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Soumitra Dutta

Soumitra Dutta: The worldwide innovation game

On a visit to Brazil Indian researcher launches new edition of the international ranking on the subject of innovation

Eduardo Cesar The dean of the Cornell University Business School attended the Sixth Brazilian Congress of Innovation in Industry, in São PauloEduardo Cesar

A survey that examines the degree of innovation in 140 countries shows Brazil as ranking 69th, behind other emerging economies such as India and China. The drop in the ranking is significant: in 2011, Brazil occupied the 47th position. Indian researcher Soumitra Dutta believes that the Brazilian government needs to find ways to encourage innovation in the private sector, even during the current context of economic recession and political crisis. “Both government and business must make investment in innovation a priority. There are different ways to do that, and granting tax exemptions to private companies is one of them,” he argues.

Considered to be one of the world’s leading authorities on innovation, Dutta is the founding Dean of the SC Johnson College of Business at Cornell University. Since 2007 he has been responsible for developing the Global Innovation Index—one of the key indicators for comparing the degrees of scientific and technological progress among countries. The researcher made a presentation at the Sixth Brazilian Congress of Innovation in Industry held in São Paulo June 26-28, 2017, on which occasion he introduced the 2017 edition of the report. In an interview with Pesquisa FAPESP, Dutta spoke about the most important news reported in the document and the challenges that Brazil faces in leveraging innovation.

What are the principal conclusions you can draw from the Global Innovation Index 2017?
The first is that investment in research and development (R&D) is not keeping pace with the recovery of the world economy. Second, we observed that there is one group of countries that are doing very well, as is typical of wealthier nations that are leaders in innovation such as Sweden and Norway. We also noted that there is a big difference between those nations and the rest of the planet. Our third conclusion is that a certain few countries are breaking down that barrier. China is a good example; it is moving closer to the leaders in innovation. A fourth discovery is that the difference between lower-income countries and those of medium income really is shrinking because the lower-income countries are catching up with the ones in the middle.

What have the leaders done to stay at the top of the ranking?
Countries like Switzerland and Norway invest in the entire innovation chain. That means having research institutions, human capital, and good quality infrastructure, all of which must be strong and well coordinated. These are countries that have excellent universities that also maintain robust partnerships with the private sector. Furthermore, those countries are committed to attracting talent and have a very sophisticated market, including a well-developed financial market. These elements need to work harmoniously and their efforts should dovetail. If Brazil is to reduce the gap between it and the rest of the world, it must invest more in its research institutions and, at the same time, in infrastructure.

Were there any positive surprises this year?
Yes. India is one example. In 2015 that country had fallen in the ranking. After changes in government, new environmental and innovation policies were announced that are contributing to the country’s recovery (see chart on page 41). The information technology (IT) sector has concentrated on foreign markets, but many other industries went back to focusing on the domestic market. Now India’s domestic market is growing.

What explains the progress made by China?
China is the only developing country on the list of the 25 most innovative. What we see is that China is investing on several fronts, like infrastructure, domestic industry, and human capital. In recent years, the research carried out there has been directed toward generating a high number of patents and publications. China now ranks second worldwide in filings for patents. This has been possible thanks to an environment that favors collaboration between universities and companies.

But Chinese economic policy, such as the currency devaluation it undertook some years ago, has also contributed to that favorable environment…
China is changing its economic model because manufacturing costs are rising. That country is ceasing to be a site of low-cost production. To remain competitive in the future, the Chinese know that they must add value through innovation. The trend, therefore, is that the manufacturing-based model with be replaced by one based on innovation. This is one reason why the country has invested more in education and research.

What are the primary criteria used to determine that one country is more innovative than another?
It depends on the economic level of the country being examined. If we are talking about lower-income countries, the most innovative will be those that have invested more in their research institutions, in training human capital, and on infrastructure. Those three factors help some of the poorer countries stand out from the others. In the case of wealthier nations, what makes the difference is this focus on entrepreneurial sophistication. Rich countries already have a good education and research infrastructure and so for them the challenge is to know how to turn their investments in research into profits by developing new technologies.

Several technology-based companies in Brazil, such as startups, do not survive for very long
That is a very common problem, and not only in Brazil. Growing is really hard. But the good news is that Brazil is a big country with an immense domestic market. Big countries like China and the United States first develop their domestic markets and then send their companies out to win the world. I think that companies in Brazil must first win over the domestic market and then take a chance on the foreign market. But what happens is that a lot of Brazilian companies never go outside. There are a few Brazilian brands that are recognized elsewhere—Natura, Embraer, Stefanini are three. Even so, those brands are not extremely well known in other countries.

You mentioned Embraer as an example of the kind of success that needs to be replicated many times over here in Brazil.
It is a good example. Brazil did not have a tradition in aviation. What happened was that investments were made not only in research but in the forging of partnerships between scientists and suppliers. Those actors combined different bodies of knowledge and established a true network that extrapolated the local context. Had there been no connection with the rest of the world, local talent would not have been sufficient.

Brazil has also gained prominence in biofuels research. Might the progress made in electric cars discourage further projects in that field?
I don’t think so. It’s hard to predict which kind of technology will prevail. There will be various types adopted around the world, not just one dominant technology. I believe Brazil needs to understand how to invest in biofuels in order to make them truly more efficient and economical. In other words, the technology needs to be able to compete with others. The problem is that Brazil has trouble looking outward for different reasons, such as the size of its economy and the language barrier that complicates interaction even in Latin American countries. I see Brazil as a huge island. And a huge island is not a good thing.

Is that isolation a problem for Brazilian research?
It depends. In the IT (information technology) sector, we have observed that Brazilian companies are unable to go abroad although there is an immense international market in that field. There needs to be more global ambition. In the 2016 issue of Fortune Global 500, which ranks the 500 largest corporations in the world there are, if I’m not mistaken, seven Brazilian companies, while China has 130 companies on that list. Being big means taking part in the global game.

Is it possible to innovate during times of economic recession and political crisis?
I think the priority for both government and business should be investing in innovation. The government will never have enough resources by itself, and that is why there are other ways to encourage innovation in companies. For example, the government can grant tax exemptions to private companies. By favoring big companies the government is indirectly helping small businesses that serve as suppliers to the bigger ones.

How important is the formation of technological clusters, such as Silicon Valley, in leveraging investment in innovation?
Clusters work, but they need to be able to attract companies and human capital. If the right companies don’t join the cluster, if the right people are not there, success will not happen. The key for Brazil is that the country needs to become the destination for innovation in Latin America. What makes Silicon Valley a success is the density of talent and of networks of researchers and companies. That density is so strong there that the ideas are basically capable of attracting the best brains and promoting the best collaborations. In Brazil, some clusters such as the Campinas region, have been successful. Others, like the Manaus Free Zone, are driven by conditions in the export market. China has done well in exploiting free trade zones.

A lot of companies say they are investing in innovation, although several of them actually do so only incrementally. How can we change that mentality?
Companies need support if they are to assume risks. Offering funds in the form of grants, when the proceeds are dedicated to supporting disruptive projects is one way to encourage companies to take risks. But this accomplishes nothing in the absence of a policy capable of promoting the internationalization of Brazilian companies. Germany, for example, has a network of offices in more than 100 countries. Their job is to lend support to German companies that are exporting to those countries and to map potential customers. The German government is actively helping the private sector by setting up offices of that sort. That is why we cannot expect a company to grow and gain international scope if it remains firmly rooted in Campinas, for example.

The so-called creative economy, based on a knowledge economy, also contributes to innovation, right?
Creative services are very important in generating innovation. The creative sector includes the production of films, TV series, videogames, and other forms of entertainment. Those are areas that demand technological advances and therefore call for a different kind of scientific research. A lot of technological research is directed toward entertainment. For example, when I am talking to the NBA, the American basketball league, and I ask them what their primary challenge is at this moment, the response is “technology.” That is because the NBA wants the television audience that is watching games at home to get the feeling that they are at the arena. To reproduce that kind of experience there is a tremendous need for new multimedia technologies. You must understand, however, that innovation is made up of all these new ideas, new ways of expression, as well as new ways to amuse other people. Films and even soap operas can be innovative. Look at Hollywood. It’s an enormous industry that does billions of dollars in business and depends on technological innovation. There is also the music industry, which is gigantic. In India, the movie industry is concentrated in Bollywood and is also huge. Films produced in India are entered in festivals in the United States in line with India’s goal of globalizing that product. That is an example of the importance of building a global market for your product.

How are companies like Amazon changing our way of thinking about innovation?
What is happening is that businesses are becoming hybrid. They are real, but at the same time also virtual, as is the case with Amazon. It started out virtual but now has shops and offices. That kind of blend is the wave of the future. All businesses will have both physical and virtual combinations. The company Airbnb offers online reservation services for lodging all over the world without ever having owned a single room or apartment. Only now is the company beginning to invest in buying hotel chains. In that regard, I think the digitalization of businesses is going to continue but the question is, who will win? Will it be Airbnb or the Hilton Hotels chain? Amazon or the supermarket chain Walmart? The fact is that all of them are converging on the same strategy, i.e., hybridism. In the United States, retailers did about $4 trillion in business in 2016. Of that total, the online component represents only $350 billion. In other words, approximately 10% of products were bought online. What this means, then, is that if Amazon remains purely virtual it will not have as many advantages since online purchases amount to only 10% of the market. That is why combinations are important.

Studies about innovation help governments, companies, and investors. In your opinion, how useful are the research studies being conducted in fields like the sociology of science? Do they suggest new ways of thinking about the relationship between science, technology, and society?
That dimension of innovation studies is only now beginning to be explored further. Data generated in reports like the Global Innovation Index certainly can be used in studies that examine the relationship between innovation and creativity or innovation and society, and some people are already exploring this. There are researchers who resort to more concrete data in order to write more theoretical doctoral dissertations. I hope this continues being done even more proactively, although I myself am not involved in it.

How do you see the initial impacts of the Donald Trump administration on innovation in the United States?
That country runs a serious risk if Trump remains in power during the next four years. I’m an immigrant in the United States. I came from India, via France. If Trump’s anti-immigration policy continues in force, the science, technology and innovation system of that country will suffer regrettable consequences over the long term. But it’s still too early to make a more detailed analysis.