Colombia as many countries are working to be competitive in a global economy through Free Trade Agreements (FTAs). Nowadays, competition shows products that are high quality differentiated and shows economies of scale (lower average cost as volume of production increases). Unfortunately Colombia has few products with these characteristics (high quality differentiation and economies of scale), therefore many Colombian firms will face a decline in production due to lower prices charged by foreign firms, for instance those from Chine, Korea and so will enjoy colombia demand. Colombians broadcast their high quality in textiles but most of these products show diseconomies of scale such as fibers (ISIC: D-1710) and few of them show economies of scale such as ribbons and laces (ISIC: D-1749). If industrial textiles sectors do not pay attention to this fact, they will face a high cost evaluated throughout getting out of market. To avoid this diseconomies of scale, managers have to invest in research and development according to their product and demand.
Autor: Humberto Bernal,
Economista,
e-mail: zhumber@gmail.com
The industrial revolution came to Colombia by the end of XIX century and beginning of XX century, the first products made in Colombia were beer, textiles and low volume of gas-oil. Since then Colombia has led the production of textiles in latin america but as the global economy increases this place is in doubt. One tends to think that Colombia has an advanced technology to produce textiles but is not true at all. If one works with the textile’s data, one realizes that there are some textiles that show diseconomies of scale and fewer of them show economies of scale. In the first group are Fibers with a ISIC: D-1710 (ISIC: International Standard Industrial Classification), this volume of production of textiles show an annual average increase of 3.3% between 1992 to 2010 as figure 1 shows. Although there has been an increase in the volume of production and the volume of employees per factory (employees increased from 56 in 1992 to 203 in 2010), the technology follows higher cost as volume increased. Figure 2 shows the average product per employee and the volume of employees, the relation between this two variables shows a negative slope, therefore as volume of employees increases, then employees productivity shows a decline. It means a lower average product per employee, this figure shows an average product per employee of 21,236 kg in 2010 when it was approximately 100,000kg in 1999. Therefore those firms which produce textiles of type ISIC: D-1710 will show difficulties to increase their market through Free Trade Agreements.
Figure 1. Product from Spinning of Textile Fibers
diseconomies of scale
(ISIC: D-1710)
Source: Bureau of Statistics Colombia (DANE) and own calculations.
On the other hand those textiles that are in ISIC: D-1749 such as ribbons and laces show economies of scale, therefore they can produce at a lower cost as volume of production increases. Nevertheless this transition from diseconomies of scale to economies of scale brought unemployment in this activity. This unemployment is due to fewer people can produce higher volume of production than before of technology faced the change. Figure 3 shows this change for this type of textiles, one realizes that the volume of employment showed a reduction between 1992 to 2010 but the volume increased from 7.6 million of kg in 1992 to 62,4 million of kg in 2009-10, therefore there was a technological advance but the cost was unemployment. However, these textiles have advantages in this global economy due to higher volume of production let getting a lower average cost per kg produced.
Figure 2. Average product from Spinning of Textile Fibers
diseconomies of scale
(ISIC: D-1710)
Source: Bureau of Statistics Colombia (DANE) and own calculations.
In conclution, Colombia has to work hard through these economies of scale and diseconomies of scale due to they can increase the unemployment rate if there is not a proper insertion in this global economy.
Figure 3. Average product from Textiles (kg)
economies of scale
(ISIC: D-1749)
Source: Bureau of Statistics Colombia (DANE) and own calculations.
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