IT Usage for Direct Exports by Chile’s SMEs

Yasushi Ueki

Division of International Trade and Integration, ECLAC

Institute of Developing Economies, JETRO

November 23, 2004

Definition of SMEsSMEs are defined by annual sales

Micro: less than 2,400 unidad de fomento (UF) (US$72,000)Small: from 2,401 UF to 25,000 UF (US$72,000 to US$750,000)Medium: from 25,001 to 100,000 UF (US$750,000 to US$3 million)Large: more than 100,000 UF (US$3 million)

Note: Some governmental institutions have their own definitions to manage their policy instruments.

IT Usage by SMEs

Penetration Ratio of IT among SMEs in 2002

93.5%99.9%

72.5%

62.7%

98.4%

41.8%

92.6%

12.6%

52.6%

97.8%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

SMEs Large

Fixed Telephone Fax Computer Internet Webpage

Source: Subsecretaria de Economía (2002).

Percentage of Firms with Internet Connection

42%

61%64%

69% 70%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2000 2001 2002 2003 2004

Large

Medium

Small

TOTAL

Micro

Source: Centro Economía Digital CCS

Percentage of Firms with Web Sites

7% 11%13%

25%

33%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2000 2001 2002 2003 2004

Large

Medium

Small

TOTAL

Micro

Source: Centro Economía Digital CCS

IT Usage Areas

23%

5% 5%

43%

11%

52%

16% 16%

62%

23% 22%

15%

0%

10%

20%

30%

40%

50%

60%

70%

InternalManagement

Clients Suppliers

MicroSmallMediumLarge

Source: CCS, Economia Digital 2004

Principal Activities on the Internet by firms in 2004

97%

82%

75%

67%

15%

12%

6%

4%

4%

0% 20% 40% 60% 80% 100%

E-mail

E-banking

Procedures with Governmental Entities

Tax Declaration and Payment

Purchase of Inputs

Sales of Products and Services

Video Conference

E-learning

Exportation

Source: CCS, Economia Digital 2004

E-commerce (US$ million)

20.4 30.5 40.5 60.8 80.3321

1415

2290

3911

6673

0

1000

2000

3000

4000

5000

6000

7000

8000

2000 2001 2002 2003 2004

B2C B2BSource: CCS, Economia Digital 2004

E-commerceDriving force: ChileCompra (Gov. procurement)

-

2,000

4,000

6,000

8,000

0%

20%

40%

60%

80%

B2B (US$ million) 3,320 5,757

% of ChileCompra 5% 23%

2003 2004 (P)Source: CCS

Principal Activities of E-commerce with Suppliers (% of the total firms with Internet transactions with their suppliers) in 2002

61.7%

55.2%

27.8%

13.0%

60.7%

66.6%

30.5%

14.5%

0% 10% 20% 30% 40% 50% 60% 70%

Inform on pricesand offers

Quote for theirinputs andservices

Purchase inputsand/ or services

Inform on stateof order Large

SMEs

Source: Subsecretaria de Economía (2002).

Principal Activities of E-commerce with Clients (% of the total firms with Internet transactions with their clients) in 2002

Source: Subsecretaria de Economía (2002).

74.5%

47.7%

35.4%

18.4%

75.6%

51.8%

49.0%

17.9%

0% 10% 20% 30% 40% 50% 60% 70% 80%

Send/ Receiveinformation

Send quotationsfor their productsand/ or services

Exhibit catalog ofproducts

Sell productsand/ or services

LargeSMEs

Current Status of SMEs in the Chilean Economy

The present Situation of the SMEs

1.2 million firms (54% are formal) in 2001More than 95% of the formal firms are Micro and SMEsMicro (82% of the total), Small (15%), Medium (2.1%)The Major sectors in 1997, to which SMEs belong:

Commercial sector: 40% of the Micro+Small firms: Agriculture+Livestock:12% Transport: 8% Manufacture: 7% Professional Service: 5.5%

Composition of the Formal Firms by Size

Micro,82%

Medium,2% Large, 1%

Small,15%

Micro Small Medium Large

1. Number of Firms

(2001)

Micro51%

Medium12%

Large4%

Small33%

Micro Small Medium Large

2. Number of Exporters

(2003)

Source: CCS

Composition of Export Values by Firm Size (%) in 2003

0.8 1.9

51

1122

68876

43

0102030405060708090

100

Micro SME Large

Indutry

Forestry,Agriculture,Livestock Mining

(% )

Source: CCS

Main Products exported by SMEs in the first Quarter 2004

1. Grape (Sultanina)2. Sawn Board of

Insigne Pine Tree3. Services4. Grape (Red Globe)5. Wine (Red)6. Wine (Cabernet

Sauvignon)

8. Grape (Flame Seedless) Other Grapes

9. Apple (Royal Gala)10.Raspberry11.Fresh Plums12.Wine (Merlot)13.Wine (Merlot)

Question!

Have SMEs succeeded in Direct Exports sufficiently?

Percentage of Export Values in 2003 by Firm Size

Medium12%

Small3%Micro

0%

Large85%

Source: CCS

Exports by Regions in 2003 (%)

58

3416

19

25

18

15

23

26

512

36

0

10

20

30

40

50

60

70

80

90

100

Micro Small Large

AsiaROWEuropeNorth AmericaLatin America

(% )

Source: CCS

Weakness of the Chilean SMEs= IT Applications Area

Quality ManagementInformation ManagementMarketing and Sales Sales Management Publicity and Communications Customer Relations Market Strategy

PlanningInventory ManagementFinance

Source: CCS

Transportation Costs: Percentage of Exported Value

8%

11.40% 11.10%

0%

2%

4%

6%

8%

10%

12%

Large SMEs Micro

Source: CCS, 17 May 2004

Transportation Costs: Cost per Exported Volume (US$/ton)

37

90

150

0

20

40

60

80

100

120

140

160

Large SMEs Micro

Source: CCS, 17 May, 2004

The Software Sector (2003)

The Total Annual Sales of the Software Firms US$19,670,000 in the Domestic Market US$895,000 in the International Market

Only 4.4% of the Total Sales was achieved in foreign market

Source: Chilean Software Firms Group (GECHS) (2003)

International Sales of the Software Firms by Regions

Source: GECHS (2003)

0%

5%

10%

15%

20%

25%

Perc

enta

ge o

f firm

s by

rang

e of

sal

es

81-100 0% 0% 4% 0% 0% 0% 0% 0%

61-80 0% 4% 0% 0% 4% 0% 0% 0%

41-60 0% 0% 4% 4% 0% 0% 0% 0%

21-40 0% 0% 12% 4% 4% 8% 0% 0%

1-20 0% 4% 0% 12% 8% 0% 0% 4%

Brazil Argentina PeruOther South

America

Central America

EuropeU.S. & Canada

Asia

Software: Barriers to enter into the International Market

0% 10% 20% 30% 40% 50% 60% 70% 80%

Marketing

Internal Management

Quality of products

Legislative

Tax

Normative

Subsidized products

Fundamental Very important Important Somewhat important Little important

Source: GECHS (2003)

Quality Management Indicator (1/2): ISO 9000/14001 certifications issued in 2002

Asia PacificISO 9000 ISO 14001 ISO 9000 ISO 14001

Argentina 2,260 249 Australia 27,135 1,485Bolivia 31 4 Brunei 79 3Brazil 7,900 900 Cambodia 8Chile 327 55 China (*) 75,755 2,803Colombia 1,838 69 Indonesia 1,947 229Costa Rica 89 38 Japan 33,964 10,620Cuba 34 Korea, Republic 14,520 1,065Ecuador 34 1 LaosEl Salvador 12 Malaysia 3,733 367Guatemala 22 1 Myanmar 5 1Mexico 2,508 369 New Zealand 2,069 78Nicaragua 11 Philippines 766 124Panama 49 1 Singapore 5,379 441Paraguay 65 4 Thailand 4,556 671Peru 270 25 Vietnam 612 33Uruguay 231 32Venezuela 342 17

Latin America and the Caribbean

Note: China does not include Hong Kong.Source: ISO.

Quality Management Indicator (2/2): the Software Sector

Disposition CMM ISOYes, doing 28% 32%Yes, in the short term (1 year) 16% 16%Yes, in the medium term (3 years) 16% 12%Yes, in the long term (5 years) 4% 0%Yes, did it 4% 4%No 12%

Source: GECHS (2003) CMM Certified firms

Disposition of the firms to obtain quality certifications

No Firm Model Level Date1 Citibank Chile SW-CMM 2 Apr-982 Citibank Chile SW-CMM 3 Oct-993 Motorola Chile (CCST) SW-CMM 2 Dec-994 Motorola Chile (CCST) SW-CMM 3 Jan-015 América XXI SW-CMM 2 Jan-016 América XXI SW-CMM 3 Sep-027 Altec S.A. SW-CMM 2 Dec-028 Link S.A. SW-CMM 2 Jan-039 Altec S.A. SW-CMM 3 Dec-03

10 KEPLER Technology S.A. SW-CMM 2 Dec-0311 LAN Chile CMM-I 2 Mar-0412 Link S.A. SW-CMM 3 Apr-0413 Sonda Servicios Financieros SW-CMM 2 Apr-04 Source: SPIN-Chile (as of July 2004)

IT Issues for Developing Countries and Developed Countries (1/2)

Valu

e

Ad

ded

/Qualit

y

Cost/Price HighLow

High

Developed Countries

Developing Countries

IT?

IT Issues for Developing Countries (2/2)

Local customer-oriented IT Industry

with High Quality

High Quality ProductsCustomer services

Marketingetc

Export Promotion

Experiences of Chile

Traceability of Food-related Products

Main Export Items for the Chilean SMEsSeverer Requirements for Food Safety from Developed CountriesEnforcements of Regulations in E.U., Japan, and United States that require Traceability.Chile have already started experimental attempts.

Value chain and Information Flows in the Food Sectors

Information registered along a value chain based on standardized management systems will be used for tracking and tracing a individual item/lot.IT is used for capturing, registering, storing or sharing data efficiently and without errors.IT-based traceability system is more credible and efficient than paper-based system

Management SystemsInformation Technologies

Tracing

Tracking

Dis

trib

utio

n

Who

lesa

le

Ret

ail

MarketingIn

put

Pro

duct

ion

Pac

king

Sto

rage

•

Management Systems for the Food Sectors

AspectQuality

GMP

HACCPEnvironment

LaborSecurity FDA's security guide

EUREPGAP

Hygiene andinnocuousness

US GAPUS

GAP

ISO 14001

Production Packing and Storage

EU

RE

PG

AP

ISO 9001

BR

C

SA 8000

Source: PowerPoint presented by Alexis Ortiz

Encoding Standards

EAN/UCC has created systems of encoding for traceability, which are composed of, for example, Global Location Number (GLN) Global Trade Item Number (GTIN) Serial Shipping Container Code

(SSCC)

The Chilean Approach for establishing a Traceability System Initiatives for Improving Food Safety

Clean production agreement (APL) Agreements concluded between the public sector, the

representative industrial associations and more than 1,200 private firms

to promote activities for environmental protection, hygiene and labor security.

to constitute a preliminary step for firms to obtain international certifications such as ISO 9000 and ISO 14000.

The public sector will employ promised measures, such as financial support, in order to achieve the agreed targets

Good Agricultural Practice (ChileGAP/BPA) a program to define the Chilean standards of good

agricultural practices to comply with food safety requirements in North America and Europe.

Encoding Standards: EAN/UCC

Clean production agreement (APL)

Agreements concluded between the public sector, the representative industrial associations and more than 1,200 private firms

to promote activities for environmental protection, hygiene and labor security.

to constitute a preliminary step for firms to obtain international certifications such as ISO 9000 and ISO 14000.

the public sector will employ promised measures, such as financial support, in order to achieve the agreed targets.

IT Systems for Traceability

Private IT service providersTrazaChile Internet-based system accessible

from all over the world. National Chamber of Commerce,

Services and Tourism (CNC) and Chile Foundation.

Development of the IT Sector and Traceability System

ICT2 Project (V Region, CONICYT (National Scientific and Technological Research Commission), Universities, JICA) in ValparaisoICT2 was originally planned to establish a national and international center

for R&D of IT products and services. to encourage collaborations between the

academic and the business sectors. Traceability is identified as a potential area that Chile has a comparative advantage and beneficiaries will be mainly SMEs.

Digital Agenda 2004-2006

includes 34 initiatives in six action areas:

(1) access; (2) education and training; (3) e-government; (4) computerization of firms; (5) IT industry; (6) juristic- normative framework.

Policy Implications: Possible Measures against Hurdles to participate in Foreign Markets

Establishment of a Portal to improve access to information and marketing by SMEsAdministration and Quality Control in accordance with International StandardsBlanding Strategy at State, Regional and Firm Levels and Protection of IPR and TrademarkGrouping and Clustering at Sector and Regional LevelsCooperation with Importing CountriesTrade Facilitation (a system for specific processes)Simple, Standardized, Secure, Safe, Sector-focused IT Platform for SMEsFinance and Human Resource