The Role of SME in the National Innovation System of Brazil International Seminar on

1. The Role of SME in the National Innovation System of Brazil International Seminar on Innovation and Development under Globalization: BRICS Experience Trivandrum, 19-21 August 2009

2. Myths • MSE are not enterprising • MSE do not innovate • MSE are not competitive

3. A question of size Distribution of firms, occupied personnel, wages and other remuneration according to number of personnel employed, Brazil, 2006 Source: IBGE, 2007

4. Role of SME in the high-tech industry - Industrial Innovation Surveys • Total Sample: 72 thousand industrial companies in 2001; 84.3 thousand in 2003 • Number of firms that altered products or processes grew from 22.7 to 28 thousand, innovation rate of 33.3% for the period 2001-2003 • Increase in the total innovation rate occurred in firms occupying 10 to 49 people • Rate of innovation in micro firms grew from 26,2% to 31,1% • Micro firms represent 80% of the firms researched in PINTEC 2003 45.4% firms experienced difficulties that caused innovation projects to be seriously delayed or abolished: • high innovation costs • excessive economic risks • scarcity of financing sources • lack of information on technology

5. Challenges and Opportunities for the Promotion of MSEs in Brazil • Institutional and legal milestones: creation of the Brazilian Micro and Small Business Support Service, Sebrae (1970 and 1990); the SME Statute (Law 9.841 of October 1999) and the ‘SIMPLES Law’ (Law of Micro and Small Firms, Law 9.317 of December 1996) • From 2003: Pluri-annual Action Plan for the period 2004-2007; creation of Inter-ministerial Group on LPS • Financing of technological development efforts: BNDES - LPS Secretariat; Sectorial Funds

6. “Local Productive System” Refers to any productive agglomeration involving economic, political and social agents localized in the same area, performing related economic activities and presenting consistent articulation, interaction, co-operation and learning processes. It includes not only firms (producers of final goods and services, suppliers of inputs and equipment, service providers, etc.) and their different forms of representation and association, but also other public and private institutions and organizations specialized in educating and training human resources, R&D, engineering, promotion, financing, etc. The basic premise is that wherever there is production of any given good or service, there will be a surrounding system, with the involvement of agents and activities related to the commercialization of products and services. These arrangements will vary from the most rudimentary to more complex and articulated systems

7. Local Productive System Approach • Useful for understanding local processes of learning and capability accumulation • Represents a practical unit of analysis and investigation that goes well beyond traditional views based on individual organizations (enterprise) or economic sectors, comprising both the territorial dimension and economic activities • Brings to the fore the heterogeneous agents (enterprise and R&D organizations, education, training, financial agents, etc.) and related activities that are necessarily comprised in any local innovative and productive system • Enables understanding of the conditions under which local learning, the accumulation of productive and innovation capabilities and effective use of these capacities occur. For developing countries this is vital

8. Local Productive Arrangements studied by RedeSist in Brazil

9. Drawing Lessons from the Brazilian Experience • Local Productive Systems: policy mode versus policy fashion • Focus on the collectivity • Institutional Learning • National strategy and local development • Social justice and innovation: is there a contradiction?

10. Local Productive Systems: policy mode versus policy fashion • Does the adoption of the term LPS effectively correspond to a new policy approach? • LPS do not comprise an end per se, in the sense, for example, of counting them and attempting to increase their total number, but rather they represent a means to augment the effectiveness of policy initiatives • It is about re-orienting policy actions so that they may include collective agents and the promotion of learning processes, with a view to fostering innovation and the sustainable competitiveness of national firms, particularly smaller firms, and local development

11. Focus on the collectivity • Advantage LPS approach resides precisely in the fact that these go beyond the frontiers of individual enterprise as units of analysis and intervention • More difficult to design and implement policies geared to a body of agents rather than individual firms. requires a systemic view for the construction of new frameworks, also comprise inter-related issues including taxation, regulation and legislation • To create and make available the capabilities required to listen to, understand and translate the demands of MSEs and local agents is essential to developing partnerships that are prepared to think out collective solutions to specific problems and the means to best exploit growth potential

12. Institutional Learning • Design of new frameworks and policy instruments is central to the adoption of the LPS approach • The lessons show the inefficiency of initiatives aimed merely at increasing credit for micro and small entrepreneurs • Institutional learning aimed at the development of new policy modes is important in order to deal with: • (i) groups of enterprise and, more precisely, groups of actors that are frequently at odds and resistant to articulation and cooperation amongst themselves; • (ii) micro and small enterprise that often have great difficulty in identifying and expressing their needs; • (iii) segments that are not usually contemplated by such policies, particularly those that are excluded from formal economic activities.

13. National strategy and local development • Participation and intervention of local actors • Federal policies offer strategic signposts for the actions carried out by local actors.

14. Social justice and innovation: is there a contradiction? • Rigid definition of innovation may lead to misconception, that innovation must be an absolutely new product or service • For developing countries essential to consider innovation from the point of view of the economic, social or political agent that is implementing the innovation • Any Local Productive System, as well as the various actors that interact within the System, can be a locus of innovation and, therefore, represent appropriate subjects for policy initiatives that seek to promote innovation, from the most rudimentary to more complex policy initiatives

15. POLICY SUGGESTIONS • Take into account specific requirement of the firms and contexts they are targeting • Invert the logic of traditional resource offerings • Devise new and more powerful instruments to meet specific obstacles faced by business-women and to address the peculiarities of family businesses and of the role of these businesses within LPS • More case studies of LPS to draw out the specificities that are crucial to guide policy making. • Policies to promote science parks and incubators more closely linked to policies for LPS • Strengthen international promotion of LPS and their products and services

16. OBRIGADA! Ana Arroio Oxford – Princeton Global leaders Fellowship ana.aarroio@politics.ox.ac.uk Special credits and many thanks to: José Eduardo Cassiolato and Helena Lastres Cristina Lemos, Sarita Albagli and Marina Szapiro