June 25, 2013 -- A global race is on to create the next Silicon Valley, and Latin America is rapidly embracing technology and innovation as it vies to be the epicenter of the next tech boom. The stakes aren’t trivial. It’s clear that the countries that can develop new ideas and technology will be the economic winners of the 21st century.
That’s why the Brazilian government, for instance, recently launched Startup Brazil, a business accelerator that aims to attract local and foreign talent to build tech companies in Brazil.
The program, which will provide entrepreneurs with up to $100,000 in grant money as well as office space and access to investors, is modeled after Startup Chile, the pioneering business accelerator launched by the Chilean government a few years ago.
Chile was the first Latin American country to focus on attracting startups and developing an ecosystem of innovators. Other countries in the region, like Colombia and Peru, have followed their lead.
Ideally Latin America will create a network of mini-hubs (the US has a handful of innovation centers like this including Seattle, Austin and Boston) that will help drive regional innovation. However, we are years, maybe decades, away from that happening. Someone will need to stand out and lead the pack.
So who will dominate the innovation game in Latin America?
In some ways Chile has put itself out front, but with just 17 million people and an economy equal to the size of Maryland, it is just too small.
There are some cool things happening in Colombia and Peru, and both are growing fast, but they have gotten a late start and may be too far behind to be major players. Argentina probably has the most developed tech sector and the best pool of talent, but the government is a mess, the economy is slumping and the business environment is terrible. So count them out.
The countries with the greatest chance of success, then, are Mexico and Brazil. While both are poised to do well, it’s Mexico that ultimately has the advantage. Here’s how they compare in five key areas:
1. Talent: It’s a Tie
One of the most important building blocks of an innovation hub is talent. You need the intelligent and creative people who are going to develop the ideas that create new products and fast-growing companies. Mexico and Brazil are home to the best universities in Latin America, with the University of São Paulo and Universidad Nacional Autonoma de Mexico leading many regional rankings. Both are now also attracting talented immigrants because of their economic growth.
2. Size: It’s a Tie
To be a hub you need to be big enough to reach critical mass. If you’re going to create a network of innovative companies, you’re going to need thousands of innovators founding and staffing them. Mexico and Brazil, unlike Chile and Peru, both have large internal markets and the infrastructure to export globally.
3. Investment: It’s a Tie
You need investment to fund the expansion of new ideas and startup businesses. Mexico’s and Brazil’s steady economic growth—during a period of relative global stagnation in the last 5 years—has attracted billions in foreign direct investment. Domestic investment is also rising, but investors haven’t yet injected much capital into the tech sector. More needs to be done to entice and attract venture capital investors—in both countries.
4. Rules: The Advantage Goes to Mexico
You need a clear system of rules and regulations to create a business environment in which innovators can thrive. One of the reasons that Silicon Valley is in the United States and not Russia is because of the strength of the U.S. legal and patent systems. Here’s where Mexico pulls ahead. According to the World Bank, Brazil ranks 121st in ease of starting a business. Mexico ranks 36th. The Mexican government is now also cracking down on the monopolies that have kept service poor and prices high in key sectors like telecommunications. If these efforts are successful, they will open up more opportunities for startups and make life easier for entrepreneurs.
5. Location: The Advantage Goes to Mexico
It has been said that being neighbors with the U.S. has been both a blessing and a curse for Mexico. In terms of trade, investment and innovation, it’s mostly a blessing. When Silicon Valley investors think about Latin America, they go to Mexico first. It’s next door and shares a time zone with both California and Texas. It’s no coincidence that two of Mexico’s biggest innovation centers, Tijuana and Monterrey, are in Northern Mexico. Meanwhile, São Paulo is a 13-hour flight from San Francisco and 10 hours from New York.
So if you cut through the noise and look at the big picture, Mexico is the place to be for innovation in Latin America. It has all the ingredients. Now it just needs to put them together.