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In business, as in life, nothing is permanent except change. For companies in today’s globalized markets, innovation – from the Latin ‘novus’ meaning new – is a necessary tool for survival, but it takes money and imagination.

Chile invests a relative pittance in research and development – around 0.7% of GDP compared to 2.7% in the United States – but President Sebastián Piñera has made promoting innovation a priority of his government.

The National Council of Innovation for Competitiveness was created in 2005 with the task of fostering public and private investment in key areas. Appointed by President Piñera as president of the council, the former Senator and entrepreneur Fernando Flores told AmCham members at a breakfast in December that Chile needs people who can identify opportunities and anticipate change.

Flores knows from personal experience about the power of change – an engineer from Universidad Católica and a member of former President Salvador Allende’s cabinet, he was imprisoned for three years before going into exile in California where he obtained a PhD from UC Berkeley and founded several companies including the software firm Action Technologies before returning to Chile.

“Chile’s problem is not innovation, it is our wealth of natural resources,” he said.

China’s growing appetite for copper has aggravated Chile’s case of Dutch disease – an overdependence on natural resource exports to the detriment of the manufacturing sector. With demand and prices for copper, lithium and agricultural products soaring, companies have little reason to invest in innovation, said Flores.

“The result is we spend too much money on things we don’t need and do more of the same,” he said.

Innovation in science and technology could increase productivity, which is a government priority, and create better quality employment, but Chile needs people with the right skills, said Flores.

Chilean universities churn out hundreds of graduates each year, but the country’s “Achilles’ heel,” says Flores, is its engineers. “Chile produces lots of administrators, but not engineers.”

Part of the problem is that Chilean universities force students to choose between arts and sciences from their first year, but “Chile needs graduates that speak both languages,” said Flores.

Cultural awareness and compassion, said Flores, can help companies design new products that customers are willing to buy.

Take those twin beacons of innovation - Microsoft and Apple. Founded by Bill Gates and Steve Jobs, respectively, both men have superb timing and a sixth sense of what the market wants.

“Seeing opportunities and beating the competition is about timing, without timing it doesn’t matter how much knowledge you have,” said Flores.

Gates used Intel’s computer chips to build PCs, while Jobs took the same chips and designed – in his parents’ garage - a Mac for young people with a “cool” logo.

But neither finished university - Gates dropped out of Harvard in his second year while Jobs studied calligraphy for six months. “It goes to show that innovation is not about knowledge, it’s about designing things people didn’t even know they needed,” said Flores.

Take the iPad, which Flores – who owns one himself - predicts will soon be everywhere. “You will all end up buying one,” he said, adding that “great innovators create their own markets.”

But innovation does not come out of nowhere; it involves combining existing inventions in new ways. Today, the key components for innovation are computer processors, memory chips and transmitters, all of which – like the iPad and iPhone - are designed in Silicon Valley.

But companies like Apple cannot afford to be complacent, said Flores, noting that China and India, where Apple’s products are manufactured, are catching up to the West. 

“Innovation has to be permanent because competition is permanent,” he said.

Chile may not be able to compete with Silicon Valley in computer design, but it has a competitive advantage in fields like astronomy.

Northern Chile has some of the clearest night skies in the world and, by 2020, it will have around 70% of the planet’s stargazing capacity, but the telescopes will be designed and built by foreigners.

“Chileans run the observatories but we don’t have policies that allow our astronomers to invent the technology,” said Flores. Another example is the cellulose industry, which produces thousands of tons with imported technology.

But there are some exceptions. Take the 52-story Titanium La Portada tower in Santiago built using anti-seismic technology designed by a Chilean engineer educated in Berkeley. “This is an important innovation that can be exported,” said Flores.

Another exception is the technology developed by the Santiago-based firm Crystal Lagoons to build huge crystalline lagoons anywhere in the world. “It’s an amazingly innovative concept,” said Flores.

But these cases are too few.

Despite the challenges, Flores is optimistic Chilean entrepreneurs can “invent new worlds” in astronomy, logistics and transport, which is important given Chile’s distance from key markets.

No one has a crystal ball, but that never stopped entrepreneurs like Steve Jobs from making new products. “Life is unpredictable, but we can be prepared for change,” concluded Flores.

Julian Dowling is editor of bUSiness CHILE