El Cuero En Colombia

Paper 1

This paper presents a first overview of the opportunity to export Colombian leather goods in to the Canadian market. In order to accomplish this objective, I describeboth markets, starting from the most general economic landscape to the specific competitive market of the leather manufacturing and outlets industry. This review will help to identify the opportunities and threats of the market and other external issues. Since the specific brand that I am wiling to export is Cueros Velez, I will describe the firm, understand its history, recent financial performance, and its strategy and future expectations to define a good international strategy for the expansion. Finally, as part of the selected strategy I will define the mode of entry to the new market and analyze how it fits with Velez business.

Context of the Leather Industry in Colombia

Colombia’s economy has faced an interesting pace of growth during the last years. As an emergent economy, the world’s economic recession of 2008 didn’t affectColombia as much as other emergent and developed economies. Since 2005, the GDP has been growing at a compound annual growth rate (CAGR) of 4,7% reaching an annual GDP of COP $493 billions on 2013. Despite this growth, not all industries have contributed in the same way in order to keep up with this behavior. Moreover, the Manufacturing Industry grow during this same period at a CAGR of 1,8% losing share over other industries in the GDP. It represented a 14,2% in 2005 and fell to 11,2% on 2013 .

The Manufacturing Industry is composed by 25 sub industries; all of them had a slower rate of growth than the entire economy and some of them grew even less than the ManufacturingIndustry. This is the case of the Leather sub industry which had a CAGR of 1,5%. This bad performance can be explained by the aggressive growth of leather merchandise importations. In the last four years, leather importations doubled their size changing from USD $327 millionsin 2009 to USD $695 millions growing at a CAGR of 20,1%. However the level of importations decreased in the last year 2012-2013 due to new tariff rates imposed by the government in order to protect the local industry from foreign markets, mainly China.From the exportation point of view, Colombia hasn’t had a good performance. In fact, the value FOB of exportations declined during the 2009-2013 period at a CAGR of 2,8% .

Despite this tough outlook, Colombia’s Leathers Industry is very important for the country, not just to cover the internal consumption but also for its trade balance. Due to this, in 2013,the government in association with key players on the leather industry developed a Strategic Plan for 2013-2018 periods. During the presentation of the plan, the Minister of Trade, Industry and Tourism, Sergio Diaz Granadosstated that:“By 2018, Colombia will be the third producer on the zone only behind Brazil and Mexico” and that“Colombia will increase the competitiveness of the industry in order to boost exportations” .

Leather Industry, as it is classified in the GDP, can break down in different categories. Even though there is no detailed information about it, you can find three main divisions. Raw material, footwear industry and other articles of leather such as travel goods, handbags and similar accessory products. This document will emphasize in the last category, other articles of leather and especially in travel goods and handbags.

Travel goods and handbags market has growth at a CAGR of 15% during the past five years. It has a high concentration of sales on few players. Five competitors have approximately 90% of the share market. Even though the main players are part of the leather industry, the biggest company does not sells exclusively leather. CuerosVelez S.A. its the second player on the ranking and the first one of exclusive leather products.On 2013, it had a market share of 28,9% and has been growing over the past five years at a CAGR of 19,5% reaching sales of US $104millions in 2013 on this category .

Cueros Velez history and strategy

“Velez was founded in 1986 with an innovative and creative concept. The idea was to create leather-fashion accessories with a contemporary look and artisanal details that would differentiate them” . All its products are made in Colombia with the best quality of local leather. Besides of its innovative and unique style on design that keeps them aware on top fashiontrends, the quality of its final products is a key characteristic for the success of Velez in the market.

“Along all these years it has consolidated itself through a large chain of retail stores as one of the most prestigious brands in the fashion and leather industry of Colombia” .Velez has become one the largest chain retailin the country with over 200 stores and presence in almost every department. Besides of his high impact in Colombia, Velez launched an expansion strategy ten years ago that has lead them to become an important player in Latin America. At the moment they have presence in seven countries with 15 stores, all of them inside prestigious malls in the main cities .

Velez has used two different modes of entry in foreign countries. Aruba, Curacao and Guatemala were delivered byfranchise; instead Panamá, Peru, Ecuador and Costa Rica were covereddirectly. Even thought there is no available information to know why they choose these modes of entry, you can think that they were looking for risk diversification. Having such an aggressive growth in number of stores requires high capital investment. Inthis sense, they could have decided to try new strategies with less riskthat allow them to keep up with their expansion goals.

The success of itsinternational expansion was not a matter of luck. It responds to a planned strategy that has been well executed. There Vision statementpretends the following: “In the year 2015 we will have an absolute leadership in the leather-fashion concept based on innovation, quality, design and in the Velez brand positioning, through a wide network of shops and distributors in Colombia, with a presence in more than twelve Latin-American countries. We will have in Colombia a second network of multi-brand Nappa shops with a fashion concept in alternative materials, building leadership in a brand-new model of business” .Even though Velez hasn’t reached the goal of having presence in 12 Latin-American countries, the Vision has definitely helped them to be in sevencountries. This long-term statement, key part of the strategy, is useful to guide the action plans and align the organization towards the same objectives.

In this sense, it shouldn’t vary much with time. Velez follows this pattern and wants to keep up with their expansion strategy for the next years. It’s actual

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