Nearshore Americas

IT, Innovation or Investment? Chile Must Identify its Strongest Selling Point

Chile made quite a splash at its SXSW debut last year. In a nod to its intensified focus on innovation and entrepreneurship, entities like Start-Up Chile and ProChile set out in full force to solidify the country’s spot on the international tech map. And they’re headed back in 2014, too.

Historically, the country has been recognized for its prowess in other areas – namely, mining, agriculture and tourism. In turn, it has garnered foreign investment on related fronts. But recently Chile has turned its attention to technology and innovation. And though its policy approaches have varied, putting itself on the tech radar has certainly become a priority.

What is Chile’s Market Niche?

That being said, Chile’s international identity in the innovation realm is still being defined. Is it a sleeping IT giant? A startup hub? A growing destination for tech-related FDI?

According to Pedro Pablo Aresti, Trade Commissioner at ProChile New York, Chile may not be as IT-export ready as once thought. “The Chilean IT sector hasn’t developed as well as we would have liked. We had our brand, Chile IT, that isn’t working as well as we’d like, because Chilean companies have been focusing on trying to expand more to South American countries than to the U.S. market. In my opinion, Chile IT, in terms of FDI and in terms of export, has been more focused on internal consumers and expanding to Latin America than to North America,” he reflected.

Getting things moving in terms of IT exports to the U.S. will take more than a handful of companies, and over-investing before businesses are ready will largely be a waste. While Chile is considered the most competitive market in Latin America, it has its fair share of major weaknesses to overcome.

Challenges Facing Chile

In the 2013-2014 World Economic Forum Global Competitiveness Report, the country ranked 34th overall. However, in education quality, it was listed 74th, earning especially poor marks in math and science.  Educational shortcomings translate to companies lacking the necessary workforce to up production or embark on innovative projects.  “This, linked to low innovation investments, especially in the private sector (58th), result in overall poor innovation capacity (63rd), which can jeopardize Chile’s necessary transition toward a knowledge-based economy,” the report reads.

Also a barrier: English, which Aresti said is Chile’s biggest obstacle for exporting. The English Opens Doors program, a government initiative dating back to 2003, is designed to improve English-language education in the country across all levels, from pre-school to university and even in training future educators. It has also implemented a volunteer program to reach various parts of the country.

Likewise, CORFO has created a scholarship program for TOEIC certification courses (TOEIC is a global standard for workplace English communication skills). Over the past four years, 25,000 Chileans have benefited from the program, but the country still has a long way to go. In 2011, an estimated 3-5% of the Chilean population was considered to have proficient English skills, and EF continues to rank the country quite low globally and throughout the region as well.

Entrepreneurship and Innovation

So if IT and software exports aren’t in the cards for Chile right now, what is? Aresti pointed to one area that has clearly been rising on the agenda in the country – entrepreneurship.

“More than IT, where we haven’t been able to associate all of these companies and really have one important, strong offer, we have been focused on these other types of companies where we can add value in a quicker way,” Aresti explained. “Our main focus is on connecting dots.”

Since the inception of world-renowned startup program Start-Up Chile in 2010, Chile has carved out a space for itself as a hub of entrepreneurship and innovation. Hundreds of startups and entrepreneurs from Chile and all over the globe go through the program each year. Though its measures and definitions of success aren’t perfectly clear, it has had a sort of cross-pollination effect, with international participants spreading the word about the country and Chileans gaining a more global vision.

Chile has also started to export local entrepreneurial talent by way of the program CONTACTChile, focused on internationalization. CONTACTChile backs startups in a wide range of areas, from biotechnology to applications and games. Its helps companies gain a foothold in the main target markets of the United States, Peru, Brazil and Colombia. In 2014, CONTACTChile will co-finance 25 companies in their efforts to gain traction abroad.

Where Are the Success Stories?

If entrepreneurship is the new focal point of Chile’s international tech identity, the question then becomes the preparedness of the entrepreneurs themselves. There are very few startup success stories in the region to date, the list most often limited to MercadoLibre, Globant and Despegar. Not only are those companies not from Chile (they’re all Argentine), but with the exception of Globant, they’re heavily reliant on the regional market.

Most of the region’s entrepreneurs – including those based in Chile – are prone to a local way of thinking that keeps them from building products that are global from day one. Latin America is inundated with taxi apps, online delivery platforms and niche-based social networking sites. These aren’t the types of companies that are innovative enough to have significant ramifications worldwide. This doesn’t mean they don’t have the ability to do so, it just means the mindset isn’t generally there – yet.

An Investment Hub

And what about as an investment destination? Here is where the case becomes especially interesting.

While Chile itself is a relatively small market, it is part of the Pacific Alliance, an economic trade bloc currently composed of Chile, Colombia, Mexico and Peru. Their combined GDPs render them the world’s 9th economy.

For companies looking to invest in Latin America or attack the market, Chile becomes an especially interesting point of entry and a way to test the waters. “A lot of countries, industries and companies see Chile as their hub for the rest of Latin America, and they’re watching the Pacific Alliance very closely,” Aresti affirmed.

It’s also worth considering whether turmoil in other regional markets, especially those outside of the Pacific Alliance, has rendered Chile a more attractive destination for FDI. With Argentina’s current inflation and currency problems and Brazil’s recent devaluation, is Chile rising up in the ranks?

Beyond current issues in other parts of Latin America, what Chile has going for it most is its relative stability in past decades. Its ability to continue to improve its international reputation and drown out the rest of the Latin American noise will be essential in the years to come.

The Chilean brand is still in the works, perhaps especially when it comes to technology. Aresti described its situation as one of adolescence. From here on out, the question will be where to focus resources – IT, entrepreneurship, increasing FDI – in the process of developing an identity on an international scale.

Emily Stewart

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