Bruno NogueiraThe 2011 Innovation Survey (Pintec), which the Brazilian Institute of Geography and Statistics (IBGE) published in December, shows that the result of the efforts made by Brazilian companies to innovate, measured by processes improved and products launched, was down in the period from 2009 to 2011 compared to the data for 2006 to 2008. From a universe of 128,699 companies that were surveyed from the industrial, services and electricity and gas sectors, 35.7% launched products or implemented processes considered new or greatly improved. In the previous three-year period, this figure stood at 38.1% of companies. If industries are taken separately (they amount to almost 90% of the sample), the innovators were 35.6% of the 2011 Innovation Survey total, less than the 38.1% observed in the 2008 survey. “Macroeconomic conditions, which were more favorable in the previous Innovation Survey period from 2006 to 2008, deteriorated in 2009 and appeared to expose companies to a more adverse environment,” notes Alessandro Pinheiro, the director of the Innovation Survey. The higher exchange rate may also have influenced the results of some sectors. “The textile, steel and paper industries are complaining about the lack of a link in the productive chains caused by the competition from China,” Pinheiro states.
Nonetheless, the 2011 Innovation Survey shows that the cooperation and investment from the private sector for innovation improved in the three year-period, which makes it possible to achieve better results in the future. In the case of industries, for example, spending on internal research and development (R&D) activities rose to 0.71% in 2011 compared to net revenue from sales, while the figure measured in 2008 was 0.62%. Assistance from the government and support from public innovation policies improved. In the period from 2006 to 2008, 22.8% of industrial companies that innovated used at least one instrument of government assistance. In the period from 2009 to 2011, this figure climbed to 34.6%. Economist André Tosi Furtado, professor at Unicamp, states that the Innovation Survey data refute the perception of some sectors that government stimulus for innovation is not producing any effects. “The government is reaching out to these companies. It is clear that the increase in internal research and development activities by companies is related to public policies,” he says, pointing to data such as the increase in the percentage of industries that were cooperating in some type of partnership (from 10.1% in 2006-2008 to 15.9% in 2009-2011) and companies that developed links with universities (from 13.4% to 16.7%).
The performance of the different sectors of industry was uneven compared to the intensity of research and development, Furtado observes. “Some sectors are progressing nicely and others are actually regressing,” he says. In the mining industry, for example, spending on internal R&D activities compared to net sales revenue increased from 0.3% to 0.4% from the 2008 to the 2011 Innovation Survey. “Perhaps, in this case, it is not the result of public policies, but of the increase in exports,” he asserts.
In other commodity-related sectors, such as the paper and cellulose industry, spending rose from 0.29% to 0.42%. In sectors of medium technology intensity, the professor says, there was also a significant increase. In the metallurgy industry, the increase was from 0.21% to 0.42%. “Something negative happened in the food industry, where investments fell from 0.24% to 0.12%, he observes. In the chemical industry, the same figure rose from 0.55% to 1.11%, and in this category, the major highlight was in the manufacturing of soap, detergent, cleaning products, cosmetics, perfume products and personal hygiene products, where spending on internal R&D activities stood at 3.68% compared to net revenue from sales. The cosmetics industry—one of the industries that invests most in R&D in Brazil—is mentioned as fundamental for this performance.
“Companies have organized, hired researchers and invested more resources in innovation, and this is extremely positive. But faced with a series of obstacles, we are actually losing our ability to compete,” says Carlos Eduardo Calmanovici, President of the National Association of Research and Development of Innovating Companies (Anpei). Calmanovici draws attention to the increase in the cost of innovation. “As companies battle for qualified human resources for performing R&D, the cost of hiring increases,” he states. “This, added to the other costs that hit companies in general, such as taxes and the lack of infrastructure, means that companies invest more without obtaining results that are commensurate with the investment.” According to the Innovation Survey, the number of researchers in the industries, including undergraduate and graduate degree recipients, was 37,737 professionals in 2011 and grew 29% compared to the previous Innovation Survey. Of course the sample of the industries that were surveyed grew, but to a lesser extent: 15.1%. According to the survey, the complaint that qualified personnel were lacking became more important in the ranking of the bottlenecks to innovation. In the case of industry, the problem ranked sixth in importance in the period from 2003 to 2005. It climbed to third place in the period from 2006 to 2008. In the 2011 Innovation Survey, it ranked second for industry, and 72.5% of them ranked the lack of qualified personnel as having high or medium importance; the only obstacle that ranked higher was the cost of innovation according to 81.7% of the companies in the same segment.
Contradictions
For FAPESP’s Scientific Director, Carlos Henrique de Brito Cruz, the results of the Innovation Survey reflect contradictions in Brazilian innovation policies. “On one side, the left hand of these policies offers companies support and innovation stimulus programs as never before,” he says, referring to the Finep financial grant programs, the FAPESP business partnership programs, and the Finep innovation in small businesses programs and partnerships with state foundations that support research. “And the right hand of the government makes it difficult or impossible for some businesses to use these instruments, because they consider that they face macroeconomic obstacles. There is instability in the rules of the economy that change frequently depending on what the government needs to do to control inflation. Companies also must deal with the Brazil cost that exists because of the deficient infrastructure and the cost of labor. The impacts of these obstacles are greater than the effects of the stimulus programs,” according to Brito Cruz. All of the above, he observes, makes research for innovation difficult in the Brazilian business environment.
“Some companies had strategies to innovate and they forged ahead; others also had strategies, but they had to slow down. The classic example is Petrobras, which eventually faced cash-flow issues. The Innovation Survey reflects these contradictions,” he indicates. Brito Cruz observes that spending by businesses on R&D as a percentage of GDP fell compared to the year 2000. In 2000, spending by businesses stood at 0.5%. In 2011, it swung to 0.48%. “There is a difference between what happens in São Paulo and the other states in Brazil. In São Paulo, the percentage was up from 0.8% to 1.0%, while it fell from 0.34% to 0.23% in the rest of Brazil. In FAPESP, we observed heightened interest by companies in cooperative research and development activities with universities, including substantial qualitative progress towards more bold and more long-term projects,” he notes. FAPESP’s Science, Technology and Innovation Indicators (Indicadores de ciência, tecnologia e inovação) projected that in 2011 Brazilian companies would spend R$19.855 billion on internal R&D activities.
The amount that the Innovation Survey indicated was very close to this projection, at R$19.545 billion. “We know there is a relationship between R&D spending and gross fixed capital formation, and we used it in our indicator methodology,” says Brito Cruz, referring to the indicator that measures the amount by which businesses increased their capital goods. The projections of the Indicators of the Ministry of Science, Technology and Innovation were higher than the projections of the Innovation Survey, at roughly R$23.591 billion for 2011.
The number of businesses that innovated just by improving their processes increased; the figure in the previous Innovation Survey was 15.3% of the total and it rose to 18.3% in 2011. Companies that innovated based only on their products, which amounted to 6% of the total in 2008, fell to 3.9%. Companies that innovated in terms of both their products and their processes decreased from 16.8% in 2008 to 13.4% in 2011. The drop in this figure was more pronounced, for example, in larger businesses, i.e. those with more than 500 employees. The percentage of innovators in this strategy fell from 71.9% of the total in 2008 to 55.9% in 2011. “Since the real was overvalued during the period compared to the dollar, those sectors that are more subject to competition from imports were certainly hurt the most, which mainly impacted product innovation,” according to Calmanovici from Anpei.
Data quality
Economist João Furtado, professor at the USP Polytechnic School, sees two possible assumptions for the results from the Innovation Survey. The first is that since the areas of corporate innovation have become more structured in recent years, the quality of the data reported to the Innovation Survey improved; this may have impacted the result and it shows a situation that is less favorable and closer to reality than previous surveys. “Since the structure of R&D teams means hiring more capable people who follow instructions and dedicate themselves to this job, it is possible that the current responses are more accurate,” he states. The second assumption is that, even though the efforts of the government and the private sector have increased, the environment does not lend itself to innovation. “People would like to believe that science has the ability to push the innovation process, but the main source of innovation for most businesses is the perception of changes in the market. Some sectors have become extremely dynamic because the consumer market has grown,” he says, mentioning the example of the cosmetics industry. “This is a sector that has experienced double-digit growth for more than ten years, since the poorest people are now purchasing these products,” he notes.
The cosmetics industry, observes João Furtado, also provides a symbolic example of the difficulties of innovating. “Brazil is the world’s second largest producer of nail polish, yet it doesn’t make a single little bottle for nail polish because the price of energy makes doing so uncompetitive. What’s wrong in a country that has to import 700 million small bottles?” he asks. The price of energy is one of the problems. But there are others, such as the cost of performing research and development in businesses, which is higher in Brazil than in China or India,” he says.
Furtado believes that Brazil’s innovation policies lack ambition. “In South Korea, for example, the government set ambitious goals and asks which of the country’s industrial sectors can become leaders. In Brazil, there is nothing like that yet,” he says. He mentions the Innovation Survey data according to which 65.4% of product innovations by electricity and gas companies are made in partnerships with other companies and research institutions, as compared to just 5.6% of industries. “The percentage is high because the law sets mandatory spending on research and development in the electricity sector. The public policy has a strong ripple effect in this case, but investments are sporadic because that’s how the law says it will be. But the design could be different. Instead of pulverizing resources and producing low-risk innovations, some of the money could be channeled into ten large energy research projects. The boldness and the connection with the future would be different,” he says.
Carlos Calmanovici, President of Anpei, believes that the results of the next Innovation Survey may be more favorable.” Some obstacles, such as the higher exchange rate, have eased, and an ambitious program has emerged known as Innovation in Business (Inova Empresa), by Finep and the Brazilian Development Bank (BNDES), with public tenders in strategic sectors,” he affirms. But he predicts that the federal government’s strategy of fostering innovation in businesses will falter due to the decline in financing from the National Fund for Scientific and Technological Development (FNDCT). “After 2014, the FNDCT’s budget will lose 40% of its resources. The time for stimulating serious reflection on this funding system is when the results of the Innovation Survey are released,” he says.
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