Why Chile and Colombia lead the world for entrepreneurship

Fernando Fischmann once had a dream of building a holiday resort around an artificial lagoon that many international experts considered “practically impossible”. Today, 15 years later, Fischmann holds the Guinness World Record for the largest swimming pool in the world, and his dream is a global business with patented technology that has developed over 300 projects in 60 countries. Where is this lagoon? Dubai? Las Vegas? Shanghai? No – it is in a small coastal town near Santiago in Chile.

And Fischmann is not alone there. According to new research by the World Economic Forum in collaboration with Global Entrepreneurship Monitor and Endeavor, Chile stands out from a sample of 44 countries for having avoided a common trap in entrepreneurial impact. It goes as follows: in informal and less competitive economies, relatively more businesses are started, but entrepreneurs are rarely innovative or create many jobs. As economies grow more competitive, fewer entrepreneurs start businesses, but those who do are more frequently innovative or ambitious regarding job creation. In both cases, the countries in question have good traits, but lack other ones to achieve the full entrepreneurial potential.

Chile and Colombia are singled out as the only countries to have broken out of this trap and become entrepreneurial “all-rounders”: for the size of their economy, they have high levels of new businesses launched by high-impact entrepreneurs who frequently innovate and expect to create a large number of jobs. Fischmann is just the tip of the iceberg in one of the most dynamic entrepreneurial ecosystems in the world, where Chile, and specifically Santiago, is becoming a nexus for entrepreneurial ventures.

How did Chile get to where it is today? Given a long history in extractive industries, local businesses would frequently be low value-add. This changed radically during the last decade, when Chile launched a suite of public-private initiatives. Best known is Start-Up Chile, which aims to create one of the biggest start-up communities in the world (and was noticed by Beyondbrics). Selected entrepreneurs from around the world receive a work visa and $40,000 seed capital from the government. In only four years, more than 1,000 entrepreneurs have heeded the call. Crucially, the government expects participants to take part in events promoting entrepreneurship awareness in local communities. The goal is not only to attract top global entrepreneurial talent, but to leverage this talent for a change in Chilean business culture to be more enterprising, growth-oriented and innovation-driven – a key ingredient in thriving entrepreneurial ecosystems.

But the government has also made structural changes that are less well known. A national online platform enables entrepreneurs to start a new business in one day with zero cost. A “re-entrepreneur law” makes bankruptcy proceedings straightforward and low-cost. Those adjustments help with the daily challenges of entrepreneurship, beyond the hype.

Yet to simply copy from Chile would be to miss its lesson. To see why, consider Colombia’s success – the second “all-rounder” in the study. Colombia faces very different challenges from Chile, including high levels of inequality and risks of political instability. While the Chilean approach has concentrated on its challenge of changing cultural norms, Colombia has focused on developing a strong institutional framework to grow the number and ambition of its businesses.

In the 1990s, the government re-examined its fundamental approach to entrepreneurship. It shifted from protective industrial policy towards supporting small- and medium-size businesses. At that time, the term política de desarrollo empresarial (entrepreneurship development policy) was coined. Since then, Sergio Zuluaga, former director of entrepreneurship and innovation in the ministry of commerce, industry and tourism has described the government’s approach as “try fast, learn fast, fail cheap”.

Alongside numerous initiatives to reduce regulatory barriers and increase capital available to business, two pieces of legislation are hallmarks of the Colombian approach. A 2006 legal framework galvanizes entrepreneurship across all industries, through a national and regional network for entrepreneurial development. In 2009 there followed the creation of a national initiative for science, technology and innovation, which focused on supporting high-tech, high-impact entrepreneurs.

Juan Andrés Fontaine, former Chilean minister of economy, argued that: “Instead of changing the world through revolution, we can change the world through innovation.” This insight applies to economies – but equally to governments, who can do a lot by innovating their own approaches and processes.

The pathways to thriving entrepreneurial economies are manifold. Copycats of the Chilean, Colombian or well-known Silicon Valley model may therefore be disappointed. But governments that pay attention to the balance of three ingredients – the number of entrepreneurs, their ability to innovate and their growth ambition – and address them in turn, have the best chance for success. The study shows the positive impact of Europe’s recent policy focus on innovation, but equally it points to a lack of entrepreneurial numbers and ambition in many countries – arguably, those need to be next on policy-makers’ to-do list.

The lesson from “all-rounders” is that context is everything and each successful policy has a story of its own – which mirrors, as Fischmann would agree, the story of entrepreneurship.

Click here for the full report on which this blog is based, Leveraging Entrepreneurial Ambition and Innovation: A Global Perspective on Entrepreneurship.

Authors: Michael Drexler is Senior Director and Head of Investor Industries at the World Economic Forum. José Ernesto Amorós Espinosa is the coordinator and main researcher of Chile’s Global Entrepreneurship Monitor, based in Santiago, Chile.

Image:  A businessman rides an escalator at a banking district in central Tokyo November 27, 2014. REUTERS/Thomas Peter