Coping with Globalisation: An analysis of innovation capability in Brazilian telecommunications equipment industry (continued)

Brazil is the first of only three countries from the developing world (the others are India and Korea) to initiate and maintain innovation capability especially in the switching equipment component of the telecommunications equipment industry. In spite of this achievement, the maintenance of this capability has come under some strain with the increasing external integration of the Brazilian telecommunications economy.

The study focused on identifying the direction of movement of Brazil's innovation capability in telecommunications equipment industry especially during the post privatisation phase and then discussing the instruments put in place by the Brazilian state to maintain this capability against heavy odds. Two important changes occurred in this external environment: first the manufacturing sector was liberalised and the distribution segment was privatised and second there has been a phenomenal growth in mobile communications.

The study found that the main actor in Brazil's sectoral system of innovation for telecommunications, namely CPqD, is learning to respond to the changes in its external environment in a rather admirable fashion. The laboratory followed an iterative solution to these changes. Apart from attempting to maintain its traditional innovation capability in switching equipments by progressively migrating to NGN switches and optical networking devices, it has sought to build considerable capabilities in actual manufacturing and marketing- two elements of the larger technological capability that it did not previously have. Further, conscious efforts have also been made to tap the growing telecom services market and especially in telecom software both within Brazil and indeed in the US too. In this context comparison of the Brazilian experience with the Indian one is very relevant. India too had established a stand alone public laboratory to develop a family of digital switching systems, which it did very successfully. However in the Indian case the lab did not have any strategies for reorienting its activities following liberalisation and is currently in the throes of being closed down. A more detailed comparison of the two labs is presented in Table 1.

Table 1: Comparison of Brazilian and Indian R&D initiatives in Telecommunications Technology (PDF 16.4 Kb)

The Brazilian state too has put in place or continued, under severe external constraints imposed by WTO and other trade agreements, with a number of legal and fiscal instruments to maintain this innovation capability. These instruments could broadly be divided into: (a) those leading to more R&D investments through essentially fiscal instruments; and; (b) those leading to an assured market for the output of this R&D through essentially legal instruments stipulating the procurement of these products by service providers. However the existence of certain other factors such as the availability of deferred credit facility especially under the umbrella head of bilateral credit and continued reduction in tariff protection have sought to vitiate or nullify the positive effect of these instruments. Although far from being perfect, the innovation system is responding positively to cope with the ill effects of globalisation and that is indeed a lesson for other developing countries that are exerting similar efforts to maintain their domestic capability in high technology areas.

The above cases drive home the limitations of national level policies to strengthen the sectoral system of innovation, particularly in high technology areas where the financial wherewithal of MNCs and the adverse impact of new international governance rules are severe. This does not mean that developing countries should cop out. As the Brazilian case has shown, it is still possible to support domestic research within these constraints although time alone will tell whether or not the country will win this battle.

Sources: (i) Mani, Sunil (2003), Coping with Globalisation: An analysis of innovation capability in Brazilian telecommunications equipment industry , UNU-INTECH Discussion Paper, (forthcoming); (ii) Mani, Sunil (2003) Deregulation, Entry of MNCs, Public Technology Procurement and Innovation Capability in India's Telecommunications Equipment Industry , UNU-INTECH DP 2003-1 (also forthcoming in Telecommunications Policy).

The case study was carried as part of the UNU-INTECH research project: Development and Sustainability of R&D (Innovation) Capabilities and their Linkage to Manufacturing and Services in the Telecom Industry: Cases from India, Brazil and Korea.