Digital economy challenges for Brazil’s industry

by Maria Tereza Fleury, Professor of International Strategy at University of São Paulo and FGV.

The digital economy challenges for Latin American countries are coming strong in the agenda of both government and enterprises. How companies should incorporate higher levels of connected and smart operations, thus moving effectively towards industry 4.0, is the question raised by entrepreneurs, politicians and academics.

In early March this year, the Brazilian government launched an incentive package aiming to foster the adoption of digital technologies by Brazilian firms. The package includes: financing (through BNDES, FINEP, Banco da Amazonia) training programs and on-line assessment tools for firms to evaluate their own status.

A recent study conducted by the Brazilian Confederation of Industries, along with Brazilian researchers, reveals a gloomy scenario for Brazilian industry. The study defines four digital generations: the first being rigid production; the second, lean production; the third, integrated production and the fourth, smart and connected production. Part of the study is a survey carried out with 759 firms in 24 industries, and 14 of those industries, in other words, more than half, do not deploy advanced technologies. These sectors are non-metallic minerals, pharmaceutical, publishing, furniture, apparel, electrical equipment, latex and plastics, textiles, leather, shoes and other transport equipment. The most advanced industries, those at high innovative levels, are extractive, food, cigarettes and cellulose. At an average level are oil derivatives, metallurgy, IT, electronics, automobiles and forestry. Both large companies and multinationals showed higher levels of innovation.

The study looked into five management functions: supplier relationship, product development, process development, customer relationship, and business management. The greatest advancements have been identified in supply relationships followed by customer relationship and, lastly, product development. To some extent, these results are noteworthy as they show that integration in supply global chains pushes companies towards innovation.

The hurdles for innovations in Brazil are the “usual suspects”: The Brazilian tax regime, political and economic instability, and a lack of incentives. The recently-launched program tries to deal with the latter. Nonetheless, at a company level, innovation practices are still limited and the gap in the skills required to incorporate those new technologies is increasing.

From a different perspective, some positive outcomes have been noted. INPI (Brazilian Industrial Property Institute) has received 6,250 patent requests in 2017, which accounts for 20 percent more than the previous year. The largest number of patents originated from EMBRACO Whirpool, then from universities (University of São Paulo, UNESP and Unicamp being the leaders, followed by the Federal universities of Minas Gerais, Paraná and Rio Grande do Sul) then Petrobras and research institutes such as IPT. Signs of intensified cooperative relations between universities, research institutes and companies is good news.

Time is running fast. It is evident that Latin America in general and Brazil in particular are not able to claim a leading role in the digital economy. However, it is urgent to create resources and establish a strategy to become protagonists in the new political and economic order.

References:

CNI/IEL – Riscos e oportunidades para o Brasil diante das Inovações disruptivas.

O Estado de São Paulo: Mais da metade da indústria brasileira esta atrasada 4/02/2018

PIB – Presença Internacional do Brasil – É hora de inovar janeiro de 2018.

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