Creative entrepreneurship at iconstruye: a pan Andean e-procurement market maker.

Juan Correa looked out of his nineteenth floor window and noted the growing number of construction cranes visible against the backdrop of the Andes. This was a good sign and predicted that the construction business would be good during spring, the main building season in the Southern Hemisphere. Correa, CEO and a founder of iconstruye, a provider of business-to-business (B2B) procurement software for the construction industry, knew that he and his team were going to be undertaking a project where creative solutions would be required each step of the way. He knew that the models used in North America to provide (B2B) services over the Internet remained unproven, that access to Silicon Valley-style venture capital was nonexistent in Chile, and that they were proposing to develop a B2B e-marketplace (1) procurement system for the construction industry, a traditionally conservative group of businesses. Correa also wondered what would happen when iconstruye became, as he hoped, the dominant B2B procurement system in the Chilean construction industry. What would the course of action be then? How would iconstruye continue to grow? Would he and the team decide that Chile, with its relatively small markets, be sufficient? Alternatively, should the company decide to strike out in other directions, building upon its success and knowledge, perhaps entering other South American markets or even converting the system into a multilingual system and taking a position in the emerging Spanish language-based markets of the United States? That decision was some ways off; first they had to get the business up and running and cash flow positive.

Latin American e-Commerce

In Latin America, business to consumer (B2C) e-commerce had been significantly slower to develop than in the North American market; the B2B market had undergone similar delays in its development and lagged behind its neighbors to the North by several years. The time lag was beneficial for those building the Latin B2B web-based marketplaces, as they could learn from the mistakes of failed predecessors and devise new models better tailored to an individual business environment. Forrester Research in 2000 projected that the B2B transaction rate in Latin America would reach $63.8 billion by 2005, (2) and that the number of companies developing B2B systems would continue to grow, employing a variety of models. These B2B marketplaces included B2Bequador, ddex.com, and Mercantil.com, all who provided simple websites that listed business opportunities, detailed product catalogues, and contact information. A second group of B2B companies such as ProcuraDigital, Exiros, and Eficentrum, offered full e-procurement systems, systems integration, and auction services for clients. Finally, a third category of B2B exchanges also evolved in Latin American marketplace. The companies focused upon only one industry (sometimes referred to as a vertical marketplace), in which companies such as Mercardo Electronico and Chematch created B2B marketplaces in electronics and chemicals (see Table 1 for examples of South American B2B companies).

Chile: A Primer

Chile: Demographics (3)

Stretching along 6,171 km of Pacific coastline and bounded by the might of the Andes, Chile is only twice the size of Montana. Its population of approximately 16 million (July 2004 est.) has a literacy rate of 96.2% (2003 est.). Chile has one of the highest standards of living in the region, with about 85% of the country's population living in urban centers, 37% (approximately 6 million people) of those living in the Santiago Metropolitan Region (2002). (4) The country has a relatively low unemployment of 8.5% (2003 est.), a low inflation rate of 2.8% (2003 est.), a stable currency (Chilean peso), and a stable democratic government. Chile also has a larger percentage of the population employed in the service sector than in its industrial and agricultural sectors combined.

Chile: Telecommunications and Infrastructure

During and subsequent to the Pinochet era, the drive in Chile to create and to improve its traditional and technological infrastructure had resulted in close to 80,000 km of roads and 6,500 km of rail network. (5) Since that time, heavy investment in telecommunications has resulted in 3.5 million fixed lines, a penetration rate of 23% (2002), and 11 million mobile telephone subscribers, a penetration rate of 47% (December 2005). (6) This modern and robust telecommunications infrastructure allowed Chile to develop the second highest level of Internet penetration in South America with 4 million Internet users (September 2004), a penetration rate of 25.8%. (Uruguay achieved a 34.7% penetration rate with 1,190,120 users (December 2003). (7,8) In 2003, the Ministerio de Economia estimated that Internet access was available in 500,000 Chilean homes, 100,000 businesses (69% of companies), 4,700 schools, 226 higher education institutions, and 1,300 public Internet centers, 320 municipal government offices, and at all central government agencies. (9) The use of broadband as a mechanism to connect to the Internet had increased during 2003 by 68%, (10) reaching more than 330,000 connections. A recent study by Cisco estimated that the number of broadband connections in Chile would continue to grow and eventually surpass the number of dial-up connections, which in 2003 stood at 560,000. (11) A survey of 104 economies conducted by The World Economic Forum (12) in 2003-2004 examined each country's preparedness "to participate in, and benefit from, developments in information and communication technologies." Of the 104 economies studied, Chile ranked 32nd. This ranking positioned Chile as the most technologically advanced country in Latin America. Santiago, its capital, ranked as Latin America's top city in terms of telecommunications infrastructure. Santiago also ranked ahead of Miami, Florida, which was also included in the study. (13)

Chile: The Digital Economy

The Chilean Government led by President Largos has complemented its physical infrastructure improvements with a legislative fabric of support for a digital economy. In his 2000 inaugural presidential address to the Chilean congress, President Largos emphasized the importance of the Internet and new technologies. He stated, "Chile could be at the vanguard of using information and communication technologies." (14) The Chilean Congress in 2002 passed a law authorizing the use of digital signatures and was the first country in Latin America to sign a joint statement on electronic commerce business practices with the United States. (15) In the period 2003-2004, the Chilean digital economy grew at a rate of 70% and accounted for 9.5% of Chile's gross domestic product (GDP) (US$6.7 billion). (16) The B2B component of the economy reached US$5.8 billion in 2004, a 93% increase of over 2003; while B2C commerce reached US$64 million, a 57% increase over 2002. (17)

Chile: The Construction Industry (18)

The Chilean construction industry in 2003-2004 had a growth rate of 4%, and, with a total annual investment of US$9.6 billion, represented more than 7.9% of the Chilean economy. The Camara Chilena de la Construccion or CChC (Chilean Chamber of Construction), a private organization that promoted the interests of its 1,740 members, had represented the construction industry since 1951. The members collectively represented more than 80% of the construction investment in Chile. While the Chamber had a primary role in facilitating discussion with regard to the construction industry, it also acted as a vehicle through which private investments were undertaken. In 2004, the Chamber was the largest holding company in the Chilean insurance, pension, financial, and health care sectors, administering over US$10 billion in funds (equivalent to 13% of gross national product [GNP]) that involved over seven and a half million people (47% of the population).

The Founding of the Business

Brainstorming

In the fall of 2000, Juan Eduardo Correa was working as a strategy manager at Quinenco S.A., a large Chilean holding company. Successful in his position, he envisioned a long and rewarding career with the firm. Over the previous year, he had witnessed the dot-corn phenomenon in North America and now he felt the urge to strike out on his own. He wanted to utilize his technical side and combine it with his strategic experience, which he hoped was the right mixture of talents to be an entrepreneur. While it would have been fairly easy and natural to stay in the financial services industry, he wanted to channel his energies into developing new technology. He recalled:

I frequently met with two friends, Nicholas Errazuriz and German

Barrel, from my days at Catolica University in Santiago. We started

thinking of entrepreneurial ideas built around the Internet and

after work one evening we converged upon the notion of starting a

marketplace for the construction industry.

Bartel was working for a construction company at the time and had recognized that the fragmented nature of the Chilean construction industry's supplier base, in terms of the number of suppliers, items, and products involved, would be a perfect candidate for consolidation. He had also identified that an Internet-based website named "iconstruye" (the Spanish equivalent of "econstruction") and focused upon the construction industry would provide a suitable solution for consolidating procurement transactions.

The Business Plan