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The Silicon Valleys of Latin America – searching for “Shared Value” development models

January 11, 2013 • Global Business

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Between 2003 and 2012 Latin America has lived through an unprecedented period of stability and positive economic performance. A region once associated with high inflation, macroeconomic instability, guerrilla uprisings and oppressive dictators has grown steadily in spite of the 2008-2009 crisis. With the exception of Argentina and Venezuela, most countries achieved high levels of economic growth whilst maintaining low inflation. Growth in Latin America was of great help to many global companies that were over-exposed to the European crisis, such as Santander, TIM and Fiat – a far cry from the times when Latin American operations needed several years of cross-subsidies from their headquarters before being able to break even, let alone generate profits.

This period of economic growth is generating new opportunities for businesses and governments (Santiso, 2006). For global businesses, it provides the opportunity to expand Latin American operations in ways that not only generate value and profits, but also contribute to local economic and social development, as postulated by Michael Porter’s “shared value” idea (Porter and Kramer, 2011). Local firms benefit from being based in fast-growing markets where a new middle class is emerging. For governments, economic growth provides extra resources to tackle the structural problems that continue to affect the region, ranging from poverty to infrastructural deficiencies and excessive red tape. Many countries in Latin America promote the formation of high technology industrial clusters as a way of fostering sustainable economic growth and development.

 

Clusters and local economic development
Clusters are agglomerations of companies and other organizations engaged in the production of a set of related goods and services – e.g. the firms that design shoes, produce the rubber sole, develop the machinery needed to assemble the shoes, and the training institutions that prepared skilled workers (Porter, 1998). A large body of empirical evidence illustrates that firms based in clusters perform on average better, especially in times of crisis (Schmitz, 2000). Clusters can be important drivers of local economic growth and development (Becattini, 2004). The firms and organizations that form clusters interact and engage in cooperative initiatives, which allow them to become more competitive than they would be if they operated individually (Porter, 1998). By working together, sharing some of their resources, and interacting with different types of public and private sector organizations, even very small enterprises can become globally competitive. Clusters facilitate coordination and cooperation economies, which help businesses overcome their resource constraints, for example by gaining better access to credit or benefitting from a common brand (Piore and Sabel, 1984).

Clusters also support innovation. Companies and research labs operating in isolation can invest large sums in research and development (R&D), pushing technological change. However, unless their research teams access ideas and inputs from other organizations, the extent to which they can innovate will be limited – they will suffer from the limitations of closure (Bell and Albu, 1999). The cross-fertilization of ideas and the exchange of knowledge across organizational barriers lay at the core of the innovative processes. A competitive cluster facilitates these phenomena by providing loci for organizations to exchange knowledge as well as mechanisms to support innovative initiatives, such as venture capital funds specializing in high tech start-ups and incubators (Audretsch and Feldman, 1996). After all, some of the most admired companies in the world, such as Apple and Microsoft, started as micro enterprises. They could develop and become global leaders not only because of the genius of their founders, but also thanks to the network of venture capitalists, clients, suppliers and advisors with whom they interacted in Silicon Valley – the most talked about cluster in the world.



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