Nearshore Americas

Hopes Run High that Bachelet Will Restore Chile’s Outsourcing Brand Prowess

Entrepreneurship and innovation have become two of the most prominent buzz words in Chile’s political scene over the past four years. Dubbing 2013 the “Year of Innovation” and 2012 the “Year of Entrepreneurship,” the Chilean government, under the leadership of President Sebastián Piñera, has publicly placed a significant amount of weight on technology and the country’s innovative prowess. And outwardly, the initiatives brought about seem to have been quite successful: Chile was listed as South America’s most innovative country in the 2013 Global Innovation Index.

But not everyone is happy with the direction Chile is going in – or convinced that the policies announced are having the right type of impact. And on the cusp of what will likely be the re-election of former President Michelle Bachelet, some are looking forward to what they hope will be better times for foreign investment and outsourcing after a four-year deviation from the country’s business momentum. (In NSAM, earlier this year a range of Chilean IT leaders lamented the fact that Chile was losing ground.)

Decreased Differentiators

Before Piñera took office, the Chilean Ministerial Committee for Innovation laid out a biannual action plan for 2009 and 2010, identifying five priority clusters for business. Among those clusters was that of global services, in other words, outsourcing. The government put in place a committee comprised of both public and private entities to discuss plans and strategies for attracting foreign businesses and developing outsourcing channels in Chile. Programs were created to develop the country’s talent, for example, to promote English-language education, and legislative initiatives were brought forth to provide benefits for companies producing software. As a result, revenues in the business services sector tripled.

Once Piñera took office, however, things began to change. The clusters were eliminated, meaning all sectors, in the eyes of the government, were to be perceived as and treated the same. And this broad approach to businesses has continued since.

This year, the Chilean government passed legislation facilitating the incorporation of businesses in just one day. And in May, it officially launched Tu empresa en un día, the online portal through which the process is managed. According to the Ministry of Economy, 10,029 new companies were constituted from May through September.

Yes, Chile has created a number of new entrepreneurs, but what kinds of entrepreneurs, and what kinds of businesses? The most common sectors represented in these new companies are commerce, real estate and manufacture – not technology, business services or software.

Immaturity and Investments

When Piñera took office, his new administration quickly went to work disbanding much of what Bachelet and other previous governments had done, even if doing so wasn’t necessarily the best idea. Moreover, many of the people he brought onboard weren’t highly experienced in terms of public policy and investments.

A number of programs were halted or discontinued all together, and Chile disappeared from various international forums. Outwardly, this made foreign companies and investors weary of involvement in a political context that was clearly in the midst of such an enormous transition. And internally, policies became more focused on regulation and general terms – no industry-specific legislation to incentivize investment or offshoring in key sectors was put into place.

Despite a lackluster investment policy, Piñera’s government has managed to make a bit of a comeback on the international stage. This year, Chile reentered the Kearney Foreign Direct Investment Confidence Index after a decade-long absence.

Legislative Progress

The law allowing the incorporation of businesses in one day isn’t the only piece of legislation pushed through by Piñera’s government recently. In October, the Chilean Senate passed legislation improving the way bankruptcies are handled in the country – the process previously took about five years to be completed.

Though it is certainly a step in the right direction, Chile’s legal system is not conducive to failure, nor is it forgiving of mistakes. And while it’s made important strides in boosting the creation of businesses, it has a long way to go in dealing with what happens when a company has to close.

The government has also been active in promoting in R&D. Last year, it rolled out a tax credit for entities performing research and development activities in the country. Corfo offered up $13 million to international R&D centers for setting up operations in Chile, too.

Some see these measures as a part of a last-ditch effort to improve the Piñera’s legacy. Others point out that much of the action taken originated under Bachelet’s administration – or were stripped in 2010 and are now being replaced. Moreover, the OECD recently laid out a list of deficiencies in Chile’s economic scenario, and low-intensity R&D efforts was one of the points mentioned.

Arbitrary ‘Innovation’

As mentioned, 2013 is the Year of Innovation in Chile, and the word innovation itself is certainly being thrown around a lot. Finding tangible examples of innovation, however, is easier said than done.

Take, for example, Start-Up Chile. One of Piñera’s most highly touted innovative efforts, the initiative has yet to produce notable results – something we explored a while back. Funding is often being handed out to innovators with no plans to stay in the country, and an impactful, game-changing entrepreneur and startup have yet to emerge from the program.

Chile still lacks a real infrastructure to drive new knowledge, and the programs put in place by the Piñera administration haven’t done the trick.

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The Bachelet Factor

On December 15th, Chile will hold a runoff election to determine who will take over in 2014, and it is highly likely that Bachelet will return to office. What will that mean for offshoring and foreign investment in the country?

The landscape has changed drastically over the past four years, and Bachelet won’t be able to pick up where she left off. A greater focus will have to be put on digital economy and related initiatives, including but not limited to global services.

Quality talent is certainly still present in Chile, so companies are likely to start outsourcing again once the right incentives are put in place. Hard skills require further development – something Piñera’s efforts in encouraging innovation and entrepreneurship have certainly helped.

One entity that may be put in jeopardy is Start-Up Chile, which some think will end up on the chopping block under the Bachelet administration. Given the popularity of the program, it’s hard to believe it will be eliminated entirely, though its direction may change.

What will be most important, however, is getting back to consistency and putting in place policies to restore confidence among global entities looking to do business in Chile. The administration will face the continued task of putting the country on the international map and demonstrating that its professionals and entrepreneurs are fit to handle core elements of businesses – and that investing in Chile is a solid bet.

Emily Stewart

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