Chile’s Supplier Development Program

Irani ArráizMay 2015

What is the program’s objective?

• Promote commercial linkages between potential exporters and their SME suppliers to increase competitiveness

• The program recognized that linkages and spillovers depend on capabilities and absorptive capacity of local suppliers

What is the rationale of the program?

• Commercial relationships are perceived as short-term, unstable, and adversarial.

• Buyers have no incentives to invest in long-term supplier capabilities

• Suppliers have no guarantee that they can profit in the long term from these investments

How does the program work?

Implementation of working plan (up to 3 years)

Sponsor firm prepares proposal together with intermediary agent

Sponsor presents proposal to CORFO regional office

Diagnostic and design (up to 6 months)

CORFO covers up to 50% of the diagnostic and design phase and up to 50% of annual implementation

What type of firms participate in the program?

50%43%

6%

MicroSmallMedium

8%

92%

MediumLarge

Supp

liers

Buye

rs (S

pons

ors)

82.8%

6.1%3.0% 2.6% 1.5% 3.9%

Agriculture and ForestryManufacturingTransportation and CommunicationConstructionWholesaleOthers

46.7%

24.9%

17.5%

2.7%

1.9% 1.9% 1.9% 2.3%Manufacturing

Agriculture and Forestry

Wholesale

Mining

Electricity

Construction

Transportation and Communication

Others

Size Sector

What are the impacts of the program?Increase in sales for sponsors and SME suppliers18.5% and 25.5% at t+2 and t+3 for sponsors16.0%, 11.2% and 8.5% at t+1, t+2 and t+3 for suppliers

Increase in employment for SME suppliers8.0%, 9.3% and 9.6% at t+1, t+2 and t+3 for suppliers

Increase in salaries for SME suppliers8.8%, 16.2% and 7.7% at t+1, t+2 and t+3 for suppliers

Increase in firm sustainability for SME suppliers2.6, 2.6 and 2.1 pp at t+1, t+2 and t+3 for suppliers

Increase in ability of becoming an exporter for sponsors4.6 and 3.7 pp at t+2 and t+3 for suppliers

What have we learned?

• Program benefits both suppliers and sponsor firms. Cooperation pays off

• Results suggest program achieved objective of improving and stabilizing commercial linkages

• Cost-effective

• Does the program have the potential to impact Chile’s product space via knowledge spillovers (to produce “complex” goods intensive in skill and technology)?