An Ideas-Based Online Magazine of the Global Network for Advanced Management

Is Latin America’s Entrepreneurship Boom a Bluff?

Entrepreneurship has become a relatively new phenomenon among the majority of Latin American countries. Nowadays entrepreneurs are no longer just emerging from privileged economic situations. The Latin American and Caribbean region has become a breeding ground for new businesses led by young people. It is now the second most enterprising region in the world. According to the Global Entrepreneurship Monitor (GEM)nearly two in every three Latin American entrepreneurs are driven by opportunity rather than necessity.

While entrepreneurship is booming, innovation still proves to be an issue for new business owners in Latin America and the Caribbean. There is a broad consensus that new, innovative enterprises play a vital role in determining how dynamic a country’s innovation will be; however, in the case of Latin American and Caribbean countries trends show that the region’s lack of innovation has a direct effect on economic growth, according to the Organization for Economic Cooperation and Development.

OECD members spend an average of 2.4% of their gross domestic product (GDP) on research and development, while in Chile and Mexico – the only two Latin American members of the OECD – the rate is just 0.4%. In other countries in the region it is even less. As a result, the Latin American and Caribbean region is just not inventing enough. The region is home to 8% of the global population and yet, in 2010, just 2.6% of the world's applications for patent registration were filed from there.

The lack of innovation limits the role of the new ventures in the global market place. Just 7.8% of Latin American micro enterprises are participating in the global market, with the USA being the most important market segment with 60% of the total exports.

Mexico’s Productivity Gap

In the particular case of Mexico, in 2014, 97.6% of companies were micro enterprises, according to Enaproce, (the National Survey on Productivity and Competitiveness of Micro, Small and Medium Enterprises in Mexico). Since they account for 75.4% of total staff employed, they are an important factor in the country’s economy, making fundamental contributions to economic and social development in Mexico, and playing a critical role in increasing productivity and employment as well as reducing poverty. Despite their economic and social importance, Mexican micro enterprises present problems of low productivity.

According to Enaproce’s results, some of thefactors that have been identified to explain the low productivity of micro enterprises are:

  • Limitations on access to physical and financial capital (including venture capital),
  • Shortages in human capital
  • Limitations in implementing techniques and technologies for productive processes, services and commercialization
  • Macroeconomic conditions and unfavorable “business environments”
  • Lack of capacity for innovation and technological development
  • Lack of infrastructure and services to facilitate production.

Improving productivity of micro, small, and medium-sized enterprises has been one of the major efforts made by the Mexican Government. In 2013, the National Institute of the Entrepreneur (Inadem) was created to “constitute the heart of the nation’s economic activity and become one of its greatest assets.” In 2016, the OECD recognized Mexico as the most progressive country in the promotion of start-ups between 2012 and 2016. Apart from Inadem programs, Mexico has also improved the financial inclusion of start-ups; venture capital has  taken  off  in  the  country and is now the second most-active industry in Latin America, behind Brazil. Additionally, Mexico has reformed regulations to make it easier to start a business, the Express Companies Act being a notable example. It has also modernized services for entrepreneurs by launching mentoring networks and collective workspaces. Finally, the country has invested in promoting an entrepreneurial culture in the country to create an image of Mexico as a place for entrepreneurship with a global impact.

The Rise of Mexican Women Entrepreneurs

According to Inadem, only 19% of the country's startups are founded by women. One success story is Epic Queen, a social company founded by Daniela González y Ana Karen Ramírez, which creates boot camps and workshops inside companies, schools and organizations to bring more girls into the STEM (Science, Technology, Engineering and Mathematics) field. Epic Queen seeks to strengthen women's leadership in Mexico and Latin America with the aim of creating a generation convinced of its technological capabilities and leadership. It wants to empower women to create initiatives and develop their ability to take risks outside of their comfort zone, and above all, find the support to move into the digital world.

Another success story is Kichink!, the winner of the Google Game Changer Award  at the 2015 Demo Day for Entrepreneurs, Women’s Edition in San Diego, California in recognition of its outstanding innovation. The firm created by Claudia de Heredia is an online store portal for all types of products. Kichink! has processed 7,000+ transactions and registered 5,000+end users. Its automated system allows for tremendous scalability as customers join from Mexico, Colombia, Panama and Costa Rica. The team of young, ambitious entrepreneurs is committed to democratizing the tools of e-commerce for entrepreneurs in Mexico and the rest of Latin America.

Finally, there is a company which is considered as the “Uber of cleaning services” and one of Mexico’s most successful start-up sites, Aliada, a platform through which Mexico City residents can find the ideal housekeeper for them, and vice versa. It was co-founded by Ana Isabel Orvañanos. Since starting in September 2014, Aliada has grown, and now has 150 professional cleaners, helping formalize this largely unregulated and informal Mexican industry. Aliada enables professional cleaners to receive the benefits of formal work, transforming informal domestic cleaners into trusted and valued aliadas (“allies”) of the home. Aliada currently dispatches over 150 professional cleaners and has provided more than 30,000 services in just thirteen months of operation.

Developing public policies that support and aid the creation of new ventures is a key factor for the development of entrepreneurship in Mexico and the Latin American and Caribbean region. The OECD has established, that public policies related to science, technology, and innovation, education, production development and physical and digital infrastructure are required to improve the innovative entrepreneurial eco system in the region. Such direct policies in support of start-ups reduce the main barriers that hinder the founding and growth of start-ups. These policies also benefit intermediary institutions, universities and stakeholders in the financial system.

As the entrepreneurial spirit continues to grow, sustainability becomes a key factor in the creation of new companies and technology throughout Mexico and the Latin American and Caribbean region. Developing and promoting programs like HIEP can help direct the creation of new ventures on the path to sustainability. It is key to align public and private policies and strategies so that they can contribute to the building of an ecosystem for entrepreneurial innovation, as well as maximizing synergies between the contributions of the different public and private actors.