Latin Americans have this nasty habit of arriving late. Not to appointments, which some still do, but to the adoption of crucial business practices to make the jump to a new development level. Want proof?
Economists have told us for decades that a capitalist firm in a competitive market is subject to a growth imperative, because uncertainty about profits in a no-growth scenario makes company prospects quite bleak in the short run, and the probability of going bankrupt rises significantly in the long run.
On other shores, researchers in business have repeated ad nauseam that innovation is at the very heart of growth. CEOs in developed markets are convinced of that by now. That’s why a recent PwC survey shows that 75 percent of the CEOs of large U.S. private companies prioritize innovation and growth as their top corporate objective.
Now let’s go south. Latin America and the Caribbean rank low on innovation. It’s not a perception, but a quantifiable fact. The Global Innovation Index 2014, which measures 81 elements that affect innovation in 143 countries, places the average score for Latin America at 32.9. It’s somewhat better than that of Sub-Saharan Africa (30.7,) but it lags dramatically far behind that of the United States (60.1.)
Averages sometimes hide severe disparities, and that is the case with innovation in the region. A survey from the IDB shows that only 23 percent of the big Latin American companies invest in R&D, but even worse is that the figure is 10 times larger than that of medium and small companies.
It is true that there are cases in which it is advisable to avoid innovation. For instance, when there are no competitors, or when the competitors are lousy innovators as well. That sounds much like the protected Latin America of most of the last century. But not now when the competitors have disembarked and are well established onshore. For instance, contracts given to Chinese firms in the past decade in the region add up to almost $40 billion, and direct investments, another $70 billion.
Sure, governments can help corporate innovators, but frankly, that is a task for the private sector. Ask Alejandro Ramírez Magaña, CEO of Mexican Cinépolis, and he will tell you that his company has made a great number of changes in the past 17 years, at least six of them, radical. Everything from modifying the popcorn containers, to increasing the slope of the auditorium, placing large format screens, and more recently, to incorporate full sized playgrounds – with slides and a ball pit – inside movie theaters. No wonder this company transformed itself in 20 years, from a local cinema operator to be the largest in Latin America, the third in India and the fourth worldwide.
At the Latin Trade CEO Roundtable held in May in Riviera Maya, the CEO of the Boston Consulting Group, Rich Lesser, listed six actions that characterize top growth, value-generating companies: they deeply understand the consumer in local markets; they have a bold mindset especially when it comes to investing (M&As allowed;) they leverage digital to offer new value to customers; they are highly adaptive and respond fast to market changes; they invest in talent; and finally, they maintain functional excellence. There is not very much room for government, and a huge space for innovators on this list.
There is space for shifts in business models, for adoption of new technologies, or for the use of old technologies in new ways. What about participating in the quiet, but in motion, image revolution? David D. Burstein, author of Fast Future: How the Millennial Generation is Shaping Our World, says that in our now image-based world, there were more photos taken last year than all the photos taken in the history of our world.
Not to speak about uses for Big Data or for the Internet of Things.
Successful, highly innovative multilatinas like Falabella, AmBev or BRF, have many examples of best practices that most companies can follow. They treat innovation as any other production process. They have a top executive in charge of the process, and innovation has a clear corporate purpose – i.e. business outcomes in mind. For them, innovation is not a “nice to have,” and they plow-on with, or in spite of, government support.
For less innovative companies based in Latin America, currency depreciation has moved the time to set-off the alarm clock. But the sun is now out, and those who wake up only when the bell goes off, will be late.
Yet again.
Santiago Gutiérrez,
Executive Editor
sgutierrez@latintrade.com