Despite being home to a handful of extremely innovative companies, Brazil has lagged in innovation behind
other countries. What do you think lies behind this?
The first thing to bear in mind is the critical role that foreign multinational corporations play in the Brazilian economy. We have what could be called a colony dilemma. In this situation, many MNCs make their key decisions in their headquarters, rather than here in Brazil. If you look at our clients, some 60-70 percent of them are foreign companies.
But doesn’t the fact that they are your clients mean that foreign MNCs’ local offices have some decision making autonomy when it comes to innovation budgets?
This is often true for companies that view the Brazilian market as particularly important. These include firms in sectors such as agriculture and automotive, as well as a number of consumer-facing companies. Put it this way: MNCs’ approach to innovating in Brazil depends largely on who is making the important decisions. Some companies simply don’t allow these decisions to be made in Brazil.
There also seems to be low levels of collaboration in the innovation space in Brazil. For example, the latest national innovation survey shows that few companies in Brazil collaborate with other players—such as other firms and universities—in their innovation efforts. To what extent does this undermine the country’s innovation outcomes more widely?
A lot, because collaboration is often the key to innovation. R&D plays a key role here. Innovation undoubtedly consists of more than R&D, but collaboration often centers on R&D because companies want to collaborate in areas where they lack the necessary knowledge. Unfortunately, it is hard to find good partners to collaborate with on R&D in Brazil.
Why is that?
Most quality science here is done at public universities and research centers. In many cases, it is very difficult to negotiate contracts and handle issues such
as intellectual property with them. Few of their technology transfer offices have the competencies needed to build fruitful interactions with other market players. Crucially, they don’t have enough money to employ professionals that have an in-depth understanding of market dynamics, making collaboration with businesses harder.
You mentioned the role of intellectual property. Clearly, managing IP rights is a priority for collaboration in innovation. Why is it especially difficult to handle IP issues with universities?
Universities often want excessive compensation for their IP. This happens precisely because they don`t have in their ranks enough people who really understand how the market works. As a result, the deals universities offer don’t reflect the market risks that innovation involves, which make up the context in which IP rights and royalties must be seen. So companies refuse to close deals with academia. For many firms, it is better to simply hire the student involved in a given research effort. The bottom line is that it is hard to find appropriate partners with aligned incentives in the academic world.
Is hiring people away from academia the only solution for companies?
Well, if you exclude that option, companies looking for collaboration in innovation are left with few other options than the possibility of working together with other firms. But this is where you come across the difficulty we mentioned earlier: at least for large companies, many key decisions are not made in Brazil. And there is an additional IP-related issue. While most foreign MNCs know how to deal with IP challenges, most
Brazilian companies don’t. We don’t have many good patent offices in Brazil. Many patents filed for in Brazil are weak, meaning they will not provide sufficient protection for companies. This makes collaboration much harder. Things are slowly getting better in the realm of Brazilian IP, but we still have a long way to go.
Clearly, many factors are stifling collaboration in Brazil. What factors encourage it?
Companies that have suffered some kind of painful impact from changes in the business landscape in the past tend to be more open to collaborating on innovation. If everything is going well, most companies don’t think that making the effort to collaborate is worthwhile. This reflects a common mindset in Brazil summarized by the popular saying, “You don’t change a winning team.”
Still, there are impressive examples of large Brazilian corporations that have implemented new processes to boost innovation.
Yes, but even companies that have good processes often hit the ceiling of incremental innovation. Competitive advantage and strong growth really come from groundbreaking innovation. To produce that, you need to connect big companies with start-ups, because these are where transformational innovation comes from. To be fair, some companies in Brazil have very good innovation processes, and they are
already trying to promote entrepreneurship internally or work more openly on innovation. But these are early days, and no one knows for sure which strategies will be more successful in producing disruptive innovation.
What main challenges face large companies as they try to instill collaborative techniques in their innovation processes?
One problem is that if a company adopts an open approach and then reaches out to suppliers to innovate, it may find that they do not have the same attitude. And
we have already discussed the problems involved in collaborating with universities. So the key question could be summarized as, “How can you be successfully open in Brazil when few players have an open mindset?” Depending on the industry, companies may face additional problems, because innovation requires entrepreneurship, and tech-based entrepreneurship in this country is still excessively focused on IT and the web-based economy. Of course, these are very important, but we also need more entrepreneurship and innovation in agribusiness, life sciences and other sectors.
What factors hinder collaboration between small companies, including start-ups, and large businesses?
Small companies in Brazil are open to talking with big firms. But many large companies worry that talking with small firms will expose them to difficult situations—with good reason. Openness requires companies to establish internal controls to minimize exposure to risks. Corporations also need carefully to manage any risks that could materialize once they’ve decided to become more open.
This makes sense, but it is true everywhere, not just here. And international studies indicate that Brazilian companies are less open to collaboration than firms in other economies, many of which have similar problems. At the same time, Brazilian executives pride themselves on their personal external networks and relationships. How do we make sense of this disconnect?
The options available in each country make a difference. As we’ve discussed, you don’t find many good partners here. Either you don’t have them or you don’t know how to find them. Culture may also play a role. To use a personal example, I prefer to work alone, as do many other Brazilians. Then there is a pervasive lack of trust across our society and business world. On top of that, we don’t have many good success cases that can serve as examples for companies to look up to. And finally, Brazilians in general are not very patient—and research and innovation require patience, even more so when done with other people.
In the last decade especially, Brazil’s government has adopted many policies to support innovation in the country and has invested considerably in R&D. So why isn’t Brazil doing better in innovation?
The Brazilian government is following a two-pronged strategy. On the one hand, it is trying to make Brazilian R&D stronger. To achieve that, it is pouring money into public universities and offering incentives for private R&D investment. The problem is that innovation requires more than just R&D, so we also need to support the rest of the process. On the other hand, the Brazilian government tried for many years to create sector champions, but has put less effort into improving the innovation outcomes of small and medium-sized enterprises.
And do those businesses— SMEs other than start-ups—play an important role?
Unless you have a critical mass of innovators across the value chain, there will be bottlenecks. Let me give you an example. We are now starting a project for a large company that provides raw material to firms in other industries. Many of its clients are SMEs that do not innovate, and for which raw material represents a large share of costs. These SMEs are pressuring the large company to lower its prices. But the large company knows that if the SMEs innovated, raw material prices would be less of a concern for them. So it initiated a project to help 15 companies in the next link in the value chain to be more innovative. Most of these companies are its customers.
How can a company’s leaders promote innovation?
Leaders must be ready to make mistakes. If you are trying to come up with something new, it is inevitable that failure will be part of the process. Leadership must be ready to accept this.
What about the workforce? What does an innovative workforce look like?
You need to have some fundamental innovation skills in your workforce. You don’t need everyone in your group to have all these skills, but you need the group as a whole to have them. I would say some of the main capabilities are negotiation, project management and business planning, as well as knowledge of intellectual property rights. Commitment to innovation is also important, and I think people who are now entering the job market, the millennial generation, will play a crucial role here. Today’s young people have an open mindset, so they will help companies be more open. In these people’s view, you are what you share. But companies also need to help young people understand the limits. You cannot share everything.
This has been a stimulating and interesting session. Thank you very much for your time and insights.
My pleasure. It would be great to stay in touch and discuss these issues further.
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