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Friday 20 October 2017

Internationalisation of SMEs and regional development

As part of France-Colombia Year, CERALE has decided to study the relationship between the internationalisation of SMEs and regional development. A review of the seminar with the International & European Institute.

The question of the internationalisation of SMEs has become increasingly important over the last few years, given the low growth in the Eurozone and the economic slowdown in Latin America due to the fall in prices of raw materials. In this period of economic challenges, the development of SMEs is a key issue in regional development.

In both Europe and Latin America, small and medium-sized enterprises (SMEs) represent more than 95% of the productive fabric and account for a significant proportion of the jobs generated by the private sector. For this reason, their performance has a large impact on the income and working conditions of a large percentage of the population. 

Faced with the rapid changes and the growing complexity of the global market, many SMEs are seeking to enter international markets, as well as trying to find a sustainable and profitable place in global and regional value chains. Although this internationalisation is crucial to their survival and growth, and to the job market, they are still finding it difficult to gain access to these markets, and are still underrepresented in global commerce.

In this context, Colombian SMEs occupy a special position: as the third-biggest economy in the region with GDP growth of almost 2%, Colombia, for a long time undermined by the guerrilla war, has recently reached a peace agreement which could lead to a new era of economic development. Despite the impact on economic growth forecasts of the fall in the price of oil and other commodities, the country expects exponential growth in exports over the next few years. Moreover, the Colombian economy is today among the most dynamic in Latin America. With 48 million inhabitants, it registered mean growth of 4.3% per annum between 2005 and 2015.

Thanks to the free trade agreement reached with the European Union in 2013, trade between Europe and Colombia is rapidly expanding, as demonstrated by the recent increase in commercial exchanges between France and Colombia: the arrival of the Carrefour group in Colombia in the 2000s confirms major French groups’ interest in Latin America.

Colombia is in the midst of a great transformation process towards peace, development and growth. Nevertheless, the country’s potential remains largely under-exploited. For this reason, when compared with other emerging countries, productivity gains remain fairly low, because of the relatively high cost of labour. The vulnerability of the middle class, the large number of informal and insecure jobs (52% of jobs are informal) and the high rate of unemployment (50% among the young) exacerbate this general weakness of the economy. 

The Colombian economy, which had “an excellent record over the last decade”, as highlighted by the OECD’s 2015 report, has not been spared by this problem and has reduced its economic growth forecast (1.1% of GDP in 2017 according to ECLAC). 

Colombia thus finds itself confronted with many challenges: the transition from an intermediate-revenue to a high-revenue country, increasing its growth rate in a sustainable manner, boosting investment in human capital, particularly in education and training, improving the level of financial inclusion of the most underprivileged and developing a fiscal policy that will reduce inequalities.

What role can Colombian SMEs play in meeting these challenges? Thanks to their human scale, representative of the local socioeconomic fabric, Colombian SMEs make a significant contribution to improving the quality of life of local populations, developing the peripheral regions, generating innovation that is well-adapted to local requirements and reducing inequality. To illustrate these claims, four case studies were presented to the seminar by professor-researchers from the Universidad de los Andes, ESCP Europe’s academic partner in Colombia: 

  • Agricola Himalaya is a company with over 55 years’ experience in the tea industry, during which time it has become the Colombian market leader, with a selection of high-quality brands (Hindu, Bitaco). Located in the Cauca valley, a region marked by the guerrilla war with the FARC and the violence associated with drug trafficking, Agricola Himalaya contributes to improving the quality of life of rural communities through its Foundation, which finances education and infrastructure projects.

  • Fruandes produces and markets industrial food products. Its innovative entrepreneurial process is based on respect for organic production criteria and fair-trade principles. A family company, Fruandes has placed environmental awareness and the fulfilment of human capital at the heart of its internationalisation process.

  • Off-bound Adventures (OBA) is an educational tourism company that organises educational trips for primary and secondary school pupils, thus enabling young Colombians to become familiar with local cultures and to (re)discover the periphery of a country where reconstruction is in full swing.

  • MISI Productions is the biggest cultural and creative development platform for the consolidation of musical theatre in Colombia. Its musical theatre school has trained more than 25,000 students, and its performances have been watched by more than one and a half million people throughout the world. In 2020, it plans to position itself as one of the biggest cultural centres in Latin America.

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