Letter IEDI n. 928–Technological Capacity and Industrial Competitiveness
Today's Letter IEDI addresses the book "The Imperative of Strengthening Industrial Competitiveness in Brazil: Evidence at the Enterprise Level," published in 2018 by the FGV, and presents the results of an unpublished research led by Professor Paulo Figueiredo, coordinator of the Ebape/FGV research program in Technological Learning and Industrial Innovation in Brazil. The work examined the relationship between the process of accumulation of technological capacities and their impacts on industrial competitiveness in Brazil.
The research, which included contributors from the FGV and federal universities in Rio de Janeiro and Goiás, analyzed companies of varying sizes in five industrial sectors based on natural resources: mining, steel, oil and gas, sugarcane and pulp and paper, combining questionnaires, interviews and visits with analysis of quantitative data for the period 2002 to 2015.
Two major questions guided the study. The authors sought to clarify to what extent, and in what way, companies in these industrial sectors in Brazil have built up technological capabilities for both operational activities and innovation. Also, they wanted to understand how this process of accumulation of technological capacities has influenced the reach and the strengthening (or weakening) of industrial competitiveness.
The concept of innovation adopted by the authors is broad, so that it can originate from a strong engineering base and even from the factory floor. That is, it goes far beyond the development of cutting-edge technologies. Thus, they considered a broad set of actions and companies, since in the Brazilian context few innovative companies are intensive in sophisticated R&D activities.
In this way, the authors were able to identify a high incidence of innovation in sectors classified as of low and medium technological intensity —such as those based on natural resources— going beyond the more R&D intensive ones, which are usually more innovative.
In some of the sectors surveyed —like pulp and paper, oil and gas and sugar and ethanol— there are also companies that have reached high levels of advanced innovation capacity and hold world-leading positions in certain specific technological areas.
However, there are two aspects that can not be disregarded: (1) significant differences between sectors and between companies in each of them in terms of accumulation of technological capacities; (2) asymmetry in the technological accumulation between different areas of the same company.
As a consequence, companies with higher standards of technological capacity build-up generally had greater gains in labor productivity and higher export earnings. The authors argue that these differences in the patterns of capacity accumulation for specific technological areas are then reflected in the competitive performance of firms.
The evidence found and discussed by Figueiredo and his coauthors suggests the possibility of making these natural resource-based sectors, be they mineral or agriculture, one of the pillars of industrial strengthening in Brazil, as the IEDI argued in the document "Industry and the Brazil of the Future" (in Portuguese). This is especially true today, when new paradigms are in the horizon of these sectors too, due to the development of the innovative technologies underlying Industry 4.0.
Therefore, the book's authors emphasize that public policies must recognize that these natural resource-based industries offer relevant opportunities for accumulating technological capabilities, defined as stocks of knowledge resources to manage and generate technological change, including human capital, physical capital and organizational capital. By building up these skills, companies are better positioned to innovate and become competitive.
Among the policy initiatives the authors suggest for strengthening Brazilian competitiveness, we can mention the following aspects:
• An effective strategy should foster technological and productivity increases and encourage a massive shift of enterprises from the basic and intermediate levels to progressively higher levels of innovative technological capacity.
• Well-designed horizontal policies may be a better choice than strong incentives for a small group of chosen firms.
• Light industrial policies (provision of public goods and subsidies) to stimulate innovation activity are preferable to heavy (relative price changes) policies aimed at protecting more innovative sectors.
• A collaborative and systemic innovation policy, while involving state coordination, must be carried out in an environment of international competitive pressure. However, it is important to provide Brazilian companies with competitive conditions similar to those of their foreign counterparts.
• Urgent adoption of specific measures for training and qualifying professionals focusing on innovative activities within companies, such as design, engineering and R&D.
• Bringing basic research and applied knowledge closer together in order to better align them to the needs and objectives of companies.