The State of Entrepreneurship in Chile

Posted by: Jonathan Ortmans on August 30, 2010 Source: Policy Dialogue on Entrepreneurship

The Chilean economy has been recognized as the most competitive of Latin America. In general, Chile has been characterized by political and economic stability and relatively low levels of corruption and offers one of the most advanced physical infrastructure systems in the region. The potential and proven track record of this economy has led to Chile’s recent accession to the OECD as its 31st member and its first member in South America. Not surprisingly, Chile is often a case study in economic development. The question is whether its model will show the power of entrepreneurship as an engine for prosperity?

Unfortunately, Chile is not yet a startup culture, and innovation still plays a minor role in the creation of new enterprises, according to the infoDev Incubator Support Center (iDisc) service from the World Bank. This may come as surprise since the Chilean government’s investment in R&D has increased 70% since 2005 and much of it has flown into universities. It has also created the InnovaChile program to support innovation in various sectors, including biotechnology, energy and ITC. The slow pace of innovation in Chile calls for programs and policies that unlock the transfer of R&D into innovations that can be commercialized. Some experts believe that much of the bottleneck lies in the very weak links between Chilean universities and businesses but as Kauffman research has shown, this is a complex piece of the puzzle to make work.

While new successful innovative enterprises are few in Chile, the firms that have succeeded demonstrated incredible resilience and resourcefulness. They are not only competing with other Chileans, but rather with the world as Chile’s economy has attracted a significant increase in foreign competition. They have also sought access to foreign markets as Chile is a relatively small local market, overcoming hurdles in exporting (e.g., the average time to export in Chile is 21 days, compared to an average of 10.5 days in OECD countries).

With the hope of increasing the numbers of these success stories, the Piñera administration recently started a program to court young technology entrepreneurs from around the world. By October of this year, Chile hopes to attract 25 budding tech companies through Start-Up Chile, a pilot program that helps with $40,000 of overhead and promises to slash red tape and connect innovators with top local (low-cost) talent and sources of further funding. As Vivek Wadwha pointed out in Tech Crunch piece, with this initiative Chile is capitalizing on a turning point in the American tech sector, as visa difficulties combined with a slow recovery are pushing talent toward other economies. At the very least, this program will allow for know-how sharing and network building, and push the country to find ways to boost access to capital and improve the general regulatory environment for startups, areas that are currently considered weaknesses affecting young businesses.

The mere exposure to working in a startup can become an important outcome of this program, especially if it encourages more locals to do the same. Endeavor Chile found that the profile of the successful innovative entrepreneur in Chile includes previous experience in one or more ventures prior to founding a successful enterprise. Unfortunately, according to Nicole Amaral from Endeavor Chile who shared with us some firsthand insights in an email exchange, there is still a real stigma attached to "failure" in terms of entrepreneurship.

As Amaral observes in Chile and available data support, despite this lingering fear of failure, the lure of the admiration attached to successful entrepreneurs make young Chileans very open to explore new business creation as a career path. If the current trend continues, those who take on entrepreneurial ventures in Chile will be generally not young graduates but people who have been working in a specific industry for an average of 15 years and then continue in the industry as a self-employed entrepreneur. Knowledge of an industry combined with ambition and a willingness to take risk are powerful ingredients in generating new high growth firms.

Early entrepreneurship education nevertheless remains important. Chilean primary and secondary school education is quite advanced in terms of access and traditional curriculum, but it represents a major setback in entrepreneurship because it hasn’t yet fully incorporated elements and methods that foster creativity, entrepreneurial initiative and autonomy. Endeavor Chile has just developed a pilot program to begin addressing this problem, focusing first on the regions outside Chile’s metropolitan region. One hopes as with all Endeavor pilots, opinion leaders in Chile will look up and take note as to how to more widely establish this within the school system.

Universities also key actors in any entrepreneurial ecosystem. The Universidad Técnica Federico Santa María with its International Institute for Innovation and Entrepreneurship (3IE) of is one of the few universities in the country that have proactively assumed a role in building an entrepreneurial economy. 3IE is seeking to do so by building a network to convert knowledge and ideas into prototypes, products, and new companies with bases in technology.

With an economy that has been growing at over 5 per cent annually for the last 20 years, Chile has long been a beacon in Latin America. We hear that the new government in Chile is very pro-entrepreneurship, and it certainly helps that the President is a former entrepreneur himself. We hope the new leadership will translate its faith in the private sector as an engine for growth into concrete policies that reduce the barriers to starting and growing businesses. If it works towards this goal in education, access to finance, regulation and other areas intersecting entrepreneurship, Chile is sure to be the next source of entrepreneurship best practices in South America and beyond.

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Jonathan Ortmans is president of the Public Forum Institute, a non-partisan organization dedicated to fostering dialogue on important policy issues. In this capacity, he leads the Policy Dialogue on Entrepreneurship, focused on public policies to promote entrepreneurship in the U.S. and around the world. In addition, he serves as a senior fellow at the Kauffman Foundation.

Category:  Global  Growth & Poverty  Tags:  Chile, economy