Start-Ups Continue to “Bloom” in Argentina

Posted by: Jonathan Ortmans on September 13, 2010 Source: Policy Dialogue on Entrepreneurship

In the 90s, Argentina became Latin America’s Internet center, which was a good sign of an entrepreneurial spirit among its people. Endeavor, the United States nonprofit that helps foster high impact entrepreneurship, had its first success in the developing world in Argentina just before the country’s last major financial collapse. Given Argentina’s turbulent economic history, I thought I would take a quick look at the role of entrepreneurs over the past 10 years since Argentina’s Internet startup boom.

It appears that Argentinean entrepreneurs are resilient. In “Fiscal Chaos Aside, Start-Ups Bloom in Argentina,” the New York Times captured this resilience really well. A catalyst for the evolving start-up culture has been the rise of a local culture of capital investment in startups. This is an important step for a country where it has been historically thought that only those who benefitted from a family inheritance and connections to authorities could start and grow businesses. It is also a significant improvement in terms of access to capital and willingness to invest. When the Argentine government defaulted in 2001, the country was cut off from external sources of capital. In 2008, the nationalization of private pension funds also adversely affected private investment spending. Also important is the fact that, like angels in the U.S., Argentina’s angels are providing expertise along with funds. As the New York Times article explains, several angels founded their own start-ups during past crises.

Argentina’s emerging entrepreneurial ecosystem is a factor along with its strong pool of talent. This is reflected in the country’s positioning as an important global player in IT-related industries, including software development and business process outsourcing. Many local ventures in these fields have attracted backers from Silicon Valley. That was the case of Globant, an Argentinean-based offshore provider of software product development services with major customers around the world, such as Google. The creative workforce and businesses have also attracted international companies to invest in Argentina. Google was reported to have cited Argentina’s emerging entrepreneurial spirit as a main factor in its decision in 2007 to base its Latin American operations in Buenos Aires.

While these important elements of an entrepreneur-friendly environment seem to have sustained Argentinean’s entrepreneurial energy, there is a lot of room for improvement. There are many regulatory and institutional hurdles, including enlarging the pool of highly-educated people and inserting entrepreneurship education in the curriculum at all levels. The burden of regulatory compliance can also be reduced. Today, a medium-size company must spend 453 hours preparing, filing, and paying taxes, compared to 194.1 hours in OECD countries, according to World Bank data. Overall, Argentina ranks 118th among 183 economies in the ease of doing business.

The good news is that interest in entrepreneurship typically creates a bottom-up pressure for change in a country’s old ways of doing business. As Alejandro Mashad and Norberto Loizeau of Endeavor Argentina have said in articles and interviews, young entrepreneurs are helping lead the way toward change. They explain that this budding movement of entrepreneurial interest began to change at the turn of the century. “Like their counterparts elsewhere, inventive young Argentines saw the potential for Internet technology to change the way information was transmitted and were quick to translate their ideas into commercial enterprises. Many of the initial start-ups failed, but they taught us an important lesson: business could be both creative and socially beneficial. Just as important, you could play by the rules and still make money.” The power of the sum of the energy of these young entrepreneurs will be celebrated once again during 2010 Global Entrepreneurship Week in Argentina (Nov.15-21).  We should applaud these entrepreneurs for their work in writing the recent history for Argentina as a decade that brought to the country a new environment for entrepreneurship.

Argentina has clearly developed a highly visible and important entrepreneurship sector focused on innovation and change, but the potential of this market of new ideas still remains largely untapped. Let’s hope this “bottom-up” culture encourages its leaders to enact reforms that will remove unnecessary barriers for growth-oriented innovative entrepreneurs and thereby activate this dormant, but powerful asset for economic growth and development.

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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:  General  Global  Growth & Poverty  Tags:  Argentina