Innovation: Management, Policy and Practice

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Editors of the isuue "INNOVATION AND ECONOMIC DEVELOPMENT: Lessons from Latin America", in Innovation, Management, Policy and Practice, vol 7 (2-3).

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Edited by
GABRIELA DUTRÉNIT and MARK DODGSON
Metropolitan Autonomous University and
University of Queensland Business School
ISBN 0-9750436-5-X
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ontent PTY
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Sydney • Amsterdam • Palo Alto
Lessons from Latin America
INNOVATION AND ECONOMIC
DEVELOPMENT
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105 INTRODUCTION: Innovation, growth and development in Latin America:
Stylized facts and a policy agenda — Gabriela Dutrénit and Jorge Katz
TECHNOLOGICAL PERFORMANCE
SETTING THE SCENE
131 Technological performance, economic performance and behaviour:
A study of Argentinean firms during the 1990s — Valeria Arza
152 Patterns of technological intensity in the Brazilian industry:
A comparative study with developed countries — André Tosi Furtado and
Ruy De Quadros Carvalho
LEARNING AND KNOWLEDGE FLOWS IN INNOVATION
SYSTEMS
DOMESTIC CONDITIONS
172 Innovation systems and local productive arrangements: New strategies
to promote the generation, acquisition and diffusion of knowledge —
Helena M.M. Lastres and José Eduardo Cassiolato
188 Exchange and knowledge flows between large firms and research
institutions — Rosalba Casas
200 Knowledge circulation in vertically integrated production networks:
The cases of the Argentine automotive and iron and steel industries —
Facundo Albornoz, Darío Milesi and Gabriel Yoguel
INTERNATIONAL DIMENSION
222 Managing learning in the refrigerator industry: Evidence from a
firm-level study in Brazil — Cristina Ferigotti and Paulo N. Figueiredo
Lessons from Latin America
INNOVATION: MANAGEMENT, POLICY & PRACTICE ·VOLUME 7·ISSUE 2–3 ·APRIL–AUGUST 2005
INNOVATION AND ECONOMIC DEVELOPMENT
CONTENTS
Continues .../
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iv INNOVATION: management, policy & practice Volume 7, Issue 2–3, April–August 2005
240 Cross border acquisitions and mergers: Learning processes of Mexican
corporative groups — Arturo Torres and Javier Jasso
256 Mexican maquiladoras: New capabilities of coordination and the
emergence of a new generation of companies — Jorge Carrillo and
Arturo Lara
274 Spillovers from MNCs through worker mobility and technological and
managerial capabilities of SMEs in Mexico — Alexandre O. Vera-Cruz
and Gabriela Dutrénit
298 R&D in the telecom industry in Brazil: Some indicators involving large
transnational companies — Simone R.V. Galina, Roberto Sbragia and
Guilherme A. Plonski
NEW POLICY APPROACHES FOR DEVELOPMENT
310 Innovation systems based on life sciences: Towards a study by means of
constructive approaches — Rodrigo Arocena and Judith Sutz
321 New institutional dynamics for the creation of a favorable environment
for competitiveness: Hope or reality? — Mónica Casalet Ravenna
336 Multicriteria analysis for the selection of priorities in the Brazilian
program of technological prospection – Prospectar — Mauro Zackiewicz,
Rui Albuquerque and Sergio Salles Filho
Lessons from Latin America
INNOVATION AND ECONOMIC DEVELOPMENT
CONTENTS
INNOVATION: MANAGEMENT, POLICY & PRACTICE ·VOLUME 7·ISSUE 2–3 ·APRIL–AUGUST 2005
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INTRODUCTION
There is a growing consensus about the
centrality of scientific and technological
advances in driving economic progress, and that
increasing national investments in innovation are
essential to ensure countries’ economic growth
(Schumpeter, 1942; Solow, 1956; Abramovitz,
1956 and 1986; Romer, 1990). In fact, techno-
logical and institutional change, and national
technological capabilities are seen as major deter-
KEY WORDS
innovation
trajectory;
productivity; skills
development;
learning-by-doing;
adaptive
engineering;
technology
trajectory; pro-
active strategy;
economic
development;
Latin American
case studies;
policy agenda;
developing
economies
105
Volume 7, Issue 2–3, April–August 2005 INNOVATION: management, policy & practice
Copyright © eContent Management Pty Ltd. Innovation: management, policy & practice (2005) 7: 105–130.
INTRODUCTION: Innovation, growth
and development in Latin-America:
Stylized facts and a policy agenda
SUMMARY Many studies have shown that the long-term economic growth of industrialized
economies stems from the enlargement of technological activities that lead to new
products, processes or industries, as well as improving productivity. Some newly
industrializing countries have achieved remarkable increases in innovative output in
the last decades, suggesting that they have expanded their national technological
capabilities. However, an unanswered question is how science and technology, which
appear to be the key to industrial development in advanced economies, can be effec-
tively used for economic and social development in today’s developing countries.
To a large extent, this depends on the ability of these countries to build up a
trajectory of learning and innovation. So far, such trajectories have mostly resulted
by default, as an unplanned consequence of ‘learning by doing’ during the expansion
of local production activities, or of ‘adaptive engineering efforts’ carried out on the
basis of imported know-how. The real challenge therefore seems to be how to go from
this to a ‘pro-active’ technological strategy that would put major innovation efforts
and technological generation activities in the driver’s seat of the development process.
This Introduction attempts three different objectives. Firstly, it sets the
conceptual background for the papers included in this special issue. Secondly, it
reports on recent research on innovation carried out in Latin America and suggests
lines of future inquiry. Thirdly, it introduces the papers included in this special issue.
For this purpose, Section 1 outlines some stylized facts of the Latin-American
development process. Section 2 sketches out what we know and what we need to
investigate more about innovation, growth and development in Latin America.
Finally, in Section 3 we summarize the contribution of the papers included in this
edition describing the current state of knowledge in this field with lessons for other
developing economies. Received 15 December 2004
Accepted 28 January 2005
GABRIELA DUTRÉNIT
Master and Doctorate
Economic and Management
of Technological Change
Universidad Autónoma
Metropolitana – Xochimilco
México DF
JORGE KATZ
Professor
University of Chile, Santiago
and
University of Conicet Buenos
Aires, Argentina
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minants of economic growth and economic
development (Freeman, 1987; Fagerberg, 1988;
Fagerberg, Mowery and Nelson, 2005).
Many studies have shown that the long-term
economic growth of industrialized economies
stems from the enlargement of technological
activities that lead to new products, processes or
industries, as well as improving productivity
(Abramovitz, 1986). A number of new industrial-
izing countries have achieved remarkable in-
creases in innovative output in the last decades,
suggesting that they have expanded their national
technological capabilities (Lall, 2001; Hobday,
1995; Freeman, 1996).
However, an unanswered question is how sci-
ence and technology, which appear to be the
key to industrial development in advanced
economies, can be effectively used for economic
and social development in today’s developing
countries.
To a large extent, this depends on the ability of
these countries to build up a trajectory of learn-
ing and innovation. So far, such trajectories have
mostly resulted by default, as an unplanned con-
sequence of ‘learning by doing’ during the expan-
sion of local production activities, or of ‘adaptive
engineering efforts’ carried out on the basis of
imported know-how.
The real challenge therefore seems to be how to
go from this to a ‘pro-active’ technological
strategy that would put major innovation
efforts and technological generation activities
in the driver’s seat of the development process.
It is clear that the structure of linkages at local,
regional, national and international levels, and
the construction of national systems of innova-
tion contribute to success (Freeman, 1987; Lund-
vall, 1992; Nelson, 1993; Edquist, 1997; Kim,
1997; Niosi, 2000). However, this also requires a
structure of incentives and a mix of policies to
foster investments in innovation.
This Introduction attempts three different
objectives. Firstly, it sets the conceptual back-
ground for the papers included in this special
issue of Innovation: Management, Policy & Practice
‘Innovation & Economic Development: Lessons
from Latin America’ (ISBN 0-9750436-5-X). Sec-
ondly, it reports on recent research on innovation
carried out in Latin-America and suggests lines of
future inquiry. Thirdly, it introduces the papers
included in this special issue. For this purpose,
Section 1 outlines some stylized facts of the Latin-
American development process. Section 2 sketch-
es out what we know and what we need to
investigate more about innovation, growth and
development in Latin-America. Finally, in Section
3 we summarize the contribution of the papers
included in this edition describing the current
state of knowledge in this field with lessons for
other developing economies.
1. STYLIZED FACTS OF THE LATIN-
AMERICA DEVELOPMENT PROCESS
As a result of market-oriented structural reforms
implemented since the mid 1970s, and of the
rapid process of globalization experienced by the
world economy throughout the 1990s, many
Latin-American nations are experiencing major
changes in their production and social structure.
These changes are strongly affecting almost every
other aspect of each country’s daily economic and
institutional life, including the pattern of produc-
tion specialization and insertion in world trade,
the quantity and quality of the new jobs being
created in the economy, the evolution of domes-
tic technological capabilities and the equity with
which the benefits of the transition to a more
open and de-regulated policy regime are being
distributed in society.
The expectation was that the transition from
an ‘inward-oriented’ and ‘State-led’ growth strate-
gy to one which was more ‘outward-oriented’ and
‘market-led’ was to be rewarded by a sustainable
long-term improvement in the rate of economic
expansion and productivity growth, as well as
with a gradual ‘convergence’ to the income and
productivity levels of more developed industrial
nations. The competitive discipline imposed by a
106 INNOVATION: management, policy & practice Volume 7, Issue 2–3, April–August 2005
Gabriela Dutrénit and Jorge Katz
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more open and de-regulated economic regime was
considered by ‘main stream’ economists and poli-
cy makers as a sufficient condition for nations to
achieve a more efficient pattern of resource alloca-
tion, faster innovation, better international com-
petitiveness, more equity in the distribution of the
benefits of technological progress, and a gradual
closing up of the gap exhibited by developing
countries vis à vis developed nations. So far, many
of these issues have been poorly researched and
demand urgent consideration from both the aca-
demic community and policy makers.
The research results indicate that such a priori
expectation has been highly unrealistic. The
emerging picture is one of success in some
spheres (macroeconomic management) and fail-
ure in others (productivity growth, enhanced
domestic technological capabilities, better inser-
tion in world markets, and more equitable pat-
tern of income distribution). Table 1 shows the
evolution of some aggregate data over the last
five decades. As can be seen, Latin-American
economies are today much more stable and more
export-oriented than during the inward-oriented
industrialization period. Market-oriented reforms
have helped Latin-American nations to control
various critical cases of macroeconomic misman-
agement, and even a few extreme episodes of
hyper-inflation. It is also true that such reforms
have been successful in making nations more
open to trade and to external competition.
But we find a much less satisfactory picture
when we turn to GDP growth, productivity im-
provements and equity considerations (Table 1).
It could be argued, however, that the figures in
Table 1 are much too aggregated and that they do
not reflect accurately the actual picture of growth
and transformation at the micro and meso levels.
They may also not reflect major changes that
occurred in the institutional and regulatory
spheres of each and every country in the region.
In order to answer such concerns, we need a
closer examination of the new production, insti-
tutional and regulatory fabric of each Latin-
American society. Only by looking in more detail
at the micro and meso levels can we get a more
adequate perception as to how far the process of
transformation has proceeded in each country
and which sectors, regions and firms have been
able to adapt better to the new rules of the game
during the course of the last decade. A more
detailed look at the stylized facts of Latin-
American evolution is presented below.
Changes in the patterns of pro-
duction specialization and trade
We begin by exploring in more detail how
the adaptation to a new macro-policy regime
induced significant changes in the pattern of pro-
duction specialization and trade. Over the last
two decades, Latin-American countries have re-
structured in the direction of their underlying
‘natural’ (static) comparative advantages, making
better use of their high quality natural resources
(mines, forests, gas and petroleum, agriculture) as
well as of the abundant, relatively cheap and
unskilled labour. Being relatively poor in their
‘initial’ endowment of domestic technological
capabilities and human capital, these countries re-
structured in favour of natural resource process-
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Volume 7, Issue 2–3, April–August 2005 INNOVATION: management, policy & practice
Innovation, growth and development in Latin-America
TABLE 1: LATIN-AMERICAN GROWTH RATES OF SELECTED AGGREGATES (PERCENTAGES)
1945/1980 1980/1990 1990/1997 1997/2003 2003
Annual rate of inflation 20 400 64.3 9.3 8.5
Annual rate of growth of exports (vol./year) 2.1 4.4 9.6 5.5 4.5
Annual rate of growth of imports (vol./year) 5.9 –0.8 15.9 2.3 0.7
Rate of growth of GDP (annual) 5.6 1.2 3.8 1.3 1.5
Rate of growth of GDP per capita 3.1 –1.8 1.9 –0.2 0.1
% of poor households 35 41 35.5 36 36
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ing industries and labour intensive ‘maquiladora’
(assembly industries) type activities, and against
knowledge and engineering intensive sectors.
Thus, a new pattern of specialization and trade
emerged, strongly influencing the size and nature
of the employment generation capabilities of the
economy and its place in the world’s market
place. The new pattern of trade specialization
favoured low elasticity of ‘commodities’ demand
– pulp and paper, mining, vegetable oil, fishmeal,
aluminum, iron and steel, and so forth – and dis-
criminated against technology and engineering
intensive industries, mostly dealing with the pro-
duction of capital goods production, pharmaceu-
ticals, and other high elasticity of demand
products and production activities.1
Table 2 presents the changes in production
structure for manufacturing activities for five
large Latin-American countries from the 1970s.
The figures clearly support our argument.
Two quite different patterns of production
specialization have emerged in the region. On the
one hand, Argentina, Brazil, Chile and Colombia
have specialized in resource processing industries
108 INNOVATION: management, policy & practice Volume 7, Issue 2–3, April–August 2005
Gabriela Dutrénit and Jorge Katz
FIGURE 1: Changes in the export structure: High-technology and Non-High-technology products
Source
: National Science Board (2004). Based on Global Insight Inc. World Industry Service database, (2003).
Note
: High-Technology: Aerospace, Office and computing machinery, Communication equipment,
Drugs and medicines, Medical, precision and optical instruments
TABLE 2: CHANGES IN THE RELATIVE SHARE OF DIFFERENT INDUSTRIAL SECTORS 1970–2000
Argentina Brazil Chile Colombia México
1970 1990 1996 1970 1990 1996 1970 1990 1996 2000 1970 1990 1996 2000 1970 1990 1996 2000
I 15.6 14.3 13.1 18.8 22.9 22.8 14.9 10.1 10.2 6.7 10.7 9.6 10.5 7.3 13.3 12.3 13.90 11.8
II 9.9 8.5 12.1 9.9 7.0 8.7 7.7 2.3 2.0 2.3 2.9 4.3 6.5 2.3 5.5 9.5 10.8 18.9
III+IV 36.2 46.7 45.7 35.8 39.6 42.4 43.2 55.5 56.2 66.8 45.7 51.1 51.2 53.0 46.8 46.8 46.5 43.8
V 38.2 30.5 29.0 35.5 30.5 26.1 34.2 32.0 31.6 24.1 40.7 34.9 31.8 37.4 34.4 31.4 28.8 25.4
Source
: UNCTAD/TDR (2003), Based on Cimoli and Katz (2001) and ONUDI (2002).
Notes
: I Metalworking Industry (excluding automobiles) (CIIU 381,382,383,385)
II Automobiles (CIIU 384)
III+IV Foodstuffs, beverages and tobacco (CIIU 311,313,314); resources processing industries (CIIU, 341, 351, 354, 355, 356, 371, 372)
V Labor intensive industries (CIIU 321, 322, 323, 324, 331, 332, 342, 352, 361, 362, 369, 390)
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producing industrial ‘commodities’ (sector III +
IV in Table 2). These are highly capital intensive
industries. On the other hand, Mexico and
some of the smaller Central American economies
have specialized on assembly industries, catering
almost exclusively for the US market. These
are local subsidiaries of large US firms (some
European and more recently also Japanese and
Korean) which use the above mentioned Latin-
American economies as export platforms due to
their proximity to the US market and their low
real wage rates. These are highly capital intensive
‘just in time’ assembly plants operating with a
large unit import content for which product
designs, logistics and process engineering know-
how come almost entirely from abroad.2In the
Mexican case, the evolution of the automobile
industry specialization illustrates this pattern (sec-
tor II in Table 2).
These changes in production specialization
came hand-in-hand with concomitant changes in
the trade specialization. Figure 1 illustrates the
evolution of the trade specialization of four Latin-
American countries, differentiating between high
tech and non high-tech exports. Mexico increased
significantly its exports of high-tech products
between 1980 and 2001, as a result of the expan-
sion of the ‘maquiladoras’. But its exports are still
dominated by the non high-tech products.
Non high-tech exports represent an extremely
elevated percentage of the total manufacturing
exports of Argentina, Brazil and Chile, including
low- and medium-tech products and resource-
based products.
Slow productivity growth and
large productivity gaps vis à vis
US manufacturing
The performance of the emerging production
structure in productivity growth, as well as its
closing the gap with the international productivi-
ty frontier, also appears as unsatisfactory. With
very few exceptions, the new macroeconomic
policy regime has not induced faster productivity
growth rates than in the past, nor has it induced
the labour productivity gap to become smaller vis
à vis more developed industrial nations.
Figure 2 illustrates the labour productivity gap
of Latin-American manufacturing industry vis
à vis the US, covering from the 1970s to the
109
Volume 7, Issue 2–3, April–August 2005 INNOVATION: management, policy & practice
Innovation, growth and development in Latin-America
10
20
30
40
50
60
70
72
74
76
78
80
82
84
86
88
90
92
94
96
98
Time
% of the US
ARG BRA MEX COL CHI
FIGURE 2: Productivity gap of the Latin American manufacturing industry related to the US
Source
: ECLAC, database.
Note
: Productivity gap = Productivity (added value/employment) of the
manufacturing sector of each country/productivity of the manufacturing sector of the US
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1990s. We notice that Argentina managed some-
how partially to reduce the gap – at the cost of
almost 20% open unemployment – but as far as
the rest of the countries in the table are con-
cerned, none of them has been able to signifi-
cantly reduce the labour productivity gap they
exhibited at the beginning of the period under
comparison.
Lack of domestic technological
capabilities
Over the long term, economic growth arises from
the interplay between a set of incentives – given
by the institutional set up of the country – and
its domestic technological capabilities (OECD,
1987). Domestic technological capabilities refer
to the ability to make effective use of technology
for the production of goods and services as well
as for the production of further technological
know-how.
A turbulent and unstable macroeconomic en-
vironment, and a lack of incentives for the pro-
duction and utilization of modern technology in
production activities, constitute the major expla-
nation of why Latin-American countries have not
performed better in terms of productivity
growth, attaining a more dynamic pattern of
insertion in world markets. The lack of incentives
refers to a broad spectrum of areas, including
incentives to invest in more knowledge-intensive
production facilities, to carry out product and
process improvement efforts, or to develop ‘col-
lective’ synergies through a stronger set of link-
ages between actors and institutions at national,
regional and local levels.
Table 3 summarizes some indicators of the
domestic technological capabilities of five large
Latin-American countries. Data from Korea is
introduced as a reference point.
The data indicates that in the 1980s, Latin-
American human capital endowments were
already quite low vis à vis the Korean case. Howev-
er, expenditure in education was not necessarily
much smaller – as percentage of GDP – nor was
the net primary enrolment ratio in secondary and
tertiary education. This seems to indicate that
Latin-American countries have carried out an
important effort to develop their human capital in
the last decades, but that the result of such effort
in terms of quality of education has not been as
significant as it has been in the case of Korea.
Clearly, this result points to the fact that institu-
tional aspects related to the organization of educa-
tional activities must be a central explanation as to
why a given set of resources addressed to such
activities is not yielding adequate results. On the
other hand, Latin-American efforts in science and
technology have been significantly smaller – as a
proportion of GDP – and also have had rather
unsatisfactory results. First, the Gross Expenditure
on Research and Development (GERD) indicator
shows very low values in most of the countries,
which reveals that the effort of the Latin-American
countries in science and technology is still weak.
Brazil has the highest level of GERD, double most
other countries, however, as compared with Korea,
its effort is still low. Second, GERD by source of
funds shows that the efforts are largely carried out
by the governments, while enterprises do not show
a high commitment to R&D activities. In con-
trast, enterprises contribute an important per-
centage of the Korean GERD. Third, important
differences between Latin-America and Korea can
be observed in the human capital involved in sci-
ence and technology activities, both in the number
of researchers in R&D activities and of technicians
per million inhabitants.
In conclusion: Latin-American efforts in edu-
cation have been quite significant in the last
decades, but the results in terms of quality of
education have been rather low. On the other
hand, expenditure in science and technology is
still well below international standards. Both
these forces seem to explain why domestic tech-
nological capabilities have not improved signifi-
cantly in Latin-America in recent decades.
Few winners in terms of economic
growth
Why did economists and policy makers expect
110 INNOVATION: management, policy & practice Volume 7, Issue 2–3, April–August 2005
Gabriela Dutrénit and Jorge Katz
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111
Volume 7, Issue 2–3, April–August 2005 INNOVATION: management, policy & practice
Innovation, growth and development in Latin-America
TABLE 3: INDICATORS OF NATIONAL TECHNOLOGY CAPABILITY IN SELECTED LATIN AMERICAN COUNTRIES
Korea Argentina Brazil Chile Colombia Mexico
A. Economic performance
1. GDP U.S. billions dollars (2003) (a) 605.7 126.7 492.2 72.1 77.3 620.0
2. GDP per capita U.S. dollars (2003) (a) 12,638 3,300 2,757 4,548 1,734 6,008
3. Competitiveness rank EU=1 (a)
2000 29 42 38 30 45 33
2004 35 59 53 26 41 56
B. Human capital
1. Central government expenditure on
education (% GNP) (b)
1980 3.5 (1990) 1.9 0.7 4.1 2.5 3.1
2001 3.6 4.6 4.0 3.9 4.4 5.1
2. Net primary enrolment ratio (%) (b)
Primary (1990) 104 94 86 88 68 100
Primary (2002) 101 108 97 89 87 101
Secondary (1990) 86 66.5 (1985) (c) 15 55 33.9 (1985) (c) 46
Secondary (2002) 89 81 72 75 54 60
Tertiary education (1980) (c ) – 22.2 12.0 10.8 10.2 14.9
Tertiary education (1998) (c) – – 12.6 31.4 – 17.6
3. Tertiary students in science, math
and engineering, % of all tertiary
students (1994–1997) (b) 34 30 23 43 31 31
C. Efforts in science and technology
1. Patents granted to residents per
million people (2002) (b) 490 4 0 2 0 1
2. GERD (d)
1996 2.60 0.42 0.77 0.58 0.30 0.41
2001 2.91 0.42 0.87 0.57 0.17 0.40
3. GERD by source of funds (d)
Government (2002) 25.4 70.2 60.2 (2000) 68.8 (2001) 13.2 (2001) 59.1 (2001)
Enterprises (2002) 72.2 24.3 38.2 (2000) 24.9 (2001) 46.9 (2001) 29.8 (2001)
Others (other national sources,
funds from abroad) (2002) 2.4 5.5 1.6 (2000) 6.2 (2001) 40.0 (2001) 11.1 (2001)
4. Researchers in R&D per million
inhabitants (d)
1996 2,193 651 – 358 83 215
2001 2,880 684 323 (2000) 419 101 (2000) 225 (1999)
5. Technicians per million inhabitants (d)
1996 631 160 (1997) – 380 30 151
2001 564 (1999) 149 129 (2000) 307 48 (2000) 183 (1999)
6. Number of S&E doctorates awarded
to foreign citizens in the United
States. By citizenship of origin,
2001 (e) 862 69 141 – – 205
Sources
: (a) IMD (2004); (b) UNDP (2004); (c) CEPAL (2003); (d) UNESCO (2004) and OCDE (2004a); (e) OECD (2004b).
Notes
: The net enrolment ratio is the ratio of enrolled children of the official age for the education level indicated to the total
population of that age. Net enrolment ratios exceeding 100% reflect discrepancies between these two data sets. The patents
granted are calculated on the basis of data on patents granted to residents from WIPO (2004). GERD: Gross Domestic
Expenditure on R&D. Researchers in R&D and GERD of Korea: calculated on the basis of World Bank (2004).
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that trade liberalization, and the de-regulation
and privatization of economic activities, could be
a sufficient condition for developing nations to
attain a better productivity performance and
higher international competitiveness than in the
past? Why did they fail to take on board the fact
that low ‘initial’ technological capabilities and a
lack of human capital could seriously question
the expected outcome of the reforms?
The answers to these questions lie, from our
point of view, on the massive approval that Wash-
ington Consensus ideas and neoliberal market
principles received in the early 1970’s from both
academic economists and policy makers, who
expected Adam Smith’s ‘invisible hand’ and the
discipline of markets to be sufficient for correct-
ing what was then derogatively viewed as a wide-
spread case of production inefficiency and
government corruption (Krueger, 1974). The
expectation was that markets could adequately
deal with the transition to a more open and de-
regulated macroeconomic policy regime. Equilib-
rium macro ‘fundamentals’ – the exchange and
interest rate, real wages, inflation rate, and so
forth – were deemed to be necessary and suffi-
cient condition for countries to return to a full
employment growth path. Institutional malfunc-
tioning, lack of domestic technological capabili-
ties and scarcity of human capital were mostly
relegated to the back seat by mainstream econo-
mists and policy makers who failed to perceive
that a conventional neoclassical lens provides a
very poor understanding of the ultimate ‘sources’
of productivity growth (Abramowitz, 1986), as
well as of the major role played by institutions
and innovative behaviour in determining the
long-term growth path of any given economy.
The lack of a comprehensive theory of growth
which could adequately handle the co-evolution
of institutional, technological and economic
forces, a poor understanding of the role played by
knowledge and information in society (and the
highly complex set of forces that determine their
generation and diffusion), and an excessive faith
on the functioning of markets, induced orthodox
policy makers and economists to believe that a
more open and de-regulated economic regime
was all that was needed to induce better growth
and equity performance. Unfortunately, things
have not worked as expected and after two
decades of structural reforms, of de-regulation of
markets and of widespread privatizations, many
Latin-American and other developing countries
still find themselves trapped in a vicious circle of
low innovation, low productivity and low inter-
national competitiveness, thus failing to close the
relative productivity gap with the world’s frontier
and attaining no more than, say, one third or one
half of world-class production efficiency in many
areas of the economy.
In addition to the above, they now find them-
selves also having to deal with a growing problem
of poverty, structural heterogeneity and rapid
growth of the informal sector in the economy
that has developed in the aftermath of the
reforms. Just a small fraction of each country’s
population has successfully attained the transition
to a new computer-based production organiza-
tion model and to sophisticated new forms of
consumption, while the large majority of the
population has remained dramatically behind. In
other words, it is no longer a matter of when
these countries will ‘converge’ to developed coun-
try standards, but rather a question of how they
will be able to reduce the growing degree of
structural heterogeneity and inequality that
developed in the economy throughout the 1990s.
Orthodox economics is normally concerned
with the behaviour of the macro ‘fundamentals’ of
the economy and with global institutions, but
much less so with issues of ‘initial’ skills, techno-
logical absorption capabilities, accessibility to cap-
ital and technology markets, increasing returns to
scale in the creation of knowledge, etc. that are
usually present in the economy as determining
factors of the success or failure of markets.
A new look into these issues – both conceptu-
ally and policy-wise – seems to be needed today if
Latin-American countries are to improve produc-
tivity growth, international competitiveness and
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equity in the distribution of the benefits of a
more open and de-regulated policy regime.
Enhancing growth and competitiveness should
not be seen just as a matter of adequate ‘macro
fundamentals’ but also as the consequence of
major institutional and technological interven-
tions capable of upgrading technological capabili-
ties and the human capital infrastructure of the
economy. The role of the ‘macro fundamentals’
and of global institutions, such as intellectual
property rights, competition policies, or even a
well functioning judiciary system, have been
recently identified in the neoclassical camp as sine
qua non conditions for growth (Kuczynski and
Williamson, 2003; Panizza and Lora, 2002).
Much less attention has been paid, however, to
the need of meso and microeconomic interven-
tions dealing with the building up of adequate
technological capabilities and human capital in
the economy, and the development of the knowl-
edge infrastructure upon which domestic techno-
logical capabilities are constructed.
The large majority of local Small and Medi-
um-Sized Enterprises (SMEs) and vast sections of
the population still lack the capabilities (and
financial resources) to join successfully the new
digital economy. A ‘pro-active strategy’ facilitat-
ing better access to skills and education to do so
are needed if we want to prevent the ‘digital
divide’ further to grow and the already dualistic
nature of developing societies to get worse in the
future. And the same is true of health services, e-
government and many other areas of the econo-
my in which the current transition to a new
digital and computer-based model of social
organization runs the risk of turning countries
into increasingly dualistic social structures. Ubiq-
uitous forms of ‘market failure’ and lack of public
goods which are normally taken for granted in
more developed industrial nations indicate that
many new forms of ‘pro-active’ government inter-
vention are needed in the years to come if we are
to prevent Latin-American countries further to
deteriorate in relative terms in the future.
Received growth theory does not help us either
to understand the ‘micro-to-macro’ retrofitting
loop generated between microeconomic behav-
iour and the sustainability of the ‘macro funda-
mentals’ of the economy, i.e. between a poor long
term productivity growth and equity performance
and aggregate macroeconomic equilibrium. If
productivity growth, innovation and equity in the
distribution of the benefits of technological mod-
ernization remain systematically below acceptable
standards, Latin-American nations will find it all
the more difficult to maintain their ‘fundamen-
tals’ close to equilibrium, and their governance
will recurrently fall into jeopardy. It is highly
unrealistic to expect that without a major expan-
sion and sophistication in their exports Latin-
American economies will be capable of paying
higher wages to their populations, create better
jobs and reduce outward migration in the years to
come. Without implementing active science,
technology and innovation policies, and develop-
ing an incentives regime to induce firms to carry
out innovative efforts, it is also unrealistic to
expect firms to enhance their domestic techno-
logical capabilities.
2. WHAT WE KNOW AND WHAT
NEEDS FURTHER INVESTIGATION
ABOUT INNOVATION, GROWTH AND
DEVELOPMENT IN LATIN-AMERICA
The discussion so far has presented a ‘stylized’
description of what has happened in Latin-Amer-
ica in the aftermath of market-oriented structural
reforms. This description naturally leads us into a
new research and policy agenda for the future.
The second section of this paper examines the
main aspects of such an agenda.
Impact of a new pattern of pro-
duction specialization and insertion
in world trade and the need for
building up dynamic comparative
advantages based on knowledge
We have already examined – and this has been
well documented by numerous studies carried out
in the region – that Latin-American countries have
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significantly altered their pattern of production
specialization over the last two decades in the
direction of their ‘static’ comparative advantages
(Katz, 2000; Bercovich, 2000; Bercovich and Katz,
1997; Kassai, 1999; Buitelar, Padilla and Urrutia,
1999; Carrillo and Hualde, 1997; Lara, 2000).
The analysis of productivity growth has been
central to the various studies mentioned above.
Some works have explored the determinants and
the dynamic of the productivity growth at differ-
ent levels of aggregation, the impact of the
reforms and the opening up of the economy on
productivity growth, the comparison of the pro-
ductivity performance and estimation of the gap
with other parts of the world (Hernandez Laos,
1992 and 1990; Brown and Dominguez, 1999;
Casar, 1996; Ros, 1993). More recently, other
studies have focused on productivity growth and
the degree of technological heterogeneity (Capde-
vielle, 2004; Kupfer and Rocha, 2004; Katz and
Stumpo, 2001; Cimoli and Correa, 2002).
Another line of research has focused on the
identification of the sources of competitiveness of
the industrial sector in different Latin-American
countries (Unger, 1994; Katz, 1996 and 2000;
Kosacoff, 2000; Casar, 1993; Albornoz and
Yoguel, 2004). However, the performance of East
and South East Asia and recently the emergence
of China create a challenge for the Latin-Ameri-
can countries: how to move from high volume
orders to market niches with larger technological
content and added value, which requires human
capital, innovation capabilities (manufacturing,
engineering and design) and flexibility of response
by firms, but also an institutional environment
and an incentive regime that would favour these
required changes. Up till now, these questions
have not been deeply analyzed.
We need to know more about which sectors
have ‘forged-ahead’ and which ones have ‘lagged
behind’ in the various countries, and the reasons
for their differential performance. We also need
to know how much potential the economy can
derive from new ‘horizontal technologies’ such as
Information and Communications Technologies
(ICTs) or biotechnology. Moreover, research has
mostly covered manufacturing activities but
much less so the service industries, such as
tourism, financial services and so forth.
Changes in industrial organization:
the role of large domestic firms,
MNCs and SMEs, and how to deal
with them in the future
There is large tradition of research in Latin-
America on issues of industrial organization. The
impact of ownership, size, market structure and
‘collective action’ or ‘clustering’ upon innovative
behaviour and market conduct has been exam-
ined at various times and for different countries
in the region. (Ferraz, Kupfer and Huguenauer,
1997; Ferraz, Kupfer and Ioti, 2004; Kosacoff,
2000a; Unger, 1994 and 2001; Benavente,
Crespi, Katz and Stumpo, 1997; Rocha, 2004;
Casar et al, 1990; Dutrénit and Capdevielle,
1993; Clavijo and Casar, 1994)
Some studies have focused on the role Multi-
National Companies (MNCs) have played in dif-
ferent sectors and countries (Kosacoff, 2000b;
Lara and Carrillo, 2003; Costa and Queiroz,
2002; Franco and Quadros, 2003; Chudnovsky,
Kosacoff and López, 1999), while other studies
have paid attention to the role of large domestic
conglomerates and family-owned SMEs (Yoguel,
2000a; Peres, 1998; Peres and Stumpo, 1999; Tor-
res, 2004; Rocha and Kupfer, 2002; Sbragia and
Stal, 2001). More recently, and based on innova-
tion surveys and field work, various authors have
looked at the structural features of more innova-
tive firms and R&D performers. (Lugones and
Peirano, 2003 and 2004; Chudnovsky, López and
Pupato, 2003; Carvalho, Furtado, Bernardes and
Franco, 2001; Sbragia and Kruglianskas, 1997)
In spite of the above, however, more knowledge
seems to be needed in relation to the links
between innovation efforts and performance, the
impact of mergers and acquisitions on industrial
organization of the countries and on innovative
behaviour, and about the potential role of SMEs
as dynamic players in the innovation field.
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Forces inducing the expansion of
domestic technological capabilities
Quite early in the development of the regional
literature on the microeconomics of technological
change, two large projects presented individual
firm evidence to the effect that significant ‘adap-
tive’ engineering efforts were carried out in Latin-
America. The first of these projects was the
‘Research Program in Science and Technology’
financed by the Economic Commission for Latin
America and the Caribbean (ECLAC) and the
Inter-American Development Bank (IDB), coor-
dinated by one of the present authors (Katz,
1986 and 1987), and the second was the research
project on ‘The acquisition of technological capa-
bility’, financed by the World Bank (WB) and
coordinated by C. Dahlman and L. Westphal
(Dahlman and Westphal, 1982; Lall, 1987).
These studies generated a tradition of looking at
the individual firm-level, and a huge body of evi-
dence was then collected based on case-study
methodology. These studies illuminated the cen-
tral features of the learning processes taking place
in the engineering departments of large and small
firms, the asymmetric nature of the technology
transfer processes, the forces affecting the accu-
mulation of technological capabilities at plant
level, and the incidence of the above upon pro-
ductivity growth.
Learning was described as a gradual, cumula-
tive, systemic, localized and idiosyncratic process.
Learning processes underpin the development of
domestic technological capabilities and these
capabilities are what constitutes the ultimate
‘sources’ of productivity growth.
There is rich empirical evidence about the
processes of technological accumulation in differ-
ent industries and different types of firms, as well
as about the technological strategies followed by
different types of firms in Latin America (Katz,
1996; Villavicencio, 1990; Pirela, 2003; Unger,
1985 and 1994; Dutrénit, 2000; Dutrénit, Vera-
Cruz and Arias, 2003; Ferraz, Kupfer and Serrano,
1999; Torres, 2004; Aboites and Dutrénit, 2003;
Figueiredo, 2001 and 2003; Vera-Cruz, 2000 and
2004a). However, there is less evidence on the
impact of the organizational dimensions on the
expansion of local technological capabilities.
(Figueiredo, 2002; Vera-Cruz, 2004a and 2004b).
Some typologies of learning trajectories have
been identified (Arvanitis et al, 1992; Pirela et al,
1991 and 1993; Arvanitis and Villavicencio,
1998; Brown and Dominguez, 2003), and the
absorptive capacity of domestic firms to benefit
from technological spillovers from MNCs has
also been explored. (Marin and Bell, 2003;
Dutrénit and Martínez, 2004).
Other works have concentrated on the role of
human resources in learning and technological
capability accumulation; they have analyzed the
career trajectories of engineers, the continuous
learning of new skills, and the overall develop-
ment of human capital resources. (Hualde, 2001;
Casas and Casalet, 2001; Lara, 1998; Yoguel,
Novick, Milesi, Roitter and Borello, 2004)
More knowledge is required, however, on
issues such as how the present transition to ICTs
and computer-based production organization
technologies might affect the development of
domestic technological capabilities in the large
section of SMEs in the economy (Boscherini,
Novick and Yoguel, 2003; Rovere and Hasen-
clever, 2003; Sbragia and Galina, 2004). Small
family-owned companies have been left behind in
recent years in the transition to digital technolo-
gies, and we need to know more as to what
should be done, and how, to reduce the negative
incidence of contemporary changes. For such pur-
poses we need to know more about the processes
through which firms absorb knowledge and how
much in-house R&D is required for the firms to
proceed into the new digital frontier. Organiza-
tional and cultural forces play a role in this field,
but we still do not really know much about them.
Structure and functioning of local
innovation systems
The structure and behaviour of national innova-
tion systems in Latin America began to be exam-
ined in the 1990s (Katz and Bercovich, 1993;
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Cimoli, 2000; Cassiolato, Lastres and Maciel,
2003). Various studies have mapped the set of
actors that play a role in innovation activities, and
tried to identify the main forces that influence
their behaviour. A general finding has been that,
in the case of the largest countries in the region,
the main actors are certainly there, but their link-
ages and patterns of interactions are indeed weak.
Some studies have stressed the important role
played by institutions in the dynamics of behav-
iour of national innovation systems, but we still
know very little as to why Latin-American insti-
tutions have not performed better in this field –
and continue to do so now – impeding the con-
solidation of a more vibrant domestic technologi-
cal atmosphere (Pérez, 1992; Casalet, 2000 and
2001; Arocena and Sutz, 2003c; Villavicencio
and Casalet, 2005). In that sense, university–
industry relations appear as particularly frail. In
fact, the evidence shows that the links between
universities and research centers with the business
sector are negligible (Casas, de Gortari and Luna,
2000; Casas and Luna, 1997; Sutz, 2000; OEI,
2003; Pirela et al, 1991; Thomas, Davyt, and
Dagnino, 2000).
The regional and municipal dimensions of
national innovation systems have begun to be
more thoroughly explored in recent years, and
industrial ‘clusters’ operating at the local and
municipal level have been shown to develop
strong technological linkages between the various
actors in the system. Results for Brazil, Mexico
and Argentina confirm such patterns (Unger,
2005; Cassiolato and Lastres, 2003; Casas, 2001;
Casas, De Gortari and Santos, 2000; Yoguel,
2000b; Giuliani and Bell, 2004; Johnson and
Segura, 1998).
In the last decade, there has also been an
increasing concern about the environment and
the conditions for developing sustainable systems
of innovation (Segura, 2000; Constantino, 2004),
the environmental impact of industry and pollu-
tion (Jenkins, 2000), and the policies needed to
induce firms to adopt radical solutions for cleaner
production (Montalvo, 2002; Constantino and
Muñoz, 2003). These issues will be further debat-
ed in the years ahead.
The issue of incentives affecting the function-
ing of local innovation systems has also received
some attention in recent years. In particular the
Intellectual Property Right System (IPRS), the
role of fiscal incentives, and the nature of the
supporting institutions governing the allocation
of incentives as between sectors and firms has
been examined by different authors. In relation to
the dynamics of patenting, different authors have
presented interesting new empirical evidence
showing that the new incentives associated with
IPRS do not favour local R&D (Aboites and
Soria, 2001; Aboites and Cimoli, 2002; Correa,
1997; Rocha, 2000). In fact, a low propensity to
patent continues to be an important structural
feature of Latin-American economies.
The topic certainly needs further policy-ori-
ented research as the new two disciplines related
to patenting and the protection of biological
diversity demand a fresh new look from the
Latin-American countries. This is particularly rel-
evant if they want to maximize their ‘national
interest’ in the context of the present, and much
more stringent, rules on intellectual property.
The role of compulsory licensing, geographical
denominations, the value of traditional knowl-
edge and so forth need to be carefully examined
in order for Latin-American countries to capture
the benefits of the underlying flexibility in the
international legislation on intellectual property
rights.
It is also necessary to know more about the
processes within national systems, the role of each
actor in the structure of linkages, the nature of
the key linkages, the lead sectors and the determi-
nants of the innovative behaviour of the firms, as
well as to have a clear measurement of the inputs
and outputs of these national systems.
Effect of globalization on R&D and
on the behaviour of MNCs
Foreign direct investment (FDI) increased quite
significantly in Latin-American during the 1990s,
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pari pasu with the globalization of the world
economy. Research on this issue shows that FDI
could positively affect exports and the expansion
of productivity. (CEPAL, 2001; Mattar, Moreno-
Brid and Peres, 2002)
The expansion of FDI and the large number
of Merger and Acquisitions (M&A) that occurred
in the 1990s determined that the Latin-American
economies have become increasingly integrated
into the world economy as suppliers of natural
resource-based industrial commodities – steel,
pulp and paper, cooper, vegetable oil, and many
others – and also of unskilled labour intensive
commodities produced under the ‘maquiladora’
production organization model – VCRs, TV sets,
computers, and also apparel and garments. In all
of the above areas, Latin-American countries are
presently acting as suppliers of large international
commodity chains, with little or no participation
in product design, R&D or logistics and process
engineering. They have to produce to high quali-
ty and tradability conditions imposed from
abroad, and their technological participation is
indeed small. (Niosi, 2002; Chudnovsky, 2000;
Costa and Queiroz, 2002; Franco and Quadros,
2003; López and Miozzo, 2004). Much of the
‘adaptive’ R&D efforts, which used to be carried
out locally prior to the globalization process, have
now been reallocated back to headquarters or to
other subsidiaries within the global system.
Recently, East and South Asia and China have
begun to play an important role in this respect.
Even though some research has documented
the existence of technological spillovers from the
MNCs toward domestic firms (Romo Murillo,
2003; Marin and Bell, 2003; Dutrénit and Vera-
Cruz, 2004), they are rarely captured by the
domestic firms, because they still have weak
absorptive capacities (Dutrénit and Martínez,
2004). Thus, the benefits from globalisation for
Latin-American countries are still controversial.
More research is needed in relation to how
MNCs could be encouraged to localize R&D
activities in Latin-America. Their linkage with
domestic SMEs as suppliers of intermediate parts
and components, and the knowledge transfer
which might be involved in such relation consti-
tutes a major policy issue to be examined for
future action.
Role of science, technology and
innovation policies
The Latin-American experience dramatically con-
firms that the opening up of the economies to
foreign competition by itself does not necessary
generate long-term growth. An adequate institu-
tional environment, the supply of technology-
related ‘public goods’, and an incentive regime
that would induce firms to carry out innovative
efforts, are still missing. The right mix of policies
is needed to build up a sustainable trajectory of
growth.
Several studies have documented that Latin-
America is particularly frail in the design and
implementation of scientific and technological
policies. Even though applied policies have had
some impact on the creation of a research infra-
structure and in the development of human capi-
tal, they have not had a similarly beneficial impact
upon individual firm technological behaviour.
There is a research tradition in Latin-America
looking at the nature and dynamics of the scien-
tific knowledge creation process, the development
of scientific communities and the role of science
policy in the construction of ‘development
metaphors’ (Vessuri, 1998, 2001 and 2002;
Dagnino and Thomas, 1999 and 2003; Sutz,
2003). The transition in this field from supply-
side to demand-side policies has, in recent years,
opened up a debate on the relevance of science
for developing nations and about the type of sci-
ence that needs to be created.
The design and implementation of innovation
policies to induce more expenditure in R&D
activities, and in this way to expand the rate of
introduction of new products and production
processes to the market, has been increasingly
incorporated by policy makers in the current
agenda. These policies look for increasing nation-
al R&D expenditure through larger company
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expenditure. For that to happen, firms have to
recognize that investment in R&D activities can
be a sustainable source of future profits, and
accept a longer planning horizon absorbing the
impact of uncertainty in the economy (Mar-
covich, 1983; Teubal, 2002; Bartzokas and
Teubal, 2001; OECD, 2003). Given the prevail-
ing degree of macroeconomic turbulence, it is fair
to argue that Latin-American firms have become
‘over-defensive’, negatively evaluating the option
of investing with a long term perspective.
International experience shows that innovation
policies are important for improving the dynam-
ics of the national innovation system and the
country’s international competitiveness in more
value-added intensive products. But success seems
to depend on the combination of demand-side
and supply-side long-lasting policy interventions.
Based on the experience of successful countries,
coordination activities performed by public agen-
cies also appear as an effective way of inducing a
more vibrant and responsive technological envi-
ronment in the economy (OECD, 2003).
There are some experiences of innovation poli-
cies in Latin-America, but in most of the cases
they do not have the above mentioned character-
istics. Even though some research has analyzed
successful cases of innovation policies in Brazil,
Chile and Argentina (Chudnovsky, Niosi and
Bercovich, 2000; Vonortas, 2002; Furtado, Sus-
lick, Pereira, Freitas and Bach, 1999; Furtado and
Costa Filho, 2003), a more systematic and deep
evaluation and documentation of these experi-
ences is still required. Related to the discussion
about innovation policies, the debate about the
nature of the R&D activities that Latin-American
firms should carry out and the role of these activ-
ities in the learning processes and the building of
technological capabilities is still open.
However, the science, technology and innova-
tion policies are not enough for inducing a sus-
tainable growth of the industrial sector. It is
necessary to articulate them with industrial poli-
cies oriented towards productive development
(Peres, 1997; Katz, 2000), and with competition
policies oriented to stimulate changes in the play-
ing conditions of the different types of firms
(Tavares and Tineo, 1999). Moreover, it is neces-
sary to design and implement a mix of policies
that combine horizontal and vertical policies
(aimed at encouraging greater structural competi-
tiveness and other focused at sectoral level), and
both national top-down policies and bottom-up
policies based on the regions (e.g. cluster and col-
laborative networking policies).
Growth is not the same as
development
The discussion so far presented indicates that
Latin-American countries have encountered
major difficulties during the past two decades in
making economic growth convert into actual eco-
nomic development. In fact, we notice that after
two decades of market oriented structural reforms
equity has fallen and, in most countries in the
region, half of the population lives in the vicinity
of the poverty line. How to ameliorate such a sit-
uation constitutes a major policy issue for the
immediate future.
Increasingly, the discussion reverts back to the
old questions: Why some countries remain per-
sistently richer than others, that is, why we don’t
observe more ‘convergence’ in productivity,
income per capita and welfare standards in the
course of time? Why do some economies manage
to grow so much faster than others do? (Ros,
2004). There is a perception that the key issues
raised by ECLAC economists in the 1950’s and
1960’s (Prebisch 1949, 1951 and 1952; Furtado,
1961; Pinto, 1970; Sábato, 1975), about the
biased nature of technical progress as a long
standing source of world inequalities is still a
recurrent issue, no matter how much market-ori-
ented principles are used for the purpose of guid-
ing policy design and implementation (Arocena
and Sutz, 2003a; Arocena and Senker, 2003).
The above discussion connects with various
important collateral issues such as ‘styles’ of
development, the role of the state in the develop-
ment process, the notion of ‘public goods’ and
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the idea of coordination between the public and
private sector as a valuable ‘asset’ influencing the
rate, direction and nature of the economic devel-
opment process of any given society (Furtado,
1992; Arocena and Sutz, 2003a and 2003b;
Pérez, 1985 and 2001; Thomas, 1995; Ocampo,
2001; Rodríguez, 2001).
3. CONTRIBUTIONS OF THIS SPECIAL
ISSUE TO THE RESEARCH AGENDA
Having presented the recent functioning of the
new Latin-American economic model and a brief
policy-oriented research agenda indicating the
main areas demanding pro-active policy interven-
tions, we now intoroduce the reader the to con-
tents of the papers contained in this special issue
of Innovation: Management, Policy & Practice,
‘Innovation and Economic Development: Lessons
from Latin America’ (ISBN 0-9750436-5-X) and
the contribution their case studies and analyses
make to the research agenda.
This issue (volume 7/2, April 2005) of the
Innovation: Management, Policy & Practice journal
(ISSN 1447-9338) includes about a dozen papers
initially discussed at the 10th Latin-American
Seminar of Technology Management, ALTEC
2003: ‘Knowledge, Innovation and Competitive-
ness: Challenges from Globalization’, held in
Mexico City on October 22–24, 2003. The
papers included in this special issue were selected
to include different topics of the research agenda
discussed above and thus to contribute to the
continuing regional debate. They have since been
peer reviewed by at least two expert referees and
thoroughly revised before publication; we are
grateful both to the referees and authors for their
diligence in their constructive criticism and disci-
pline in meeting our deadlines.
It begins with Valeria Arza’s paper, Technologi-
cal performance, economic performance and behav-
iour: a study of Argentinean firms during the
1990s. This study challenges the validity of the
thesis advanced by most macroeconomists that
states that trade liberalization and market de-reg-
ulations constitute necessary and sufficient condi-
tions for countries to maximize their long term
rate of economic expansion. At variance with the
above, Arza argues that micro-, meso- and macro-
economic forces interact and co-evolve influenc-
ing the process of economic growth. The main
purpose of her study is to show that uncertainty
has a major impact upon technological behav-
iour. The author uses statistical information from
the Argentine National Survey of Technological
Behaviour during the 1990s to demonstrate that
two distinct patterns of micro behaviour emerged
as a result of market oriented reforms in Argenti-
na. The first one corresponds to individual firm
technological performance and the second one to
economic performance. The author concludes
that although the reforms have had a major posi-
tive impact on growth performance, they have
not positively affected technological behaviour.
Firms have opted for short term strategies but
have discriminated against long term ones, in
particular, investment in R&D activities which
demand a long term planning horizon. This
paper concludes that firms in Argentina did not
take advantage of the technological opportunities
that were supposedly opened after trade and capi-
tal liberalization. To deal with this problem, Vale-
ria Arza proposes that an active technological
policy must be implemented together with mar-
ket-oriented interventions.
The paper Patterns of Technological Intensity in
Brazilian industry: a comparative study with devel-
oped countries by André Tosi Furtado and Ruy De
Quadros Carvalho discusses the validity of the
OECD technology intensity taxonomy based on
R&D activities, and argues that the Brazilian
industries display levels of technology efforts that
differ from those encountered in developed coun-
tries. To define these levels, the authors use indi-
cators of technological intensity allocated to each
industry: (i) expenditure in R&D/added value;
(ii) structure of spending in R&D; and (iii)
human resources. The comparison of the values
of these indicators between Brazil and some
developed countries exhibits structural differences
in the sectoral levels of technology intensity.
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These differences are in part explained by a late
industrialization process in Brazil, characterized
by a relatively closed market economy, a low level
of technological specialization in the high or
medium-high technology industries, and the
reliance on external flows of technology. Due to
the differences observed, this paper proposes a
new system of classification which includes four
groups according to their levels of technological
intensity. This new form of classification shows
that the largest discrepancies are encountered in
the high technology group.
The paper Innovation systems and local produc-
tive arrangements: New strategies to promote the
generation, acquisition and diffusion of knowledge
by Helena Lastres and José Cassiolato discusses
the advantages of the concept of local production
and innovation systems and arrangements for a
country like Brazil. This concept takes into
account the processes of knowledge acquisition,
use and diffusion, emphasizing two interconnect-
ed dimensions: (i) learning as the most important
process for growth, and (ii) the importance of
locality. According to the definition proposed by
Lastres and Cassiolato, local innovative and pro-
ductive arrangements are groups of economic,
political and social agents localized in the same
area, performing related economic activities and
presenting articulation, interaction, co-operation
and learning processes, even if they are incipient.
Their methodological framework to analyze local
innovative and productive arrangements covers
micro, meso and macro elements influencing
the evolution of the local systems, analyzing
how productive and innovative capabilities are
acquired and developed. The authors conclude
that it is necessary to orient policies to mobilize
local productive and innovative arrangements.
They argue that the use of new concepts, models
and policy tools demands cultural changes and
institutional learning.
Rosalba Casas’ paper Exchange and knowledge
flows between large firms and research institutions
focuses on networks among academia and large
Mexican firms and analyzes the nature of the
knowledge that is exchanged in the process of
collaborations between these two actors. This
paper argues that knowledge from academic insti-
tutions is important for both the firms’ produc-
tive process and their generation of technological
capabilities. Based on a case study methodology, a
set of collaboration projects were analyzed, docu-
menting the manner in which knowledge net-
works are constructed and how knowledge flows
among different networks. This paper concludes
that interactions built between academia and
large Mexican businesses are becoming relevant
for generating organizational improvements and
incremental innovations in firms, as well as for
fomenting and contributing to the development
of scientific and technological knowledge in
important fields for the industrial development of
Mexico and for the formation of highly special-
ized human resources.
The paper Knowledge circulation in Vertically
Integrated Production Networks: the cases of the
Argentine automotive and iron-and-steel industries
by Facundo Albornoz, Darío Milesi and Gabriel
Yoguel analyzes the nature of competitiveness of
the firms from a perspective of production net-
works. The aim of this article is twofold: first it
develops a methodology to quantify knowledge
circulation inside a production network (PNW);
and second it applies this methodology to 150
Argentinean firms that are suppliers in the auto-
motive or iron-and-steel industries. Both indus-
tries have differences in commercial results as well
as in their participation in international markets.
In order to evaluate a PNW, the authors have set
up a wide range of indicators which address the
following three main dimensions: (i) endogenous
competencies, (ii) linkages between core-firm and
their suppliers; and (iii) linkages between firms
belonging to a PNW and agents not belonging to
it. From the comparison between both industries,
the paper discusses if differences in networking
are significant to the understanding of different
performances. The analysis shows weaknesses and
differences in both industries. The PNW organ-
ized by the steel firms allows for better knowledge
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circulation, while in the case of the automotive
network, there is a weakness in the generation
and circulation of knowledge.
Arturo Torres and Javier Jasso contribute with
the paper Cross border acquisitions and mergers:
Learnings of Mexican corporative groups. The
analysis focuses on the learning trajectory of the
acquiring firms and the accumulation and inte-
gration of capabilities during the M&A process.
The aim of this paper is to explore whether or
not the learning trajectories followed by the Mex-
ican business corporations have enabled them to
accumulate the technological and organizational
capabilities required for the acquisition (phase I)
and the integration of resources, knowledge and
abilities (phase II). Two cases of large Mexican
business corporations are analyzed: CEMEX and
PULSAR-ELM. The first is one of the largest
cement producers in the world. The second is
one of the youngest groups (created in 1983),
which by the year 2000 had reached a significant
presence in the agro-biotechnology business. The
main conclusion of this paper is that the corpora-
tions have followed different learning trajectories,
which have led them to accumulate dissimilar
capabilities at diverse depths, and that seems to
explain the results they have obtained from the
execution of cross border M&A. While CEMEX,
(with a specialized trajectory) has learned to
acquire and integrate firms, PULSAR-ELM (with
a diversified trajectory) has just been able to com-
plete the first phase. The analysis of these two
cases supports the view that the previous learning
trajectory and capabilities accumulated by the
firms strongly condition what a firm learns dur-
ing the M&A process.
The paper Managing learning in the refrigerator
industry: evidence from a firm-level study in Brazil
by Cristina Ferigotti and Paulo Figueiredo con-
tributes to discussion about the expansion of
domestic technological capabilities. This paper
focuses on the relationship between learning
processes and technological capability accumula-
tion in Electrolux do Brasil S/A, a subsidiary of
an international group, and manufacturer of elec-
trical household appliances in Brazil. The frame-
work for capability accumulation identifies two
technological functions: process and production
organization; and product-centered activities.
The framework for learning identifies four learn-
ing processes (external and internal knowledge
acquisition, knowledge sharing and knowledge
codification), examined in the light of three fea-
tures: variety, intensity, and functioning. Based
on a single-case study design, the authors suggest
that studies could combine an industry-level
design with a firm-level approach. This would be
beneficial to gather more detailed empirical evi-
dence and build a more realistic understanding of
what is taking place inside a certain industry in
its technological development and innovation.
Jorge Carrillo and Arturo Lara’s paper Mexican
maquiladoras: New capabilities of coordination and
the emergence of new generation of companies also
explores some aspects of the internationalization
of the production and R&D activities of the
MNCs. This paper argues that some of these sub-
sidiaries of MNCs located in Mexico have
evolved toward a third generation of companies,
characterized by design activities. Moreover, pre-
liminary results suggest an evolution toward a
fourth generation of maquiladoras, which is con-
gruent with the argument that the R&D activi-
ties are going through a globalization process.
Based on the case of Delphi Corp, the authors
discuss the following questions: (i) What were the
factors and conditions that encouraged the glob-
alization of Delphi’s productive activities in Mex-
ico?; (ii) How did the creation of a technical
center in Mexico affect the interaction among the
divisions and establishments located in that
country?; (iii) To what degree were the forms of
control and monitoring in the various divisions
and establishments located in Mexico modified
with the creation of this technical center? These
authors argue that the coordination process facili-
tates the incorporation of Delphi into the world-
wide chains of production and the raise of a
fourth generation of maquiladoras based on the
coordination of different activities throughout
121
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the territory with strong support from system
engineering.
Alexandre Vera-Cruz and Gabriela Dutrénit’s
Spillovers from MNCs through worker mobility and
technological and managerial capabilities of SMEs
in Mexico analyses the impact of MNCs as a
channel of diffusion of knowledge and technolo-
gy. In particular, this paper explores the spillovers
from the MNCs through worker mobility toward
SMEs, and discusses to what extend the firms
created by former employees of the MNCs have
larger technological and managerial capabilities
than those whose owners did not have this previ-
ous experience. The MNCs analyzed are located
in Mexico under the maquiladora regime, and
the SMEs belong to the machine shop industry.
The source of information is a survey carried out
in 158 machine shops in a Mexican locality. The
evidence shows an heterogeneous sector, grouped
in 6 different clusters according to the technolog-
ical and managerial capabilities of the firms. A
positive relationship between the previous experi-
ence of the SMEs’ owners at the maquilas, and
the technological and managerial capabilities of
their SMEs was found. Vera-Cruz and Dutrénit
suggest that to maximize the benefits obtained by
the presence of the maquiladora industry, public
policies oriented to generating conditions for the
local SMEs suppliers to strengthen their manage-
rial and technological capabilities, and improve
their absorptive capacity, should be designed and
implemented.
The paper titled R&D in the telecom industry
in Brazil: Some indicators involving large transna-
tional companies by Simone R. V. Galina, Roberto
Sbragia and Guilherme A. Plonski contribute to
the discussion about the effect of the internation-
alization of R&D activities of MNCs in Latin-
American countries. The main objective of this
study is to analyze the characteristics of the tech-
nological behaviour of the Telecom equipment
suppliers in Brazil. For this analysis, the authors
consider three aspects: (i) the telecommunica-
tions industry in Brazil is dominated by transna-
tional companies; (ii) the R&D activities are
increasingly internationalized; and (iii) the
importance of synergy between the innovative
agents within the country. This paper combines
results from the Brazil’s Science and Technology
indicators (quantitative data) with information
obtained through seven case studies of sub-
sidiaries of large transnational telecommunica-
tions equipment and service suppliers located in
Brazil (qualitative data). Based on the quantita-
tive analysis, the profile of innovative companies
and their R&D efforts are identified. The case
studies bring evidence about the main areas
and/or products having R&D carried out in
Brazil, the factors attracting R&D activities to
the country, the cooperation activities with local
universities and the difficulties faced by compa-
nies when carrying out R&D locally. The authors
argue that technological development in the
telecom industry is weak in Brazil, and these
activities will not necessarily lead to innovative
products of patent generation standard. Despite
the fact that some factors contribute to attract
R&D activities to the country, like tax incentives,
they do not sustain them in the long run, thus
stronger public policies must be implemented to
link these subsidiaries to domestic innovation
agents and to strengthen the attraction of R&D
investments for the country.
The paper Innovation systems based on life sci-
ences: Towards a study by means of constructive
approaches by Rodrigo Arocena and Judith Sutz
focuses on the determinants of growth and devel-
opment and analyses the extent to which innova-
tion systems exist or may exist in developing
countries. The authors argue that the advances of
knowledge in the biological field have provided a
new basis for transformations in the production
of goods and services which may apply to the
emergence of bio-innovation systems. The objec-
tive of this paper is to analyze the techno-produc-
tive change based on life sciences, in a context
endowed with a certain degree of regional speci-
ficity, at local, sub-national, national or supra-
national levels. This paper is based on evidence of
the Uruguayan case, where the major sub-systems
122 INNOVATION: management, policy & practice Volume 7, Issue 2–3, April–August 2005
Gabriela Dutrénit and Jorge Katz
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of bio-innovation are those connected with agri-
culture and health services. Arocena and Sutz
conclude that the systemic conception of techno-
productive innovation is a useful theoretical
approach to study the processes of transference
and application of knowledge generated by life
sciences. In such context, the Bio-Innovation Sys-
tem of a given nation or region is characterized
by a specific set of institutions, organizations,
interactions between different collective actors,
and a general social dynamic that, being essential-
ly localized in the nation or region, has a larger
influence on the available capabilities for re-
search, experimental development, technological
innovation and diffusion.
Mónica Casalet contributes with the paper
New institutional dynamics for the creation of a
favorable environment with regard to competitive-
ness: Hope or reality?, which is also related to the
discussion of the determinants of growth and
development. This paper examines how inter-
institutional networks are being created in the
electronic sector in two regions of Mexico, Jalisco
and Chihuahua, and analyzes the changes pro-
moted through government development plans in
these regions. This paper highlights the ability of
actors and institutions to generate new skills that
strengthen the local environment. Casalet con-
cludes that public and private actors and research
networks have contributed to new relationships
in both regions. However, in both cases, political
changes entail discontinuities in institutional
paths, which cause many organizations to divert
from their objectives. In contrast with such orga-
nizational failures, personal success is not rare,
and there are individuals with a great ability for
generating initiatives, articulating resources, and
giving birth to institutions that formally serve
them as a support for their activities. They enjoy
vast mobility and great independence, this mobil-
ity makes them actual network managers since
they distribute information, and thus become
active agents in social capital accumulation.
The paper titled Multicriteria analysis for the
selection of priorities in the Brazilian program of
technological prospection – Prospectar by Mauro
Zackiewicz, Rui Albuquerque and Sergio Salles
Filho contributes to the discussion about ‘The
role of science, technology and innovation poli-
cies’. This paper describes a methodological pro-
posal to organize the data obtained by Prospectar,
the largest prospective study carried out in Brazil
since 1999. This paper focuses on eight main
areas: Farming and Cattle Raising, Aeronautics,
Energy, Space, Materials, Hydric Resources,
Health Care, Telecommunications and Informa-
tion Technology. Environment and Biotech-
nology were included among the areas. The
methodology is based on the selection of techno-
logical priorities and the promotion of strategic
use, by public and private organizations, of the
information collected by the Program. To infer
priorities it is necessary to define criteria and
parameters from multiple perspectives. The
authors describe that the choice of the multi-
criteria decision analysis is justified by two con-
siderations for the decision-making process: (i)
the ability to handle multiple objectives and
viewpoints simultaneously; and (ii) the rigorous
formal structure. This paper proposes future
strategies to improve the methodology and dis-
cusses the appropriate use of the model. Finally, it
is mentioned that the existence of a common
methodological language provided by the multi-
criterial approach can facilitate communication
between different actors.
Although this special issue of Innovation:
Management, Policy & Practice (ISBN 0-9750
436-5-X) is focused on the Latin-America case,
much of the evidence and the theoretical and
methodological discussion are relevant to other
developing countries of Asia and Africa, as well
as to the transition economies of East and Cen-
tral Europe.
Acknowledgements
We thank Alexandre Vera-Cruz for his comments
on previous versions of this paper, and Claudia
De Fuentes for her research assistance.
123
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Endnotes
1 Katz (2000) discusses the evidence of the
changes in the production specialization of sev-
eral Latin-American countries.
2 Recent changes of local upgrading of produc-
tion and accumulation of technological capabili-
ties by some of these maquiladoras have been
documented, which suggests that these coun-
tries could begin to play a new role in the global
production chains and in the international
localization of the engineering activities. (Carril-
lo and Hualde, 1997; Lara, 2000; Dutrénit and
Vera-Cruz, 2003; Ariffin and Figueiredo, 2003).
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INNOVATION AND ECONOMIC DEVELOPMENT
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