Latin America’s small and medium-sized enterprises: The organizational and human capital challenges.

Latin America is increasingly integrated into the global economy. Yet the region’s small and medium-sized enterprises (SMEs) face major challenges stemming from the competitive pressures that globalization brings, alongside difficulties recruiting the skilled workers they need. Solving these challenges will involve taking concrete steps to improve staff capabilities, and streamlining the businesses organizational structure to improve decision making. These are the key findings of two new Economist Intelligence Unit reports—Latin America’s small and medium-sized enterprises: the human capital challenge and Latin America’s small and medium-sized enterprises: the organizational challenge. Both the reports were sponsored by SAP.

The reports were based on a survey of 175 respondents in firms based in Latin America. Respondents were clear that Latin American SMEs face significant challenges in recruiting, attracting and developing skilled workers. In order to compete, Latin American SMEs will need to address this problem quickly. Firms can do so in several ways, such as become involved with supplier development programs of large multinational firms or engage in innovative training programs in partnership with the public sector. To use a catchphrase quoted by one of the executives interviewed for the reports, Latin American businesses should begin to “put people first”.

Latin American SMEs also need to reorganize themselves from a hierarchy centered on the owner-president to a new structure which includes a clear separation of senior managerial roles. Firms that are locally owned, privately held and often family-run must develop modern, nimble and transparent management and business structures. The key will be to learn how to tailor global best practices to particular firms’ needs.

Some promising responses to these challenges are beginning to emerge, although much more is needed. “Latin American SMEs are trying to catch up with their competitors,” says Kim Andreasson, senior editor, Industry & Management Research at the Economist Intelligence Unit and editor of the papers. “”But the good news is that change is on the horizon.”

The main findings of the survey include:

– SMEs face internal organizational challenges as they try to embrace a culture of continuous learning. While 42% of respondents to our survey identified the need to change the organizational culture as the largest problem they face in the area of innovation, executives also underlined the need to encourage teams to work together (34%) and to transform ideas into marketable goods/services (39%).

– SMEs lack an organized way of analyzing strategy. When asked to describe the way their organization analyses strategic issues, a majority (51%) of respondents said there was either no process (5%), claimed it was largely ad hoc (16%) or said it varied by business unit or from year to year (30%).

– A lack of good workers remains an obstacle to success. When asked to characterize the market for qualified, high-potential employees, 63% of executives complained of either an extreme shortage (10%) or a limited supply (53%) of talented workers. When asked to identify the three largest workforce-related challenges facing their organizations, the biggest single response (30%) was the inability to attract qualified candidates.

– Recruitment and retention continues to be a challenge. Three of the other four most common responses to the same question pointed to recruitment and staffing problems: a mismatch between employee skills and organizational priorities (27%), an inability to retain key employees (26%), and an inability to build a properly motivated workforce (22%).

Download the briefing paper Latin America’s small and medium-sized enterprises: the human capital challenge, CLICK on link below (Adobe Acrobat Reader required):
< http://a330.g.akamai.net/7/330/25828/20080718133111/graphics.eiu.com/PDF/SAP.LatinAm.Human.pdf>

Download the briefing paper Latin America’s small and medium-sized enterprises: the organizational challenge , CLICK on link below (Adobe Acrobat Reader required):
< http://a330.g.akamai.net/7/330/25828/20080718133136/graphics.eiu.com/PDF/SAP.LatinAm.Organis.pdf>