Latin America: in search of more competitive SME's

Experts coincide that the problem with SME's in Latin America is not so much a result of the number of companies, but rather their lack of growth and the low quality of employment they generate. Although the creation of enterprises is high compared with Asia, for example, companies that survive usually grow at a slower pace than those of their peers in more advanced regions. This situation, essentially resulting from the lack of innovation, limits the possibilities of expansion of SME's in the region and, therefore, slows down the growth of the countries.  

Manuel Malaret, Corporate Director of CAF's Productive and Financial Services, explains, "Latin American countries should promote an economic and institutional context that encourages innovation and helps strengthen human capital, while at the same time they promote competition and increases in productivity. When there is a healthy competition, companies tend to explore new export markets, which contributes to their professionalization, their growth, and their internalization". 

According to the expert, small companies have been in the center of public policies, trying to alleviate the lack of entrepreneurial growth. This has led to the development of governmental programs to support SME's. Access to these programs has been generally subject to the number of employees.  

Entrepreneurship and innovation 

Practically one third of Latin American workers are autonomous or small employers, as explained in the Reporte de Economía y Desarrollo 2013 (Economy and development Report).  Few of these employers get to hire a worker and most continue to be very small even after decades of operation. 

Malaret states, "In general, the degree of innovation of Latin American entrepreneurs is lower than that of other regions such as Asia, Europe, or North America. This makes entrepreneurial growth in Latin America slower and, consequently, does not generate quality employment".  

In addition, on average Latin American companies invest in R + D substantially less than high-income countries, and most of this investment is from the public sector.   

The lack of innovation in Latin America not only involves SME's. In fact, Latin American multinational companies also register innovation deficits with respect to foreign multinationals. This situation shows that in most cases, companies go abroad to sell the same product, and not so much to connect to value chains.      

Informality is also an element that limits the consolidation of these types of companies in Latin America. According to experts, for the consolidation to be attractive, it is necessary to facilitate and reduce the costs of bureaucratic processes while at the same time create incentives, such as simplifying the processes, reduce tax rates, create more support programs for their development and financing, or programs for State purchases in SME's.

These measures should help SME's in the region become a source of employment creation and an economic driver of the national economies. Given the current deceleration scenario in Latin America, this needs the efforts of all the actors involved, from the SME's to the governments.