R&D in the telecom industry in Brazil: some indicators involving large transnational companies.

SUMMARY

As a result of changing market needs and growth in competition, companies' competitiveness is increasingly being determined by their innovation capacity. This study aims at analyzing the characteristics of technological behavior of the Telecom industry in Brazil, specifically of equipment suppliers, which account for most of the sector's technological innovation. This study encompasses quantitative analysis describing the profile of innovative companies and their Research and Development (R&D) efforts, and the results obtained. In order to complement the analysis, a few cases were studied in order to show, among others, the main areas and/or products having R&D carried out in Brazil, factors attracting R&D activities to the country, cooperation with local universities and difficulties faced by companies when carrying R&D locally. Main conclusions and suggestions for public policies of the telecom industry are finally presented.

KEYWORDS

R&D; cooperation; public policy; commercialization; innovation; business strategy; telecommunications

1. INTRODUCTION

It is a known fact that technology is one of the major assets for a company's competitiveness. Not withstanding the size, industry or capital origin, for a company to keep and expand its market position, technology innovation and know-how are key issues. Considering the importance of R&D as generator of new knowledge, which is very significant for competitiveness of companies and countries acting globally, it is fundamentally important for developing nations to increase their technological capabilities. Otherwise, these countries are simply hosts for manufacturing activities (mainly because of the companies' interest in regional markets), which does not lead either to guaranteed competitive advantage or to ensure local continuous investments.

Another important consideration for this paper is the fact that R&D activities are more and more internationalized. Intending to be more competitive, companies spread their R&D activities worldwide (Cantwell, 1989; Reddy, 1997, 2000; Dunning, 1993; Cantwell & Santangelo, 1999; Zander, 1994; Kuemmerle, 1999). Transnational companies (TNC) are the main agents of product development internationalisation, identifying needs in one country, developing solutions in another and spreading the results of these innovations around the world (Bartlett & Ghoshal, 1989, Cantwell, 1994; Gerybadze e Reger, 1999).

Thus, participating in global R&D activities, Brazilian subsidiaries can improve their technological knowledge basis, increasing their competitive advantages, and, perhaps, contributing to the country's growth, since it is common to involve local universities and research centers in a product development project. So, intending to understand the characteristics of Brazilian involvement in global R&D in order to improve it, it is important to study the behavior of companies that operate in Brazil and are involved with international R&D.

A study developed by SOBEET--The Brazilian Society for the Study of Transnational Companies and Economic Globalization--allows a better understanding of the technological behavior of transnational companies operating in the country (SOBEET, 2000). The study surveyed 85 companies, with total sales revenues equivalent to 5% of the country GDP (US$750 billion) and to 15% of the industrial GDP for 1998. Results showed that such companies invested US$959.7 million in technology development activities, corresponding to 0.13% of the GDP in 1998. Of that total, US$546.7 million--a little more than half--were invested in in-house R&D and the remaining US$413 million were allocated to technical support activities, in cooperation with universities and technological institutes. The average amount invested by the transnational companies in R&D and technical support activities US$12.4 million. From this data, it was also possible to assert that universities and research institutes in Brazil and the headquarters abroad are the companies' main partners in their technological projects.

In the '90s, expenditures in Science and Technology (S&T) showed a growing trend in the country, with a strong participation of companies. ANPEI--The National Association of Research, Development and Engineering at Innovative Companies studies (ANPEI, 1999) reveal that the participation of companies in the total S&T expenditures grew from 24%, in 1993, to 32% in 1997. Presently, the public continues to play a major role in R&D investments in the country. however, the Brazilian insertion in the world scenario will be mainly guided by creation of favorable conditions to the consolidation of the growing trend of companies investments (Sbragia, Kuglianskas & Andreassi, 2002).

Despite this slightly favorable trend, with growing involvement of companies in the country's technological development (ANPEI, 1999), innovation results, as pointed out by technology indicators, such as patents, are not very impressive. A specific study on the telecom industry, made by Galina (2001), analyzed results of innovation carried out by equipment suppliers in that sector, based on patent data, already showed a negative panorama for these companies, confirmed in this paper.

When analyzing these results, it is important to consider two aspects that are crucial for this paper. First, the telecommunications industry in Brazil is dominated by foreign transnational companies, and, second, internationalization of R&D is a fact in this industry. Therefore, we must consider that the main agents of innovation in the Telecom sector are foreign companies, and that if innovation is already complex in companies co-located, it is much more difficult in international R&D structures as the ones in which Brazilian subsidiaries from the studied companies are involved with.

This paper takes into account the complexity of innovation and the importance of synergy between the players of the National Innovation Systems (Etzkowitz & Leydesdorff, 1998). These factors, which are crucial to characteristics of the innovation process in the companies focused on, have to be considered in public policies intending at more investments in the sector in Brazil.

The next section presents an overview of the Telecom industry and the main methodological aspects of the study. After that, the main data regarding the nature of technology innovation in the Telecom Industry in Brazil is discussed. Finally, conclusions are established.

2. TELECOMMUNICATIONS INDUSTRY AND METHODOLOGICAL ASPECTS OF THE STUDY

In the telecom industry, historical aspects guiding technology innovation and industry dynamism should be noted. Such dynamism refers not only to technical aspects related to products and processes, but also to behavioral and organizational aspects of companies that depend on innovation in the different segments/areas of the sector.

Telephony service companies (public service providers) used to own research centers in charge of the technology development of the sector. Laboratories linked to monopolies, such as American Bell Lab (linked to ATT), French CNET (with France Telecom), and Brazilian CPqD (1) (partner of TELEBRAS--The Brazilian Tellecomunications Corporation)--one of the rare cases of success in developing countries (Hobday, 1986),--were responsible for the initial research and for development and prototype testing, then passing things over to their suppliers, which developed products to be manufactured. Even being highly innovative, mainly in switching system (Gaffard & Krafft, 2000), this was a slow process, involving two--or more--organizational structures (the service provider and the equipment manufacturer) in sequential steps (Fransman, 2001). This structure imposed barriers to the innovation process, once telecommunication network access was restricted to service providers and their partners in equipment manufacturing. It is worthwhile noticing that the knowledge base was fragmented, for each national 'pair' had its own technology (Fransman, 2001).

As time elapsed, suppliers established their own R&D centers. They started to have access to third world countries markets, where usually service providers did not have partnerships with local suppliers. Competition prevailing in these countries--and absent at the companies' headquarters countries--was fundamental in stimulating manufacturers' technology development (Fransman, 2001). One example is the case of the Canadian Nortel (formerly an AT&T subsidiary) that, due to its participation in developing markets since 1970, became one of the first manufacturers to develop small telephone switches (Fransman, 1995), a technology that AT&T only achieved at the end of the 1990s, with the acquisition of the Brazilian companies Batik and Zetax by Lucent (an equipment manufacturer originated from the AT&T fragmentation, in 1996) (Galina & Plonski, 2002).

This industrial structure started to vanish in the nineties, with the end of main developed countries monopolies--in Japan, the US, and the United Kingdom. Nowadays, the telecom industry is no longer restricted to service providers and equipment suppliers; also part of it are companies owning technology in areas responsible for the sector evolution, such as semiconductors, software, internet and e-commerce, and multimedia (Gaffard & Krafft, 2000). According to the same authors, many of the new players lack specific telecommunications skills, getting access to the market by joint-venture agreements with service providers. As time passes, they also become technology developers for the industry, therefore contributing to its growth.