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Emerging investment

Companies set up R&D centers in Brazil to win market share

DANILO ZAMBONIThe gobalization of the research and development (R&D) centers of large companies is beginning to gather pace and gain more room in Brazil. These are large multinational laboratories, the objective of which is to generate knowledge and develop technology for innovative products for the market, or for specific customers. Major examples of this trend were the announcements this year of two research and development centers, one from IBM and one from General Electric (GE), which will be installed in the country at, as yet, undecided locations, because they are the subject of negotiations with business partners and federal, state and municipal governments. Weighing on the decision relating to the choice of city or region are the offer of tax incentives, both in the shape of tax exemption as well as funding from government agencies, and the availability of qualified professionals to perform the research function within these companies. Representatives from the two multinationals are not talking about figures, but reports in the press indicate an investment of US$ 250 million from IBM and US$ 120 million from GE, a total of US$ 370 million.

This worldwide globalization of the R&D activities in multinational companies outside their country of origin accelerated sharply in the mid-1990’s and the 2000’s, as shown in a 2005 study from the United Nations Conference on Trade and Development (UNCTAD). The search for new emerging markets first focused on China, India and Eastern European countries and is now turning to Brazil, with its growing domestic market and good economic prospects. In 20009 Du Pont, also of American origin, which has been in Brazil for 73 years, opened an Innovation and Technology Center (CIT) in Paulinia, near Campinas in the state of São Paulo. “Over the past 10 years the head office has directed investment capital for the construction of corporate research centers to emerging regions and Brazil is part of that group,” says Ariana Bottura, Du Pont’s CIT manager. The objective of the new center, which has received investments of R$ 4.5 million, is to develop new solutions quickly for customers of the company, which is owner of a wide range of industrial activities in the food, biotechnology, polymers, chemical and inks areas. Currently, 42 professionals are working directly in R&D activities at the center.

016_materiacapa-01The importance of these centers for Brazil lies in the growth of the level of technology produced by companies here and in the hiring of hundreds of Brazilian researchers, most of them with PhDs. “In order of increasing complexity of the technological activities of multinational companies in Brazil, and on a scale of 1 to 5, most are concentrated in bands 3 and 4, a few in 1 and 2, and a rare few in 5,” says Professor Sergio Robles Reis Queiroz, from the Department of Scientific and Technological Policy of the Institute of Geosciences, at the State University of Campinas (Unicamp) and the former Assistant Secretary of Science, Technology and Economic Development of the state of São Paulo. For six years, between 2004 and 2009, along with researchers from Unicamp, the University of São Paulo (USP) and the Paulista State University (Unesp), he coordinated two studies on the technological activities of Brazilian subsidiaries of multinationals, a project funded by FAPESP under its Program for Research into Public Policies, and another, in the form of a sub-project, within the Structuring Projects program for state science and technology systems, funded by the Studies and Projects Funding Agency (Finep) of the Ministry of Science and Technology (MCT), and by FAPESP.

“We mainly analyzed what attracts subsidiaries to bring R&D investments into Brazil,” says Queiroz. In the studies, the professor’s group developed an electronic questionnaire that was answered by 89 companies. It also carried out a survey in 2007, involving interviews with 55 subsidiaries of multinational companies. It was agreed that company names would not be revealed. The results indicated that the most decisive factor leading a company to set up in Brazil is a good supply of skilled labor; people who are technically competent, creatively capable and flexible.

For IBM, the factor “availability of PhDs” weighed in favor of approval of the R&D center in Brazil. “The concentration of PhDs in the country is really important. We’re going to need people who know how to do research,” says Claudio Pinhanez, a researcher who is working directly on consolidating IBM Research-Brasil. A graduate from USP with a degree in mathematics and computer science and a PhD from the Massachusetts Institute of Technology (MIT), he worked for nine years at the Watson Research Center, which is IBM’s main research center in the United States. The company also has two more centers in the USA, as well as five others in China, Israel, India, Japan and Switzerland. For the time being, the activities of the IBM center in Brazil are being carried out at the company’s main locations in Sao Paulo and Rio de Janeiro. Even though he does not specify how many researchers will be hired, Pinhanez says the lab will be big in Brazil and is going to be structured to carry out research linked to the development of technologies and systems for processing information and providing logistical support for the area of natural resources, most importantly in oil exploration and mining and, what he calls, human systems in logistics support areas to meet the challenges in air traffic, traffic in big cities, medicine and finance sectors, and solutions for large events, like the World Cup and the Olympics that are to be held in Brazil. Another area is the study of semiconductors for sensors and devices that help in these systems. “For this we’re going to attract the best professionals,” says Pinhanez.

016_materiacapa-02As of August, GE’s directors in Brazil were still making no comments on the details of its first technology center in Latin America. The company operates in the household appliances, aircraft engine and medical equipment sectors and, via a press release, said that its center in Brazil will be the fifth in the world. It has existing centers in the USA, Germany, India and China, and the Brazilian operation will bring the number of researchers to more than 2,500 in total. In its statement, GE indicates that Brazil was chosen because it has a strong industrial base, top quality universities and important customers in the industry. GE, IBM and Du Pont are examples of how US companies are making major investments in R&D in their subsidiaries abroad. Brazil was in 16th place in these investments between 2002 and 2006, as shown in the report, Science and Engineering Indicators 2010, from the National Science Foundation (NSF).

Relevant professionals
Although an obvious appeal lies in the large numbers of PhDs who are qualifying in Brazil (over 10,000 a year), the studies of Professor Queiroz found that specialist labor is also the first factor restricting the setting up of advanced research units in Brazil. “Because of the relevance of the workforce when it comes to attracting R&D it’s not surprising to see that this also appears as the factor most frequently cited by companies when questioned about the difficulty of attracting foreign investment,” wrote Professor Queiroz. “Many companies indicate that there is a lack of specific manpower, especially engineers,” he says. “There’s a shortage of engineers caused by the growth in the economy. Brazil turns out some 40,000 engineers a year and it’s still not enough. There are companies that currently have 100 engineers, but that are going to need 500 in three years time,” Queiroz points out.

With regard to the demand for engineers in the country, a study published in July this year by the Industrial Development Studies’ Institute (Iedi), coordinated by Professor Carlos Américo Pacheco, from the Institute of Economics, at the State University of Campinas (Unicamp), shows that the problem is not simple and requires time. Besides the R&D activities with which the engineers are associated, along with other professionals, they are also working on the continuous improvement process of products and production systems. According to the study, when compared with 35 other countries, Brazil has the lowest percentage of engineers among university graduates, with 5% in 2007, while China ranks first, with 35.6%, followed by South Korea, with 25%. According to the Iedi study “there is a strong and growing demand for engineering professionals in Brazil that is detected, not by economic studies, but from the day-to-day activities of companies.”

016_materiacapa-03Another aspect indicated by companies in the studies of Queiroz with regard to labor was the fact that most professionals lack fluency in English, even the best qualified among them technically. “IT&C [Information Technology and Communication] companies mentioned that this has already prevented expansion of their local activities, while companies in the automotive sector said they have unfilled job vacancies because they have difficulty in finding professionals who are fluent in the language.” Among other difficulties commented upon by company directors are, secondly, bureaucracy and the high cost of importing R&D equipment or inputs. With regard to cooperation with universities and research institutes, 8% of those interviewed indicated poor partnership results and the lack of a roadmap of national skills at the research institutions.

Tax incentives
At the other extreme, in interviews that were personally conducted by researchers with directors of the subsidiaries of multinationals operating here, among the attractions for convincing head offices to bring investments in R&D to Brazil was the low cost of this type of activity in Brazil, compared with other countries. One factor that is not of interest and does not weigh heavily in the decision is tax incentives. “Tax incentives, in the form of tax exemption, for example, is one element that makes a difference in terms of cost, but it is not because of incentives that a company is going to choose Brazil,” says Queiroz, for whom the segment in the country with the most R&D activities throughout its whole industrialization process is the automotive industry. “These investments are more related to development than to research. What’s done in Brazil in most of the automotive industries is product creation, and not the development of knowledge for producing that product. It’s vehicle adaptation, for example. These are activities that need engineers,” he says.

For Queiroz, the attraction of investments in research and technology demands an institutional structure, as happens in other countries, with specialist promotion agencies or government departments. The focus of these agencies is not exclusively on R&D, but they have proved to be efficient in real competition between countries when it comes to the allocation of these investments. Since 2009, the state’s Investe SP, Agência Paulista de Promoção de Investimentos e Competitividade [São Paulo Agency for Investment Promotion and Competitiveness] has been working to attract these investments, in the same way as the Brazilian Export and Investment Promotions Agency (Apex) does. “We articulate the business by helping the subsidiary in Brazil demonstrate to its head office the feasibility of setting up or expanding the company in the state. This is information about the institutes, universities, business partners, technology parks and lines of development, for example,” says João Emílio, general manager of investment and business for Investe SP. Attracting investments in R&D adds another advantage to the technological and social growth of Brazil. For Queiroz, technology centers also contain the so-called spillover effect of knowledge, in which a professional, when he leaves this type of work environment and as part of the normal and common course of events, takes knowledge with him to another company, which is frequently smaller, or to his own business.

The projects
Development policies of technological activities in the Brazilian subsidiaries of multinationals (2003/06388-9); Modality Public Policy Research Program; Coordinator Sérgio Robles Reis de Queiroz – Unicamp; Investment R$ 172.215.00 (FAPESP)
2. IT&C strategy in São Paulo: universities, research institutes and companies (2006/50409-9); Modality Regular Help for a Research Project and Structuring Projects; Coordinator Sérgio Robles Reis de Queiroz – Unicamp; Investment R$ (FAPESP and Finep)