality produces.Farmers who received more than five warnings are banned from participating in cooperative activities for two years.In case of a serious consumer claim, the cooperatives responsible for the claim is penalized with reduced sales quota

Development of products tailored for consumer needs- Development of diverse sales packages- Various shipping volumes and refinement of packaging design

Plan2: Establishment of quality management system

Plan2: Establishment of quality management system

Development of Information System for Product history management

The product history management system is a trace system by assigning a unique ID for each product, maintaining a record on detailed information on production, processing, packaging, logistics and sale of the products, and enabling communication of product information to elevate product credibility.

Building customer trust with a system

Implementation of Stakeholder-Auditing System

The existing product history information system relies on producers to input all information, which is then communicated to consumers

Stakeholder auditing system allows all members of cooperatives to audit production process

Plan3: Methods for Promotion of Regional Product Brands

Development of original brands for regions

Develop original coffee brands for relevant regions and strategically foster coffee businesses as drivers of regional economic development.Focus on Quality Management : It is important to maintain sound product quality of the products sold under the regional brand names as good quality is closely related to strong financial performance.Focus on Brand Management : A comprehensive marketing strategy encompassing all areas including CSR management should be created to build regional brands as ‘power’ brands

<Criteria for Assessment of Value of Regional Brands>

Awareness : Is the brand name easy to remember? Do customers like he brand name? Association : Is the brand easily associable with positive images? Differentiation : Is it distinguishable from other brands? Is it highly original? Market : Is the market penetrable? Is the size of market appropriate for the brand? Growth : Is the brand easily associable with growth? Does the brand positively contribute to creation of values?Expertise : Does the brand communicate sense of a specialty company?

Action Plan (3)

Plan 4: Securing diverse sales routes

Provision of subsidy for international certification of their product should be also useful for small businesses which already produce high quality products but lack certification often due to lack of funding and capacity for necessary paper work. The subsidy could remove technical barriers for the businesses that have potential to increase export. For example, South Korean government is providing between 40 to 60 percent of funding for up to 2 certifications per each session per company. The size of subsidy is dependent on type of products and size of export volume, and provision of limitation on government funding.

Strengthening relationship with overseas fair trade organization is another way to enhance value of Peruvian coffee industry. For example, the UK is spending 20 million pounds in supporting fair trade movement. The fund is mostly used for identifying new fair trade partners(producers) and certification of their products. There are also ‘fair trade’ cities and villages which collaborate closely with local government officials responsible for fair trade campaigns and management of local fair trade activities. In UK, the fair trade campaign has led to establishment of new institutes such as ‘fair trade schools’ and more, leading to creation of jobs. Some citizens are also making money by actively participating in the trade and sales of fair trade products, in addition to campaigning.

Action Plan (4)

Promoting Regional Industry :Alpaca Fiber

Visit the producer

Alpaca fiber Industry


Korea Research Institute For Fashion Industry (15~21 January 2012)



MokHwa Gloves (15~21 January 2012)




Korea Textile development Institute (15~21 January 2012)



JinSung Co.(15~21 January 2012)

KSP Peru 2011

Alpaca Fiber Industry (1)

REGION ZONE Formal MSEs InFormal MSEs MSEs TOTALAREQUIPA Arequipa 68 476 544LAMBAYEQUE Chiclayo 18 126 144CUSCO Cusco 19 133 152JUNIN Huancayo 153 1071 1224LIMA Lima 100 700 800PUNO Puno 106 742 848LA LIBERTAD Trujillo 6 42 48TOTAL 470 3290 3760

Source : Committee of producing textiles sweaters MSEs Peru. 2011

Firms and Employment in the Fabric of Sweaters of the SMEs in Peru

RegionEmployment with

MPSs FormalsEmployment with MPSs informals

Total direct employment

Total indirects employment

AREQUIPA 476 1,904 2,380 19,040LAMBAYEQUE 126 504 630 5,040CUSCO 133 887 1,020 8,157JUNIN (Huancayo) 1,071 7,140 8,211 65,688LIMA 700 2,800 3,500 28,000PUNO 742 7,420 8,162 65,296LA LIBERTAD(Trujillo) 42 168 210 1,680TOTAL 3,290 20,823 24,113 192,901

KSP Peru 2011


Production by Zones

Source : Committee of producing textiles sweaters MSEs Peru. 2011

REGIONSurvivalCraftProcess

Articulated as a family

business Craft

Organized Craft Process

Organized Industrial

ProcessTOTAL

AREQUIPA 2 21 25 20 68LAMBAYEQUE 8 4 2 4 18CUSCO 1 4 11 3 19JUNIN 8 26 33 86 153LIMA 12 12 36 40 100PUNO 34 3 39 30 106LA LIBERTAD 1 2 3 6TOTAL 65 71 148 186 470Percent 13.83% 15.11% 31.49% 39.57% 100.00%

KSP Peru 2011


Peru : Manufacturing Exports

Source : COMITÉ DE MYPES textiles productores de chompas Perú. 2011

KSP Peru 2011


Peru : Textile Exports

Source : COMITÉ DE MYPES textiles productores de chompas Perú. 2011

KSP Peru 2011

Action Plans

Conclusion

Plan 1: Development of human resource training center specialize in fostering expert workforce for Alpaca fiber industry (1)

Plan 2: Working with overseas expert workforce : laying groundwork and for scouting and tapping into their resources

Plan 3: Development of Original Brands

Plan 4: Promotion of Inter-stream collaboration projects

Plan 5: Establishment of Strategic Flexible Production System

KSP Peru 2011


Development of Research & Training Center (RTC)

Select an academic-industrial research institute with highest research/education capacity and develop it as a research and training center(RTC) with concentrated support.

Foster expert workforce specializing in Alpaca fiber technology development and application, and retrain existing researchers in Alpaca industry at the RTC

Identify a local research institute with strong capacity and further develop it a government-funded independent research institute specialize in advancement of Alpaca industry. And then drive the area around the institute into an innovation cluster.

KSP Peru 2011


Focus on development of expert workforce in fashion/design

Although the market for low and middle-priced clothes in developed countries has become saturated, market for fashion ware is expanding both in diversity and volume.

-Development of expert workforce in pattern making, marketing, merchandizing, fashion coordination is necessary to capitalize on this growing fashion ware market.-For long-term success, it is necessary to foster fashion design specialists and support companies that produce original fashion wares with their own brands.

Additional promotion programs for facilitating collaboration with domestic/overseas research institutes

-Hold national competition for designers and pattern makers on regular basis to promote expert development and identify local talents.-Provide overseas training opportunities (short-term/long-term) for talented local experts

Cusco had an experience to develop designs and create local brand (KAMMAQ) together with Chio Lecca fashion school, Lima by the support of IDB.

KSP Peru 2011

Plan 2: Working with overseas expert workforce : laying groundwork and for scouting and tapping into their resources

Laying groundwork for scouting overseas expert workforce : fostering attractive working environment for overseas experts

Strengthen competitiveness of Alpaca fiber by scouting retirees from overseas fiber product manufacturers-Product differentiation and quality improvement, not production cost reduction, is the key to maintaining competitiveness of Alpaca fiber industry. Therefore, it is important to monitor new trends in target market, pioneer both emerging markets and niche markets, with help of overseas expert workforce who have knowledge of the target markets.- Since there can be many barriers to hiring overseas experts who have active career in the industry, it can be more realistic to target specific retired experts (person and country).

Establish buyer network by utilizing the existing networks of the overseas workforce hired.-Work with overseas experts to strengthen technology know-how, technical expertise, information database of target market and business network.- Building collaborative relationship with fast-growing fashion industries of BRICs countries and textile makers of South American and Eastern European countries is also important

It is important to establish necessary legal framework and policies for hiring of overseas expert workforce early on.

KSP Peru 2011

Plan 3: Development of Original Brands

Development of Original Brands

Development of original brands for individual companies or SME groups is important for sustaining increase in export volume.

Example) Thai’s “Jim Thompson” , Vietnam’s “Khai Silk”, Cusco’s KAMMAQSelect promising middle-sized companies and foster them as flagship companies with original brands in order to promote their growth and increase overall reputation of Peru products.Select promising small-sized companies and foster their growth as middle-sized companies to help them benefit from both economy of scale and economy of scope.

Strengthen marketing capacity

Establishment of independent local sales network in target overseas markets is important in order to more effectively market products developed and sold under a common brand name.A aggressive marketing strategy for directly approaching overseas consumers is a key to increasing sales.Foster the competence of market analysis on which marketing strategies can be formed

KSP Peru 2011

Plan 4: Promotion of Inter-stream collaboration projects

Create a technology development fund for projects designed for promoting development of new technologies and product differentiation for textile-fashion inter-stream consortiums that collaborate on planning, technology development, production and marketing.

•Stream : a consortium which consists of entities of three or more different sectors including business, research institute and universities. (Average funding support by Korean government per consortium is approximately 2 million US$ over two years)

It is essential to foster growth of select middle-sized companies as flagship companies with theirs own brands in order to increase their market value and build overall reputation of Peruvian products.-Set long-term goal of building reputation of ‘Peru Collection’ brands to be on par with leading fashion brands of New York, Paris, Milano and London.

Identify small companies with high potential and foster them as middle-sized companies to help them benefit from both economy of scale and economy of scope.

KSP Peru 2011

Plan 5: Establishment of Strategic Flexible Production System

A transition must be made from mass production system for low-value-added generic products to multi-product manufacturing system with high-tech/high-quality/high value-added industry structure that leads to creation of new demands.

In long run, both lean production system ideal for mass production and strategic flexible production system ideal for small quantity batch production need to be established.

In the US, some companies have established a system through which customers can select color and design of a product. The system instantly create a list of necessary parts, communicate it to suppliers, leading to speedy manufacture and delivery of customized product to the customer. (Park Hoon, 2003)

Why wasn’t the KAMMAQ project in Cusco successful?- lack of production capacity- poor corporation among artisans’ communities- poor focus on Marketing

It needs a holistic approach from a strategic point of view (i.e. goal-oriented)

MUCHAS GRACIAS

promoting regional industry : coffee & alpaca - · pdf fileleonardo mamani (cecovasa,...

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