2007 Headlines
Colombia's Comeback Good News for Small Business
Entrepreneur Survival Rate Doubles since 2001
November 12, 2007 | Ithaca, NY | Entrepreneurs in Colombia are prospering thanks to two major factors: a sharp decrease in violence and the ensuing rapid economic growth. According to a new study from Cornell University's Johnson School of Management, survival rates for small businesses have doubled since 2001.
Wesley Sine, an assistant professor of management and organizations at Cornell University's Johnson School of Management, and Shon Hiatt, a Cornell graduate student in organizational behavior, traveled to Colombia many times during this groundbreaking 10-year study. The study, called "Declining Insurgencies," investigates the welfare of Colombia's small business owners. They observed and studied almost 1,000 entrepreneurs and found that when governments are stable, the survival rate of entrepreneurial ventures dramatically improve.
According to a 2007 BusinessWeek cover story, Colombia's stock market jumped fourteen-hundred percent since October, 2001 while direct foreign investment has doubled, and real estate prices have tripled. The entrepreneurial growth Sine and Hiatt observed can mostly be attributed to decreased violence.
"The survival rates of ventures double after 2001 after taking into consideration all of the economic variables and firm age," Sine said. "Entrepreneurs are more likely to take risks in stable environments, including social risks. The amount of time entrepreneurs spend in expanding their social network has increased by about 10%, new product introductions by entrepreneurs have increased by 5% and the likelihood that entrepreneurs enter into new markets has increased by 5%."
These seemingly small changes produce huge ripple effects with survival rates for new ventures doubling in Colombia. "In the past, the probability that most citizens were directly affected by violence was low," Sine said. "However, the collective fear was high, and small business people were afraid to take risks by expanding into new markets, trying out new products, and approaching other businesses and entrepreneurs that they didn't know."
"Entrepreneurs must network," Sine said. "If they are afraid to leave their immediate neighborhoods to meet potential customers and business partners because they fear for their personal safety, they cannot grow their businesses." Many of the businesses surveyed were mom-and-pop endeavors ranging from small convenience stores to auto repair shops to beauty salons and other family-run operations-the businesses most effected by neighborhood violence.
For example, an entrepreneur who manufactured uniforms for factory workers in Medellin had one small shop with three sewing machines in the late 1990s. The entrepreneur could not grow his business because visiting potential clients outside his neighborhood was risky. Traveling to parts of the city with which he was not familiar could be dangerous due to high levels of violence, making him a target of local criminal and insurgent gangs.
Moreover, doing business with companies that might have links to the paramilitaries would make him a target to other insurgent groups. So, he stayed home and only did business with existing customers who he knew and trusted. As the violence and political uncertainty subsided, this entrepreneur began to take more risks. He began contacting more potential customers and a greater diversity of customers. He expanded his product line to support organizations in different types of industries such as mining and industrial chemicals. Today this entrepreneur has six factories and sells specialized protective uniforms to companies throughout Colombia. Similar examples were noted for a bike parts manufacturer, small grocery stores and other ventures.
By tracking the same entrepreneurs over a 10-year period, Sine and Hiatt were able to measure the effects of changing political turmoil on entrepreneurial processes from year to year and from region to region in Colombia.
On a recent trip to Colombia in early 2007, the authors observed that many businesses were more successful due to reduced levels of violence thanks to government crackdowns on guerrilla and paramilitary groups, and crime. Once the fear of political violence and crime subsided, the entrepreneurs could focus on expanding their businesses. Since 2002, Colombia's president, Alvaro Uribe, has made his priority the security of the people. This dedication is translating directly into economic success.
The Cornell researchers will return to Colombia later this year to check in with the entrepreneurs in their study.
About the Johnson School
Founded in 1946, the Johnson School is Cornell University's graduate school of management. Consistently ranked as one of the top graduate schools of business, the Johnson School builds upon Cornell's depth and breadth of distinguished research and teaching, and its vast, worldwide network of alumni, faculty, and colleagues. The school's "performance learning" approach offers students defined frameworks and analytical tools, combined with expert feedback to solve real problems in real organizations. Deliberately small and extremely selective, the Johnson School maintains an intense, collaborative community, where students develop teamwork and networking skills that foster innovation and deliver results. Programs include one- and two-year MBA degrees, an Executive MBA and the Cornell-Queen's Executive MBA, which offers interactive videoconferencing sessions across the U.S. and Canada. For more about the Johnson School please visit: www.johnson.cornell.edu.
