One of the factors that explain Latin America’s lack of competitiveness in today’s global markets is the absence of innovation. Many people wonder if the private sector and the region as a whole are taking maximum advantage of research done in universities to develop new products and services. They also wonder if educational institutions are using their knowledge to support a surge of new businesses and entrepreneurs.
When it is time to examine the role of universities as centers for generating innovation, the first factor to evaluate is the system for transferring technology [from universities] to companies. Anita Kon, professor at the Pontifical Catholic University of São Paulo (PUSCP) in Brazil, argues that analytical research about social realities as well as research aimed at the empirical development of products “must be channeled toward direct utilization by society through specialized institutions that have the organizational, financial and physical infrastructure necessary for this joint effort.”
In that regard, according to Kon, both governmental and privately owned institutions, as well as non-governmental organizations (NGOs), have the potential to create linkages between universities, governments and companies that are “always supported by a legal framework that controls their operations.”
In Colombia, another one of the region’s most active economies, relationships between universities and companies have become a great deal stronger over the last decade under the leadership of Antioquia University (in the city of Medellin), which establishes direct ties between groups of the most qualified researchers, research associations and companies.
According to Hugo Macias Cardona, coordinator of the University of Medellin’s Center for Economic, Accounting and Administrative Research (CIECA), there is a growing awareness within universities that “research processes must respond not only to professors’ academic interests and initiatives but also to the needs of the business community and to the country’s developmental needs.”
In Colombia, four Centers of Excellence have recently been created, bringing together high-level research groups via a network set up within the national system of science and technology. “Each one of these centers works on areas of research that have previously been identified as strategic for national development, not only from the viewpoint of production but also [from the point of view of] the well being of the people,” said Macias Cardona.
Companies have also begun to get closer to universities, especially those companies involved in information technology. This process enables their products and services to be used and recognized by faculty members and students. Students have access to training that qualifies them for jobs where they can use these tools.
SAS, the giant multinational company that provides products for analytical and business intelligence, has already begun such an initiative in Latin America. The economics and business departments at the University of Chile, with the support of the local subsidiary of SAS, have established their own version of a diploma in business management, using a SAS software application known as “Business Intelligence.” The coursework covers several business tools, including SAS’ data mining software. “This enables universities to differentiate themselves and it provides professors with an international presence because these tools create a virtual analytical library where academics from different specialties can exchange experience about their methods for teaching these materials through use of SAS applications,” explains Andrea Szyfer, SAS’s manager of academic programs in Argentina, Brazil and Chile.
As for the students, Szyfer adds, “this provides them with a competitive advantage over others because acquiring this knowledge guarantees them better jobs in the labor market.” There are also benefits for SAS. “It expands awareness of our ‘solutions’ [software applications.] Those students who learn about these applications in the classroom today will one day enter the business world, and they will remember SAS. When universities teach their students by using our software, our credibility grows within those markets where we have a presence. In addition, this process guarantees that we have a base of trained users — both those who work in SAS and those who work within our partner companies and customers,” notes Szyfer.
Enabling Innovative Ideas
The universities of the region are already becoming aware of the key role that they can play in the emergence of new companies. Following models developed in the United States and Europe, Latin America’s leading economics and business faculties have begun to establish incubators as well as organizations designed to stimulate business growth. Their goal is to select innovative business projects and provide several ways to support the entrepreneurs who run them.
In Brazil, the PUC in São Paulo has already begun to leverage its academic know-how by means of PUC Junior Consulting, a non-profit institution formed by students in the economics and management departments. This organization aims to maximize the professional and personal performance of its members and differentiate them in the labor market so they can excel in such areas as business management, market research and social development, while also respecting such values as ethics and social responsibility.
Kon cites an example of an entrepreneurial success that was launched by PUSCP. Known as DERDIC, this company is active in phonoaudiology, serving people who have hearing problems. DERDIC is already considered “one of the best and most efficient companies in the country” in this field, says Kon. Other Brazilian universities have also launched entrepreneurial initiatives. FGV Projetos, a unit of the Getulio Vargas Foundation, provides services and seminars for consulting, training and certification. FIPE, which is affiliated with the same foundation, provides consulting on economic research. FGV Junior Consultancy has the same mission. Finally, the Mackenzie Presbyterian University operates Junior Mackenzie, a business consulting firm.
Colombia is another country where university-sponsored business incubators have been growing. At first, they were only in the high-technology arena, but others have been created in specialized areas. “These initiatives have grown very quickly, and they have provided financial support to many business ideas,” says Macias Cardona. “Nevertheless, the results are very poor in terms of the number of incubated companies that have been successful.”
Still, this has not stopped local universities. Some of them are jumping into this area, creating risk capital funds that support the entrepreneurial initiatives of their recent graduates. One such example is the University of Medellín, which has a one million dollar fund for supporting initiatives of its students and graduates. “This model has previously been implemented in other universities, and there is a close relationship with business incubators that are outside the institutions of higher education,” says Macias Cardona.
Turning Theory into Practice
In what ways can business incubators turn the research done at universities into successful companies? Gabriel Hidalgo, managing director of Octantis, a business incubator created three years ago at the Adolfo Ibáñez University in Santiago de Chile, says there are four fundamental parts in this process. “First of all, we bring researchers and business people together to create teams and ‘marriages’ where this is ‘good chemistry’ between science and business. Second, we bring the research concepts to real customers in order to evaluate their commercial viability. This involves designing a business using prototypes. Third, we support the entrepreneurial team with the patenting process, using partners where they are required. Finally, we approach investors so that the company can have the capital that is required.”
This model is producing results. Within its portfolio of 50 different projects, Octantis already has close to a dozen international patents pending, and at least six companies have been created with the participation of scientists and researchers. The combined revenues of the companies under the Octantis umbrella will exceed $8.5 million at the end of this year.
The competition for capitalists and angel investors, as they are usually called, seems to be a key to strengthening the innovation process. One of the most highly valued aspects of business incubators and business “stimulators” are networks of contacts provided to entrepreneurs. Hidalgo argues that “connections can make all the difference between whether a company happens or does not. Networks of investors are even more important than networks of capital because they are bound together by trust and contact. People invest in projects not only because of the profit potential and attractiveness of the business, but also because the entrepreneurs responsible for these projects instill confidence and make the projects seem viable for collaborators.”
How can investors limit the risks taken by business incubators, and how can they maximize the potential for profitability? Hidalgo admits that there is no such thing as “zero risk.” However, he describes a factor that plays an important role in the networks that Octantis established. “By setting up interrelated networks at each step of the undertaking, the ventures can be provided with seed money, one step at a time. If they make mistakes, the errors are rapidly transformed into lessons learned. If an idea for a business simply does not take off, people find out about that early on, so they can minimize their cash burn rate.” When it comes to profitability, Hidalgo prefers to talk about “profitable growth.” “We take ideas and we carry them out because of our process, which involves support networks. This provides [entrepreneurs with] access to investors through a succession of steps, and it cultivates a process of sustained growth. That way, we achieve profitable growth and so do the entrepreneurs. We need them to behave like pilots who are not afraid to fly at a high altitude,” says Hidalgo.
Recycling Electronic Garbage for a Social Goal
Octantis is especially proud that its support has been a key to the growth of Recycla, a small, innovative company established in Santiago de Chile in 2003. Recycla is involved in recycling electronic waste (otherwise known as e-waste), and it is the first company of its kind in South America. Recycla has won international awards because of its commitment to social rehabilitation. Sixty percent of its employees are ex-convicts. Recycla’s business model has already become the subject of research in U.S. and European universities.
Its service involves creating an inventory of electronic equipment in large companies in order to later dispose of their waste materials and return them to the plant where the recycling process begins. The equipment is dismantled into components and raw materials, of which about 75% are recovered. This output is transformed into e-scrap that is exported as raw materials to organizations in Europe and North America that are ISO 14001-certified [for meeting global environmental management standards].
“We started out by looking for funding from banks, but that plan didn’t work at all,” says Fernando Nilo, managing director and founder of Recycla. That was the reason behind Nilo’s decision to compete in an Octantis competition in 2004. “The first way Octantis made things easy [for us] was to provide access to credit. When prestigious Adolfo Ibáñez University said that our project had some value, it opened doors for us with the banks.”
The second way Octantis helped “was this: When you’re an entrepreneur, you have to listen to other people. When we were analyzing the business (with help from Octantis), we took a modest approach to our progress. We approved of those things that went well and we made changes where things were going poorly. This feedback enabled us to take bigger steps and advance more rapidly,” says Nilo.
Nevertheless, Recycla opted not to use risk investors to acquire its funding. “The people who were interested [in investing in our company] did not seem to be right for us. It was hard to leave money on the table but over the long term it was the best decision for us because we passed through the ‘valley of death’ all by ourselves. [The phrase refers to the moment when sales are between $500,000 and $1 million, and companies usually stagnate.] Recycla has gone on growing without giving away even partial control,” he says. Although Recycla does not publicize its revenues, Nilo notes that the company has increased its sales and its presence in the local market. Its next step is to export the Recycla business model – innovation, sustainability and social responsibility – to other countries in the region. “We’ve had some offers to buy this model. We have already been visited by people from Colombia and Venezuela.”
One of the principal barriers to strengthening the role of universities as centers for new business generation is the shortage of financing and infrastructure. “There are problems, for example, when it comes to obtaining adequate physical premises for accommodating the administrative staff and for undertaking services that are offered,” notes Kon. “There is also a shortage of money for travel and room and board, as well as for investing in laboratories and publications.” Macias Cardona stresses the lack of funding. Kon’s goal is to create mechanisms that strengthen the funding given to risk capital, especially in midsize countries. “A lot of progress has been made in such countries as Argentina, Brazil, Chile and Mexico, more than in such countries as Colombia, Peru and Venezuela.”
According to Kon, there is another issue that must resolved – the lack of regulatory norms, legal and otherwise, for establishing cooperation between universities and companies. “[In Brazil,] non-profit institutions, legally organized as foundations, along with other organizations that play a social role, do not get enough support from legally defined mechanisms that would make it possible for cooperation to materialize. On the contrary, Kon notes, the existing legal framework has several characteristics that either prevent or retard the process of establishing these kinds of associations.”