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The benefits of a partnership

Projects undertaken jointly by the academic and business worlds give good results

Many Brazilian companies are beginning the feel the beneficial effects of partnerships with universities and research institutes. New products and production processes emerge and offer a good financial return to those that wagered on this interaction. One of the paths for this type of work that is growing in all sectors of the economy is the Partnership for Technological Innovation Program (PITE), introduced by the FAPESP six years ago. Companies like Petrobras, Itautec and Montecitrus have proved the value of this partnership and want to continue along this path. The state-owned oil company, for example, guaranteed an additional US$ 0.25 a barrel processed in the refineries, after installing a control system established jointly with the University of São Paulo’s (USP) Polytechnic School (Poli-USP).

News of the success of the partnership is undoubtedly a strong argument for turning the present concept of cutting edge technology on its head. Today, most technological innovations developed in this country come from the laboratories of universities and research institutes, in marked contrast to the rest of the globalized world. Companies in countries like the United States, Japan, and South Korea undertake 80% of the business-focused research with their own investment in Research and Development (R&D), often benefiting from tax breaks.

The lack of greater commitment by companies in undertaking research imposes a technological limitation on Brazil and the risk of new dependency in the future, which implies the outflow of million of dollars in buying usage rights, and advanced industrial processes and equipment. This situation also militates bars any increase in products with added technology in the range of Brazilian exports. Reversing this situation undoubtedly involves research partnerships between the academic and business worlds in developing technological innovations.

Without prejudice
The history of these partnerships began with formal projects at the end of the 80s, a time when universities were beginning to put aside prejudices of the “working with business is incompatible with the academic world” sort. Business has also show more flexibility. It has come to see how universities work and that researchers need to publish papers and have enough time to complete their studies.

Since the creation of the PITE in 1994, partnerships have gained strength and act as standard-bearers for the new times. Hopefully, they will be a transition. “It is essential to avoid the illusion that an interaction between universities and business is the solution to the problems of financing universities and technology in companies. These partnership certainly serve to improve student training in universities and help to take the culture of valuing research to companies”, explains Carlos Henrique de Brito Cruz, president of FAPESP, in an article in the magazine Parcerias Estratégias [Strategic Partnerships] (issue no. 8, May 2000).

The meeting of the worlds of business and academic researchers, at present, is essential for the country not to be left behind in world competitiveness. In pursuit of this, the PITE’s contribution is to allocate money for use by the laboratories of scientific and technological centers on research called for by companies and in which they have a manifest interest. The projects have specific objectives and, to be approved, they need favorable judgments by at least two of FAPESP’s advisors. In these six years, 49 projects have been approved and in all R$ 13.5 million and US$ 3.9 million have been invested. Forty-five companies or trade associations, four universities, and six research institutes have taken part (see tables on page 52).

Advanced control
Among the PITE’s projects, two are in partnership with Petrobras. One of them was carried out with the Department of Chemical Engineering of USP’s Polytechnic School under the coordination of Claudio Oller do Nascimento. The partnership developed software to optimize production at ten of the Company’s oil refineries as well as another plant processing shale. “This software helped update Petrobrás’s Advanced Control System (Sicon) and it guaranteed an additional US$ 0.25 a barrel (oil or other products) processed”, says Gilberto Ribeiro de Carvalho, head of Petrobrás’s Process Automation Sector.

The software matrixes, the algorithms (calculations and formulas), are produced at USP. The solutions are very often undertaken as masters’ or doctoral theses, normally by employees of Petrobrás itself. The practical application and the development of the software are carried out at the refining units. Before establishing this system, there was no procedure for looking at all the parameters as a whole.

By continuing the research carried out at USP and the introduction of the Integrated Production Programming System (SIPP in the Portuguese acronym), Carvalho believes it will be possible to achieve a gain of US$ 0.30 a barrel. If we calculate US$ 0.50 by 1.8 million barrels processed a day, we arrive at a gain of US$ 900,000 a day. This is a high return if we consider Petrobras’  outlay of R$ 573,000 in this project with USP. FAPESP also contributed R$ 22,000 and US$ 167,900 to the project over two years.

Carvalho explains that these control and optimization systems are an innovation around the world, although software similar to Sicon does exist. “Each of these programs costs around US$ 600,000, including the usage license and the implementation work. Multiply this by 30, the number of units – each refinery may have more than one – where the Sicon is operating today”, assesses Carvalho. The expense in this case would be US$ 18 million.

History of the well
The other Petrobras project under the auspices of the PITE was carried out with the Oil Studies Center (Cepetro) of the State University of Campinas (Unicamp). The subject under study was a piece of software, this time in the field of oil production. Managed by professor Denis Schiozer, of the Mechanical Engineering School and also coordinator of the Cepetro, the project resulted in a parallel computing program, processing information sequentially in several computers, to analyze the history of the behavior of old oil wells. “We need to know all the well’s parameters, in order to, for example, know whether we need to inject fluid and shift underground oil”, explains Francisco Roberto Couri, assistant to Petrobrás’s General Manager for Reserves and Wells.

“Sometimes we would spend six months on forecasting the well’s yield. With the parallel system, we can do it in a few weeks. We are saving working-hours and obtaining information for drilling projects quicker, making it easier to make decisions”. The new software is being used in the oldest wells in the northeastern region of the country, in oil fields in Rio Grande do Norte and in Bahia. FAPESP invested R$ 1,300 and US$ 160,000 and the Company R$ 261,000 in this project.

In Couri’s opinion, working with Unicamp is a source of satisfaction. “Until a short time ago, the only university that knew anything about oil was Unicamp; nowadays various research centers are competent in various areas of the oil business”, says Couri, based on the experience of having been technology manager in the company’s exploration and production area.

Grammar checker
The partnership with universities and research institutes is also used as a way of outsourcing work when it is not the company’s core business. This was the case with Itautec, which, in 1993, wanted to develop a spell checker for a word processor used by the computers it manufactured.

“The first step was to identify a center of excellence”, reports Elizabeth Costa, Itautec’s manager of Commercial Applications Development. The choice fell on the Inter-institutional Computational Linguistics Nucleus (NILC), made up of researchers from the Mathematical and Computing Sciences, and Physics Institutes of USP in São Carlos and the Literature School of the São Paulo State University  (Unesp), at Araraquara. “We sought the know-how where it could be found”, says Elizabeth.

The project was approved under the PITE, in 1996, and also benefited from the participation of professors Claudio Lucchesi, Tomas Kowaltowski and Jorge Stolfi, of Unicamp’s Computing Institute. “In São Carlos, under the coordination of professor Maria das Graças Volpe Nunes, the algorithms were designed and the vocabulary database was established and, in Campinas, compacting the system and cutting the program’s response time was developed”, explains Elizabeth, a former student of the Unicamp professors.

In 1997, the company began retailing the first version of the spelling and grammar checker in its own box as an off-the-shelf product. At the end of that year came the great surprise; Microsoft approached the company to incorporate the spell checking into its Office package, the best selling in Brazil, and worldwide. The old spell checker created in Portugal for the Portuguese language had 200,000 words, while Itautec’s had 1.5 million words. The checker was incorporated into Office 2000. The Brazilian company licensed the product for three years for US$ 421,000.

Large scale
Itautec spent R$ 78,000 on the project, while FAPESP invested R$ 17,900 and US$ 9,200, used to buy machinery and equipment for USP. “When we began this work, we had no idea of the scale it would take on, particularly the contract with Microsoft”, recalls Elizabeth. Neither from incorporation into Office nor off-the-shelf did any royalties returned to USP, because the contract guarantees the right of sale to Itautec, with the University holding the intellectual property for use in other projects that do not imply any similar product.

The company is still selling its product individually, the Redator (Writer), with a series of other attractions, such as a module on Brazilian literature. “Around 500 to 600 copies a month are sold at R$ 139 each to the end consumer”, says Elizabeth. Hence, monthly sales of R$ 83,000 are made, before discounting the retailer’s margin.

Competitiveness, grabbing market share, exports, and technological innovation are concepts all related to each other in the present-day economy. They permeate the manufacturing and services sectors, as well as the Brazilian agricultural sector, chiefly in state-of-the-art sectors like orange production. In this segment, the project between the company Montecitrus and the Agrarian Sciences School of the São Paulo State University  (Unesp), at Jaboticabal, is prominent in the PITE, under the coordination of professor Luiz Carlos Donadio, who, for three years, established the best citrus fruit varieties for juice production.

“It is difficult to quantify the gains, but the project has earned a return in producing a series of items of information on specific grafting and orange tree crowns for producing juice”, explains Marcos Pozzan, coordinator of Montecitrus’s technical area. The company produced 25 million boxes of oranges last year. “The benefits of this project are not confined to our company, because the results can be accessed by anyone interested through a bulletin published by the Bebedouro Experimental Citriculture Station, where the research was carried out”. FAPESP invested R$ 41,800 and Montecitrus R$ 18,100 in the project.

CSN Projects
Another field where Brazilian and international competitiveness demands an unyielding search for technological innovation is the steel industry. Within the PITE, two projects have involved the Companhia Siderúrgica Nacional (CSN) as joint participant. The first one developed new electric steels, products used in the manufacturing of motors and household electronic products in partnership with the Institute of Technological Research (IPT), under the coordination of the researcher Fernando Landgraf. The other was carried out together with the Food Technology Institute (Ital), coordinated by the researcher Silvia Tondella Dantas, in which a new process for resealing cans for packing was developed. This new technique meant a saving of up to 50% in the use of raw materials.

“In these projects, the objective was to make our product more competitive, providing new parameters, analyzing the characteristics of the material and carrying out tests”, explains Rogério Itaborahy Tavares, CSN’s Research and Development manager. It is difficult for him to quantify the financial benefits of these projects. “The results are part of the company’s set of initiatives and decisions that cannot be broken down and calculated”. Itaborahy says that, besides the research center within the company itself, in the town of Volta Redonda, in the State of Rio de Janeiro, CSN has agreements with more than 12 universities and research institutes. “These partnerships supplement the resources we have available in our laboratory at a lower cost than if we had to buy new equipment and hire staff”, explains the manager. The company invested R$ 109,900 and us 80,000 in the two projects, while FAPESP financed $ 93,400 and US$ 72,000.

Cheap pigment
Many of the present-day innovations are the result of the need to lower costs, particularly that of raw materials. The company Serrana is accepting the wager on this. Located in Cajati, half way between Cananéia and Registro, the company set up a laboratory in Diadema, in Greater São Paulo, to show paint manufacturers the benefits of a new type of pigment based on aluminum polyphosphate. This material should lower paint production costs by between 10% and 15% by replacing titanium oxide, a product that is mostly imported. The research was carried out as part of the project between the company and Unicamp’s Chemistry Institute, and coordinated by professor Fernando Galembeck. Unicamp receives royalties on the invention, although the product is not yet on sale. FAPESP invested R$ 25,900 and US$ 107,100, and the company R$ 67,300.

Everybody wins
“We are producing the phosphate on a laboratory scale and in July 2001 we expect to open a semi-industrial plant, at a cost of R$ 600,000, to start commercial production”, says João Brito, Serrana’s technology manager.

Initiatives like these show the vitality and need for more meetings between scientists and the business community. The two worlds are beginning to understand each other and to work together. Everybody wins, and so does Brazil.

New products produce revenues

Spending by Brazilian companies on Research and Development (R&D) is linked to sales (research spending rises if sales are good). This is the opposite of what happens with Japanese and American companies where sales depend on R&D spending (the more the R&D spending the higher the sales). The observation is in the doctoral thesis Study of the Relationship between R&D Indicators and Profit Indicators in Brazilian Companies, by professor Tales Andreassi, of the São Paulo Business Administration School  (Eaesp) of the Getúlio Vargas Foundation (FGV).

“In Brazil, R&D spending is still associated with good profits earned by the company, which is not recommendablee”, says Andreassi. He also points out that the emergence of new or improved products in Brazil has had a favorable effect on companies’ sales. “New products here account for 37% of companies’ revenues on average”. Andreassi conducted the survey, completed in 1999, with 125 companies, of all sizes, included in the database of business indicators on technological innovation prepared by the National Association of Research, Development, and Engineering in Innovative Companies (Anpei).

Abroad, various studies have been done on the financial return of high R&D spending companies. Although they use various methods, the rate of return on this investment is measured in accordance with the profits earned by the company, normally represented in sales and cost savings. Professor Ishaq Nadiri, of the Economics Department New York University, analyzed various surveys – for the National Bureau of Economic Research (NBER) – relating R&D spending and rates of return. He observed a strong link between R&D spending and production and productivity growth, and summarized the data found by his peers. In the table below, we show some of the rates of return set out in the studies.