Public-private partnerships for internationalization of services: the case of Chilean architecture industry/Alianzas publico-privadas para la internacionalizacion de servicios: el caso de la industria de arquitectura chilena.

• Author: Perez, Camila Garcia

INTRODUCTION

One of the main debates in social sciences regards State intervention in the economy, in which there has been a high degree of consensus that intervention in export promotion initiatives can have positive impacts on development, as they lead to greater economic growth and modifications of exports composition towards products with higher value added. Therefore, export diversification should not only aim to expand them horizontally but also vertically due to the positive spillovers they produced; then, it becomes important to increase export volumes and also diversify them into more knowledge-intensive sectors, characteristic of services. These effects produce an accelerated economic growth, improve competitiveness, productivity and innovation (Hausmann, Hwang et al. 2007).

For many countries, services have been a key mechanism in the process of diversification which has been reflected in the adaptation and strengthening of instruments to build strategic alliances; to join international networks and distribution channels; and to create enabling environments for relocation of companies; among others (Prieto, 2003). In recent years, State involvement to promote services exports has increased in Latin America as a result of the vulnerability shown in economic growth due to high dependence on its primary products exports, in the context of the fall of commodity prices post the global financial crisis 2008-09; and the positive industrial improvement achieved in East Asia developing economies through government interventions (Devlin and Moguillansky, 2009; Foxley, 2012).

Literature also argues that State involvement in the promotion of exports is based on the creation of comparative advantages, and correcting information asymmetries and different types of market failures (Copeland, 2007; Lederman, Olarreaga & Payton, 2010). Under this purpose, governments have created Export Promotion Organizations (EPOs) which aim to directly or indirectly influence the matrix and/or volume of exports through promotion policies, meaning that not only the amounts that countries are exporting, but also what kind of exports (Belloc & Di Maio, 2011).

Comparatively, these agencies have frequently used the establishment of public-private partnerships --PPPs--for export promotion. The proliferation of these PPPs has brought the need to study them for the utility they have for decision makers in determining when they are replicable or when policy innovation is needed (Engel, Fischer & Galetovic, 2014). However, most studies have focused on the goods sector considering the volumes they represent in developing countries' economies (Agosin, 2001; Alvarez & Crespi, 2000; Martincus & Carballo, 2010).

In the case of Chile, PPPs have functioned as a good mechanism for promoting the export of certain goods industries (Agosin and Bravo-Ortega, 2007; Rosas, 2012; FAO, 2013). However, little is known of the impacts on services industries. Hence, this research examines the factors that explain the performance of the Sectoral Brands (PPP) program for the internationalization of the Chilean architecture; with the main objective to identify and assess to what extent the success key factors described in the literature explain the performance of the strategy for promoting services in the diversification of the Chilean economy, specifically the PPP established by ProChile and the Architectural Offices Association of Chile between 2004 and 2014.

The impacts of PPP on export volumes of Chilean architecture have been limited during the period analyzed. This is mainly explained by problems in terms of design and implementation, as both--the public and private sector--did not assume and internalize crucial factors associated with economic, institutional and cultural considerations. The historical institutional behavior prevailed, making them resistant to innovate and to readdress the policy, which resulted overall in a static program that could not absorb the characteristics of the sector and its logics of internationalization.

The paper proceeds as follows. The first section presents general principles of the development of PPPs in export promotion and the success factors identified in the literature. Then the development of the sectoral brand "Architecture of Chile" is briefly reviewed. In the third section, the variables identified in the literature are contrasted with the case study comprising the analysis of secondary available data and the perception of key actors; leading to the conclusions and new perspectives of studies.

PPP AS A STRATEGY FOR EXPORT PROMOTION

EPA's targeted policies for export

promotion have tended to public-private partnerships since for most countries the productive apparatus is in the private sector; consequently, they have at their disposal market information, for incomplete that it could be, which could be useful to identify opportunities and obstacles towards economic transformation (Devlin and Moguillansky, 2009). In addition, there are developing countries where PPPs are presented as an alternative for their limited capacity of action in terms of public policies, their scarce resources and the size of its productive sectors.

However, among those who oppose them, their primary objections focus: first, on the expression "governments cannot pick winners" given the impossibility of accurately identifing firms, sectors or markets, subject to market failures; and second, stating that industrial policy is an open call for corruption. This, because once governments support certain firms, it is easy for businesses to extract benefits from distorting competition and transfering those incomes to politically connected entities, and therefore focus on the exchange of favors rather than focusing on expanding markets and cost reduction (Rodrik, 2000).

In recent years, the discourse on PPPs in Latin America has evolved into what is called an instrument of "modern" industrial policy. In other words, a policy that bases its strategies on a social process of closed partnership between the public and private sectors, where the scope varies depending on the participation of government entities and civil society. Whereas the effective achievement in the selection of sectors and export promotion decisions, the interaction process must be made on the basis of close and systematic cooperation; hence, exporters associations should be strengthened to facilitate this dialogue and joint construction (Bonet, 2010; Cutler, 2008).

The need for effective interaction of public-private sectors for innovation and productivity has generated a variety of definitions regarding the role occupied by the State in the PPPs. For purposes of this research, it is used the concept developed by the Organization for Economic Cooperation and Development --OECD--as it is broader in terms of services provision, understanding them as an "agreement between the government and one or more private partners (which may include operators and financiers) under which the private provides a service so that the objectives of government services provision are aligned with the objectives of obtaining income for the private sector and where the effectiveness depends on adequate risk transfer to the private sector" (Alborta, Stevenson et al. 2011).

In the case of PPPs for export promotion of SMEs, the aim is to reduce the cost of the internationalization process, specifically in terms of data. "So, actions performed by export promotion agencies aim at helping firms obtain information, thereby reducing the investment that firms have to make in this area, and ameliorating the frictions to trade across borders. In particular, since the investment when collecting needed data may be suboptimally low because of information spillovers, these actions may help encounter the disincentives to search generated by potential free-riding" (Martincus and Carballo 2010).

Therefore, PPPs with an associative model emerge as a mechanism of cooperation that seeks to create value through solving common problems caused mainly by lack of scale. By partnering, companies can reduce the individual costs of: penetrating into new markets where incorporating more complex technologies is needed; accessing to information; costs of international certifications; expanding export volumes; favoring competitive prices; improving the negotiating capacity; among others (Liendo & Martinez, 2001; Lozano, 2010). For these reasons, partnering in the service industry for internationalization is fundamental in Chile due to the small size of the domestic market and the possibilities to increase the chances of SMEs integrated into international markets given the high entry barriers that could not be paid for individually. Businesses, in this context, develop a collective effort for the realization of common objectives, which can be very different, from jointly fund research or improving their position in value chains for trading negotiations (MINREL & IDB, 2009; Poliak 2001).

According to Lopez and Munoz (2011b), when taking into account the dynamics of interaction between the State and SMEs, various questions arise; first, about which systems of public-private action have been made and what were their results; second, how actors perceive private partnerships with State actor and vice versa; and, how the State planner perceives could be the field of its intervention in this relationship.

SUCCESS FACTORS IN PPPs FOR PROMOTING SERVICE EXPORTS

About the ability of PPPs and export promotion policies to be successful, there are authors who criticize this mechanism to be a recipe from developed countries applied to the context of third world countries, and for its theoretical ambiguity and practice (Mitchell-Weaver and Manning, 1991). Others disagree with the feasibility of objectively identifying success factors that explain the results of PPPs (Lund-Thomsen, 2009). Most of these criticisms arise because success...