Companies increase investment in innovation as buffer to crisis

Companies increase investment in innovation as buffer to crisis

Chamber Articles Category: Industry News Post Date: 07/06/17 Source: Valor Econômico By: Felipe Datt and Guilherme Meirelles
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Companies operating in Brazil that have stood out in the field of innovation maintained or increased investments in this area, with the prospect of getting out of the recession. That is what Eduardo Fusaro, director of Strategy&, concluded when analyzing the numbers from a survey that the consultancy conducted for the third edition of the Valor Inovação Brasil yearbook, which Monday presented awards to the most innovative companies in the country.

The list was topped by aircraft maker Embraer, with the top ten completed by Whirlpool Latin America, 3M Brasil, Natura, Bradesco, Grupo Boticário, WEG, Embraco, Itaú Unibanco and Aché Laboratórios.

The percentage of companies that invest more than 5% of net revenues in research and development increased to 24% from 20%. Among those that invest between 3% and 5% there was stability in investments. The comparison was made based on 108 companies that participated in the yearbook’s rankings in the last two years.

These numbers are aligned with the innovation survey (Pintec) of the Brazilian Institute of Geography and Statistics (IBGE). Even with a differing timeframe -- between 2011 and 2014 – the result also showed stability in the percentage of companies that invested in innovation in comparison to the previous three-year period – 36% and 35.7% respectively.
The doubt that remains is if the continuation of the economic and political crisis will affect the growth of innovative practices by Brazilian companies. Informal forecasts suggest that Brazil’s investments in R&D, which were near 1.2% of GDP, will fall to 1% in 2017.

“If you think about the consequences of this for an economy of low performance like Brazil’s, it’s time that we will not likely recover,” says Glauco Arbix, professor at the Department of Sociology at the University of São Paulo (USP) and coordinator of the Observatório da Inovação, a think tank.

For the group that makes up the ranking of 150 most innovative companies, the theme has gained importance. Innovation is among the three strategic priorities of 85% of those companies. For 20% of the participants in the ranking, innovation is the main strategy. “It’s in the crisis that the innovative practices show the greatest value. Those who remain outside of the digital transformation will lose time and competitiveness,” says Rafael Aymone, leader of the Center for Global Research at GE in Latin America.

One of the effects of the crisis is the freeze of funds. The budget of the Ministry of Science, Technology, Innovation and Communications (MCTIC) was reduced by 44%. The disbursements of the Brazilian Development Bank (BNDES) shrank 40% in 2016, compared to the record of R$6.02 billion in 2015.

Another element of stimulus to science and innovation, the National Fund for Scientific and Technological Development (FNDCT), of which the Studies and Projects Financing Agency (Finep) is the executive arm, also suffers under government budget freezes. “There are currently two Fineps,” says Marcos Cintra, president of the Agency.

On one hand, “Finep Bank,” with R$6 billion in cash reserves and suppressed demand in the crisis. On the other, the Finep that fosters universities and laboratories and which deals with severe budget restrictions from the FNDCT. It has R$ 700 million in cash, well below the R$4 billion budget of the past. “Today, the fund doesn’t support science and technology, but the primary surplus of the government,” says Mr. Cintra.

Alessandro Mendes, head of advanced research and innovation at cosmetics maker Natura, says the drop of public investment is very serious because it could mean the loss of competitiveness in the national and global scenario. “We need a policy of a strong and perennial state in favor of innovation in the country. In this sense, the preservation of fiscal incentives established in law is essential as a strategy to reinforce private investment in research and development,” he says.

Given this scenario, the analysis carried out for the Valor Inovação Brasil yearbook shows that the manner of innovating has gained new shapes. Partnerships with technological and research institutions, universities, NGOs and other organizations are ever more common. The involvement of startups with large companies is also growing. Of the companies participating in the ranking, 67% develop external partnerships on a regular basis and 19% do so sporadically.

For Mr. Fusaro, of Strategy&, this strategy, in addition to mitigating risks and distributing investments, reflects the complexity of what needs to be innovated. Companies, he says, seek expertise and necessary training outside themselves to leverage their strategies of innovation.
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