University of Azuay Faculty of Law School of International Studies Diagnostic of the exporting potential of small and medium enterprises in the leather and shoe production sector of Cuenca Graduation work prior to obtaining the degree in International Studies, Major in Bilingual Foreign Trade Authors: Estefania Barnuevo and Daniela Román Tutor: Ing. Xavier Ortega Cuenca, Ecuador 2018 Dedication This work is dedicated to my family. They have always supported me in every situation that I have faced in my life. Because of them I had the luck and the chance to achieve my goals. I especially dedicate this work to my mother who motivates me every day and also my sisters who are my strength and my light. Estefania Barnuevo For the people who accompanied my path from their most remote beginnings, to those who helped me build my dreams: my family and especially my godfather Juan Izquierdo, because thanks to his help today I am completing an important goal in my life. Daniela Román ii Acknowledgments I thank the University of Azuay for being my second home for four years in which I have learned in many academic areas, but also have shaped my professional character and made me wanted to continue my formation as student. I thank all the professors who were involved in this work and especially Antonio Torres who was the main engine of the research. Estefania Barnuevo I thank immeasurably my alma mater, the University of Azuay, since in four years of studies they have helped me to develop as a professional and as a person. A special thanks to the director of this project, Antonio Torres Engineer because of his initiative and idea I have been able to apply my knowledge to such an important and interesting investigation. Daniela Román iii Table of contents Chapter 1: Theories of internationalization of SMEs 3 1.1 Theories about internationalization 3 1.2 Internationalization Based on Processes 8 1.3 Theories Oriented to the Internationalization of SMES 10 1.4 Analysis of SMEs, micro-enterprises and productive units 12 1.4.1 The SMEs according to the CAN (Community of Andean Nations) 12 1.4.2 The SMEs in Ecuador: 12 1.4.3 Main characteristics of SMEs: 13 1.4.4 Characteristics of SMEs in Ecuador (INEC, 2014): 13 1.4.5 Contribution of SMEs to exports: 14 1.4.6 The artisanal sector: 14 Chapter conclusions: 15 Chapter 2: Background of the environment of research 16 2.1 History of the province of Azuay 16 2.2 Generalities of the province of Azuay 17 2.2.1 Population of Azuay 17 2.2.2 Division of the territory 18 2.2.3 Economic activities of the population of Azuay 18 2.3 History of Cuenca 19 2.4 Generalities of Cuenca 19 2.4.1 Population of Cuenca 20 2.4.2 Division of the Territory of Cuenca 20 2.4.3 Economic activities of the sector 21 2.4.4 Main companies of Cuenca 21 2.5 Leather and shoes in Ecuador 23 2.6 Renaciente Tannery 25 iv Chapter conclusions 26 Chapter 3: Diagnostic of the current situation of the leather and shoes sector in Cuenca 27 3.1 Productive generalities of the city 27 3.2 Economic activities of the companies of the sector 28 3.3 Renaciente Tannery 29 3.4 Relationships between actors 36 3.5 Methodology: 36 3.6 Export Audit applied to each of the companies: 40 Chapter 4: SWOT and CFMA analysis applied to companies 104 4.1 Methodology: 104 4.1.1 The SWOT matrix: 104 4.1.2 The CFMA analysis: 105 4.2 SWOT and CFMA applied to the companies interviewed: 106 4.3 General SWOT of the leather and footwear sector in Cuenca: 131 Chapter conclusions: 133 Final conclusions and recommendations 134 References 137 Appendix: 143 Appendix A: Cocker’s Baby Shoes merchandise 143 Appendix B: Cockers Baby Shoes merchandise for girls 143 Appendix C: Cockers Baby shoes merchandise for boys. 143 Appendix D: Casanova merchandise 144 Appendix E: Casanova production workshop. 144 Appendix F: Casanova production materials. 144 Appendix H: Casanova worker. 145 Appendix I: Casa del Pantanero mission and vision 145 v Appendix J: Casa del Pantanero’s merchandise. 146 Appendix K: Curtesa- Quiwa workshop. 146 Appendix L: Curtesa-Quiwa workshop materials 146 Appendix M: La Piel store front view. 147 Appendix N: Researchers together with Manuel Morocho, owner of La Piel. 147 vi List of tables and figures: Tables: Table 1. Evolution of non-oil exports, by destination Leather and shoes (FOB, January-December) .................................................................................................... 24 Table 2. Data from taxpayers of the leather and shoes sector of Cuenca. ................. 30 Table 3. Actors Involved ............................................................................................ 38 Table 4. Score for Cocker's Baby Shoes. ................................................................... 42 Table 5. Score for Casanova. ..................................................................................... 45 Table 6. Score for Calzado Alfonso ........................................................................... 47 Table 7. Score for Sol Cuero. ..................................................................................... 50 Table 8. Score for Casa del Pantanero. ...................................................................... 53 Table 9. Score for Calzado Tebra. ............................................................................. 57 Table 10. Score for Curtesa- Quiwa. ......................................................................... 60 Table 11. Score for D'Cuero. ..................................................................................... 66 Table 12. Score for Ital Cuero. ................................................................................... 68 Table 13. Score for Guzcalza. .................................................................................... 72 Table 14. Score for Jean Pierre. ................................................................................. 76 Table 15. Score for La Piel ........................................................................................ 81 Table 16. Score for MV Leather. ............................................................................... 84 Table 17. Score for Tiznado. ...................................................................................... 89 Table 18.Score for Palace Shoes ................................................................................ 94 Table 19. Score for Pimenta Shoes. ........................................................................... 98 Table 20. CFMA for Cockers Baby Shoes. ............................................................. 106 Table 21: CFMA for Casanova. ............................................................................... 108 Table 22: CFMA for Calzado Alfonso..................................................................... 109 Table 23: CFMA for Sol Cuero. .............................................................................. 110 Table 24: CFMA for Casa del Pantanero. ................................................................ 111 Table 25: CFMA for Manufacturas Tebra. .............................................................. 113 Table 26: CFMA for Curtesa-Quiwa. ...................................................................... 114 Table 27: CFMA for D'Cuero. ................................................................................. 116 Table 28: CFMA for Ital Cuero. .............................................................................. 118 Table 29. CFMA for Guzcalza. ................................................................................ 120 Table 30. CFMA for Jean Pierre. ............................................................................. 121 vii Table 31. CFMA for La Piel. ................................................................................... 123 Table 32. CFMA for MV Leather. ........................................................................... 125 Table 33. CFMA for Tiznado................................................................................... 127 Table 34. CFMA for Palace Shoes. .......................................................................... 128 Table 35. CFMA for Pimenta Shoes. ....................................................................... 130 Figures: Figure 1. Exportations per non-oil sector. Leather and shoes sector. ........................ 24 Figure 2. Supply Chain of the leather and shoes sector. ............................................ 36 Figure 3. Export Audit Score for all enterprises. ..................................................... 100 Figure 4. Major Areas of influence of each Company. ............................................ 101 viii Abstract This paper merges primary and secondary research to determine the position of the leather and footwear sector in the city of Cuenca with respect to potentially exporting products of the companies. For this, concepts have been explored from basic theories on foreign trade to modern models of internationalization. The objective is to understand the level to which companies that are part of the research aspires to reach. The companies selected to be diagnosed, are small and medium-sized companies or as they are known by their acronym SMEs. They were chosen because they represent, in quantity, much more product than companies considered large. In addition, the potential of the SMEs has been considered as they are versatile companies with very attractive differentiating elements, such as the fact that they do not use mechanized processes for their