By: Anthony Pappalardo, Jacob Sloan, Michael Hansen, Matthew Scott
Lighting the Entrepreneurial Fire
Argentina’s current economy is dominated by the manufacturing sector, but the country as a whole, and more specifically Buenos Aires, has become a recent hotspot for entrepreneurship and innovation in the technology industry. As Latin America continues to catch an entrepreneurial “fever,” there has been a clear emergence of startups and venture capital backed firms in the region. Just last year, Argentina’s Globant became the first Latin American software company to launch an initial public offering on the New York Stock Exchange. Globant began as a self-staffed firm in Buenos Aires that focused on IT offshoring, however since the birth of the company in 2003, it has transformed into one of Latin America’s fastest growing companies, and now features over 2000 employees and a market cap of over $615 million. Globant also exemplifies the goal that many entrepreneurs have of expanding outside of just Argentina – the firm now operates in Uruguay, Colombia, the United States and the United Kingdom.
Globant represents a major technological success story, but much of the Argentine startup scene is represented by smaller companies looking to survive on the broad economic stage of the Argentine economy. StartupRanking.com lists Argentina’s 248 recognized startups, ranging from Taringa!, a Spanish language social media site, (rated 46th overall in the world) to Avenida, an e-commerce website, to Restorando Argentina, an online tool used by restaurants and consumers to manage meal reservations (similar to the American company OpenTable).
Venture Capital and startup incubators have been key to the boom of IT entrepreneurship in Buenos Aires and the rest of Argentina, and is a key part for future growth of the industry. Endeavor Global is an international non-profit with the mission to “lead the global movement to catalyze long-term economic growth by selecting, mentoring, and accelerating the best High-Impact Entrepreneurs around the world”. (Endeavor Global – Our Mission) Endeavor has been key in the success of former startups-turned-corporations like Globant and MercadoLibre, an Argentine hybrid between Amazon and eBay that was Endeavor’s first company to go public in 2007. Both of these companies began as tiny firms, but grew to the point where they exist in a handful of countries both in South America and the rest of the world. Avenida, mentioned earlier, is another company that has been influenced by the influx of Venture Capital in the region, as one of the companies invested in by Quasar Ventures, an Argentine VC firm, described as a “company that builds companies.” Avenida has currently raised $20.5 million in two rounds of funding, and is one of ten companies that Quasar hopes to develop in the next four years.
Outside of just Argentina, the entrepreneurial fever doesn’t seem to have an inclination of cooling down. In the last five years, investment into new firms in South America (both in the amount of money raised and the number of funding rounds) has grown dramatically, but as more and more companies join this growing market, a single entrepreneur in Argentina is certain to face far more competition in the future.
Who Am I : Part 1
Today about 15.9% of the Argentine population are engaged in entrepreneurship and 9.6% of them already own or manage a business. These numbers are growing as 41% of Argentine adults see good opportunity to start a business. However, of those who see opportunity, 25% of them would be prevented from starting a business from fear of failure. And who can blame them, Argentina is facing economic and political trouble. But what motivates this part of the population to do what venture down this path and what does the typical entrepreneur look like in Argentina?
We will be exploring the researched and statistical side of this in part one of this two part series. This section also focuses on Latin America as a whole with some Argentine specific data mixed in. Part two will feature perspectives from actual Argentine Entrepreneurs about what motivates them and what they believe a typical entrepreneur looks like after the trip takes place.
Latin America as a whole traditionally favors men as the money earners in the family. This trend is beginning to decline as more women are entering the workplace. In Argentina today for every ten male entrepreneurs there are seven female entrepreneurs. In recent years, this ratio is trending more towards equality, but Argentina still has a ways to go before that.
Higher economic status also gives an advantage to entrepreneurs in Latin America according to a study conducted by the Inter-American Development Bank. A typical middle class entrepreneur will begin his business at the average age of 31.3, while a wealthier entrepreneur will begin his venture around 29 years old. Entrepreneurs of higher social status in Latin America also tend to have a higher education rate (78% vs. 67% of the middle class entrepreneurs are university graduates or more). According to the study findings “Latin American middle-class entrepreneurs’ families are less exposed to the business world than their more affluent counterparts.” The middle class is also less likely to have higher experience as an entrepreneur than their wealthier counterparts (44% and 34%, respectively). In Argentina 57.8% of the population perceive themselves as possessing the required knowledge and skills to be an entrepreneur. In several respects, entrepreneurs whom come from wealthier families tend to have an edge on others.
What sets Argentine entrepreneurs apart however, “is their ability to adapt to different changing scenarios from the political and economic reality of the country” according to Andy Freire, a successful Argentine entrepreneur. It is no secret that the Argentine government and economic system have been going through dramatic changes and times of crisis in recent years. These entrepreneurs, like any successful entrepreneur, have had to adjust and as a result Freire suggests that Argentine entrepreneurs are “persistent,” “stubborn,” and “passionate.” These conditions have also “trained Argentine entrepreneurs to find creative answers” (Freire). Successful Argentine entrepreneurs and their companies have been shown to exemplify these characteristics.
Entrepreneurs in Latin America, and more importantly Argentina tend to share similar motivations. According to the IDB study Latin Americans with higher wealth “the role of family and university is more important” to starting a business than middle class entrepreneurs. In Argentina 47% of entrepreneurs start a business to pursue opportunities and increase their income or independence. On the other hand, 30% of them do so because they have no other choice. 57.8% of the Argentine population sees entrepreneurship as a desirable career choice. A portion of the population (52%) also sees entrepreneurship as a way to achieve higher status. These motivations showcase how and why Latin Americans and Argentine Entrepreneurs start a business. Part two will ask entrepreneurs why they continued their business and confirm or deny these assumptions.
Keeping “The Man” in Mind
Prior to making the trip to Buenos Aires, recent governmental circumstances have hindered those trying to start a business. The extent of the legal process undergone to start a business is surprising. Although the recent rush of the “Pink Tide” in politics has suggested support and reform in terms of income redistribution and other social issues, funding for small businesses remains stagnant. Compared to average G20 economies, Argentina has significantly less opportunities to obtain private equity, venture capital, and credit. Also, if the funding is received, the actual process of starting a business in Argentina is a long and tedious one. Solely starting a business requires a 14+ step process that in total takes 4 days longer than the G20 average. In Argentina, businesses spend the second most time on tax issues compared to other G20 economies, behind only Brazil (whose business owners spend almost 600% more time on tax related issues). Fortunately for Argentina, their focus on educating their citizens on entrepreneurial skills has begun to increase.
In 2014, top market sectors in Argentina included agricultural machinery and parts, electronic security equipment, food processing equipment, information and communication technology, and tourism to the United States, making entering these sectors from the ground up a difficult endeavor. However, with the increase in funding for R&D expenditures, more and more technology startups are beginning to sprout, opening many opportunities for tech-savvy companies to take advantage. Much like the United States, tax rate on business is relatively high and is consistent across the board regarding size of the enterprise. Compared to the United State’s 40%, Argentinian business owners are required to hand over 35% of their earned income to the ailing government. A large reason why many potential business owners shy away from the idea of starting their venture is the liability and fear of failure. The culture in Argentina is such that if they do end up being unsuccessful, their community of peers looks down upon them although they were solely trying to help themselves and the economy. They have the choice of being a Limited Liability Company or a Corporation, but even with these options, they are more afraid of disapproval of failing than the potential for success.
Once in Buenos Aires with access to the country’s largest business center, the knowledge and experiences of local entrepreneurs will be accessible. Potential ways to gain insight from a first-hand perspective could be the speaker presentations, interviews, surveys, and observations of trends noticed throughout the city. Also, based on the sources available at the moment, it will be interesting to see if the information obtained from local business owners concurs. Although the opportunity to investigate these companies will be extremely beneficial, it may not be a holistic representation of all entrepreneurial endeavours in all of Argentina, as seen in this video: https://www.youtube.com/watch?v=SRMnexxY3cw. Fortunately for the country, the statistics seem to point toward economic growth due to better quality legal processes and policies. Learning business and current foreign trends regarding certain growing industries from that particular country will be beneficial in innumerable ways.
When considering starting a business in a foreign country, one must consider the best way to market his or her product. Marketing in Argentina, as it is in most countries, is best employed through cultural acclimatization. The product or service that the business hopes to provide should fit the needs and wants of the consumers or nation that it wishes to do business with. Though the marketing plan for a company may have been successful on domestic soil, that does not mean that it will be met with the same level of success on foreign soil. This is, in great part, due to the cultural foundations within the country. It is because of these foundations that a business must redefine itself to fit the country that it wishes to expand to.
When considering the proper method to market a product, it is best to assess the most successful and preferred mediums of advertising. In Argentina, the strongest medium of advertisement is print media. Following close behind, and growing rapidly, are television, internet, and radio advertising; as these technologies become more commonplace, these mediums are becoming increasingly important. Direct marketing in Argentina is especially becoming more lucrative due to the increase in e-commerce.
Other than the medium, it is also paramount to consider social trends linked to a country’s culture. Beliefs, superstitions, family, cultural descent, and personality all play an important role in how Argentinians behave and react towards a business and its products. For a foreign business with aspirations of expanding internationally, it is best to employ the services of a marketing firm that specializes in operating in the country in question. One of these companies is the Argentine Association of Advertising Agencies (Asociacin Argentina de Agencias de Publicidad), an Argentinian marketing firm that helps foreign entrepreneurs shape and redefine their products to fit the people’s desires.
A problem that Argentina and many other countries are currently facing is a lack of support for entrepreneurs. In a presently slow growing economy such as Argentina’s, many young and aspiring entrepreneurs are often times receive very little support because it is considered a significantly riskier financial endeavor. However, even when the country suffers from a history of economic and political instability, there are several foundations dedicated to the growth an backing of entrepreneurs.
Two of these are Endeavor Foundation and Young Americas Business Trust. Organizations like these support entrepreneurship and help promising entrepreneurs get off the ground through their extensive investor networks and experience. They are key in providing support in slow developing economies. The best way for entrepreneurs to get backing from these organizations is through applying. Due to demand, the selection process is grueling and incredibly competitive, but those that make it through are provided with mentoring, networking, and access to the resources of the organization.
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“Andre Freire of Endeavor Argentina Talks Local Entrepreneurship.” Endeavor. N.p., 28 Aug. 2012. Web. 17 Mar. 2015.
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Kantis, Hugo D., Juan S. Federico, and Luis A. Trajtenberg. Latin American Middle- Class Entrepreneurs and Their Firms: A Regional View and International Comparison. Working paper no. IDB-WP-314. Inter-American Development Bank, July 2012. Web. 17 Mar. 2015.
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