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The Risk of Relying on Commodities

Beware of the Potholes in an Economy of Promising Progress

 By BFP Staff  Friday, May 27, 2016

By Dr. Jeroen van der Velden
Bogota was the city of choice for Nyenrode Business Universiteit’s Masters in Management students, as they attempted to understand how to successfully conduct business overseas, in a fast growing economy.
The visit was part of the Global Immersion Programme, designed to give students an authentic insight to an emerging global market, whilst exploring the rich and exciting culture of the city.
Our students attended lectures with faculty at Los Andes University to learn about the history and economy of Colombia, and met with companies such as Seanz and Colcafé to understand local business development and the importance of social responsibility. They also enjoyed Bogota’s local cuisine, music, and even cycling around the bumpy roads of the city on a Sunday!

There were a few key lessons our students learned during the week-long stay that deepened their understanding of how to do business in an emerging region.

The Economy on Everyone’s Radar

Colombia is certainly a promising economy. As part of the CIVETS (an acronym created by HSBC to describe a group of promising economies of Colombia, Indonesia, Vietnam, Egypt, Turkey, and South Africa), with steady growth over the past 10 years, low debt, a business-friendly environment and an abundance of natural resources, the Colombian economy has grown at an average annual rate of four percent. However, social issues such as unemployment, inequality concerns over security and even local infrastructure (there are many potholes!) still linger, and must be addressed.

The Risk of Relying on Commodities

It is essential that, to compete in the global market, our economies must learn from each other. During one of the lectures at Los Andes University, the ‘Dutch disease’ was discussed. This phrase is used to describe the Dutch Economy’s switch from a market to a commodities economy in the late 1950’s following the discovery of large oil and gas reserves. The extra income was used to improve the infrastructure and maintain the social security system. Though this lead to a stronger economical position in the short term, it became negative in the long-term, as it decreased the competitiveness of Holland due to a concentration of its export on one single sector.

Some argue Colombia is facing a similar threat now as it has become a primarily commodities economy due to its rich resources of oil and metals. The next challenge is to increase its growth in local industry and services - maybe something to learn from the Dutch.

Managing Continuous Change

One of the biggest lessons our students learned from the business community of Bogota was how to adapt to an ever changing environment.  Part of the Latin American culture is their rapid advancement which is challenging Colombian companies to be inherently flexible as they adapt fast to changing rules and regulations. This is certainly something which can be a challenge for many European companies.

Another key lesson is resilience. The Colombians we met during this trip presented themselves as strong and resilient people ready to overcome any challenge and hurdle. A Friday dance night at the Giara Café with Latin American music only confirmed this view!

Ciclorura

Bogota is a city of hope. That is hope for stability, hope for a workable treaty and hope for further growth and equality. Doing business in Colombia will demand flexibility, a will to improvise and perseverance, but if you really want it, you can make it work.

Dr. Jeroen van der Velden is an associate Professor of Strategy and Co-Director of the Centre for Strategy at Nyenrode Business Universiteit in the Netherlands

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