Latin America and the Caribbean, along with Sub-Saharan Africa, have the highest rates of people involved in creating a new business, according to the Global Entrepreneurship Monitor (GEM) project. In its 2015 report, Mexico has a 21% rate of first-stage entrepreneurial activity, an indicator that measures the ratio of the adult population involved directly in the creation of a new business in the last 3.5 years. In other words, one in every five Mexicans adults is consider an early-satge entrepreneur. This indicator has also grown in recent years, above the regional average.

However, not all of this “entrepreneurship activity” has or has had a direct impact on the country’s development. Even though there is a growing dynamism in the absolute number of new businesses created in Latin America, they have had very little impact on the economic growth of countries, due to their low level of innovation. The primary driver in the regional entrepreneurship activity should move from a self-employment, low value-added pattern to a high-growth transformational one.

Two countries in Latin America stand out for their innovation and entrepreneurship indicators: Chile and Colombia. These countries have developed pro-entrepreneurial programs and policies that navigate the so-called “middle-situation trap,” which means that in an environment with poor institutional quality and less competitiveness, there is a high number of entrepreneurs, but they are not very innovative and create little employment. This could be the case in Mexico.

To free itself from the “middle-situation trap”, Mexico needs better policies and programs that balance the number of businesspeople, their ability to innovate, and their growth ambition. Innovative entrepreneurship, which includes greater technology development and its use, or disruptive business models (or a combination of the two) are more likely to succeed. So, the challenge is to transform this high number of entrepreneurs into more productive, innovative and growth-oriented new firms.

First, an ecosystem must be created that makes growth possible and not just encourages the creation of a large number of companies that have a small impact. This is how countries such as South Korea, Singapore, and Israel have managed, in relatively few years, to boost a very entrepreneurial, innovation-based business sector. Even though Mexico has improved in growth and competition markers, its entrepreneurs are the ones who must take on a more-relevant role and create competitive businesses. Quality should prevail over quantity, so that the country can become a true hotbed of innovative entrepreneurs.

In addition to informal networks, which are very important in Latin America as businesses emerge very close-connected to families, formal networks are needed to build an ecosystem that helps in the process of internationalization, provide additional resources and tools to be more innovative and competitive. In business schools we are working very close with new firm founders to create stronger ecosystems that develop innovation and technology capabilities, that are connected with large firms and also attract more investors, venture capital and seed capital.

Our EGADE Business School Entrepreneurship and Leadership Research Group collaborates with international academic partners from GNAM and other networks to understand how entrepreneurship ecosystems work in Latin America and help both policymakers and entrepreneurs understand what are the elements that interact in order to make more strong, efficient and attractive ecosystems.

Latin America and the Caribbean, along with Sub-Saharan Africa, have the highest rates of people involved in creating a new business, according to the Global Entrepreneurship Monitor (GEM) project. In its 2015 report, Mexico has a 21% rate of first-stage entrepreneurial activity, an indicator that measures the ratio of the adult population involved directly in the creation of a new business in the last 3.5 years. In other words, one in every five Mexicans adults is consider an early-satge entrepreneur. This indicator has also grown in recent years, above the regional average.

However, not all of this “entrepreneurship activity” has or has had a direct impact on the country’s development. Even though there is a growing dynamism in the absolute number of new businesses created in Latin America, they have had very little impact on the economic growth of countries, due to their low level of innovation. The primary driver in the regional entrepreneurship activity should move from a self-employment, low value-added pattern to a high-growth transformational one.

Two countries in Latin America stand out for their innovation and entrepreneurship indicators: Chile and Colombia. These countries have developed pro-entrepreneurial programs and policies that navigate the so-called “middle-situation trap,” which means that in an environment with poor institutional quality and less competitiveness, there is a high number of entrepreneurs, but they are not very innovative and create little employment. This could be the case in Mexico.

To free itself from the “middle-situation trap”, Mexico needs better policies and programs that balance the number of businesspeople, their ability to innovate, and their growth ambition. Innovative entrepreneurship, which includes greater technology development and its use, or disruptive business models (or a combination of the two) are more likely to succeed. So, the challenge is to transform this high number of entrepreneurs into more productive, innovative and growth-oriented new firms.

First, an ecosystem must be created that makes growth possible and not just encourages the creation of a large number of companies that have a small impact. This is how countries such as South Korea, Singapore, and Israel have managed, in relatively few years, to boost a very entrepreneurial, innovation-based business sector. Even though Mexico has improved in growth and competition markers, its entrepreneurs are the ones who must take on a more-relevant role and create competitive businesses. Quality should prevail over quantity, so that the country can become a true hotbed of innovative entrepreneurs.

In addition to informal networks, which are very important in Latin America as businesses emerge very close-connected to families, formal networks are needed to build an ecosystem that helps in the process of internationalization, provide additional resources and tools to be more innovative and competitive. In business schools we are working very close with new firm founders to create stronger ecosystems that develop innovation and technology capabilities, that are connected with large firms and also attract more investors, venture capital and seed capital.

Our EGADE Business School Entrepreneurship and Leadership Research Group collaborates with international academic partners from GNAM and other networks to understand how entrepreneurship ecosystems work in Latin America and help both policymakers and entrepreneurs understand what are the elements that interact in order to make more strong, efficient and attractive ecosystems.