1 Local, National and Regional Systems of Innovation in the

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Local, National and Regional Systems of Innovation in the Mercosur
José Eduardo Cassiolato
Head of the Economics of Innovation Group, Institute of Economics,
Federal University of Rio de Janeiro - UFRJ, Brazil
E-mail: [email protected]
Helena M. M. Lastres
Economics of Innovation Group, Institute of Economics and Post-Graduation Program in Information Science PPCI, Federal University of Rio de Janeiro - UFRJ, Brazil
Email: [email protected]
Second version of the paper prepared for the DRUID's Summer Conference on National Innovation Systems,
Industrial Dynamics and Innovation Policy,
Rebild, June 9-12, 1999
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Summary
1) Introduction
It is widely recognised that the capacity to generate and use knowledge is the most
important element of the sustainable competitiveness and growth of firms and countries. In
fact, as particularly emphasised by the evolutionary approach to innovation, knowledge
creation and diffusion are fundamental sources of economic dynamism. Learning, the key
source of change, is seen as the most important mechanism for knowledge accumulation,
innovation and growth. Of course firms are in the centre of these processes. However, it is
increasingly noted that the interactions among them and with a number of other organisations
(dealing with education, training, R&D, financing and policy support, etc.) play an important
role in the process of knowledge creation and diffusion.
To deal with such complexity the notion of systems of innovation was developed.
Also, based on extensive studies about advanced countries, there has been an important
literature that suggests the national character of systems of innovation. Part of this literature1,
as it is known, is based on empirical studies of innovation processes in Scandinavian
countries which emphasise sustained user-producer interactions in technology creation,
facilitated by industrial specialisation and common cultural and policy environments
(Lundvall 1988). There is also a more general approach, based on an attempt to understand
Japanese post-war industrial and innovative performance, stressing the competence of the
national system to direct resources to innovation and investment in new and strategic
activities (Freeman 1987).
There have been, however, very limited attempts to use the idea of national systems of
innovation (NSIs) in the analyses of developing countries. These have generally taken for
granted both the hypotheses and analytical categories which have been elaborated for
industrialized countries, with little effort aiming at qualifying the concept and adapting it to
the development environment. In fact, until recently, development theory - when considering
the possibilities open to developing countries to establish production and participate
efficiently in the world market - has focused on comparative wage rates, natural endowments
and other related advantages as necessary preconditions. It is true that a number of authors
have emphasised the role of technological change in the growth of developed countries.
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However, industrialisation was not typically thought of in terms of technical change by
development economists, even if a large and important body of literature on technical change
and development has emerged.
The basic aim of this paper is to contribute to a better understanding and, therefore,
use of the concept of national innovation systems in countries that are still in their
development path. A second related objective is to discuss part of the preliminary results of a
research project on national and local systems of innovation in the Mercosur countries. One
of the aims of the research project is to gather information at a more decentralised level
precisely as a device to discuss the idea of national systems of innovation in developing
countries characterised by higher levels of diversity and institutional instability than advanced
economies. The paper attempts to address the impact of structural changes – privatisation,
deregulation and liberalisation – on local systems and is organised in the following way. Item
2 discusses specificities of systems of innovation in developing countries regarding diversity
and institutions, two of central tenets of the evolutionary view. Item 3 presents the main
features of systems of innovation in the Mercosur during import substitution industrialisation
while item 4 discusses what have been the main changes of these systems under the structural
reform of the 1990s. Item 5 will present and analyse some of the preliminary results of the
project on Local Systems of Innovation in the Mercosur regarding the impact of the structural
reform. Finally, the conclusion summarises this impact, particularly regarding how MNCs
subsidiaries and local firms have coped with changes.
2 – Diversity and Institutions in Developing Countries Systems of Innovation
The idea of diversity is central to the concept of national systems of innovation. With
this in mind, a number of Latin-American and Caribbean authors have aimed at identifying
and analysing the main characteristics of their countries’ systems of innovation. Most of them
emphasise the specificities of the local environments, which impose many important
conditions to scientific and technological development, innovation, as well as to industrial
and economic development.2
These contributions stress that the evolutionary literature on innovation systems tend
to give little attention to problems related to the instability/vulnerability of the
macroeconomic, political, institutional and financial environment, which have been a marked
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2
For surveys of this literature, see C. Edquist (1997).
Cassiolato and Lastres (1998) provides a review of these contributions.
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characteristic of the less developed countries. Additionally, some of them point to problems
such as hyperinflation, high external debt and high interest rates as common important
constraints to technological (and productive) development in these countries. These analysis
also stress the subordinate character of the innovation process. In fact, the literature on
technology and development, during the last 25 years, has constantly stressed that economic
conditions, in general, and macroeconomic policies, in particular, are important elements
shaping microeconomic behaviour and performance, as far as innovation and technology are
concerned. It has been widely accepted that these policies (sometimes called “implicit”
technology policies) are, for developing countries, of much greater importance than specific
innovation policies to firms’ strategies regarding technology (Cassiolato 1992).
There is a similarity of this view with some fundamental aspects of the national
systems of innovation concept since this involves – at least implicitly - a very strong idea that
diversity in macroeconomic performance is particularly related to differences in national
systems of innovation. Interestingly, the NSI literature deals very little with this micro-macro
relationship. One might argue that, besides the obvious theoretical difficulties in dealing with
this relationship, there had been in advanced economies, few strong macroeconomic
turbulence that could make mandatory the incorporation of macroeconomic problems in the
NSIs literature.3 It has been argued that the globalisation of financial activities is
accompanied by intrinsic instability in financial markets (Chesnais 1997) which may force
the NSI literature to deal properly with this issue. The environment of developing countries,
however has always been characterised by macroeconomic instability.
Despite of that, important differences in national economic performance are expected
to remain, particularly between richer and poorer countries. At least two structural
differences, identifiable at national level, are important for variances in NSI. One is
institutional and the other technological. They both are interrelated and suffer strong
influences of macroeconomic instability and are partially responsible for the greater diversity
that is bound to be found in NSIs in developing countries.
The evolutionary literature suggests that institutional differences concern major and
persistent variation in systems of governance: both narrowly in the sense of formal regulatory
systems of corporate governance, and more broadly in the sense of rules of the game for
corporate behaviour. It also suggests that (i) innovative diversity is related to diverse
competences and learning processes and that (ii) technical interdependencies are pervasive at
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local and regional levels. Some authors have also argued that technological density and
diversity are properties of regions rather than countries, being the result of local
agglomeration of industrial, scientific technological and innovative activities (Carlsson and
Stankiewicz, 1991).
Developing countries are generally characterised by greater disparities (in income
distribution, patterns of consumption, and so on). There is probably more diversity in
institutions and technologies in these countries than what should be expected in advanced
economies which are characterised by a relatively more homogeneous and stable patterns. It
may be expected that, in developing countries, this greater diversity is shown at a more
decentralised level than the national one. Therefore, the analysis of NSIs in these countries
should take into consideration local systems of innovation, perhaps in a stronger way than in
advanced countries. Of course this is particularly true in the case of big countries, such as
Brazil.
The idea about the growing importance of the local character of innovation in
development processes has to be checked with the so-called “globalisation” of technology,
which claims that the wide dissemination and easy access to technology and knowledge
provided by the global activity of large firms, make national boundaries and traditional
national capabilities irrelevant. However, the idea of "technoglobalism" is contradicted by the
findings of the evolutionary work on innovation carried out since the late 60s, which
emphasises: the tacitness and cumulativeness of knowledge; and that knowledge (differently
from information and codified knowledge) is hardly transferred. In fact, these findings stress
the importance of localised learning, of externalities associated with proximity, and of
national systems of innovation. Also, this idea does not resist a confrontation with the facts
which show that, the last decades of the millennium have witnessed a greater degree of
concentration than ever in the international flow of technology among the OECD countries,
notably those belonging to the Triad (Freeman and Hagedoorn 1993, Lastres 1993).
Therefore, a number of authors have argued that localisation is an important
dimension of innovation and that “glocalization” should be a more appropriate term to use
(Humbert 1992). In fact, it is the idea of diverging patterns of growth that is starting to
become central to the debate on innovation and competitiveness (Foray and Freeman 1993);
with the construction and maintenance of quite specialised competences and capabilities
3
Of course this situation has changed in the last two decades.
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within specific national contexts explaining differences in countries patterns of
specialisation. 4
The implications of this discussion are important for developing countries since one of
the pillars of the neo-liberal agenda (and, consequently, of the policies which are being
pursued by most developing countries, including the Mercosur countries), reinforces the idea
that technology and knowledge have become 'global' and that like a commodity, they could
be acquired internationally under market conditions. Under such a view, policies geared to
attract foreign investment and to put pressure on local firms to achieve better quality and
improve productivity would suffice in order for them to increase competitiveness. However,
as corroborated by empirical research5, the technological activities carried out by MNEs in
host countries are still relatively small. What is happening in technology is also an indicator
of a larger phenomenon concerning international production, namely that some core
competences of firms, which do include the generation of technological capabilities, are still
largely concentrated in the home country of the MNEs (Chesnais and Ieto-Gillies 1997).
This discussion is also important for the understanding of national systems of
innovation in developing countries since, although it is not very much debated in developed
countries, the very idea of NSIs implies different roles for firms according to their capital
ownership. This has been explicitly recognised by different authors who developed the
concept. For example, Nelson and Rosenberg defined system of innovations as a ‘set of
institutions whose interaction determine the innovative performance of national firms’ (1993:
4).
3 – Innovation Systems in the Mercosur during Import Substitution Industrialisation
National systems of innovation in the Mercosur countries (as in all Latin American
countries), during the import substitution period may be characterised by persistently low
levels of innovative efforts, particularly when compared to OECD and South-East Asian
countries. Also, most R&D activities were performed by State-owned labs and technology
institutes, public universities and R&D departments of State enterprises and nearly all
training of human resources took place in the public sector, particularly State-owned
universities. Public sector played the most important role in the development of the national
innovation systems. The State provided the bulk of funding, trained the people, and ran the
4
5
Archibugi and Pianta (1992).
See, for instance, Archibugi and Michie (1995) and Lastres (1997).
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development banks and the great majority of firms’ R&D labs. Therefore, the “narrow” NSIs
– defined as comprising institutions which are directly involved in science and technology as
a whole – in Mercosur countries have historically had this marked feature of strong State
influence.
Also, the “broad’ NSI in these countries – which attempts to describe the social
economic and political context of technical and organisational innovation – have displayed
other specificities as related to other countries. One of the most important specificity – which
is common to the general Latin American experience – is that Import Substitution
Industrialisation (ISI) was based almost exclusively on technology imports. Although
countries like Japan and South Korea also imported technology during their industrialisation
strategies, there was an important difference. In Mersosur countries, these strategies were
typically disconnected from significant innovative activity by the technology importing firms.
They were usually not preceded by, accompanied by, or followed by substantial
complementary research, development or engineering efforts by importing firms. As a
consequence, technology imports were only rarely assimilated into continuous processes of
rapid technical change. Obviously they were often followed by some degree of improvement
in process efficiency and product performance as 'learning-by-doing' and minor adaptation
occurred, but the intensity of such 'incremental' technical change was often inadequate to
sustain competitiveness in technologically dynamic international markets, and it rarely
created new bases of competitiveness in progressively higher value-added activities.6
In fact, across the majority of technology importing firms of the region and over four
decades from the 1950s to the 1980s, the acquisition of foreign technology was not part of a
broader process of technologically dynamic industrial development. Instead, industrial firms usually technologically insulated from others and from the wide range of technological
institutions - acquired foreign technology to achieve one-off steps in changing their products
and processes.
One implication of this pattern has been the limited intensity of technical change in
industry. As is well known from numerous studies of 'technological learning' during the
1970s, there was often some degree of adaptation of technology and significant mastery of its
basic operation (for example, Katz 1984 and 1987). There was also be some elements of
'learning-based' further improvement and development of the imported technology, although
6 It is worth pointing out the existence of important exceptions to this general pattern. See Bell and Cassiolato
(1993) for a review.
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some detailed studies suggest that even that type of active improvement and dynamic
assimilation of acquired technology was often be very limited (Bell and Cassiolato 1993).
More generally, it seems clear that the assimilation of imported technology seldom
amounted to a trajectory of persisting improvement and development that matched, let alone
surpassed, the rates needed to sustain international competitiveness. These 'ex-post' patterns
of limited dynamism in assimilating what had been imported were typically associated with
only limited 'ex-ante' efforts to create the technological capabilities required for effectively
exploiting international sources of technology in the first place. And, as firms' ex-post phases
of limited assimilation of imported technology became the ex-ante phases of their subsequent
technology imports, the trajectories persisted over long periods. This was a pattern were
‘most firms were not designed to evolve. The majority were meant to operate mature
technologies, supposed to be already optimised. Firms were not expected to reach
competitiveness on their own’(Perez 1989).
Low levels of internal R&D activities by firms were accompanied by very weak
linkages with government-owned industrial research institutes and universities (Erber et al.
1974). Then, the “norms” of innovation during ISI were typically different from most
countries which were successfully incorporating the fordist norms of production from the end
of World War II till the 1980s. But another important characteristic of the “broad” system of
innovation, related to the above point of “implicit” technology policies, refers to the “norm”
of financing. In the region the State has been the main, if not only source, of long term funds
for productive activities. The stock market is very small and private financial institutions
concentrate on highly profitable short-term operations. A chronic problem of internal (and
increasingly external) debt has contributed to keeping interest rates high bringing together a
high degree of macroeconomic instability. Both problems – lack of long term financing and
persisting macroeconomic instability – are important components of the “broad” NSI which
put extra burden on firms’ decisions regarding innovative activities.
4 – Innovation Systems in the Mercosur under the Structural Reform of the 1990s
Since the early 1990s, structural reform - liberalisation, deregulation and privatisation
- has affected significantly innovative behaviour at the microeconomic level in Mercosur
countries, with important consequences to the National Systems of Innovation. Firstly,
liberalisation has lowered the cost of imported capital goods and therefore encouraged their
substitution for domestically-produced machinery and equipment (Katz 1998). In Brazil, for
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instance, the coefficient of import penetration in machinery and electronics goods jumped
from 29% in 1993 to around 70% in 1996. The same coefficient for some important inputs,
such as chemical raw materials, fertilisers and resins, grew from 20 to 26%in 1993 to around
33 to 42% in 1996 (Cassiolato et al 1998).
Secondly, some studies have suggested that multinational corporations (MNCs)
subsidiaries have discontinued local engineering activities that they undertake in order to
adapt or improve product and process technologies provided by their parent companies (Katz
1998). As they can operate on the basis of imported parts and components, these firms have
reformulated their “adaptive engineering” strategies of the ISI period and have discontinued
domestic technological programmes that were justified in the more closed economies in the
past.
Thirdly, structural changes, particularly privatisation, have changed significantly the
balance between public and private financing and performance of technological activities at
local level. Although private agents are supposed to be playing a more important role in these
activities empirical data seem to suggest that this is not the case (Cassiolato and Lastres
1999). On the one hand privatisation of public utilities have resulted in less technological
efforts by firms and not more, as it is going to be seen in more detail later on.7 Also, some
evidence have been accumulated that most of the few local innovative firms have been
acquired by subsidiaries of MNEs that, as part of their strategies, are downgrading the
technological activities carried out locally.8 Private agents are supposed to be playing a more
important role in the financing and performance of technological activities at the local level.
However, empirical data seem to suggest that this does not mean that past trends have
changed
The fourth important change in the National Systems of Innovation of the region
relates to state-owned technological institutions and universities. Government policy has been
promoting the partial privatisation of State-run technological institutes by forcing them to
obtain an increasing share of current funding from the private sector. As one consequence,
institutes are changing the mix of activities they conduct reducing the number of research
7
See, for example, Cassiolato et al (1999) for a discussion of this issue in the case of telecommunications.
ˆIn Brazil, for example practically all medium-sized and large locally owned producers of auto parts that were
known as important cases of innovative firms (as Metal Leve and Freios Varga) have gone through this; see
Laplane and Sarti for a detailed discussion of the pattern of international investment in manufacturing in Brazil
during the second half of the 1990s and its consequences on local capabilities.
8
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projects they undertake and increasing the share of consultancy and technical assistance
activities, which provide them with the resources they need (Katz 1998). 9
Finally, it is worth pointing out that, both in the case of the privatisation of state
enterprises and in the expansion of domestically-owned conglomerates in resource processing
industries, the setting up of new production capacity is based on the use of imported
machinery and equipment and intermediate products. This strategy has significantly affected
local processes of learning and accumulation of innovative capabilities.
The final result is that production is becoming less intensive in the use of local
engineering and technical capabilities. Mercosur countries seem to be more and more
specialised in sectors and areas of relatively low dynamism. For instance, although the export
profile of the Mercosur economies has evolved in such a way that industrialized goods are
increasingly important, the insertion of Mercosur countries in the international market is
characterised by the exports of commodities that are intensive in natural resources and/or
energy and in low wage. As it is known, these commodities have shown a tendency to low
dynamism, excess supply and a consequent price stagnation.
The progressive erosion of international competitiveness of Mercosur countries is
associated with the loss of world market shares as witnessed by the figures shown in table 1.
Export growth of these countries has been much slower than total world exports. Brazil, for
example, accounted for 1.5% of world exports in 1984; in 1993 and 1996 the same figures
were 1% and 0.93% respectively. However, the situation is even worse if, as shown in table
1, intra-Mercosur trade is excluded. In this case, Brazil’s share declined from 1.42% in 1984
to 0.79% in 1995 and Argentina’s from 0.31% in 1986 to 0.28% in 1995.
Table 1 - Mercosur Countries Share in World Trade
Selected
Years
1984
9
Brazil (%)
1
2
1.500
1.426
Argentina (%)
1
2
NA
NA
Paraguay (%)
1
2
NA
NA
Uruguay (%)
1
2
NA
NA
1986
1.116
1.026
0.342
0.315
0.012
0.005
0.056
0.037
1990
0.943
0.903
0.371
0.316
0.029
0.017
0.051
0.033
1995
0.916
0.794
0.413
0.279
0.016
0.007
0.042
0.022
Of course, as Freeman (1998) pointed out in is analysis of the East European national innovation systems,
some of the weaknesses of these systems should not be attributable to the prevalence of public ownership and
control “per se” as to the particular nature of that public ownership and control.
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1 – Total Exports of Country over Total World Exports
2 – Same as 1 less Exports to Other Mercosur Countries
Source: IMF, International Financial Statistics and INTAL
5 – Preliminary Results of the Project on Local Systems of Innovation in the Mercosur
The discussion about National and Local Systems of Innovation in Mercosur below is
based on a research project coordinated by the authors. The project was set up with the
objective of analysing experiences of selected local productive arrangements in Mercosur. It
aims, also, at investigating local bases of productive and innovative capacity in order to
design S&T policy propositions at national and regional level.
There are two basic questions being addressed by the research. The first refers to what
“typologies” of local productive arrangements are found in Mercosur. The research
concentrates in understanding their institutional designs, the role of different agents inside the
arrangements, how and if they interact, their competitive strategies, the main factors affecting
processes of learning, capabilities for innovation, use and diffusion of technologies, as well as
investigating how these factors are dependent on local processes.
A second basic research question is related to what have been the trajectories and
evolution paths of selected local productive arrangements in the 90s and how are they coping
with the profound changes of the decade. In fact, it has to be understood how structural
changes, explicit and implicit industrial policies, have affected the arrangements: what have
been the influence of new investment flows - local and foreign - on local arrangements, what
have been the impact of the new strategies implemented by firms.` ` ` ` ` ` ` ` ` ` `
addresse` ` ` ` ` ` ` this second research question.
These research topics are being analysed through a series of selected “case studies” of
local productive arrangements in Brazil and Uruguay.10 Table 2 presents a summary of the
11 local productive arrangements analysed in the initial phase of the project. Three groups
may be identified. One refers to clusters of firms in the agroindustrial sectors, another
10
The choice of these “case studies” was made using both objective and subjective criteria. The objective
criteria refers to the fact that at least one “case study” should be made in every State of the South and Southeast
regions of Brazil (responsible for more than 70% of the country’s GDP), two for the Northeast of Brazil and one
for Uruguay. Also, in every State/region the selected “case study” should represent one of the most important
(economically) productive arrangements of that State/region. Also, the analysed clusters should include clusters
of technology-intensive SMEs, clusters dominated by MNE subsidiaries and clusters of locally-owned firms (at
least one of them should be about recently privatised large firms).
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comprises hi-tech firms and the third consists of a cluster in technical ceramics and another in
steel.
5.1 - Agroindustrial clusters
The first group of clusters refers to four agroindustrial arrangements. Two of these
clusters - tobacco in Rio Grande do Sul and cocoa/chocolate in Bahia - are governed mostly
by subsidiaries of MNCs. The market orientation of these clusters is slightly different. In
tobacco, largest firms are basically devoted to exports and medium-sized firms concentrate on
the local market; the cocoa cluster, on the other hand produces basically for the internal
market. The other two clusters - one in tropical fruits in Northeast Brazil and one in wine
production in Uruguay - consist basically of locally-owned firms which produce to the local
market but are increasingly geared towards exports.
The clusters dominated by MNCs (tobacco and cocoa) present some common features
regarding local learning processes. For the industrial processing of these crops, where most
innovations are related to the use of new equipment and occasional incremental
improvements refer to parts of the productive process, important elements of the learning
process associated with user-producer relations were found during interviews. In fact both
local and foreign producers of equipment have been important sources of technology for
firms in these sectors. On the other hand, local institutions such as universities and
technology centres have limited importance for the innovative activities. They are only
involved in testing and quality control for exports.
At the agricultural level, the development of new varieties – that is in fact an
adaptation to local climatic conditions – and the production of hybrid seeds are restricted to
the local R&D labs of large MNCs firms with very little connections with the local
infrastructure. As far as the impact of structural changes is concerned the research results
suggest that, although liberalisation did not affect the market position of leading firms in
tobacco and cocoa, it disrupted local systems of production via denationalisation of locallyowned firms and the growing use of imported inputs. Also a significant capital concentration
was observed since MNCs subsidiaries have acquired several local ventures. In the regions
studied, a significant decrease in number of firms, jobs and technical relations has occurred
(Vargas et all 1999 and Rocha 1999).
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Fruit processing in Northeast Brazil and wine production in Uruguay and South Brazil
share some similarities between themselves. Firstly, locally-owned SMEs are responsible for
the bulk of production. Local market is important but exports are becoming more significant.
Also State-owned agricultural research centres have had an important role in the development
of new plant varieties and in their diffusion to industrial production. Finally liberalisation had
big impact on firms’ behaviour but not affected market structure.
As for industrial production, a significant improvement in quality and efficiency
during the last decade was found. This progress is associated with continuous
experimentation and very little formalisation of activities (such as R&D). Although a very
slow increase in formal cooperation with local institutions is detected, the research found that
the main source information used for innovative activities is acquired through constant
contacts with specialists, both local and foreign. Inter-firm exchange of information was also
a significant characteristic of the wine production cluster, but not of the fruit processing one.
Firms that are more innovative in new or improved products are also more innovative in new
or improved processes.
Export strategies and – in the case of wine production – the need to compete with
foreign products have pushed local producers to strategies that are based on strong increase in
innovative capacity and a much slower increase in cooperative behaviour. In fact, if
innovative firms are organising their tacit knowledge individually, they are still facing
difficulties in organising them collectively. Both sectors are far from constituting integrated
networks of local and national agents, institutions and policies that would assure the
generation, diffusion and use of scientific and technological knowledge similar to sectoral
systems of innovation.
5.2 Hi-tech clusters
The second group of clusters refers to hi-tech arrangements. One of these clusters that
of biotechnology in Minas Gerais comprising 12 locally-owned firms, producing mostly for
the internal market. These firms are specialised in health biotech, environment and natural
resources. Most of these firms are spin-offs the Biology and Biochemical departments of the
Federal University of Minas Gerais. From 1990 to 1995, five new firms were set up in the
cluster. Interestingly, from 1995 on no new venture was set up (Lemos 1999).
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Production is geared to the Brazilian market with an increasing – but small –
participation of Mercosur. The cluster is dominated by the oldest firm, Biobras, created in
1976 by an university researcher. At the beginning, it produced enzymes for the
pharmaceutical industry and gradually moved to the production of insulin. Obviously, the
firm faced problems of entering into a market dominated by some large MNEs, but was able
to establish a joint-venture with Eli Lilly, then one of the most important producers of insulin.
This association lasted for a few years since, later on, Eli Lilly left the venture.
There are some interesting general features of the biotech cluster. Firstly, firms
present high level of interaction at management, productive and technological levels.
Secondly, instead of creating their own R&D facilities, firms rely on Biobras R&D lab for
their technological work. In fact, Biobras, set up a large R&D lab in order to support
technological activities of the smaller firms.
Also, Biobras, since splitting from Eli Lilly, has experienced very small rates of
growth. Apparently, Biobras is satisfied with a small share of the market (annual sales
amount to approximately US$ 40 million during the 1990s). Stagnated sales from the largest
firm was accompanied by the progressive setting up of several new ventures in related areas,
such as diagnostic kits, medical equipment and vaccines. The spin-offs’ strategy apparently
reached its limit in 1995. Since then no new firms have been set up and all firms are
experiencing difficulties to grow.
Finally, there is an important institutional innovation in the cluster. Local government
and the Biominas Foundation – the association representing most firms of the cluster – joined
efforts and created an incubator which is responsible for supporting the setting up of new
firms and forproviding common services. Collective action is a characteristic of the cluster
with an interesting division of technology labour among them. As a general rule, however,
firms of the cluster have extreme difficulty to grow after the structural changes of the 1990s.
Another cluster analysed is the export-oriented software cluster of Rio de Janeiro,
where 12 locally-owned firms were surveyed. Similarly to the Minas Gerais’ cluster, these
firms in Rio were all set up as spin-offs of local universities. After some time, firms have
gradually disconnected from the local technology infrastructure, which in Rio is particularly
good. Despite the geographical proximity, firms also have little contact with each other and
are facing problems with management capabilities. Despite the fact that there is a specific
government program to support software-exporting firms, the productive arrangement could
not establish an institutional scheme to deal with general problems such as financing and
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management. Firms of the cluster do not emphasise collective actions for innovation. As a
consequence, software firms in Rio also face difficulties to grow (Melo et all 1999).
The third hi-tech cluster analysed is the telecom and IT productive arrangement in
Campinas, a medium-sized town 50 miles from
São Paulo.The cluster was established
around a strong university system and two government research institutes – the Technological
Centre for Informatics and the Telecom R&D Centre. In the early 90s, there were more than
40 firms in the cluster employing approximately 6000 people. At the end of the decade the
productive arrangement comprised 30 firms after several locally-owned firms were closed.
Also, there have been some new entrants – MNE subsidiaries – particularly in the telecom
area (Souza and Garcia 1999).
The survey covered 13 firms. Six of these are large and subsidiaries of MNEs. Of
these, 3 produce IT goods and 3 produce telecom equipment. Two of the IT-producing firms
were set during the 70s. The remaining started producing in Campinas after 1994. Four
medium-sized firms were also interviewed. Two of these are foreign-owned and produce
parts and components for IT and telecom and were set up after 1994. The other two are
locally-owned firms that were set up in the early 1980s. One produces parts and components
for telecom and the other specialises in optical fibres goods. Finally, the survey covered 3
small firms, all locally-owned. One, was set up in 1968 and produces components for telecom
equipment. Another was set up in 1980 and produces parts and components for IT and
telecom and finally one is a telecom services firm and was set up in 1994 as part of a process
of de-verticalisation by one of the largest foreign-owned firm that produces telecom
equipment. Practically, all production of all interviewed firms is geared towards the local
market
Among the main findings of this case-study is the fact that one can observe two totally
different trends regarding innovative activities (Souza and Garcia 1999; Cassiolato et all
1999). One which started in the late 1970s, when Brazil started producing IT and telecom
goods, and finished in the early 1990s, when structural reforms began. During this period, a
local innovation system gradually took shape. The growth of firms was clearly accompanied
by accumulation of capabilities and learning processes. R&D expenditures by firms – both
locally-owned and foreign-owned – increased and supplier’s networks were established under
the control of large, mostly foreign-owned firms. This extensive division of labour among
firms, which jointly benefited from economies of specialisation, took place from mid-1980s,
when large MNEs subsidiaries started a process of de-verticalisation and invested in up-
16
grading local capabilities. A collective learning process and an embryonic local innovation
system were set into motion.11
During the 1980s, as part of their strategies of strengthening learning and innovation
processes, large firms set up training programmes directed to specialised workers who were
recruited from local universities and technological institutions and established cooperative
agreements with these institutions. Some of these workers set up their own firms later on, as
part of the above-mentioned de-verticalisation process.
After structural reforms took place, the local system of innovation changed
significantly. The first fact worth mentioning regards the behaviour of foreign-owned
newcomers. Although some observers have attributed the decision of these firms to set up in
the Campinas area to externalities associated to the relatively strong infrastructure of science
and technology, the results of the survey suggest otherwise. It is true that these newcomers
have hired, to some extent, local engineers. However, according to interviews and as these
firms are in fact assemblage, import-intensive plants, their representatives pointed out that
there is no interest in procuring technology-intensive inputs locally. In essence, this type of
investment by newcomers, as they concentrate in assembling activities, is having a deep
effect on the local system of innovation, decreasing local technological content and also the
dynamism of networking and learning processes.
Older foreign owned firms and locally-owned ventures which survived had to reassess
their manufacturing and technological strategies. Firstly, they narrowed the range of intra and
inter-firm manufacturing activities. There was also, a deep re-examination of technological
strategies resulting in a contraction of innovative activities by local firms(Cassiolato et all
1999).. However it was not only a significant decrease in total R&D expenditures by firms
that was manifest. In fact, there has been a significant change in the nature of R&D activities
performed. Firms decreased those activities with higher innovative intensity such as R&D for
new products and increased activities of lower technology intensity such as software
development, adaptation of foreign products and technical services
In a related way, there has been a significant decrease in the employment of more
specialised personnel. Also, interviews confirmed that, some of the engineers that remained
employed were downgraded in their occupations. Some that were previously engaged in
R&D activities were transferred to other activities, such as marketing, production, sales and
11
For an early account of the cluster see Hobday 1984.
17
technical assistance. Then, one of the most important assets accumulated before, and that is
essential for learning processes, is being lost (Szapiro 1999). Finally, locally-owned firms
that survived (and that were interviewed) faced, similarly to the above-mentioned cases of
biotech and software, difficulties to grow during recent years
The final hi-tech cluster analysed is the advanced materials, scientific instruments and
precision mechanics productive arrangement in São Carlos (Vieira 1999). Similarly to
Campinas, São Carlos is known by its excellence, as far as educational, scientific and
technological infrastructure is concerned. During the 80s and first half of the 90s, several
small technology-intensive, firms were created, all as spin-offs of the Physics, Chemistry and
Materials Science Departments of the two public universities located there. Differently from
Campinas, however, the cluster does not have large firms. Also, structural changes did not
bring new international investment.
Fourteen locally owned firms were interviewed. All but two have less than 50
employees (the others have 90 and 200) and all but one were set up before 1992 (the
remaining was set up in 1995). Six of these firms produce electronic goods, two specialises in
scientific instruments, four produce new materials and two produce precision mechanics
goods.
Although practically all surveyed firms reported continuous commitment to
innovation and technological development, some interesting differences were uncovered by
the research. Firstly, there is a marked difference regarding the level of cooperation and
cooperative behaviour according to sectors and range of goods they manufacture. IT and
precision mechanics firms showed a greater propensity to engage into R&D partnerships with
local firms, including competitors. On the other hand, firms in scientific instruments and new
materials showed no significant tendency to cooperate with other local firms. In general,
however, all firms have good user-producer relations with suppliers and customers and also
strong relations with local R&D infrastructure.
It is also worth mentioning that for those firms that engage in cooperation with other
local firms, it was found a high level of informality in the relationship. This informality,
which was also characteristic of the relationship with the local innovation system, implies a
relatively higher level of transfer of tacit knowledge than regarding codified knowledge.
Also, similarly to what was found in the three other hi-tech clusters, there were several
firms which are experiencing difficulties to grow. However, interestingly, it was possible to
18
identify different situations according to the type of market they target their production. Then,
firms in the electronics sector witnessed much smaller rates of growth in their sales, as
compared to firms that produce advanced materials (with just one exception), even though
both sectors in Brazil, in general, experienced very high rates of growth in recent years. On
the other hand, firms which sell directly to individual consumers experienced much higher
rates of growth in their output than firms that direct their production to other firms upstream.
In other words, surviving producers of intermediary goods (mostly sold to MNCs
subsidiaries) are experiencing growth problems which are not common to surviving firms that
sell to final individual consumers. An immediate implication is that firms that are tied-up to
production chains are more prone to face difficulties than firms that compete in the market.
According to interviews, although growth problems could be associated to
macroeconomic problems (particularly difficulties in finding long-run financing), the
structure and functioning of the market they are competing into are responsible for difficulties
firm find. More specifically, surviving firms put the blame on the behaviour of foreign-owned
customers that changed their overall strategy due to the liberalisation process for their
difficulties.
In summary, for all the hi-tech clusters analysed, one could point out, initially, the
generalised growth difficulty of firms that survived structural changes. In fact, the nature of
the adjustment and structural change that characterise the Mercosur countries are implying in
weak market structures from the point of view of firms' competitiveness.
As a consequence, the growth constraints faced by local firms are weakening their
core competencies. For these firms, the interruption of learning processes pose substantial
limits to the continuation of user-producer linkages which were so important to the few
successful stories of diffusion of informatics products in Brazil, as in banking automation and
which are also important in the present international trends of information industries.
This downgrading of the local industry’s capabilities associated to the abandonment of
internal innovative activities has meant that local firms are tending to become 'hollow
companies' (Teece 1988; Dosi et al 1992). They are extremely vulnerable in an selective
environment which has become considerably tighter than the one which prevailed before
liberalisation took place. They are also bound to face problems in their long-term
competitiveness if they want to return to their growth patterns.
19
The second point worth mentioning refers, again to new investment by MNEs that, in
practice has had, during the last few years, a negative effect upon local clusters’ dynamism
and capabilities. Also, for hi-tech clusters, significant differences were found in levels of
cooperation according to market orientation: firms geared to export show low level
(commodities); firms geared to local markets show higher level of cooperation, bringing
about the importance of tacit knowledge. Finally, it is worth pointing out that, particularly, in
what refers to the local R&D infrastructure, an important institutional instability, linked to
rapid changes in the role of the State support, was also found
5.3 – Other clusters
The remaining clusters studied refer to the ceramics tiles’ productive arrangement in
the State of Santa Catarina (Campos et all 1999) and the steel industry cluster in the State of
Espírito Santo (Villaschi and de Deus 1999). The surface ceramics cluster of the south of
Santa Catarina is a very interesting case since it is presenting a movement of intensifying
specialisation and local complementarities, combining deverticalisation of production of
largest firms, deepening of the industrial structure via the establishment locally of new input
suppliers, the creation of a new Technology Centre in Ceramics as a joint, collaborative effort
by local firms and the setting up of technical courses in the area.
Brazil is the 4th largest producer of ceramics tiles, only behind China, Italy and Spain.
Ninety-two per cent of sales are directed to the domestic market, with only 8% being destined
to exports (1996 figures). The Santa Catarina cluster was responsible, in 1997, for 33% of the
Brazilian production, being more export-intensive than the average: more than 20% of sales
are exports. The cluster comprises 15 ceramics-producing firms, all locally-owned, 14 input
suppliers – 4 locally-owned and 10 foreign-owned - and 5 equipment suppliers, all locallyowned. Also there are 4 technical schools, the recently created technology centre and two
coordinating institutions. Of these 7 ceramics firms, 7 input suppliers, 3 equipment suppliers
and all remaining institutions were interviewed.
Although firms do not invest heavily in R&D, they are pursuing interesting innovation
strategies that got a momentum after the structural changes of the 1990s. Interviews suggest,
for example, that one of the most important forms of development or incorporation of new
technologies is joint collaboration with input suppliers (42.9% thought that this was very
important and 42.9% thought this was important) (Campos et al. 1999). Cooperation with
equipment suppliers and with other local institutions were also considered important. Then
20
besides processes of learning by doing and using, firms are increasingly utilising external
types of learning – by interacting and collaborating.
If firms, do not invest very much in R&D, the trend in the 1990s points to a significant
increase in this commitment. In fact, all surveyed firms declared that they increased their
R&D expenditures during the 1990s and 71.4% declared that they intend to increase their
expenditures in the future. Also all surveyed firms set up in the 90s internal design teams in
order to increase the value-added of their products and to compete in higher-end segments of
the market at international level.
An indirect outcome of this “up-grading” strategy was the attraction of foreign firms
specialising in the supply of key, technology-intensive inputs. In fact, interviews suggested
that these firms set up local production facilities during the 1990s, basically to establish userproducer relations with local firms. More generally, it was found a strong trend towards
technological cooperation between ceramics firms and their local suppliers of inputs. In fact,
more than 80% of the interviewed firms declared they maintain monthly, weekly or daily
technical contacts with suppliers/clients for activities related development and improvement
of products, design of products and technical assistance and to exchange ideas and
information. Although this type of collaboration with input suppliers and the local
technological infrastructure is increasingly being pursued, the same could not be found as far
as collaboration with local suppliers of equipment are concerned.
As a result, for this cluster comprising nationally-owned large, medium-sized and
small firms producing ceramics goods, structural changes associated with liberalisation had a
positive impact, since it forced firms to co-operate and pursue more aggressive and
innovative trajectories. But this is related to the existence of a pool of qualified resources,
locally, that could be used in a better way.
The last case analysed was the steel cluster located in Espírito Santo, with recently
privatised steel-producing firms. They are basically specialised in commodities, with their
innovative efforts being concentrated in improvements in their production processes.
After privatisation R&D expenditures are slowly growing but they still show a very
low level of collaboration with local infrastructure. In fact, given the pressure to minimise the
social costs of pollution, these firms have recently engaged in environment-related projects
with local institutions. For example, firms and the University of Espírito Santo set up a joint
programme for the development of software for environment management. Also, the search
21
for organisational innovations has been subject to different programmes between steel firms
and the local technology infrastructure.
6 - Conclusions
The transition from the “fordist” techno-economic paradigm to the knowledge-based
one certainly brings several new problems to developing countries. The construction of
National Innovation Systems in these countries becomes even more important in the new
paradigm. Research on this issue has up to now being extremely concentrated in advanced
economies. This paper presents a brief and partial summary of the initial phase of a research
project which is being conducted in the Mercosur countries as an attempt to understand the
specificities of the local and national innovation systems in the area.
The paper attempted to discuss how some selected local productive arrangements in
the 90s are coping with structural changes – liberalisation, privatisation and deregulation. In a
very preliminar way, some of the main findings may be put forward. First, structural change
in the region has meant that technological capital accumulated during the ISI years is being
rapidly eroding, as economic agents have changed their strategies. In most cases
` ` ` ` ` ` MNEs subsidiaries changed significantly their innovation strategies and increased
the import content of their products. This fact appears to be producing a significant negative
impact upon local firms as it destroys production chains in which a larger number of locallyowned SMEs had served as suppliers of foreign-owned companies. Although some specific
studies regarding MNEs are needed – and they are part of future research – it is clear that, in a
policy environment such as the one that characterises Mercosur during the 1990s, these firms
are downgrading their local technological activities` ` ` ` ` ` ` ` ` ` ` .
The other case refers to newcomers, international firms that only recently set up
facilities locally, either through greenfield investment or acquisition of existing local firms.
A recent study which attempted to uncover the strategies of these MNCs found that they are
basically import-intensive and direct their production to the internal (Mercosur) market and
are not geared to exports (Laplane and Sarti 1998). In the case-studies analysed in this paper
it was found that, as a general rule, newcomers are not interested in establishing productive
networking locally and operate totally isolated from the domestic innovation system as they
use significantly imported parts and components.
The only example of productive arrangement where foreign firms are upgrading local
content and technology activities is the ceramics cluster which is coordinated by local firms.
22
In this case, foreign-owned input suppliers were attracted to produce locally and to establish
technological collaboration with other firms in the cluster.
As for local firms, as far as their innovation strategies, their reaction to the greater
exposure to international competition in different ways. The productive arrangements
coordinated by local firms, such as ceramics, wine and – to a lesser extent - tropical fruits
experienced increased commitments to innovation and cooperation. Also new institutional
arrangements were devised as part of this upgrading.
Local firms that are part of production chains either coordinated by MNEs
subsidiaries, or where these firms play at least an important part in the competitive process,
behaved differently. In all clusters studied, several closures were noticed, as the level of local
content decreased. Surviving local firms, with few exceptions, have experienced difficulties
to grow. Part of these difficulties may be traced to macroeconomic instability, imperfections
of financial markets, high interest rate` ` ` ` ` ` ` ` ` ` ` ` . Part of them are related other
aspects of policies for structural change such as the virtual abandonment of any regulatory
power by government. What is important for the discussion of local systems of innovation,
however, is that, as these firms are seeking primarily to survival, they are forced to abandon
long-run concerns. In decreasing innovation expenditures they certainly may lose capabilities,
affecting learning processes.
Finally, although not specifically discussed in this paper, the research project has been
studying the role of institutions in local systems of innovation in Mercosur. An intense
variance was found related to their embeddedness on local systems. Also institutions,
particularly technology-related, are reacting to structural change in a passive, disorganised
way, as government policy has been virtually absent.
The analysed local systems of innovation in the Mercosur are certainly under severe
strain during the 90s. Preliminary results seem to suggest that in this new paradigm a simple
exposure to international competition is not sufficient to force local actors to increase their
innovative and collaborative efforts and to establish systems of innovation.
Policy proposals should necessarily tackle the issues related to the role of MNC
subsidiaries. At a more general level, undoubtedly, the macroeconomic environment and
implicit technology policies exert important impacts on local systems of innovation. In the
context of development, a greater attention should be directed towards understanding the
23
linkages between
the concept of National Systems of Innovation and macroeconomic
behaviour.
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27
Table 2 Local Productive Arrangements in the Mercosur
Cluster
N. of
Firms
Main Market
Orientation
Market Struture
Innovative
Capability
Cooperative
Behaviour
Rio Grande do
Sul
Bahia
Ceará, R.G.Norte
and Pernambuco
Uruguay
10
Mostly Exports
MNC Oligopoly
Med-Decreasing
Med. – Decreasing
Internal
Mostly Exports
MNC Oligopoly
Local SMEs
Low
Med. - Increasing
Mostly Exports
Local SMEs
Low – Increasing
Low
Low – Slightly
Increasing
Med. - Increasing
Minas Gerais
Rio de Janeiro
Campinas, SP
17
12
34
Internal
Export
Internal
São Carlos, SP
15
Internal
High - Increasing
High - Stable
High Decreasing
High – Stable
High – Stable
Low – Stable
Med. - Stable
Adv. materials, fine
mechanics & instrum.
Other Clusters
Technical ceramics
Local SMEs
Local SMEs
Local SMEs and
Large MNCs
Local SMEs
Santa Catarina
22
Med. - Increasing
Espírito Santo
4**
Med. - Stable
Telecom equipment
Curitiba, Parana
2**
Internal
Large and mediumsized locally-owned
Large local and
MNEs, Oligopoly
Large (1 MNC and
1 Local), Oligopoly
Med. - Increasing
Steel
Export and
Internal
Export
Low – Slightly
Increasing
Med. - Stable
Agroindustrial
Clusters
Tobacco
Cocoa and chocolate
Tropical fruits
Wine production
Hi-tech SME Clusters
Biotechnology
Software
Telecom & IT
State/Region
Notes: * plus 14 suppliers of intermediary inputs and 9 suppliers of equipment;
** and network of suppliers
Med. - Stable
Med. Stable