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HomeArchiveStudy: Small Businesses Need Technology

Study: Small Businesses Need Technology

SMALL business owner Olga ElenaJill says she has no interest in using computersto keep records for her general store,Abastecedor La Mary, in the Tibás neighborhoodnorth of San José. She says doinginventory and accounting by hand keepsthe business running just fine.However, experts say this kind of resistanceto technology is one of the reasonsCosta Rica’s small businesses face anuphill battle.According to the Center for LatinAmerican Studies (CEPAL), between 50-70% of small and medium businesses(SMEs) in developing Latin Americancountries close within three years, and only10-20% make it to the five-year mark.Private and public organizations, a2002 law, and now the government’s proposedcomplementary agenda for theCentral American Free-Trade Agreementwith the United States (CAFTA) all seek tohelp improve this rate for Costa Ricanbusinesses – especially in the face ofincreased global competition.Measures taken so far have had mixedresults, according to observers.THE Foundation for SustainableDevelopment for Small and MediumBusinesses (FUNDES), a non-governmentalorganization working in 10 LatinAmerican countries, included the CEPALstatistics in its recent study of Costa Ricanbusinesses.Foundation investigator Antonio Moralessaid that although no statistics specificto Costa Rica are available for the survivalrates of small and medium businesses,he thinks the CEPAL statistic for developingLatin American countries is applicablehere. Based on the organization’sobservations, he said, Costa Rica’s smalland medium businesses frequently go outof business shortly after they open.At a presentation of the FUNDESstudy’s results June 14, Morales cited severalreasons these businesses often gounder, including informality in businesspractices, failure to systematically documentexpenses, inability to integrate technologyinto day-to-day operations and lackof knowledge about new markets.Financed by the Inter-AmericanDevelopment Bank, the study was carriedout over a three-year period and used datafrom the Social Security System (Caja)and the National Training Institute (INA).ACCORDING to the study, 98.2% ofCosta Rica’s approximately 75,000 businesseshave fewer than 100 employees.Micro-businesses with one to 10 employeesmake up 78.3%, while 19.9% of businessesare considered small (six to 20employees) or medium (31 to 100 employees).The foundation included micro enterprisesin the category of small andmedium businesses in all its study’s statistics.Workers in these businesses make upapproximately 25% of the country’s totaleconomically active population.The study cites not taking advantage oftechnology as one factor holding the businessesback. The problem isn’t a lack oftechnology resources, but a failure to usethem, Morales explained.“ONE in three Costa Rican houses hasa computer and one million Costa Ricanshave e-mail,” he said. “But people aren’tusing their computers to communicate andexpand.”Without adequately using computersand the Internet, businesses have littleinformation about new opportunities andpotential markets. They aren’t optimizingcommunication with clients and distributors,causing a lack of control over dailyoperations, according to experts.“The classic example is a small neighborhoodgrocery store,” said MarielaBarboza, the foundation’s regional marketingdirector for Latin America and theCaribbean. “The owner may hire a newemployee and have no way of sharing informationabout business practices and the buyinghabits of his most valuable clientsbecause that information is only in his memory. The employee could provide a less than-adequate service to his best clients.”INTEGRATING computers in day-todayoperations can help business ownersmanage information and communications,Barboza said. They can better manageinventories and find new niches to generatebusiness and take advantage of theirclients’ needs.Sergio Navas, vice-president of theCosta Rican Chamber of Exporters(CADEXCO), agreed technology is keyfor small and medium businesses, whichcompose a large part of Costa Rica’sexporters. Two in three businesses thatexport are considered small or medium.“It’s absolutely necessary that businesseshave technology to be able to competeagainst their global counterparts,”Navas said.VARIOUS efforts are under way tohelp small businesses beat the odds. ACosta Rican law to strengthen such businesses,approved in 2002, placed ¢9 billion($19 million) in a fund to finance projectsfor small and medium businesses.The law created a two-part fund,administered by Banco Popular and composedof state funds and a small percentageof the bank’s profits: one part for low interestloans and another for financingbusiness development initiatives in theareas of technology, human resources andtraining to make these businesses morecompetitive, according to Lucy Conejo,Banco Nacional’s director of programs forsmall and medium businesses. For 2005,the fund has a budget of ¢700 million ($1.4million) for financing loans and ¢109 million($231,914) for business developmentprograms.The money isn’t being spent, however,Morales said.“Small and medium enterprises don’thave access to financing,” he claimed.“The law hasn’t been made public andapplied – people don’t know about it.There’s a lack of knowledge about usingthis type of funding.”THE complementary agenda forCAFTA, presented last week by FinanceMinister Federico Carrillo and pendingapproval by the Legislative Assembly,would invest most of its $355 budget inprograms to support small businesses intechnology, organization and export capacity(TT, June 24).Carrillo emphasized the importance ofinvesting in technology as a means to createbetter jobs.Non-governmental organizations havedeveloped their own strategies toward thisend. FUNDES has established allianceswith Microsoft, the Chamber of Exportersand BN Desarollo, a division of BancoNacional that funds development projectsfor small and medium-sized enterprises.Banco Nacional now offers such businessspecial low-interest loans, which theymay apply for and pay by Internet.In collaboration with the foundation,Microsoft launched an online informationcenter for SMEs (or PYMEs, the Spanishabbreviation for Pequeñas y MedianasEmpresas).The Web site,, has information on startinga business, developing a strategic planand buying software specific to these businesses.Microsoft also offers online trainingcourses and technical support at a discountedrate.SMALL business owners such asRicardo Luna, who agrees that keeping allof his records on paper isn’t the bestmethod, are ready for help. Luna currentlyuses a notebook accounting system to keepthe budget and inventory for his Tibásbutcher shop, Carne Tibaseño.“We write everything down, but thebudget doesn’t always balance out at theend of the month,” said Luna, who hasowned the business five years. “I’d like touse computers, but they’re expensive andtake time to learn.”Luna said he would like to take out aloan to expand his business, but has foundbanks to be too demanding.“They wanted me to have all newequipment,” he said. “It turned out to bevery difficult.”


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