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Brazil's Innovation Challenge

Brazil's Innovation Challenge

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Published by The Wilson Center
A joint publication issued by the Brazil Institute and STAGE from the first installment of a two-part conference, in which a distinguished eight-member panel discussed how public policies, governmental institutions and the adoption of intellectual property rights affect efficacy and the use of innovation throughout Brazil's economy.
A joint publication issued by the Brazil Institute and STAGE from the first installment of a two-part conference, in which a distinguished eight-member panel discussed how public policies, governmental institutions and the adoption of intellectual property rights affect efficacy and the use of innovation throughout Brazil's economy.

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Published by: The Wilson Center on Jul 14, 2014
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The proven creativity and capacity of Brazilian companies for technological andmanagerial innovation has brought a new set of challenges to the country’s policythinkers and policymakers. In the first installment of a two-part conference, a dis-tinguished eight-member panel discussed how public policies, governmental insti-tutions and the adoption of intellectual property rights affect efficacy and the useof innovation throughout Brazil’s economy. Panelists also analyzed the dynamics ofknowledge-based business models and the role of capital markets in advancinginnovation-driven development strategies. The second conference will be heldthis fall in Brazil.
ompanies like Petrobras,a pioneer in off-shore,deep-water oil exploration,and Embraer,theworld’s leading producer of regional jet aircraft,exemplify the benefits of adopting innova-tion-oriented business strategies.On June 27,2007,the Woodrow Wilson Center’s BrazilInstitute and the Program on Science,Technology,America and the Global Economy(STAGE) convened a group of business leaders,prominent scholars and an influentialgovernment official in the first installment of a two-part conference in order to addressthe growing impact of innovation on Brazil’s economy and assess how the country’sIntellectual Property (IP) system is evolving to meet these new business needs.
 Jorge Ávila
,president of Brazil’s National Institute for Industrial Property(INPI),discussed the role that his organization,the equivalent of the U.S.Patent and Trademark Office,plays in developing a business environmentthat promotes innovation in Brazil.He defined Intellectual Property (IP) asan intangible product of knowledge that has commercial value,encom-passing copyrighted property such as literary or artistic works,andideational property such as patents,appellations of origin,businessmethods and industrial processes.The IP system operates on essen-tially three platforms,explained Ávila.On the broadest level,thereis the institutional framework (INPI) which manages the structur-ing of markets for these intangible assets.Stemming from this
Written by
Alan M. Wright
Brazil InstituteProgram Assistant
Brazil’s Innovation Challenge
institutional framework are the legal standards thatregulate these asset-based transactions.On the mostspecific level,policy tools and service mechanismsserve to identify,individualize and evaluate theseknowledge-based goods.Before assessing the current status of Brazil’s inno-vation system,Ávila stressed the importance of con-textualizing the country’s IP foundations.Betweenthe 1930’s and 1980’s,Brazil carried out its IP policybased on an Import Substitution Industrialization(ISI) strategy—a protectionist development strategyfocused on replacing industrial imports with domes-tic production—which sought to acquire IP andtechnological knowledge at the lowest possible cost.All innovation and technological progress was appro-priated from and created abroad;as Brazil attached lit-tle value to knowledge-based innovation and IPrights,it deliberately established a weak IP system.Ávila defended Brazil’s ISI strategy by positingthat,at least within this timeframe,it yielded consis-tent economic growth:with growth ranging fromfive to seven percent each year during this fifty year period.Furthermore,the ISI strategy enabled thecountry to foster a set of institutions that made itpossible and attractive to develop a diversified set of industries;as a result,Brazil has one of the strongestindustrial parks in Latin America.Despite these ben-efits,Brazil’s ISI strategy bottomed-out in the 1980’sas the economy began to slump.Under Brazil’s firstcivilian government after military rule ended in1985,a set of new industrial policies was imple-mented—opening the economy and encouraginggreater foreign investment.As high tariffs and indus-trial subsidies could no longer sustain economicgrowth,Brazilian companies were forced to faceinternational competition and turn to knowledge-based innovation as a central pillar to improve thecompetitiveness of Brazilian industries.To encompass this growing focus on innovation,INPI has assumed a much broader role in Brazil’s IPsystem since the early 1990’s.With increased govern-ment funding,the organization has improved efficien-cy and quality of services.Ávila explained that INPInow plays essentially three basic roles:1) helping gov-ernment and business build a strong IP system that fos-ters innovation and competitiveness throughout theeconomy by improving IP rules in international agree-ments and strengthening domestic IP-related laws andregulation;2) promoting the IP system by making itwell-known to potential beneficiaries;and 3) operatingthe IP system itself;ensuring the system’s efficiency,efficacy and quality.INPI has established IP as the cen-tral mechanism to promote innovation and innovationpolicies within the economy;the institution also coor-dinates national networking by developing joint initia-tives and guiding other institutions to value IP as a pos-itive growth strategy;and conducts seminars and leadsresearch programs on IP through the Academy of Intellectual Property and Development.To maximize the potential gains of a strong IPsystem,Ávila underscored the need for businesses toactively pursue product differentiation and patentprotection.Furthermore,more innovative firms needto consolidate in order to expand resources and bet-ter utilize economies of scale.He concluded thatfirms need to diversify their IP portfolios;increaseR&D investments,seek to partner with other firms,and develop new products through cross-licensing.
“Fossil fuels,which changed the world in the 20thcentury,do not have a bright future,said
 José Goldemberg 
,full professor and a former rector of theUniversidade de São Paulo (USP).Instead,he arguesthat renewable energy sources are “the wave of thefuture.Fuels such as ethanol derived from sugarcanein Brazil—which he stressed should
be confused
Innovation and entrepreneurship has played a pivotal role in the growth of internationally competitive Brazilian firms and helped the Brazilianeconomy diversify beyond the dominant agriculturaland commodity-based sectors.
with the corn-based product of the U.S.—are prom-ising alternatives because they are not restricted bythe limitations of carbon-based fossil fuels,such asthe irreversible depletion of resources,environmentaldegradation,and the geopolitical problems associatedwith access to such fuels.Brazil’s ethanol industry—which produces morethan 33 percent of the world’s ethanol—provides aninteresting case study for how IP can advance theindustry’s growth.Currently,the majority of ethanolplants only yield 8,000–8,500 liters per hectare,withonly a few producing above 10,000.Goldembergasserts that if all ethanol plants increase output yieldsto 10,000 liters per hectare or more by adopting newtechnologies and better species selection,the indus-try could increase productivity by 25 percent.Even if current productivity remains constant,Goldembergcalculates that by 2012 ethanol production shouldincrease by 50 percent.The next step in expandingethanol production lies in genetic modification of sugarcane:developing a higher-yield strain of sugar-cane could double production without increasingproduction inputs (i.e.,land,labor,and infrastruc-ture).This type of innovation is already being pur-sued by companies like Dedini in Brazil,but needsthe support of government policies that rewardentrepreneurial initiatives.
Christopher T. Hill 
,professor of Public Policy atGeorge Mason University,reflected on the status of the Brazilian innovation system.Hill cited a recentstudy by Dr.Glauco Arbix,professor of sociology atthe Universidade de São Paulo and past president of the Research Institute on Appplied Economics(IPEA),which analyzed a sample of about 1,200industrial firms in Brazil in comparison with similar firms in Argentina and Mexico.The study found thatthese Brazilian firms have become competitive in theinternational export market for medium and high-technology goods.Their success is a significant devel-opment in Brazilian business because it signals thediversification of the Brazilian economy beyond thedominant agricultural and commodity-based sectorsand highlights the pivotal role innovation and entre-preneurship play in the growth of these medium andhigh-tech firms.In the paper,Arbix contends thesuccess of these firms is “rooted in their improvedinnovative capacity.In order to survive global com-petition,these companies must adapt their businessstrategies to the more open and liberalized Brazilianeconomy and place greater emphasis on R&D,mar-keting,as well as quality and brand management.To understand how the innovation system in Braziloperates and subsequently design appropriate innova-tion policies for the country,Hill stressed the need for more extensive analyses of these 1,200 companies todetermine why this group of firms has succeeded inniche markets where so many firms fail or avoid enter-ing altogether.He noted that unlike the entrepreneur-ial and innovative firms in the US,EU or Japan— which tend to be small,high-tech companies—these1,200 Brazilian companies are much larger.If this isthe case,Hill asked,“Why hasn’t the public policymodel of the US,EU or Japan,which encouragesrisk-taking,venture capitalists and promotes smallbusinesses and ‘spinoff’firms,“worked in Brazil?”Hill asserted that a detailed empirical analysis of these firms would answer this question and help dis-pel certain misconceptions about innovation.Suchan analysis requires studying the entire profile of these companies.Characteristics that must be identi-fied include:age of these companies;the organiza-tional structure of the firms;how they were foundedand initially capitalized;how technology wasacquired;what were the founders’prior professionalexperiences,fields of study,level of education,andcultural backgrounds.Assessing these characteristicswill help emerging economies—especially those likeBrazil,rising from a previous era of protectionism— design appropriate innovation-oriented public poli-cy.Hill also cautioned emerging economies againstthe prevailing tendency to replicate innovationstrategies from the US,EU or Japan;focusingresources solely on creating the strongest govern-

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