Chile has maintained macroeconomic stability for decades, yet productivity growth has stagnated since the early 2000s, evolving from about 4 percent in the early 1990s to about 1 percent since the 2000s.1 As a result, the country’s ability to raise incomes, innovate, and remain globally competitive has been limited.
Micro-, small, and medium-size enterprises (MSMEs)2 are central to economies around the world—and Chile is no exception. The McKinsey Global Institute (MGI) aggregated a granular data set of MSMEs and large companies across 12 broad sectors and numerous subsectors for 16 countries with different income levels.3 This group includes six emerging economies and ten advanced economies. MSMEs play a large role across the board, averaging 66 percent of employment and 54 percent of value added (as a metric for total GDP). Yet MSMEs remain significantly less productive than large firms.
This article explores how connecting MSMEs with larger firms and strengthening access to finance, talent, and technology can catalyze productivity across Chile’s economy.
Roadblocks to progress
MSMEs are just as important in Chile, where they account for more than 90 percent of firms, nearly two-thirds of employment, and 45 percent of total sales.4 Yet many operate under adverse conditions, including limited access to financing, low technology adoption, and constrained workforce skills—challenges that contribute to high rates of business closures. In fact, 20 percent of MSMEs close within their first year, and more than 55 percent do not survive beyond their fifth year.5 This lack of longevity poses a significant obstacle to Chile’s sustainable economic development.
Chilean MSMEs also lag behind advanced economies when it comes to business productivity. Among the ten advanced economies examined in the MGI report, small companies are, on average, 60 percent as productive as large companies, but Chilean MSMEs are only 44 percent as productive as their large counterparts, roughly on par with those in Portugal.
A path to higher productivity
Persistent gaps in technology, skills, markets, and finance access underscore the need for solutions. How can small businesses better develop these competencies? The answer lies in networks and interactions with other, usually larger, businesses.
Large companies can help smaller companies acquire competencies, and small companies in turn help large companies by serving as customers, suppliers, and sources of new ideas. Boosting interactions between large and small companies thus could raise overall productivity for everyone.
Global experience suggests that four types of partnerships can benefit MSMEs6:
- Collaborative partnerships between small and large firms: Partnerships help larger businesses by giving them added resilience and flexibility—and they help MSMEs by building know-how, human capital, and market access. For example, in advanced-manufacturing industries, which require input from multiple suppliers such as semiconductors, automotive, and wind turbines, close collaboration between large integrators and suppliers helps suppliers reach new markets. Some contractual partnerships between Toyota and its suppliers, for example, have lasted for more than 30 years. Toyota has directly involved itself in raising the operational standards of its partners through knowledge transfer, from demand planning and cost reduction to raising management capabilities.7
- Global market access through collective branding and marketing: ProChile’s Sectorial Brands program8 is a public–private initiative to position Chilean MSMEs in global markets. The program spans nearly 20 export-oriented sectors—including salmon, fruit, wine, and specialty food—cofinancing brand development and international promotion. A standout case is Salmon Chile’s campaign in Brazil, which increased Chilean salmon exports by 86 percent in value and achieved 48 percent brand recall among São Paulo consumers.9
- Sectorwide infrastructure designed to boost interfirm connections: Collaboration among firms can be encouraged by enhancing digital data and financial infrastructure, establishing a training ecosystem, and creating a level playing field, subsequently fueling productivity for small businesses.
- Service to small-business customers with offerings that boost productivity: When MSMEs interact with larger businesses as their customers, they can benefit from improving their overall efficiencies as well as their abilities to invest in technology and capabilities. In this way, large companies can sell MSMEs productivity-boosting products and services and drive revenue growth while small businesses gain assets previously unavailable to them.
At the same time, business leaders and policymakers can join forces to support greater MSME productivity. Specifically, these stakeholders could focus on creating a win–win economic fabric, such as by facilitating access to credit for MSMEs and encouraging training for their employees; adopting a granular and tailored approach that reflects the dynamics of each subsector and geography; and fostering networks and connections to build MSME competencies in technology, human capital, market access, and finance.
Capturing MSMEs’ productivity potential is vital for Chile’s growth. With the right enablers in place—strategic collaboration with large firms, better access to finance, and stronger digital and human capital—MSMEs can become a powerful engine of inclusive and sustainable growth for Chile.
