Analyzing the Low Degree of Innovation in Brazilian Industry by Studying the Least Innovative Firms

Abstract

This paper analyses the patterns of technological activity found in the 53,102 lower productivity firms (LPFs) in Brazil, a set which encompasses 78.5% of the total number of Brazilian industrial firms (foreign capital firms were not considered). In order to understand the dynamics of the LPFs, we propose a taxonomy of four classes of competitive strategies enabled by the respective firms' innovative strategies. Based on this taxonomy, the paper strives to show the existence of a two-way relation between the innovation level and the relative debility of the Brazilian supply of capital goods and software. This is because the innovation in LPFs is characteristically process innovation. Most product innovations seem to result from the purchase of machinery capable of making new products, because the expenditures in R&D are quite low and, for the great majority of firms, discontinuous. The Brazilian industrial and technological policy should thus give emphasis to the diffusion of incorporated technology. This conclusion is at the odds with several of the main concepts proposed nowadays, that recommend an almost exclusive focus on fostering the generation and diffusion of intangible assets

Keywords: innovation, capital goods, Brazil, technology policy

JEL Classification: O31, O33, L10