State-Driven R&D Outsourcing and Industrial Upgrading in Brazil

Thursday, 2 July 2015: 2:15 PM-3:45 PM
TW1.2.01 (Tower One)
Ezequiel Zylberberg, University of Oxford, Oxford, United Kingdom
Scholars have argued that in emerging markets, technological upgrading depends largely on non-R&D activities (Pietrobelli and Rabellotti, 2011; Corredoira and McDermott, 2014). However, two important trends have challenged this idea. The first is that many of these countries are implementing policies to increase both public and private spending on R&D. The second is that the continued unbundling of corporate functions has made R&D outsourcing and offshoring by large multinational companies (MNCs) more common than it was in the past. This paper explores these two trends in the Brazilian context, where the government has created a market for R&D services, and where many large MNCs have been conducting a significant share of their global R&D in recent years.

R&D outsourcing is not a new phenomenon. Mowery (1983) shows that in the early 1900s, US firms relied on contract research organizations to complete small, non-core projects. Meanwhile, the more valuable and strategically sensitive R&D was kept in-house. Furthermore when R&D activities were offshored, they were sent to other developed countries. The rise of the emerging markets has changed both the global distribution and complexity of outsourced R&D services. This shift has created new opportunities for emerging market R&D service providers, which are working on projects closer and closer to their clients’ core competences. Many of these projects require frequent and complex collaboration, creating a situation in which asset ownership is disintegrated while task structure remains intricately interwoven (Sako 2009).

This study focuses specifically on Brazil’s information and communication technology (ICT) sector, which has become the center of government efforts to increase R&D spending in the country. According to the Lei de Informatica (8.248/91), companies that manufacture in the country and spend four percent of annual revenues on local R&D are eligible for a range of fiscal incentives. While some of these R&D expenditures can be administered within the company’s boundaries, most must be directed towards certified third parties. In effect, this policy has created a market for R&D services in which certified service providers collaborate with multinational clients to develop technologies for the domestic and global markets. The stated aim of this policy has been to increase technological capabilities in the country, and to leverage ICTs to support industrial upgrading across a range of industries.

This research examines three R&D service providers in Brazil, as well as their main multinational clients. Data for this study were collected through semi-structured interviews with managers of R&D service providers and their main clients, as well as relevant government officials. R&D spending data were collected from the Ministry of Science, Technology and Innovation to corroborate evidence gathered through interviews. This paper aims to address the following questions. First, how do MNCs respond to institutional imperatives in emerging markets (Oliver 1991)?  Second, what market strategies do R&D service providers employ to compete in Brazil? And lastly, how has state-driven R&D outsourcing impacted Brazil’s role in global value chains?