Colombian Entrepreneurial Ecosystem - Essay Example

Colombian Entrepreneurial Ecosystem The Colombian armed conflict of 1964 is one of the memorable conflicts which started after the Colombian war. The conflict was between the government and guerrilla groups mainly made up of peasants who formed revolutionary armed forces. The government fought with insurgents including the Fuerzas Armandas Revolutionarily and de Columbia (FARC) from the left and Ejarato de Liberacion National (ELN) on the other end, while the paramilitary groups in collaboration with government forces confronted the guerillas (Acs &Szerb 109). The armed conflict in Columbia had drastic effects on all sides: the government forces, the guerillas, and even the civilians. A large number of people, approximately 90,000, lost their lives with millions of people being forcibly displaced. Several other people were kidnapped with many being disabled by landmines and explosion of bombs. Properties such as buildings, roads, and other infrastructures were destroyed in the process of the soaring conflict, hence leading to massive physical destructions. The armed conflict started because of protest for the rights of the poor Columbians with the desire to be protected by government against social injustices and unequal distribution of resources including land and wealth, which made the people of Columbia dissatisfied. Out of these, there came up strategic protests to forcefully demand these rights by taking over governance by force and violence (Acs &Szerb 113). This struggle was undertaken by different groups at regional and subdivision levels through conflicts. Their anger was directed to state utilities, infrastructure and regions perceived to be beneficiaries of public resources, such as those in strategic routes of transportation of weapons, drugs and food. Other areas attacked are those seen to harbor state forces or those which provide them with resources. This Columbian conflict had far-reaching effects on the business sector in Columbia and its environments. It affected the entrepreneurial performance, which includes the regulatory framework, access to capital, access to R&D technology, entrepreneurial capabilities, market conditions and culture. By affecting these determinants, the conflict changed and determined how entrepreneurship is carried out in Columbia. Entrepreneurs were affected both directly and indirectly by the conflicts in Columbia. Entrepreneurs faced high transactional cost because of the unfavorable business climate resulting from the conflicts. Merchandizing was spoiled due to the disrupted network and infrastructure since goods and services relying on them could not reach their destination. Businesspersons also lost international partners because the conditions were unfavorable for business. This led to loss of business opportunities, which made many companies close their business. Entrepreneurs could not invest freely for fear of being victimized and kidnapped, extorted or attacked. The room for expansion was limited by competition for territory, which was managed by guerilla groups. With high insecurity, finance meant to be used in business was invested to cover for security and insurance of their investments. Huge amounts of finances were spent in efforts to control conflicts with development projects and peace initiatives started in Columbia. This strained businesses and even led to closure of some. The entrepreneurship culture was eradicated and individuals were stopped from investing because of insecurity in the market. Prices of natural and industrial goods increased because of decreased production as demand increased; the low production was witnessed as a result of insecurity and instability in the country during the war. Regulatory Framework in Colombia Whereas laws have been enhanced, the implementation approaches in Colombia are weak because of mainly the idea that defense spending is exploiting the civilian economy and entrepreneurial growth. During the 1990s, defense budget averaged 1.36% of the total GDP. Even up to early 2000s, the country’s defense spending was largely lower in relation to other countries at war, which included the Latin American states at peace. Beginning in 2002, President Uribe raised the country’s defense costs to strengthen military actions over the guerillas. Colombia’s spending on defense rose from $2.5 billion in 2001 to more than $10 billion in 2010. Laws and implementation approaches, nonetheless, became unsuccessful because of lack of support from police force alongside civil law enforcement. As per the World Bank’s transacting business in 2011 report, Colombia was positioned No. 3 in Latin America for the simplicity of carrying out business. The state’s performance is enhanced above average for Latin America in relation to the time taken, costs as well as the size of steps for setting up business. Nevertheless, Colombia is the best country within the region to safeguard an investor. Nonetheless, the conflict affected the regulatory framework whereby most of the initial production framework was dismantled and, in turn, new methods and regulatory frameworks that were difficult to implement were adopted (Gonzalez 48). In addition, Colombia also executed a number of pro-SME regulations, which depended on direct government aid of SMEs. The authorities have also raised the availability of micro credit for small entrepreneurs. From a research of more than 50 countries with respect to their friendliness to small businesses, Colombia was positioned at number 29. Indicators of Oligarchic Capitalism In relation to some other South American countries, corporations and state ventures had insignificant roles in Colombia within the twenty-first century. Profits of the four biggest Colombian business teams were approximated at 12% of the country’s GDP, as compared to Latin America which average was 9.6%. Similarly, revenue of the 10 biggest business teams in 1995 was 29% in Colombia as compared to 11% in Argentina, 11% in Mexico and 8% in Brazil, while in Latin America it stood at 14%. The grupos that are largely family-owned had close relationships with top government executives and depended on the government for a number of resources such as credit, favorable rules, and contracts performed within the closed system and conquered in a number of factories. Politicians, on the other hand, relied on the grupos for their advice and campaign supports. These approaches formed the foundations of mutual interdependence and continuing institutional “partnership” association between them. Furthermore, the country depended on the grupos for jobs investments, jobs, and taxes. Not just the grupos but, in addition, the paramilitary teams were able to infiltrate the country. This form of regulatory framework where the grupos depended on the government for numerous favors was altered and now everyone was to seek genuine businesses if they were to remain in the market. Most people whose income was from the government had rough time after the Colombian conflict since they had to adjust to the real life. For the grupos family, the conflict was considered as the worst calamity that had stricken the community. Financial and Banking Capital Markets The Colombian stock market is tiny with minimal market capitalization and has a few listed firms, reduced volume of deals and is trivial with some few forms of funds. Colombia’s main stock exchange, the Bolsa de Valores de Colombia, emerged in 2001. In 2007, the Bolsa’s stock market capitalization was $60 billion. As at 2010, the Bolsa had nearly 20 shares aggressively dealt with market capitalization of 60% GDP in relation to the 100% in Chile. For the financial capital markets, its entire initial regulatory framework changed after the conflict as people started withdrawing large amounts of money to run to different countries or seek alternative saving institutions that they thought were safer. The banking system had to allow individuals to carry out transactions as they wished, since failure to accept would lead to the banking sector destroyed and looted (Gonzalez 45). The undergrowth of the Colombian stock market may be attributed to the desire and the supply factors. In relation to the structure corporate of Colombia, the biggest organizations in the state have depicted reluctance and rejection to be listed on the stock market. Being substantially family-owned, they are identified to be a preservative midst and, therefore, are inclined to avoid volatility for equity markets. For Mexicans, the Colombian middle class are the most inclined to the real estate venture and they set aside funds to be invested in the stock market. Because of the largely undergrown capital market that came about due to the Colombian conflict, investors have limited investments options except those related to property market (Hofstede 86). Because of the Colombian conflict, small businesses in Colombia alongside its citizens have lacked access to finance and banking. This is because these ventures were thought to be contributing negligibly to the government; therefore, they need not be supported. During the conflict the country needed quick sources of money and small businesses could not offer this; therefore, their regulatory framework was completely assumed as not existing. International remittances in Colombia are greater than those of several Latin American states, and Colombia was positioned third in 2006 among the Latin American states for the entire remittances obtained, just behind Mexico and Brazil. When compared with the GDP, remittance summed for 3.3% for Colombia while that of Brazil was 0.3%, with Mexican ratio standing at 2.9% (Tomaselli 176). Access to Market The local market provided little growth chances and the issue of little growth was brought in by the Colombian violence which broke the opportunities and made people diverge their resources because of violence instead of moving on with the expansion and economic activities. The violence made it impossible for anyone to access markets or trade their goods and services. The violence sends away prospective foreign investors as they fear for their lives and businesses. With the violence being fresh, no firm would even accept to merge with another since the likely partner dreads the aftermath of such violence. Without violence, the country could have progressed and enlarged to international markets, likely by M&A. On the other hand, with the presence of violence, the country could not have attained a free trade agreement that it reached in 2011. At least currently, market accessibility has been improved and investors can penetrate easily even to international markets (Portes 8). Access to R&D and Technology Colombian violence was a great disaster to the individuals as well as to the country as a whole with respect to R&D and technology. With violence experienced everywhere, mainly in the potential markets, investors and scholars ran away for their safety as they feared for their lives. This led to delayed growth, innovation, creativity, and industrialization. This is because when people are not in good terms with one another, they tend to concentrate more on the conflicts and cause of violence rather than on the new approaches of ensuring growth and prosperity. This determinant of entrepreneurial performance is highly affected since there will be slow rate of technological innovation that can boost economic advances. For research and development to take root by entrepreneurs, one needs a stable environment where people concentrate on what affects them in terms of past challenges, and try to find precise solutions. However, with violence especially in Colombia, people turned their research to producing weapons instead of crucial entrepreneurial approaches. Furthermore, if there was a trend being followed, violence eliminates the trend and brings other new dimensions of the business field. Research and development was, thus, affected negatively in Colombia, but recently R&D has seen an overhaul in its activities. Now, entrepreneurs have embraced it seriously and are using it to get new business approaches. This is because through it, they explore past challenges and come up with modern solutions of countering such challenges, hence bringing many benefits to the entrepreneurs (Hofstede 126). Entrepreneurial Capabilities Company’s abilities created on its resource foundation are fundamental to its entrepreneurial undertakings and performance. With technological advancements, people have gained top entrepreneurial capabilities. However, the Colombian violence affected its growth and application since violence was precisely unstable, hard to approximate, and uncertain. The consequences of uncertainty developed from violence are often of more magnitude since it entails extra, yet heavily weighted proportions: the people’s physical security. Violence in this region caused fear and consideration of individual safety, hence harming rational economic decision making. Within the region, violence also made investors, suppliers, founders, and buyers develop overly pessimistic hazard approximations and greater risk-averse choices, therefore developing erratic and, in some cases, irrational behavior among the entrepreneurs. Nonetheless, this determinant has changed where individuals can now withstand uncertainty through changing the planning steps. For instance, entrepreneurs embrace incremental planning, which is focused on reacting to surrounding matters at the operational phase. This raised fresh opportunities through assisting firms to enhance working performance by regular examination of present steps (Acs & Karlsson 124). Market Conditions Market conditions were affected by violence within a given region. For instance, when violence erupted in Colombia, most entrepreneurs stopped taking their goods to the market. This led to deficiencies of goods and services and made the scarce resource be overexploited. This determinant is crucial for entrepreneurs as they often get new business dimensions. However, with violence the market size is reduced and most businesspeople as restricted to just a given small market. With this, goods flow will not be as expected, hence leading to reduced profits and revenues for all entrepreneurs. This slows down the general national economic growth as combined entrepreneurs often total to what the country gains as a whole (Portes 16). Culture Time and again, various entrepreneurs have diverse cultures, traditions and norms, of which these possibly add to the variances in entrepreneurial performance and characteristics. Entrepreneurs usually work individually while implementing new ideas and mechanisms of survival in business. Any change of this makes entrepreneurs disoriented. For instance, when they form partnership for work purposes, violence such as the one experienced in Colombia makes individuals act personally or separate as each one tries to safeguard what they have, so that not all is destroyed. Culture is formed over a long period of time and when violence erupts, entrepreneurs run to different places while seeking to continue their businesses elsewhere; therefore, the affected region remains without any entrepreneurs. This leads to poor economic growth in that region and possibly a slow rate of general community progress (Tomaselli 109). Nonetheless, this has changed after some time in Colombia where they can now experience new entrepreneurs coming up with modern cultures which eliminate discrimination. When entrepreneurs team up their efforts, they form a culture of mutual coexistence, hence leading to an improved rate of growth as it has been seen in present Colombia (Acs & Karlsson 125). The World's Most Dangerous Countries Reports indicate that there are substantial untapped and unrecognized economic prospects in Afghanistan, especially in the private sector. With a good number of developed cities such as Kabul, Jalalabad, Kandahar, Heart, and Mazar-e-Sharif, the country has great entrepreneurial potentials due to the high number of people living within these cities. Even with lack of power in most other parts of the country, there are currently new factories that are being constructed. Such factories are likely to increase the rate of industrialization if given the necessary support, and entrepreneurs in this region will possible make good revenues from investing in them easily. The low economic progress encountered within this region is due to the country’s historical culture of frequent conflicts and wars from within and outside the country. However, more and more entrepreneurs who fled the country three decades ago have returned and they are finding that this country is their dream coming true with respect to entrepreneurship. There is a growing economy in Afghanistan and entrepreneurs can easily take advantage of that procedure to gain. Because of their past conflicts, the whole universe is pouring their resources for reconstruction of which the infrastructure is now taking root. Security, which is often a great risk to entrepreneurs, is improving since the Afghan citizens are determined that they will not turn back to their old chaos again (Portes 24). When compared to the Colombian entrepreneurship determinants, we realize that most of these determinants vary significantly. The regulatory framework, for instance, in Afghanistan is very strict and all businesspersons must comply with it at all times. This is because the country still remembers most of its conflicts and causes and now authorities are trying to eliminate them through a strict regulatory framework. Unlike in Colombia, the violence occurred many decades ago and most of the entrepreneurs have adapted to the system leading to reluctance by the authorities (Gonzalez 56). Access to capital is very hard in Colombia, but in Afghanistan – since the whole universe has shown consideration for their plight – the offer is to support them by all means. This ensures that access to capital is easy as they get sponsors and well-wishers easily. Therefore, investment in Afghanistan is more likely to develop faster than in Colombia, where it took several years before to get any sponsor in order to aid in the reconstruction process (Acs & Karlsson 127). Access to R&D and technology for the two countries is almost the same. This is because most of the Colombian citizens have all embraced education, which is essential to boosting their technological innovation. Afghans also are very advanced in terms of technology and entrepreneurs take advantage of this determinant to penetrate the market. This aspect also goes hand in hand with entrepreneurial capabilities where most of the Afghans are great business individuals. Since Afghanistan is in the process of reconstruction, they get a number of investors, hence promoting positive market conditions (Acs &Szerb 121). This is because more and more investors are always risk takers and once they see an opportunity, they move in to take it. Colombia did not experience this feature and that is why the market condition encountered a slow business introduction. On the other hand, culture in Afghanistan is still observed and preserved at all cost. All people within this region are expected to keep the culture, thus leading to foreign investors being slowly accepted unlike in Colombia that welcomes any willing investors without following many cultures and traditions (Hofstede 163). Recommendation on What Measures the Colombian Government Can Take to Further Improve the Colombian Entrepreneurial Ecosystem Regardless of the prolonged violence in Colombia, the Government needs to tap the enduring entrepreneurs as a crucial element of the foreign aided reconstruction plans. The government needs careful and precise evaluation of the entrepreneurs’ wants, ambitions, and trajectories alongside a more accurate examination of indirect channels by which violence influences entrepreneurial tasks. Whereas data gathered by Colombian survey agencies is fundamental in offering an image of the way issues unfold in the socio-economy, they are inadequate as the foundation on which to built intervention plans to implement adjustments focused on aiding performance of entrepreneurs’ requirements. The Colombian government should always provide survey data in a timely manner to encourage entrepreneurs and introduce them to new opportunities that are still untapped (Tomaselli 123). Research is also a crucial determinant and the government needs to concentrate mainly on narrative-based research of entrepreneurial task to contextualize and meet formal evaluation of economic growth. It is also essential for the Colombian government to promote diversification and support all entrepreneurs in the strategy of boosting general growth. Works Cited Acs, Zoltan J., and Charlie Karlsson. "Special Issue: Institutions, Entrepreneurship and Firm Growth (II)." Small Business Economics 19.3 (2002). Print. Acs, Zoltan J., and Laszlo Szerb. "Entrepreneurship, Growth, and Public Policy." Small Business Economics 28.2/3 (2007): 109–122. Print. Gonzalez, Fernan. The Colombian Conflict in Historical Perspective: Alternatives to War: Colombia’s Peace Processes. 2004. Print. Web. . Hofstede, Gibson. Culture's Consequences: International Differences in Work-Related Values. Newbury Park: Sage Publications, 2004. Print. Portes, Abraham. "Social Capital: Its Origins and Applications in Modern Sociology." Annual Review of Sociology 24 (2008): 1–24. Print. Tomaselli, Wesley. “Bogota Entrepreneurs Stress Needs to Improve Startup Ecosystem.” November 13, 2012. Web. November 20, 2012. < http://colombiareports.com/colombia-news/economy/26978-bogota-entrepreneurs-stress-need-to-improve-startup-ecosystem.html>. Read More