Fundacin Chile Institution - Essay Example

Fundacin Chile Fundacin Chile is one of the leading non-profit s, created in 1976 through an agreement between the Government of Chile andITT Corporation. At the beginning of the new millennium, Chile was positioned as one of the leading economies of Latin America, coming closer and closer to joining the exclusive group of rich industrial nations. Fundacin Chile was a leading reference point for Latin-American public policy. The foundation had been a leading institution in the area of the social and economic development, bridging the public and private. Its mission is to add economic value to Chile's products and services by promoting innovation and technology transfer activities, management techniques and human skills to natural resource-intensive sectors, aimed at taking better advantage of Chile's natural resources and productive capacity. In 1997 Dr. Eduardo Bitran assumed the office as general director of Fundacin Chile. He faced the difficult task of administering the institution, which was constituted as a private non-profit institution with 50% state ownership. One of the most innovative mechanisms that the foundation used, unique in Chile and probably in Latin America, was to create new businesses as a main means to diffuse and transfer technology. Dr. Bitran played a major role in Chile's economic development. , Chile had managed to keep to its course and to maintain growth and stability amidst enormous turbulence, in a period of economic decline that had affected all of Latin America. Recognition of the importance of new knowledge as the base of future businesses was gaining importance and Venture capital funds became the focus. Local innovation clusters were formed around the wine and salmon industries, and specialized fruit production was beginning to reveal the benefits of biotechnology and sophisticated production methods. Immediate challenge for Dr. Bitran was to identify the path and direction for Fundacin Chile. His main challenge would be administer the institution to generate social benefits, as required by the mission entrusted to it as a quasi-public entity, while at the same time acting as a private business to obtain the necessary resources that would permit it to grow and develop. Fundacin Chile's promoted innovation and technology transfer emphasizing agribusiness, forestry and marine resources. It followed several modalities like demonstration businesses, technology transfer groups, training and diffusion, and providing services such as consulting to quality control. Chile encouraged the participation from its associates and strategic allies both national and international; financing originating from the private sector was diminishing with time, while that obtained through state grants increased. Financing provided by sales of services to the public sector had not changed for several years. Fundacin Chile, besides creating innovative business and developing the programs mentioned, began to develop financial innovations for the national market. The institution sought, with these innovations, to more efficiently mobilize savings for investment in the sectors in which Fundacin worked. The foundation also created a venture capital fund for regional investments in medium-size growth businesses and new projects. Besides these venture capital funds, the foundation also fulfilled a seed financing role for innovative projects originating within the institution. Fundacin Chile was structured in four sectoral directorates: agro-industry, marine resources, secondary wood products, and forestry. The operational model was re-defined to distinguish and specify the concepts of technological centre, business units, companies and endowment management, establishing differences in objectives and in plans of management and interaction among the difference units. The technological centre was the heart of the institution and had as its mission to search out, explore, develop, adapt and diffuse technologies. The business units carried out commercial activities selling goods and services that generated synergies with the technological center. The enterprises possessed mature technologies and were salable. Their objective was to maximize value and their contribution to the foundation's endowment. Businesses that were repositories of distinctive institutional competences would be transformed into non-salable business units. The institution's main focus was agribusiness, marine resources and forestry. It is possible to divide Fundacin into three major phases. Table- 1 Evolving Technology Transfer Mechanism Capture and Creation of Technology Institutional diffusion innovative sales innovations ("Technological antenna") enterprises 1976.1982 1983-1994 1995-2001 1976-1982 Fruit quality control was emphasized during this period. The program of pre- and post-harvest management of fresh fruit sought to establish better procedures for the management of fruit through the transfer and application of appropriate technologies. Based on these experiences it became possible to identify management problems of great economic incidence; physiological and pathological disorders, problems of color and size, and mechanical damage, among others. 1983-1994 New businesses were created in the areas of aquaculture, agribusiness and forestry, emphasizing the projects of Salmones Antrtica and Centec. Fundacin Chile decided to carry out a pilot to study the technical and economic feasibility of salmon cultivation in Chile. In 1983, the success of the pilot project stimulated Fundacin to expand production to substitute for importing salmon eggs and to initiate the commercial cultivation of salmon in cages. Fundacin's unprecedented salmon project was well received in Chile. Chile's salmon cultivation industry experienced major advances of efficiency and productivity resulting from practical learning 1995-2001 New strategic lines were defined related mainly to biotechnology, ecotourism and human resources.In Chile the aquaculture sector and stock-raising improved, where the incidence of illnesses was mitigated by preventive strategies derived from biotechnology and genetic engineering. Chilean stone fruit remained excluded from the US east coast market due to quality deficiencies. In this field the strategy was to develop transformation technologies and transgenic varieties to solve these quality problems and expand the market. The application of biotechnology to Chilean salmon cultivation would improve competitiveness by reducing high mortality from illnesses through more effective diagnostic plans, preventive systems that lowered the incidence of illnesses, and new treatments with fewer side effects. Technological Innovation in Latin America and Chile Among the predominant characteristics of developed countries are high investment in research and development (R&D), the presence of innovation clusters, and a constant concern with creating new businesses based on science and technology. Chile had presented a stable, continually growing economy, a situation that exercised a powerful positive influence on technological innovation. Economic stability, international opening, an exporting orientation, favorable policies towards foreign investment and high rates of investment and internal savings were characteristics that favored dynamism and diffusion of national technological modernization. All these factors influenced Chile greatly, in a way that its investments in research were quite low. In general terms, the level of R&D expense in Chile, both public and private, was much lower than in developed countries, but about average for Latin America. This was around 0.8% of GDP, contrasting with 2.5% to 3% in countries such as Japan and United States. As to financing this expense, the private sector contributed 27% similar to participation in other less-developed countries such as Brazil (33%) and higher than in India (10%) but very far from the level reached in the developed countries (51%) and accelerated growth countries (71%). The main sectors still depended on exporting primary materials to stable markets with growing competition. This required increased domestic investment to research and develop new technologies. Fundacin competed for a variety of government grants. In the year 2000 the institution financed almost 30% of its activities with these funds. The near-dependence on public resources on the part of the technological institutes, universities and other entities made it urgently necessary for the government to implement clear and transparent funding policies. For the economy to grow as a whole and not only in specific sectors, it was also necessary to develop domestic venture capital market and to augment communication and cooperation among the universities and institutes to avoid duplicating efforts and resources. Fundacin Chile's Risks and Challenges The risk and seed capital markets are shallow. These instruments are important to fund risky innovation projects, particularly for entrepreneurs at an early stage of the R&D process, having no record of successful research undertakings, limited access to external funds and facing internal financing constraints. The development of the venture capital industry is hindered by the low liquidity of the capital market, which reduces exit options for venture capital investors; restrictions on the exit of foreign capital, such as the requirement that foreign equity investment must remain in Chile for at least 1year, which may discourage entry; prudential regulations on pension and mutual fund investment in venture capital, which reduces the investment pool; insufficient competition in the financial sector; and the country's small size and geographical remoteness, which may discourage foreign investors. To some extent, the preponderance of government financing for innovation may be crowding out equity financing. Based on a survey conducted by a NGO in 2003, of the USD38million of funds available for new business ventures and projects in 2002, 87% were public. This included FONDUE and CORFO, through FONTEC and its Seed Capital Programme. The main private funds in 2002 were Fundacin Andes, Negocios Regionales and Santiago Enova. Fundacin had clearly fulfilled a role of high importance within the NSI and in Chile's social and economic context. This positive evaluation of past activities indicated that the institution's strategy had been generally successful. This analysis confronted the foundation and Dr. Bitran with complex dilemmas, giving risk to several insights into future necessary activities. There was an interest in supporting improvements in local capital markets, including venture capital and seed capital. It seemed reasonable that Fundacin Chile should itself continue as a seed and venture capitalist. One of the greatest dilemmas related to the public or social benefits that the institution's mission required it to generate and private participation necessary to obtain a large part of the resources for the institution's operation. The foundation needed to act in such a way that the private sector did not see it as a competing business, or as an institution that generated competing businesses. The institution never portrayed itself as a participant in established economic sectors, but rather sought out opportunities that private companies frequently avoided because of high risks and very long-term profits. The opportunities and the options were many, and the task of deciding which road to follow would not be an easy one. Read More