BY CHELSEA RODSTROM
Chelsea Rodstrom is a second-year SAIS student, concentrating in Latin American Studies.
When entrepreneurs from start-up hubs like San Francisco, Tel Aviv, and Berlin were seduced into moving to Santiago by handsome subsidies from Start-Up Chile, a government-backed initiative, they dubbed it ‘Chile-con Valley’.
This incubator program, the brainchild of the Ministry of Economics’ Corporación de Fomento de la Producción (CORFO), has to-date funded 1,309 start-ups with a total valuation of $1.4 billion. The accelerator provides up to $40,000 in equity-free funding, expansive training and mentorship programs, a network of partnerships, as well as a working visa and soft-landing program for selected foreigners. Start-Up Chile’s public-private partnerships (PPPs) and relationships with top Chilean universities and research institutions, has helped to identify and cultivate innovation organically.
The Chilean government’s generous support for start-ups is unrivaled in the region and its concerted efforts to innovate within government and across sectors makes it a dynamic and successful model. It has become a shining example of how Latin America can leverage its domestic capabilities to become tech leaders, capabilities that are critical to developing new export industries, raising growth rates, and reducing dependency on commodity exports. Indeed, Chile’s “undoubted” success (The Economist 2012) makes it the Southern Cone leader in facilitating start-up growth. As a testament to this success, over fifty countries have since implemented innovation programs similar to Start-Up Chile.
Yet these lessons could prove even more valuable for neighboring Argentina. The country is looking forward to mid-term elections and is thus reflecting on the relative success and shortcomings of the Macri administration – especially its foci on liberalizing markets, expanding export industries, investing in innovation infrastructure, and creating a business-friendly investing environment.
Incubating ‘IncubAR’
Argentina introduced its own start-up initiative, IncubAR, in 2010 under then-President Cristina Fernandez de Kirchner, demonstrating its paralleled intentions to promote innovative growth through start-ups. Although less comprehensive and less successful than Start-Up Chile, IncubAR has provided a total of ARS $150 million in equity-free funding in its first four years. In addition to this modest funding, the program offers technical consulting services and connects university, research, and business networks to encourage collaboration and build PPPs. Although the program’s funding is not negligible, and the initiatives it has begun are meaningful, IncubAR offers fewer incentives for startups than Start-Up Chile. Compared to Chile’s $40,000 equity-free funding, the maximum funding IncubAR provides is just ARS $9,000 over the course of 3 months. Although the program does arguably encourage an entrepreneurial environment, its lack of financial and foreign talent acquisition initiatives indicate that IncubAR has substantial maturing to do before it will be as attractive or successful as Start-Up Chile.
Despite its relatively nascent and state-sponsored start-up infrastructure, Buenos Aires’ start-up initiatives are seemingly more organic than those in Santiago, which enjoyed a jump-start with substantive government funding. One example of this organic growth are the efforts of the community-led organization, Start-Up Buenos Aires (SUBA) (Startup Buenos Aires). While it is not state-sponsored, SUBA shares with Start-Up Chile initiatives geared towards expanding network and outreach. Despite an incongruity in impact and in seed-funding, SUBA – like Start-Up Chile – links entrepreneurs with potential investors and functions, bridging gaps left by IncubAR in bolstering innovation and assisting start-ups.
Thus, despite the short-comings of the IncubAR program – and perhaps past government efforts in general – Argentina has a thriving community of entrepreneurs and regionally holds the record – four out of a regional total of six – for the country with the most “unicorns” (Startup Buenos Aires) - techie jargon for a start-up valuated at over $1billion. It is notable that each of these four firms are either software developers or e-commerce sites. The success of these unicorn firms, and moreover the skill-sets required by each of them, allude to Argentina’s capacity for accelerated growth in its expanding business services industry and hint at potential growth within niche software and e-commerce industries.
Although Argentina’s President Mauricio Macri has faced considerable opposition –owing in large part to Argentina’s fractional politics – and despite Cristina Kirchner’s re-entrance into Argentine politics, there seems to be wide support for his efforts to aid start-ups. At the end of March 2017 Macri led the Senate to unanimously pass legislations supporting entrepreneurial activity that aimed at creating nearly 50,000 new jobs and eliminating some cumbersome red-tape. This effort was praised for decreasing business registration time to just 24 hours and for making low-interest loans more readily available to entrepreneurs (Agencia Efe 2017).
Building a Successful Start-Up Community: Challenges & Lessons Learned
Argentina’s position as the third most represented country in the Start-Up Chile program (The Economist 2012) attests to the past failures of the Argentine government to harness national strengths and provide a sufficient start-up scheme for its entrepreneurs. Despite Macri’s commitment to fostering entrepreneurship and diversifying exports, the country’s highly-educated population, its promising capabilities, and popular support for start-ups, there is much that Macri must overcome before Argentina will be able to effectively attract the efficiency-seeking investments necessary to support innovation, particularly within the start-up industry. Whatever the results of the upcoming midterm elections, the government will need to strengthen its institutional capacity for expanding and enhancing its rich start-up network.
Drawing on the successes of the Chilean model, there are three fundamental lessons that Argentina must incorporate into its start-up infrastructure:
- Build a productive environment to allow these start-up businesses to be competitive. This means establishing and sustaining prudent macroeconomic policies, as well as strengthening the country’s regulatory and political frameworks (Porter 2001).
- Entice talented foreign entrepreneurs and ‘startup-ers’ to come to Argentina; with this there will inevitably be invaluable knowledge transfers and possible longer-term benefits by developing positive relationships with emerging, internationalized, start-up firms.
- Ensure that there are policies targeting talent retention so that the start-up and service sector infrastructure are sustainable, particularly for the more promising players (Brookings 2015).
Conclusion
Despite Chile’s relatively stable economic and political environment, Argentina serves as a compelling comparison given its displayed commitments to innovation, achievements in education and paralleled efforts to facilitate PPPs, which connect universities and research organizations with entrepreneurs. Although both underperform in terms of OECD educational standards Chile and Argentina have highly-educated populations, endowed with critical-thinking and technical skill-sets that would support sophisticated service industries.
While Argentina faces several challenges in growing its start-up industry and in expanding its business services and software industries, its potential growth in these areas is substantiated by its highly-skilled and highly-educated labor force. As Macri’s administration continues to work on liberalizing the economy – under the enfeebled assumption that Macri will continue to hold office – it should be cautious to not underestimate the impact start-ups can have on emerging or expanding markets. The OECD succinctly argues this: “New start-ups can exploit knowledge that is not used or is underused by existing companies and draw on existing knowledge to enter new or established markets (Acs et al., 2009).” Further, this is “especially true in knowledge-intensive sectors,” (OECD 2014, 177) like the service industry.
In developing these niche service sectors, Argentina may be able to overcome its reliance on commodity exports and compete with major high-tech exporters, like Costa Rica and Chile. As JPMorgan’s service-center move to Buenos Aires has shown, firms have already begun to demonstrate an attraction to the region for ‘efficiency-seeking’ purposes and has started to elicit the FDI that Argentina needs to develop this competitive export-sector. This shift away from traditional ‘resource-seeking’ FDI and towards ‘efficiency-seeking’ FDI that start-ups and a stronger service sector represent could truly lead Argentina to valleys green.
SOURCES:
Acs, Z. et al. 2009. “The Knowledge Spillover Theory of Entrepreneurship”, Small Business Economics, Vol. 32/1, pp. 15-30.
Agencia Efe. 2017. “Macri praises new law to boost entrepreneurship in Argentina”, March 30, , accessed April 17, 2017.
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Porter, Michael E. 2001. “Building a Competitive Argentina: Towards a National Agenda”, HBS Presentation at Competitive Advantage Seminar, Hilton Hotel, Buenos Aires, Argentina, November 7. Accessed April 17, 2017.
OECD. 2017. OECD Science, Technology and Industry Outlook 2014. Accessed April 19.
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