Summary: Entrepreneurship in Latin America

Speakers:

• Daniel Lederman, Lead Economist and Deputy Chief Economist, Latin America and the Caribbean, World Bank
• Adrian Magendzo Weinberger, Head of the Economic Department, Embassy of Chile to the U.S.
• Augusto de la Torre, Chief Economist, Latin America and the Caribbean, World Bank
• Humberto de Andrade Soares, Managing Partner at Veranda Venture Partners
• Christian Gomez, Director of Energy, Council of the Americas (Moderator)

Read the study: Latin American Entrepreneurs: Many Firms but Little Innovation.

Summary

On January 29, Council of the Americas hosted a program on the culture of entrepreneurship in Latin America. Speakers presented the main findings of a recent World Bank report Latin American Entrepreneurs: Many Firms but Little Innovation, and reflected on its conclusions from their professional experiences. Despite differing backgrounds and expertise, panelists agreed on the major finding of the report: on average, top companies in the region are outpaced by their peers from other parts of the world in the promotion of innovation, research, and effective management practices.

Highlights from the Report

The new report recommends building human capital, improving logistics and infrastructure, enhancing competition, and strengthening protections for companies, such as intellectual property rights. “When an enabling environment exists, entrepreneurs take risks and invest in innovation, spurring productivity gains through the dynamics of firm entry and exit and innovation by incumbent firms, thus fostering economic development,” says the study. The report points out that Latin American companies are less likely to introduce new products, invest in research and development, or enter export markets than global counterparts.

Challenges within the Latin American Business Environment

One of the report’s authors, the World Bank’s Daniel Lederman, provided context on employment in Latin America. He highlighted the dominance of informality within the labor market due to rapid urbanization, noting many small firms are unable to provide employment opportunities due to a lack of investment and lagging management practices. Lederman identified structural challenges as a barrier to formalized innovation investments throughout the region, particularly when it comes to small- and medium-sized enterprises (SMEs). He also described the recent rise of the multilatina, or Latin American multinational companies, but noted that their industry peers abroad often surpass them in innovation.

Latin American Business Culture

The Chilean embassy’s Adrian Magendzo Weinberger discussed the nature of doing business in the region, and explained that persistent management gaps can discourage innovation. He emphasized the importance of business sector policy reforms to address the broad range of emerging and established industries, stating that “not all entrepreneurs are created equal.” Given the culture in the region, Weinberger argued that the government must take an active role in the promoting improved relations among companies from the same industry. “System innovation happens when people with specific skills interact, not only when we add to the existing environment,” he said.

Veranda Venture Partners’ Andrade Soares reflected that the low levels of productivity make it difficult for start-up companies to develop. “The management gap in the region is huge, indicative of an inefficient and disorganized system,” he noted. These inefficient practices hinder national and foreign workers’ opportunities, discouraging the expansion of high-skilled labor.

Prospects for Improvements

Given the numerous challenges facing Latin American businesses, what measures can improve their prospects in the near term? The World Bank’s Augusto de la Torre highlighted the importance of continued dialogue and the need to promote best practices throughout the region. “This is a new Latin America that still faces major challenges but has made tremendous progress over the past 10 to 15 years,” he said. He explained that the rise of the region’s entrepreneurs and SMEs is due in part to a lack of formal jobs. He noted the time has come to revisit and redesign programs to support SMEs, and promote greater access to sustainable value chains.