Private Sector Case Study
In general, developing countries are more vulnerable to this type of market failure due to the low sophistication of products or to lax intellectual property laws, and entrepreneur investors who discover a new export product suffer the incorporation, diffusion and imitation by other manufacturers, not considering whether the first entrepreneurs have recovered their initial investment. It is likely then, that after getting these experiences, entrepreneurs may become more suspicious as regards their discoveries or may even go bankrupt. In any case, this basic asymmetry of the process of discovery may result in less investment in the development of new activities than would be desirable. In the case of these market failures, the participation of the government could potentially change the final result. The development of pineapple exports in Costa Rica illustrates the process for the development of new products and/or markets, and for the diversification of exports. The entrepreneurial company invested time and resources in the investigation to determine the technological package for new varieties and the proper marketing channels to place a new product in the main international markets: the golden pineapple. The huge profits resulting from this activity were quickly discovered by potential rivals, and once those rivals got the main information on how to manufacture, package and place the product in the foreign market, they became the direct competition for the entrepreneurial company, at a fraction of the cost incurred by the entrepreneur in the discovery. However, if at the other end of the spectrum, the product had failed, the investment made would have yielded no profit, and the entrepreneurial company would have absorbed all the costs resulting from the experiment. The case is that entrepreneurial companies took the proper steps to develop a new product, filling coordination gaps and undertaking the costs of exploration and discovery. The entrance of independent producers and rival companies into the business was an unexpected (unwanted) result for the entrepreneurial company, since it would not earn the expected profits derived from its â€œexclusivityâ€?. However, the general result for Costa Ricaâ€™s economy was positive in terms of diversification of production and distribution of wealth. The common reaction of a company as PINDECO or any other in its situation would be to be more cautious in its strategy to discover new varieties until it counted on the guarantee that its product would not be copied or that its initial effort would not be rewarded. For that reason, PINDECO, who has recently obtained a patent for a variety called Honey, Honey Gold, or MA-2, which has still not been launched to the market. This implies that regardless of the international success of this new variety, pineapple producers will not be able to engage in the production and exportation of this new variety without paying a cost for that. Thus, the private and social benefits derived from the Honey variety will be lower than those offered by the Golden variety. This represents a problem for the sector and for the country because the entrance of other countries to compete with the golden variety has saturated the market, what has been reflected in a sustained price drop since the year 2003. The lack of development of successful products in this sector may lead to the collapse of the activity and of thousands of producers. That potential result is prejudicial for everyone. The question is then, how can private interests align with the global objectives of the State and the society to enable a higher discovery rate in the countries?
Published on Sep 14, 2007
this report was prepared by the integration and trade sector (int) as a contribution to the regional meeting on mobilizing aid for trade: la...