By: Staff Writer
May 26, 2026
The Economic Commission for Latin America and the Caribbean (ECLAC) said in its CEPAL Review for 2025 that Small and Medium Sized Businesses (SMEs) still face persistent and interlinked challenges.
The report said that these challenges include, “limited access to financing mechanisms, inadequate physical and digital infrastructure, skill shortages, high informality and complex bureaucratic environments.
“These structural impediments weaken the capacity of SMEs to engage in innovation and limit their competitive edge. Innovation, broadly defined as the implementation of new or significantly improved products, processes, marketing methods or organizational structures, is essential for long-term productivity gains and economic diversification.
“Competitive SMEs can adapt to changing global markets, scale effectively and contribute to structural economic transformation, in particular in middle-income economies seeking to reduce reliance on commodity exports.”
The report also said: “The Latin American and Caribbean (LAC) region presents a unique ecosystem for SME development, marked by a combination of institutional volatility, economic polarization and dynamic entrepreneurial cultures. Key contextual factors, such as political instability, weak rule of law, corruption, economic cycles of boom and bust, and uneven technological adoption patterns continue to shape the innovation trajectories of SMEs.
“In this environment, the capacity for SMEs to innovate and remain competitive hinges not only on firm-level strategies but also on the broader structural context”
The SME landscape is turbulent but yet promising, recent comparative research from Asia offers valuable insights for understanding SMEs in Latin America and the Caribbean. “Disruptive innovation among Chinese SMEs was shaped by unique institutional factors such as government-business linkages and industrial clustering,” showing there is an identification of the critical role of policy-driven research and development (R&D) incentives and regional economic networks in fostering innovation by SMEs in India.
This underscores that innovation in emerging markets cannot be entirely understood through Western theoretical models alone, and that regional characteristics —such as informality, State capacity and sociocultural norms— must be integrated into the analysis.
“This research responds to those insights by situating SME innovation within the institutional and developmental context of Latin America and the Caribbean.”