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Creation of Social Value in an Unfavourable Economic Environment: Latin American Agro- Industry SMEs in Al-Invest

  • University of Guadalajara, CUCEA Departamento de Mercadotecnia y Negocios Internacionales

Abstract and Figures

The aim of this paper is to show the SMEs as an engine for development in low-income countries and growing inequality, as in the case of Latin American. Based on evidence recovered in the past five years on internationalization and innovation in unfavourable economic environments; generating social value of the town is analysed. The main conclusion is that the SME is closer to local problems. It recognizes the local need. This allows the existence of a virtuous circle between the competitiveness of SMEs and local development.
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Global Connectivity, Knowledge and Innovation for
Sustainability and Growth: New Paradigms of Theory and
Vidya Atal
Ram Sewak Dubey
Montclair, New Jersey, USA
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Creation of Social Value in an Unfavourable Economic Environment: Latin American Agro-
Industry SMEs in Al-Invest
Tania Elena Gonzalez-Alvarado,
Elsa Georgina Gonzalez-Uribe,
University of
Marketing and International Business Department,
The aim of this paper is to show the SMEs as an engine for development in low-income countries and
growing inequality, as in the case of Latin American. Based on evidence recovered in the past five years on
internationalization and innovation in unfavourable economic environments; generating social value of the town is
analysed. The main conclusion is that the SME is closer to local problems. It recognizes the local need. This allows
the existence of a virtuous circle between the competitiveness of SMEs and local development.
Delimitation of the problem
Based on a multisite case study method, Zain & Ng (2006) examined how indigenous Malaysian small and
medium-sized enterprises (SMEs) use their network relationships to facilitate their internationalization process. The
evidence from
case of three
firms and one control firm in
internationalization process in the ways that network relationships trigger and motivate them to internationalize,
influence their market- selection decision and mode-of-entry decision, help them gain initial credibility, allow access
to additional relationships and established channels, help in lowering cost and reducing risk, and influence their
internationalization pace and pattern (Zain & NG, 2006). But, it is not enough for local development across the
internationalization of SMEs.
The internationalization of the companies does not guarantee the dissemination of technological progress
between different local production systems. Production linkages with external dynamic activities are reduced. The
net creation of skilled jobs is limited and the effect of diffusion of innovations in the productive base of each
territory is low. For this reason, is important a territorial policy that fosters both innovation as enterprise
development. Training of human resources in line is also needed with each local production system. Political
conditions also ensure environmental sustainability by economic activities (Alburquerque, 2001). The
thing is to incorporate the exogenous dynamics as part of the strategy for local development. (Alburquerque, 2001)
What does the creation of social value? Improvements in lifestyle of the population with respect to
education, health, culture, work and leisure, etc. Improvements through economic activities that the company
encourages locally. The social value has always been linked to the economic value.
If the company only focuses on obtaining economic value for themselves without considering the
generation of value to the community then depletes the local economic system. It is essential that the company
displayed the long-term links with the territory. The latter gives the business sustainability, in turn, provides benefits
to the territory.
The problem with the policies for SMEs Latin-American
SMEs have a key role
play in
SMEs are highly
heterogeneous in terms of access to markets, technologies and human capital, as well as their linkages with other
firms, and these factors affect their productivity, export capacity and potential growth (OECD & ECLAC, 2012).
On the one hand, SMEs are a fundamental building-block of the productive structure, accounting for around 99% of
businesses and employing around 67% of employees. But on the other hand, they contribute relatively little to GDP,
which reflects their low levels of productivity. In Latin America, around 70% of GDP is produced by large firms. So
while SMEs provides many jobs in Latin America, they contribute little to production. This reflects their
heterogeneous production structure, their specialisation in low value-added products and the scant contribution
SMEs make to exports (less than 5% in most countries). (OECD & ECLAC, 2012)
Furthermore, levels of internationalisation for SMEs in Latin America are significantly lower than in
Europe and East Asia. For instance, while only around 10% of Latin American SMEs engage in export activities,
40% of European SMEs do so. Within this productive context, well-designed co-ordination policies are essential to
ensuring that production
which is
major structural
SMEs are highly heterogeneous, ranging from sole traders running informal microenterprises to highly efficient
innovative companies with the capacity to export products. If a set of coherent, co-ordinated policies is introduced,
SMEs could contribute to structural change by helping to improve productivity, complementing the
nomies of
scale of large firms fostering the creation of production clusters (and contributing to social inclusion). (OECD &
ECLAC, 2012)
Multi-enterprise ties have been essential to enable SMEs to internationalize, while a positive impact on
local development. This type of link is only achieved when entrepreneurs involved recognize that reach low
competitiveness cooperation strategies. Not all links within a network are classified as multi-enterprise tie because
not enough spatial proximity or existence of a contract is required each eliminate the centrality and that all members
cooperate . Cooperation understood as a highly selfish act (Axelrod, 1997) leading to creating value for the share
(Sáez & Cabanelas, 1997).
Dimensions of the public policies
Public policies should support the development of SMEs in order to close the gaps with larger enterprises,
with the objective of supporting SMEs as catalysts of structural change. To accomplish this, SME policies should
consider six relevant dimensions (OECD & ECLAC, 2012):
First, in addition to their small size, a frequent problem SMEs confront is their inability to achieve
economies of scale or the necessary specialisation. Because these firms are isolated, policies are often more effective
when: a) they focus on the full production cluster or value chain in which SMEs are integrated; b) the policy
intervention is adjusted to the type of company, taking into account its different policy needs; differentiating, for
instance, between microenterprises operating in the local market and an incipient cluster of competitive companies
that exports products. There are no blanket solutions, and interventions must be specifically adapted to the
production chain, cluster or region.
Second, given the significant interactions between policies, a high level of co-ordination is needed among
sectoral policies, including infrastructure policy and the provision of services to remove the bottlenecks affecting the
productive development of SMEs and their sphere of influence. Furthermore, it is of critical importance to facilitate
the integration of these policies in other overarching policy areas such as industrial policy and innovation policy, as
well as the national development strategy.
Third, in addition to these improvements to horizontal co-ordination, greater vertical co-ordination is also
necessary given the role that local and regional actors play in policies that support production clusters and chains at
the sub-national level. For example, instruments should be operated in a decentralised manner to ensure they reach
the intended beneficiaries throughout the country.
Fourth, given the long maturation period, policies must have specific objectives that are sustained over
time. More than being intensive in financial resources, these policies must provide specific inputs and services with
monitoring and assessment mechanisms so they can be tweaked and fine-tuned accordingly. For instance, co-
ordination policy initiatives should be accompanied by a business plan with a clear timeframe. Such a plan requires
a regulatory framework, including a monitoring system, a set of regulations and a favourable macroeconomic
Fifth, better co-ordination is needed among economic actors. With financial restrictions limiting the scope
of public policy and a need for investment that is often beyond the capacities of individual companies, incorporating
associative actions into programmes for SMEs provides an opportunity to reduce transaction costs. The fixed cost of
support activities will thus be shared among a larger number of beneficiaries, boosting efficiency and coverage.
Creating opportunities for co-operation among firms stimulates competitive advantages and externalities that will
help consolidate and drive forward business modernisation. The main objectives of these partnership programmes to
support SMEs are: a) to distribute information on markets and technologies; b) to adopt new techniques and
technologies; c) to find and develop processes for the exchange and complementing of resources, knowledge and
skills; d) to build up trust so actors will come together and engage in dialogue.
Finally, the integration of production clusters into global value chains (GVCs) presents opportunities for
SMEs. The global production structure has moved towards internationally integrated production systems. This
segmentation of the production process can provide SMEs in the region with new opportunities to access new
markets, especially those firms that operate in small domestic markets. The integration of clusters and business
networks into GVCs can help SMEs diversify exports, create new jobs and acquire new technological capacities in
accordance with international best practices, thereby strengthening competitiveness. However, this integration into
GVCs also presents challenges. The distributional effects and spillovers to domestic economies are not
automatically guaranteed. Whether SMEs seek to improve their product, production process or function in the chain
depends on several factors such as governance of the chain and the specific characteristics of the sector. Despite the
challenges these strategies present, governments, non- governmental organisations (NGOs) and transnational
enterprises in the region are expanding their activities and
programmes to support
SMEs in GVCs through various policies, such as supplier development programmes, better access to information on
external markets and existing chains in the country, as well as training programmes within universities and
businesses to provide specific skills required at different stages of the production within these chains. (OECD &
ECLAC, 2012)
With regard to the latter suggestion OECD & ECLAC (2012) is essential to remember that it is not
relationship; rather, it is how they relate. The cluster does not guarantee that companies operate under cooperation
strategies; as there are other centripetal forces (Fujita, Krugman & Venables, 2001), obtain profitability without
social value which reduces the impact on local development (González & Martin).
With regard to the GVCs, the SMEs to be linked with larger companies generate asymmetrical relations
which again lead to acts of opportunism, reducing the impact on local development.
It would be essential to identify multi-enterprise tie, analysis and generation mechanisms to cause the
generation of such links. Once monitored , there are three areas of intervention particularly useful for removing
bottlenecks for the development of multi-enterprise tie in Latin America (OECD & ECLAC, 2012): 1) access to
finance; 2) innovation and technology policies, especially access to information and communication technologies
(ICTs); 3) the development of skills and human capital
One point that cannot escape is the South-South cooperation, leading to the redirection of international
operations of Latin American SMEs within the region and to other low-income countries
The prescriptive approach limits the scope and understanding of SMEs as an engine of development. In
fact, learn from reality leads to recognize that the creation of social value is linked to CSR, in turn, the bridge
between the generation of social value and CSR explains the impact of the internationalization of SMEs in local
development (González, 2015).
The prescriptive approach         
  
García, 2014; Sierra et al. 2014; Fernández, 2014; Saiz & Xifra, 2014; Mercadé- Melé et al. 2014; Ramos et al.
2014; Sierra et al. 2014; Maldonado, 2014; Parad et al. 2014; Teresa et al. 2013; Romo & Rodríguez, 2013;
Saldarriaga, 2013; Martínez-Campillo et al. 2013); the second is by formality or legal commitment (Padilla, 2014;
Montiel & Llamarte, 2014; Nascimento, 2014; Volpentesta et al. 2014; Vázquez et al. 2014; Morales et al 2014;
Fernández, 2014; Moreno & Bonet, 2014; Salgado & González, 2014; Avendaño & William, 2013; Mejía et al.
A company is socially responsible when it generates social value to the local community in which
intervenes as a supplier of goods and services, distribution, processing, expropriating resources.
What does the creation of social value? Improvements in lifestyle of the population with respect to
education, health, culture, work and leisure, etc. Improvements through economic activities that the company
encourages locally. The social value has always been linked to the economic value (González, 2013).
Research Method
The study focuses on agribusiness companies that have participated in one or more international business
events organized by the Eurocentre, Nafin (Nacional Financiera). The agribusiness sector saw the highest number of
events organized by Nafin in the period 2002-2009 (seven events of 16; 2724 companies participating in the event;
1171 are agribusiness companies). A data matrix was constructed by agribusiness companies listed by Nafin on
these events for recording qualitative and quantitative variables per company (unit of study). These variables were
determined based on The Resources-based Theory of Competitive Advantage (Barney & Clark, 2007; Ray et. al,
2004; Hunt, 1997; Black & Boal, 1994; Barney, 1991; Grant, 1991), Internationalization of SMEs (Wright et. al,
2007; Lu & Beamish, 2006; Zain & Ng, 2006; Knight, 2000; Gankema et. al, 2000) Corporate Social Responsibility
and Local Development.
Logical variables were determined based on the operational definition of the theoretical model. To give
to the binary
number system
one has the value
qualitative s
uni The digit,
zero means that
no such attribute
the study
un The
binary system allowed
dichotomous variables for nominal variables.
The set of nominal variables allowed knowing the company profile to determine within the study
population if they were atypical, critical or typical cases. In the same way, they were grouped by profiles and / or
countries of study units. Discrete variables considered in this analysis are derived from these groupings.
f social value in the unfavourable economic environment.
The criterion for inclusion of the study units was: participation in at least one business meeting organized by
Nafin for the period 2002-2010. At the descriptive level, the comparison between two or more study groups without
sampling does not require the application of statistical tests because it is not required to make statistical inference.
Research scope.
It is a descriptive study. It presents nuances in terms of uniqueness and particularity of the phenomenon
studied. This study aims to be complementary to the many explanatory studies on economic development, poverty
and inequality that establish generalities, and that have been developed by PNUD, EU, OECD, among others.
Research limitations.
Only causal relationship between the variables is proposed; associations between variables are described in
terms of the unit of study and company profiles are identified through the data matrix.
Discussion of Results
The first study group (1112 SMEs in Spain, Argentina, Mexico, Chile, Brazil, Guatemala, Colombia,
Ecuador and Uruguay) was used for a comparative study between the Spanish, Argentine and Mexican companies.
At this stage of data collection companies in the other countries we were excluded. Although we analysed only to
members of the first three countries.
An exploratory survey allowed the identification of missing enterprises; in order to eliminate them. The
Nafin directories were created almost 13 years before this research (2002). This is necessary for retrospective
analysis of the links behaviour between SMEs and local economic agents. Thus a group of 476 companies (42.8 %
of 1112) companies present in electronic directories were obtained. In addition, 435 have a page on the web (39.1 %
in 1112).
The analysis presented now dismisses companies in Spain, Mexico and Argentina. Data collection started
from observable reality. In order to make a thorough job he went to different sources. Sources of information on
open access complemented and confirmed the information provided by the companies. When a research project on
an observable reality (each company represents a unique reality) lasts several years, then the study group of
companies tends to decrease naturally. Include ups to keep the number of these would be detrimental to the
consistency in the study.
The research project aims to meet the particularities of each case, which is favourable natural shoulder of
the study group because space is gained in the deepening of the phenomenon. In this second phase of analysis, it has
209 companies. Spanish (113), Mexican (45) and Argentine (26) companies were eliminated. So a group of Latino
agribusinesses was obtained. These companies took part in Al- Invest meetings organized by the Euro Centre,
NAFIN (Table 1). They are companies with impact on local economic development in poor areas (Graph 1).
Table 1
Latin Agro-industry, SMEs with impact on local economic development in poor areas
Source: Project CA 0012/10 ULSA
Descriptive statistics were used to create a matrix of data. This matrix shows socially responsible features.
Some of these features do not match the prescriptive models. Identified entrepreneurial features are more specific
than those included in theoretical models. This difference is due to the peculiarities of the observed reality. In terms
of social commitment, local experience and close ties with the territory, these are features of CSR.
The close relationship with the town is a common distinctive in the research companies. These companies
are well aware mechanisms to meet the needs of the local population, in terms of generating social value.
Graph 1
Social value creation in accordance with the features presented in each research company
Better working 15
Observe good 5
practice 0
Incentive to local
Organic production
Using traditional
Products to enhance
Promoting activities
for the
Source: Project CA 0012/10 ULSA
SME is socially responsible when it generates social value to the local community in which intervenes as a
supplier of goods and services, distribution, processing, expropriating resources.
The social value to generate a local system is determined by the characteristics of the same and is limited to
specific periods. The expectations of the people involved tend to vary according to the customs, values and needs. In
turn, customs, values and needs are modified in the course of time both endogenous and exogenous variables, being
complicated analysis (González, 2015). For this reason, among closer the ties of the company with the town, it will be
easier for the actions and results achieved CSR gain in precision and consistency. SME is when the engine becomes
local development. The multi-           nd to
contribute to local development (González, 2008). SMEs could create social value in an unfavourable
economic environment.
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The aim of this study is to provide better insight into the internationalization process of small and medium-sized enterprises (SMEs). Using a five-year panel dataset and a relatively new technique, DEL analysis, the predictive validity of the export stage concept of Cavusgil's innovation-related internationalization model (the I-model) is examined. This stage theory conceptualizes the internationalization process using five stages: a domestic marketing stage, a pre-export stage, an experimental involvement stage, an active involvement stage, and a committed involvement stage. In addition, the time period to be considered in moving from one stage to another is explicitly tested. The results suggest within certain limits that Cavusgil's stage theory holds for European manufacturing SMEs. According to the considered time frame, the results are slightly in favor of a two-year period.