Articulating approaches: Public-private entity enhances industrial output

Amid a general economic slowdown, the government has applied several strategies to tackle key industrial deficiencies and strengthen productive practices. Aside from the major stimulus package announced in April 2013 to inject resources into industrial activities, a permanent initiative using less conventional tactics has been operating successfully since 2008, known as the Productive Transformation Programme (Programa de Transformación Productiva, PTP).

Under the purview of the Ministry of Commerce, Industry and Tourism (Ministerio de Comercio, Industria y Turismo, MCIT) with funds administered by development bank Bancóldex, the PTP has emerged as one of the most ambitious government plans to boost competitiveness among companies with export potential and help traditional industrial segments that have lost some of their dynamism recover. The programme is a public-private partnership and thus operates as a meeting point for companies and authorities to effectively channel resources and strategies.

SECTORS: The PTP applies to 16 segments distributed over three macro-sectors, which include services, manufacturing and agriculture. Within manufacturing, the programme covers printing and graphic arts, fashion (including textiles, clothing and leather products), cosmetics, cleaning products, metal mechanics, metallurgy, auto parts and vehicles. Exports for these segments grew 8% on average in 2011 and 6.5% in 2012, according to PTP figures. To improve the competitiveness of these industries, the programme has four pillars covering human capital, regulatory frameworks, innovation and productivity, and sustainability.

STRENGTHENING: The main driver behind the PTP’s work is the development of specific industry business plans that identify gaps in competitiveness and how to overcome them, and determine the industrial potential for both national and international growth. The programme’s Department of Industry Development, Promotion and Innovation has a major role in taking on this challenge. One benefit of having a public-private structure is that the PTP serves as a gateway for companies to express their needs to public entities. The general manager of the PTP, Juan Carlos Garavito, told OBG, “Through individual industry business plans, the PTP works with policy makers to generate a supply that truly responds to private sector needs.” Results of this heightened dialogue can be seen in recent examples.

The PTP is working with partially state-owned oil company Ecopetrol to develop a training programme for 2400 welders, who will eventually work in isolated areas of the country where there is a lack of specialised employees. On the more industrial end, the PTP has drafted an investment plan for steel sheet production within the metal mechanics subsector. This product is not currently manufactured in Colombia and would increase the country’s potential in many different industries along the production chain.

NEW RESEARCH CENTRES: One of the most significant contributions of the PTP within the manufacturing sector is the creation of research and development (R&D) centres for more vulnerable industrial activities, such as vehicle parts and assembly, which face strong foreign competition. The recently inaugurated Centre for the Technological Development of the Automobile Industry (Centro de Desarrollo Tecnológico para la Industria Automotriz, CDTIA) is a prime example of this channelling work between the public sector and private interests. Funding for the initial phases of the CDTIA will primarily come from a generalised system of royalties from extractive industries.

These royalties produce vast resources for government programmes across the board but have often benefitted only regions where extractive activities were taking place. As a result of a 2012 reform to the system, the funds are now more evenly distributed throughout the country and primarily allocated to initiatives for technological and innovation development. The PTP’s role in this process consists of identifying which industries will be directly integrated and where technological centres need to be constructed. These resources and the emphasis on adding value with technology development will be critical for industries that are vulnerable to increased global competition.

A JAPANESE TOUCH: One of the fundamental principles behind the PTP’s work is the enhancement of competitiveness and the idea of making use of what already exists on the supply end. This involves promoting innovation as a concept that begins with internal productive practices as opposed to simply investing large amounts of money for new technology. Therefore, the programme has tackled these issues through workshops, of which the most popular has concerned the Kaizen method, a Japanese technique and philosophy that is aimed at improving quality and productivity through worker-directed continuous, incremental changes and the elimination of waste.

According to Garavito, many firms initially displayed some amount of resistance to participating in Kaizen workshops, believing Japanese methods were culturally distant. However, after several years of awarding travel scholarships to 60 companies to visit Japan and participate in intensive courses, attitudes began to change. In April 2013 the PTP renewed a three-year contract with the Japan International Cooperation Agency to continue participating in Kaizen workshops with Japanese specialists. Simultaneously, the PTP is leading efforts to have the course taught in Colombia so as to provide participation slots for up to 500 companies, as well as starting a personalised technical assistance pilot project with 50 companies. According to a World Bank-David McKenzie study from 2013 on similar experiences in India, this type of intensive consultancy can improve productivity by 17%.

ADDING FOREIGN PLAYERS: Global participation appears to be a concept well-engrained in the PTP’s foundations and is evident in the number of foreign companies that have benefitted from the services. Since the origin of company capital is not a criterion for participation, the PTP has received well-known brand names such as the US’s GM in auto parts and assembly, France’s Capgemini for business processing outsourcing (BPO) services and the UK’s Unilever in cosmetics, among many others. Aside from developing export sectors, the PTP collaborates with Proexport – Colombia’s tourism and promotion agency – to attract foreign direct investment (FDI). The PTP has recently assisted in obtaining FDI from companies such as Brazil’s Natura and the US’s Kimberly-Clark, which has decided to establish an R&D centre in Medellín.

FDI has been attracted primarily to emerging industries like cosmetics and household cleaning materials, electro-mechanical goods and BPO services. Cosmetics constitute a special case that has caught the eye of many investors, with total sales of $3.2bn in 2012. Garavito singled out the segment as having significant potential. Cosmetics has been one of the most successful industries under the PTP. “Some of Latin America’s largest cosmetics producers are established in the country to supply the Andean market,” Garavito told OBG. In 2012 exports reached $877.4m, up 4.1% from 2011 – mainly shipping to Ecuador (24.2%) and Peru (21%).