IT Usage for Direct Exports by Chile’s SMEs Yasushi Ueki Division of International Trade and Integration, ECLAC Institute of Developing Economies, JETRO November 23, 2004

Definition of SMEs SMEs are defined by annual sales Micro: less than 2,400 unidad de fomento (UF) (US$72,000) Small: from 2,401 UF to 25,000 UF (US$72,000 to US$750,000) Medium: from 25,001 to 100,000 UF (US$750,000 to US$3 million) Large: more than 100,000 UF (US$3 million) Note: Some governmental institutions have their own definitions to manage their policy instruments.

IT Usage by SMEs

Penetration Ratio of IT among SMEs in 2002 Source: Subsecretaria de Economía (2002).

Percentage of Firms with Internet Connection

Percentage of Firms with Web Sites 7% 11% 13 % 25% 33% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Large Medium Small TOTAL Micro Source: Centro Economía Digital CCS

IT Usage Areas Source: CCS, Economia Digital 2004

Principal Activities on the Internet by firms in 2004 Source: CCS, Economia Digital 2004

E-commerce (US$ million) Source: CCS, Economia Digital 2004

E-commerce Driving force: ChileCompra (Gov. procurement) Source: CCS

Principal Activities of E-commerce with Suppliers (% of the total firms with Internet transactions with their suppliers) in 2002 Source: Subsecretaria de Economía (2002).

Principal Activities of E-commerce with Clients (% of the total firms with Internet transactions with their clients) in 2002 Source: Subsecretaria de Economía (2002).

Current Status of SMEs in the Chilean Economy

The present Situation of the SMEs 1.2 million firms (54% are formal) in 2001 More than 95% of the formal firms are Micro and SMEs Micro (82% of the total), Small (15%), Medium (2.1%) The Major sectors in 1997, to which SMEs belong: Commercial sector: 40% of the Micro+Small firms: Agriculture+Livestock:12% Transport: 8% Manufacture: 7% Professional Service: 5.5%

Composition of the Formal Firms by Size 1. Number of Firms (2001) 2. Number of Exporters (2003) Source: CCS

Composition of Export Values by Firm Size (%) in 2003 Source: CCS

Main Products exported by SMEs in the first Quarter Grape (Sultanina) 2. Sawn Board of Insigne Pine Tree 3. Services 4. Grape (Red Globe) 5. Wine (Red) 6. Wine (Cabernet Sauvignon) 8. Grape (Flame Seedless) Other Grapes 9. Apple (Royal Gala) 10. Raspberry 11. Fresh Plums 12. Wine (Merlot) 13. Wine (Merlot)

Question! Have SMEs succeeded in Direct Exports sufficiently?

Percentage of Export Values in 2003 by Firm Size Source: CCS

Exports by Regions in 2003 (%) Source: CCS

Weakness of the Chilean SMEs= IT Applications Area Quality Management Information Management Marketing and Sales Sales Management Publicity and Communications Customer Relations Market Strategy Planning Inventory Management Finance Source: CCS

Transportation Costs: Percentage of Exported Value Source: CCS, 17 May 2004

Transportation Costs: Cost per Exported Volume (US$/ton) Source: CCS, 17 May, 2004

The Software Sector (2003) The Total Annual Sales of the Software Firms US$19,670,000 in the Domestic Market US$895,000 in the International Market Only 4.4% of the Total Sales was achieved in foreign market Source: Chilean Software Firms Group ( GECHS) (2003)

International Sales of the Software Firms by Regions Source: GECHS (2003)

Software: Barriers to enter into the International Market Source: GECHS (2003)

Quality Management Indicator (1/2): ISO 9000/14001 certifications issued in 2002 Note: China does not include Hong Kong. Source: ISO.

Quality Management Indicator (2/2): the Software Sector Source: GECHS (2003) CMM Certified firms Disposition of the firms to obtain quality certifications Source: SPIN-Chile (as of July 2004)

IT Issues for Developing Countries and Developed Countries (1/2) Value Added/Quality Cost/Price High Low High Developed Countries Developing Countries IT?

IT Issues for Developing Countries (2/2) Local customer- oriented IT Industry with High Quality High Quality Products Customer services Marketing etc Export Promotion

Experiences of Chile

Traceability of Food-related Products Main Export Items for the Chilean SMEs Severer Requirements for Food Safety from Developed Countries Enforcements of Regulations in E.U., Japan, and United States that require Traceability. Chile have already started experimental attempts.

Value chain and Information Flows in the Food Sectors Information registered along a value chain based on standardized management systems will be used for tracking and tracing a individual item/lot. IT is used for capturing, registering, storing or sharing data efficiently and without errors. IT-based traceability system is more credible and efficient than paper- based system

Management Systems for the Food Sectors Source: PowerPoint presented by Alexis Ortiz

Encoding Standards EAN/UCC has created systems of encoding for traceability, which are composed of, for example, Global Location Number (GLN) Global Trade Item Number (GTIN) Serial Shipping Container Code (SSCC)

The Chilean Approach for establishing a Traceability System Initiatives for Improving Food Safety Clean production agreement (APL) Agreements concluded between the public sector, the representative industrial associations and more than 1,200 private firms  to promote activities for environmental protection, hygiene and labor security.  to constitute a preliminary step for firms to obtain international certifications such as ISO 9000 and ISO The public sector will employ promised measures, such as financial support, in order to achieve the agreed targets Good Agricultural Practice (ChileGAP/BPA) a program to define the Chilean standards of good agricultural practices to comply with food safety requirements in North America and Europe. Encoding Standards: EAN/UCC

Clean production agreement (APL) Agreements concluded between the public sector, the representative industrial associations and more than 1,200 private firms to promote activities for environmental protection, hygiene and labor security. to constitute a preliminary step for firms to obtain international certifications such as ISO 9000 and ISO the public sector will employ promised measures, such as financial support, in order to achieve the agreed targets.

IT Systems for Traceability Private IT service providers TrazaChile Internet-based system accessible from all over the world. National Chamber of Commerce, Services and Tourism (CNC) and Chile Foundation.

Development of the IT Sector and Traceability System ICT2 Project (V Region, CONICYT (National Scientific and Technological Research Commission), Universities, JICA) in Valparaiso ICT2 was originally planned to establish a national and international center for R&D of IT products and services. to encourage collaborations between the academic and the business sectors. Traceability is identified as a potential area that Chile has a comparative advantage and beneficiaries will be mainly SMEs.

Digital Agenda includes 34 initiatives in six action areas: (1) access; (2) education and training; (3) e-government; (4) computerization of firms; (5) IT industry; (6) juristic- normative framework.

Policy Implications: Possible Measures against Hurdles to participate in Foreign Markets Establishment of a Portal to improve access to information and marketing by SMEs Administration and Quality Control in accordance with International Standards Blanding Strategy at State, Regional and Firm Levels and Protection of IPR and Trademark Grouping and Clustering at Sector and Regional Levels Cooperation with Importing Countries Trade Facilitation (a system for specific processes) Simple, Standardized, Secure, Safe, Sector-focused IT Platform for SMEs Finance and Human Resource