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Fostering entrepreneurship and job creation in Latin America

Emilio Zevallos V.

The challenge of Developing Countries from the Bottom-up

Institute for the Study of International Development (ISID)McGill University , Montreal March 21-22,2013

Index

• Latin and Central American context • Employment situation• Worker or entrepreneur• Why be an entrepreneur?• Entrepreneurship features (in Central

America)• Entrepreneurship and innovation• Conclusions

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Latin American context

• The world has about 7,025 billion inhabitants– Latin America contributes to that number with

approximately 600 millions (less than 9%)• The World´s average life expectancy of birth in 2011

was 69.8 years old, in 1997 was 66.7 years old– In 2011, in Latin America´s life expectancy was 74.4

years old, and in 1997 it was 69.5 • World adult alphabethism rate was in 2007 83.9% for

people with 15 years old or more, in 1997 was 78%– Latin America adult alphabethism rate was in 2007

91.2%, in 1997 was 87.2%• Between 1997 and 2003 World per-cápita real GDP

growth was 29.9%– Between 1997 and 2003 Latin America per-cápita

real GDP growth was only 12.2%

Source: UNDP, Human Development Report 2013, 2009, 2005 and 1999

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Central America 2010: almost 50 million inhabitants

(including DR)

Costa Rica

El Salvador

Guatemala

Honduras

Nicaragua

Panamá

Rep.Domincana

4639

6192

14376

7621

5822

3508

9899

Source: ECLAC

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Laboring population in Central America

Population in age of labor:

36.3 million

Labor force : 20.7 million

Employed: 19.9 mililon

Informal workers: 11.7 mililon

Formal workers 8.2 million

Unemployed: 0.8 million

Inactive: 16.8 million

Source: OIT (2010). Panorama Laboral en América Latina. Pag.63

Population of 12 years old or more by activity condition 2008In Central America and DR

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¿Worker or entrepreneur?Latin America 2011: Occupied

population by labor category (%)

Public sala-ried13%

Private sa-laried 52%Non-

sala-ried:

owner4%

Non-sala-ried: in-de-

pen-dent22%

Domestic service7%

Others2%

• Paid workers represent 65% of the total

• Non-salaried: – Owner : 4%– Independent: 22%

• No existence of an “entrepreneurship culture”

• Majority of the population think in a “salary”

Source: OIT (2012) Panorama Laboral 2012, América Latina y el Caribe. Lima. pág. 82

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SMEs in Latin America (%) Several criteria to define

SME such as: labor, sales, assets, etc.,

LABOR is the most commonly used variable to describe the SME

• Micro : 5 or less workers

• Small: between 5 to 50

• Medium: 50 to 100 Exist around 20 millions of

enterprises with a certain degree of formality (In Central America around 2 millions)

93% are micro (in Central America near 95%)

Less than 7% are SMEs (in Central America less than 5%)

Average workers by enterprise: Less than 2 workers

Less than 5% of SMEs export directly

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Source: Zevallos (2007). Restricciones del Entorno a la Competitividad Empresarial en A.L. y actualización

Micro

SME

Big

20

30

50

12

28

60

30

38

32

93

6.75

0.25Enterprises

Labor

Investment

GDP

Features of enterprises…

An Example: The informal sector

throughout Central America

Dom. Republic

Panama

Nicaragua

Honduras

Guatemala

El Salvador

909629

189973

634593

781308

880102

635175

(1) Owners: 332,650

(2) Independents: 3,998,473

Informal EnterprisesTOTAL: (1)+(2)

4,331,123

Formal Enterprises:2 millions

Source: OLACD, based in House surveys in all Central America countries

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Tailor made Specialized goods Standarized goods

Bigenterprise

sA few SMEs producing for Specialized / tailor made

Markets

Medium and big enterprisesIntegrated vertically

Most of SMEs competing in standarized goods

A few SMEs as providers

Source: Altenburg, T. Hacia una Política para la Empresa Media, FUNDES México, 1999

Latin America SMEs today

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Other problems

• Competition oriented by price• Lack of equivalent relations between big

and small business• Lack of access to the financial and non-

financial services (business development services)

• Informality:– Low quality inputs and non-skilled labor – Lack of social rights for workers

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Diagnosis

• The problem is not only the informal economic activity as well as the informal labor

• Low wages, labor instability• Low productivity and competitiveness• Bad quality jobs • Entrepreneurs “by necessity”

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NicaraguaEl SalvadorHondurasArgentinaGuatemala Colombia PeruCosta RicaBrasilPanamaChile USAFinlandSwedenSingaporeSwitzerland

1112131415161718191101111121131115

91868584

6867

6153

4931

5432

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Global Competitiveness Index142 coun-tries

Latin America competitiveness 2011-12

Fuente: World Economic Forum, 2011-2012

Increasing competitiveness

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Fostering entrepreneurshipin Latin America

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The challenge is foster entrepreneurshipincreasing income

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Entrepreneurs in Latin America

• Entrepreneur “by necessity”

• Poverty, lack of opportunities for new business

• Business in traditional sectors (retail, services)

• Low productivity• Low added value• Low innovation

• Entrepreneur “by opportunity”

• Improve the business enabling conditions

• Promoting a new vision about innovation in this (or other) sectors

• Increasing productivity, added value

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Characteristics of the Entrepreneurs

•More than 40 years old•Women in smallest business, not in bigger ones, or more sophisticated

– 25% of entrepreneurs are women

•Why be an entrepreneur

1.Being independent 2.complement the

family income•Entrepreneurs previously were workers and leave it

FlexibilityModern

Leadership

Austere

Responsible

Visionary

Independent

UpdatedPurposeful

Fearless

Persistent

Disciplined

Dominant

Sociable

0

50

100

4330

57

24

86

64

7157534165

53

29

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Entrepreneurial Features in Central America

Source: Obando , Rojas, Zevallos (2008). Características de los Microempresarios y sus necesidades de formación en Centroamérica y República Dominicana. OIT AECID

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Profile of a Small business in C.A.

Workers by business in C.A. (%)

3 workers58%4 workers

21%

5 workers

10%

6 workers5%

7 workers2%

8 workers4%

Economic Sectors (%)

Hotels & Rest.25%

Retail43%

Services19%

Manuf.13%

Source: Obando , Rojas, Zevallos (2008).

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You introduce entrepreneurial innovations in C.A.? (%)

TOTAL

Guatemala

El Salvador

Honduras

Nicaragua

Costa Rica

Panama

Dom.Republic

22

26.7

21.5

23.3

17.6

41.7

13.3

10.3

78

73.3

78.5

76.7

82.4

58.3

86.7

89.9

YES NO

Source: Obando, Rojas, Zevallos (2008).

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Kind of entrepreneurial innovation in C.A. (%)

New production process

Production / retail new products

Changes in providers relations

Improve distribution channels

Strategic alliances

ICT Improvements

Incentive systems

Others

0 5 10 15 20 25 30 35

28.6

25.4

7.9

7.9

7.9

7.9

4.8

9.6

Source: Obando, Rojas, Zevallos (2008).

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Innovation in Small business (%)

75,3

76,6

85

75,9

24,7

23,4

15

24,1

Retail

Manufacture

Hotels & Rest.

Services

Innovation by Sector

YES NO

18,5

24,4

32,8

81,5

75,6

67,2

3 Workers

4-5 Workers

6-8 Workers

Innovation by Size of the Enterprise

NO YES

Source: Obando, Rojas, Zevallos (2008)..

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Source: http://www.edgegrowth.com21

Tailor made Specialized goods Standarized goods

A lot of SMEs producing

specializing goods /tailor made markets

Medium and big enterprises Oriented to “outsourcing”

A few SMEs competing in

standarized goods

A lot of SMEs as providersSource: Altenburg, T. Hacia una Política para la Empresa Media, FUNDES México, 1999

Latin America SMEs in the future

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Conclusions

Fostering entrepreneurship as an alternative to salaried way

SMEs will be competing in relevant markets (specialized goods and tailor made)

Innovation in Latin America small business are oriented to a business models and process Improve distribution channels Changing relations with providers

Promoting “other kind of innovations” is possible increase income and improve labor conditions for a “decent work”

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Thank you!For more information contact with Emilio Zevallos:

ezevallos@pymescopio.org

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