Innovation Or Bust

New technologies, marketing methods and business processes are advancing in Latin America, but they need to match those of developed nations and Asia

In 2012, in one of his last speeches as the chief economist of the World Bank, Justin Yifu Lin warned Latin American countries that they risked being stuck in a middle-income trap due to a lack of innovation.  Like Lin, many government and business leaders in Latin America have pointed to the need for more innovation to create competitive businesses and diversified economies. Economists and policy makers have questioned whether the region’s robust growth during the past decade, driven by China’s demand for natural resources, will be sustainable unless new technologies, marketing methods and business models are developed.

The region is already facing challenges from stronger currencies that have made exporters less competitive, while an inflow of cheap Chinese imports has hurt some Latin American manufacturers. Innovation that improves productivity and opens up new markets for Latin America is seen as a key to addressing these challenges.

While Latin American leaders recognize the need for innovation, the region still lags behind developed countries and emerging nations in Asia. Latin American investments in research and development account for an average of 0.3 percent of the region’s gross domestic product, compared to an average of 2.33 percent for OECD countries, according to a 2011 report by the OECD and Insead business school.

To be sure, Latin America has made strides in innovation over the past decade. Argentina, Brazil and Chile have set up government agencies to coordinate policies that promote scientific research and technological development, while adding value to commodities. Several Latin American companies, such as Brazilian aircraft manufacturer Embraer, Mexican cement producer Cemex, and Peruvian beverage firm Aje Group, are among global leaders in their sectors thanks to innovations in business models and marketing.

However, Lourdes Casanova, a senior lecturer of management at Cornell University and an expert on business innovation in Latin America, says that more can be done to ensure the current growth is sustainable. “All of these countries have to take advantage of the extraordinary profits that they are getting to invest in industries that add value, to foster innovation,” she said.

There are several ways to promote innovation, but perhaps chief among them is education. Numerous studies have found that the educational systems in Latin America lag behind those of other regions, especially at the post-secondary level. While part of the problem may be a lack of engineers and other professionals, poor coordination between university research centers and businesses can also limit innovation.

Another hurdle is that many countries haven’t developed a strong patent system that can help promote and spread innovation. “There is no tradition of applying for patents,” Casanova said. “The whole process is very cumbersome and expensive.”

Looking forward, Latin America has several opportunities to produce world-class innovations, especially with green technologies and in relation to social media.

The region is already at the forefront of the development of green technologies. Brazil’s agricultural research corporation, Embrapa, helped develop the country’s ethanol industry, one of the world’s largest, through its research in the agricultural sector. Chile’s copper industry, the world’s biggest, has added value by supporting the use of copper cages in that country’s salmon industry. Copper cages are better for the health of the fish and are more environmentally-friendly.

For social media, Brazil stands out as the world’s second biggest market for Facebook, and a major market for YouTube and Twitter. “How much innovation will come from that, of course, remains to be seen, but Brazilians are always very up to date with the latest technology,” said Casanova.

Further innovation opportunities exist with branding, which could support the development of more international Latin American firms. Latin America already has several companies that have spent billions of dollars on acquisitions and mergers during the past decade to expand abroad and position themselves as global leaders in their sector, competing with Western and Chinese multinationals.

A good example of innovative branding has boosted the global influence of Peruvian cuisine. In the past decade, Peruvian chefs, led by Gaston Acurio, have successfully promoted the Andean nation’s food as an international cuisine of choice. Acurio now has restaurants throughout Latin America, as well as in Europe and the United States. Other Peruvian chefs have followed in his footsteps.

The upcoming World Cup and summer Olympics will be an opportunity for Brazil, and the region, to innovate with branding. “Latin America has a lot, but much of it still isn’t well-known,” said Casanova. “The World Cup and the Olympic Games are a tremendous opportunity for Brazil and South America to brand themselves.”

Ryan Dube reported from Lima.

 

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