Boosting innovation in Latin America

Updated: 2014-09-15 05:35

By YANG YAO in Beijing(China Daily Latin America)

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There are many firms but little innovation among Latin American entrepreneurs, a new report said.

Released by the World Bank this year, the study, which looked at entrepreneurship in Latin America and the Caribbean, found that although Latin America is a region of entrepreneurs, with over half the workforce employed by small businesses, there is still a chronic lack of innovation in the region that is stifling business growth and competitiveness.

The report said that Latin America is caught in a vicious cycle of low innovation and low productivity growth. The region is populated by an overwhelming number of one-person enterprises and micro-businesses. About 60 percent of Latin America employees work for businesses with five or fewer employees.

This trend reflects insufficient opportunities in the labor market. More often than not, these businesses are not able to grow, generate good jobs and thrive.

At the same time, without innovation, medium and large established businesses in the formal sector grow slowly and create few good jobs in the process.

The reason, as the report pointed out, is simple: lack of innovation.

Gerardo Alonso Velasco Baratawidjaja, a 24-year-old entrepreneur from Chile, said that many Latin American startups are like copycats, or Latin American versions of foreign companies that do not have a presence in Latin America.

Baratawidjaja, decided to do something different that would actually make a change and postponed his studies in order to take entrepreneurship full time.

"The country greatly encourages entrepreneurship to make fund-raising easier," he said.

His startup company, which focuses on providing a platform for students choosing universities, is in a university incubator. He has raised funds from the government back in 2011 and from private investors.

The Chilean government created a program called Start-up Chile that seeks to attract early stage, high-potential entrepreneurs to bootstrap their startups in Chile, using it as a platform to go global. The end goal of the accelerator program is to make Chile the innovation and entrepreneurial hub of Latin America.

In 2010, Start-up Chile, at that point just a pilot, brought 22 startups from 14 countries to Chile, providing them with $40,000 of equity-free seed capital, and a temporary one-year visa to develop their projects for six months, along with access to the most potent social and capital networks in the country.

"When it started four years ago, the threshold was understandably low, inviting many low innovation companies," said Baratawidjaja.

"Today the scene has improved and now we have a wide range of startups in the program with varying levels of performance, from low to high."

The report said that Latin American and Caribbean firms introduce new products less frequently than firms in other similar economies; high-end entrepreneurs tend to be far away from global best practices in the management of their enterprises, firms' investment in R&D is low, and patent activity is well below benchmark levels.

In fact, the rate of product development in Ecuador, Jamaica, Mexico and Venezuela is less than half than that of Thailand or Macedonia.

Consequently, this lack of innovation harms competitiveness and slows growth and impacts quality job creation — a significant development challenge.

"I think that the key is not necessarily to identify exactly who are the winners, but rather to put policies in place that leverage private sector capabilities to screen and identify the most promising firms," said Ernesto Stein, a principal economist in the research department at the Inter-American Development Bank in a discussion hosted by the Brookings Institution in Washington on June 5.