Unleashing Entrepreneurship: Mobilizing Human, Financial, and Social Capital IDRC

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Unleashing Entrepreneurship Mobilizing Human,
Financial, and Social CapitalIDRC CIDA IRIS
York University FOCALEntrepreneurship and
institutional innovations the path to
competitiveness in Latin AmericaFernando
VillaranConsultant Ottawa, April 6-7-8, 2005
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Contents

• Entrepreneurship in economic literature
• Entrepreneurs definitions
• Innovation and entrepreneurship
• Clusters and value chains
• Private and public cooperation
• National experiences in Latin America
• Constructing an Entrepreneurship Development
  System

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Where does entrepreneurship stand?

• The four main sources of growth
• Investment
• Productivity
• Innovation
• Entrepreneurship
• Is entrepreneurship the ugly duck?
• Or just the new little brother?

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Defining entrepreneurship

• Entrepreneurship is a discovery process.
• Is the exploitation of perceived opportunity by
  individuals based solely on personal judgments
  and visions that others either dont see or cant
  bear the risks of acting on (Formani, R.).
• Uncertainty surrounds the determinants of
  entrepreneurs profit (Knight, F.).
• Drives the economy from an inefficient point to
  an efficient point in the production frontier.

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What are entrepreneurs made of?

• Personal factors
• Temperament, attitudinal profile
• Early life experience, family environment
• Risk takers
• Good judgment
• Professionalism
• External factors
• Culture and education
• Infrastructure and production dynamics
• Economic and market conditions
• Cooperation tradition
• Legal and Institutional framework

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Key entrepreneurs competence

• Strategic analysis
• Future Vision
• Ability to put it into a plan
• Execute the plan
• Assessing internal strengths and weaknesses
• Assessing external opportunities and threats
• Putting them together and taking the best
  decisions
• Deploying and using scarce resources

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What is innovation?

• A new product, service, process, equipment,
  organizational form in a given territory.
• We use the term innovation not only to convey
  the process of generating new knowledge, but also
  to put in place suitable adaptations to
  techniques developed abroad.
• It is essential to distinguish innovations that
  expand the global knowledge frontier, or
  G-innovation, from the one that involves
  modification, adaptation and absorption of
  know-how from external sources, L-innovations,
  because these are the relevant ones for
  developing countries.

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Relationship between innovation and
entrepreneurship

• New business creation is one of the major
  channels for the transmission and adoption of
  innovations.
• Ongoing innovations increase competitiveness and
  improve the climate for the creation of new
  firms.
• Entrepreneurs, in essence, are agents that
  transform opportunities created by innovations
  into value creation.

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The barriers for innovation are the same as for
entrepreneurship

• Shortage of skilled human capital
• Lack of investment in research and development
• Little firm cooperation
• Difficulties for financing, (mainly venture
  capital)
• Weak infrastructure, particularly in ICTs
• No intellectual property protection
• Inadequate legal and institutional framework

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Clusters and value chains

• Concentration of different types of enterprises
  specialized in same products or services
• To qualify as cluster the grouping must function
  as living organism, with confidence and achieving
  collective efficiency
• Cooperation between firms and with different
  institutions (universities, research centers,
  NGOs)
• But they also have some level of competence
• It conveys the possibility of having an
  integrated strategy which includes micro and
  small enterprises

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State vs. Market

• This was the false dilemma posed by the radical
  liberals during the 90s
• Nobody doubts of the private sector as an engine
  of economic growth
• But the State is not the monster that has to be
  eliminated
• The challenge is to develop a complementary
  relation between State and private sector
• One of the main areas of cooperation is precisely
  the entrepreneurial strategy

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Latin America performance

• Import Substitution Industrialization Strategy in
  the 50s through 70s protecting the domestic
  markets
• The lost decade of the 80s no growth
• The 90s market reforms but the results were
  frustrating, little growth
• Lost world commercial share, moved backwards in
  competitiveness scale, reduced productivity,
  created unemployment, informality, and poverty
  remained/grew.

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Entrepreneurship in Brazils software industry

• The Brazilian Software Export Program (SOFTEX)
  was created in 1992 to reach 1 of the world
  software market (2 billion dollars), mainly a
  government initiative.
• Quickly they realized that the goal was
  impossible to attain, and that its institutional
  arrangement was inoperative.
• They created a private-public independent
  institution and oriented SOFTEX to the creation
  of new software enterprises among young
  professionals in universities.
• Positive results a network of 1,100 firms, 300
  new ventures and 73,000 new jobs by 2003.

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El Salvadors entrepreneur program

• Technoserve, an international NGO, adapted
  McKinseys methodology used in South Africa to
  create new firms.
• They made an alliance with local institutions and
  launched a national contest Make your idea a
  reality.
• The judges of the contest came from the financial
  sector.
• In 2002 they had 300 participants, mainly young,
  and in the second 360 the winners received
  prizes (circa 12,000 dollars) and bank loans (50
  of them).

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The city of Buenos Aires multiple approach

• Argentina had one of the worst economic crisis in
  the last years, unemployment and informality rose
  abruptly
• The government of the city created and reformed 4
  programs
• Micro enterprise Support Center support for new
  firms
• Young Entrepreneur Program Large contest
• Incubator specialized in design, tourism and
  cultural assets.
• University Program to stimulate enterprise
  vocation

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Perus entrepreneurship Program

• The Minister of Labor and Employment Promotion
  launched in 2003 a national program called Peru
  Entrepreneur
• It had 5 components micro-credit program,
  business development services, support for new
  firm creation for young Peruvians, support for
  business associations of Micro and Small firms,
  and helping unemployed adults.
• Two of them consisted in a comprehensive
  methodology for firm creation
• Assessment of personal competencies and vocation
• Elaboration of a business plan
• Support during implementation
• 3 to 6 months follow up during first steps

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Findings from IDBs research in entrepreneurial
development

• There is no single prescription or formula
• The various initiatives vary in scope, geographic
  dimension and budget
• Initiatives aimed at expanding the business
  frontier reduce negative effects in existing
  enterprises
• There are diverse combinations of generic and
  niche-based strategies

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Findings from IDBs research in entrepreneurial
development

• It is essential that Institutional framework be
  addressed and strengthened
• Sustainability depends on the involvement of
  private sector and civil society
• The style of intervention must be in itself
  entrepreneurial
• A monitoring and evaluation system is a must

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Key elements to build a Entrepreneurial
Development System

• Incubators, that generate business opportunities
  and support start-up
• Human Capital Formation, entrepreneur
  identification and skill formation
• Business Development Services, mainly for SMEs
• Enabling environment, that compensate for
  institutional weaknesses (as we find in Latin
  America)

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End