Sunday, October 09, 2011

The Growth of Foreign Start-Ups in Chile

Copper Investing News: Copper Mining in Chile: Part I
FT: UK Start-ups Head for Chile
Huffington Post: Chile Edging Up to America as Startup Heaven El aterrizaje de los silicon boys
Nearshore Americas: Country Profile: The Secret Behind Chile’s Thriving Outsourcing Industry

Washington Post: People, Not Industry, Power Innovation in Chile
Prior to 2010, Chile had established itself as an outsourcing hub for information technology (IT) because of its IT-friendly business environment, including a well-developed telecommunications infrastructure and the second-highest rate of research and development investment in Latin America. Chile developed its IT outsourcing industry to break free from its economic dependence on mining. Chile has the world’s largest copper reserves, which have allowed it to become the largest producer and exporter of copper. Historically, Chile’s economy has depended largely on its copper exports, which has meant that Chile’s economy has suffered when copper prices have dropped. Although in 2008 Chile’s IT outsourcing industry generated $800 million and employed 20,000 people, Chile’s goal is to make outsourcing a $5 billion industry by 2015. Experts, however, fear that over-development of the outsourcing industry could result in a large number of Chilean professionals abandoning their positions in other important technical fields, such as mining, for higher-paying IT jobs.

Experts have, therefore, suggested that instead of concentrating on outsourcing to generate revenue, Chile should “import” entrepreneurs to help grow its industrial sector and, thereby, its economy. Thus, in March of 2010, Chile launched a program called Start-Up Chile designed to “import” 1,000 entrepreneurs over the course of three years. The government hopes that the entrepreneurs will bring new ideas to improve technology, increase innovation, and boost wealth. Furthermore, Start-Up Chile encourages foreigners to hire locals, teach Chileans what they know about business, and help build Chile’s international reputation as a center for technology development.

However, the people that came up with the idea for Start-Up Chile realized that Chile, as a relative newcomer to the technology industry, would have to compete with major technology centers like Silicon Valley for entrepreneurs. Therefore, the government agreed to grant entrepreneurs $40,000 in start-up capital, free office space in a modern facility shared with other start-ups, and assistance moving among other benefits. The entrepreneurs only have to promise to stay in Chile for at least six months. Additionally, unlike in other countries that offer similar start-up incentives, Start-Up Chile does not require entrepreneurs to have funding in addition to the $40,000 the government provides to participate in the program.

Although the entrepreneurs are under no obligation to stay in Chile after the initial six month-period, government officials hope that other incentives, such as a low cost of living, will encourage them to stay. About forty percent of the companies that first took part in Start-Up Chile have stayed thus far. Entrepreneurs have been attracted by the ability to use the cash grants for any expenditure, the collaborative working environment they share with the other start-ups, and the credibility they gain globally by being chosen as one of the few start-ups to receive grants from Start-Up Chile. As the global financial crisis continues, Chile’s stable economy also presents an attractive alternative to starting businesses in the United States or Europe, which are teetering on the brink of a second recession.

Start-Up Chile has already proven to be mutually beneficial for Chileans and foreigners alike. American, Canadian, and British entrepreneurs have especially benefitted as the largest groups of foreigners to have received grant money. Chileans living abroad are the third-largest recipients of Start-Up Chile funding. While efforts by other governments to support innovation have failed, experts believe that Start-Up Chile will succeed because it invests in people who already have knowledge and capabilities in their fields and can share them with Chileans to help develop Chile’s economy.

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