# Examples of investments in knowledge capital that support enterprise risk management include:

(i) **Investments in knowledge** . An example of expenditures on knowledge related to changing global technologies and effectively adjusting to the risk of losing market share when foreign competitors innovate is Miguel Torres’ (a Spanish-owned FDI firm) first introduction in Chile of temperaturecontrolled stainless steel vats (in widespread use in high-income countries by then). They replaced the traditional concrete fermenting vats that did not allow temperature control and that retained residues adversely affecting taste and smell. This led Chilean-owned vineyards to introduce them – and required additional investments in technical support and local learning, as no one in Chile knew how to assemble them. To further lower the risk of falling behind the evolving technological frontier, CORFO and participating enterprises co-invested $5.1 million between 2005 and 2010 in 48 “technology capture” foreign trips and in 15 “foreign consultant service engagements” by oenologists, viticulturalists and other global experts. And to lower the risk of volatile exports for smaller producers with less widespread distribution networks as well as to increase export levels, CORFO’s PROFO program and participating enterprises co-invested $11.5 million between 2005 and 2010 in a range of initiatives to learn how to best promote local wine regions. Through these investments, they developed a ready buyers’ market and strengthened customer loyalty, reducing demand volatility by making it more price-inelastic.

(ii) **Investments in protection/enabling** . Chile’s ideal geographical isolation (desert in the North, mountains to the East, Antarctic to the South, and Pacific to the West) has historically protected it from viticulture hazards such as the phylloxera louse. To protect this natural low-risk factor underpinning its agricultural competitiveness, Chile’s government, through its Agriculture and Livestock Service (SAG), invested in rigorous zoo- and phyto-sanitary border control. An example of knowledge capital expenditures to protect vine production against disaster risks such as pests and diseases as well as climate change-induced drought and temperature variability is the co-investment of $1.2 million between 2004 and 2012 by FONDEF. The co-investment financed a major study on adapting root stock and cultivar grafting to local conditions, generating the know-how to graft local vines on North American grapevine rootstocks and thereby provide resistance to parasites. It also ensured local adaptation to changing water and temperature conditions, helped regulate the vigor of vine foliage to changing external conditions, and allowed lower-cost adaptation to changing soil salinity conditions. Other protection against increasing drought (as melt-water from the Andes diminishes) was provided by investments in drip irrigation, which also enables more precise computer control of both watering and fertilizer, but required complementary investment in worker training.

(iii) **Investments in insurance** . An example of insurance-related expenditures on knowledge capital is an investment in 2003 in a detailed census of all winemaking enterprises to document and benchmark their existing storage capacity. This stimulated investment in storage capacity as a shock absorber of volatile world wine prices together with exchange rate risk – allowing smoothing of export supply to markets depending on varying earnings potential from year to year. Investment in additional storage capacity also serves as insurance against the risk of loss of product from leaking vats as a result of unpredictable earthquakes, minimizing the marketing risks associated with foreign customers not being assured of continuous de livery of product and possibly switching to other countries’ product. Finally, an example of expenditures on knowledge capital to insure against the risk of further appreciation of the exchange rate is 18