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THE RISE OF ECUADOR’S ROSE INDUSTRY

Opening Case

It is 6:20 a.m. on February 7 in the Ecuadorean town of Cayambe, and Maria Pacheco has just been

dropped off for work by the company bus. She pulls on thick rubber gloves, wraps an apron over her

dress, and grabs her clippers, ready for another long day. Any other time of year, Maria would work until

2 p.m., but it’s a week before Valentine’s Day, and Maria, along with her coworkers at the farm, are likely

to be busy until 5 p.m. By then, Maria will have cut more than 1,000 rose stems. A few days later, after

they have been refrigerated and shipped via aircraft, the roses Maria cut will be selling for premium

prices in stores from New York to London.

Ecuadorean roses are acknowledged to be the best in the world. They have huge heads and unusually

vibrant colors, including 10 different reds, from bleeding-heart crimson to a rosy lover’s blush. Of the 200

million roses produced for American consumers on Valentine’s Day, about 80 percent comes from

Ecuador or neighboring Colombia. The rest are mostly grown in California. It used to be the case that

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many more were grown in the United States in places like New Jersey, once known as the nation’s rose

capital, but a combination of high costs, lower trade barriers, and rapid intercontinental transportation led

to the migration of production to countries like Ecuador. The last commercial rose grower in New Jersey

shut down in 1999.

Most of Ecuador’s 400 or so rose farms are located in the Cayambe and Cotopaxi regions, 10,000 feet

up in the Andes about an hour’s drive from the capital, Quito. The rose bushes are planted in huge flat

fields at the foot of snowcapped volcanoes that rise to more than 20,000 feet. The bushes are protected

by 20-foot-high canopies of plastic sheeting. The combination of intense sunlight, fertile volcanic soil, an

equatorial location, and high altitude makes for ideal growing conditions, allowing roses to flower almost

year-round, giving Ecuador a comparative advantage in the production of roses.

Ecuador’s rose industry started some 30 years ago and was spurred on in the early 1990s when the U.S.

government reduced tariffs on some South American imports, including flowers, to steer the countries

away from cocaine production. Ecuador is now the world’s second-largest producer of roses, and roses

are the nation’s third-largest export. Rose farms support over 100,000 jobs in the country. The revenues

and taxes from rose growers have helped to pave roads, build schools, and construct sophisticated

irrigation systems.

Maria works Monday to Saturday and earns $400 a month, substantially above the country’s

$240-a-month minimum wage. The farm also provides her with health care and a pension. By employing

women such as Maria, the industry has fostered a social revolution in which mothers and wives have

more control over their family’s spending, especially on schooling for their children.

For all of the benefits that roses have bought to Ecuador, the industry has come under fire from

environmentalists. Large growers have been accused of misusing a toxic mixture of pesticides, fungicides,

and fumigants to grow and export unblemished, pest-free flowers. Reports claim that workers often

fumigate roses in street clothes without protective equipment. Some doctors and scientists claim that

many of the industry’s employees have serious health problems as a result of exposure to toxic chemicals.

A study by the International Labor Organization claimed that women in the industry had more miscarriages

than average and that some 60 percent of all workers suffered from headaches, nausea, blurred vision,

and fatigue. Still, the critics acknowledge that their studies have been hindered by a lack of access to the

farms, and they do not know what the true situation is.

In response, some Ecuadorean growers have joined a voluntary program aimed at helping customers

identify responsible growers. Fair-trade certification signifies that the grower has distributed protective

gear, trained workers in using chemicals, and hired doctors to visit workers at least weekly. Other

environmental groups have pushed for stronger sanctions, including trade sanctions, against Ecuadorean

rose growers that are not environmentally certified by a reputable agency. On February 14, however,

most consumers are oblivious to these issues; they simply want to show their appreciation to their

significant others with a perfect bunch of roses.1

INTRODUCTION

Over the past three decades a fundamental shift has been occurring in the world economy. We have been

moving away from a world in which national economies were relatively self-contained entities, isolated

from each other by barriers to cross-border trade and investment; by distance, time zones, and language;

and by national differences in government regulation, culture, and business systems. We are moving

toward a world in which barriers to cross-border trade and investment are declining; perceived distance

is shrinking due to advances in transportation and telecommunications technology; material culture is

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4 I n t e r n a t i o n a l B u s i n e s s

starting to look similar the world over; and national economies are merging into an interdependent,

integrated global economic system. The process by which this transformation is occurring is commonly

referred to as globalization.

The rise of the Ecuadorian rose-growing industry, profiled in the opening case, is but one small

example of the trend toward globalization. Thirty years ago the roses purchased by a New Yorker on

Valentine’s Day were probably grown in neighboring New Jersey. Now they are grown on another

continent and cut, packed, and shipped to New York within 24 hours of being purchased. The same New

Yorker might drive to work in a car that was designed in Germany and assembled in Mexico by Ford

from components made in the United States and Japan, which were fabricated from Korean steel and

Malaysian rubber. He may have filled the car with gasoline at a Shell service station owned by a British-

Dutch multinational company. The gasoline could have been made from oil pumped out of a well off the

coast of Africa by a French oil company that transported it to the United States in a ship owned by a

Greek shipping line. While driving to work, the American might talk to his stockbroker (using a handsfree

in-car speaker) on an Apple iPhone that was designed in California and assembled in China using

chip sets produced in Japan and Europe, glass made by Corning in Kentucky, and memory chips from

South Korea. He could tell the stockbroker to purchase shares in Lenovo, a multinational Chinese PC

manufacturer whose operational headquarters is in North Carolina.

This is the world in which we live. It is a world where the volume of goods, services, and investments

crossing national borders has expanded faster than world output for more than half a century. It is a

world where more than $4 trillion in foreign exchange transactions are made every day, where $18.3

trillion of goods and $4.3 trillion of services were sold across national borders in 2012.2 It is a world in

which international institutions such as the World Trade Organization and gatherings of leaders from the

world’s most powerful economies have repeatedly called for even lower barriers to cross-border trade

and investment. It is a world where the symbols of material and popular culture are increasingly global:

from Coca-Cola and Starbucks to Sony PlayStations, Facebook, MTV shows, Disney films, IKEA

stores, and Apple iPads and iPhones. It is also a world in which vigorous and vocal groups protest

against globalization, which they blame for a list of ills, from unemployment in developed nations to

environmental degradation and the Americanization of local culture.

For businesses, this globalization process has produced many opportunities. Firms can expand their

revenues by selling around the world and/or reduce their costs by producing in nations where key inputs,

including labor, are cheap. The global expansion of enterprises has been facilitated by favorable political

and economic trends. Since the collapse of communism at the end of the 1980s, the pendulum of public

policy in nation after nation has swung toward the free market end of the economic spectrum. Regulatory

and administrative barriers to doing business in foreign nations have been reduced, while those nations

have often transformed their economies, privatizing state-owned enterprises, deregulating markets,

increasing competition, and welcoming investment by foreign businesses. This has allowed businesses

both large and small, from both advanced nations and developing nations, to expand internationally.

As globalization unfolds, it is transforming industries and creating anxiety among those who believed

their jobs were protected from foreign competition. Historically, while many workers in manufacturing

industries worried about the impact foreign competition might have on their jobs, workers in service

industries felt more secure. Now, this too is changing. Advances in technology, lower transportation

costs, and the rise of skilled workers in developing countries imply that many services no longer need to

be performed where they are delivered. The same is true of some accounting services. Today, many

individual U.S. tax returns are compiled in India. Indian accountants, trained in U.S. tax rules, perform

work for U.S. accounting firms.3 They access individual tax returns stored on computers in the United

States, perform routine calculations, and save their work so that it can be inspected by a U.S. accountant,

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who then bills clients. As the best-selling author Thomas Friedman has argued, the world is becoming

flat.4 People living in developed nations no longer have the playing field tilted in their favor. Increasingly,

enterprising individuals based in India, China, or Brazil have the same opportunities to better themselves

as those living in western Europe, the United States, or Canada.