Leg 4. From Melbourne to Hong Kong (III). Are we different enough Argentina?

eleonoraescalantestrategy 8 Jan 2018 1 Comment

Argentina´s Differentiation Strategy will be achieved only when it provides something unique that is valuable to investors beyond simply offering a good low price as it has been the case for other Latin American countries. Will Argentina differentiate from the rest of the countries by building a new “entrepreneurship and start-ups system value proposition”, an example for Latin America and the rest of the world?…

The Doldrums are external conditions affecting decisions on the sailing routes.

Bonjour a Tous! Bonjour a my beau Alex Guillermo Lozano Artolachipi too!… I love you, Alex!… Right now the Volvo Ocean Race 7 teams are sailing near the Solomon Islands. The first position is in between Vestas and Turn the Tide on Plastics, but all the teams are near to each other, which makes a tight close competition. Even in sailing racing, Porter´s generic strategies apply. Each of the 7 teams has to make decisions when facing external conditions of change in the ocean.

Today positions at 13:00 UTC

At any point in time, the navigators can see changes from steady trade wind to more unstable conditions associated with the doldrums. Each skipper may have a differentiation strategy which can prove to give them a competitive advantage to win. In this case, the Doldrums are the external conditions, and each of the teams will decide which route to go in order to differentiate themselves and gain some competitive advantage too!

Let´s go to today´s topic: The Differentiation Strategy. The Differentiation Strategy involves the development of unique products or services, relying on brand/customer loyalty. A firm can offer higher quality, better performance, or unique features any of which can justify higher prices. How many times we decide on a higher-cost product, just because we know it has specific unique features? And we end up spending more on it simply because of certain attributes or quality which distinguish it from those of its competitors. Porter Generic Strategies table.jpg

If we wish to differentiate to establish a competitive advantage, we have to start by realizing this is possible because of the concept of “change”. We all compete in a dynamic marketplace. And the reason why we can apply Porter´s generic strategies is that of the inherent dynamics of external and internal changes. Change is part of the human competitive landscape and in consequence, change is the reason why an industry evolves. The source of change may be external or internal to the industry. When each company is facing a change (either internal or external), each company has to decide upon their resources and capabilities (supply side) and the customers’ value proposition (demand side) in order to formulate a differentiation strategy.

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If you wish to download the last set of presentation slides, click here: Eliescalante Leg 4 Differentiation Strategy.

For example, we will try to understand the concept of a Differentiation Strategy, applying it to a country potential competitive advantage. Yes, indeed we can use these frameworks to try to understand economic value propositions with nations too. I have chosen Argentina today. Why? Because I am interested in start-ups and entrepreneurship in Latin America, and Argentina is implementing internal and external changes as our Volvo Ocean Race navigators are crossing the doldrums in the ocean!

Mauricio Macri is planning to change a century of Argentina´s tragedies.

Mauricio Macri: Argentina´s President since 2015.

Since the year 2015, in Argentina, Mauricio Macri’s new administration flag has been the flag of CHANGE. To implement monetary and fiscal tightening and implement several legal reforms to promote investments, which is hoped to lead to revamping economic growth. A change from Cristina Kirchner to Mauricio Macri is an external change for the companies doing businesses or based in Argentina. With Macri´s changes, in Argentina, each company in each industry has to adapt and make decisions in such new environment. “The more challenged an industry´s environment is, the greater will be the number of sources of change and the greater the opportunities to deploy differences in the bundles of resources and capabilities that each firm possesses”.

Be Unique Argentina!

Macri´s new internal re-structuring policies are the foundations for the return of the Foreign Direct Investments or FDI. It is expected all his economic reforms and new policies will slowly strengthen the investor confidence, which can lead to the recovery of the economy. Macri has also pledged to end the policy of capital controls and bring the country’s exchange rate to a more realistic level, while the country’s central bank is also expected to finally reduce inflation through a tightening monetary policy. Up until here, this is what Macri has been doing. But Macri´s team at the “Ministerio de Relaciones Exteriores y Culto”, “Ministerio de Producción” and “Presidencia de la Nación” can´t make it happen alone. In order to promote FDI, the Argentinean private sector has to believe and act upon the same “differentiation strategy” with Macri´s team. Without the private sector empowerment demonstrated with relevant actions to attract FDI, this won´t happen automatically. Remember, the Government is simply a facilitator for a country´s wishes. Macri´s objective to attract FDI will happen in reality, only if Argentinean private entities start to show their own confidence in the country and we can see the development of investing by the same Argentinean private sector. Particularly, the start-ups’ and venture capital industry in Argentina is the best indicator to check if the Argentineans believe and act upon Macri´s strategy.

To attract new Foreign Direct Investment (FDI) when the rest of the Latin American Countries are doing the same, Argentina has to position itself and differentiate from the rest through actions of innovation support, development of the start-ups’ ecosystem and venturing capital inside their own country. For Argentina, the value proposition to attract new FDI will be measured in their own start-ups’ industry. It is a big challenge!. Argentinean private sector has to work all together with the Macri administration to build a successful “start-up” business model industry, which can compete in attributes and success stories with other Latin American Countries start-up models.

argentina lonely planet In the latter context, at the moment, the Macri´s administration has created The Argentina Investment and Trade Promotion Agency (it was established in 2016). It has identified $250 billion in investment opportunities in energy, mining, transportation, and infrastructure, including railroads, ports, airports and other transportation facilities. The government actively courts FDI participation in the financing, development, and operation of such projects.

In addition to external changes to the economy triggered by Mauricio Macri´s government, for each company, there are internal changes which help to create the competitive advantage. Internal change is generated by Innovation and Entrepreneurship. Innovation requires imagination, intuition, and creativity. Despite the fact that many private companies such as Siemens, Dow Chemical, Royal Dutch Shell, Banco Santander, Pan American Energy and Coca-Cola have announced plans to invest or increase existing investments in Argentina, these are just announcements. During the last 2 years, 574 enterprises (international and local companies) with 778 projects for a total amount of US$102,575 Million have been promised to Argentina. To me, the promise of US$ 102,575 million of private sector investments is a good sign. And we wonder: With such amount of promised investments, how will Macri differentiate Argentina from the rest of South American countries? What makes Argentina unique to promote and sustain FDI with long-term vision perspective? The answer may be the degree of innovation and entrepreneurship reflected in the “start-ups and venture capital industry”. Look at it: Argentina is not alone in its quest for FDI but also has to compete against countries like Brazil, Colombia, Mexico, Chile, and Perú. Chile is way ahead of Argentina in terms of an innovation and entrepreneurship “image”. Chile has an advantage over Argentina because it has paved its brand internationally with their Start-Up Chile Program, and the Chilean private sector representatives do believe in it. And empower it. Can you see the importance of the private sector trust for their “start-ups industry” here?. “Chile has funded more than 1,309 start-ups with a total valuation of US$ 1.4 Billion dollars”. Start-Up Chile’s public-private partnerships (PPPs) and relationships with top Chilean universities and research institutions, has helped to identify and cultivate innovation organically. “New innovative enterprises play a vital role in determining how dynamic a country´s innovation will be”.

Let´s see when a Latin American country starts to show up in these rankings. Do we think Argentina will become the South Cone Innovation Hub?

Let´s ask ourselves: A little quiz, from the outside, do we see Argentina as the next country in the South Cone to create a solid “entrepreneur” name internationally? At the top of our head, as mentioned previously, Chile has coined this brand much better. But Argentina is still sailing. Even though Argentina has shown some initiatives as NXTP Labs (with 170+ portfolio investments), IncuBAte, and some other incubators and accelerators such as ItBAF, there is still a long road for Argentineans to show us their impact in becoming the best hub for start-ups and venture capital ecosystem for the region. The promised investments pipeline of US$ 102,575 Million has to be accompanied by a strong development of the “start-ups and venture capital industry”. This will determine the future success of Argentina differentiation strategy.

Source OECD Start-up Latin America 2016.

Are we observing a new era of “Argentinean” entrepreneurship?.

“For start-ups to flourish in Latin America, the innovation and production systems need to become denser, private investors must begin to back start-ups and countries need to strengthen their science and technology capabilities and close the gap in the digital economy”. OECD.

This is all for today. On my next post, we will continue with the “Focus Strategy” and I will add more examples of corporate venturing capital, accelerators and incubators industry in Latin America. Thank you.