Shoes and Shopping
On 8 July, the Olympic torch visited the town of Novo Hamburgo. It is an unusual place, founded by German settlers in the nineteenth century, with lots of German architecture still surviving (above). But it also holds a secret, one which can not only explain much of global trade, but also sheds light on Caribbean sprinting and Kenyan marathon running.
The people of Novo Hamburgo began to make shoes to sell to the rest of Brazil, but they wanted to export them internationally as well, and they came up with a clever solution. Instead of competing in the spirit of capitalism, they decided to work together instead.
As Comfortable as an Old Shoe
In the 1960s, the local producers set up a trade fair, invited foreign export agents to visit and paid for trips to the United States and Europe to look for buyers. Their co-operation made life easier for export agents, helping them to sample many manufacturers at once. They cobbled together a relationship into which their potential buyers could snugly fit.
As competition intensified, particularly from China, and export agents demanded higher quality, the shoemakers had to lace their offerings with a bow. They did so through even tighter collaboration, between manufacturers and the suppliers of their raw materials.
These raw materials are all sourced locally: leather comes from Brazilian cattle ranchers and even the machines used to make shoes are built in the area around Novo Hamburgo.
The result is an industrial “supercluster” of businesses, dedicated directly or indirectly to the production of shoes. By 1992, Brazil was the third largest exporter of shoes in the world, and 80% of those exports came from Rio Grande de Sul, the state in which Novo Hamburgo is situated. This was not random – it was a consequence of economic forces.
One problem with many analyses of, say, Kenyan marathon running is that they start from the premise that such phenomena are rare, aberrations which require a special explanation. But economics provides numerous other examples of similar clustering. Silicon Valley in California and banking in the City of London are just two instances.
Shopping is a typical case. It is unusual to see two big supermarkets in close proximity but the same does not apply to clothes shops, which are often found in groups. There are entire streets such as Rodeo Drive (above), which are wholly set aside for fashion.
You Can Never Have Too Many Shoes
The reason for this is the way that shoppers behave. Very few people visit more than a single supermarket in one trip, so having two close together just exposes them both to extra competition. But clothes shops are different. A wise owner wants to stay close to competitors, because customers prefer to shop around, and will avoid isolated stores.
There are parallels here with the way that international shoe agents behave. A trade fair is like a fashion mall, allowing them to window shop for a range of products, try them for size, and consider whether they will make their profits look fat. Clusters occur naturally.
But what is true of export agents is also true of sports agents. Athletes require access to sponsorship and training facilities but the people who can offer these do not have time to watch every potential prospect. The countries that succeed will be those which make life as simple as possible for agents – there are two places which have it down to an art.
Next week: Using the economics of clusters to understand sprinting in the Caribbean