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Exhibit 1: Brazilian share of export by sector in 2007: Agricultural Products Metal Mining and Manufacturing Automotive Oil and Gas Products Business Services Chemical Products Aerospace Vehicles and Defense Hospitality and Tourism Forest Products Heavy Machinery Transportation and Logistics Speciality footw ear 5% Motor Driven Products Production Technology Footw ear parts 5% Plastics Furniture Communications Equipment Footw ear 90% Leather and Related Products Tobacco Footwear Source – Institute for strategy & competitiveness http://data.isc.hbs.edu/iccp/ Construction Materials $0 $5,000 $10,000 $15,000 $20,000 $25,000 $30,000 $35,000 $40,000 $45,000 At 2 billion USD exports the Brazilian leather footwear itself is small in relative terms to rest of country exports More importantly it remains a giant vital kingpin to the Brazilian economy because it is served & feeds many other related supporting sector industries in a complex & integrated relationship (1) Integrated backward & forward business linkages contribute to 100 times its own overall GDP value (2) The volume of people employed in related industries supporting the leather footwear sector is phenomenal & an empowering trait to closing the poverty gap particularly in a developing country where the role of small businesses can play a big role Exhibit 2: Footwear Cluster Export Value by Nation, 2007 Brazil is the world’s 6th largest footwear exporter at 2.5% contribution ($2 billion value) of overall global footwear exports Source – Institute for strategy & competitiveness http://data.isc.hbs.edu/iccp/ Exhibit 4: Location of the ‘Sinos valley’ leather footwear cluster within Brazil ‘Sinos valley’ leather footwear cluster http://www.brazilintl.com/maps/mapbrregions/mapbrregions.htm Exhibit 3: Integrated Cluster map Sinos valley leather footwear Cattle ranching Livestock Backward supply Shoe designers Technical consultants Financial consultants Transporters Specialized tools Labor Slaughterhouse Tannery Processed leather 480 leather footwear manufacturers in the Sinos cluster (ex. few) Novo Hamburgo Campo Bom Parobé Igrejinha Sapiranga Domestic market Other apparel Retailers & leather Distributors Wholesalers related shops Vendors Schools Advocates & marketing Charities support Demand & forward linkages Branding services Software & supporting Admin services Chemical & glue Rubber Institutional linkages Universities/colleges Government institutions Component Industry suppliers Machinery Industry suppliers National industrial training school (SENAI) Shoe trade fair organization (FENAC) National industrial training school (SENAI) Foreign export markets Private technology centre (CTCCA) Export/ forwarding agents Export companies Small business centers (SEBRAE) Big direct retail companies (Walmart / Carefour) Business professional associations (ACI) Trade magazines Industry newspapers Technical services Source: Interpreted from multiple sources & adapted by RKC project team Strengths in creating an environment for sustaining foreign global position Firm strategy & rivalry Factor conditions Related & supporting industries Demand conditions Government Weaknesses in infrastructure & local conditions to develop global position Vertical integration & co operation of competing companies well documented Balance of power initially with seller due to low cost production costs as main asset Diffusion & erosion of the systemic cluster contribution & development Companies put own goals before local strategic cluster plan Balance of power eventually shifted to buyer Strong presence of local manufacturers Abundance of raw materials Available cheap labor Local density of suppliers & support mechanisms Low overall production costs Little strategic view as to which elements of the marketing mix would be harnessed long term to grow market share & improve margin (price, promotion, product or place) High connection between related industries Vertical integration & co operation of High record of efficiency between suppliers & manufacturers Slow independent evolution of sellers to big global customers undermined the cluster perf. Local mechanization at production stage did support improved costs Strength in volume of manufacturers to cluster development Cluster did not move from supply model to marketing & design export Lack of information on a strategic or collective nature can impede future cluster synergies Did not reasonably intervene or deter cluster development Horizontal cooperation between private sector & government did not really develop Little government recognition or support Source: Facts from World leather market @ http://www.factbook.net/leather_components.php & then adapted by RKC project team High intrinsic value High end tailored product High design factor High level of technology Strategic marketing element Product differentiation Some defined USP Italy Germany Belgium Spain Low intrinsic value Brazil China Price sensitive Mass market appeal Low production costs drive end offer Low barrier to entry Is this position sustainable? Is this a strong position to fill ? Is this a clearly defined position? Final product still decided by some economies of scale Government policy Access to distribution High barrier to entry