1.

History

In 1991, the United States enacted the Andean Trade Preference Act (ATPA) to combat the drug

production and the trafficking of coca in Andean countries such as Ecuador. The goal of ATPA

was to promote and strengthen the legal industries within the four Andean countries by offering

trade benefits such as the elimination of tariffs on products like flowers. The enactment of ATPA

combined with Ecuadorian policy reforms helped develop and strengthen numerous traditional

and nontraditional industries within the country. One such business was Ecuador’s floriculture

industry. Flowers such as roses are best grown at high altitudes where there is high light intensity

and plenty of water, making the Andean Region of Ecuador (La Sierra), a prime area for flower

farms.

Since 1991, Ecuador’s flower industry has grown to become a major part of Ecuador’s economy

at 9% of the total nonpetroleum export earnings. However, there are many issues associated with

the industry. The primary problems include the pest susceptibility and intensive nutrient

management of high-value flowers such as roses. In order to grow high quality export ready

roses, large inputs of fertilizers and pesticides (primarily fungicides and insecticides) are used.

While these chemicals help maintain the quality and quantity of roses grown, the inputs are

degrading water quality and harming aquatic species throughout the Andean Region of Ecuador.

2. Introduction

Ecuador might be famous because of its status as the world’s largest exporter of bananas. What

many do not realize is that the country is also one of the world’s largest exporters of flowers.

Ecuador is currently ranked as the third-largest exporter of cut flowers. The Ecuador flower

industry began to flourish in 1991 when the Andean Trade Preference Act was passed. This
allowed the U.S. to promote legal industries within Ecuador in an attempt to push out drug

trafficking. The act expired in 2013. The impact it created, however, continues to live on.

Benefits for Ecuador

The rose export industry has done wonders to the export aspect of Ecuador’s economy. The rose

industry in Ecuador provides good paying jobs for thousands of poor rural women-many of

whom are heads of households. Those jobs are draining the drug trade of recruits. It has also

allowed for a larger portion of the population to be employed by the many rose manufacturing

businesses. This allowed the quality of life to increase result of the boost in new incomes

especially those of newly employed mothers. It had also allowed for many families to feel more

stable and able to expand, causing the population to increase from 10,000 to 70,000 in 1 year.

Not only can Ecuador support more jobs but also the revenues and taxes from rose growers have

helped to pave roads, build new schools, and construct sophisticated irrigation systems. The

employees of the rose farms earn a decent wage, which is substantially above the country’s

minimum wage. Some workers get healthcare and pensions as well.

3. Diamond Factors

The diamond framework model has been used by various countries to determine the

competitiveness of their industries. This model is useful in determining whether the country can

compete globally in the exportation of rose flowers. Ecuador is a leading exporter of rose flowers

in the world and the diamond framework model is useful in determining the future of its rose

flower industry. The model has four components namely; factor conditions, demand conditions,

related and supporting industry and firm, strategy and structure.

Factor Conditions.
In the Ecuador rose flower industry, the rose flowers produced are of high quality since it has

factors including ideal ecological zones which has geographic advantage: altitude higher than

2,000 meters above sea level in the equatorial zone, relative proximity to the United States,

availability of rich volcanic soils provide the right conditions for sufficient production, abundant

labor provided by women which accounts to almost 80% of the total labor force, and as such the

cost of labor is low due to availability of cheap labor, and inventive entrepreneurs who seek to

match flower, field, and market to maximize profits These elements lowers the cost of

production making the rose flower cuts to be sold at affordable prices which are higher than the

cost of production

Demand Conditions.

Following the enactment of the Andean Trade Preference Acct (ATPA) in 1991, which was meant

to strengthen and promote legal industries in the Andean countries, Ecuador gained significantly

as the country could export its flowers to the US without incurring increased costs of tariffs

(Balladares, Mera & Fagan, 2014). Roses are some of the most demanded products in the U.S

(Conefrey, 2015). as well as other major markets such as the EU. Roses are demanded in

weddings, birthdays, Valentine’s Day and home decorations (Balch, 2015). The demand for roses

will continually increase in the future as the factors affecting the demand do not seem to change

in future.

Related and Supporting Industries.

Prior to advancements in the air transportation industry, it would have been impossible for cut

roses in Ecuador to be the leading export in the country. Roses are some of the most perishable

products in the world and they spoil within 3-5 days after they are cut (Balch, 2015). Thus,
having a reliable form of transport provide the country with an abled form of ensuring that the

demand for roses is satisfied within the least time possible while the suppliers based in Ecuador

do not lose their product. Furthermore, with the increased growth of technology across the globe

today, customers can now order for flowers on different online platforms thus making it easier

for the sales to be effected in time and with the least efforts possible (Balladares, Mera & Fagan,

2014).

Firm Strategy, Structure and Rivalry.

Ecuadorian producers and exporters face strong competition from other countries such as

Colombia, Mexico, China, African countries and Central American countries. This is a big threat

to the production of rose flower cuts in Ecuador since their competitors have trade agreements

with major trading partners such as United States of America and the European Union. Ecuador

should establish permanent preferential trade agreements with major buying countries in order to

boost its share in the international market. The high production and transportation costs have

forced multinational investors such as Dole Fresh Flowers out of the country therefore negatively

impacting on its international competitiveness. However, there is room for improvement since it

is not too late for the country to establish preferential trading agreements.

Government

The government has also invested in the industry by availing incentives such as fertilizers and

pesticides to the farmers thus providing them with a chance to compete internationally.

Conclusion

As seen above, the boasts the necessary factor conditions for the growth of flowers and has also

enjoyed good relations with the US and EU thus it increasingly penetrate these markets. Related
industries such as the transport industry also form a basis for the success of the industry bearing

in mind the increased perishability of flowers.

4. Strengths

 Innovative culture among growers in Ecuador when compared to its main rivals

(Substantial investments in breeding and R&D)

 High expertise on getting maximum use of favorable climate conditions, elevation and

soil conditions.
 Strong product differentiation strategies (Ecuador is the trendsetter when it comes to new

rose varieties)
 Emerging trend on shortening the supply chain process by reducing intermediaries (i.e.

cargo agencies) to improve quality of the delivery.

 Most of farms are now into certification to implement more sustainable practices in order

to compete globally.
 Reputation gained by the industry for superior quality.
 Benefits due to economies of scale.

5. Weaknesses

 Bad reputation earned due to use of child labor, exploitation of the adults, unfair

remuneration, health effects, and lack of healthcare facilities to employees

 Lack of promotional efforts at grower level due to their greater dependency on

distributors’ promotional activities in importer’s country

 Interest towards getting the service from international breeders at a significant royalty

rather than getting expertise from local breeders.

 Lack of motivation yet for usage of natural insecticides and integrated PEST management

techniques
 Maintain lengthy supply chain and distribution channels by traditional growers
 Drawbacks in responding to customer queries and orders

6. Opportunities
Ecuador, with its favorable climate, excellent spring water, fertile volcanic soil, and high altitude

provides the perfect conditions for high-quality rose production. The equatorial location of

Ecuador allows roses to receive optimum sunlight throughout the year where rose growers in

North America and Europe are usually unable to compete during the high-demand winter season.

In addition, the availability of low-cost labor, a trade agreement with the EU- -Andean Free

Trade

Agreement, and proximity to the United States pose substantial comparative advantage over the

competing countries. This favorable combination of factors of production has made the

Ecuadorian flower industry very lucrative for investors.

7.Threats

In spite of the many favorable factors for Ecuador’s rose industry, there are also some challenges

which include high distribution costs and incompetent supply chains. Insufficient transportation

infrastructure, combined with government bureaucracy, are two of the key factors leading to an

inadequate supply chain, which increases the delivery time and cost of exporting flowers abroad.

The major bureaucratic impediments include rampant government corruption, a weak legal

framework, a lack of investment-friendly policy, and a closed aviation policy.

7.International Trade Theories

Theory of Absolute Advantage

Ecuador has an Absolute Advantage over Kenya in Cut Flower Industry. As shown in the table

Ecuador is exporting roses worth of USD 851.9 Million which is greater than Kenya which is
only USD 575 Million per year. Which means during the year 2017, Ecuador has made a greater

output than Kenya with same level of inputs.

Theory of Comparative Advantage

Ecuador has a comparative advantage in the production of roses. It is due to the reason that some

of its trading partners have access to certain natural resources, favorable climatic conditions and

the availability of labor resources. Which reduces the total production cost leads to low

opportunity cost for Ecuador.

Theory of Factor-Proportions Advantage

Ecuador has a factor-proposition advantage in the production of roses because of its vast land

size. It is minimally populated and available for cultivation and agriculture. Also, as an

agricultural country it has labor rates, specialization ability and minimal capital availability.

Theory of Product Life Cycle Advantage:

Ecuador enjoys a product life cycle advantage in the production and sale of roses can be grown

to benefit a perceived high volume sales period. Another feature that’s increased interest in

Ecuadorian roses is the wide variety of colors and color combinations. There are more than 500

different types of roses in Ecuador in colors. The conditions, elevation, cool nights, and longer

growth cycle have all resulted in bicolor blossoms.