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Rewarding effort

Companies that innovate and differentiate their products export more and with higher prices than their competitors

MIGUEL BOYAYANTrademark engraving line of LasertoolsMIGUEL BOYAYAN

A wide ranging survey carried out around eight months ago by the Institute for Applied Economic Research (Ipea) has indicated that Brazilian companies invest, on average, 45% more in research and development (R&D) than the subsidiaries of the multinationals here in Brazil. Up until then, surveys had compared companies without taking into account their size, sector and other relevant information. The Ipea survey drew upon data from 72,000 companies and made use of statistical instruments to isolate the effect of innovative efforts in relation to the origin of capital, controlling two hundred (200) variables, such as revenues, industry, exports coefficient, number of employees and others. It is as if you compare two companies that make the same product, have the same re*venues, are located in the same street, with the same number of employees, one being national capital and the other foreign capital.

“The survey also showed that innovative companies have greater profit and export more”, says Ipea’s president, Glauco Antônio Truzzi Arbix. Those that develop technology have 16% more chance of exporting in relation to those that do not innovate. “We don’t as yet have the exact profile of these entrepreneurs, but we evaluate that they are a generation that is the fruit of the industrial re-ordering of the90s, a consequence of the profound changes that have been hitting the country over the last fifteen years.” They are entrepreneurs who do not content themselves in only purchasing technology and techniques in order to reproduce for the internal market that which is made outside.

This restricted group, composed of 1,500 companies, has three requisites in common: innovate, differentiate products and export with a price 30% higher than their competitors. For this reason they were classified in the study as belonging to category A.  Only in research and development, these companies spend, in total, R$ 1.9 billion per year. In the next category, B, there are 15,311 companies that have as their principal strategy the specialization of standardized products. They might be innovators in the productive processes, but not in the products themselves. Per year they invest around R$ 1.6 billion in research and development. In category C, where some 55,400 companies can be found, the products are not differentiated and the productivity is lower. Investments in research and development do not go beyond R$ 200 million per year.

The survey had as its objective a mapping out of Brazilian industry starting from its competitive strategies. So that it integrates information of the most important Brazilian data bases concerning the theme, namely: Industrial Research into Technological Innovation (Pintec), from the year 2000, and the Annual Industrial Research (PIA), between 1996 and 2001, both from the Brazilian Institute of Geography and Statistics (IBGE). The mapping turned itself into a type of consensus of industrial production and of Brazilian exports by gathering together other data bases, such as the Annual Report on Social Information (Rais), from the Ministry of Labor and Employment, and information from the Secretary of External Commerce (Secex), from the Ministry of Development, Industry and External Commerce and from the Central Bank. In order to unite, cross-reference and to make compatible all of this information, a truly strategic operation was mounted, which was able to count upon the participation of researchers from the IBGE, the Federal University of Rio de Janeiro (UFRJ), the Federal University of Minas Gerais (UFMG), the State University of Campinas (Unicamp), the University of Brasilia (UnB) and the University of São Paulo (USP).

Higher salaries
The verified data also showed that the average pay of the work force in category A companies was R$ 1,254.00, whilst that of category B was R$ 749.00. And, in those with the lowest productivity the salary average was only R$ 431.00. Another interesting piece of data was that the average employee permanence time with the company was 53% higher in the innovative companies than those of category C. The Ipea  also realized that companies that innovate and differentiate their products tend to pay salaries that are 23% higher than the companies that do not differentiate and have lower productivity. Between the innovators and the specialists in standardized products the salary differential was some 11%. Luís Fernando Cassinelli, Braskem’s Innovation and Technology director, the petrochemical company controlled by the Odebrecht Group, agreed that the level of motivation is much higher in the innovating companies.

“As we are challenged daily, the team maintains its motivation.” With thirteen factories and one hundred and eighteen (118) pending patents, the company produces basic petrochemical products and thermoplastic resins. “The main strategy of Braskem is the search for more innovative products launched on the international market and  their adaptation for our national market in such a way that they will be competitive”, says director Cassinelli. He cited as examples the soft cheese plastic cups replacing glass ones and two families of resins recently launched to substitute imported products. Last year the company invested US$ 10 million in research, an amount that annually remains between 0.5% and 1.2% of the company’s gross income. During 2003, Braskem has an income of R$ 11.3 billion.

The Ipea survey also showed that the average schooling of the workers in category A was  9.1 years, that of B 7.6 years and that of C 6.8 years. Besides, on average, one year of schooling of the employees added on US$ 60,700.00 to the exports of the company that was already carrying out this type of commerce and a further US$ 269,000.00 for those that were non-exporters, if they begin to export their products. Integration between universities and companies is pointed to as fundamental for the last mentioned group to obtain better results.

Technological differential
The transformation of knowledge into technology and products runs in a more efficient manner with partnerships such as that carried out by the company Embraco, with its headquarters in the town of Joinville, Santa Catarina, a world leader in the manufacture of hermetically sealed compressors for domestic refrigeration, with 25% of market share. The company has been investing in research since 1982, when it signed a contract with the Federal University of Santa Catarina (UFSC). During the following years, many others were signed, with institutions in Brazil and abroad. Embraco started up its activities in 1974, producing compressors with imported technology. Only during 1987 did it launch the first compressor built with its own technology. However, from then until now it has not stopped collecting superlative numbers.

Today the company has thirty seven  laboratories with the latest generation equipment, of which thirteen are in Brazil, eight in Italy, nine in Slovakia and six in China, countries where it has factories, and a laboratory at its business unit located in the United States. It has more than four hundred professionals dedicated to research and development throughout the world, among its more than 10,000 employees. Annually it invests up to 3% of its gross income in research and development, which, on average, corresponds to US$ 20 million along with its 352 patents conceded in the world.

During 2003, it had an income of US$ 686.7 million, selling mainly to the United States and European countries.  “Embraco believes in innovation as a competitive factor and the differentiated technology of its products is one of the reasons for it conquering world leadership in its segment”, says Roberto Campos, the engineering resources manager. One of the innovations launched by the company, back in 1992, was the line of compressors compatible with refrigerating gases that do not attack the ozone layer. “In 1998, we innovated yet again, with the launch of the variable speed compressor”,  Campos explains. This device makes use of an electronic control that monitors temperature variation and reduces energy consumption.

It was also the transformation of knowledge obtained in a cutting-edge area, that of space technology, which led the researchers from the National Institute for Space Research (Inpe), to develop an innovative product for the area of dentistry, which is about to go on the international market. These are dental drills made of synthetic diamond linked to ultra-sound device in substitution of the traditional drilling system. “We managed to master the technology that obtains a film of diamond that sticks completely to the surface of the rod”, says Vladimir Trava Airoldi, a researcher with Inpe and a founding partner of the company Clorovale. “Treatment is carried out with the minimum of noise possible, without the high pitch of the rotating drill. Founded in 1997, the company only has six employees and eight partners.

But it has as its focal point investing in innovative products, such as the application of synthetic diamond in the area of water cleansing, including household filters and solid lubricants. The research that put the company on the route to innovation had its beginning in 1998 and received FAPESP’s support through the Small Business Innovation Research (PIPE) program. The launch of the dental drill onto the market occurred in 2003. At the end of last year, Clorovale received capital support from a company of the state of Rio Grande do Sul, namely Atende Bem, which is helping to set up the distribution and sales structure of the product. Before starting sales on the foreign market, Clorovale is testing the acceptability of the product in Israel. In the United States, Italy and France, the product is already being evaluated by dentistry professors.

High precision
Another company that makes use of the knowledge obtained at university in order to innovate, and has obtained success, is LaserTools, which developed laser techniques for engraving surfaces and interiors at high precision for metals and alloys (engraving of trademarks and three dimensional engraving). Founded in 1999 by researchers from the Nuclear and Energy Research Institute – IPEN, the company began housed at the Incubator Center for Technological Companies (Cietec) in University City. In order to develop the research with the laser, the company also received assistance through the PIPE program. Today there are thirty employees and, last year, its income was R$ 1.2 million. “We make use of technology to treat industrial parts with a laser”, explains Spero Penha Morato, one of the company’s partners. LaserTools adds value to the products of third parties that are to be exported. In December of 2004 it was one of the twenty companies chosen, in São Paulo State, to integrate into the Program of Support for Research Companies (Pappe), of the Ministry of Science and Technology (see article on page 26).

Both Clorovale and LaserTools are installed in a region that the Ipea researchers call the industrial clusters, because they are at the front in the processes of technological innovation. “The Metropolitan Region of Sao Paulo now widened, running from São  José dos Campos to Santos, passing through Piracicaba, Campinas and São Carlos, is where the majority of the companies surveyed as being in category A for the State are concentrated, says Mário Sérgio Salerno, Ipea’s director of Sectorial Studies. This verification proved that the most innovative companies are installed in regions with better industrial performance. The Ipea survey, which has as its objective to provide aid for the government’s industrial policy, has already been presented to various ministries, but has still not taken the form of a report, with recommendations, which could well happen in May. “The work makes valid the idea that the strategy of innovation could be a good pathway for Brazil in differentiating products that go onto the international market”, underlines Salerno.

The central question is how the country must, and needs to, provide incentive towards innovation. “We have to discuss structures that simply do not exist in Brazil. To think about industrial policies without these new structures is to repeat old recipes, like tax exemption”, suggests Arbix. He defends the idea that the only way of expanding Brazilian participation in the international market is with products with technological content. “Innovation is a key element to expanding exports and to diminishing the enormous external debt to which we have been submitted, what is suffocating us lies in the roots of the high interest rates and a series of constraints.”