WorldCity Business Magazine

Emerging entrepreneurs

by Claudio Mendonca

Entrepreneurship is on the rise in Latin America, but the trend may reflect necessity more than innovation.

Sometimes it’s because of opportunity. Other times it’s by necessity. Either way, entrepreneurship is gaining momentum in Latin America.

A 2005 survey by the Entrepreneurial Research Institute at Florida International University concluded that the region is increasingly entrepreneurial. However, much of the shift comes as a result of low wages in traditional jobs combined with high unemployment rates. Absent other opportunities, Latin Americans are starting their own businesses.

“One-third of the people in Latin America, we call them necessity workers. They are desperate because they can’t find work,” said Paul Reynolds, a professor at FIU and director of its Entrepreneurial Research Institute. “I’d much rather have them start a business than engage in other ways of earning a living.”

By comparison, the latest annual study by U.S. Global Entrepreneurship Monitor, directed by Babson College in Boston and the London Business School, found that only one in 10 U.S. entrepreneurs start a business out of necessity.

Reynolds discussed FIU’s findings at *WORLDCITY’S *Connections event titled “The Latin Entrepreneurs: a new generation of business leaders.” He was joined by two South American entrepreneurs, Uruguayan Pablo Milburn and Venezuelan Salomn Mishaan, who shared the stories of the their own startups.

In the past, entrepreneurs in Latin America had found it difficult to compete against huge family run monopolies commonplace in some countries. They also were denied access to business loans at manageable interest rates or other types of investment capital.

According to the FIU survey, up to 18 percent of Latin Americans between the ages of 18 and 64 are in the process of starting a business. Reynolds said entrepreneurship “out of necessity” occurs more frequently in developing countries than in richer nations. In countries such as Peru and Venezuela, the FIU professor added, two of every five adults are opening some type of company. Of these new enterprises, nearly 70 percent are unregistered companies.

Mishaan, president of MUSA, a franchising firm that owns dry cleaning company Oxxo Care Cleaners in South Florida, said 40 percent of the Venezuelan economy has become dependent on non-regulated or informal businesses.

Mishaan, a University of Miami graduate, left Venezuela in 2000 because of worries over the growing number of kidnappings there. He chose Hollywood as the launch site for his ecologically focused dry cleaning business, which eschews the harsh chemicals traditionally used in dry cleaning processes in favor of more ecologically friendly solvents.

Born in Colombia and raised in Venezuela, Mishaan established the company as a franchise and pushed its growth. Oxxo Care Cleaners now has 14 outlets in Florida, one in New Jersey and another in Washington, D.C. The Oxxo president said he is targeting the California market and also has an eye on Canada.

But, so far, he has no interest in taking the business to his native South America. He doubts that investors in the region could make a success of an Oxxo franchise, adding that Latin Americans like to manage their businesses in their own way, not according to a prescribed list of guidelines.

“Buying a franchise is not a magic wand,” said Mishaan. “For a franchise to be successful, a franchisee needs to work, get involved, be committed and has to be an entrepreneur.”

Milburn’s entrepreneurial path took a much different direction than Mishaan’s. In 1990 in his hometown of Montevideo, he opened a company that would eventually evolve into The Datamyne, which tracks and sells a wide range of foreign trade information to corporation. At the time of the startup, Milburn was 23.

Last year, the Uruguayan entrepreneur relocated the company’s headquarters to Miami, which he describes as a starting and strategic point for growth in the U.S. market. He said South Florida is a convenient spot for cross-border business and a good spot to reach one of his targets: the Latin American divisions of multinational corporations. The Datamyne also has an office in Uruguay.

“We are growing our business but we want to go further,” says Milburn.

New realities, old problems

Entrepreneurs may be surfacing at a faster rate in Latin America, but that doesn’t mean the obstacles are gone, the Connections panelists said.

Entrepreneurship in Latin America is still hindered by bureaucracy, including the prohibitively high fees required to start a business, as well as high taxes. Reynolds said legislation in Peru, for example, makes it as burdensome as possible for a small firm to launch. He said that system protects established businesses that are owned by that country’s elites.

Reynolds said Latin American entrepreneurs also have difficulty getting access to cash and financing for their companies. “It costs twice as much getting a business established in Latin America” as it does in the United States,” said Reynolds.

Milburn at The Datamyne concurred.

“Uruguay has a small market and there is lots of bureaucracy to start a business,” he said of his home country. “Opening a business in the United States is much easier because government knows you’re going to pay taxes and employ people.”

Milburn added that start-ups do not have much access to capital to the Uruguayan financial system making it “tough for a company seeking growth.” However, the founder of The Datamyne noted that it is becoming harder for companies in the United States to obtain loans from venture capital firms especially after the “dot-com bust.”

“Obtaining a loan is a tough process,” Milburn said.

Still, research shows that other factors have created a nurturing environment for startups in the United States. The latest annual study by U.S. Global Entrepreneurship Monitor, or GEM, concluded that U.S. entrepreneurs are in a league of their own when it comes to building innovative businesses that contribute to the overall economy.

More than in any other nation, the GEM research found, the United States encourages “high-potential entrepreneurship” new, fast-growing ventures in high technology and knowledge-transfer businesses. The United States has more early-stage entrepreneurs and greater investment rates when it comes to start-ups. The majority of those entrepreneurs are young males from upper income groups.

GEM research started in 1999 with 10 countries. The 2006 study looks at entrepreneurship in 39 nations. GEM research is directed by Babson College in Boston and the London Business School.

While comparing business operations in the United States with business in Latin America, MUSA’s Mishaan said entrepreneurs do more long-term planning in the United States. In South America, he added, the vision is short term.

“In the United States if you plan for the short term you are going nowhere,” he said. “You have to look very far ahead.”