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Santiago: Chile's Silicon Valley

Jan 12, 2012 Written by  Oscar Montealegre, Contributor
800px-Santiago_de_ChileYoung entrepreneurs better start heading south. Despite lacking a culture of innovation and entrepreneurship, Chile is investing heavily in a government-led program called Start-Up Chile and is inviting international talent to stimulate the country’s business climate. Chile has propelled itself as a sustainable economy by exporting copper, cellulose, wine, salmon, and other natural resources, but the Latin American country now holds high aspirations to transform Santiago — the nation’s capital — into the continent’s Silicon Valley.

Start-Up Chile was launched in June 2010 and its strategy to attract talent is by offering a no-strings-attached $40,000 grant, a one-year work visa, accommodation, and few red tape restrictions. Applicants are accepted from around the world, with no restrictions on any particular industry. The program eyes start-ups that have high growth potential and are globally oriented — similar to the expectations U.S. venture capitalists have. Its goal is somewhat ambitious but aggressive, attempting to at least have 1,000 start-up companies participating in Start-Up Chile by 2014. However, like all private or public business plans, Start-Up Chile faces many hurdles.

Although the Chilean government desires to make Santiago an innovation hub, there is a fundamental concern that Chilean leaders hope Start-Up Chile cures: the fear of failure. Ideally, the participants will network and train local talent involved in innovation and business in hopes of galvanizing the entrepreneurial environment that Santiago — and Latin America — desperately needs. Chilean President Piñera has acknowledged that Chile does lack a culture of innovation and entrepreneurship, but insists the remedy of this economic ill is to stimulate business risks by creating an infrastructure of business technology and encouraging Chileans to learn from IT innovators from the U.S. and abroad. But is it realistic for Santiago to aspire becoming a technological start-up haven a la Silicon Valley?

The concept of failure in Chile has a different kind of negative connotation. The Chilean entrepreneur confronts heavy social pressure of being stigmatized because of failing in his/her business endeavor. Also, a pride issue is at play; failing can also be interpreted as letting down one’s family, and more shamefully, one’s family name. In Chile — as well as in many countries in Latin America — the family occupies a central role in daily life, classifying Chile as a collective society as opposed to the U.S.’ individualist society. Moreover, the concept of business and family are intertwined, tangling the energy of true business entrepreneurship. In fact, most small businesses in Chile are family owned and operated, perpetuating more mental barriers for the independent entrepreneur to launch a new business, due to the fear of failure, hindering Chile towards future growth.

In the U.S., failure is viewed as a learning experience; a platform to feed from for the entrepreneur’s next endeavor. The U.S. is the land of second chances, even third opportunities, highlighted by the process of declaring and executing bankruptcy in a couple of months, whereas in Chile bankruptcy can last years. For Start-Up Chile to become a success, cultural attitudes need to change. Whether this is implemented from the bottom up or top down is to be debated, but what is paramount for Chileans is to accept new ideas, encourage innovative projects, and provide positive reinforcements for entrepreneurs. If not, Start-Up Chile will have minimal impact.

Another issue Chile needs to acknowledge is the lack of local venture capitalists. The people investing the seed money do not come from the private sphere; instead CORFO — the Chilean Economic Development Agency — is involved the most in providing the much important capital. As a consequence, entrepreneurship and the pursuit of innovation become less organic. But due to the country’s culture towards forming businesses Chile has to start somewhere. Despite the present obstacles Chile can stand on recent laurels and feel confident about its’ future.

According to the World Bank’s Doing Business 2011 ratings, Chile ranks 43rd overall (out of 183 countries), rising 10 places from 2010 ratings. Chile boasts the highest ranking among all countries in Latin America in the Global Competitive Index, published by the World Economic Forum. Concerning the issue of transparency, Chile ranks 1st in Latin America and 21st in the world according to the Perceived Corruption Index. International companies have taken notice of Chile’s growth, investing significant amounts of capital. Some have even gone to greater lengths by establishing physical offices in Chile.

Companies such as Yahoo!, JP Morgan Chase, Equifax, Oracle, McAfee, Tata Consultancy Services of India, Polaris Software Lab of India, and Sandvik of Sweden all have offices in Chile. Having successful international companies operating in a foreign country is a huge benefit for the local citizens. Chileans working for these companies are offered a hands-on experience to learn and be exposed to the processes, techniques, planning, strategies, and risk-taking endeavors from foreign entities, instilling a valuable business education to Chilean professionals.

Another advantage for Chile is that it can proudly claim a large pool of highly educated computer engineers (ranking 31st worldwide in the number of scientists and technicians in relation to its population). International companies can invest with less apprehension in Chile because they can pluck talent locally instead of importing it to Chile. In 2009, Chile was ranked 1st in Latin America according to the Latin American Talent Index. The only downside with Chile’s competitive labor pool is its size: seven million, smaller than the metropolitan populations of San Paulo and Buenos Aires.

Aware of this drawback, Chile looks abroad and identifies similar populations that have overcome their small size, such as Israel, Singapore, and Finland. All the aforementioned countries possess small innovation environments that have stamped their presence in the global market.

Chile has approximately $200 million in uncommitted venture capital, mostly public money. The challenge lies in keeping that money working in Chile. The verdict is still pending, but the indications are so far encouraging. Similar programs have been emulated abroad, for example, Start-up America, Start-up Britain, and Start-up Greece (much needed). Singapore, the country Chile considers as an example for future economic growth, has borrowed from Chile; it has inaugurated a similar program, offering grants, leniency on work visas, and business tax exemptions. Malaysia too has followed suit, incorporating the Start-Up Chile model to attract talent, innovation, and future start-ups.

As Latin America continues to grow economically, solidify political stability, and think long-term, an innovation hub or technological center would inevitably emerge, at the very least, for Latin Americans. The key is that all three factors remain constant. Chile showed the world of its emerging prowess and stability by recovering impressively after the devastating 2010 earthquake. What separates Chile from other Latin American countries is that political cycles do not sabotage the cemented institutions. Can a Latin American Silicon Valley be developed in Santiago? If the strategy includes patience and long-term efficient planning, the answer is yes.

While other countries in Latin America are excavating the grave of Simon Bolivar, or fanning the flames of anti-Americanism, Chile looks forward, integrating its economy globally creating an environment where Chileans can take a business risk without fear, pursue innovation with realistic possibilities, and reside in a business climate where ideas and strategies are exchanged to create personal wealth and opportunity.

This article was originally published in the December 2011 Global Cities issue.

Tagged under Chile    Santiago    technology    start-up    Silicon Valley    entrepreneur    Latin America   
Last modified on Sunday, 15 January 2012 22:55


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