Explaining the increase of competitiveness in the Colombian car industry after the end of import substitution industralization [sic] policies

Abstract

At the beginning of the decade of the nineties, Import Substitution Industrialization - ISI- policies were dismantled all over Latin America, including Colombia. This meant that tariff protection for locally produced products were lowered and that cheap imports increased. For the motor vehicle sector it also meant that it had to modernize and improve its competitiveness if it did not want to disappear. I evaluate how the sector improved its competiveness despite a very tiny margin for maneuver, and under what variables and aspects this improvement can be measured. I found that many of the key aspects that helped the sector to compete successfully were not directly related with production, but with services and other competitive advantages created outside the plants. These included a postsale service structure that covered many parts of the country which importers lacked. It also tackled the new competition by signing free trade agreements, and making strategic alliances with auto part producers and auto dealers. The alliances, in turn, helped to create important backward and forward linkages to other sectors of the economy as well as new jobs. These linkages have been also very successful to help auto part suppliers in producing with high standards of quality and exporting to foreign markets. Last, I also briefly analyze the advent of the G-3 Agreement between Colombia, Mexico and Venezuela, which will come into effect as of 2005. This poses a major challenge for the national car industry for which I suggest further study.