Technological Innovations in Brazil

Ricardo Ubiraci Sennes
Antonio Britto Filho

(eds.)
TECHNOLOGICAL
INNOVATIONS
IN BRAZIL
PERFORMANCE,
POLICIES
AND POTENTIAL
TECHNOLOGICAL
INNOVATIONS IN BRAZIL
RICARDO UBIRACI SENNES
ANTONIO BRITTO FILHO
(Eds.)
TECHNOLOGICAL
INNOVATIONS IN BRAZIL
PERFORMANCE, POLICIES
AND POTENTIAL
Translated by
Christine Puleo
© 2012 Associação da Indústria Farmacêutica
de Pesquisa – Interfarma
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Translation of Inovações Tecnológicas no Brasil.

Desempenho, Políticas e Potencial
CIP – BRASIL. Catalogação na fonte

Sindicato Nacional dos Editores de Livros, RJ
T252
Technological innovations in Brazil: performance, policies and potential/
Ricardo Ubiraci Sennes e Antonio Britto Filho (eds.); [versão para o inglês
Christine Puleo]. – São Paulo: Cultura Acadêmica, 2012.
368p.
Tradução de: Inovações tecnológicas do Brasil
Texto em inglês
ISBN 978-85-7983-137-9
1. Ciência – Brasil. 2. Tecnologia – Brasil. 3. Ciência e Estado – Brasil.
4. Tecnologia e Estado – Brasil. 5. Inovações tecnológicas – Brasil. 6. Ino-
vações tecnológicas – Política governamental – Brasil. 7. Política industrial
– Brasil. 8. Pesquisa – Brasil. I. Sennes, Ricardo. II. Britto Filho, Antonio.
12-2145. CDD: 509.81
CDU: 5/6(81)
Editora afiliada:
ACKNOWLEDGEMENTS
We thank the authors of the articles as well as the interviewees for their
professional work and their memories, which have materialized into this
book.
Many thanks also go to the teams from Interfarma – Ronaldo Luiz Pires,
Tatiane Schofield, and Sérgio Ribeiro –, from Prospectiva Consulting –
Anselmo Takaki, Claudia Mancini and Diogo Galvão – and from Unesp
Publishing – Jézio Hernani Bomfim Gutierre and Henrique Zanardi.
TABLE OF CONTENTS
Foreword IX
Part 1
Scientific Potential of Brazil 1
1 Human Resources for Science and Technology in Brazil 7
Carlos Henrique de Brito Cruz
2 Evolution and Profile of Brazilian Scientific Production 39
Marco Antonio Zago
3 Evaluation of the Current Profile of Applied Research in Brazil 53
Fernando Galembeck
Part 2
Innovation as Business Strategy 77
4 Enticement of Foreign Direct Investment
in Research and Development 81
Sérgio Robles Reis de Queiroz
5 Innovation in Companies: An Imperative for Strategic Change 103
Ronald Dauscha
6 Actions of Multinationals and the Internationalization
of Research, Development and Innovation 125
Ricardo Sennes, Anselmo Takaki and Gabriel Kohlmann
7 Brazilian-Style Innovation. Three Internationalization Styles:
Natura, Marcopolo and Embraer 145
Glauco Arbix and Luiz Caseiro
VIII RICARDO UBIRACI SENNES • ANTONIO BRITTO FILHO (EDS.)
Part 3
Innovation in Brazil: Comparisons and Cases Success 179
8 Opportunities, Incentives and Difficulties in the
Enticement and Establishment Research Laboratories in Brazil:
the Case of IBM Research-Brazil 183
Fábio Gandour and Claudio Pinhanez
9 Evaluation of Day-to-Day Innovation in Brazil:
The Biopharmaceutical Market, Biosciences
and the Role of Biominas Brazil 213
Eduardo Emrich Soares
Part 4
Innovation in The Human Health Sector in Brazil 225
10 Regulatory Overview of Research in Brazil 229
Jorge Elias Kalil Filho, José Fernando Perez
and Marcelo Vianna de Lima
11 Research Centers in Cutting-Edge Hospitals in Brazil 263
Luiz Fernando Lima Reis and Luiz Vicente Rizzo
12 Connections between Innovation and Access to Health 287
Antonio Paes de Carvalho and Reinaldo Felippe Nery Guimarães
13 Innovation in Public Laboratories 317
Manoel Barral Netto and Otávio Azevedo Mercadante
14 Innovation and BNDES 337
João Carlos Ferraz and Pedro Palmeira
References 349
About The Authors 353
FOREWORD
The topic of innovation has gained ground on the national agenda in re-
cent years and has been the object of consistent political activism since the
late 1990s. However, despite the invaluable contribution of those respon-
sible for driving the innovation agenda in this period, the fact remains that
efforts not have been enough toput the topic at the core of the development
strategies of the country. The reason for innovating processes and products
is quite obvious, but its assimilation into the daily work of companies, uni-
versities and public institutions, as we well know, is no easy task. Reaching
and remaining at the forefront of knowledge requires a combination of
internal and external factors that are typically not restricted to the motiva-
tions of an individual, company or a government entity, but result from
the convergence of elements that urge innovation-promoting agents on to
reach new heights of technical and scientific knowledge.
Faced with this challenge, the Pharmaceutical Industry Research Asso-
ciation (Interfarma) has offered, with the support of Prospectiva Consulto-
ria , to prepare a debate thus contributing an evaluation, a proposal and the
growth of innovation in Brazil, especially in the health care industry. This
book brings together the views of experts who have, for the last decades,
cooperated in spreading the culture of innovation in our companies, research
centers and universities; and their experience will undoubtedly serve as a
starting point to advance the debate in which those who work for the eco-
nomic, and above all, social, development of Brazil have so much interest.
The plurality of perspectives, authors and experience reflected in the
articles and interviews that make up this volume offers the reader a broad
X RICARDO UBIRACI SENNES • ANTONIO BRITTO FILHO (EDS.)
overview of the current national research and innovation framework. Such

an effect could only be achieved through the course-setting opinions for-
mulated by experts from the country’s leading universities and research
centers, by representatives of promotion agencies, by scientists and entre-
preneurs in the field of innovation, and by leaders of innovation projects
in national and multinational companies, covering various fields of knowl-
edge and regions of Brazil.
This book identifies several positive aspects in Brazilian science and
technology policies, as well as successful experiences of companies and pub-
lic institutions in this area. At the same time, it also points out several
unresolved issues regarding regulations and procedures on research and
development in the country, key deficiencies in the business profile, as well
as some dissension – though minor – regarding the best practices in public-
private relationships.
We intend to contribute to an assessment of where we currently stand in
terms of public policy, scientific and entrepreneurial capacity to innovate,
in addition to indicating some possible steps to be taken in the near future.
This book reinforces the view that Brazil has come a long way in terms of
science and technology, and is currently in excellent conditions to make a
leap forward in volume and quality of innovation produced in the country.
PART 1
SCIENTIFIC POTENTIAL OF BRAZIL

The present collection of articles on innovation in Brazil could not have
started differently. As a partial introduction to the topic discussed here, it is
necessary to provide a preliminary assessment of what might be called the
“Scientific Potential of Brazil”, involving issues related to labor, research in
higher education and university scientific production, thus paving the way
for the to be discussed later on, in an attempt to demystify applied research
as a generator of innovation.
In this sense, Carlos Henrique de Brito Cruz, in the first chapter offers
some provocations about the training and emplyoing science and technolo-
gy personnel, and quite objectively suggests that higher education in Brazil
(including research and graduate studies) is not oriented towards the gen-
eration of knowledge for innovation through basic research, which deter-
mines the small amount of both applied research and its fruit –innovation .
Brito Cruz begins his argument by noting that the Brazilian policies
aimed at fostering the development of science and technology can be con-
sidered state policies, with programs, projects and measures adopted since
the 1930s. He shows a major contradiction in the S & T National System:
our scientific production it is rich, is on the rise, and it is gaining relevance,
whereas the number of patents granted is low and growing at a slower rate
than scientific production.
In addition to the well-known argument that science and technology in
Brazil are not carried out at companies (via research and development ac-
tivities – R & D), but rather in universities and research institutes, thereby
determining the locus of the researchers’ work, Brito Cruz partially ex-
4 RICARDO UBIRACI SENNES • ANTONIO BRITTO FILHO (EDS.)
empts the private sector from any responsibility by revealing that 66%
of undergraduates in 2008 were from the areas of Humanities and Social
Sciences; Engineering and Exact Sciences accounted for 14%; and Health,
16%. Similar data – and the same symbolism – are reflected in post-gradua-
tion rates. Indeed, Brazil does not train or qualify a labor force in the scien-
tific and technical speciality areas necessary for applied research activities.
Thus, Brito Cruz proposes a re-evaluation of the Brazilian higher edu-
cation system in order to embrace, with the training of a labor force, the
need to generate more innovation by way of applied research. With this
view in mind, he notes that Brazil has a network of first-rate and highly
competent universities that would be able to lead this process.
Marco Antonio Zago, in the second chapter, deals exactly with this net-
work of universities and research institutes responsible for the laudable –
and growing – scientific production in Brazil, and which could be respon-
sible for raising our country to a high level as far as science, technology and
innovation are concerned. Zago analyzed the profile of the Brazilian scien-
tific production, and argued that to achieve the desired S&T levels, atten-
tion must be paid to the improvement in the quality of science produced.
This perception is indicated by the fact that the Brazilian scientific
production, despite being on the increase, still generates little interest and
influence in the international scientific community. Zago points out that in
a given scientific database, only 0.16% of the Brazilian publications from
1996 to 2000 had 200 citations – or more. What’s more, of these few ex-
amples a large part was work resulting from cooperation and exchange with
foreign researchers and research groups; that is, it was not “100% national”.
Nevertheless, as regards scientific production in Brazil – both in quan-
tity and quality –, Zago highlighted the area of life sciences (including
agriculture, biological sciences and medicine) and noted that these are
promising fields for investment in applied science and innovation, as there
is already sufficient competence to step up a new level.
Along the same lines Fernando Galembeck presents, in the third
chapter, case studies and examples of applied research and successful in-
novations in the field of life sciences, especially in the areas of agriculture
and biological sciences. Galembeck does a good job in demystifying ap-
plied research: the number of patents and papers do not always mean good
or bad, high or low activity in applied research and innovation. Oftentimes
TECHNOLOGICAL INNOVATIONS IN BRAZIL 5
S & T improvements and innovations are absorbed by society in a natural

way, that is, many times they go unnoticed.
By analyzing applied research in Brazil, first through patents, Fernando
Galembeck noted the well-known fact that there are few patent protection
applications from Brazil: he also noted that this small amount is mostly
carried out by foreign enterprises conducting R & D in their Brazilian
subsidiaries.
Nonetheless, Brazil shows high-level applied research activity and in-
novation which were not captured by patent indicators and scientific pro-
duction, especially in the agricultural and biological areas, conducted by
small and medium-sized enterprises as well as by universities and research
institutes.
In fact, these three contributions show the high scientific potential of
Brazil. However, they point to the need of a fine-tuning of the national
science and technology system so that such potential may be transformed
into reality and our country moves on from possibility to power in that area.
1
HUMAN RESOURCES FOR SCIENCE
AND TECHNOLOGY IN BRAZIL
Introduction
Long-term policies, which can also be described as State policies, have

had some effect on the development of science and technology in Brazil,
especially in more academic aspects, related to training of human resources
professionals and to scientific research.
Some key events include the creation of the University of São Paulo
(USP) in 1934, the establishment of the São Paulo Constitution of 1947 and
its Article 123 – which directed 0.5% of the State’s ordinary income to re-
search, and the creation of the São Paulo Research Foundation (Fapesp) –;
the creation of the Aerospace Technical Center and the Aeronautical In-
stitute of Technology, between 1946 and 1950; the establishment of the
National Council of Scientific and Technological Development (CNPq)
and the Federal Agency for Support and Evaluation of Higher Education
(Capes) in 1951; the National Institute for Space Research from 1961 to
1971; the System of Full-time Dedication to Teaching and Research at USP
in 1962; the establishment of the Research and Projects Financing Agency
of the University of Campinas, and the Brazilian Aeronautics Company
in 1967; the National Fund for Scientific and Technological Development in
1969, the Pro-Alcohol Program in 1975 and the State University of São
Paulo (Unesp) in 1976; the institution of the Ministry of Science and Tech-
nology in 1986, the National Synchrotron Light Laboratory (LNLS) from
1988 to 1996, the Sector Funds from 1999 to 2002; the extinction of contin-
gency for the Funds starting in 2008, and the establishment of the National
Institutes of Science and Technology in a successful partnership among the
Union and the Brazilian states.
This sequence of events, while still incomplete, illustrates a policy
for Science, Technology and Innovation (S&T&I) which has developed
throughout different governments and thanks to many initiatives, even
among governments of different political orientation. As result, we have
today in the country an internationally competitive postgraduate system
and a continual rise in worldwide rankings of scientific publications. On
the other hand, despite various government initiatives and interest from
the private sector, especially since 1995, Brazil has still not succeeded in
overcoming the enormous macroeconomic obstacles that create a hostile
environment in the country regarding R&D (Research and Development)
in companies.
This study aims to analyze some aspects of the current situation with
regard to Brazilian scientific training strategies, especially with respect to
forming human resources professionals for research work.
Two Relevant Indicators of a Result: Articles and Patents
Two important indicators of an outcome in S&T that help to form a gen-

eral framework of the national situation are the number of scientific articles
published in worldwide circulating scientific magazines and the number of
patents registered internationally. The first indicator, i.e., the number
of articles, refers to the academic capacity to produce knowledge; the
second, i.e., the number of patents, refers to the industrial capacity to pro-
duce technology with worldwide impact.
The evolution of the number of scientific articles is shown in Figure
1.1, along with an indicator of its impact, which is the number of citations
per article two years after publication. The number of articles shows a very
positive evolution: from 1994 to 2000, scientific production of this type
grew 15% per year. In the second period, from 2000 to 2006, there was also
strong growth, albeit smaller than in the first, with a rate of 10% per year.
The average impact of each article grew 13% in the first period, and rose to
34% in the second period.
25,000 2.50
Citations per article two years after publication

Number of articles
Citations per article 2yrs after publication
20,000 2.00
Number of ISI articles
15,000 1.50
10,000 1.00
5,000 0.50
0 0.00
1994 2000 2006
Figure 1.1 Number of scientific articles published in the years 1994, 2000, and 2006 by
authors living in Brazil and number of citations per article, two years after publication.
As to the evolution in the number of patents granted by Uspto (United

States Patent and Trademark Office)1 to depositaries in Brazil, it is shown
in Figure 1.2 at five-year intervals. In the first interval, from 1994 to 1999,
the average annual rate of change showed an increase of 8.7% per year. In
the period 1999 to 2004 this rate dropped to 3.1% per year; and for the
five-year period from 2004 to 2009 the rate turned negative, with -0.6% per
year. The negative rate for the last five years is consistent with the results
of the 2010 Survey for Technological Innovation (known as Pintec), which
showed a 10% reduction in the number of researchers hired by companies
between 2005 and 2008.
1 The United States Patent and Trademark Office, linked to the U.S. Department of Com-
merce, examines and grants patents, besides guaranteeing trademarks; it is the equivalent to
the Brazilian National Institute of Industrial Property (INPI), which is linked to the Minis-
try of Development, Industry and Foreign Trade (MDIC).
120
Number of patents granted by USPTO
100
to depositaries in Brazil
80
60
40
20
0
1994 1999 2004 2009
Figure 1.2 Number of patents granted by Uspto to depositaries in Brazil in 1994, 1999,
2004 and 2009.
Locations and Modalities of Research
Before analyzing the issue of human resources for S&T (Science and
Technology) it is appropriate to summarize some important characteristics
of the organizations that form a national S&T system. As far as carrying out
research is concerned, such a system in general includes three types of organ-
ization involved in R&D: universities, research institutes (public and private)
and companies. The nature of research done at each of these organizations
has specific characteristics, aligned with the organizations’ own institutional
missions. When other functions of the National System of S&T, such as
planning and financing are taken into consideration, it becomes necessary to
include the government, be it at the federal, state, or even municipal level.2
Universities are dedicated to educating young students and to doing
research of basic nature, although in certain areas, such as Engineering and
Medicine, there is some high degree of applied research.
2 A more detailed analysis on institutional roles in an S&T system can be found in Cruz,
Revista Interesse Nacional. On the role of the university, see Brito Cruz, Pesquisa e a Uni-
versidade. In: Steiner; Mahlnic (Orgs.). Ensino superior: conceito e dinâmica, p.41-63.
On the other hand, companies tend to dedicate themselves much more

to activities of experimental or technological development, aiming directly at
putting new products or services on the market.
In an intermediate zone, national research institutes and laboratories tend
to encompass the three activities, showing some emphasis on applied research.
Two values are essential for the vitality of the university institution: aca-
demic freedom and autonomy; they are closely connected: without auton-
omy there is no academic freedom; and academic freedom is crucial for the
exercise of university autonomy.
Academic freedom, in particular, is today a misunderstood value. This
misunderstanding stems from some utilitarianism that has guided discus-
sions about science and technology in Brazil, from demanding some results
and contributions universities can offer, but that are neither essential to them
nor part of their reason for existing. At the risk of losing in precision but gain-
ing in concision, two facets of such utilitarianism can be noticed: on the one
hand utilitarianism of the right, which maintains that the main function of
universities is to support companies so that they may become more competit-
ive, keep up the pace of exports and the growth of the economy etc; on the
other hand, utilitarianism of the left, which maintains that the main function
of universities is, by taking immediate action, to help the Brazilian society to
be less poor, healthier, and more equal. Both goals are really important – in-
deed, Brazil needs competitive industries that can be both users and gener-
ators of knowledge. and policies and means to reduce poverty and inequality.
These are legitimate, appropriate and necessary goals geared towards
the national development; the error lies in attributing to the university the
responsibility for reaching them. Although they play an important role in
the production of part of the knowledge needed for industrial competition,
universities perform a special function that is rarely noticed, and which, for
this very reason, requires further discussion: universities train the profes-
sionals who generate knowledge in industries. Therein lies the singular and
specific function of a university: to educate people to deal with knowledge.
If the place of science and education is the university, then the place
of technological development is, par excellence, the company. The inno-
vation-creating element is the scientist or engineer who works in R&D at
companies, whether they deal with production or services. That is why in
the United States, 80% of scientists work for companies.
As early as 1776, Adam Smith (1996) stated that the main sources of
innovation and technological improvement were both the men who worked
with machines and who discovered ingenious ways to use them, and the
machine manufacturers, who devised improvements to their products.
All the improvements in machinery, however, have by no means been the

inventions of those who had occasion to use the machines. Many improvements
have been made by the ingenuity of the makers of the machines, when to make
them became the business of a peculiar trade; and some by that of those who are
called philosophers or men of speculation, whose trade it is not to do anything,
but to observe everything; and who, upon that account, are often capable of
combining together the powers of the most distant and dissimilar objects.
The terms used in the previous paragraphs are purposefully vague given
that the descriptionsare not absolute nor should they be understood in a
restrictive manner. Moreover, such terms depend a great deal on local tra-
ditions or even institutional ones. In Brazil, for example, we have research
institutes such as the Institute for Technological Research (IPT) or the In-
stitute of National Technology (INT) which are devoted mainly to applied
research and development. There is also the Brazilian Center for Physics
Research and the LNLS, primarily directed towards basic research. In like
manner, there are many cases of universities contributing enormously to
applied research and development, and of companies that offer invaluable
contribution to basic research.
The case of the United States, for which there are good evaluations and
long historical series regarding investment in R&D, helps understand the
role of universities, institutes, national laboratories, and companies. Figure
1.3 shows the values disbursed on Basic Research, Applied Research, and
on Development, classified according to the organizations that use these
resources. In the classification used by the National Science Board of the
United States, the categories are defined as (OMB CIRCULAR, 2010):
a) Basic Research: a systematic study directed toward wider knowl-

edge or understanding of the fundamental aspects of phenomena
and of observable facts without focusing on specific applications to
processes or products. Basic research, however, may include activi-
ties aiming at broad applications.
b) Applied Research: a systematic study to gain enough knowledge
or understanding in order to determine the means by which a recog-
nized and specific need may be met.
c) Development: a systematic application of knowledge or under-

standing, directed toward the production of useful materials,
devices, and systems or methods, including design, development,
and improvement of prototypes and new processes so as to meet
specific requirements.
250,000
to Executor and Type (in US$ values)
Disbursements in Research according
University
200,000 Industry
Inst/national labs
150,000
100,000
50,000
0
Basic Applied Development
Figure 1.3 Expenditures in the categories of basic research, applied research, and develop-
ment, in the United States in 2008, according to the nature of acting institution.
250,000
Disbursements in Reseach according
to Source and Type (in US$ values)
University
200,000 Industry
Federal Government
150,000
100,000
50,000
0
Basic Applied Development
Figure 1.4 Expenditures in the categories of basic research, applied research, and develop-
ment, in the United States, by resource source.
On the one hand, it is possible to notice that in the U.S. basic research
takes places mostly at universities (accounting for 67% of expenditures),
whereas applied research (79%) and development (93%) clearly predomi-
nate in business.
On the other hand, it is possible to notice that resources directed towar-
ds development are nearly five times more substantial than those directed
towards basic research, which indicates the high cost of such activity.
The data in Figure 1.3 are complemented by Figure 1.4, which shows
funding sources for the three categories. Here it can be seen that as regards
funding for basic research the Federal Government has the leading role
(62% of total), followed, to some extent by state governments, since funds
from university sources are often state resources. In applied research and
development, funding largely comes from company resources, at 69% and
87%, respectively.
The level of R&D carried out and financed by companies in the case of
the United States indicates the central role that business has in innovation.
Additionally, the difference in the type of research conducted at companies
and at universities points to a mistaken assumption, which often happens
in the Brazilian debate on S&T, that universities will create technology and
then transfer it to the company. The reality that the U.S. case shows us –
and actually all the countries that have promoted development through
R&D – is quite different: technology is engendered in a company by scien-
tists employed by that same company and who work in industrial labora-
tories. Universities contribute to this effort by always supplying qualified
personnel to act as researchers at a company, who will occasionally create
knowledge that will be transferred to that company.
In every country using knowledge as an engine for development, the
majority of scientists work at companies, as researchers at R & D centers.
In Brazil, on the contrary, we still have few scientists in companies – less
than 50,000 –, as we shall see later on. They compete with 182,000 scien-
tists who work for companies in South Korea and more than one million
scientists in U.S. companies (Organizatin for Economic Co-operation and
Development, 2010/1, p.50). It is unequal competition. Although Brazil
has shown some success in this area – examples include Embraer, Petro-
bras, or agribusiness driven by the Brazilian Agricultural Research Com-
pany (Embrapa) – we lack the ability to ensure this on a repeated and con-
tinual basis. The various positive examples show that in order to develop R
& D activities in business, it is important to bear in mind the central role of
the company as the directive hub of R & D for the national S & T policies
and industrial development policies as well. Only then will it be possible to
turn knowledge into wealth, making this a commonplace business activity
in the country.
This does not suggest that a businessperson in Brazil does not value
technological innovation as important to business. On the contrary, the
main organizations representing business, such as the National Confedera-
tion of Industries (CNI), the Mobilization for Business Innovation MEI),3
the Federation of Industries of the State of São Paulo (Fiesp)4 and other
associations have been extremely active in the debate on S & T & I policies
in Brazil and have acknowledged more and more effectively the relevance
of innovation and R & D for business competitiveness. The unstable eco-
nomic environment is extremely unfavorable, and even hostile for com-
panies to invest in R & D and have the expected returns – which sometimes
happens in the long-term. It should be noted that even in a more favorable
environment R & D activity bears an intrinsic uncertainty: research, in
general, is conducted on the unknown and oftentimes a perfectly organized
and planned project may not prove successful.
Another aspect of this issue can be justified by the Brazilian industrial
structure, where the more innovative sectors, such as pharmaceuticals and
electronics, are under-represented. Moreover, in many sectors, Brazil does
not compete in the international market; moreover, our companies are
often located in the value-added chain in markets where leadership is not
defined by technology.
For all this, it is essential that the government support research and de-
velopment in companies. In the United States, of the 89 billion dollars that
the federal government invested in R & D activities in 2008, 26 billion went
to U.S. companies. In this case, mainly through a policy of placing orders
for technological supply, where the government buys products and tech-
nological development from companies, this value represents 15% of R &
3 See http://www.cni.org.br/portal/data/pages/FF808081237102CA012376551C182036.
htm.
4 See http://www.fiesp.com.br/competitividade/default.aspx.
D spending by companies. In England, the State invests 1.5 billion dollars

annually in business R & D – 9% of the total expenditure by companies on
R & D. In France 1.6 billion dollars in State investment is made annually in
R & D at enterprises – 11% of the total amount spent by companies. In Ger-
many, the figure reaches 2 billion annually – 9% of a company expenditure.
Therefore, we must take into consideration that an S&T system deals
with different but equally important entities: universities, companies, and
research institutes. When analyzing human resources for S&T, it is essen-
tial that we understand correctly the role of universities, companies and the
government in the entire system. In the next section we shall analyze the
main features of the university-company relationship in the generation of
knowledge.
University-Company Relationship in R&D
It is worth going into further details about academic R & D funding

by companies, still using the case of the United States as an example. The
graph in Figure 1.5 shows the splitting of the total investment of $ 51.16
billion for research projects at at universities in the United States 2008.
At USP or at Unicamp, the corresponding data would be obtained with
the sum of the resources paid to approved research projects by develop-
ment-promotion agencies – such as Fapesp (São Paulo Research Founda-
tion), CNPq (National Council of Scientific and Technological Devel-
opment), Finep (Research and Projects Financing) and Capes (Federal
Agency for Support and Evaluation of Higher Education) –; of the resources
coming from the Sector Funds; of a fraction – to be arbitrated – from pro-
fessors’ earnings (paid for full-time teaching and research); and of any
eventual contracts with companies for R & D activities.
Figure 1.5 shows that the government allocates two thirds of the $ 51.16
billion; of which just 5% comes from contracts with businesses (NRC,
2009). It is important to keep in mind that the participation of companies in
funding academic research in the United States is rather reduced; this con-
trasts with the mistaken perception in Brazil that the State, at the federal,
state and local levels, does not support maintaining the necessary levels
of investment in research. This mistaken line of argument leads to the as-
sumption – which is not supported by data from any country in the world –
that academic research, rather than being funded by the state, should be
funded by industries.
8%
21% Federal Government

Industry
University
66% Other non-profit
5%
Figure 1.5 Sources of resources for academic research in the United States in 2000.
Source: Science and Engineering Indicators 2010, Appendix Table 5.9 (NSF, 2004).
The share of investment by industries in academic research in the Unit-

ed States shows the limits of the country, whose university system is prob-
ably the most powerful in the world, and where industries, equally pow-
erful and hungry for knowledge, look not to universities for research and
development of technologies, but instead seek students graduating from
these institutions. The companies employ them so that, within the com-
panies themselves, they can create the technology needed. In England, the
percentage of academic research funded by companies is also 7%.
Everywhere in the world, academic research is primarily funded by the
State and not by industries. Be it basic, applied or technological develop-
ment, university research generally yields results which are difficult to be
privately applied. And in a market economy, if a sector cannot be rewarded,
investment is not viable.
In the same year of 2008, U.S. industries invested US$ 263.31 billion in
R & D: 98.3% of this amount were allocated to R & D activity within the
companies, most of it to pay for their researchers’ salaries (Figure 1.6). Just
1.1% of the total was invested in universities by companies (NRC, 2009).
2,908;
Industry
1.1%
263,310; Universities
4,537; 1.7%
98.3%
Others
1,629;
0.6%
Figure 1.6 R&D investment made by the business sector in the United States in 2008; out of
a total 263.3 billion, just 1.1% was directed to support cooperative projects with universities.
Source: Science and Engineering Indicators (2010).
The data shown make it clear that company research is chiefly carried
out inside the companies themselves – in their R&D centers and laborato-
ries. Thus, companies can have a high degree of control over confidentiality
and the direction of the results.
Edwin Mansfield, from the University of Pennsylvania, did research
on the sources of ideas for technological innovation. His findings showed
that academic research played an essential and immediate role in less than
10% of new products or processes introduced by companies in the United
States. Therefore, nine out of 10 innovations are generated inside the com-
panies. He says:
Most new products and processes that could not have been developed (with-
out substantial delay) in the absence of academic research were not invented
at colleges or universities; instead, academic research provided new theoretical
and empirical findings and new types of instrumentation that were required for
the development of the new product or process, but not the specific invention
itself. This seems unlike to change. Successful product and process development
demands an intimate knowledge of the details of particular markets and produc-
tion techniques as well as the ability to recognize and weigh commercial and
technical risks that can come only with first-hand experience. Universities do not
have this expertise, and expecting them to get it is unrealistic. (Mansfield, 1996)
However, there is one type of activity to which the company needs to

resort – and, in fact, it does: universities. Companies seek out universities
so they can have contact with the frontiers of knowledge and especially with
people they intend to hire within the subsequent three or four years. This
has been the explicitly declared intention in numerous examples. It is not
the case of acquiring at universities the technology the company wishes to
launch in the market in the short term. Generally speaking, companies wish
to interact with universities in exploratory activities, to discuss future pros-
pects to be explored, and not just to appropriate knowledge and transform
it into a product. Therefore, this is a very different expectation from the
simplified idea that prevails in Brazil. To solve their problems, companies
do need to hire young graduates and postgraduates. In some cases, univer-
sities can certainly find, or help to find solutions, but it is not healthy for
the development of universities and for the Brazilian economy to expect
that the former should replace company R&D, which is essential for the
development of Brazilian industries. Some of the differences in institutional
missions between universities and companies such as attitudes towards con-
fidentiality and the level of risk of projects must be taken into consideration.
While dissemination of results is the rule in universities – and that
happens because debate and external criticism are crucial to scientific prog-
ress and education –, in companies confidentiality and secrecy are the cru-
cial issues to preserve R&D investments.
With regard to risk, a university research project, even if it is a failure,
can be used to educate students. After all, learning takes place through trial
and error, and research implies enormous intrinsic uncertainties, especially
when working close to the frontiers of knowledge. However, in a company
the failure of a project is much more traumatic, for rarely can the osses be
compensated with a contribution to training and education of the team.
Another fundamental difference is that in academic research, educating
one or more students participating in the project is an essential element of
the set objective. By and large, this goal does not exist in business, since a
project is valued solely for the results it will show.
Human Resources for R&D
Counting the number of active researchers in Brazil is no easy task.

It involves several hypotheses and assumptions ranging from estimating
the level of dedication of those considered as researchers to defining what

should be considered research activity.5 In the business sector, counts are
rarely performed – the Tecnological Innovations Survey (Pintec), carried
out by the Brazilian Institute of Geography and Statistics (IGBE) only
covered the years 2000, 2003, 2005 and 2008. In the case of universities,
the number of researchers is, in general, estimated by counting staff with
doctorate and a full-time work load (or staff in the “full time-dedication”
program at state universities in São Paulo), but it is well-known that not all
professors dedicate themselves with equal intensity to research.
The data released by the MCT6 regarding the quantity of researchers in
the country do not take into account the most recent Pintec results, which
would have an impact both on the number of researchers at companies and
on the total quantity
In this study, we have used the MCT data as a basis, making the necessary
corrections so as to consider the most recent Pintec data for 2008, linearly
interpolating the data for the number of researchers at companies between
2005 and 2008. It was in this way that we have collected the data for Table 1.1.
An initial assessment of the number of researchers in Brazil can be made
by comparing the number of researchers per million inhabitants with that
of some other countries, as shown in Table 1.2, columns 3 and 4. It is easy
to see the deficiency that exists in Brazil in relation to all the other countries
used for comparison, with the exception of Mexico. In Brazil there are 632
researchers per million inhabitants, in Argentina there are 50% more (945),
in Portugal and Spain the number is four times higher, and in South Korea,
seven times higher.
When analyzing the number of researchers in companies, the differ-
ence between Brazil and the countries ahead of it is even more pronounced
(Table 1.2, columns 7 and 8). In this category, South Korea has an index
15.7 times higher than the Brazilian one, and the indices for the United
States and Japan are more than 17 times higher.
These comparisons allow a first estimate, albeit a rough one, about the
need for R&D personnel in our country. For Brazilian companies to have
a number of personnel dedicated to thinking up ideas and to improving
5 It might be some comfort to know that even in the United States this type of count faces dif-
ficulties; see for example, “Counting the S&E workforce - it’s not that easy”, NSF 99-344.
6 Data consulted on 8 Jan. 2011.
Table 1.1 Quantity of researchers in Brazil – per person and in the equivalent of full-time (FT) –, according to data from MCT (Ministry of Science and
Technology) Indicators, corrected to include values determined by Pintec 2008 for quantity of researchers in companies.
Year 2000 2001 2002 2003 2004 2005 2006 2007 2008
Public research institute 4,740 4,652 4,562 5,095 5,625 5,769 5,910 6,384 6,855
Higher education 77,465 83,779 90,554 103,074 114,202 123,211 132,183 141,829 151,459
Companies 44,184 43,420 42,673 41,946 42,979 49,997 48,298 46,600 44,901
Private, non-profit research institute 414 583 749 872 991 935 876 929 980
Total 126,803 132,434 138,538 150,987 163,797 179,912 187,267 195,742 204,195
Year 2000 2001 2002 2003 2004 2005 2006 2007 2008
Public research institute 4,740 4,652 4,562 5,095 5,625 5,769 5,910 6,384 6,855
Higher education 38,734 41,892 45,279 51,539 57,103 61,607 66,092 70,917 75,730
Companies 29,987 30,803 31,644 32,511 34,622 41,109 41,252 41,341 41,370
Private, non-profit research institute 414 583 749 872 991 935 876 929 980
Equivalent to
Full-time (FT)
Total 73,875 77,930 82,234 90,017 98,341 109,420 114,130 119,571 124,935
Year 2000 2001 2002 2003 2004 2005 2006 2007 2008
Public research institute 6% 6% 6% 6% 6% 5% 5% 5% 5%
Higher education 52% 54% 55% 57% 58% 56% 58% 59% 61%
Companies 41% 40% 38% 36% 35% 38% 36% 35% 33%
TECHNOLOGICAL INNOVATIONS IN BRAZIL
Private, non-profit research institute 1% 1% 1% 1% 1% 1% 1% 1% 1%
% per sector, (FT)

Total 100% 100% 100% 100% 100% 100% 100% 100% 100%
21
Table 1.2 Researchers, Researchers in Companies and University Reseachers (ratio per million inhabitants in Brazil and selected countries).
22
Total researchers Researchers in companies Researchers in Universities

Per In Per Per
Population Quantity Quantity In relation In relation
million relation million of Qty (FT) million of
(in millions) (FT) (FT) to Brazil to Brazil
inhabitants to Brazil inhabitants inhabitants
Mexico 105.79 48,401 458 0.7 24,367 230 1.1 13,569 128 0.4
Brazil 189.30 119,571 632 1.0 41,341 218 1.0 63,660 336 1.0
Chile 16.60 13,427 809 1.3 s.d. s.d. s.d. 0 0 s.d.
Argentina 40.91 38,681 945 1.5 4,158 102 0.5 16,825 411 1.2
Portugal 10.60 27,986 2,640 4.2 8,639 815 3.7 13,114 1,237 3.7
Spain 45.20 122,624 2,713 4.3 42,101 931 4.3 58,813 1,301 3.9
Russia 143.20 469,076 3,276 5.2 237,408 1,658 7.6 76,298 533 1.6
France 64.06 211,129 3,296 5.2 118,568 1,851 8.5 67,397 1,052 3.1
Germany 82.69 284,305 3,438 5.4 172,744 2,089 9.6 72,985 883 2.6
CanadA 33.49 134,300 4,010 6.3 81,960 2,448 11.2 43,530 1,300 3.9
United Kingdom 61.11 254,599 4,166 6.6 89,600 1,466 6.7 150,623 2,465 7.3
RICARDO UBIRACI SENNES • ANTONIO BRITTO FILHO (EDS.)
South Korea 48.51 221,928 4,575 7.2 166,289 3,428 15.7 37,415 771 2.3
United States 301.62 1,425,550 4,726 7.5 1,130,500 3,748 17.2 236,150 783 2.3
Japan 128.09 709,974 5,543 8.8 483,728 3,777 17.3 185,175 1,446 4.3
Base year: 2007 or more recent year
FT Researchers: source MSTI; Brazil: MCT
University researchers for the United States estimated by subtracting from the total for companies and government
Populations: CIA Factbook
competitiveness at a level comparable to some of our competitors as shown

in Table 1.2, the number of researchers in companies needs increasing by
a factor ranging between 4 (level of Spain and Portugual) and 15 (level of
South Korea, the United States and Japan). Such an increase would require
between 120,0000 and 650,000 researchers. Supposing that the majority
of researchers in companies are engineers, and leaving aside for a moment
the possibility that they have a master’s degree or a doctorate, such demand
would represent 2.4 to 13 times more than the total number of engineers
graduating in Brazil in 2008 (47,098 according to the Synopsis of Higher
Education of the Ministry of Education – MEC – for 2008).
Besides the demand for R&D staff at companies, training of personnel
is equally important for R&D at universities and research institutes. In this
case, education requirements tend to be more demanding in relation to an
academic degree: whereas at companies many researchers have a bachelor’s
degree and few have a doctor’s degree, Universities follow international
norms indicating that the research leader must hold a doctor’s degree, and
this shows the difference between the nature of academic research and the
nature of business research, as we have discussed earlier.
For university researchers, the difference between the Brazil index and
the other countries is reduced: the maximum is a factor 7.3 in the United
Kingdom, but in the majority of cases the figure is a factor of about 3.
Human Resources Education for Research in Brazil
Undergraduate Education
In 2008, 800,318 students completed their undergraduate studies in all

areas of knowledge (Table 1.3) in Brazil. Of this total, 2% referred to the areas
of Agricultural Sciences and Veterinary Medicine; 66% to Human and Social
Sciences; 14% to Engineering and Exact Sciences; 16% to Health; and 3% to
Services.
For the last 13 years, the areas of Agricultural Sciences and Veterinary
Medicine, alongside Human and Social Sciences have remained stable,
whereas Engineering and Exact Sciences have lost two percentage points
(16% of the percentage they held in 1995); the area of Health gained two
percentage points (+19% in relation to 1995) and Services gained two per-
Table 1.3 College undergraduates classified according to study area.
24
All Institutes of Higher Education 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Brazil 254,401 260,224 274,384 300,761 324,734 352,305 395,988 466,260 528,223 626,617 717,858 736,829 756,799 800,318
Agricultural Sciences andVeterinary Medicine 5,603 5,411 5,938 6,336 6,775 7,236 7,913 8,780 9,888 10,256 11,874 13,552 15,293 16,305
Human and Social Sciences 169,764 173,785 179,914 198,706 222,093 242,470 273,357 324,397 364,755 441,132 501,774 500,201 501,063 526,344
Social Sciences, Business and Law 97,528 101,989 104,849 119,296 129,279 139,947 151,540 174,316 201,392 237,891 277,572 299,246 301,173 328,239
Education 53,325 52,342 54,203 58,314 82,058 91,089 109,048 134,204 144,735 182,199 199,392 173,759 171,806 168,983
Humanities and Arts 18,911 19,454 20,862 21,096 10,756 11,434 12,769 15,877 18,628 21,042 24,810 27,196 28,084 29,122
Engineering and Exact Sciences 41,077 40,571 44,435 48,369 50,117 53,047 56,511 63,694 70,781 81,815 93,354 101,312 105,990 108,626
Science, Math and Computer Science 23,798 24,094 27,192 30,505 27,244 28,882 31,201 35,670 40,325 48,667 56,436 59,821 58,974 61,528
Engineering, Production and Construction 17,279 16,477 17,243 17,864 22,873 24,165 25,310 28,024 30,456 33,148 36,918 41,491 47,016 47,098
Health and Social Welfare 34,404 36,334 38,974 42,139 42,693 45,900 51,039 60,363 70,487 77,868 90,610 103,950 114,056 128,389
Services 3,553 4,123 5,123 5,211 3,056 3,652 5,728 9,026 12,312 15,546 20,246 17,814 20,397 20,654
All Institutes of Higher Education 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Brazil 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
Agricultural Sciences and Veterinary Medicine 2% 2% 2% 2% 2% 2% 2% 2% 2% 2% 2% 2% 2% 2%
Human and Social Sciences 67% 67% 66% 66% 68% 69% 69% 70% 69% 70% 70% 68% 66% 66%
Social Sciences, Business and Law 38% 39% 38% 40% 40% 40% 38% 37% 38% 38% 39% 41% 40% 41%
Education 21% 20% 20% 19% 25% 26% 28% 29% 27% 29% 28% 24% 23% 21%
Humanities and Arts 7% 7% 8% 7% 3% 3% 3% 3% 4% 3% 3% 4% 4% 4%
Engineering and Exact Sciences 16% 16% 16% 16% 15% 15% 14% 14% 13% 13% 13% 14% 14% 14%
Sciences, Math, Computer Science 9% 9% 10% 10% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8%
Engineering, Pproduction and Construction 7% 6% 6% 6% 7% 7% 6% 6% 6% 5% 5% 6% 6% 6%
Health and Social Welfare 14% 14% 14% 14% 13% 13% 13% 13% 13% 12% 13% 14% 15% 16%
Services 1% 2% 2% 2% 1% 1% 1% 2% 2% 2% 3% 2% 3% 3%
Source: Inep, Censos do Ensino Superior, 1995 a 2008.
centage points, showing an 85% increase in relation to the 1% it had in 1995.

Except for the change in Services, the other areas seem to have shown rela-
tively small flucuations which may be temporary, thus making it difficult
to relate them to steady variations in trends.
Table 1.4 compares the distribution of graduates in Brazil in 2008 with
the numbers from some other countries. Brazil shows the highest propor-
tion of undergraduates in Human and Social Sciences (69%) and the lowest
proportion in Engineering and Exact Sciences (11%).
The substantial proportion of undergraduates in Human and Social Sci-
ences could be the result of the expansion of the private system of higher
education that has taken place over the last 30 years. This system tends
to favor low-cost courses that can serve a large number of students; inci-
dentally, there has been a notable proliferation of Law courses.7 Bearing
quality-related factors in mind, this percentage falls considerably, if we just
consider data from the National Student Preformance Exam (Enade) or the
Brazilian Bar Association (OAB) exams. It appears that in this area a large
number of low-cost courses offers students a merely formal rather than a
really significant diploma.
In the Natural and Exact Sciences areas the expansion of the private edu-
cational sector was less intense than that of Human and Social Science areas,
even though as of 2004 it surpassed the public sector, as shown in Figure 1.7.
According to Figure 1.7, in 2008, Brazil trained 47,098 professionals in
engineering, production and construction, with a temporal evolution that
indicates some stagnation beginning in 2007.
Starting in 2006, when the Brazilian economy began to grow at a rate
higher than 4% per year, a lack of qualified professionals was made obvi-
ous in all of the country’s activities. The National Conference of Industry
(CNI) has emphasized the issue of lack of engineers, which has been well
documented, even with regard to the quality of the professionals needed
(Formiga, 2010). The Institute for Study of Industrial Development (Iedi)
published in 2010 a very detailed analysis (IEDI Letter n.424, 2010), pre-
senting the following conclusions about the education of engineers:
7 A recent article reports that Brazil is supposed to have more Law schools than the rest of
the world (http://colunistas.ig.com.br/leisenegocios/2010/10/13/Brazil-e-campeao-em-
faculdades-de-direito/); count attributed to the CNJ (National Council of Justice).
Table 1.4 College undergraduates in 2008, classified according to study area.
26
United United
Germany Brazil Canada Chile Korea Spain France Japan Mexico Portugal
States Kingdom
Total 369,141 761,436 219,830 53,005 397,497 209,998 2,343,056 412,730 636,241 393,200 95,042 531,373
Agricultural Sciences and Veterinary Medicine 5,348 14,693 1,814 1,672 6,026 4,574 23,680 3,585 21,291 7,604 2,093 4,290
Human and Social Sciences 214,039 525,688 138,100 33,309 208,286 111,106 1,587,541 241,464 387,359 240,059 41,314 325,831
Social Sciences, Business and Law 100,315 289,120 84,214 17,452 91,328 60,360 936,082 171,850 231,876 168,313 25,989 180,031
Education 34,151 211,563 24,848 13,387 41,326 32,006 286,953 10,089 39,553 55,784 7,329 51,784
Humanities and Arts 79,573 25,005 29,038 2,470 75,632 18,740 364,506 59,525 115,930 15,962 7,996 94,016
Engineering and Exact Sciences 106,986 84,454 49,208 9,669 130,468 51,309 348,484 112,398 160,993 97,410 29,404 121,269
Sciences, Math, Computer Science 61,028 47,103 30,076 2,396 38,076 21,105 205,767 57,343 31,423 41,057 11,915 73,033
Engineering, Production and Construction 45,958 37,351 19,132 7,273 92,392 30,204 142,717 55,055 129,570 56,353 17,489 48,237
Health and Social Welfare 34,573 125,996 22,957 7,677 36,754 33,323 252,553 40,611 50,990 37,685 16,810 73,220
Services 8,195 10,605 7,751 678 15,963 9,686 130,798 14,672 15,608 10,442 5,421 6,763
Data for year 2008
United United
Germany Brazil Canada Chile Korea Spain France Japan Mexico Portugal
States Kingdom
Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
Agricultural Sciences and Veterinary Medicine 1% 2% 1% 3% 2% 2% 1% 1% 3% 2% 2% 1%

Human and Social Sciences 58% 69% 63% 63% 52% 53% 68% 59% 61% 61% 43% 61%
Social Sciences,Business and Law 27% 38% 38% 33% 23% 29% 40% 42% 36% 43% 27% 34%
Education 9% 28% 11% 25% 10% 15% 12% 2% 6% 14% 8% 10%
Humanities and Arts 22% 3% 13% 5% 19% 9% 16% 14% 18% 4% 8% 18%
Engineering and Exact Sciences 29% 11% 22% 18% 33% 24% 15% 27% 25% 25% 31% 23%
Sciences, Math, Computer Science 17% 6% 14% 5% 10% 10% 9% 14% 5% 10% 13% 14%
Engineering, Production and Construction 12% 5% 9% 14% 23% 14% 6% 13% 20% 14% 18% 9%
Health and Social Welfare 9% 17% 10% 14% 9% 16% 11% 10% 8% 10% 18% 14%
Services 2% 1% 4% 1% 4% 5% 6% 4% 2% 3% 6% 1%
Source: OECD (2010).
50,000
45,000 Total
Quantity of graduates in engineering,
Private
40,000
production and construction
Public
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
1994 1996 1998 2000 2002 2004 2006 2008 2010
Figure 1.7 Evolution in the number of graduates in the areas of Engineering, Production
and Construction.
Source: Inep Higher Education Census.
a. There has been a strong and growing demand for engineers in Brazil,
which is detected not through general economic studies, based on
the methodologies used, but through the day-by-day of business and
its concrete difficulties in the labor market.
b. Education in engineering has a broad impact on many sectors and
activities, and is not restricted just to typical engineering activities of
each sector/activity.
c. This problem is related to the quantitative deficiency in the educa-
tion of engineers, particularly at the undergraduate level, but in all
likelihood (and this is not investigated here) it is also related to the
quality of those who have just graduated in engineering.
d. As to the number of engineers per inhabitant, the Brazilian situation
is particularly precarious and unsustainable in comparison with any
other developing country at the same level of development as Brazil.
e. This scenario can be explained by the low numbers in higher educa-
tion, but it is also strongly aggravated by the profile of undergrad-
uates and postgraduates, in which the percentage of engineers is low
and on the decrease.
Less documented has been the lack of professionals in the areas of

Human and Social Sciences and Natural and Exact Sciences, although it
may seem obvious that, given the deficient quality of the vast majority of
courses, Brazil will end up being neglected in these areas as well. Fapesp’s
work in articulating research projects between universities and companies
clearly shows the imbalance between the high number of opportunities
for partnerships and the small number of active researchers capable of
grasping these opportunities, especially in certain areas in which Brazil has
worldwide prominence, such as bioenergy and biodiversity.
Post-Graduate Education
For research and development activities, either in academia or in busi-
ness, post-graduate professionals have a special importance, as worldwide
experience shows. In Brazil, ongoing policies for post-graduate studies
have led to the development of a system far superior to that in most coun-
tries in the same ranking as Brazil.
Figure 1.8 presents a traditional indicator to form a picture of scientific
qualification (the number of doctorate degrees awarded annually) in com-
parison with the situation in China, India and South Korea. In the same
indicator the Brazilian results are shown to be competitive with those of
Korea, India, and Spain, as the figure shows; yet the Brazilian situation
faces significant challenges, as we shall see.
One of such challenges has to do with the change in trend that can be
noticed in Figure 1.8, starting in 2003: from 1995 to 2002, the growth rate
in the number of doctorate degrees awarded annually was 14% per year,
falling to 5.4% per year as of 2003.
The quantitative challenge is indicated in Figure 1.9, on a logarithmic
scale, to simplify the identification of a slowing growth rate curve beginning
in 2003. From 1995 to 2002, the growth rate for the training of doctors was
14.4% per year; from 2003 to 2008, it dropped to 5.4% per year. The phenom-
enon was detected by Viotti and co-authors: the difference between Brazil’s
and the United States’ capacity to award PhD degrees, which had been rap-
idly decreasing from 1980 to 2002, began to stagnate as of 2003.8 In 1987, the
number of doctorate degrees awarded in Brazil corresponded to 3% of the total
number awarded in the United States; in 2003, it was 20%; in 2006, it was 21%.
8 Viotti; Baessa, Características do emprego dos doutores brasileiros, p.11, graphic 1.

20,000
18,000 India
Doctorates defended per year
16,000 Korea
14,000 Brazil
Spain
12,000
10,000
8,000
6,000
4,000
2,000
0
1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
Figure 1.8 Evolution in the number of PhDs awarded annually.
PhD Academic Degree (log)

10,00
9,50
Number of graduating PhDs
9,00
y = 0.1441 x -279.65 y = 0.0535 x -98.128
8,50
R2= 0.9923 R2= 0.9765
8,00
1995-2002
7,50 2002-2009
7,00 1980-1994
Linear (1995-2002)
6,50
Linear (2002-2009)
6,00
1970 1980 1990 2000 2010 2020
Figure 1.9 Evolution of the number of PhDs graduating annually, showing a change in trend
starting in 2003.
The second challenge related to PhD professionals is their limited

amount of international exposure and experience. Post-graduate programs
in Brazil have improved a great deal by creating internal opportunities for
PhD studies, especially as from the 1980s of the last century. The unex-
pected consequence of this “nationalization”, however, was a decrease in
the volume of international partnerships and networks. Isolation, aggrav-
ated by linguistic barriers, hinders scientific progress and also the quality
of PhD education in Brazil, since, as everyone knows, science advances
faster and better when there is more interaction among scientists, especially
among the best. To overcome this challenge more programs, incentive
and/or opportunities are needed to enable young graduates pursuing their
master’s and doctor’s degrees to do months-long internships in first-rate
laboratories abroad, so as to contribute education and help include them in
international research networks.
Development of Post-Graduate Education and

Academic Research
The development of post-graduate education contributed to, and was

at the same time, determined by, internationally competitive schools and
research departments or groups in many Brazilian universities, particu-
larly public ones – although the Pontifical Catholic University of Rio de
Janeiro (PUC-RJ) and São Paulo (PUC-SP) are exceptions, as they excel
in research. This result is due to the fact that only public universities rely
on the type of financing that allows large numbers of full-time teachers,
exclusive-dedication teachers, an essential strategy for the expansion of
research activities and more competitiveness.
As a result, public universities represent the largest part of the scientific
production in Brazil. Eleven universities represent a little more than ¾ of
the scientific articles published in international periodicals, as shown in
Table 1.5. USP, whose teaching staff includes 5,420 PhDs, generated 26%
of the Brazilian scientific articles published abroad in 2008, followed by
Unicamp, whose teaching staff of 1,700 professors published 9% of the
scientific production in Brazil that same year.
The experience of many Brazilian universities shows that their scientific
capacity is expanded when they increase the specific weight of academic
Table 1.5 Number of scientific articles and other items (reviews, letters) published by authors in Brazil in journals in the Science Citation Index on CD-
Rom, classified according to the authors’ originating university (survey about the author in the Library of the Gleb Wataghin Physics Institute – IFGW,
Unicamp).
State 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
USP SP 560 597 528 908 700 863 1,063 1,204 1,674 2,108 2,568 3,141 3,763 3,924 4,844
Unicamp SP 212 198 187 227 216 279 372 473 654 912 1,111 1,350 1,517 1,601 1,636
UFRJ RJ 289 265 175 300 218 251 359 431 593 789 1,041 1,086 1,200 1,214 1,416
Unesp SP 64 72 33 58 69 92 155 161 319 427 614 786 948 935 1,386
UFRGS RS 76 79 71 88 82 115 140 186 303 363 446 644 750 867 1,153
Unifesp SP 0 0 0 0 0 0 0 1 178 291 335 461 658 778 1,074
UFMG MG 145 122 68 133 104 115 178 191 263 402 484 559 632 799 959
UFSC SC 0 26 31 44 33 58 79 61 133 192 243 308 351 393 530
Ufscar SP 23 31 44 36 41 58 60 89 150 209 331 362 413 421 494
UFF RJ 25 43 23 33 48 78 84 81 141 202 223 244 287 263 403
UFPE PE 64 73 65 81 87 66 116 97 116 144 195 227 268 306 372
Total 1,458 1,506 1,225 1,908 1,598 1,975 2,606 2,975 4,524 6,039 7,591 9,168 10,787 11,501 14,267
Brazil 2,215 2,306 1,915 2,951 2,492 2,974 3,953 4,385 5,907 7,935 9,786 11,662 13,904 14,955 18,783
Total/Brazil 66% 65% 64% 65% 64% 66% 66% 68% 77% 76% 78% 79% 78% 77% 76%
31
values in their decisions. One of the essential elements for the predomin-
ance of academic values over corporate pressure is that the majority of the
teaching staff is actively involved with research.
With regard to this aspect, Brazilian universities face a crucial chal-
lenge: their teaching staff academic degrees. The 2008 version of Inep’s
higher education census (Table 1.6) shows that in the Brazilian university
system, the set of federal universities have the highest number of PhD
instructors, with 54% of the teaching staff holding a doctoral degree. In
private, tuition-based universities this percentage falls to 15%, which is
consistent with their meager presence in the national panorama of scientific
production. Just for reference purposes, it is worth mentioning that at USP,
Unicamp, and Unesp, the percentage of professors with a doctor’s degree
is higher than 95%.
Table 1.6 Academic degrees of teaching staff in Brazilian universities.

No Technical %
Total Undergraduate Master’s PhDs
degree Specialists PhDs
Brazil 178,147 27 20,522 34,314 58,591 64,693 36%
Public 103,607 22 12,314 13,258 28,127 49,886 48%
Federal 57,688 4 7,726 4,178 14,776 31,004 54%
State 41,706 18 4,270 7,832 11,541 18,045 43%
Municipal 4,213 – 318 1,248 1,810 837 20%
Tuition-based 74,540 5 8,208 21,056 30,464 14,807 20%
Private 26,473 – 3,129 8,616 10,657 4,071 15%
Comm/Relig/ 48,067 5 5,079 12,440 19,807 10,736 22%
Philant
Source: ES 2008 synopsis.
Specialization in Areas of Knowledge
Table 1.7 draws a comparison between Brazil and various other coun-
tries with respect to the distribution of PhDs in 2006 (or according to the
latest data available ) by areas of knowledge, using the Science and En-
gineering Indicators classification (which is slightly different from the
OECD classification).
The percentage of PhDs in areas considered in the Science and Engi-
neering Indicators as “non-Science and Engineering”, 47%, is similar to
Table 1.7 Doctoral degrees defended in 2006 according to knowledge area for the countries selected.
Agricultural Sciences
Behavioral Sciences
Computer Science
biological Sciences
Mathematics and
Region/country
Physical and
Engineering
Engineering
Science and
Social and
Non S&E
All
All regions 338,485 173,891 62,882 10,959 10,752 33,719 55,579 164,594
China 36,247 22,953 7,241 NA 1,544 2,038 12,130 13,294
India (2005) 17,898 7,537 5,549 NA 1,020 NA 968 10,361
Japana 17,396 8,122 1,633 NA 1,321 973 4,195 9,274
South Korea 8,657 3,779 817 173 214 308 2,267 4,878
Taiwan 2,614 1,643 319 182 92 111 939 971
Iran 2,537 749 237 74 117 86 235 1,788
Israel 1,210 742 389 76 36 143 98 468
Turkey 2,594 1,185 299 98 180 238 370 1,409
South Africa 1,100 559 206 40 54 151 108 541
France 9,818 6,770 3,903 886 26 932 1,023 3,048
Germany 24,946 10,243 5,281 1,074 376 1,325 2,187 14,703
Italy 9,604 5,613 2,155 380 421 830 1,827 3,991
Portugal 5,342 3,065 884 629 89 742 721 2,277
b
Russia (2007) 34,494 19,725 4,829 NA 812 8,052 6,032 14,769
Spain 7,159 3,430 1,867 336 143 553 531 3,729
Sweden 3,781 2,331 593 262 59 278 1,139 1,450
United Kingdomc 16,520 9,760 3,980 1,160 320 2,100 2,200 6,750
Canada 4,200 2,385 765 225 102 657 636 1,815
Mexico 2,800 1,521 452 74 219 526 250 1,279
United States 56,309 30,452 10,724 2,713 1,037 8,576 7,402 25,857
Argentina (2005) 457 275 156 17 6 56 40 182
Brazil 9,366 4,994 2,182 218 611 791 1,192 4,372
Chile 294 249 139 10 9 36 55 45
Colombia 46 26 0 18 4 0 4 20
Australia 5,276 2,821 1,059 233 178 624 727 2,455
New Zealand 638 348 176 33 10 78 51 290
a: Including doctoral theses, called ronbun hakase, by professionals in industries.
b: For Russia, Mathematics is included in the Physical and Biological Sciences syllabus.
c: Data are rounded to tenths. The sum of sub-items mays not reach the total due to the rounding of
figures.
Source: National Science Foundation (2006).
Table 1.8 Percentage of doctorates by area of knowledge for the countries selected, calculated
from data of Table 1.7
Agricultural Sciences
Behavioral Sciences
Biological Sciences
Computer Science
Mathematics and
Region/country
Engineering
Physical and
Engineering
Science and
Social and
Non S&T
All
All regions 100% 51% 19% 3% 3% 10% 16% 49%

China 100% 63% 20% NA 4% 6% 33% 37%
India (2005) 100% 42% 31% NA 6% NA 5% 58%
Japana 100% 47% 9% NA 8% 6% 24% 53%
South Korea 100% 44% 9% 2% 2% 4% 26% 56%
Taiwan 100% 63% 12% 7% 4% 4% 36% 37%
Iran 100% 30% 9% 3% 5% 3% 9% 70%
Israel 100% 61% 32% 6% 3% 12% 8% 39%
Turkey 100% 46% 12% 4% 7% 9% 14% 54%
South Africa 100% 51% 19% 4% 5% 14% 10% 49%
France 100% 69% 40% 9% 0% 9% 10% 31%
Germany 100% 41% 21% 4% 2% 5% 9% 59%
Italy 100% 58% 22% 4% 4% 9% 19% 42%
Portugal 100% 57% 17% 12% 2% 14% 13% 43%
b
Russia (2007) 100% 57% 14% NA 2% 23% 17% 43%
Spain 100% 48% 26% 5% 2% 8% 7% 52%
Sweden 100% 62% 16% 7% 2% 7% 30% 38%
United Kingdomc 100% 59% 24% 7% 2% 13% 13% 41%
Canada 100% 57% 18% 5% 2% 16% 15% 43%
Mexico 100% 54% 16% 3% 8% 19% 9% 46%
United States 100% 54% 19% 5% 2% 15% 13% 46%
Argentina (2005) 100% 60% 34% 4% 1% 12% 9% 40%
Brazil 100% 53% 23% 2% 7% 8% 13% 47%
Chile 100% 85% 47% 3% 3% 12% 19% 15%
Colombia 100% 57% 0% 39% 9% 0% 9% 43%
Australia 100% 53% 20% 4% 3% 12% 14% 47%
New Zealand 100% 55% 28% 5% 2% 12% 8% 45%
a: Including doctoral theses, called ronbun hakase, by professionals in the industry.
b: For Russia, Mmathematics is included in the Physical and Biological Sciences syllabus.
c: Data are rounded to tenths. The sum of sub-items may not reach the total due to the rounding of
figures
Source: National Science Foundation (2006).
that of several other countries. In Korea, for example, this percentage is

56%; in the United States, 46%; and in France it is 31%.
On the other hand, the percentage of Engineering PhDs in Brazil (13%)
is half the figure found in Korea, although it surpasses India (5%), Israel
(8%), Spain (7%), Mexico (9%) and is equal to the United States percentage.
In Figure 1.10, we have reduced the number of countries compared
in order to simplify an evaluation of the Brazilian situation regarding the
quantity of PhDs graduating in each knowledge area. That figure shows
that, alongside the obvious predominance of the United States in all areas,
Brazil is well placed in Agricultural Sciences (second place compared with
the others) and Physical and Biological Sciences (third place). The lowest
position in this comparative ranking for Brazil lies in Mathematics and
Computer Science. As for Engineering, Brazil is placed far below (almost
half the total number of PhDs) South Korea.
Engineering
Social and
Behavior Sciences
Argentina (2005)
Agricultural Mexico
Sciences Canada
Portugal
Spain
Mathematics and South Korea
Computer Science
France
United Kingdon
Physical and USA
Biological Sciences Brazil
Number of PhDs
in 2006
0 2,000 4,000 6,000 8,000 10,000 12,000

PhDs in Number of 2006
Figure 1.10 Quantity of PhDs awarded according to area of knowledge.

Data from Table 1.7.
A caveat is necessary at this point: by making comparisons we do not

intend to argue that all the countries should have a similar distribution.
Such comparisons should be viewed with caution because of the multi-
dimensionality of the variables involved. For example, the fact that Brazil
is well placed in Agricultural Sciences does not guarantee that the country
has a sufficient number of PhDs to ensure competitiveness in agribusi-
ness and to develop new techniques that may reduce demand for land and
conflicts between agriculture and the environment. Even with these limita-
tions, the comparison helps us establish a general overview, but no other
country can establish national definitions for us. This is a key challenge for
post-graduate education in Brazil: how to determine the main directions
for growth (for we must grow, as we shall see), how to arbitrate a resource
allocation system and how to articulate postgraduate programs so these
resources may be effective. Scholarships being awarded by different agencies
make a system difficult to optimize, but at the same time and to some ex-
tent, this “biodiversity” protects the system against errors of strategy by
some agencies. We must consider that it is not enough for funding agencies
to redefine quotas for scholarships – in certain areas it may be necessary to
create more new courses and this is something that only universities can do,
hence the need for articulation. The National Postgraduate Plan prepared
periodically by Capes is a great opportunity for the articulation among the
various national bodies in this field.
Another aspect worth stressing has to do with the number of PhD pro-
fessionals. There has been international debate on this issue and a recent
article in the Economist (2010) criticized several developed countries for
over-emphasizing doctoral degrees. Regardless of the merits of the argu-
ment, it is interesting no note that the author of this argument made an
exception in the case of Brazil and China, countries which, according to the
author, obviously need many more PhDs due to their stage of academic and
industrial development. The point here is related to what was discussed
above in reference to the data in Table 1.6, which shows lack of PhDs in
Brazilian universities. Of a total of 178,000 college teachers (excluding here
the teachers of institutions of higher education, who amount to 339,000, of
whom only 24% hold a PhD degree), only 36% hold a doctor’s degree. To
increase this percentage to 50% (a mediocre percentage when we consider
institutions called universities and which are, therefore, committed to edu-
cation and production of knowledge) 24 thousand more doctors would be

required, which is nearly twice the number of PhD graduates annually in
the country.
This lack, covering all areas, is particularly severe, for example, in the
areas of Mathematics and Computer Science, as we have seen in Figure
1.10; many universities face this situation on a day-to-day basis, by holding
public examinations to replace retired PhD professors for which very often
no candidate applies.
Conclusions
Companies must have a central position in developing innovation,

which has been shown by several authors and revealed through surveys
conducted by the National Science Foundation (Rausch, 1996) and by CNI
in Brazil.
At the same time, universities have a key role in the National System
of Innovation, as trainers for scientists and engineers, and as generators
of new ideas, especially fundamental ones, which lead on to several other
ideas. And in a complementary way, research institutes deal with specific
problems (space, health, agronomy, the environment, etc.) and have the
opportunity to be privileged connectors between companies and / or gov-
ernments and universities.
Discussing human resources for S & T demands clarity regarding in-
stitutional roles and, for that reason, we have dedicated part of this work
specifically to this end.
Given the different institutional roles in the S & T system, compa-
nies and universities demand professionals with differentiated profiles.
At companies there tends to be a predominance of engineers, but there is
also a number of researchers with master’s or doctor’s degrees. In Brazilian
companies, Pintec data seem to point to a small number of researchers with
a postgraduate degree.
The Brazilian human resources training system for research has important
strengths: a system of globally competitive post-graduate programs as well as
some competitive universities. However, to meet the demand at hand, con-
sidering especially the continued economic growth, it does need improving.
A fundamental constraint that undermines the basis of the whole sys-

tem is the limited quality in the level of pre-university education. Associ-
ated with low-level indexes of access to secondary education, the issue of
quality severely limits access and functioning of higher education in the
desirable standards.
Finally, another key challenge has to do with articulation: the S&T
system counts on agencies, universities, companies and government bod-
ies, and their ability to act coherently has been rather limited. There has
been some important progress, such as the promotion of national S&T
conferences by the Ministry of Science and Technology, or Capes’s work
in the National Postgraduate Plan, or even the discussions about an S&T
plan for São Paulo state; yet there is still ground to be covered, especially
with regard to the relationship among federal bodies: the Union, states and
municipalities.
2
EVOLUTION AND PROFILE
OF BRAZILIAN SCIENTIFIC PRODUCTION1
Marco Antonio Zago
General Overview: The Reasons for Success
Scientific articles written by authors living in Brazil and published in

journals indexed in international databases comprise today approximately
1.8 to 2.0% of the total worldwide production (Table 2.1); the exact propor-
tion varies somewhat depending on the databank. In 2009, 39,893 articles
were entered in the Web of Science database, and 40,174 in the Scopus da-
tabase. About one third of the articles are published in collaboration with
researchers from other countries.
Table 2.1 Recent scientific Brazilian production: number of documents published per years,
share of worldwide production represented by the Brazilian production and percentage of articles
published in collaboration with other countries.
Year Number of documents In the world (%) Collaboration (%)
2000 13,228 1.08 32.3
2001 13,595 1.03 27.7
2002 15,744 1.17 27.7
2003 17,852 1.26 33.1
2004 19,608 1.25 35.9
2005 22,176 1.28 35.7
2006 27,776 1.53 34.0
2007 30,385 1.61 33.2
2008 34,145 1.77 32.6
Source: SRJ SC Imago Journal & Country Ranking, Scopus Database.
1 I thank Prof. José Roberto Drugpwich de Felício for helping in the collection of data and
discussions on the topic.
The main characteristics of this production in the last two decades are
quantitative and qualitative growth. An examination of this evolution (Fig-
ure 2.1) does not show a recent “turning point”; that is, there has been no
moment of sudden change that might determine a dominant reason for the
Brazilian visibility and success in recent years, leading to the recognition of
our country as an important global actor. In fact, segmented analyses have
shown a positive correlation with any other growing parameter in the same
period, whether it is the number of post-graduates or the number of CNPq
scholarships for productivity, or even the volume of ethanol sold in this
period. This excludes, therefore, a specific action or policy as the cause of
such growth. Its sources are more complex; they result from the association
of a large number of relatively independent measures and political actions,
whose sum is positive.
4 Brazil
Mexico
Germany
USA
1
1996 1998 2000 2002 2004 2006 2008
Figure 2.1 Relative growth in the production of scientific articles in scientific journals
from Brazil, Mexico, Germany and the United States, in relation to the number of articles
published in 1996.
This is an optimistic view in that it does not subordinate success to a

single factor or measure, which, if modified, would affect this increasing
trajectory. Therefore, this trend is supposed to keep constant – or to grow
in the near future.
What would the conditioning factors of this success be? Globally, it

depends on the three most directly involved sectors: the scientific commu-
nity, financiers and S&T (Science and Technology) managers, and – more
recently – the manufacturing and business sectors. A listing, though in-
complete, of the reasons that contribute positively to this growing perfor-
mance is summarized in the pages to follow
In the first place, there is a policy of education of human resources
and improvement in qualification of personnel, which could be identified
as the most permanent and important science and technology strategy in
the country. One of the paramount activities in this sense is represented
by the establishment, institutionalization and strengthening of post-grad-
uate education in Brazil, starting at the beginning of the 1970s. The latest
balance of an evaluation carried out in 2010 by the Federal Agency for
Support and Evaluation of Graduate Education (Capes), shows that 65%
of the 2,718 post-graduate programs in the country were given a mark
ranging between 4 and 7 (on a scale of ascending quality from 1 to 7). In
2009, 11,368 doctor’s degrees were awarded in Brazil; although this num-
ber is impressive (corresponding to about 75% of PhDs educated in Latin
America), it is still far below the needs of the country. On the other hand,
the rate of expansion of post-doctorate studies is still very low. Even in the
state of São Paulo there are about 1,500 researchers doing post-doctoral
internship work out of a potential 4,000-5,000 positions. Improved train-
ing has also contributed to encourage scientific production. All the sup-
port agencies, led by CNPq and by the São Paulo Research Foundation
(Fapesp) give priority to the quality of the applicant’s resumé when they
evaluate application for funding. There has been a progressive and fairly
consolidated improvement in the process of peer analysis, taking into
account the specifications and standards within each area of knowledge.
The CNPq Fellowship Program of Research Productivity (PQ) pro-
vides one of the most important stimuli for scientific production in Brazil
and currently assisting over 13,800 researchers. The researchers’ clas-
sification system adopted in granting scholarships has become a “seal”
of quality and a means to identify the most productive researchers in
the country.
A second determining factor of relevance in the growth of our scientific
production was the strengthening of research infrastructure and resources
for the completion of projects, resulting from investments by the federal

government and some states, which will be discussed later in more detail.
Additionally, there is growing internationalization of the Brazilian scien-
tific community, represented not just by an increased international move-
ment of researchers, but by the formation of alliances to do joint research.
Finally, applied research, development, adaptation of technologies and
collaboration with the productive sector – all of these have increasingly
gained ground in Brazil. At the same time, an important change has taken
place in the features of the research productive process with regard to how
it is conducted and how it is managed. The focus on relevant and more am-
bitious themes, which are currently global challenges, has demanded the
combination of various competencies, going beyond departmental limits
or other institutional bureaucratic restrictions. Some successful examples
of these initiatives are the Research Innovation and Development Center
Program (Cepid), created by Fapesp in 2000, the Science and Technology
National Institutes, created by CNPq in 2008, the Thematic Programs
within the Program for Support to Centers of Excellence (Pronex), estab-
lished in 2009 to fight malaria and dengue.
Investments in Science and Technology
Brazil is the Latin American country which invests the most in science
and technology, both in GDP percentage and in absolute value and per
capita value (Table 2.2).
Regarding the federal government, the budget growth set by the Minis-
try of Science and Technology through its two principal agencies – CNPq
and Research and Projects Financing (Finep) – and the Ministry of Educa-
tion, through Capes and through the budgets set by federal universities,
represent two important pillars of this activity. A significant source of
resources for research in the federal government sphere was the creation
and implementation of sector funds, whose resources reinvigorated the Na-
tional Scientific and Technological Development Fund (FNDC), followed
by its progressive “decurtailment” as of 2006.
Additional sources of resources for research and specific programs came
from other ministries. An illustrative example is the Ministry of Health,
whose Department of Science and Technology (Decit), starting in 2002,
Table 2.2 S&T investments (in R$ millions) by some of the main sources of resources for research
in Brazil. Resources allocated to the research system and higher education (excluding, for example,
CAPES funding in basic education) are indicated.
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
*
CNPq 732 767 659 795 946 1,037 1,148 1,210 1,414 1,493
$
Finep 126 265 276 454 506 616 840 1,250 1,451 1,834
Finep$$ {} 67 63 95 116 135 157 184 Non Non
available available
Fapesp 460 493 455 354 393 481 521 549 637 679
Capes1 Non Non 380 439 579 671 742 814 1,023 1320
available available
DECIT** {} {} 0,2 13 82 139 161 35 112 47
Total 1,770 2,055 2,506 2,944 3,412 3,858 4,637 5,373
*
Total value, including their own budget , FNDCT resources and transfers from ministries (MCT and
other ministries)
$
Finep: economic subsidy excluded
$$
Finep: value disbursed in the Pro-Infra program.. Finep has other funding lines for research and inno-
vation created in 2001
1
Capes: excluding resources for Basic Education (primary school education) and the Open University
in Brazil
**
Decit began investing in research in 2002
carried out a financing program for research in the health area, generally in
association with CNPq, Finep, and Capes, which brought to the national
system of science and technology approximately R$ 609 million in the
2002-2009 period.
Another important source of research funding is represented by the
state foundations, known as FAPS. Fapesp, the oldest of them, is the leader
in application: between 2001 and 2009, investments grew from R$ 493 mil-
lion to R$ 679 million per year. Equally important in the last few years has
been the increasingly stronger support for research in other Brazilian states.
In the first place, there has been a progressive regularization in transfers
from state governments to some previously-established regional founda-
tions, such as the Minas Gerais Research Foundation (Fapemig) and the
Rio de Janeiro Research Foundation (Faperj).
Moreover, nearly all of the states established their own foundations,
which are now quite active, especially in partnership with federal agencies.
For example, in the program of the National Institutes of Science and Tech-
nology, coordinated by CNPq, of the R$ 609 million applied in the first

three years, R$ 215 million came from the FAPs.
Profile of the Brazilian scientific production
The Web of Science lists 94,406 publications authored in Brazil in a five-

year period (1996 to 2001), of which 149 (0.16%) have 200 or more citations.
The analysis of this subset of high-impact publications is useful to clarify
the features of the Brazilian scientific production. In the first place, most
of such work was the result of collaboration with foreign researchers. This
could mean a positive element, showing the internationalization of Brazilian
science and the interaction of our researchers with researchers from abroad.
However, in most cases, these are studies in which just one or two Brazilian
authors are included among a large number of foreign authors; add to this
the fact that the initiative for the study comes from abroad. Only 26 papers
with 200 or more citations are shown to have clearly originated in Brazil
(Table 2.3).
Table 2.3 Knowledge area of 26 studies published between 2001 and

2005 by Brazilian researchers or with main address in Brazil, receiving
more than 200 citations.
Area Studies published
Medicine 7
Chemistry 5
Physics 5
Genomics 2
Computer science 2
Biochemistry and cellular biology 2
Engineering 1
Genetics 1
Ecology 1
Total 26
As for the remaining 123 collaborative papers, in many cases there are
Brazilian authors included in foreign teams, generally as a result of visits or
internship served by Brazilian researchers. However, three situations de-
serve special consideration: in the first place, there are the studies in the area
of nuclear physics, conducted in collaborative groups whose experimental
data derive from large international installations and are shared for analysis
purposes with researchers worldwide. Brazil has a regular participation
in these teams and the articles bear their Brazilian origin, most of them
from the University of São Paulo. An example is the RHIC Brookhaven
National Lab’s Relativistic Heavy Ion Collider and its four Star, Phobos,
Phenix and Brahms detectors, with CNPq and Fapesp supporting agen-
cies integrated into the consortium;2 in the second place, along the same
line, are the articles on astronomy, astrophysics or physics, with Brazilian
authors associated with international stations for data analysis, as, for ex-
ample, those coming from the ESO (European Southern Observatory)3 or
from the Pierre Auger Collaboration, which in 2007 published in Science
an article explaining the origin of ultra-high energy cosmic rays.4
The third special situation to be considered among the high-impact
work done in large collaborative groups consists of 34 medical papers of
two types (Chart 2.1). The first type refers to comparative studies among
patients of different geographic locations or standardized descriptions of
illnesses and the participation of Brazilian researchers, even if they are not
the leading authors, acknowledge their competence.
Other – and more numerous – types of work include clinical trials. In
this case a medication (or less often, a procedure) is evaluated in conditions
similar to those of medical practice, aiming at both objectively examining
its therapeutic effects, and identifying and quantifying undesirable side
effects. This procedure is an essential step in the process of acceptance of
a new medicament so as to allow a medical prescription and licensing by
the regulatory agencies (such as the Food and Drug Administration, in the
United States, or the National Agency of Sanitary Vigilance, in Brazil) and
for its incorporation into the procedures and standards of medical practice,
2 For example: Identified charged particle spectra and yields in Au plus Au collisions at
root(SNN)=200 GeV. S. S. Adler et al. Physical Review C v.69, n.034909, 2004 (325 authors
from 52 institutions, 337 citations).
3 For example: First stars V. Abundance patterns from C to Zn and supernova yields in the
early Galaxy. Cayrel R et al. Astronomy and Astrophysics v.416, p.1117-38, 2004 (14
authors from 9 institutions, 324 citations).
4 For example: Abraham J et al. Correlation of the highest-energy cosmic rays with nearby
extragalactic objects. Science v.318, p.938-43, 2007 (445 authors, 210 citations).
Chart 2.1 Examples of medical articles with the participation of Brazilian institutions receiving
more than 1,000 citations, of the multicentric clinical test type or standardization of approach or
classification of illness.
Fried MW et al. Peginterferon Alfa-2a plus Ribavirin for Chronic Hepatitis C Virus Infection.
N Engl J Med v.347, p.975-82, 2002.
Cited 2.443 times, with 1.121 patients analyzed.
Morice M et al. A randomized comparison of a sirolimus-eluting stent with a standard stent for
coronary revascularization. N Eng J Med v.346, p.1773-80, 2002.
Cited 1.697 times, with 238 patients analyzed.
Shepherd FA et al. Erlotinib in previously treated non-small-cell lung cancer. N Eng J Med
v.353, p.123-32, 2005.
Cited 1.437 times, with 731 patients analyzed.
Balch CM, et al. Final version of the American Joint Committee on Cancer staging system for
cutaneous melanoma. J Clinic Oncology v.19, p.3635-48, 2001.
Cited 1.133 times. Standardized article type.
therefore, to enable a new medication to reach the market. Experience

shows that tests of this kind can yield more trustworthy results (because
they are less subject to manipulation) if they are of the multicentric type,
that is, if they are simultaneously conducted in various medical centers
(with the additional advantage that the required number of patients to give
them significance can be obtained more quickly). In this case, the various
participating centers must have equivalent competencies and qualities, that
is, the inclusion of Brazilian centers, even if they do not lead the studies,
reveals its technical and scientific level of excellence.
On the other hand, an increase in the number of studies of this kind has
reduced their impact, for excess of information prevents results from being
synthesized in a logical manner and with the necessary care: today, approx-
imately 75 clinical tests have been published per day, involving more than
two million people tested annually (Bastian, Glasziou, 2010).
A significant portion of the Brazilian research work has been done in
collaboration with other countries (Table 2.4). This is a worldwide trend,
since globalization also entails science and production of knowledge. The
international movement of scientists is a tradition, and generally it is not
subject to severe restrictions – whether it is of political or economic nature.
However, as scientific knowledge becomes an important mechanism in the
economy, the free flow of people and ideas related to science and technol-
ogy is progressively influenced by economic and political factors and the
interests of other countries.
Table 2.4 International collaboration: countries with which Brazilians collaborated the most with
scientific publications in the 2003-2007 period.
Country N. of articles Total from Brazil (%)
United States 13,349 11.1
United Kingdom 4,162 3.5
France 4,131 3.4
Germany 3,727 3.1
Italy 2,358 2.0
Canada 2,382 2.0
Spain 2,313 1.9
Source: Adams, King (2009).
Comparison with Other Countries
The most striking aspect is that Brazil has presented world’s second
largest growth in scientific production, only trailing China. Thus, in the
period from 1996 to 2008, the number of articles authored in Brazil multi-
plied by four (China’s multiplied by 10.5), whereas the figures for Mexico,
the United States and Germany multiplied by 2.6, 1.2, and 1.5, respective-
ly (Figure 2.1). This quantitative growth brought Brazil to the 14th place
in the 2008 worldwide ranking, above traditionally strong countries in the
areas of science and technology, such as Switzerland, Sweden, and Russia.
At the same time there has been progress, though less evident, with
respect to the impact of these publications. The most direct method of
measuring this impact is through the number of citations that articles au-
thored in Brazil receive. When the two parameters are considered, Brazil
still appears far from the main group of 10 countries that occupy the first
nine positions, both in quantity and in quality (Figure 2.2), with Australia
occupying the 11th position in number of articles, but 9th in quality, while
India occupies the 10th position in quality and the 16th in quality.
Another important aspect of the Brazilian scientific production has to do
with its features, quite different from fast-growing countries, such as China
(Tables 2.5 and 2.6). In Brazil, the most productive areas are medicine,
biological sciences and agronomy, physics and astronomy; engineering only
appears in the 5th position, and computer science, 10th. On the other hand,
in China, the first places are occupied by engineering, physics, astronomy,
materials sciences, and computer science which shows that the technologi-
cal development of that country is based on a strong scientific framework.
Germany USA
China
France
5th United Kingdom
Number of citations (worldwide rank)
Canada
Japan
Australia Italy
10th
Spain
Sweden
Korea
15th
India
Brazil
20th
25th
Russia
25th 20th 15th 10th 5th

Number of articles (worldwide rank)
Figure 2.2 Worldwide ranking, according to number of documents published and number
of citations received by Brazil (Bra), Russia (Rus), South Korea (Kor), Sweden (Swe) and
India (Ind) compared with the ten world leaders in scientific production: the United States,
China, Germany, the United Kingdom, France, Japan, Canada, Italy, Spain and Australia.
Table 2.5 Comparison of the scientific profile between Brazil and China. Areas with the highest
number of scientific production in the ten-year period from 2000 to 2009.
Rank Brazil China
of area
in the Total no. of articles in the period = Total no. of articles in the period =
country 237,484 1,384,263
1st Medicine Engineering
2nd Biological sciences and agronomy Physics and astronomy
rd
3 Physics and astronomy Materials science
4th Biochemistry, genetics and molecular Computer science
biology
5th Engineering Chemistry
th
6 Chemistry Medicine
Continues
Continuation
Rank Brazil China
of area
in the Total no. of articles in the period = Total no. of articles in the period =
country 237,484 1,384,263
7th Materials science Biochemistry, genetics and molecular biology
8th Immunology and microbiology Mathematics
th
9 Mathematics Chemical engineering
10th Computer Science Earth and planetary sciences
th
11 Pharmacology, toxicology, pharmacy Biological sciences and agronomy
12th Environmental sciences Energy
13th Earth and planetary sciences Enviromental sciences
14th Chemical engineering Pharmacology, toxicology, pharmacy
15th Neurosciences Social sciences
Table 2.6 Worldwide ranking in number of articles and number of citations in selected areas of
knowledge for Brazil, Spain and China in 2008.
No. of articles No. of citations
Brazil Spain China Brazil Spain China
nd th th nd th
Dentistry 2 8 14 2 13 10th
th th nd th th
Agricultural biological sciences 10 8 2 14 8 6th
Social sciences 10th 9th 5th 29th 9th 7th
th th th th th
Medicine 14 9 4 17 10 13th
Materials science 16th 13th 1st 23rd 9th 1st
Physics and astronomy 16th 11th 2nd 22nd 10th 2nd
th th nd th th
Computer science 18 9 2 24 9 2nd
Engineering 21sh 12nd 1st 22nd 11th 2nd
th th rd nd th
Business and accounting 27 10 3 32 9 6th
The Issue of Technology Transfer
One of the most frequent criticisms made about the Brazilian scientific
and technological production is the dissociation between academic produc-
tion (publications) and its applied line (patents). While Brazilian scientific
production is making headway, with an increase in quantity and quality of
scientific publications, the number of patents submitted is still negligible:
the country accounts for about 1.8% of qualified scientific production
worldwide, but only 0.2% of patents originate here.
This remark has yielded varying interpretations regarding causes, in-

cluding the researchers’ isolation from universities, the researchers’ lack of
experience with the productive system; the norms guiding academic pro-
motion, which value publication of papers; agencies such as CNPq, Capes
and Fapesp which support proposals grounded in competitiveness, taking
into consideration the researcher’s curriculum showing the articles pub-
lished; complaints about the technological production, which is taken as
undervalued. However, in developed countries such as the United States,
Germany, Korea, Japan and Spain, global leaders in numbers of patents,
the criteria used for academic promotion and evaluation of the researchers’
profile, as well as for granting research funding offered by the agencies, are
just as strict – or even stricter – as those in Brazil.
What then, is wrong with Brazil? There is nothing wrong. The pre-
dominance of publications in relation to intellectual property protection
applications reflects the prevalence of scientists in academia in relation to
those hired by companies. But this is changing, especially in the state of São
Paulo, where the number of researchers in the productive sector is larger
than in other sectors, which shows that the business sector is getting more
mature. As a consequence, the number of patents arising from this sector
today is already much larger than that arising from the academic sector.
Now, as this population of scientists grows and gains strength, so does the
production of patents. The dissociation noticed then, is just a transient fact,
which has been overrated and overemphasized in recent years.
Genuinely national science and technology are very recent develop-
ments in Brazil, even when compared to other countries in the Americas,
such as the United States, whose main university, Harvard University, was
built in 1636, for example, whereas our first and most important research
university, the University of São Paulo, was founded in 1934. Nevertheless,
interest in innovation is still more recent than the consolidation of our sci-
ence and technology system.
Thus, the entire S & T supporting structure started between the 1940s
and 1970s: the founding of USP (1934), the creation of CNPq and Capes
(1951), Fapesp (1962), Finep (1967), the implementation of full-time ded-
ication in universities and graduate programs (in the 1960s). On the other
hand, the oldest landmark connected with innovation is the creation of
the National Institute of Industrial Property (Inpi) in 1970, followed by
the Patents Act of 1996. It was only as of 2000 that innovation-related

instruments were consolidated, such as the updating of the Patents Act
(2001); the Industrial, Technological and Foreign Trade Policy (PITCE,
2004), the creation of the Brazilian Industrial Development Agency
(ABDI) and the National Council for Industrial Development, both in
2004, when legal frameworks also began to be sanctioned: the Innovation
Law (2004), the “Goodness” Law (2005), the São Paulo Innovation Act
(2008), decree no. 54.690 of the São Paulo Government regulating the São
Paulo Innovation Act (2009).
Likewise, support for technological research and innovation is fairly
recent, especially as stimulus for the development of technology-based
companies or as direct support of business innovation: the Research Part-
nership Program for Technological Innovation (Pite) and Technological
Innovation for Small Business (Pipe) were launched by Fapesp in 1995 and
1997, respectively, followed by the Program of Support to Research in Cor-
porations (Pappe)and the Program for Economic Subsidy to Innovation in
Business by FINEP, whose first call for bids was in 2006.
Prospects
The framework described in the previous pages serves as a basis for an

optimistic view of the future (Petherick, 2010), while at the same time it
identifies some aspects that deserve attention, as they will affect the evolu-
tion of scientific research in Brazil.
The first of these aspects is the issue of quality: although the volume
of Brazilian scientific publications has shown a considerable growth, its
quality is still not as significant. Better quality of papers will mean a larger
number of citations per article and a larger number of papers published in
highly reputed and competitive journals such as, for example, Nature, Sci-
ence, PNAS, New England Journal of Medicine, Lancet and Physical Review
Letters, among others. However, better quality depends on a complex set
of factors: persistence (or increase) in investments; valuation of quality in
the academic arena and, especially, re-organization of the way research
productive processes and their management are carried out, by focus-
ing on relevant and more ambitious topics; connections among various
competencies, regardless of departmental limits or other institutional bu-

reaucratic restrictions.
The second aspect to be considered is the issue of the production profile
with regard to the strongest areas. In Brazil, there is a clear predominance
of life sciences, in contrast to other fast-growing countries, such as China
and South Korea, where engineering, physics, and materials sciences and
computer science predominate. Without suggesting that these countries
should be emulated, we dare say that if Brazil expects to have a significant
economic and social development based on knowledge, both S&T manag-
ers and Brazilian, researchers will have to consider this comparison.
Finally, with regard to the relation between production and transfer of
scientific knowledge, and innovation in industry, the country is experi-
encing a phase in which the two processes lag behind, but there is sufficient
evidence that the two of them are likely to synchronize and strengthen each
other. Obviously, this depends much more on the productive sector, where
innovation occurs. For this reason, in an extremely heterogeneous country,
this convergence is more evident in states such as São Paulo, Minas Gerais,
and Rio de Janeiro.
3
EVALUATION OF THE CURRENT PROFILE
OF APPLIED RESEARCH IN BRAZIL
Fernando Galembeck
The Current Scenario of Applied Research
At present, research undertakings are very complex and diversified,

both as regards motivation, location of the activities, education and meth-
ods adopted by researchers and as regards the impact of the research itself.
Research can be basic and applied: development of products, processes, in-
novations and social and economic impact; as descriptors of activities that
connect us to networks of people, organizations and ideas, concepts and
social and strategic interests. This understanding discourages any effort
towards a rigorous definition of applied research and a mutual exclusion
among the latter, basic research, and development.
Basic research (which satisfies intellectual curiosity) and applied re-
search (which seeks to meet social, economic or strategic needs within
well-defined deadlines and costs), have co-existed in many different times
and places, but, especially today, both are closely juxtaposed, sharing op-
portunities, financial resources and the researchers’ time. In contrast, the
results were and are still shared in different ways and levels, by people who
also have different interests – whether they are cultural, economic, or stra-
tegic ones.
The prospects of application and assurance of gaining economic or
strategic advantages dominate research activities worldwide. Such advan-
tages may stem directly from the very economic results of the research
work or from benefits deriving from the status achieved by researchers or
institutions. That is why in the developed world, applied research plays
the major role, both with respect to motivation and with respect to goals
and intentions. There is no denying that there are important research un-
dertakings whose main result is cultural, exerting an impact on our world
view (Weltanschauung), but there are many more researchers working to
improve the world situation rather than to simply better understand it.
Even government bodies which are actively engaged on basic research
have turned, in different manners, to applied research. This is not a new
picture; it had already been described in detail by George Ferné in 1993
(1995, p.72-104).
There is a concept that has inspired many researchers: it is known as
“Pasteur’s Quadrant” (Stokes, 1997). It can be described as a Cartesian
graph with two coordinates: one rrepresents the practical consequences of
research; the other rpresents its contribution to knowledge. Niels Bohr and
Thomas Alva Edison are examples of researchers who excelled in one of
the coordinates, but not in the other. The chemist Louis Pasteur, however,
is an example of an outstanding researcher in both coordinates; there-
fore, he stands in the symmetrically opposite quadrant in relation to the
source. Through his work, Pasteur demonstrated the inexistence of any
basic conflict between basic research and applied research. On the contrary,
he showed how the two focuses of research activity could perfectly well
coexist in the same person’s activities.
Unfortunately, many Brazilian researchers and authorities holding top
positions in ministries and research-fostering agencies insist on a distinction
and even on an opposition between basic and applied research, neglecting
the possibilities and benefits that a convergence between them may offer. A
probable explanation for this distinction would be lack of information and
knowledge of the past and recent history of scientific research.
Another example of a beneficial convergence is that offered by Carl
Bosch, a Nobel laureate in Chemistry in 1931. His name is associated with
the Haber-Bosch ammoni synthesis process, which today consumes a little
less than 2% of the energy generated by man and account for the supply of
proteins to at least one third of humankind. Besides that, he was the main
articulator in the establishment of I.G. Farbenindustrie, whose Board of
Directors he presided for 12 years. In 1933, he tried to warn the then-
German Chancellor, Adolf Hitler of the problems that were being caused
by the Nazi policies. Bosch died in 1940 (Lanz, 1980, p.18).
Indicatiors of Activity and Outcome
A follow-up and an assessment of applied research activities are more

complex than is the case for basic research. Today, applied research has
been assessed through numerous indicators, which steadily grow, generat-
ing copious literature and even a new research area: bibliometry. Brazilian
researchers have devoted a great deal of effort to the proposition, discussion
and use of indicators, expending a significant part of their energy on this.
On a long-term basis, applied research can be easily evaluated; that is, in
cycles consisting of some years, and by using the economic results of tech-
nological development and innovation as indicators. Short-term evaluation
is a well-known process in some business environments, but in the official
and public context of the Brazilian system of science and technology it is
hardly used. This happens because lately the system has been dominated
by government bodies and academic researchers with rather little experi-
ence of applied research.
In Brazil, the use of long-term economic results has been systematically
and completely ignored by government bodies in the evaluation of applied
research. This assertion is grounded in various examples, starting with the
“sugar cane complex” in São Paulo. Brazilian sugar cane alcohol has be-
come a worldwide success, thanks to the intense efforts of many researchers
from universities and companies, in particular the Sugar Cane Technol-
ogy Center (http://www.copersucar.com.br/institucional/por/empresa/
tecnologia.asp), and the now-extinct Institute of Sugar and Alcohol, uni-
versities such as USP, mainly at the “Luiz de Queiroz” Higher School of
Agricultural Sciences (Esalq) and the Agronomic Institute of Campinas. In
this process, what was decisive was the mechanism adopted by the federal
government, via the Pro-Alcohol Program through which producers had
prices secured. In 2002, an international symposium at Unicamp revealed
a striking fact: sugar alcohol (ethanol) produced in the state of São Paulo –
without any sort of subsidy – competed economically with oil in the inter-
national market.
All this enormous effort of applied researchand the resulting success,
were systematically ignored by authorities in their discussions. For some
São Paulo state researchers and directors “international level” research in
the field of alcohol has just started. Perhaps this statement is grounded
in one finding: the development of the Brazilian case – from the selection
of the sugar cane species to the invention of the flex vehicle (which can use
both traditional gas and ethanol) – is not related to brilliant papers or revo-
lutionary patents. This leads to one conclusion: using academic indicators
in applied research is an error.
An evaluation of the good performance of researchers and institutions
involved with short-term applied research can also be done objectively as
long as the research goals are clearly defined. In this case, the performance
indicator is the level which the goals achieve, within the pre-established
deadline and conditions. Research and development programs involving
some or many people tend to incorporate periodical meetings among its
evaluation mechanisms (for example, monthly meetings); on such occa-
sions, the researchers present their results and new goals are set for the
subsequent phases. In such a framework, performance evaluations of indi-
viduals, groups and organizations are very objective.
In the evaluation of either a research or development program of a com-
pany, it is possible to use as an indicator a portion of its turnover, or its
increase as a result of improvements recently achieved, for example, in the
last five years.
Unfortunately, in the assessment of the success of the research carried
out, it is always tempting for financial managers to compare R&D return
on investment with the possible financial return that the same investment
would have in the stock market. In Brazil, given the policies of high interest
rates, this type of evaluation is obviously much less favorable to research
activities than in any other country where interest rates are lower.
There is another unfavorable factor – and it has a cultural nature: a strat-
egist at a Finnish company is acquainted with an economy firmly grounded
in slow-growing forests : decades go by between the planting and cutting
down of a tree in Scandinavia. In Brazil, however, a mere seven-year period
is enough to cut down a eucalyptus tree. This wonderful agricultural
advantage poses a cultural disadvantage: in Brazil we are not accustomed to
planning, following-up, and evaluating activities on a time scale compat-
ible with large R&D projects.
In the public sector, the situation is even worse, as everything re-starts
every four years. Any idea which may ensure success in the elections will
take precedence over larger national strategic goals, include research.
Patents
Brazilian support agencies have been seeking to use patents as an in-

dicator of success for researchers and post-graduate programs as regards
applied research. Patents are, undoubtedly, important products of R&D
activity and can be used to develop indicators, as long as close attention
is given to their characteristics. An application is evidence of the research
results, but it may fail to withstand an examiner’s scrutinizing eye. In Bra-
zil, we face a serious problem: the still enormous delays on the part of Inpi
(National Institute of Industrial Property) in granting patents. For this
very reason, a common situation is that a patent application filed – but still
not granted – may have already been licensed and may be generating eco-
nomic results. This suggests using evaluation indicators based on licensed
patents, even though licenses have not been granted yet.
Extending a patent application abroad has sometimes been deemed a
positive feature of a patent application, but it just depends on someone
paying for the fees. If the payer is a licensed enterprise or an investor, this
shows a high level of confidence in the quality or the prospects of success of
the patent. If a patent-applying research institution pays for its extension
abroad, this not only shows confidence but also that it still has not been
possible to convince likely partners.
A striking display of the quality and relevance of a patent is the launch-
ing of a product or the introduction of a process based on it. This provides
evidence of a successful project of applied research, but such fact can occur
only a long time after the work has been completed. For this reason, it
serves only for long-term evaluation.
There are other important aspects to be taken into account as far pat-
ents are concerned. For example, many patent applications aim at closing
technological routes or at establishing a commercial position in the face of
competition, rather than at grounding the development of new products
or processes. In the vast world folklore about patents at least half of the
portfolio of one of the major companies in the world is said to have just
one strategic function: to secure protection against possible competitors.
An inspection of patent portfolios from different companies reveals many
apparent excesses and repetitions, which have the function of reinforcing
or improving intellectual property protection – and not necessarily is this
translated into products.
An examination of patents filed at the Brazilian databases of Inpi or

at those of Upsto (United States Patent and Trade Office) and Espacenet
(European Patent Organization Classification System) reveals many inter-
esting facts. Although a detailed examination is beyond the scope of this
study, it is interesting to show two types of data.
Table 3.1 shows the number of patents granted to Brazilian inventors
by Uspto in the last decade (http://www.uspto.gov/web/offices/ac/
ido/oeip/taf/asgstca/brx_ror.htm). The patents are grouped according
to the title-holders that most filed an application. The table draws atten-
tion to the strong presence of multinational companies among titlehold-
ers. The criterion of origin used by Upsto is the home country of the first
inventor stated in the patent application. Therefore, one conclusion can
be drawn: there is successful applied research activity in Brazil by foreign
companies operating here.
On the other hand, Table 3.2 shows that Brazil holds a modest position
as a source of patents filed at Uspto, with a pattern of growth a little lower
than that of Finland, albeit above Italy, Argentina and Canada.
However, the Brazilian position is not at all comfortable if compared
with that of Argentina when the considerable difference among the pop-
ulations of both countries is taken into account, and even more so, when
scientific articles in the Web of Science are at issue.
The number of Brazilian and Argentinian article citations was similar
in the mid 1970s. Brazilian citations of articles has grown exponentially in
number, showing a turning point in 1986 (when the Ministry of Science
and Technology was created), in 1994 (the “Plano Real” period and the
beginning of Fernando Henrique Cardoso government), and still another
in 2005. Today, the number of citations of Brazilian articles is four times the
number of Argentinian articles, and in the period 1996-2010, that figure
was, on average, three times as much. Therefore, the significant growth in
the number of Brazilian article citations was not accompanied by a corre-
sponding growth in the number of patents filed at Uspto.
The conclusion is simple: many Brazilians value – more than the
Argentinians – indicators of prestige, which, however, have no particular
significance in the generation of wealth or jobs.
Table 3.1 Brazil-originating patent applications granted by Uspto.
Patent holder Year 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 1994-2008
Individual 15 25 21 16 12 21 16 10 22 16 16 277
Petróleo Brasileiro S/A (Petrobras) 8 8 15 17 6 12 7 4 8 9 9 127
Empresa Brasileira de Compressores S/A 3 5 3 2 10 10 5 8 11 6 4 76
Carrier Corporation 0 1 9 19 7 0 0 0 0 0 0 36
Metagal Indústria e Comércio Ltda. 3 3 2 0 4 4 1 0 0 0 1 27
Metal Leve S/A 0 0 1 1 0 0 0 0 0 0 0 9
Multibras S/A Eletrodomésticos 2 0 2 0 1 5 3 0 4 2 1 21
Praxair Technology, Inc. 0 0 2 4 6 2 2 0 2 0 0 20
Indústrias Romi S/A 0 2 0 1 0 1 0 0 0 0 0 9
Smar Research Corporation 3 0 1 2 0 2 1 3 5 1 0 18
Forjas Taurus S/A 0 2 0 1 1 2 0 1 0 1 0 9
Companhia Vale do Rio Doce 0 4 3 3 1 3 0 0 0 1 0 14
Dana Industrial S/A 0 0 0 0 0 5 4 0 3 0 1 13
Fapesp 0 0 0 0 0 0 0 1 6 2 4 13
Voith Paper Patent 0 0 0 0 1 1 2 2 3 1 3 13
Johnson & Johnson 0 1 1 1 4 2 0 2 0 0 0 11
Fundação Oswaldo Cruz (Fiocruz) 2 0 1 1 0 2 3 0 1 0 0 10
ELC Produtos de Segurança Ltda. 1 1 0 1 0 1 0 0 1 1 0 8
Wahler Metalúrgica 0 0 1 0 0 0 1 4 3 0 0 9
Continues
59
60
Continuation
Patent holder Year 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 1994-2008
Máquinas Agrícolas Jacto S/A 0 2 0 1 0 2 1 2 0 0 0 8
Embrapa 0 0 0 0 0 1 2 1 1 1 1 7
Ikan Technologies Inc. 0 0 0 0 0 0 0 0 2 3 2 7
IBM 1 0 0 0 1 1 2 0 0 0 0 7
Metalgráfica Rojek Ltda. 1 1 0 0 1 0 0 0 0 0 0 7
UFMG 0 0 0 1 2 2 0 0 1 1 0 7
BJ Services Co. 0 0 0 0 0 0 1 1 1 0 3 6
Brasilata S/A 0 1 1 0 0 0 4 0 0 0 0 6
General Electric Company 0 0 0 0 0 0 1 0 1 1 0 5
Indústria e Comércio de Cosméticos Natura 0 0 1 0 1 2 1 0 1 0 0 6
Ross Operating Valve Company 0 0 0 0 1 1 3 0 1 0 0 5
Sabó Indústria e Comércio Ltda. 1 0 0 2 1 0 0 0 0 1 0 6
Whitaker Corporation 0 0 0 0 0 0 0 0 0 0 0 6
Ciba Specialty Chemicals 0 0 0 0 0 0 0 2 2 1 0 5

Eaton Corporation 0 0 0 0 1 2 1 0 1 0 0 5
Pioneer Hi-Bred International Inc. 0 0 0 0 0 0 2 0 0 2 1 5
Renner Herrmann S.A. 0 0 0 1 0 2 0 1 1 0 0 5
St. Jude Medical, Inc. 0 0 1 1 1 1 0 0 0 0 1 5
Startec Iron LLC 0 0 0 0 0 2 3 0 0 0 0 5
Table 3.2 Number of patents filed at Uspto by inventors from some countries.
Patents deposited in Patents deposited in In relation to 1963-2009
Country
1963-2009 1996-2009 and 1996-2009
India 4,759 4,266 1.11
Finland 15,134 10,290 1.47
Brazil 2,197 1,322 1.66
Canada 87,976 44,899 1.95
Argentina 1,294 ,596 2.17
Italy 47,692 20,776 2.29
Source: http://www.uspto.gov/web/offices/ac/ido/oeip/taf/all_tech.pdf.
Position of Brazil in WIPO Statistics (2010)
The annual reports of the World Intellectual Property Organization

(Wipo) are rich sources of information about intellectual property indica-
tors throughout the world. The Abifina site commented on the 2010 report
soon after its release, in the following terms:
WIPO published on September 15, 2010, the 2010 Report on Intellectual

Property Indicators [...] (it) analyzes the main trends in Intellectual Property
in the years 2008 and 2009. According to the document[…]the innovative
activity and demand for IP protection declined during the last world economic
crisis, but began to recover in 2010, showing to which extent the crisis affected
the innovation strategies adopted by companies. Data from 2008 on patent
filings worldwide compared to 2007 data show that there was a decline in
the growth of patents. The report indicates, for example, that there has been
a considerable increase in patent applications regarding energy under the
PCT (Patent Cooperation Treaty): from 584 applications in 2000 to 3,424 in
2009. Preliminary data for 2009 show that only the IP Office in China had an
increase in patent applications (8.5%). With regard to investment in research
and development (R & D), data showing expenses in this sector reveal that, on
average, companies began to reduce these expenses in 2009: in fact, since 2007
there had been a slowdown in growth, in 2007 and from 2008 to 2009 a real
decrease in theR & D budget was identified (-1.7%). Since 2009, applications
for patents and trademarks have been on the increase again respectively, by the
PCT system and the Madrid Protocol, showing signs for optimism. Accord-
ing to Francis Gurry, WIPO General Director, the first six months of 2010
show a modest recovery in these modalities of filing: “the post-crisis innova-
tion scenario will be different from that of one decade ago. Very likely there
will be a continuous geographical shift in the innovative activity toward the
new players, especially in Asia”. (http://www.abifina.org.br/noticias.asp?
secao=18&noticia=1281)
Table 3.3 shows the evolution in the number of applications filed within
the scope of PCT by some countries with characteristics comparable to
those of Brazil. The Brazilian position is not advantageous in comparison to
the other Brics countries, besides Singapore and Korea. As for the rhythm
of growth, Brazil is behind China, Turkey and Malaysia.
Table 3.3 Number of “PCT applications” filedby some countries in the last five years.
2005 2006 2007 2008 2009
Republic of Korea 4,689 5,946 7,065 7,900 8,049
China 2,512 3,937 5,465 6,126 7,906
India 679 836 901 1,070 835
Russian Federation 660 697 735 803 662
Singapore 455 483 522 563 578
Brazil 270 334 398 472 496
Turkey 174 269 359 393 385
South Africa 360 424 406 399 376
Malaysia 38 60 111 205 226
Source: WIPO (2010).
Other Results of Applied Research
Many important results of applied research are kept confidential; there-

fore, they are not released beyond some restricted circles. It is not possible
to develop indicators of these results, other than those already mentioned
economic results. Competitors can make an objective evaluation of the
success of an organization in applied research by using the methods of
reverse engineering. On the other hand, R&D costs must be declared in
the balance sheets of publicly traded corporations. In this way, they are, in
principle, public.
Places for Conducting Applied Research
Applied research can be conducted virtually in any place where there is

human activity; the example of Henry Ford is emblematic: he carried out
tests with engines in his own kitchen (http://www.wiley.com/legacy/prod-
ucts/subject/business/forbes/ford.html). Another interesting example
is that of Acheflan, a successful pharmaceutical created in Brazil, which
had a relevant phase of the research process carried out during an ama-
teur soccer game (http://www.cpopular.com.br/cenarioxxi/conteudo/
mostra_noticia.asp?noticia=1366560&area=2259&authent=44BFEA370
3CDEB4374EDFC0406EC88).
In reality, various stages in applied research can be undertaken in diffe-
rent places. It may require, at times, extremely sophisticated labs, just as
other stages may be undertaken during a stroll in the countryside or during a
campaign of an industrial product. There is a list of minimum requisites for
applied research to be carried out: the researcher, wherever he or she is work-
ing, must be curious and motivated; besides, he or she must show capacity for
observation, capacity to define a problem and persist until it is solved.
In the rather formalistic Brazilian culture, the place for research is a
laboratory or an institution of applied research. If this place is not duly reg-
istered in some data base of the Brazilian Institute of Geography and Sta-
tistics (IBGE) or in the Brazilian System of Technology (Sibratec), it may
pass completely unnoticed by analysts and authorities. For that reason,
many people that do and have done applied research are not recognized as
applied researchers, because they are either doing it outside the “appropri-
ate” places or disregarding some liturgy that would justify that label. The
word “liturgy” is used purposely in this case to emphasize how much the
existence of a fact (applied research) is ignored when the actors perform the
act without being appropriately dressed up for the ceremonial occasion.
From a purely formal point of view, the place for applied research is an
institution which has been assigned the mission to conduct it. That is why
it is not unusual for us to hear or read about “reflections” whose authors
wonder whether “this is the function of the university?” in reaction to news
of applied research at a university.
In Brazil there are many institutions created and directed towards ap-
plied research, but unfortunately many of them end up just mimicking the
university system, for internal and external reasons (Steiner, 2005). On the
other hand, we cannot deny the major contribution made by many of these
organizations, such as the Agronomic Institute of Campinas, the Institute
of Technological Research (IPT), Embrapa, and, in different moments,
many other research institutions.
A criticism voiced in Brazil echoes some criticisms by researchers in other
countries: the results of mission-oriented institutions are frequently poor,
and the great scientific advances do not occur in these places. One example
was recently noted during an important international event held in Rio de
Janeiro,1 when Ahmed Zewail, an outstanding professor from Caltech, who
is the winner of a Nobel Prize in Chemistry and a contender for a second
prize, emphatically defended expenditures on basic research, while criticiz-
ing heavy expenditures on the construction of buildings to do mission-orient-
ed research. He did not give his reasons and it is impossible to know whether
he was referring to Brazilian, American or possibly global cases. We fear that
he might have been inspired by some facts recently taking place in Brazil, that
is, the erecting of buildings and acquisition of very expensive equipment, on
which a great deal of money was spent and which were left under the control of
managers who were either incompetent or uninterested in the mission
of their institutions. Unfortunately, managers like Carl Bosch, who domi-
nate the frontier scientific knowledge and management techniques, are rare.
A large part of the debate about the importance and meaning of the insti-
tutions which have one or another central focus is due, above all, to our prac-
tice of exacerbating the antagonisms between entities and persons who are,
in fact, complementary, treating mere differences as if they were conflicts.
The word “order”, in the maxim of our flag, is read as if it were excluding
“diversification”.2
The Actors in Applied Research
In the current days, an applied researcher is an individual with some level

of higher education, preferably in the area in which he or she acts. In many
1 17th International Microscopy Conference, held from September 20th to 24th, 2010.
2 Luis Carlos Gomide de Freitas, personal declaration.
cases, his or her education includes a doctorate, as is traditionally the case in

German chemical industries, and more recently in large American high-tech
corporations. However, a diploma in the researching area, or a doctorate, is
not a basic and uniform requirement for applied researchers and profession-
als working with development strategies, for example, in the United States.
In the previous item, we showed that applied research can be conducted
in different places. Below, it will be shown that such research can be – and
it really is – carried out by different people with different college courses,
professional ties and motivations.
Evidence of what was – and still is – frequently used to show how little
research activity is done in Brazilian companies, can be found in the small
fraction of Brazilian PhDs working at companies, compared with the situ-
ation in other countries. This is a fallacious argument, denied with a very
well-known example: for decades, the state research system in Sao Paulo
did not require that researchers should hold a doctorate degree. Many
outstanding researchers, who contributed a great deal to the wealth of this
State and of the country, have never been awarded a PhD. Despite that,
researchers from institutions reaching a given level in their careers were
recognized by Fapesp, for example, as being equivalent to Ph.Ds, when it
came to applying for and obtaining resources to promote research.
This is fully justified because the career of a researcher at an institute did
not demand or placed a value on post-graduate titles. An example I have wit-
nessed was that of Adolfo Lutz Institute, whose Chemistry and Bromatology
division had, around 1990 just one doctorate-level researcher. In like man-
ner, industries have never hired individuals based on diplomas; they prefer
to rely on competence. For that reason, one of the main persons in charge
of the excellent research center at the internationally respected Embraco,
started working there as a technician with an intermediate level certificate.
I have met a person who led a group of more than 30 professionals in an
extremely well-run testing and analysis laboratory at an industrial com-
pany in the São Paulo ABC region. Watching the laboratory activities re-
vealed many moments of idleness both with regard to people and equip-
ment. Once, I asked one of the researchers if the group was engaged in any
kind of ongoing research activity; and he said “no”, as there was no stimu-
lus for that. Obviously, here was someone with all the material conditions
to conduct research but who lacked a minimally positive attitude for that. It
was sheer lack of punch, drive or whatever other word you may want to use.
It is very important to recognize situations such as this, in which mere lack
of interest and motivation on the part of one single individual may prevent
something important from happening.
There are also opposite cases, such as that of the remarkable discovery
of “carioca beans”, a variety of beans that today accounts for about 80% of
the Brazilian consumption of beans. It was made by various agents: a farm-
er who also worked as an agronomist at the “Casa da Lavoura” (Agriculture
House) of the Secretary of Agriculture; managers of different bodies at the
Secretary of Agriculture and the Agronomic Institute of Campinas (IAC);
and Luis D’Artagnan de Almeida, a young newly-graduated agronomist
who had just been hired as researcher at IAC. The process took place in the
following way: one of the farmer’s uncles noticed the appearance of some
beans quite different from those he had planted, and apparently very fertile
beans; he showed then to his nephew, who then collected some seeds, which
went their way through some bodies of the Secretary of Agriculture and
eventually reached the IAC, whose directors told the newly-hired researcher
to analyse and evaluate the bean seeds. The resulting product were the
“carioca beans (feijão carioca)”, which was named after the peculiar pattern
of colors that resembled that of the “leitão carioca”, a breed of pig. The
observant farmer did not miss the opportunity, the researcher /farmer was
equally observant, and IAC directors, together with the young researcher,
decided to conduct applied research on the bean seeds – without thinking
about publishing their findings in any important journal –; the success of
their study today can find evidence in millions of Brazilian homes.
This story illustrates a very relevant aspect of applied research: it is
undertaken by many people either working together or forming a chain,
or a network. We often hear professors pointing out the role of one person
or another, in any process of discovery and invention. This might be true
for basic research, in which a mental act, a reflection, or an observation
made by just one person can unleash a whole turnaround in knowledge.
In the case of applied research, the network of people plays a decisive role,
because it requires the fulfillment of many different activities. The non-
existence or a breach in any link of the chain – however small it is – prevents
results from being achieved.
The case of the “carioca beans”, one among similar cases, should
be acknowledged and presented in Brazilian schools at all levels. Many
detailed reports can be found on the Internet (http://www.grupo-

cultivar.com.br/noticias/noticia.asp?noticiaId=13800&titulo=arti
go-feijao-carioca-quase-meio-seculo-de-sucesso).
Applied Research Programs
Applied research programs have been developed in many types of

organizations. In companies, they are formulated around a product, a fam-
ily of products and their respective manufacturing processes.
Examples of Success
Two famous cases of government programs of applied research are the

Manhattan Project and the project for the development of synthetic rubber
for tires, both of which were carried out in the United States during the
Second World War. These were successful projects, despite having started
before all the necessary and basic scientific information was available.
In Brazil, many applied research programs can be pointed out as case
examples; particular mention should be made to the sugar cane alcohol,
the flex vehicle, the eucalyptus cellulose, the cloning of rubber trees, and
the oil prospection and production programs. In all these cases, the main
agents were companies, with fairly variable contributions from universities
and research institutions. Except for the case of Petrobras, the companies
responsible for these successes are all private ones.
The eucalyptus case is notable and has been developed over decades,
but it is frequently ignored. A succinct description made by João Lucio de
Azevedo in 1993 reveals several features that explain its success:
The Ipef (The Forest Research and Study Institute) was created 25 years ago
at Esalq/USP, in Piracicaba, joining five private companies (Champion, Dura-
tex, Rigesa, Ind. Papel Leon Feffer and Madeirit) in order to solve problems in
the area. Today, with 23 associated companies, the results obtained have been
surprisingly good. It is enough to mention that the average productivity, which
was in the range of 15 m3/ha/yr. has today risen to 30 m3 /ha/year in the com-
panies associated with Ipef. This rise in productivity has had the Ipef contribu-
tion through its basic research and education and training of personnel to work
in the companies. Besides that, its seed center, recognized by FAO, is the largest
one in the Southern Hemisphere with regard to genetic material, trading three
tons of seeds per year, including exports to Indonesia, Venezuela, and Thailand.
Just as an example, it has recently sold 300 kg of Eucalyptus urophilia seeds to
Indonesia, which is the originating country of this species. (Azevedo, 1993)
A Negative Case: Microelectronics
There are many cases in which progress was far short of what was desir-
able, owing to lack of significant and continued research efforts. The most
obvious case in the Brazilian scenario for the last 30 years, is that of micro-
electronics and of the industry of material and devices for information and
communication technology.
In the middle 1980s, Brazil had a thriving computing industry, espe-
cially of microcomputers, which was the reason for so much intense de-
bate among government authorities and lobbyists of all types. This phase,
however, was ephemeral and ended up with the opening of the economy
in the early 1990s, which deeply affected the whole Brazilian industry and
led some sectors to bankruptcy. However, the development and produc-
tion of computer equipment and corresponding systems did not cease to
exist, thus preserving and creating some important brands such as Itautec
and Positivo. The Brazilian banking technology became known all over
the world and contributed to the success of the Brazilian banks which in-
ternationalized their activities. Additionally, a high quality and efficient
technology for elections was created in the wake of such improvements, as
shown every two years in Brazil.
On the other hand, the production of material and devices for such in-
dustry become almost irrelevant. In 2003, Brazil had just three small-sized
or medium-sized semiconductor manufacturing companies, with a modest
turnover. In 2010, at the end of a time when resources for research and de-
velopment were more abundant than ever before, and after two federal gov-
ernment Programs of Accelerated Growth, (PACs), the situation does not
seem to have changed. The most relevant fact during this period was the
installation of the state-run company Ceitec S.A. in 2010 in PortoAlegre
(http://www.mct.gov.br/index.php/content/view/316563.html), after a
process that started nearly 10 years ago. The last paragraph of an official
report states: “The plant, in its final phase of installation and certification,
will be the only one in Latin America capable of producing chips” There-
fore, the inauguration preceded the end of the introduction. However,
Ceitec is well structured and some of its directors have international ex-
perience in the area, which suggests positive prospects of good results still
in 2010. It is worth watching this company carefully, for it may become a
model of organization and management of initiatives in other areas.
I had the opportunity to watch, as an external member of a panel body,
during part of the current decade (2000-2010), the activities developed in
the Renato Archer Research Center (Cenpra) of the MCT, created to op-
erate in the computing area. No evidence was found that the organization
was operating within solid directives agreed on with the MCT author-
ities and that it received significant resources to achieve any mission. On
the Cenpra homepage one of the highlights is The National Institute of
Technological Science – Nano and Micro Technology (INCT-Nametic),
coordinated by Professor Jacobus Swarc. The existence of INCT provides
evidence of the high scientific quality of the team coordinated by Pro-
fessor Swarc. On the other hand, neither the mechanisms of creation and
maintenance of the INCTs nor the resources that are available to them are
adequate for a national R& D center in this area.
For various reasons, the current situation in this area is a mixture of
frustrations, expectations uncertainties and promises, rather than one
of powerful realities (http://www.direitoacomunicacao.org.br/content.
php?option=com_content&task=view&id=3963). For lack of clear direc-
tives and meaningful programs, most people and organizations that could
be contributing to the building of a Brazilian intelligence on material for
computers are fiercely competing for funding agencies, at times overlap-
ping and sometimes even neutralizing each other’s efforts.
Appropriation of Applied Research Results
When applied research is conducted in a private setting, the findings are

also private property, and it is up to their holders to make whatever deci-
sions regarding the diffusion and exploitation of such findings.
Diffusion of results may be of interest to the holder of such information,

as it may entice investors and may promote the creation of technological
and commercial partnerships of various kinds.
Diffusion of results must be preceded by decisions regarding intellec-
tual property protection. Any eventual applications for protection should
be carefully and competently developed as well as quickly filed.
In contrast, the intellectual property holder may decide to keep it under
wraps, which is often the case in many notorious cases, such as those of soft
drinks, beer and many processed foods. Confidentiality prevents relevant
information from being disclosed, which is what happens in a patent ap-
plication, yet the products runs the risk of being copied, emulated and,
consequently, traded.
In Brazil today, government agencies have been spending a great deal of
their resources on applied research. In such cases, decisions on the appro-
priation of the findings are complex.
Embrapa, for example, holds some patents (Table 3.1), but much of the
knowledge generated within its scope reaches the producer and the market
through various extension mechanisms, like the Rural Technical Assist-
ance and Extension Enterprise (Ematers) and the Brazilian Micro and
Small Business Supporting Service (Sebrae). This is a positive move which
provides social return on the use of public resources.
On the other hand, few Brazilian universities show signs of concern
about protecting intellectual property generated by their researchers;
among them special mention must be made to Unicamp and the Federal
University of Minas Gerais (UFMG). The case of Unicamp is well known
as the result of an internal regulation of the late 1980s, which required that
its researchers (faculty and graduate students) should only publish those
findings which had good prospects of practical application after they had
secured intellectual property protection. Throughout more than twenty
years, successive administrations have created conditions for professors
to exercise the role of inventors, which has encompassed the whole uni-
versity, albeit unevenly. Chemistry, in particular, has been in a position of
prominence today, both at Unicamp and at UFMG, which is corroborated
in post-graduate assessments done by Capes.3 An in-depth analysis of
3 Personal communication with Vitor Francisco Ferreira, member of the Capes Chemistry
assessment committee, in September 2010.
this case is beyond the scope of this study, but we might state that this is a
very clear example of the validity of the concepts formulated by Malcolm
Gladwell in his book The Tipping Point: How Little Things Can Make a Big
Difference (2000), where he highlights three important factors in the dis-
semination of a message, idea or attitude: the law of the few, the stickiness
factor and the power of context.
A negative example of intellectual property protection is that of the dif-
ficulties encountered by the research institutes linked to the direct admin-
istration of the state of Sao Paulo, when they tried to license patents result-
ing from the Research, Innovation and Diffusion Center (Cepid) projects,
funded by Fapesp, with state resources, for pharmaceutical corporations
interested in using those projects.4 The main problem lay in the lack of a
legal framework for the licensing.
Proposals for Change
The picture of applied research in Brazil has many aspects that should
be preserved, alongside others that must change to meet the many public
interests as well as legitimate private interests.
In the Companies
Nowadays, the survival of any company depends on the incorporation

of results of applied research. If the company holds such results, they are
incorporated into the company assets. If it does not hold them, it must pay
to use them and payment will be made in many different ways, whether
explicit or not. Every company should have R & D activities as part of its
strategic plan. If it decides otherwise, it should have clear strategies aiming
at incorporating the results of others. R & D serves not only to solve imme-
diate problems, but also to reveal latent opportunities that would go unno-
ticed if there were no endeavor to study, to watch and experiment under the
stimulus of a positive managerial attitude.
4 Reported and debated in a meeting of a sector group of the National Science and Technology
Council, held in São Paulo in 2009.
Very successful and well-known cases reveal how important it is for a

company to define, a priori, its commitment to research activities. A no-
table example is provided by DuPont, in which Lammot du Pont’s view
combined:
an interesting blend of visionary research and tough-minded, even blunt, prac-

ticality... convinced that Dupont could have it both ways, and that vision and
practicality need not conflict.
The following excerpt is an example:
Because basic research paid off only if it was sustained over the long run,
Stine argued that it would be shielded from management trimming during hard
times. (Kinnane, 2002, p.115)
This view was one of the factors that led DuPont on to become the
world’s largest chemical company, and for many decades one of the largest
global corporations.
Several Brazilian companies hold firm and long-lasting commitments to
basic and applied research, but still this is not the dominant attitude. Glo-
balization has been accompanied by a process of overvaluation of financial
gains, which have discouraged long-term and risk investments, such as
those related to research. The 2008 crisis showed the folly of this attitude,
which decimated huge assets that might well have been used in research
and other ways to create future assets. For this very reason, it may be that
the post-crisis period reveals a renewed interest by companies in research.
In Brazil, companies engaged in research are linked to the National
Association for Research and Development of Innovative Companies
(Anpei), comprising 106 companies and associate members. Thanks to
the results of their basic research, most of them are well-known industrial
enterprises, such as Petrobras, Suzano, Oxiteno, Braskem, Siemens and
Natura. However, there is a large number of companies with outstanding
R & D activities that are not associated with Anpei. Some notable absences
include corporations in the chemical and pharmaceutical sector, such as
Biolab and Crystália, which have significant and successful applied re-
search Activity.
Besides the decisions to invest in research – and these must be a priori

decisions taken at high level managerial positions – changing the pattern of
research activities require that the company be unencumbered, mainly by
eliminating some fees and taxes (Calmanovici, 2010).
Labor fees are very high. To pay a researcher one thousand reais, for
example, the employer must disburse almost the same amount of fees and
taxes of various kinds, for which the State offers virtually no return in
safety, health, education and constitutional liabilities.
Moreover, the vast legislation introduced episodically over the last
thirty years – which was supposed to stimulate R & D in companies – has
ignored some very basic issues, such as that of import duty for research
equipment. For that reason, the use of the corresponding legislation by
companies is still limited. To date, according to information I received from
an R & D leader of an important corporation, a Brazilian company has to
pay about 80% of taxes to import an instrument to be used in R&D, which
places it in serious disadvantage in relation to counterparts in other coun-
tries. Additionally, exemption of the import duty over research equipment
at universities was only achieved very laboriously and partly due to im-
mense pressure from the World Bank, sponsor of the Program of Support
to Scientific and Technological Development (PADCT).
For this author, it is unbelievable that the Law of Innovation, Law of
Goods and other regulations recently introduced with great publicity by
the federal and state governments have not clearly or effectively addressed
the problem of the “Brazil cost” of research.
In Research Institutions
In universities and research institutes, “innovation” has become a topic

of frequent discussion which lends itself to a great deal of publicity. As seen
in the previous section, low efficiency actions abound and basic and low-
cost initiatives are needed to bring about real changes in the current picture.
The Brazilian response to the Bayh-Dole Act was delayed by over
two decades and stressed the bureaucratic superstructure rather than the
changes in university life and education of students.
The vast majority of young Brazilian researchers, undergraduate or
postgraduate students wish to publish papers in prestigious journals, but
few really get interested in applying some of their research results. This
attitude is easily understandable considering the criteria used in public ex-
aminations for the admission of teachers and researchers into universities.
The same criteria govern the promotion of teachers and has contributed
to a substantial increase in the number of scientific papers published by
Brazilian researchers. Unfortunately, the strategies and attitudes that lead
to significant scientific production, exacerbated as they are currently in
Brazil, contrast with the strategies and attitudes that develop technology
and innovation.
I have been working on creating examples that show full compatibility
between basic research and its application, and these examples are becom-
ing more and more numerous in the area of Chemistry in Brazil. It is regret-
table that many leaders in other areas and supporting agencies have been
working in the opposite direction.
In The Government Agencies and Research-Supporting Funds
The practice of Brazilian sponsoring agencies is hopelessly complex and

demands from researchers many time-consuming tasks that would be more
appropriate for secretaries, accountants and errand boys. This problem is
partly structural and related to the existence of Law No. 8666, which pro-
vides for the acquisition of goods and services with public funds. Part of the
problem is managerial, and it manifests itself in the employees’ lack of basic
education and professional responsibility at various levels. Many problems
are solved through resorting s to higher levels, which demonstrates a weak-
ness rather than a strength in the system.
Researchers in the U.S.A complain about the long time they spent on
preparing research projects. Brazilian researchers complain about the long
time they spent on elaborating budgets and justifications, requests for relo-
cations, accountability and related activities. This difference between both
systems shows a brutal difference with regard to efficiency.
Many changes introduced in recent years by the agencies have been
negative and have put senior researchers in a position of great vulnerability,
given their co-responsibility in a countless number of reports, accountabil-
ity for other researchers’travels and other minor issues.
As it stands now, the system formed by federal and state agencies needs
an effective shakeup in their management strategies. They must re-define
or reaffirm their goals, which should go far beyond securing employment
to many employees. Some examples of very positive changes have been
shown by CNPq.
Courses and Personnel Qualification
In view of the regrettable situation of Brazilian education, technical and

higher education courses are no exception. The very diagnoses are pre-
carious since many students and universities resist participating in bench-
marking processes and even a simple evaluation.
There is, however, in all courses a contingent of qualified and motivated
students, who compare very well with their peers elsewhere. Their propor-
tion within each area varies greatly. For example, in undergraduate courses
in Chemistry it accounts for 20 and 30% of the enrolled students in Brazil.
The existence of such groups is really important because it shows that it is
possible to achieve excellence, even under the current Brazilian situation.
At public universities an idealized laissez-faire attitude is far too prev-
alent. Examples of a “commitment to mediocrity” in which the professor
pretends to teach and the student pretends to learn are abundant. Add to
this the liberal use and abuse of public holidays and the fact that Mondays
and Fridays are usually low-attendance days in many campuses.
In the United States, England and Germany, the elites who assume
leading roles in applied research have studied in important research uni-
versities. In the United States, these are usually private, non-profit institu-
tions. In France and Italy very promising students are directed to the Écoles
and Scuolas for their undergraduate studies. In Brazil, there are no such in-
stitutions on a major scale; yet we do have good examples of “schools” such
as the Technological Institute of Aeronautics (ITA). Others such as this
should be created. In secondary level education, which is also important
for applied research, the National Service for Industrial Training (Senai)
and the National Service for Commercial Training (Senac) show levels of
excellence.
Conclusion
Brazil owes much of its current wealth to applied research results obtained
in various agribusiness, industry and services sectors. Such results may
become far more positive if several educational, cultural, institutional and
legal obstacles hindering the development of wealth-generating research
activities are overcome and solved. In particular, the Brazilian state imposes
burdens on applied research activities in various ways, which leads to con-
flicting actions, while at the same time it is an important source of funds.
Today, many necessary material elements are present in a context that
demands and can produce extraordinary results in basic research. Howev-
er, plans and programs must be devised so as to make coherent, convergent
and intelligent actions viable, thus generating positive results.
PARTE 2
INNOVATION AS BUSINESS STRATEGY

“Innovation out of necessity” and “innovation beyond the domestic
market” are phrases that sum up and stand for what the authors discuss on
the following pages.
Sergio Queiroz provides a historical analysis of the internationalization
of research and development by focusing on multinational companies that,
in turn, set the tone for innovation in the global market. Due to the ad-
ministrative (headquarters-subsidiary relationship), scientific or cultural
complexity, Queiroz points out some recent trends to entice investments in
R & D in countries such as China and India; in other words, the decentral-
ization of research and development in countries that are non-members of
the Organization for Economic Cooperation and Development (OECD),
whose members are the world’s most developed countries. Queiroz still
maintains that interdependence tends to become a kind of headquarters-
subsidiary relationship, even if the headquarters have more control over
R&D activities and resources, the subsidiaries develop new skills, open
new markets and therefore, play a new role in innovation.
In this sense, Ronald Dauscha conceptually addresses innovation, its
origins, implications and correlations among various actors such as compa-
nies, universities and governments. Indeed, as he has gone through experi-
ence in these sectors, Dauscha can witness the progress and enlightenment
the government agencies showed. The decentralization of R & D is also
addressed by Dauscha, who argues that competences within companies
will always be limited either by lack of resources or by stagnation, making
them push beyond their limits in search of innovative ideas in government
agencies, universities and research institutes, in addition to customers and

suppliers.
Anselmo Takaki, Gabriel Kohlmann and Ricardo Sennes map the de-
centralization of R & D in the pharmaceutical sector, supporting the trend
first reported by Queiroz. From a historical perspective, Takaki, Kohl-
mann and Sennes outline the evolution of the relationship between the
multinational headquarters and their subsidiaries in the field of innovation.
In fact, starting from a centralized view in the 1950s, multinationals have
learned over time to adapt or even create conditions for continuous innova-
tion, leading to the concept of open innovation, already a well established
concept practiced all over the world. Nevertheless, the authors analyze
some possibilities of enticement making Brazil participate more solidly
in the game of global innovation with public-private partnerships and the
development of clinical research.
Conversely, Glauco Arbiz and Luis Caseiro discuss an inverse move-
ment: the history of Brazilian companies abroad. They name it the “State’s
new activism” the formulation of public policies to orient the internation-
alization of Brazilian companies, as in the case of the Industrial, Techno-
logical and Foreign Trade Policies (PITCE) in 2004, followed by a series
of measures taken by the government to actively promote Brazilian compa-
nies abroad. The companies analyzed by Arbix and Caseiro are Embraer,
Natura and Marcopolo. In the nature of these three companies, represent-
ing different sectors, we can find both internationalization and innovation,
which show the two sides of the same coin.
4
ENTICEMENT OF FOREIGN DIRECT INVESTMENT
IN RESEARCH AND DEVELOPMENT
Introduction
The last two decades have witnessed an increasing willingness on the

part of multinational companies (MNCs) to expand their technological
activities – especially research and development (R&D) – beyond coun-
tries where their headquarters are located. This movement towards the
internationalization of technology has been the object of analysis in the vast
literature covering various related issues, such as the determinants of the
process, its scope, the nature of the internationalized activities, cost and
benefits for the countries on the receiving end and for the countries of ori-
gin of the investments in R & D, among other aspects.
A number of questions arise from the debate about these issues: is there
any opportunity to intensify R & D activities in countries that entice for-
eign direct investment (FDI) in R & D? If so, is Brazil is taking advantage
of this? How can this be improved? This chapter aims at addressing some of
these questions.
Worldwide FDI Trends in Relation to R&D
For MNCs, undertaking technological activities outside their countries

of origin is not exactly a new phenomenon. For many decades there have
been subsidiaries of these companies that have R & D centers and employ
scientists and engineers. The novelty lies in the intensity of the phenom-
enon in recent years and in the changing nature of the subsidiary responsi-
bilities and activities.
This is a difference that can be established between the traditional view
and the new view of R & D undertakings in MNCs (Gammeltoft, 2005). Ac-
cording to the traditional view, which fits nicely until the late 1970s, MNCs
typically centralize their R & D activities and transfer technology to their
subsidiaries, which then adapt it to their market and local production needs.
In this case, the core competences areheavily concentrated in the countries
of origin and the technological responsibilities of the subsidiaries are limited.
The new view, however, points to a more decentralized model of produc-
tion of knowledge and technological innovation. Even admitting that the
more intensive activities in science and those which depend more on tacit
knowledge remain at the MNE headquarters, the branch offices gain new
competences and responsibilities in R & D networks that such companies
have started to structure. The “transnational solution” proposed by Ghoshal
and Bartlett (1998) presents a more dispersed and specialized framework of
assets and capabilities, in addition to being combined in an interdependent
way, which offers a good representation of this new view when compared
with the traditional models of companies that either over-centralize their R
& D and do not fully explore valuable assets in other countries – this being
the “global” company – or behave like multidomestic companies (Porter,
1986), which do not rationalize the set of R & D activities carried out by the
corporation – this being the “multinational” company.
This increased international dispersion of corporate R & D activities
has been captured by several indicators of effort or technological result as
the expenditure on R & D or on patents filed by the subsidiaries.
Table 4.1 shows the steady increase in R&D spending outside the country
of origin for the three areas of the triad, Europe, Japan and North America.
Table 4.1 Percentage of investment in research and development (R&D) abroad.

1995 1998 2001 2004 (estimated)
Western Europe 25.7 30.3 33.4 43.7
Japan 4.7 7.0 10.5 14.6
North America 23.2 28.4 31.7 35.1
Note: Based on a survey of 209 multinational companies. The geographical zones refer to the origin of
the multinationals.
Source: Reger (2002).
In the same way, Figure 4.1 shows the increase between 1995 and 2005
in weight of the expenditure on R & D conducted by foreign subsidiaries in
the corporate R & D sector in various countries according to the Organiza-
tion for Economic Cooperation and Development (OECD). In small and
highly internationalized economies like Belgium, Hungary and Ireland (the
first three in Figure 4.1) a high turnout of MNC subsidiaries in corporate
R & D spending is expected. It is noteworthy, however, in Figure 4.1, that
for large-sized economies, this participation reached in 2005 values around
30% (Germany and France) or even close to 40% (United Kingdom).
70%
1995 2005
60%
50%
40%
30%
20%
10%
0%
ni Gr n
d ce
Fi tes
Tu nd
Sl key
ia
ly
er n
H any
Po d
Fr d
rtu e
te Ca al
in a
A om
Sw alia
ze A den
ep a
Be blic
H ium
Ir ary
nd
Po c
K nad
R stri
pa
G pai
n
n
ak
g
Ita
te ee
n
a
la
la
ela
a
g
gd
a
tr
r
u
Ja
nl
St
lg
ov
ch u
S
ol
un
us
d
U
ni
C
U
Figure 4.1 Percentage of subsidiaries under foreign control in total corporate R&D spend-
ing. Note: Czech Republic: 1996; Finland, Hungary, Holland, Turkey: 1997; Portugal: 1999;
Hungary: 2003; Austria, Canada, Italy, Japan, Holland: 2004. Source: OECD (2008).
In the case of American companies, Table 4.2 shows an even higher

weight in the expenditure on R & D carried out at the mother company, but
it also indicates a sharp increase in the expenditures by subsidiaries from
1994 to 2004.
Table 4.2 R&D investments made by U.S. multinational corporations and their subsidiaries from
1994 to 2004.
R&D Investments (millions of dollars) Percentage of multinationals

Year Headquarters Subsidiaries Total Headquarters Subsidiaries
abroad abroad
1994 91,574 11,877 103,451 88.6 11.5
1995 97,667 12,582 110,249 88.6 11.4
1996 100,551 14,039 114,590 87.7 12.3
1997 106,800 14,593 121,393 88 12
1998 113,777 14,664 128,441 88.6 11.4
1999 126,291 18,144 144,435 87.4 12.6
2000 135,467 20,457 115,924 86.9 13.1
2001 143,017 19,702 162,719 87.9 12.1
2002 136,977 21,063 158,040 86.7 13.3
2003 139,884 22,793 162,677 86 14
2004 152,384 27,529 179,913 84.7 15.3
Notes: Subsidiaries abroad those companies whose equity interest exceeds 50% .
Source: Bureau of Economic Analysis, Survey of U.S. Direct Investment Abroad (annual series).
www.bea.gov/bea/di/di1usdop.htm, accessed on April 24, 2007 and National Science Board (2008).
In addition to the empirical evidence of the phenomenon of global-

ization of technology, the literature on the subject discusses a number of
related aspects, such as its determinants.; for example, whether the central
issue is access and support to local markets; whether it is access to science
and local technology; or reduction of the total cost of corporate R & D. In
the case of the nature of external R & D, the question raised is whether the
focus is placed on research or on development; on increasing the base of
domestic technological expertise versus developing this base abroad (Kum-
merle, 1997); in higher or lower scientific intensity; greater or smaller de-
pendence on tacit knowledge; in the performance of core competence areas,
or not; or even whether the focus is on the impact of internationalization of
R & D, evaluating the benefits, costs and potential, both for the countries
of origin and the host countries. This is a long debate about the effects of
the spillover of knowledge that FDI in R & D can possibly generate.
Without going into these various debates – which would certainly be
useful in the clarification of the qualitative change underlying the tran-
sition from the traditional view to the new view of R & D undertakings
at MNCs –, it is worth highlighting another vein of the corresponding
literature that raises many questions about the intensity and the reach of
the phenomenon, which we would call the “globalization skeptics”. For
example, commenting on the process of internationalization of innovation,
Mowery (2009, p.25) states:
[…] the extent and characteristics of post-1985 “globalization” of R&D may

be overstated. In particular, the inventive activities of global firms appear to
be much less “globalized” that conventional wisdom or R&D statistics sug-
gest. The “homebound” nature of their inventive activities in turn reflects the
dependence of these activities on “local” (domestic) sources of scientific and
technological knowledge. Different indicators yield different conclusions on
the extent and nature of globalization of R&D.
In addition to the domestic base of knowledge that continues to play a

decisive role in the process of innovation in large companies, other authors
draw attention to the fact that, although it is increasing, the international-
ization of technology – measured on the basis of expenditure on R & S or
patents –, advances at a relatively low level. As highlighted in Table 4.2,
the participation of subsidiary offices has been increasing, but still remains
just above 15%.
Another important issue raised by the “globalization skeptics” is the
concentration of the phenomenon in developed countries. As such, inter-
nationalization would be better characterized as triadization, given that
most FDI flows in R & D are found between Europe, the United States and
Japan (ETAN, 1998).
Table 4.3 shows the year 2003, where it can be seen that the three larg-
est European economies, with the addition of Japan and the United States,
were by far the main destination R & D expenditures by foreign subsid-
iaries abroad. Other countries outside Europe received very small invest-
ments in R & D coming from Germany, France and the UK, with Japan
showing the highest weight (19%), whose activities were probably carried
out in its neighboring Asian countries. In the case of the United States,
the percentage spent outside Europe and Japan is significant (33%), but it
includes Canada.
Table 4.3 Percentage of R&D spending by foreign subsidiaries abroad, by country of destination,
2003.
Origin Country
Destination country United States Japan Germany France United Kingdom
United States 47% 69% 35% 63%
France 9% 5% 10% 2%
United Kingdom 18% 9% 5% 16%
Japan 8% 4% 20% 2%
Italy 4% 2% 3% 2% 2%
Belgium 2% 3% 2% 4% 2%
Holland 3% 8% 1% 2% 2%
Germany 19% 5% 18% 11%
Sweden 4% 0% 0% 0% 15%
Others 33% 19% 2% 1% 1%
Total 100% 100% 100% 100% 100%
Source: OECD (2008a).
In short, the reasoning of the skeptics stresses at least three points. First,
the largest, more complex and more sophisticated part of R & D continues
to be conducted in the country of origin and, consequently, the national
system of innovation still has a decisive influence on the innovative per-
formance of companies. Second, R & D corporate function continues to be
little-internationalized when compared with sales or production. Third,
internationalized R & D outside the triad (Europe, the United States and
Japan) is rather insignificant.
Nevertheless, a movement that became clearer in the 2000s gives China
and India, especially the former, the role of leading actors in global R & D. As
a growing number of observers have pointed out, the two Asian giants have
set ambitious agendas for technological development and have placed them-
selves as significant enticing centers for FDI in R & D by large international
corporations (Bruche, 2009; Couto et al., 2006). Table 4.4 clearly shows the
enormous enticement power for R&D investments acquired lately by Asia.
By referring to different sources, Bruche (2009) states that China leapt
from something like fifty MNC R & D centers in 2000 to approximately
1,100 at the end of 2007. A similar movement can be noticed in India,
which increased from approximately one hundred subsidiary R&D labora-
tories in 2000 to almost 600 at the end of 2007. Although the author recog-
Table 4.4 Sources and destinations of R&D investments by multinationals (MNC) between 2002
and 2005 (in millions of dollars).
Source of Destination Net domestic
% %
investment of investment investment
North America 24,781 50.2 7,078 14.3 –17,703
Asian/Pacific Region 7,011 14.2 28,560 57.9 21,549
European Union 13,807 28 11,001 22.3 –2,806
Others* 3,746 7.6 2,705 5.5 –1,041
Total 49,345 100 49,345 100 –
*
Including other European, Latin American, Caribbean, Middle Eastern and African countries.
Source: Adapted from Huggins et al. (2007, p.442)
nizes that such change is still in its initial stage, and that the value chain of
innovation of MNCs continues to be characterized by a hierarchical struc-
ture whose controlling center remains anchored in the triad, the perception
is that future trends favor these emerging economies in enticing FDI in R
& D. According to Bruche (2009):
The continuing shift of future market growth to both countries and Asia as
a whole tends to increase rather than decrease the need for MNCs to develop
products and production processes adapted to these markets. Their R&D
subsidiaries with their laboratories will continue their learning and consoli-
date their competences, thus lightening and legitimating their demands for
autonomy in R&D.
The conclusion drawn by Chen (2006) is quite similar. The accelerated

process of technological capacitation of subsidiaries located in China and
the evolution of “experimental R & D units” into “strong research units”
point to the possibility of change in the current hierarchy. In a more recent
article, Chen (2008) shows that the Beijing case exemplifies the possibility
of integration of the local system of innovation into the global networks of
technological development of MNEs, in order to include advanced R & D
for the Chinese subsidiaries.
In short, what the case of China and, to a lesser extent, India, seem
to indicate is that the enticement power of FDI in R & D performed by
emerging economies with large and expanding markets will, in due time
and accompanied by adequate investments, especially in the qualifica-
tion of high level human resources, ultimately also build skills and attract
technology-driven R & D centers. Thus, the “triadization”, represented by
a still strongly hierarchical structure in the innovation chain tends to give
way to actual internationalization.
The Ambiguous Brazilian Entry into International Trends
Based on the analysis in the previous section the question is: where does
Brazil stand in this process of internationalization of technology?
In November 2010, GE announced the installation of a global R&D
center in Rio de Janeiro, an investment of US$ 100 million that was ex-
pected to hire 200 scientists and engineers. In June 2010, IBM unveiled its
intention to invest $ 250 million in an R & D center in Brazil, to be shared
between Rio de Janeiro and Sao Paulo, employing 100 researchers in the
next three years.
Would such news items be a sign that Brazil, though in a lower position
than that of China and India, would be competing for a significant slice of
FDI in R & D?
The possibility that the country is, in fact, entering a stage of develop-
ment in which the conditions to entice such investments are more favorable
cannot be discarded. However, the picture unveiled so far shows a low-
level insertion of Brazil into global R & D movements.
Figure 4.2 makes it clear that a loss of the market share in Europe and
Japan as a destination for R & D FDI from U.S.-based MNCs corresponds
to an increase in Asia, with the exception of Japan, and that Latin America
continues to entice R & D on a very small and even decreasing level.
In a survey conducted by the United Nations Conference on Trade and
Development (UNCTAD) about the location of R & D centers per MNCs,
in an assessment of the most enticing countries for this type of investment,
Brazil was a distant 19th place, far behind China and India, ranked first
and third, respectively (Figure 4.3).
Other pieces of evidence can be collected to show that Brazil outdis-
tances China or India in its enticement power for R & D undertakings.
However, important improvements in the technological capacity and re-
sponsibility of many EMN subsidiaries must be noted.
75
Europe
70
65
60
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
16
14
Canada
12
10
Japan
8
0
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
16
14
Asia/Pacific excluding Japan
12
10
6
Latin America and others
4
Middle East
2
0
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Figure 4.2 Regional percentage of R&D investments by mul-

tinational U.S. subsidiaries abroad between 1994 and 2004.
Source: National Science Board (2008).
Notes: Data for the majority of subsidiaries. Preliminary estimates
for 2004.
70%
OECD countries Non-OECD countries
60%
50%
40%
30%
20%
10%
0%
na
es
a
an
om
Fr ia
er e
H y
C d
ng a
Ta e
Be an
m
M ly
h ia
T rea
A nd
lia
il
G nc
or
di
Si ad
an
az
s
ut ys
Ita
at
iu
hi
d Jap
iw
tra
la
ila
us
o
In
ap
gd
an
Br
m
St
So ala
lg
K
C
ol
R
ha
us
in
d
te
K
ni
te
U
ni
U
Figure 4.3 Foreign most enticing locations for R&D in selected countries (in % of responses).
Source: OECD (2008a).
Based on information from 81 respondents to a survey on the technolog-

ical performance of MNC subsidiaries in Brazil (Queiroz et al., 2007), Bo-
nani (2010) remarks that there is a strong concentration of subsidiaries in
the intermediate /higher categories of accumulated skills – RTU (Regional
Technology Unit) and GTU (Global Technology Unit) – as shown in the
last line of Table 4.5. Such information indicates that in Brazil the presence
of more advanced research units (CTU – Corporate Technology Unit) is
small, but so is the number of subsidiaries that conduct R & D within the
“traditional model” (TTU – Transfer Technology Unit and LTU – Local
Technology Unit).
It is also important to consider that Table 4.1 suggests the existence of a
technological learning process conducted by subsidiaries located in Brazil,
many of which started R & D activities within the “traditional” model,
adapting to local conditions the processes and products developed at the
headquarters and then gradually progressing to more complex technologi-
cal activities.
The automotive industry in Brazil shows a fair number of examples of
subsidiaries that have accumulated technological capability; they are the
Table 4.5 Competências acumuladas.

Acronym TTU LTU RTU GTU CTU
Name Technology Local Regional Global Corporate
Transfer Technology Technology Technology Technology
Unit Unit Unit (“new Unit (“new Unit (“new
(“traditional” (“traditional” model”) model”) model”)
model) model)
Function Peripheral Occasional Continual Continual Pre-competition
adaptations development development development research
of technology support
to the local
market
Reach Local Local Regional Global Global
Autonomy Very low Low Medium Medium/ High
High
Number of 3 4 23 42 9
subsidiaries
in survey
Source: adapted by Bonani (2010).
so-called “big four”: GM, Fiat, VW and Ford; and they took over global
responsibility in corporate R & D. The case of GM, which goes from “trop-
icalization” to the development of global products, superbly illustrates this
evolutionary trajectory (UNCTAD, 2005).
An interesting question related on this topic is: in which sectors are
R&D expenditures by subsidiaries of foreign companies installed in Brazil
concentrated?
Data from the 2005 Technologial Innovation Survey (Pintec 2005),
compiled in Table 4.6, provides a quite clear answer to that question. The
second column shows that more than half of total R & D activities carried
out by processing industries is performed in just four sectors: automobile
manufacturing, etc.; coke and oil refining manufacturing, etc.; manufac-
ture of other kinds of transport equipment; manufacture of chemical prod-
ucts (the third column in the table shows the accumulated share). The
highlight goes to the manufacture of automobiles, which alone accounts
for one fifth of the total R&D expenditure by processing industries, by far
the highest percentage. This is also the sector in the National Classification
of Economic Activities (CNAE) which shows – in the fourth column – the
largest foreign share in total R & D (97.4%).
92
Table 4.6 Pintec Data 2005.

Total share of R&D in Acummulated Foreign Share in
CNAE
processing industries (%) (%) total R&D (%)
Manufacturing industries 100.0
Manufacturing of autos, small trucks/utility vehicles, trucks and busses 20.0 20.0 97.4
Production of coke, nuclear fuels and alcohol; oil refining 13.6 33.6 –
Manufacturing of other kinds of transport equipment 10.5 44.1 3.0
Productionof chemicals 9.0 53.1 47.7
Production of communication devices and equipment 7.0 60.1 72.6
Production of machinery, appliances and electrical material 5.2 65.3 63.3
Production of machines and equipment 4.9 70.2 41.4
Production of pharmaceuticals 4.0 74.2 64.4
Manufacturing of foods 3.5 77.7 38.5
Production of autoparts and accessories for motor vehicles 3.4 81.1 54.9
Production of rubber and plastic items 2.7 83.8 46.6

Production of office machines and computing equipment 2.4 86.2 59.3
Production of hospital-medical equipment, optical and precision instruments,
2.2 88.4 11.6*
industrial automation equipment, stopwatches and clocks
Ironwork products 2.1 90.5 41.8
Continues
Continuation
Total share of R&D in Acummulated Foreign Share in
CNAE
processing industries (%) (%) total R&D (%)
Production of non-metallic mineral items 1.5 92.0 23.7*
Production of metal items 1.2 93.2 33.9
Production of paper, packaging and paper artifacts 0.9 94.1 29.0*
Leather tanning and manufacturing of leather products , travel gear and
0.9 95.0 0.3
footwear
Production offurniture 0.8 95.8 2.3
Production of textiles 0.7 96.5 4.8
Production of basic electronics 0.5 97.0 75.2
Manufacturing of various different products 0.5 97.4 26.9
Manufacturing of clothing and clothing accessories 0.4 97.9 18.2
Production of motor vehicle cabins, trailers and engine reconditioning 0.4 98.3 3.2
Production of beverages 0.4 98.7 7.4*
Metallurgy of non-ferrous metals and casting 0.3 99.0 24.2*
Manufacturing of tobacco products 0.3 99.3 –
Fabricação de produtos de madeira 0.3 99.5 –
Edição, impressão e reprodução de gravações 0.2 99.8 56.7
Fabricação de celulose e outras pastas 0.2 100.0 –
*
Excludes the external P&D.
Source: Pintec 2005/IBGE (2005).

93
The two other sectors – coke and oil refining manufacturing and manu-
facture of other kinds of transport equipment – are the only ones that com-
bine a significant weight in R & D total and very low foreign participation.
Not coincidentally, these sectors include Petrobras and Embraer.
The first ten sectors or subsectors which account for more than 80%
of R & D expenditures havea high presence of foreign affiliates in R & D
efforts (except for the two sectors mentioned above). Among them, only
pharmaceutical products and communication devices and equipment can
be considered high-tech (again, disregarding the aviation industry, which
is part of other kinds of transport equipment, with a small share of foreign
capital).
To sum up: in Brazil, MNCs centralize their R & D activities in medium-
high technological intensity sectors, according to the OECD classification,
where size and market growth are decisive factors of enticement. The auto-
motive industry is the best representation of this means of global insertion of
Brazilian subsidiaries. Their strong presence in industries such as chemical
industries, machinery and equipment, electrical material and auto parts also
reinforces the role of foreign capital in R & D of medium-high technologi-
cal intensity sectors. If we include ironworks and metallurgic industries in
general, we will notice that it is in this sort of “hard nucleus” of Brazilian in-
dustries, the so-called metal-mechanical complex, that the largest part of the
R & D efforts in general and of MNC subsidiaries in particular are made.
A study on policies and factors of enticement of R & D activities into
Brazil, based on interviews conducted with the 55 MNC subsidiaries
(Queiroz et al., 2009) confirms the perception that Brazil, like China and
India (though at lower levels), presents good prospects of expansion of for-
eign investment in market-oriented R&D, in which relevant and expand-
ing worldwide markets set the tone. As shown in Table 4.7, when it comes
to expanding technological efforts, the size and growth of the market weigh
heavily on the decisions of MNC head offices operating in Brazil.
However, it is also worth noting in the same Table 4.7, that the factor
that weighs the most in the decisions is the availability of qualified person-
nel. After all, the fact that R & D activities are, first of all, intensive activ-
ities in knowledge, demanding brainpower, cannot be overlooked. The
existence of people with the right qualification in sufficient number is a sine
qua non condition to establish an R&D operation. Hence, the importance of
determining where Brazil stands with regard to this aspect.
Table 4.7 Main factors influencing the headquarters’ decision to invest in R&D in Brazil.
Answers
Factors weighted by
importance
Availability of quality trained personnel 92
Cost of conducting R&D in Brazil 46
Market Growth 31
Market size 31
Level of academic excellence and research in area of interest 30
Existence of plant unit (proximity to manufacturing) 28
Qualified labor cost 20
Incentives and favorable public policies 20
Source: Queiroz et al. (2009).
Enticement of Technology-Oriented R&D:

The Still Fragile Position of Brazil
It is frequently stated that there is a structural imbalance in our national

system of innovation. Basically, it would consist of a reasonable – even in-
tense for the past few years – a reasonable level of scientific development,
in contrast to technology which advances slowly.
In fact, the Brazilian scientific production has consistently grown over
the past two decades in comparison with that of other countries, and today
we have been publishing more than 2% of the scientific articles worldwide
(Figure 4.4). The nearly 12,000 doctorates awarded annually also highlight
the position we occupy in the world of science.
On the other hand, the total expenditure on R & D in Brazil is 1.1%
of the gross domestic product (GDP), compared to 2.3% of the GDP of
all OECD countries. Business spending on R & D as a GDP percent-
age, around 0.5%, contrasts even more strikingly when we consider de-
veloped countries, where this figure is almost always above 2%. PINTEC
(IBGE) shows that only 16% of innovating companies in the industrial
sector spent money on internal R & D activities in 2005. The number of
Brazilian patents registered at the United States Patent and Trademark Of-
fice (USPTO) or at the European Patent Office (EPO) is very low. In short,
there is a great deal of evidence of our technological fragility and for that
30,000 3.0
Number of scientific articles
26,482
Worldwide share (%)

25,000 2.7 2.5
20,000 18,482
15,436 2.0
2.1
15,000 12,573 2.9
10,521 1.7
1.5
10,000 7,860 1.5
5,723 1.2
4,301 4,363 1.0
5,000
0.9
0.8 0.8
0 0.5
1992 1994 1996 1998 2000 2002 2004 2006 2008
Note: the evolution in the scientific publications may inspire a certain caution,
since the Thomson Reuters Web of Science changes the selection of periodicals during
the time. Therefore, a part of the growth can be attributed to the inclusion of new
periodicals, especially in 2008.
Figure 4.4 Scientific articles written by authors from Brazilian institutions between 1992
and 2008.
Source: Brito Cruz and Chaimovich (2010).
very reason, a large number of government initiatives – both at the federal

and the state level – have recently been implemented to foster technological
development.
However, the view that the Brazilian weakness lies only in technology
or that Brazil is becoming a scientific powerhouse, does not seem quite
valid. Returning to the data presented in Figure 4.5 we can notice that the
position Brazil occupies is very low compared to that of other countries via
more representative indicators of its true scientific development, such as
the number of scientific articles per million inhabitants.
Likewise, if the absolute number of PhDs qualified in Brazil is sig-
nificant (10,705 in 2008), the number of PhDs per thousand inhabitants
remains at a level well below that of scientifically advanced countries.
According to the Center for Strategic Studies and Management (CGEE,
2010), our country has only 1.4 PhDs per thousand inhabitants in the
25-64 age bracket (2008 data), a low figure compared with 15.4 of Ger-
many, or 23 of Switzerland (2003 data). Even more worrying is the fall in
the participation of PhDs in exact sciences and engineering in the period
analyzed in the study, between 1996 and 2008. Only 11.4% of 2008 PhDs
come from the engineering areas.
2,000
2008 1998
1,800
1,600
1,400
1,200
1,000
800
600
400
200
0
Swirtzerland
Finland
Denmark
Norway
New Zealand
Slovenia
Belgium
Austria
Greece
Germany
Spain
South Korea
Czech Republic
Hungary
Poland
Turkey
România
Rússia
Brazil
South Africa
India
Figure 4.5 Scientific articles (2008) – population per million.
Source: National Science Board (2008)
This deficiency in the education of engineers seems to be even more se-

vere when we examine the graduate course data. Figure 4.6 shows the stark
contrast among countries such as China and Korea, on the one hand, and
Brazil, on the other, with regard to the participation of graduates in science
and engineering in the total number of graduates.
Engineering Graduates 2005

Science Graduates 2005
Percentage of graduates in sciences and engineering in 2000
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
China South Korea South Africa Brazil Hungary
Figure 4.6 Comparison among countries like China, Korea and Brazil with regard to the
participation of graduates in science and technology in the total number of graduates.
Source: OECD (2008c).
Therefore, it can be concluded that, despite recent advances, Brazil still

has a long way to go before becoming, in fact, a country capable of enticing
technology-oriented R&D undertakings. In industries such as pharma-
ceuticals, in which consolidated academic clusters, cutting-edge scientific
production and wide availability of highly qualified and trained personnel
are decisive factors, Brazil has faced difficulties that can only be overcome
in the long run. In contrast to sectors such as the automotive one, in which
technological effort is much more market-oriented, the pharmaceutical in-
dustry does not attach the same importance to local market size and growth.
Thus, success in enticing R & D activity in the future depends on ac-
tions that correct the deficiencies pointed out and reinforce favorable ele-
ments, such as accelerating technological learning in sectors where the
country today enjoys advantages by virtue of its market and historical ac-
cumulation of skills. In short, it will depend on the public policies adopted
by the government...
Implications for Public Policies
Unquestionably, government policies have an important effect on the

ability to entice R & D. If, as seen previously, the availability of highly
qualified human resources is an important factor in such enticement, then
educational policies, science and technology policies, and everything else
that may affect the qualification of human resources with regard both to
quantity and quality, will influence MNCs R & D investment decisions.
In the same way, policies related to infrastructure, intellectual property,
industrial development, foreign trade, or even macroeconomic policies –
which affects the pace and characteristics of the growth of the economy as a
whole – all of them in some way will have repercussions on various factors
of enticement and will create conditions which will be more or less favor-
able to foreign investment in technology.
However, let us stick to policies directly focused on enticing foreign in-
vestment, today adopted by most countries. A study on this topic (Queiroz
et al., 2009) examined 17 countries that are, to a greater or lesser degree,
successful in formulating policies to entice FDI in R & D: Argentina, Aus-
tralia, Canada, Chile, China, Singapore, Spain, Hungary, India, Israel, Ire-
land, Malaysia, Mexico, Taiwan, Poland, Russia and the Czech Republic.
The institutional framework for enticing FDI is among the factors deter-
mining the success of the countries that best show potential for conducting
R & D activities. Most countries surveyed have some sort of agency or depart-
ment responsible for promoting and enticing FDI. Investment promotion
agencies (IPAs) are institutions directed towards searching and welcoming
foreign investors, which stimulates and promotes access to countries, besides
offering national advantages. The efforts of spreading the word around the
world and of acting jointly through the World Association of Investment
Promotion Agencies (WAIPA) reflect the growing importance that govern-
ments attach to this issue. Waipa, since its inception in 1995, has recorded a
growing number of associate members, representing countries, regions, cit-
ies and free trade zones around the world: from 112 in 2002, to 191 members
from 149 countries in 2006, and 243 members from 158 countries in 2009.
The current IPA practices are diverse, but the analysis of several of
them shows three recurring and extremely important activities:
1. Territorial Marketing: activities aimed at promoting on a larger

scale the country or region under the agency jurisdiction, empha-
sizing the items that are favorable to foreign investment in general
and R & D in particular.
2. Probing into opportunities: screening of companies/institutions
to be closely monitored and targeted for marketing-oriented actions.
3. Investor’s support services: including, during the definition phase
of the investment, activities ranging from assistance in locating an
appropriate site to the resolution of various issues – environmental,
fiscal, etc. – along with the respective government agencies, as well
as, in the post-implementation phase, doing follow-up work aimed at
monitoring retention and expansion of investment, which is known
as aftercare.
In Brazil, the institutional framework to entice FDI is not ripe yet. At the
federal level, various bodies have been dealing with the topic: the Brazilian
Agency for Export and Investment Promotion (Apex-Brazil), the National
Investment Information Network (Renai) and the “Sala de Investimentos”
(Investment Room) at the Casa Civil, with overlapping attributions and
significant gaps. At the state level, despite their more restricted scope of
action, there are also important initiatives, notably the Minas Gerais Insti-
tute for Integrated Development (Indi) and, more recently, the São Paulo
Investment and Competitiveness Promotion Agency (Investe-SP).
It is necessary to strengthen these IPAs, besides defining clearly the
actions taken to entice FDI and to improve coordination among different
government agencies which have some connection with the topic. These
measures are necessary for the development of an adequate institutional
framework to face the challenges posed by a true competition for global
R&D investments of MNCs.
The above mentioned study (Queiroz et al., 2009) also detected the con-
tinuity and selectivity of these policies as important elements of the policies
adopted by countries which succeeded in enticing FDI in R & D. Certain
countries stand out for having built up over decades an S & T structure and
an institutional apparatus appropriate for enticing investment. Further-
more, they make a distinction between sectors and corporate activities,
which have strategic importance for development to occur.
Table 4.8 presents a qualitative description of the policies for enticing
FDI of the countries studied, by region, according to the main features.
Continuity means the permanence and maintenance of a policy over
several governments, reflecting government commitment and directives
for a given topic.
The consistency of a given policy is related to its being coherent and
articulated with other policies (macroeconomic, industrial, technological
etc.) to promote the development of the country, as well as to entice R & D
investment.
Finally, selectivity is characterized by the choice of industrial sectors
and corporate activities, that is, the selection and promotion of specific
industrial sectors (life sciences, ICT) and corporate activities (production,
R & D) with the aim of enticing the more technologically dynamic indus-
tries and activities which permeate other sectors and can bring the country
closer to the frontiers of technology.
Other relevant factors that stand out in the comparative study of poli-
cies were the improved qualification of the workforce, S & T infrastruc-
ture, tax incentives and the institutional framework concerning intellectual
property. From what was discussed, it is possible to conclude that all of
the factors generate an obvious impact on the potential for enticement o
of investments in R & D.
Table 4.8 Characteristics of the policies for enticing FDI for selected countries/region.
Selectivity
Countries/
Duration Continuity Consistency Corporate Industrial
Regions
Activities sectors
Asian 30 years Existing High Existing, with Pharmaceuticals,
effect results biotech, ITCs.
in attracting
R&D
investment.
Eastern 15 to 20 Existing Seeking to Existing, Automotive,
Europe years improve this however with electronics,
little effect on software and
R&D. aerospace.
Latin 10 to 15 Nonexistent Low Nonexistent Nonexistent
America years More than 30
(Argentina, years
Chile,
Mexico)
Brazil More than Nonexistent Low, Nonexistent Promote FDI in
30 years macropolicies general.
oppose goals PITCE: BK,
of industrial semiconductors,
policies to pharmaceuticals,
attract FDI software.
Israel, More than Existing High Existing, Pharmaceuticals,
Ireland 30 years with positive biotech, ITCs.
results in
attracting
R&D.
Source: Queiroz et al. (2009).
It would be fitting to conclude by making a point about fiscal and finan-

cial incentives. The increasingly fierce competition for FDI has promoted
a general increase in these incentives on the part of many countries and
regions. However, it is a serious mistake to reduce the policies aimed at en-
ticing investment particularly investments in R & D to mere management
of incentives of any kind. Incentives should always be seen as the “icing on
the cake”, as a possible tie-breaker criterion in very similar conditions. It is
necessary to bear clearly in mind that factors such as the existing and the
potential market, the availability and quality of the labor force, the institu-
tional framework, etc. will always prevail over fiscal or financial advantages
with a fixed expiring date. Public policies directed towards enticing FDI in
R & D should not ignore this fact.
5
INNOVATION IN COMPANIES:
AN IMPERATIVE FOR STRATEGIC CHANGE
Ronaldo Dauscha
Introduction
This chapter is based on the experience of a business executive who has

always been connected to research and development, technology and inno-
vation; the purpose here is to show the importance of public discourse and
industrial policies working together, focused on science, technology and in-
novation (the latter, with very recent initiatives) as well as their unfoldings
aimed at promoting and supporting innovation and effective actions that
must take place within companies.
This chapter reviews relevant aspects of business innovation, ranging
from the modern conception of innovation in business to the need to in-
clude some imperatives such as sustainability and knowledge management.
We propose a new approach and new services with a view to introducing
sound management of innovation in companies through their representa-
tive entities, mainly through associations and federations, thus reducing
the “governance gap”, via a structured set of actors with legitimate knowl-
edge and competence directed to sharing and optimizing the resources and
knowledge available.
Finally, the article offers three examples of consistent management of
innovation; one taken from the company itself, and the other two based on
the suggested model that takes advantage of the companies’ capillarity and
their proximity to a federation and an industry sector association.
The Role of the Government and Public Agencies
We know that innovation is crucial for competitiveness among com-

panies, as well as for the country’s development; further to this, it acts as
a determinant for an increase in the productivity and real income of a na-
tion. The current policies of science, technology and innovation in Brazil
deal mainly with four areas: supporting human resources qualification and
infrastructure in academic circles; encouraging connections between com-
panies and universities through programs and incentives; local advice and
regional decentralization of policies, and, more recently, direct inducement
of innovation activities in companies. The latter – which is performed by
many actors, who are involved in the area through lines of credit as well as
subsidies and other services – is, of course, the least known, the least devel-
oped and least applied aspect by the private sector.
Among agencies, government bodies and associations, we can mention
a number of entities dealing with innovation that currently comprise the
national system of science, technology and innovation: the Ministry of
Science and Technology (MCT), Studies and Projects Funding (Finep),
the National Bank for Economic and Social Development (BNDES), the
Ministry of Development, Industry and Commerce (MDIC), the Brazil-
ian Agency for Industrial Development (ABDI), the Center for Manage-
ment and Strategic Studies (CGEE); the National Council of Scientific
and Technological Development (CNPq), the National Association of
Research and Development of Innovative Companies (Anpei), the Na-
tional Association of Entities Promoting Innovative Undertakings (An-
protec), the Brazilian Association of Technological Research Institutions
(Abipti) and the Competitive Brazil Movement (MBC). Also included in
this system are technology parks, incubators, public and private universi-
ties, research centers, and national institutes of science and technology,
among others.
The federal government has lately made efforts to ensure better articu-
lation among the various agents engaged with the topic of innovation, both
inside and outside the government, involving various ministries through
an executive committee and meetings, as well as funding agencies, councils
and state secretaries, as shown in Figure 5.1.
Greater Interlocution
State Government
Federal Government Secretaries for S,
MCT Executive Committee T & I and FAP
MCT
FINEP CONSECTI
CNPq CONFAP
$ $
SIBRATEC
R & D Technological
Institute Centers
Universities Companies
Figure 5.1 National innovation system.

Source: Ministry of Science and Technology.
Although companies are represented here at the bottom of this illustra-

tion, they stand more as recipients of resources and services, rather than
as participants in the design of new industrial innovation policies. And, as
stated earlier, these companies are not cognizant of the vast majority of the
incentives available, which have substantially increased in recent years.
Along these lines, we can mention the Innovation Laws, at federal and
state levels; the “Lei do Bem” (“Law of Goodness”); the Computing Law;
the Sector Funds; the Economic Subsidy; the Zero Interest Rate Pro-
gram, the Prime Program, aimed at incubated companies; the Research
Funding Foundations in the states, with their independent programs or
in partnership with the federal government; financing programs with
inflation-adjusted interest rates, the state bodies Sesi/Senai, as well as the
Technological Services Supporting programs (Sibratec) and the Science,
Technology and Innovation Plan for National Development (PACTi).
The role of the government and public agencies is to evaluate the
economic indicators which are specific to innovations in the country and,
together with a number of actors, to design and introduce policies of in-

novation in companies. The question is how to bring this set of tools and
services to the companies that are far-away and immersed in the difficult
task of the day-to-day survival of their business. It is necessary to change
the culture and open these companies to innovation.
Innovation and 360 Degree Range
Before analyzing how to offer companies a series of possibilities to pro-

mote innovation, it is important to quickly highlight this concept.
Although it has been already been addressed by previous authors –
whether explicitly or implicitly –, we revisit here some important views
regarding the meaning of the innovation process in corporations. A defini-
tion is very clear in the Oslo Manual, based on a long experience in the de-
velopment of innovation activities in developed countries of the Organiza-
tion for Economic Cooperation and Development (OECD). For this topic,
such a standard should be the model to be compared with and followed.
We cannot replicate everything for the Brazilian situation, but we should
reproduce the best in the world.
This document makes it clear that for a company to be considered in-
novative it must
A common feature of an innovation is that it must have been implemented. A

new or improved product is implemented when it is introduced on the mar-
ket. New processes, marketing methods or organizational methods are imple-
mented when they are brought into actual use in the firm’s operations.
Additionally, the innovations devised need to be a clear plus for the or-
ganization; that is, there must be no doubt that if there is no generation of
gain, these innovations cannot be considered as such.
There are various types of innovation: product, process, organizational
or marketing innovations. The innovation known as technological innova-
tion (where R & D fits in) covers the first two types. Marketing and organ-
izational innovations are more recent developments, still not well known
in developing countries. However, it is innovation in business that should

be adopted as widely as possible, enabling those enterprises that make
changes – basic or radical changes – in various areas of their management
and not just in products or services to be considered innovative companies.
Several actions and activities may be the target for innovations, such
as incremental innovation of products, more radical R&D, new method-
ologies for software development or algorithms, services, improved man-
ufacturing technologies, delivery and operational logistics, distribution
methods, organizational innovation, marketing, and many others. Mar-
keting innovations may refer to any particular method (product design or
packaging, positioning, pricing, promotion), as long as it has been used for
the first time by the company.
Innovations applied to products may be related to “simple” incremental
innovations, that is, they are innovations introduced in products that are
already in the market; however, for that particular company this represents
a novelty. As an example, let us suppose that a company that has manufac-
tured pencils for decades, all of a sudden is faced with the need to increase
its turnover and profitability, so it begins to produce pens. Although pens
are already well known items in the market, for this particular organization
such a measure means a product innovation, even though it is still within its
area of “writing tools”. It is also important to make it clear that innovation
is not restricted to magnitude or intensity, for many people argue that inno-
vation only occurs when it is radical or when a patent based on an invention
is generated.
All R & D activities funded or developed by companies are considered
as innovation activities. They include in-house R & D (that is, inside the
organization) and external (in partnership or relationship with other com-
panies or external partners). R & D includes software development and im-
plementation of scientific and technological advances as well as the resolu-
tion of scientific and technological uncertainties on a systematic basis. The
development of services is classified as R & D in the event it results in new
knowledge or involves the use of new knowledge to devise new applications.
The average degree of R & D activity in the companies of a nation, a
more advanced step of the innovation activities, has a direct correlation with
the level of economic development of the countries, as Figure 5.2 shows.
5.0
Israel
R&D expendure as a percentage
4.0 Sweden
(average 2000-2004)
Finland
Japan
3.0 Iceland
United States
South Korea Czech Republic
Germany Denmark
Belgium
France
2.0 Singapore Austria
United Kingdom Canada
Holland Norway
Slovakia Australia
Russia Switzerland New Zealand
China Italy Ireland
1.0 Brazil HungaryPortugal Spain
South Africa Poland
Turkey Costa Chile Slovenia Greece 1.2897x
Paraguay Panama Romania Rica Mexico Argentina
y = 4E -06e
Equator GuatemalaPeru Colombia Uruguay R2 = 0.7436
0.0
8.0 8.5 9.0 9.5 10.0 10.5 11.0
Logarithm per capita

(average 2000-2004)
Figure 5.2 Technological innovation and per capita income.

Source: Cepal.
A challenge for entrepreneurs is how to understand and incorporate

larger investments in innovation, which often lead – besides more local,
national or international business competitiveness – to an increase in the
purchasing power of the population, and, consequently, of the market as
a whole, even in scope of operations. For the government, a population
with higher income leads to all possible and desirable unfoldings such as a
higher level of education, better social indicators, less violence, more taxes
and less reliance on the domestic market, as exportation acquires more ag-
gregate value and less dependence on commodities, etc.
By considering innovation as a much more comprehensive item than
technological innovation (though this is obviously one of the most impor-
tant areas), many agents use the concept of “360 Degree Innovation” created
by Mohan Sawhney. In Figure 5.3, he succeeds in expressing in a single
illustration what we have discussed in the previous paragraphs, making it
clear that innovation can and should be a set of initiatives in several fronts,
in addition to being incremental, radical and substantial (the latter being in
the intermediate position between the two previous ones).
Products
(WHAT)
R&D Platforms
Networking Solutions
Channels Substantial Radical Clients

Incremental
(WHERE) (WHO)
Logistics/Supply Client
chain experience
Value chain Value capture

Processes
(HOW
Figure 5.3 A 360° view of innovation in business.

Source: Mohan Sawhney (2002).
Innovation: what it is and how it happens:

the network concept
To be effective, quick and low-cost, innovation, which does not occur in

one single area of a company needs a cooperative and shared design, involv-
ing a series of actors who were previously only consulted or informed at the
end the process.
Initially, it should be made clear that in-house innovation must be most
comprehensive in the company. In other words, the R & D undertakings,
which were exclusive to a directorate or a compartmentalized division with
a predefined budget and its own goals in the effort, without any relation-
ship with other areas and organizational indicators, are no longer accept-
able in the current times of dynamic, competitive and interrelated techno-
logical and marketing evolution.
This process must begin with the employees, who need to be encour-
aged to become entrepreneurs. It is also necessary to involve the leaders,
who must stimulate a culture of innovation, by motivating them to gener-
ate ideas in the organization and, above all, by not punishing those who,
though they embark on new ventures and initiatives, sometimes fail.
All areas of the company must also be interconnected in an articulated
and integrated planning process, sharing and implementing ideas that add
value to the company itself, whether through processes, products or serv-
ices: the commercial area, the marketing division, R & D, the supply chain,
the service-rendering area, the post-sales department, among others.
However, although this configuration in itself reveals a network-based
innovation system, it is still limited to knowledge, culture and resources
that are restricted to the reality and capacity of the organization itself. It is
outside the company’s “walls” that we find the remainder of the technolog-
ical competencies, of the capital necessary and ready to share the risks and
prod the personnel into innovative ideas in market intelligence etc. In this
bloc of actors that must be gathered in a network, we can mention govern-
ment agencies offering public, financial, economic, and fiscal support and
Research Development Commercialization

Licensing
Products
of patents
structured
for scale-up
Technological
Internalized spin-out
development
Ideas and internalized patents or
technologies know-how
Time
Figure 5.4 Open Innovation Model.

Source: Chesbrough.
incentives for innovation; such networks and investors of the “angel” seed,
venture capital or private equity kind, public or private universities and re-
search institutes, testing and metrology laboratories and service-rendering
offices (such as intellectual property); but, in the main, it is customers and
suppliers – first-time partners – who should be considered in a genuine
strategy of shared innovation.
This is the concept of “open innovation”, in which both external sourc-
es and internal ones, which spring from the generation of ideas and internal
technology, often with no likely use in the company’s business. Such inno-
vations, however, can be marketed through licensing, sales or participation
in spin-off companies, thus indirectly increasing revenues.
Companies as Protagonists of Innovation:

MEI and ANPEI
Business Modalization for Innovation (MEI) was modelled after the

Innovation National Initiative (INI), conducted by the American Compet-
itiveness Council; it was devised organized and launched in Brazil by the
National Confederation of Industry (CNI) in 2009, with the support of a
range of partners such as MBC, BNDES, Finep, the Brazilian Service to
Support Micro and Small-size Enterprises (Sebrae), Anpei, the Federation
of State Industries, and sectorial associations, among others.
Using some fragments of the MEI texts, drafted by the organizers of the
movement, the focal point of business mobilization for innovation is to make
corporations aware of the challenges implicit in innovation and to perform
R & D activities as well as more comprehensive innovation activities, as
previously described. The task to be undertaken involves motivating com-
panies and key executives in the Brazilian private sector to the relevance of
this agenda. The idea is that private companies should have a greater role
in the innovation agenda, because the company is itself the leading actor.
Innovation can, should and must have partnerships and count on support
from the government in the improvement of public policies.
The industrial sector has a partnership in these initiatives through
the CNI, the State Federations of Industries, Industrial Sector Associa-
tions, the Euvaldo Lodi Institute (IEL), the National Service for Industrial
Training (Senai) and the Social Service for Industry (Sesi). There are also
other state partners who have been devoted to promoting innovation in
industries such as the São Paulo Research Foundation (FAPESP), and are
committed to this important agenda.
A successful INI requires great ability to plan and coordinate. Today,
unlike in the past, there is an expressive number of institutions devoted to
the innovation agenda. At the same time, though, this presents an addition-
al challenge of coordinating such operations and avoiding overlapping.
There are many ongoing initiatives, such as the Network of Industrial
Policy Agents (Renapi) of ABDI, the Innovation Portal (MCT / ABDI
/ CGEE), the very mobilization component of the Productive Develop-
ment Policy (PDP); several initiatives to improve innovation management
of small and medium-sized enterprises (MBC / ABDI / Sebrae / Finep/
IEL), the Sebrae Local Agents of Innovation, manuals for innovation and
access to funding sources (MBC / Protec) and courses and seminars devot-
ed to the topic.
Recently, the MCT also launched the Brazilian System of Technology
(Sibratec) to support R & D centers and to give technological assistance to
companies. In many states, Senai and several technological institutes have
been working to provide technical and advisory services to companies. In
addition, university-industry cooperation has made progress, especially
with the establishment of the Agencies for Innovation and Technological
Innovation Centers (NITs) in many universities.
The main actions taken by MEI focus on the following aspects: aware-
ness-raising and mobilization; dissemination of information and diffusion
of methodologies; qualification and training; support for specialized con-
sultancy, support for innovation management; support for technological
service centers and business R & D; decentralization and encouragement
for companies to organize state and local initiatives; and coordinate actions
and governance. The MEI goal, in turn, is to have by 2013 35 Innovation
Centers, to raise the awareness of 30,000 companies and to train 15,000
companies in innovation management, in addition to other goals.
A strict and centralized governance, albeit its actors are spread through-
out the entire country, is important for the success of the initiative, as Fig-
ure 5.5 shows.
Business Leaders Executive Secretary

Government Committee CNI and CNI – SEBRAE/NA – BNDES
PR – BNDES – MCT – ABDI
Business Leaders MCT – ABDI
National Network of
Managment Committee Innovation Nuclei
CNI – SESI/DN – SENAI/DN –IEL/NC
SEBRAE/NA – CNPq (NIN)
State Management Committee Sector Management Committee

Business Leaders-Federation Business Leaders-Association
SESI/DR – SENAI/DR – IEL/NR – SEBRAE/UF Federation Strategic Partners
Companies Companies Companies Companies
Figure 5.5 MEI operation model.

Source: CNI (National Confederation of Industry).
Another important entity to support business innovation managers is

Anpei, a national non-profit association that takes in various companies and
institutions from different sectors of the economy whose mission and con-
vergence line is to seek competitiveness through technological innovation.
The Role of the Actors Working Close to the

Corporations: Federations and Sectorial Associations
It is clear here that through the goals defined and to be achieved by

MEI – given the complexity involved in changing the culture of innovation
in most companies – only sensible innovation and support policies are not
enough to change the culture and the practice of innovation, particularly in
medium and small-sized enterprises.
In a country where the entrepreneurial spirit is still not as widespread
or deeply rooted as in others, initiating a process of innovation manage-
ment, introducing it and maintaining it cannot be left to mere chance or to
“spontaneous generation” prospects within the business environment. The
proposed thesis is that this bridge with companies – enabling a closer rela-
tionship between public policies and their tools (incentives, support, laws,
etc.), the existing human and material resources, institutions and other
agents in the country – should be induced and built by entities representa-
tive of the companies, such as associations and industry federations.
The relevant role that industry federations play becomes clear when we
consider the capillarity of their institutions, such as Senai, SESI and IEL,
represented in every state through various regional sections and units, and
their activities of professional education, technological consultancy, social
innovations, talent management and innovation management activities. If
these skills and actions could be consolidated and aligned by centralized
and genuine groups within these entities, there would surely be a strong
network of potential innovators.
Sectorial associations, very close to the demands and strategies of com-
panies and represented sectors are already potential operators supporting
and inducing innovation with an important national perspective.
The C2i Case: the Fiep Innovation International Center
The C2i (Innovation International Center), introduced into the mar-

ket in 2009, is an initiative spearheaded by the Federation of Industries of
Paraná State (Fiep) and an example of an organization operating side by side
with companies with the goal of inducing innovation and strengthening
all the previously discussed concepts. C2i is the result of an evolutionary
process, carefully designed over the past few years by the Federation of
Industries of Paraná State to promote innovation in the state’s companies.
Based on the wide experience of innovation gained by Senai, Sesi and IEL,
Cei decided to migrate from a classical concept of a thematic committee on
innovation, moving towards an innovation management board, and then to
the decision to focus on effective action aiming at by promoting innovative
undertakings in the state by means of a business innovation inducing center.
C2i offers products and services to industrial enterprises in Paraná state –
regardless of their size or economic sector – which are interested in increas-
ing their productivity, competitiveness and sustainability through the de-
velopment of innovation processes.
C2i operates along three lines: a physical “ecosystem” with a variety of
partners (laboratories, observatories, associations, NGOs, etc.); structured
knowledge management; and a comprehensive innovation program for

the companies, involving an awareness-raising phase, besides diagnosis,
innovation plan and qualification. Its objectives are: to be an “innovation
concessionaire” blending innovative products and services for businesses,
based on the premise of taking advantage of the best expertise available in
the Fiep System (Senai, Sesi and Fiep itself) and achieving the best practice
for products and services available through external partners. In some cases,
new methodologies and services are developed, as shown in Figure 5.6.
Consultancies
BMF&Bovespa
ANPEI Open Innovation
Center
SEBRAE Other
JCI ENDEAVOR
partners
System
INNOVATION
FIEP SESI
Resulting in
SENAI FIEP C2i BUSINESSES
IEL
UNINDUS
Universities FRAUNHOFER, UCLA, UTC

(UFPR, PUCPR, others)
Figure 5.6 C2i Operation Model.

Source: Fiep.
Through the University of Industry (Unindus), implemented in 2005

by the Fiep System, C2i also offers management education programs for
companies which innovate or wish to innovate.
Eight important and fundamental competencies have been chosen as
those that may inhibit or promote innovation in companies, involving
competencies of either internal or external actors: culture of creativity;
technology management (intellectual property, basic industrial technol-
ogy, research and development, technological partnerships, etc.); raising
public and private capital sources, entrepreneurship (including intraentre-
preneurship); design management; business innovation, innovation and
sustainability; and knowledge management.
Design and its management have more and more become a strategic
process for many companies, and an advantage in product positioning in
the market for several others, being part of an inherent and fundamental
part of the continuous process of innovation with a view to improving
competitiveness.
Parallel to these eight domains, the companies were segmented into four
degrees of innovation maturity:
• level I: those that do not understand what innovation means;

• level II: those that are aware or interested in starting innovating;
• level III: those that have been innovating, but not in a structured and
systematic way;
• level IV: those for which innovation is one of their strategies and
which have organized processes for this purpose.
For each of these levels of companies, the innovation center offers a

package of educational and consultancy services that combine the eight in-
novation reference domains described earlier and encourages the evolution
of the company towards more maturity in innovation, by offering programs
for all industries with priority given to advisory intelligence, education and
training, awareness-raising, mobilization, and finally, knowledge and in-
novation, as illustrated below.
Support and diffusion of INNOVATION in companies
Innovation Awareness-raising Education and Innovation

Knowledge and Mobilization Training Intelligence
Innovation Lectures Courses Consultancy

Network Workshop Training Services
Project Offices
Figure 5.7 C2i Activities.

Source: Fiep.
Based on the premises established with the innovation axes and matu-
rity levels of innovation in the companies, the Innovation Program devised
by C2i offers companies customized packages of products and services of
various kinds, namely: systematic awareness-raising events in every region
of the state; advisory service on innovation management; creativity mod-
ules to induce innovative environments; mobilization of “forward-looking
strategic routes for Paraná state” or in APLs; implementation of a network
of entrepreneurs, and detection and encouragement of companies which
show great potential for development, including internationalization; ap-
plying solutions through industrial mathematics; making available a proj-
ects office for application to support and government incentives or venture
capital; dissemination and service proposals based on new concepts of
strategic design, awareness and consultancy for sustainable innovation,
among others.
There are various partnerships that make up the physical space of C2i,
such as Anpei, the Paraná Design Center, the Junior Chamber Interna-
tional association (JCI), the Araucária Foundation, Paraná Metrology, the
Curitiba Development Agency, Sebrae, Endeavor, and BMF & Bovespa
(Brazilian stock exchange) among others. To create even more synergy and
to strengthen the innovation environment of C2i, many of these partners
are physically located in the same space as C2i.
Another innovation-oriented approach at C2i has to do with organizing
and hosting initiatives that foster innovation in companies through impor-
tant events such as the 2010 3rd Brazilian Design Biannual Exhibition (the
Bienal), the 10th Anpei Conference on Technological Innovation, TOP
Innovation and the Research and Innovation Show.
The “Innovation Network” portal is also part of this broader system.
The navigation structure follows the same four levels of maturity used for
the segmentation of the degree of innovation in the companies; that is, for
those who are interested only need in navigating in the environment that
most closely matches their current reality.
In just 12 months, the portal had more than 20,400 visitors from 40
countries (mainly Brazil, Portugal and the United States), totaling more
than 57,000 hits and more than 900 registered members, as well as 31
virtual communities to share knowledge and experience. Eighty-three self-
diagnoses of innovative maturity in companies were conducted, and the

network has 26 institutional partners, among them ICTs, research centers,
universities, specialized companies, NGOs, etc. Additionally, it offers li-
braries, a video collection, a store of case studies and a social network.
For the Innovation Program to have state-wide coverage, as well as full
integration with the Senai, Sesi and IEL activities, the Fiep employees
took on the the role of “Antennas for Innovation” which referred to those
collaborators with an innovative profile and ability to disseminate among
the state’s companies the concepts, products and services proposed by
the program. Moreover, these agents identify demands and needs of the
companies and suggest improvements in products and services. Not only
do these agents talk with the innovation center, but they also talk among
themselves, thus forming a strong network, a crucial concept of the whole
innovation system.
Innovation Management in the Company:

The IPDMAQ Case
Since 2003, the Brazilian Machinery and Equipment Industry has re-
ceived the support of the Institute for Research and Technological Devel-
opment of the Brazilian Machinery and Equipment Industry (Ipdmaq) to
undertake innovation activities. Created by the Brazilian Association of
Machinery and Equipment Industry (Abimaq), it aims to provide com-
panies with products and support services nationwide in order to boost
sustainable growth and competitiveness in this sector.
It should be noted that Abimaq represents nearly 4,500 companies from
different segments of manufacturers of capital goods. From this universe,
60% comprises small companies, whose performance has a direct impact
on other national industrial sectors. It has 1,400 companies as members,
which answer for more than 75% of turnover in the sector.
That sector contributes a turnover of R$ 70 billion per year to the Bra-
zilian economy. It is a strategic sector, and according to Acha et al. (2004), it
is the entry level for technology into the economic system, generating tech-
nologies and disseminating them to other sectors and productive chains.
Furthermore, the capital goods sector generates more than 240,000

direct jobs. According to Ipea, it employs 20 people in the chain for every
million turnover, representing a total of 1.6 million jobs in the chain, which
is one of the largest employers in the Brazilian economy; in fact, it is, for
example, twice the size of the automobile chain employment capacity.
Due to its great diversity and variability of types, uses and ends of the
products, innovation in this sector is crucial for the degree of competitive-
ness both in the domestic and the international markets.
In this sense, IPDMAQ develops actions along with machinery and
equipment manufacturers in order to stimulate them to devise and carry
out innovation strategies, plans and programs, aimed at designing a new
product or manufacturing process or service, or improvement in the
productive or social environment, besides aggregating new functions or
features to products or processes that involve incremental improvements –
and effective gain in quality or productivity –, which results in higher com-
petitiveness in the market.
It is worth mentioning the Business Coaching Service in Technology
and Innovation, whose goal is to guide enterprises into developing R&D
and Innovation project proposals, especially in cooperative projects; identi-
fication of instruments to support innovation (funding, economic subsidy,
tax incentives, holders of master’s and doctoral degrees in the company);
advice to companies in the areas of metrology; and standardization and
assessment of conformity and intellectual property. In addition, it aims
to contribute to an increase in the technological probing into the interest
of the companies in the sector; support to enterprises in order to promote
research, development and innovation work; generate information to guide
the process of innovation and technology policies for the sector of machin-
ery and mechanical equipment; divulge the legal framework for innovation
and encourage the use of instruments, mechanisms and programs to sup-
port the technological development of the companies in the capital goods
sector. As a result of recent actions, 31 projects were pre-selected from
Abimaq-associated companies under the “MCT / FINEP / AT-ICT-
Enterprises Cooperation – PRE-SALT-3 / 2010 Public Bid” terms, in the
total value of R$ 100 million, submitted by associated companies, operat-
ing in the segments of instrumentation / automation, boilers, valves and
submarine umbilical pipes.
Innovation Management in the Company:

the Case of Siemens do Brasil
In 2000, Siemens do Brasil initiated a project to introduce innovation

management integrated into the company as a whole, in addition to all its ex-
isting local initiatives, such as plants and research and development centers
in several states. The concept was materialized with the creation of an area
called Corporate Technology (CT) aiming at supplying all the segments and
business areas of the organization, with methods and instrumentalization
tools for innovation management. The innovation and technology manage-
ment model, put in practice by Siemens do Brasil from 2002 to 2007, was
considered one of the most advanced models in innovation and technology
management, designed especially for the reality of a large multi-sectorial
multinational with a clear strategy of localization and internationalization.
The first step in defining goals, achievement and monitoring of the
objectives was to create a governance policy that would enable top-down
involvement of the organization – from the high echelons down to CT
team members. To do so, two boards were created: the Technology Board,
formed by the company president and its directors, and the Technology
Executive Committee, comprising representatives of all Business Units
(BUs) of the company, as shown in Figure 5.8.
TB Board
Worldwide
Technology Strategic directives
Corporate
Technology Board Budget
Technology Managers
Corporate projects
TMC Methodologies and tools
Cooperation Technology
Committee (BUs) Specialized Consultants
External partnerships
Technology Transfer
S&T&I Systems
CT Technology Planning
Corporate Public Support
Technology Trademarks & Patents
Regulation & Standardization
Figure 5.8 Governance and structure of technology management and innovation.

Source: Siemens Ltd.
The Technology Committee consisted of technology managers from

various business areas, who, in turn, were appointed by the area directors
to act as a bridge between sectorial strategies and the support-induction
initiatives of corporate technology.
Starting with these two forums, the area of corporate technology guided
the operations, especially by enticing external partnerships; technology
transfer; development of S&T&I methodologies and systems; application
of the strategic technological planning process; guidance and support in
securing public funding; and support to the issue of intellectual property,
regulation and standardization. Additionally, this area maintained contact
with worldwide corporate technology, with more than 2,000 researchers
distributed around the world in various technological and thematic areas
and topics.
To give these actions some orientation, the Technology Committee cre-
ated a Policy for Innovation and Technology, validated by CT. Over the
years, a series of actions have been designed and implemented at Siemens,
and several external initiatives have been developed, always aiming at
promoting innovation and technology in the company’s business units, as
shown in Figure 5.9.
BUs
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Figure 5.9 Model of technology management and innovation.

Source: Siemens Ltd.
Among the various tools there was an Innovation Portal (the first and
only portal in Brazil at that time, used to collect ideas and external opportuni-
ties); an adapted version of methodology analysis and value engineering (to
optimize existing products); a tool to evaluate the feasibility of new products;
an innovative process of technological strategic planning for a multinational
company; an area of support to intellectual property issues (including an in-
ternal award) and technical standards as well as assistance in the use of public
funding. To enable exchange of information and experience among the vari-
ous areas of technological innovation and innovation management at Siemens,
the Technology Committee participated in a series of international meetings
of Siemens Communities of Practice Management Innovation worldwide.
With regard to the external environment, always following the macro-
economic situation of the country, the strategy was to actively contribute
to the industrial, technological and innovation policies, by using as much
as possible the laws of incentive and support to innovation (Computer
Law, “Goodness Law”, Sector Funds, etc.), in addition to participating in
various forums, organizations and national innovation associations (Anpei,
Uniemp, CGEE, Finep, etc.).
In recognition of this unprecedented innovation management model
in the country, Siemens received various awards, among them the 1st place
in the Finep Award in 2002, the 3rd place in 2003 and the 1st place in 2004
(regional level – Southeastern Brazil), the 2nd place in the category of “Large
Company” of the Finep Award in 2004 (national level), the Master Award
in 2004 and the 1st place awarded by Finep in 2004, in the “Product” cat-
egory (regional level-North).
Beginning in 2006, Siemens created its own award for innovation in
Brazil – the “Werner von Siemens Technological Innovation Award”,
encouraging students and researchers to submit ideas and solutions in the
area of science, technology and innovation favoring social inclusion and
social contribution; this award is already well known in the market.
Conclusion
I believe that, before offering companies the whole outline of the cur-
rently existing tools devised to foster innovation, Brazil should rethink,
first, whether this is adequate and sufficient. As discussed previously,

although the volume and diversity of support and incentives measures
have made significant progress, we must admit that today research work
is primarily done by universities; that resources are dispersed over many
projects; that few companies know and use these incentives, and that their
use is concentrated in large companies (which have better structure and
legal knowledge to use them).
It is thus clear that innovation still plays a secondary role in companies’
strategies, perhaps due to a business environment marked by long periods
of uncertainty and economic shocks; due to lack of tradition in investing in
innovation; due to a still recent government initiative supporting the de-
velopment of more sophisticated technologies and innovation; and due to
macroeconomic influences, such as overvalued exchange rates and high in-
terest rates, which are far from helping innovation initiatives implemented
by companies.
As solutions to accelerate the innovation process in Brazil and to catch
up with nations that are already moving at a pace faster than ours, we sug-
gest, as the first and highest priority in the State strategy, a radical change
in the quality of primary and secondary education, and the introduction
of the topic of entrepreneurship and innovation in the Brazilian educa-
tion curriculum.
Next, it seems very important to keep on supporting entrepreneurs by
improving current incentives to innovation and by establishing new ones,
as well as by starting a comprehensive and consistent process aimed at
training innovation managers. There is presently a wide ongoing discus-
sion regarding the formation of a network-framed Brazilian School of In-
novation Management.
The issue of industrial policies for innovation should be reinforced,
with a more sectorial focus, in areas where Brazil already has competitive
advantages; for example, by taking advantage of the considerable advances
already made in Bio-energy, such as the ethanol, or the extensive existing
bio-diversity, or by capitalizing on imminent opportunities such as the dis-
covery of the “Pré-Sal” (the pre-salt layer in oil prospection) and events like
the World Cup and the Olympic Games (various initiatives have already
been implemented in this respect).
Besides the need to establish clear goals and promote an ongoing follow-
up of the results (for example, through Pintec) by performing the due and
necessary corrections in the route planned, we need to expand our business
representation in the National Innovation System. This will be possible
through strengthening the important Business Mobilization for Innovation
and for the implementation of Permanent Innovation-Support Forums.
Recently, the government announced the establishment of the “Sala de
Inovação” (Innovation Room), which goes along these lines; though not
fully detailed, it appears to be a promising initiative.
6
ACTIONS OF MULTINATIONALS
AND THE INTERNATIONALIZATION OF RESEARCH,
DEVELOPMENT AND INNOVATION
Ricardo Sennes
Gabriel Kohlmann
Anselmo Takaki
Introduction
The health sector is a critical issue for all countries for different reasons.
The way countries formulate their strategies to tackle this subject depends
on several factors: infectious-parasitic or chronic-degenerative profiles,
models of access to health, to education, to sanitation, or models based on
their public policies. However, this has always been a strategic issue, as it is
related to safety and the productive and technological capacity of each na-
tion; that is, it has a relative power in relation to other areas.
Part of this context refers to the pharmaceutical industry, which has
occupied various roles in the health strategies adopted by the countries.
Its origins are linked to the chemical industry which was propelled and
strengthened between the two World Wars, either through close association
with or demands from states. Since then, research and development of new
drugs and therapies have been carried out “vertically” within the companies
themselves, but they kept direct and indirect relations with the demands
and funding from national states. In other words, companies in the industry
have defined their own strategies for basic and applied research. In order
to innovate, they have hired professional research teams for their exclusive
use, investing a considerable portion of their turnover for this purpose, and
have predominantly assumed the leadership and the vanguard of this effort.
In recent years, several factors have combined to change this traditional
pattern of research and development (R & D) in industries in general and
the pharmaceutical industry in particular. The trend we will show in this
chapter is that many sectors based on advances in science and innovation,
especially the pharmaceutical industry, have effected changes in their in-

vestment strategies and in the development of new products and processes.
As Gary Pisano states (p.466)
we have witnessed the decline of the corporate industrial laboratory. Many

were shuttered or spun off (e.g. Bell Labs, Xerox-PARC) and others were
scaled back, or redirected to more traditional “development” roles. At the same
time, we have seen the emergence of a whole new class of entrepreneurial com-
panies in sectors like biotech, nanotech, and more recently in energy, that are
deeply immersed in science.
In the case of the pharmaceutical industry, these changes have opened

an unexpected space for countries, institutions and new companies that in
the previous model did not use to participate in the sector’s hard core of ef-
forts in scientific advances and innovations. This is even more notable with
regard to biotechnology.
Based on this argument, this text is organized in five topics; the first
three outline the history of investments in the pharmaceutical industry,
as well as its strategies towards global competition; the evolution of the
research and development models devised by some important multination-
als; and the new geographic trends for research in science-based industries.
In the latter two topics we discuss what the Brazilian participation in this
competition is like, the public political routes and some case examples of
partnerships and collaborative innovation.
Increase in Investment and Risks for Pharmaceutical

Research Programs and New Strategies for The
Pharmaceutical Industry
After considerable progress made in the post-World War II-years (the

1950s and 1960s), the pharmaceutical industry has consolidated its vertical
development model, in which there has been an increasing demand for in-
vestment, accompanied by increasingly sophisticated, complex and exten-
sive strategies for research and development. In some cases, the “screen-
ing survey” strategy has been adopted, in which an enormous number of
combinations of substances is tested in order to identify molecules with
potential to be used for human health.
Investments in R&D released by the Pharmaceutical Research and

Manufacturers of America (PhRMA)1 show significant amounts and a
growing curve (from US$ 48 billion to US$ 65 billion from 2004 to 2008),
with investments highly concentrated among the sector’s large companies.
Table 6.1 Investments in research and development in the pharmaceutical industry in the United
States.
PhRMA Members Pharmaceutical industry Ratio between
Year
(dollar billions) ( dollar billions) PhRMA and industry
2008 50.3 65.2 77%
2007 47.9 63.2 76%
2006 43.4 56.1 77%
2005 39.9 51.8 77%
2004 37 47.6 78%
Source: Pharmaceutical Research and Manufacturers of America (2009).
However, even with the constant increase in investments in research

made by industries, there has been a marked decrease in the number of new
products launched and / or treatments, as noted in Figure 6.1.
60 70
53 65.2
50 63.2 60
39 56.1 50
40 35 51.8
30 31 47.6 40
30 27 24
21 20 19 30
20 17 18 18 17
20
10 6 7 5 7 6 5 6 10
3 3 2 2 4 2 4
0 0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
New Molecular Entity (NME) R&D expenditure by U.S. Pharmaceutical

New Biological Application (BLA) Industry (in dollar billions)
Figure 6.1 New medications and/or new biological applications authorized in the United
States and R&D expenditure by the U.S. pharmaceutical industry.
Source: Food and Drug Administration, NME Drug and New Biologic Approvals/PhRMA.
Chart developed by: Prospectiva.
1 The US-based Pharmaceutical Research and Manufacturers of America Association, com-

prises the 28 largest pharmaceutical companies in the world, including those outside the
United States.
Expectations about a new cycle of innovations based on biotechnol-

ogy have not been confirmed, and it has not been possible to reverse the
downward trend in the launching of new products derived from chemical
synthesis. One reason for this growth in investment, as noted by Pisano,
can be explained by the uncertainties of the biological world:
knowledge of human biology has exploded by orders of magnitude in the past

decades, and yet many aspects of human biology remain a mystery. As a result,
much drug R&D is shrouded in deep uncertainty. (Science Business, 2006, p.42).
One of the issues highlighted in the pharmaceutical industry nowadays

is that of how to deal with the increased investments needed to maintain
the same standard of innovation found in the previous years. The volume
of investments in research, development and innovation (RDI)2 necessary
to launch a successful product has increased significantly and is today es-
timated at US$ 802 million (TUFTS CENTER FOR THE STUDY OF
DRUG DEVELOPMENT, 2001).
Some elements contribute to this, such as costs, risk and complexities in
the Clinical Trial Phases, in addition to a long testing period. Add to this
the regulatory changes that have had a strong impact on the industry with
regard to these processes.
Therefore, the last decades have meant a major challenge for the indus-
try with regard to its betting on traditional verticalized strategies of inno-
vation. In view of this circumstance, the pharmaceutical industry, whose
core issue is scientific knowledge, has advanced through new frontiers
such as open innovation, whose fundamental features are decentralization
and horizontalization of research, establishment of partnership networks
and close collaboration between companies and/or public institutions and
researchers, both in the countries where the main companies have their
headquarters and in emerging and developing countries.
The presumption is that the main advantages for leading companies to
decentralize their RDI processes are risk mitigation and lower investment,
in addition to the use of the human resources capacity involved in the part-
nerships and new markets.
2 In this chapter the authors will reference, starting from this paragraph, research and develop-
ment (R & D) activities as the area par excellance of innovation, using RDI as acronym.
2-3 years 6-9 years
Clinical Clinical Clinical

Pre-clinical Phase Registration
Phase I Phase II Phase III
Effectiveness Tolerance Dosage and Effectiveness and Regulatory agency

and Tolerance in Humans effectiveness safety in larger analyzes data for
in Animals in patients number of patients authorization
Average cost per medicament U$ 802 million
Figure 6.2 Time and average cost to develop a new drug.

Source: Triebnigg (2008).
Public-Private Partnerships
Collaborative Research Service Outsourcing
Horizontalization or Descentralization
of Research Development and Innovation
Emerging countries (BRICs plus Singapore)
Open Innovation
Figure 6.3 Schematic illustration of the open innovation reach.

Source: Prospectiva Consulting (2010).
The open innovation concept, coined by Chesbrough in 2003 has now

been consolidated precisely because companies have put it into practice.
The typology for internationalization of RDI, however, predates the 1970s.
Multinational companies have since reinvented organizational structure
in different ways, seeking new markets and innovations. The typology
used by Oliver Gassmann and Maximilian von Zedtwitz (1999, p.231-50)
somehow already predicted the concept of “open innovation”. These re-
searchers used the categories listed in Table 6.2.
Table 6.2 Terminological synthesis adopted by Oliver Gassmann and Maximilian von Zedtwitz
(1999).
Category Definition Advantages Disadvantages Examples3
R&D Ethno- Standard practice Efficiency No awareness of British Gas,
centriccentralized of multinationals new markets and Toyota,
in the 1950s local demands Volvo
and 1960s, Low costs due to Lack of
characterized scalability exposure to new
by centralization technologies
of scientific
intelligence High protection against The Not Invented
at company technology transfer Here Syndrome*
headquarters Strict organization
R&D Structure that Efficiency through Possible neglect ETL,
Geocentric- maintains the innovation of systematic Kubota,
centralized advantages of internationalization Nissan
centralization, but Awareness of new Risk of lack of
more likely to Technologies and awareness of local
internationalize markets demands
Good cost-benefit of
internationalization
R&D Standard High awareness of local Inefficiency Philips in
polycentric- adopted by many markets and parallel the 1980s,
descentralized multinationals development Royal
in the 1970s and Cultural adaptation Lack of Dutch/
1980s in which technological focus Shell
R&D labs were
structured together Use of local resources Problems with
with branches critical mass
(scalability)
R&D Global- Considered as an High efficiency due to High costs of Basf,
centralized evolution of other high coordination coordination Siemens,
(hub model internationalization Avoidance of Risk of supressing Boehringer-
R&D) models , and redundant work creativity and Ingelheim
characterized by flexibility through
decentralized R & Achieving synergy
central directives
D, thoug subject
to directives from
headquarters
Integrated R&D New frontier Complementarity of High coordination ABB, IBM,
Network for R&D, as specializations and costs Novartis,
autonomy of local synergy Roche
labs is considered Global efficiency Institutional
de facto before local efficienty complexity of
Constant learning and rules and decision-
exchange making processes
as well as public
Development and policies
refining of local
knowledge
* The “not invented here”(NIH) syndrome refers to the resistance in learning skills of other companies
and other companies and/or competitors that have more expertise.
Source: Gassmann and von Zedtwitz (1999).
3 It is worth noting that the companies Oliver Gassmann and Maximilian von Zedtwitz gave
as examples in 1999 may have modified their strategies throughout the years.
Moreover, the accumulation of knowledge in recent decades, whose

patent protections have already expired – with another portion of them
which may be under protection – comes to be incorporated as part of the
innovation strategy and may also be shared. In this respect, we can still
point out changes in the use of intellectual property as to its own objective,
which is to protect against misappropriation, as many companies incur
high legal costs and even so do not use their patent coverage. Henry Ches-
brough, for example, proposes that companies with many assets in this
area should combine the efforts of their legal and business departments in
order to identify licensing opportunities and partnerships. In Figure 6.4,
the extreme portion on the left (region-protected and not used) is a field to
be probed.
Patent protection
Technological practice
Protected andnot Region- Non protected

used region protected use region
Figure 6.4 Evaluating the patent-protected technological align-

ment.
Source: adapted from Chesbrough (2006, p.83).
As an example, we could mention research on composites and new ma-

terials that can be useful both for the oil industry and aeronautics. Nano-
technology and biotechnology are also cross-cutting themes that impact on
various areas, from metallurgy to agribusiness.
Considering the terminology presented by Gassman and Zedtwitz
(1999), we can infer that companies are seeking flexible and economical
ways to find new solutions, improvements and/or technological adapta-
tions, as well as establishing new markets. The Integrated R&D Network,
which originated from lessons drawn from the last decades, is, as far as
cost/benefits are concerned, a point of reference in this process and it is no
exaggeration to say that it is very similar to Chesbrough’s open innovation
concept.
Actions Towards Decentralization of Research
As we have seen earlier, reduction in risk, smaller investments and good

use of human resources and new markets are the main benefits drawn by
companies in decentralizing their RDI processes.
Part of this phenomenon stems from the pursuit of scientific excellence
and specific knowledge in certain areas (hence the large flow of European
investments in the United States and vice versa). The very international-
ization of the productive processes has leveraged the internationalization of
some RDI activities, especially those related to the adaptation of processes
to local conditions. A more recent phenomenon, however, has been the
search for cost reduction in RDI processes. Innovation-related activities
have come to be perceived as service-rendering and, therefore, likely to be
“outsourced” to subsidiaries or “service providers” located in countries
with lower relative cost. These latter two phenomena explain the increasing
flow of RDI investments in developing countries.
Given the importance of investments in innovation for economic and
social development which, by the way, improves the profile of foreign
participation, the competition to draw these resources is constantly on the
rise. Besides the internationalization of RDI, the possibility of creating
technology transfer should be considered, as this movement enables recipi-
ent countries to develop their own technologies, in that foreign investment
strengthens their own technological capacity and innovation efforts. Figure
6.5 illustrates how these foreign RDI investments reinforce and empower
National Systems of Innovation as a whole.
There are several prerequisites for a country to seek the establishment
of international research centers: the existence of highly qualified human
resources, tradition in scientific production in specific niches, adequate
infrastructure (particularly in information technology), strong support-
ing institutions, besides efficient and stable legal and governance systems
(UNCTAD, 2005). In Brazil, for example, the 1997 Genome Project com-
pelled a learning process which led to the creation of a critical mass in bioin-
formatics. In 2002, the University of São Paulo launched a PhD program in
bioinformatics, and other universities have offered lato sensu post-graduate
courses. As few countries meet these prerequisites, the list of countries
competing for investments in this segment is relatively short, and becomes
National system of innovation

in country of origin
Foreign
MNEs
International production system
(global R&D network)
Foreign
Subsidiaries
National system of innovation
in receiving country
Local Firms
Non-
Government business-oriented
institutions
Figure 6.5 National Systems of Innovation and FDI in R&D: benefits for receiving country.
Source: UNCTAD (2005).
even shorter when we analyse the area of human health. Another way to
address the interaction among the actors involved – namely, university, in-
dustry and government – is through the so-called “triple helix” (Etzkowitz,
1996), in which these three entities converge on certain issues and innovate.
In this sense, the Genome Project is emblematic.
In this context, several countries have been investing heavily in staff
training, infrastructure (e.g. technology parks), adequate regulatory frame-
works, as well as exemption policies and tax incentives related to the RDI
activities. As most of these investments stem from multinational compa-
nies, the agencies engaged in enticing investments have also been playing a
cardinal role in this game.
Canada, China, South Korea, Ireland, India and the Czech Republic
are examples of strongly active countries in the international field of in-
novation in the area of human health. Such activism should be understood
as the existence of public policies specially designed to attract innovative
investments, as well as the existence of bodies and/ or agencies for this end.
The New Geography: Internationalization of Innovation
Since the Second World War, the natural resources of a country have no
longer played a central role; scientifically sophisticated human resources
potential, such as engineering, would come to dominate the new economy.
The history of the electronic, chemical, pharmaceutical and automotive
industries, to name a few, provides a good illustration of this “decoupling”
between natural resources potential and knowledge. Countries like Singa-
pore, South Korea, Japan and Taiwan are emblematic for strengthening
their industrial arenas despite not having vast natural resources. These four
countries, as shown by Jan Fagerber and Manuel Godinho (2006), also
learned how to catch-up in terms of technology and were able to redefine
the technological status of their industries and the fortunes of their nations.
To measure the evolution of knowledge-based industries, we can draw up
several indicators: public and private investment in RDI, articles published
in journals, patents, etc. These indicators are important, although they also
present various distortions. One way to partially compensate for such distor-
tions is by mapping the movement of the companies regarding the location
of their investment in RDI centers. Table 6.3 shows part of this movement
Table 6.3 RDI expenditure by U.S. multinationals abroad

(2006).
Countries/regions USD billion %

Europe 18 63
Canada 2.5 9
Japan 1.7 6
Israel 0.85 3
Singapore 0.85 3
China 0.8 3
South Korea 0.8 3
Brazil 0.6 2
India 0.31 1
Total 28.5 100
Source: National Science Foundation (2010, p.49).
For the last seven years (1999-2006), there has been an increase of 53%
in innovation activity spending of U.S. multinational companies abroad.
In the specific case of the pharmaceutical sector, it is possible to identify

recent movements towards establishing new RDI centers in developed
countries, as shown in Table 6.4.
Table 6.4 Major pharmaceutical companies with consolidated activities (establishment of

agreements, centers and research institutes, development and innovation outside the countries
where headquarters are located).
Company Headquarters Central Countries (OECD) Emerging Turnover
(acronym/ countries (dollar
initials) billions )
Johnson & United States Spain (1961), França (1959), India (1957), 61.8
Johnson Belgium (1961), United China (1985)
(J&J) Kingdom (1947), Switzerland
(1959)
Pfizer United States United Kingdom (1954), Singapore 50
(PFZ) Belgium(1992) (1987)
Roche Switzerland United Kingdom, United China (2004) 47.1
Group States (1976), Canada,
(ROC) Germany (1980), Austria
(NR), Japan (2002)
Novartis Switzerland United Kingdom (1951), India (2003), 45.1
(NOV) United States (1964), Japan China (2006),
(1987), Italy (2008), France Singapore
(2009) (2009)
Glaxo Smith United United States(NR), China (2007) 44.2
Kline (GSK) Kingdom France(NR), Spain(NR),
Canada(1987)
Sanofi France United States (NR), China (2005), 43.4
Aventis Denmark (2003), United India (2007)
(SA) Kingdom (1957), Japan (NR),
South Korea (2009),
Abbott United States United Kingdom (1937), Singapore 30.7
Laboratories Germany (1965), (2010)
(ABT) Japan(1964)
Merck United States Switzerland (1979), Canada India (1967), 27.4
(MCK) (1969), Holland (1992), Singapore
United Kingdom (1981), (2000), China
Germany (1948), France (1995)
(1996), Japan (1968)
Eli Lilly United States Australia (2000), Canada China (1991), 21.8
(ELI) (1946), Spain, United Japan (1995),
Kingdom (1967) Singapore (2002)
Amgen United States United Kingdom (1986), India (2007) 14.6
(AMG) Australia (1991), Canada
(1991), Germany (1989),
Switzerland (2002), Japan
(1992)
Turnover based on ranking published by Fortune Global 1000 (2010).
NR: Not reported
Source: Data accessed on the companies’websites.
With these transformations, companies have been redesigning their

investment strategies in RDI. In this process there has been decentraliza-
tion in the application of resources, which were previously concentrated in
the companies’ headquarters and in “verticalized” investment strategies.
For example, for a medication to be approved and reach the pharmacy
shelves, it must go through clinical trials I, II, III and IV. These tests used
to be done exclusively in the company’s premises and at a high cost. Today,
however, there has been a tendency to conduct them (through outsourcing)
in emerging countries, such as the Czech Republic or even Brazil. Emerg-
ing markets – with some solid scientific base – came to be integrated into
the global health industry game and seem to be a growing destination for
investment, as the next figure illustrates.
Geocentric Global
centralized centralized Integrated R&D Network
or
Ethnocentric Polycentric
Open Innovation
centralized decentralized
ROC NOV GSK
DE JP CA
NOV ELI ROC AMG
US UK US JP
SA ABT MCK AMG AMG
UK JP JP UK DE
NOV ABT MCK BMS AMG BMS ROC
UK DE CA UK CA JP JP
PFZ J&J J&J MCK AMG ELI AMG SA NOV
UK BE FR UK AU JP CH DK FR
J&J J&J J&J MCK MCK MCK BMS BMS NOV SA
UK ES CH CH NL FR FR BE IT KR
1950 – 1960 – 1970 – 1980 – 1985 – 1990 – 1995 – 2000 – 2001 – 2002 – 2003 – 2004 – 2005 – 2006 – 2007 – 2008 – 2009 – 2010
J&J ELI MCK MCK ELI NOV ROC SA NOV AMG NOV
IN CN CN SG IN CN CN CN IN SG ABT
J&J SG
CN GSK SG
MCK
CN
IN
PFZ SA
SG IN
Country acroynms/initials: ISO-3166-1 Alpha 2
Central Countries (OECD) Emerging Countries (BRICs + Singapore)
Figure 6.6 Opening of new research centers outside the multinational headquarters (il-
lustrative sampling of the 10 largest pharmaceutical multinationals). Chart developed by
Prospectiva Consulting.
In Figure 6.6, we have divided the countries into two types: those that
already have made strong investments in RDI for decades and those emerg-
ing BRIC countries (Brazil, Russia, India, China plus Singapore). The
inclusion of Singapore is justified because it has had some prominence as
regards investment and environment for innovation; therefore, the move-

ments of the pharmaceutical industry in Singapore have been intense.
Brazil: Public Policies for Innovation and Examples

of Investment Enticement for Innovation in Health
In the midst of this scenario of increasing decentralization and competi-

tion for investments in R & D & I, Brazil has set out policies that are quite
similar to international trends, although we have been more effective in the
scientific field than in business innovation, and have not been particularly
directed towards enticing foreign investment. These trends have begun to
change in recent years and some recent cases – in the field of human health
and others as well – are signs of these changes.
Brazil stands out among developing countries for having – in different
proportions – almost all the prerequisites to entice foreign investment in
RDI. We have a foreign investment-enticing history which dates back to
the early 20th century, with multinational companies playing a key role in
the country’s industrialization process, especially since the 1950s. With
few exceptions, throughout history, these companies have found a very
favorable business environment in Brazil, and the 1988 Constitution stated
that any company established in the country, be it national or foreign capi-
tal, is considered a Brazilian company. In the present circumstances, Brazil
also stands out among developing countries for enticing investments in
various industrial finance, services and energy sectors, and in 2010 such
investments reached the mark of US$ 48.5 billion.
As to intellectual property protection, for example, in 1997, Brazil
adapted its laws to the international standards and since then has been in-
vesting in qualifying and improving management at the National Institute
of Industrial Property (Inpi).
When Brazil is compared to other developing countries, it can be no-
ticed that from the standpoint of human resources qualification, there is a
good resources basis for the development of RDI activities. The Brazilian
network of universities and research centers has shown increasing scientific
capacity, which has reflected in the growing participation of researchers in
internationally indexed publications. According to data from ISI / Thom-
son Reuters from 2008, 2.63% of the indexed articles published around the
world were by Brazilian researchers. In 1997, this figure was 1%. Also in
training for a master’s and doctoral degree, Brazil has achieved good marks:
in 2009 11,368 PhDs were awarded in the country.
For the last sixteen years, public policies, directly or indirectly related
to the promotion of innovation in the country, have been sponsored, and
show still modest results but with fairly positive prospects. These efforts
include the approval of the Industrial Property Law in 1996, the creation of
sound sector funds directed towards financing R & D in nine sectors of the
economy, the establishment of industrial policies, among which innovation
(besides the traditional focus of increased production and exports) has a
relevant place; and the strengthening of research funding institutions (both
at the federal and state level), with special mention of Finep (with a budget
of US$ 2.12 billion in 2011), in addition to the laws supporting innovation
through tax exemption and flexibility in public-private partnership proj-
ects in R & D & I regulated by the “Goodness” Law (Law no.11.196) and
the Innovation Law (Law no.10.973/04), among others.
The Technological Innovation Survey (Pintec), in its fourth edition,
shows some advance, albeit slow, in this area:
[...] It is possible to state that the activities that presented the highest rates
of innovation in the 2006-2008 period were those of high-and medium-high
technological intensity: automobiles, vans, utility vehicles, trucks and buses
(83.2%), pharmachemical and pharmaceutical products (63.7%), other elec-
tronic and (fiber) optical products (63.5%), chemicals (58.1%), communication
equipment (54.6%), computer equipment and peripheral components (53. 8%),
machinery and equipment (51%) and electronic components (49.0%). (Pintec,
2008, p.39)
The rate of innovation measured by Pintec 2008 shows a significant in-

crease of 38.6% between 2006 and 2008, compared to the three-year period
of 2003, 2004, 2005, when the rate was 33.4%. The relative difference, com-
paring the 2003 and 2005 Pintec findings was 0.1%; and if we compare the
2008 Pintec findings with that one of 2005, we have a rate of 5.2%. These
figures show the evolution of the Brazilian business mentality, which is
increasingly willing to innovate.
In short, the socioeconomic changes in Brazil, as well as the delineation

of a new mentality in relation to global businesses, give Brazil a position of
prominence as a destination for investment in RDI and innovation.
It is worth noting the record disbursements by the National Bank for
Economic and Social Development (BNDES) and the Funds for Studies
and Projects (FINEP), as well as the capitalization of the São Paulo Re-
search Support Foundation (Fapesp) for all the federation states.
However, despite having all these prerequisites to become one of the
leading countries in the world with capacity to entice investments in inno-
vation, the amount of funding Brazil receives for this type of activity is still
modest when compared to other emerging and developing countries. Even
when we consider almost all the world’s 500 largest companies operating
here for several decades, the initiatives undertaken to transfer RDI-related
areas to Brazil are still tepid. This finding is even more serious when we
analyze the human health sector.
Lack of coordination among the federal institutions to activate a strat-
egy to entice foreign investment in innovation is frequently pointed out as
one of the main bottlenecks in Brazil in this field. The cultural issue also
appears as one of the challenges for Brazil to be more soundly included in
international chains of innovation. We have a corporate culture which is
still quite entrenched in industrial or even commercial structures. On the
other hand, academic and research centers in Brazil continue to form staff
with strictly academic profiles, thus reinforcing the gap existing between
them and the business world.
Taking the health area as an example, at least two initiatives regarding
enticement of international investment for R & D & I have been imple-
mented with interesting initial results.
Public-Private Partnerships and Technology Transfer
Public-private partnerships (PPPs) have at their core the triple helix,

which is the interaction among university, industry and government, and
precisely because of a larger number of actors, this involves complex proj-
ects and contracts that are difficult to coordinate. However, PPPs are a
global trend, as the purchasing power of the State is a major economic
development inducer, besides the issue of technology transfer, particularly
relevant in the health field. Brazil has advanced in recent years in this field,
as the table below shows:
Table 6.5 Public-private partnerships in the final steps towards the development of medicines.
Public Therapeutic
Products Partners
Laboratories Recommendation
FURP Intrauterine device (IUD) Injeflex Pregnancy-
prevention
FUNEP + FURP Donepezil Cristália Alzheimer
FUNED Entecavir Microbiológica Anti-virus
LAFEPE Mycophenolate mofetil Nortec/Roche Immunosuppressor
IVB Octreotide Laborvida/Hygéia Acromegaly
LAFEPE Ritonavir Cristália Anti-retroviral
LAFEPE Botulinium Toxin Cristália Muscle relaxant
LFM Ziprasidone NPA/Heterodrugs Anti-psychotic
Farmanguinos Atazanavir Bristol Myers Squibb Anti-retroviral
The nine products listed in the table can represent nearly R$ 200 million
in purchase per year, which would mean R$ 40 million in savings per year
for the public coffers. Note that the success of this interaction is based on
mutually beneficial contracts for the company and the State. On the one
hand, the government requires technology transfer from the private sector
partners, thus securing the purchase of these products, on the other hand,
public labs catch-up and become more and more capable of providing the
Brazil National Health System with low-cost medicines,, which, in turn,
means that the government saves on the purchase of the same products.
Technology transfer is of great importance in the catching-up process and
is part of the development strategies in nations considered more economical-
ly advanced, given that there is basically some intense and extensive learning.
Clinical Research
Interesting cases in the health field demonstrating the country’s increasing

participation in international research networks are found in the increasing
volume of clinical research involving national and multinational institutions.
In 2009, the Duke Clinical Research Institute, of Duke University, lo-
cated in the U.S., created within the Federal University of São Paulo-Escola
Paulista de Medicina (UNIFESP-EPM) – the Brazilian Clinical Research

Institute (BCRI), to be Duke’s clinical research arm in South America. This
center, which established its own office in 2010 near the Unifesp campus,
joined a network of 20 other clinical research institutes around the world,
coordinated by Duke University. Besides the United States, the network
has the participation of laboratories in Canada, New Zealand, Australia,
Singapore, Belgium, Sweden, the United Kingdom, India and Argentina,
the latter coordinated by BCRI.
The institute’s goal is to cooperate, alongside Unifesp, with the devel-
opment of clinical research in Brazil, defending the highest clinical and sci-
entific standards, including the training of personnel and specialized tech-
nicians. Since its opening, BCRI has conducted more than 20 clinical trials,
in addition to employing about 30 people, among which are researchers,
doctors and nurses.
Another relevant case is that of Roche, the Swiss pharmaceutical com-
pany. Its primary focus was on the development of a portfolio of biotechnol-
ogy products; in fact, it showed complete disregard for the traditional model
of chemical synthesis. In this way, Roche has modified its global industrial
park, as well as its worldwide integrated research and development network.
Brazil succeeded in taking advantage of this movement regarding the
decentralization of the group’s research. For this, Brazil gained prominence
in its efforts to carry out clinical research, by generating a significant con-
tribution to the global development of new drugs. In 2009 alone, Roche in-
vested about R$ 54 million in Brazil for this purpose, involving 96 clinical
studies in partnerships with 777 research centers and hospitals, involving
around six to seven thousand patients.
Technology Transfer
Another area which has lately been fostered in Brazil, and which may
gain special importance in the near future, is that of international technolo-
gy transfer. A relevant case is that of Instituto Butantan and Sanofi-Pasteur.
The partnership between Instituto Butantan, a body of the São Paulo
State Health Secretary, and the French Sanofi-Pasteur (the Sanofi-Aventis’
vaccine arm) for the transfer of technology to produce vaccine against In-
fluenza can be considered a case of success and a model to be replicated.
The partnership began in 1999, with an agreement to build a plant

and to transfer technology for the production of the common flu vaccine,
aiming at making Brazil self-sufficient and ensuring the safety of its im-
munization program. The technology transfer would occur in a gradual
way, over ten years, so that in the first year Butantan would buy the ready-
made vaccine from Sanofi, and in the final year, the Brazilian laboratory,
having dominated the whole technological cycle, would be perfectly able to
produce the vaccine. In the meantime, the French company would supply
the virus strains, which would be incubated, dosed and completed at the
Butantan plant.
This first plant was completed in 2007, when the intermediate produc-
tion stages started. However, as early as 2002, Butantan had already started
to package vaccines, furnished in bulk by Sanofi. Investments totalled
more than R$ 60 million, split between the São Paulo government and the
federal government.
In 2002, the risk of an avian influenza (H5N1) pandemic emerged,
and the World Health Organization suggested that the Butantan premises
should provide an appropriate place for the production of vaccines against
the pandemic flu. Its laboratory was the only one in the southern hemi-
sphere with technology for such. In 2005, a new agreement was executed
with Sanofi-Pasteur, so that the plant which was being built for the produc-
tion of vaccines against the common flu could have an adjoining wing for
the production of vaccines against pandemic flus.
This addendum would mean higher investments, both by the federal
government and state government, totalling $ 100 million. In 2009, at the
peak of the swine flu (H1N1 or Influenza A), Butantan started producing
a vaccine against this new virus in its intermediate stages, with the strain
produced by Sanofi, and incubation, dosage and packaging done at the
Brazilian laboratory. Its full control of the whole cycle in the manufacturing
of the vaccine against Influenza A is expected for 2012.
Final Considerations
As we have seen throughout this paper, the recent years have witnessed
a major change in the typical pattern of R & D & I strategies adopted by
companies in the area of human health. These changes have fostered strat-
egies for open research, international partnerships, joint ventures between
companies and governments, as well as an important geographical decon-
centration of investments. This process has made room for the increasing
participation of emerging countries in global innovation networks. Coun-
tries like India, China and Ireland have gained prominence in this field.
Even though Brazil has for the last few years, followed a path of innova-
tion which is more and more convergent with worldwide trends, it still has
managed to entice few international projects, contracts, and investments.
Policies, new institutional arrangements and incentives for innovation
have brought about important effects on our scientific research and on
the Brazilian participation in the worldwide academic arena. However,
investments and structured and solid business wagers on innovation have
not advanced at the same pace. In this respect, Brazil is below the average
among emerging nations.
Brazil still has neither incorporated nor given priority to the goal of
securing investments by multinationals and participation in international
networks of innovation. Some initiatives have been implemented in the
last few years, especially in the field of human health; in fact, some of these
initiatives have already begun to produce favorable effects. The PPP in-
struments in the field of pharmaceutical innovation, the technology trans-
fer programs and the increasing participation of Brazil in the global net-
work of clinical research are positive examples of the potential and capacity
that this strategies represents. The vast industrial park in the country, the
already consolidated presence of multinationals in the Brazilian economy,
the comprehensive university and research center system, in addition to
our economic, political and institutional stability, are all factors that con-
firm these trends.
7
BRAZILIAN-STYLE INNOVATION.
THREE INTERNATIONALIZATION STYLES:
NATURA, MARCOPOLO AND EMBRAER
Glauco Arbix
Luiz Caseiro
For as long as multinational companies have existed – and

some historians trace them back to banking under the Knights
Templar in 1135 – they have been derided by their critics as
rapacious rich-world beasts. If there was ever any truth to that
accusation, it is fast disappearing. While globalization has
opened new markets to rich-world companies, it has also given
birth to a pack of fast-moving, sharp-toothed new multination-
als that is emerging from the poor world… The Economist: 4th
April, 2007
Some of the giants come from China, others from India. Many come
from Brazil and Russia but those who think that the birth of new multina-
tionals is entered only in the BRIC Birth Registration books are mistaken.
New businesses flourish throughout the developing world, whether in
Asia, Latin America or Africa. They advance assertively in emerging mar-
kets and in the more sophisticated ones as well. Many times they seem to be
more sensitive to the volatility and specific features of young and unknown
markets; in other circumstances, they exhibit greater flexibility than the
old, heavy multinationals which framed the industrial world of the past
century. Their performance still challenges theories – as though the poorer
countries are merely fated to receive, and not to export capital, or even
managers, an array of products and services, new types of business and in
many cases, technology. The history of these companies, especially its most
recent chapters, with respect to internationalization, is yet to be written.
This will only happen when lenses are adequately adjusted and paradigms
reviewed. What we do know now is that the European, American and

Japanese multinationals do not provide a reliable analytical mold capable of
illuminating the advance of new multi-Latin, “Asian tigresses” or “African
lionesses”. In this case, contrary to the view of some philosophers, history
neither repeats itself as a farce, nor as a tragedy.
Introduction
This chapter deals with the recent internationalization of Brazilian

companies. Their development does not conform to “baby steps” or any
sequence of phases as if these companies were children following in their
parents’ footsteps. For that reason, we have read with a healthy skepticism
the procession of articles that highlight the management virtues of Brazil-
ians. Certainly, we do not deny their existence, but we are still expecting
convincing explanations to understand more precisely what has changed in
Brazil, a country that has always been discussed in essays and academic re-
search as a place where there is a weak and state-dependent elite, which has
low entrepreneurial drive, lacks appetite for innovation and is risk-fearing.
With the same curiosity, we have examined the strategies used by the
companies and have noticed that the theoretical models, based on the his-
tory of others, do not foreshadow or explain their choices. On creating
maps, determining objectives and scanning trajectories, we find that, de-
spite their weight in nearby markets, Brazilian corportions do not show
special attachment to South America – presented as their regional cradle.
A significant number of them is targeted from the very beginning, at more
complex markets, more dynamic economies. This is not an absolute rule,
but the evidence is too great to ignore, as we will show in this chapter.
Stimulated by new data, contradictory signals and even supposed par-
adoxes, we will also present a synthesis of the experience of Embraer, Mar-
copolo and Natura. These three “heavyweights” of our national industry
were chosen as reference for this study, as we believe that their many ac-
knowledged qualities have never been sufficiently analyzed.
Our aim is to present and discuss recent developments taking place in
Brazilian companies, which, as authentic transnational enterprises, do not
hide their appetite and desire to compete in the four corners of the world.
A New Landscape
In India, the pharmaceutical industry is one of the most rapidly growing

sectors, both in the domestic and foreign market. However, even if the local
giants have increased their influence throughout the world, the dimensions
of Ranbaxy, Dr. Reddy’s Laboratories or Cipla, for example, still do not
compare in size to Johnson & Johnson, Pfizer, Roche, GlaxoSmithKline
and Novartis. The same reasoning can be applied to Lenovo, which has
acquired from IBM the personal computer business; or to Tata Consult-
ancy or Wipro; neither can Alitalia, now controlled by a Russian group,
be equated with those that predominate in the sector, including United,
Delta or Air France. The Chinese Haier, which flooded the world with a
new generation of white line, is still in its adolescence, when compared to
its older and more experienced sister, Whirlpool. The succession of names
and brands may be huge, and the Brazilian ones also find themselves in
a place of prominence, for economy and businesses are dynamic – a true
“musical chairs” situation in the business rankings, which has started to
draw the analysts’ attention, be it for the new arrivals, be it for the speed in
gaining new positions or even for the voracity with which competitors are
swallowed in mergers and acquisitions.
In the past few years, dozens of companies from emerging countries
have appeared in the Fortune Global 500 rankings, in the reports issued
by the Boston Consulting Group and Accenture, as well as in articles and
academic journals. From Brazil, we can mention giants like Vale, Petro-
bras, Embraer, Marcopolo, CSN and Gerdau, as well as companies with
regional leadership, like Natura and Totvs, along with other specialists in
market niches such as Sabó, Politec and Bematech, and after the crisis, Itaú,
Bradesco and Banco do Brazil.
Stimulated by the growth of India and China, many of these companies
have benefited from the commodities boom; others have benefited from the
creation of Mercosur. All of them, in fact, have seized the good opportunity
and performance of the Brazilian economy. In this chapter, it is important
to make it absolutely clear that we do not deny that the Brazilian companies
which gained international renown were able to respond positively to the
quick opening of the economy promoted by the government in the 1990s.
They overcame adversities, reexamined their organizations, reviewed their
strategies and managed to modify their structure so as to absorb, generate

and multiply competitive advantages (Goldstein, 2007). In general, these
companies were able to choose their own weapons to meet the new standards
of competition that took shape in Brazil. Many overcame their typical family-
owned or excessively parochial businesses. All of them overcame bureau-
cratic and tax barriers and a marginal use of technology. To do so, they had to
reinvent themselves and adopt innovative strategies as a means of survival.
In 2005, studies from the Institute of Applied Economic Research
(Ipea) already demonstrated that companies that innovated, in addition
to being more productive and conducive to export, also grew faster, paid
higher wages, attached more value to their employees’ experience and had
a more qualified workforce.
Sam Palmisano, IBM chief executive officer (CEO) predicted soon after
the emergence of multinationals in developing countries, that the business
world would never be the same again. Unlike subsidiaries created in the
image and likeness of the mother companies, which predominated in the
20th century, the world witnesses today, according to Palmisano, the emer-
gence of horizontally integrated enterprises; and there is no need for the
new multinationals to go through the same phases or steps as their French,
German, British or American, correlated companies which have shaped the
world of big corporations up to this day.
The vitality of this movement is so great that it managed to debunk a se-
ries of pessimistic forecasts, which foreshadowed its failure in the face of the
international financial crisis. The pre-crisis trend was shaken, but showed no
signs of ending. In Brazil, after the reduction in the flow of Foreign Direct
Investments (FDI) in 2009, Brazilian companies quickly resumed their pace
and expansion, in tandem with the performance of the economy. In the first
nine months of 2010, the sum of investments oriented towards foreign acqui-
sitions reached US$ 17 billion, which already represents the second highest
value in history and more than the sum of all international acquisitions made
by Brazilian companies in the 1990s, as shown in the chart that follows.
Only from 2004 on it was possible to notice, however, a sharp and un-
precedented acceleration in the investments made by Brazilian companies
abroad. In this period, some giants like Petrobras, Vale, Embraer, Braskem
and JBS emerged as major global players; other big enterprises such as
Gerdau, Odebrecht, WEG, Coteminas, Marcopolo, BR Foods, Votoran-
tim and Camargo Corrêa, which already held a prominent position in the
Brazilian FDI – US$ billions

29.5
28.2
24.5
20.5
19.5
17.0
14.5
9.8
9.5
2.9 2.4
4.5
0.6 1.1
-0.5
-5.5
99
90
91
92
93
94
95
96
97
98
00
01
03
05
06
07
08
09
10
02
04
20
20
20
20
20
20
20
20
20
20
20
-10.5
-10.1
Total flow of FIDs FIDs for mergers and aquisitions
Figure 7.1 Brazilan FDI. Source: Developed by the authors based on Central Bank data.
*
2010: data just for first three quarters.
continent, consolidated and diversified their internationalization, heading

for the same direction. Besides these, however, various companies of all
sizes and from different sectors such as information technology, pharma-
ceuticals, machinery, vehicles and auto parts, raised their standard of com-
petitiveness and extended their activities abroad.
Nevertheless, it is not possible to reduce the explanations for this dyna-
mism just into the good moment experienced by the Brazilian economy, or
even the advantages of the low exchange rates, which would have facilitated
international acquisitions. At the root of this international renown are three
major guidelines that oriented the global launching of those companies:
• Incorporation of exports as an integrating part of the strategy of busi-
ness growth, a vital step for decisions to be taken regarding the inclu-
sion of such companies in the most dynamic economies.
• Understanding that the strengthening of the innovation processes was
essential for their survival in an open economy environment and for
their competing with major players for significant slices of the inter-
national market.
• Existence of a new State activism, which helped to stimulate a rapid
growth of the enterprises and their exports and to improve funding
terms in the domestic market as a support tool aimed at international
expansion.
Where are the Brazilian Multinationals Heading for?
The maps that follow as well as data collected, enable us to conclude

that the internationalization of Brazilian companies does not take a lin-
ear route, whose presupposition would be the use of a regional basis – in
this case, South America – as a platform for their expansion, nor are they
defined by cultural components, such as the linguistic community. Our
research, however, revealed that this is not so; it showed that Brazilian
companies have accepted the challenge of competing in the most complex
and diverse environments, which are precisely the ones that nourish and/
or require greater innovative activity.
According to data from Central Bank, two-thirds of Brazilian FDIs are
stated in tax havens. These assets are many times mobilized for acquisitions in
far-off countries, where it is usually more difficult to achieve success through
organic expansion, and with rare exceptions, it is not possible to accurately
determine their final destination (Goldstein, 2007). When we disregard tax
havens, we can see that there are more direct investments in Europe and
North America than in Central and South America (Figure 7.2). In fact, the
United States is the main destination in volume of investments, with US$
10.5 billion, while Latin America as a whole accounts for only US$ 8.5 billion.
1,138; 3%
United States
1,339; 4%
1,353; 4% Spain
1,664; 4% Denmark
Argentina
1,728; 4% Uruguay
10,556; 27%
Holanda
Hungary
1,827; 5%
rest of Latin America
2,466; 6% Austria
United Kingdon
5,208; 13%
2,518; 7% rest of Europe
Portugal
3,521; 9% Mexico + Canada
5,103; 13% Asia
Africa
Figure 7.2 Stock in billions of dollars (excluding tax havens).

Such preference for the more advanced markets, and in particular the
U.S. market, already existed in the early stages of the internationalization
of Brazilian companies. In a virtually unnoticed study, Guimarães (1986)
showed that between 1965 and 1982, direct investments made by Brazil-
ian companies in developed countries corresponded to 64% of the total for
the period. Obviously, there were sectorial variations; metallurgy and food
processing companies concentrated their investments in Latin America,
whereas electrical equipment, textiles, oil prospecting and banks preferred
other markets.
However, given the present difficulty in determining the actual desti-
nation of most FDIs, our study aimed to identify the location of Brazilian
subsidiary companies. This task was carried out in detail for 88 multina-
tional companies from various sectors (Figures 7.3 and 7.4).
Undoubtedly, there are limitations in our research because: (i) there are
no available data on the amount invested by each company in each destina-
tion, (ii) the sampling does not necessarily represent the set of companies
making investments abroad, for, though it reaches about 10% of this total,
it is concentrated in more internationalized companies, selected through
various academic studies and specialized reports. However, we believe that
this has been a useful exercise, as it has allowed us to notice important char-
acteristics of internationalization among major Brazilian groups.
The visual result of these maps is very different from what would be ex-
pected from an FDI mapping. As it is already known, a significant portion
of the Brazilian investments is concentrated around a few large commod-
ities producers, particularly Petrobras, Vale, Gerdau and more recently,
JBS Friboi (Dom Cabral Foundation, 2007). We do not mean, of course,
to minimize the role these companies play in the Brazilian economy. The
mapping, however, in demonstrating the number of companies from each
sector in each region of the globe, highlights precisely an aspect of the re-
cent internationalization process which has been rather neglected: it reveals
the involvement of a growing number of companies with medium-high and
high technological intensity that seek foreign markets as a means to raise
their competitiveness standards.
The first thing that draws our attention is that the country that entices
the largest number of Brazilian multinationals is the United States, with 59
companies, compared with 51 companies in Argentina. This preference for
152
Europe
8
4 United Kingdom Holland
4
Portugal Russia
6
Germany Switzerland
6 Italy Turkey
5
18 France Scandinavia
7
Spain Others 4
North America
25
16
11
USA 13
59 Mexico
Canada Asia
3 China
2 2
2 Japan
3 23
Arab
4
Emirates
6
India
Singapore
6 Taiwan
13 South Korea
8
Iran
Central and South America 7
Malaysia
Thailand
6 8 Others 8
Argentina 2 5
12
Chile 51 2
3
Colombia 13 3 3 Oceania
Peru
1
Uruguay 15 Africa Australia 1
Venezuela Angola Algeria New Zealand
Paraguay New Caledonia 5
18 South Africa Rep. of Congo
Bolivia 31
Mozambique Dijbouti Nambia
Ecuador Lybia Gabon
20 Nigeria
Central America 22
Congo Guinea Tanzania
Egypt Liberia Zambia
Figure 7.3 Number of Brazilian multinationals in each country.

Source: Caseiro (2009, p.47).
Europe 52 Companies Steel and Iron Electronics
IT
8 Vehicles & auto parts Cement Civil
Food & Beverage
Textiles & Footwear Aeronautics Oil & gas
2 Metal-mech
2 Finance Trade Transp. & logistics
6 Chemicals &
North America 2 Pharm & cosm Media
petrochm
2 Mining
64 companies Engineering
2 5 Paper & pulp
IT 9
2 3
Chemicals & 3 4
2 3
petrochm. 3 Asia
2
Metal-mechan 8 35 Industries
3
Vehicles &
3 Vehicles &
auto parts
3 7 auto parts
Food &
Beverage 4 5
IT
4 6 Metal-mech
Finance 4
Textile & Footwear 2 4 Finance
Engineering 2
Mining
Civil Textiles &
3 4
Mining Footwear
3 3
Trade Central and South America 3 Food &
Paper & Pulp 63 Companies Beverage
Steel and Iron Engineering
Engineering Paper & Pulp
Aeronautics
Chemicals & petrochm Aeronautics
Cement Africa
IT Multinational sample Pharm & cosm.
Electronics 2 6 13 Companies
Vehicles & auto parts 2 Food & Beverage 9 Pharm & Cosmetics 3 Electronics
Pharm & Cosmetics 2
Food & Beverage 2 6 IT 9 Paper & Pulp 3 Oil & gas
Oil & gas
Metal-mech. 3 4 Chemicals & petrochm. 8 Steel and Iron 3 Steel and iron
Special serv.
Textiles & Footwear 3 6 Engineering 2 Vehicles & auto parts 8 Trade 3 Trade
Transp & logistics
Finance IT 2 2
3 Steel and Iron 7 Cement 2
Mining 6 Vehicles & auto parts
4 Construction 6 Electronics 2
Pharm & Cosm Mining
5 5 Finance 5 Special serv. 2
Transport. 5 Metal-mech
Textiles & Footwear 5 Aeronautics 1
Cement Oil & gas
Civil Trade Construction 3 Energy 1
Food & Beverage
Special serv. Energy Transp & logistics 3 Media 1
Steel and Iron Oil & Gas Mining 3 Oil & gas 1
Figure 7.4 Number of Brazilian multinationals by sector in each region.

Source: Caseiro (2009, p.52) based on company data, Valor (2009) and the Dom Cabral Foundation (2009). Updated in August 2010.
153
the U.S. market calls into question interpretations that point Latin Ameri-
ca as the favorite spot with Brazilian multinationals.
By observing the European market, we find that Portugal has fewer
Brazilian subsidiaries than the United Kingdom, and that Germany is also
in a position of prominence, thus invalidating arguments for preference
based on easier access through language. For the stated value of FDI, Spain
ranks first among the Europeans, whereas Portugal ranks seventh as a des-
tination. In the Far East, a fair number of companies are making efforts to
operate in the Chinese market, which is already the fifth largest destination
of Brazilian multinationals in number of subsidiaries. Almost all of these
subsidiaries were established in the last decade, while 26% of the companies
in the sampling had already set foot in China. Despite the weight ofcultural
and linguistic factors, it is possible to conclude that the regular destination
of Brazilian multinationals, in all continents, reveals preference for larger
and more dynamic markets.
It can also be noted that, whereas Latin America and Africa are the
prime targets for a larger number of companies operating in the engineer-
ing, mining and textile sectors, a larger number of companies operating in
IT, chemical, mechanical and vehicles and auto parts sectors show prefer-
ence for U.S., European and Far East markets. This is another indication
that the more intense the sector’s knowledge in question is, the more in-
tense the search for more competitive markets will be.
Broadly speaking, this mapping also questions – based on the Brazilian
case – the validity of the gradualist approach that assumes that enterprises
firstly become international in countries that are geographically and cul-
turally closer, with a view to reducing their risks and the insecurity of the
entrepreneurs and their managers; only then do they aim for more distant
markets. In the Brazilian case, our leading multinationals do not necessarily
follow this pattern when it comes to establishing subsidiaries.
New Activism in The State
The pro-growth trend for the internationalization of Brazilian indus-

tries as well as the support provided by the government must be clearly
stated; when we notice the formal inclusion of the issue of internationaliza-
tion in the list of goals established in the government’s industrial policies.

However, emphasizing the important role played by the State does not
mean removing the companies from their position as the main agents in
this process. Internationalization had an initial impetus in the beginning of
the 1990s, when no special policy of incentive was offered.
Even today, a great deal of the efforts towards internationalization has
been made without any direct help from the State. However, in many cases,
the government support has been essential.
As from 2004, with the return of the industrial policies in Brazil, incen-
tives for the internationalization of companies made an official entry in the
government agenda. In 2004, Luís Furlan, the Minister of Development,
stated that “the government’s goal is to reach the end of its term of office
with at least ten Brazilian transnationals in operation” (Valor Econômico,
2004). In September 2005, the National Bank for Economic and Social De-
velopment (BNDES) funded for the first time an overseas acquisition by a
Brazilian company, providing the JBS / Friboi meat-packing industry with
US$ 80 million to purchase the Argentinian subsidiary of US-based Swift
(Além; Cavalcanti, 2005, p.43-76).
Between 2005 and 2009, BNDES spent – via loans and stock subscrip-
tion – in excess of US$ 8 billion for the meat processing and packing indus-
try, of which at least US$ 4.5 billion were directly involved in the intern-
ationalization of the JBS and Bertin groups, whose merger in that same
period was also funded by BNDES. Thanks to this financial support, JBS
acquired several assets in the United States, Australia and Italy, thus becom-
ing the largest animal protein processor in the world (www.bndes.gov.br).
The vast majority of BNDES funds directly resulting in the acquisition
of companies abroad went to the meat-processing sector. As to other sec-
tors there have only been a few operations, with significantly smaller – but
still important – values, such as loans of US$ 80 million for Itautec (IT) to
purchase the U.S. company Tallard in July 2007; US$ 17 million for Be-
matech (IT) to purchase the American company Logic Control in March
2010; and US$ 7.5 million for Eurofarma to complete the purchase of Que-
sada Pharmaceuticals in Argentina in June 2010 (www.bndes.gov.br).
The fact that BNDES devotes most of its investments in internation-
alization to a relatively low-knowledge sector and, therefore, with limited
potential to transform the Brazilian industrial park, has been the subject of
much debate by analysts, among whom we include ourselves (Arbix, Ca-

seiro, 2010, p.A14), who look positively at the recent changes made in the
Brazilian industrial policies as well as the decision to support international-
ization but we must stress the urgent need to prioritize initiatives related to
innovation and technology so as to reduce the Brazilian dependence on the
universe of commodities.
However, we must also admit that there are several other direct or in-
direct mechanisms, through which the State has currently encouraged
the growth of Brazilian multinationals. It was thanks to BNDES funding
granted to other countries (with the support of the Brazilian diplomacy),
that the construction companies Norberto Odebrecht, Camargo Corrêa
and Andrade e Gutierrez – despite their solid know-how, accumulated over
decades – resisted theChinese competition in Latin America and Angola
(Folha de S.Paulo, 8th March 2010). In compensation, the bank requires
that at least 35% of the amount disbursed on funding the works be spent on
the export of Brazilian products (Sennes; Mendes, 2009).
In another key point, through the concerted efforts of BNDES and Petro-
bras (in the case of Braskem), the State has supported the establishment
of large private groups. From February 2005 to February 2010, BNDES
contributed at least US$ 10 billion to fund the consolidation of large com-
panies in the domestic market in different sectors, including some compa-
nies whose innovative potential is higher, such as Braskem, Totvs and Aché
laboratories. Answering for this strategy, Luciano Coutinho, BNDES
president, stated that “allowing the development of Brazilian global ac-
tors on a worldwide scale is consistent with our industrial policies” (Valor
Econômico, 09/22/2009).
Moreover, a quick survey at Bovespa shows that BNDES has gone into
partnership with at least 18 Brazilian multinationals of different sectors
(Table 7.1). In 2009, it opened a holding company in London – BNDES
Limited – in order to assist Brazilian companies abroad in their acquisition
of assets (Estado de S. Paulo, 11/17/2009). Brazilian multinationals have
also taken advantage of the growing disbursements made by that govern-
ment institution – which surpassed R$ 150 billion between July 2009 and
June 2010 – in order to expand its operations and develop more muscle to
compete abroad. The interest rates charged by BNDES are up to five times
lower than the market average rates.
Table 7.1 BNDES share in Brazilian multinationals (company %).

Sector/Company % Sector/Company %
Aeronautics Paper & Pulp
Embraer 5.05 Fibria (Aracruz) 40.33
Food Klabin 20.25
JSB Friboi 22 Chemicals
Mafrig 14.7 Braskem** 42**
Eletromechanics Steel and Iron
Metalfrio 7.59 CSN 3.83
Metal-Mechanics Gerdau S.A. 7.23
Tupy 35.77 Textiles
Lupatech 11.45 Coteminas 10.35
Indústrias Romi 7.13 IT
Mining Bematech 8.22
Vale 6.71 Totvs 6.52
Autoparts Transportation
Ioschpe-Maxion 24.44 ALL Logística 19.24
Source: Bovespa and companies.
**
For Braskem: BNDES + Petrobras
The internationalization of Petrobras – a mixed capital company, but

under state control – and the impact of its activities on the Brazilian econ-
omy in terms of productive investments, R & D (Research and Develop-
ment) and the mobilization of suppliers, have also been on the increase.
Besides BNDES and Petrobras, other government-related institutions
such as Banco do Brasil and the Agency for the Promotion of Exports and
Investments (Apex), are also involved in supporting the activities of Brazil-
ian multinational companies.
In 2007, Apex, by focusing mainly on small and medium-sized enter-
prises, established that supporting internationalization would be one of its
three main goals. Currently, that institution has six “Business Centers”
located in Miami, Beijing, Dubai, Moscow, Warsaw and Havana, where,
in addition to relying on logistical support, Brazilian companies can rent an
office to serve as their first commercial base abroad. According to the insti-
tution website, there are now more than 150 companies using this service.
Apex may also work together with the Brazilian diplomacy to negotiate the
entry of companies in markets that are difficult to access. In 2009, for ex-
ample, it negotiated the first installation of a pharmaceutical multinational
in the Cuban market, the Brazilian EMS.
Despite these measures, which are essential for the international success
of some companies, the State incentives to shape and consolidate global ac-
tors still have a long way to go, especially in view of what other economies
competing with Brazil – such as China (Luo; Xue; Han, 2010, p.68-79) and
India (Pradhan, 2007) – have been doing.
Business Initiative
The third aspect we would like to discuss has to do with the steady in-
crease in competitiveness and entrepreneurship that Brazilian companies
have been displaying. After the opening of the economy in the early 1990s,
many of them gradually began to adopt standards of international competi-
tiveness, to modernize their management processes, to improve the quality
of their products and services and, more and more, to pursue innovation at
every stage of their operations. These changes have enabled many corpora-
tions to incorporate exports into their strategies of growth – and to leave
behind a business culture aimed at the domestic market – and to prepare
themselves for a more daring expansion into foreign markets. This section
shows how internationalization and innovation go hand in hand.
The rapid and vigorous emergence of Brazilian multinationals found
support in these four processes which are articulated and interdependent
and developed in the midst of an economic environment qualitatively dis-
tinct from that of the past, both internally and externally.
To illustrate this third aspect, we have selected three companies with
experience of internationalization, which, despite following different strat-
egies, help understand the steps that Brazilian enterprises have been taking
and the challenges lying ahead of them.
The companies we have chosen are Embraer, Marcopolo and Natura.
Each one of them has its own history. Embraer is now one of the largest
aircraft manufacturers in the world, and has been striving for leadership
in the segment of regional jets. The path it has followed shows its efforts
in improving qualification and management standards when designing-
aircraft and forming and administering a highly qualified international

network of suppliers. Marcopolo, a global leader in the bus manufacturing
sector, based its expansion on its manufacturing engineering system and
on partnerships established to gain access to new markets and reprocess
new techniques and technologies. Natura, in turn, is a dynamic company,
today among the fifteen largest cosmetics industries in the world, with an
innovative sales and distribution system, having consolidated itself as a
regional leader in South America. Its movements, however, suggest greater
ambitions, such as the opening of a store in downtown Paris and starting
production outside Brazil.
Embraer: Avant La Lettre Open Innovation
Embraer is perhaps the best known Latin American example of the de-
velopment model countries in the Far East have popularized in the world,
that is, how state support; partnership between innovation and internation-
alization-oriented technological institutes and corporations can act togeth-
er to effectively promote the transformation of the productive structure in
developing countries.
In the case of Embraer, as is the case with all major aircraft industries
worldwide, state support was crucial for its emergence and growth. How-
ever, the State assistance would never be enough to guarantee its current
success. The internationalization of Embraer, conceived in a broader sense,
which involves the integration of international production chains and the
acquisition of foreign technology (Mathews, 2002), took place since its in-
ception and also played a fundamental role in enabling Embraer to develop
new products.
Embraer was founded in 1969 as a mixed capital company, under state
control; in fact, the State granted it tax exemption to encourage private
capital to participate in what was then considered as a high-risk undertak-
ing Not coincidentally, the company was established in São José dos Cam-
pos, in an area adjacent to the Aerospace Technical Center (CTA) that was
granted by the government, which also transferred to the company 150 of
its engineers and technicians and its previouslydeveloped Bandeirante and
Ipanema aircraft projects, which had been designed there. In addition, Em-
braer had its production secured for a decade, when in the first two years
it received from the government orders for 80 Bandeirantes, 50 Ipanemas
and 112 Xavantes aircraft, the latter being produced under license from the
Italian company Aermacchi (Goldstein, 2002, p.97-115).
Embraer also counted on the technology from and partnership with
Aermacchi to develop an AMX military chaser plane, to meet the expected
purchase order for 187 aircraft by the Brazilian Air Force (FAB) and 39 by
the Italian Air Force, in 1981. This international partnership represented
a significant gain in terms of technological capability for Embraer and its
team of engineers; by the end of the project, both were dominating various
stages of jet production, which was crucial for the company’s recent success
(Miranda, 2007).
The first Embraer foreign subsidiary was founded in 1979 with the
installation of a commercial and technical support unit in Fort Lauderdale,
Florida. Having a unit in the United States drew Embraer nearer some of
its key suppliers and customers and key market trends, thus enabling the
incorporation of new knowledge about production processes. Moreover,
this promoted adjustments to meet the Federal Aviation Administration
(FAA) demands, a fundamental passport to be admitted r into the largest
markets in the world (Vasconcellos et al., 2008).
In 1982, the Bandeirante accounted for one third of the North Ameri-
can 10- to 20-seat aircraft market. The high ability shown by the Embraer
engineers and the low costs of the aircraft, combined with BNDES and
Banco do Brasil financing granted to their customers, fostered the rapid
expansion of the company in the early 1980s, despite the fact that Latin
American countries were undergoing an economic crisis. During this pe-
riod, Embraer developed two internationally successful models. The first
one was the turboprop airplane for military training, the Tucano (EMB
312), which offered a set of innovative technical solutions and had been
originally commissioned by the Brazilian Air Force (FAB) and later by the
governments of Great Britain, France, Egypt, Iraq and various countries in
Latin America.
In 1983, the company opened in Paris its second subsidiary, with the
objective of providing technical support for clients in Europe, the Middle
East and North Africa. In 1985, Embraer launched the Brasilia (EMB-
120), for 30 passengers, whose pressurization system was developed by the
company, and whose construction was based on design modifications of

the Bandeirante; because of its greater flexibility and high cruising speed, it
dominated one third of the world market for aircraft seating 30 to 40-pas-
sengers (Goldstein, 2002).
At the end of the 1980s, however, with a shrinkage in the world de-
mand, the Brazilian government decided to discontinue the Finex program
by Banco do Brasil, which financed purchases made by Embraer interna-
tional customers. In the same period, the development of CBA-123, a new
turboprop of high-technological value, carried out along with Argentina,
would not be successful for lack of an effective business model for the
project, which increased the company’s crisis and made it review its pro-
duction process.
Despite the high technical capacity accumulated, – the result of invest-
ments in R & D, human resources and the internationalization process –
Embraer started operating with increasingly higher losses in the early 1990s,
and its debt would reach US$ 1 billion in 1994, the year it was privatized.
After the privatization, Embraer made progress in modernization and
adopted a new organizational structure, with major investments in IT and
the creation of specific directorships for each of the aircraft projects that
began functioning as semi-autonomous cells within the company. The re-
sult was the optimization of the learning process and greater agility in the
development of new projects (Vasconcellos et al., 2008). With the restruc-
turing measures, the company raised its productivity level and decreased
substantially the time it took to manufacture the Brasilia aircraft – from 16
to nine months (Goldstein, 2002).
However, one of Embaer’s main innovation achievements began to take
shape just prior to its privatization, that is, during the implementation of
the ERJ-145 project, a jet for commercial aviation with capacity for up to
fifty passengers. This had to do with the creation and management of an
international network that transformed some of Embraer’s key suppliers
in risk-sharing partners. Additionally, the company also incorporated the
participation of its clients in the conception of new aircraft. As a result of
this system, the EJR-145 family became a major commercial success for
Embraer, with more than 1,100 aircraft delivered by 2009, and a world
leader in the market of regional passenger jets.
In this new managerial manner of promoting the development of the

product d the partnership begins still in the pre-project phase, with sup-
pliers and customers around the world participating in the process of es-
tablishing the main features of the aircraft. It was thanks to information
obtained in this manner that in the early 2000s, the company changed the
positioning of the turbines in the EMB-170/190 family, with capacity for
up to 122 passengers (Goldstein, 2002).
Besides detecting trends, the partnerships have led the company to
expand the integration of its operational areas, particularly the research
and development divisions. Therefore, as the general project coordinator,
Embraer became the main beneficiary of the international integration of
the R & D routes of its suppliers. The development of the EJR-145 had the
participation of 350 suppliers (95% foreign), and of these, four were risk-
sharing partners, that is, they co- financed the project (Vasconcellos et al.,
2008). These mechanisms were fundamental to energize the entire innova-
tion system in the company (Miranda, 2007) and can be considered some
of the first successful experiments with Open Innovation, even before the
introduction of this concept by Henry Chesbrough (2003).
The success of the new business jets would further boost Embraer’s in-
ternationalization program. In 1999, a consortium of French companies –
including Dassault, Aerospatiale / Matra, Thomson-CSF and Snecma –
acquired 20% of Embraer common shares, resulting in greater financial
solidity for the company and generating new opportunities for technologi-
cal empowerment, especially in the military segment.1 The following year,
it held an IPO on the New York Stock Exchange (NYSE) and opened its
first commercial offices in China and Singapore. In 2002, it opened its first
plant in in Harbin, near Beijing, China, for the manufacture of the EJR-145
jet family. That same year, the Legacy executive jet was certified by the
FAA, thus opening up a new market for the company, which would further
increase its presence in the business jet segment with the launching of the
Phenom family and the Lineage 1000.
1 The interest shown by European giants in Embraer was closely connected to the develop-
ment of a Brazilian fighter jet project, such as the one intended with the F-X Program, which
did not come to fruition. At the end of 2006, the European companies divested themselves of
the majority of their assets.
In December 2004, Embraer took over the Aeronautical Industry of

Portugal (Ogma) – intended for the maintenance of aircraft and aeronauti-
cal service-rendering – and consistently expanded its investments in that
country. In 2011, it hopes to open two more new industrial plants in Portu-
gal for the production of complex aircraft structures and composite materi-
als, whch are fundamental moves to enable Embraer to produce swifter and
more competitive aircraft.
In addition to this investment, the company expanded its network of
service centers in the United States, Europe and China, created a training-
service center in Singapore, and in 2008, started the construction of its first
plant in the United States; more specifically, in Melbourne, Florida.
Embraer is today a global company. It is the third largest aircraft manu-
facturer in the world as far as yearly deliveries are concerned; it, competes
with Bombardier, from Canada, for leadership in the regional jet market,
and has virtually half of its capital (47%) traded on the NYSE. In 2009, 76%
of its revenue originated in the U.S., European and Far Eastern markets,
the most dynamic and demanding in the world; this attests once more to the
company’s high standard of competitiveness (Figure 7.5).
8% 7% 6%
6%
4% 18% 21%
12%
4%
10% 11%
Others
24% 7%
18% Latin America
East Asia
32%
Brazil
43%
Europe
46%
North America
23%
2007 2008 2009
Figure 7.5 Distribution of Embraer revenues (in %).

Source: Embraer.
Internationalization and innovation mean a two-way relationship for

Embraer. Increased globalization generates a greater flow of knowledge,
which requires innovation and larger investments in R & D by the com-
pany. According to a survey conducted by Department of Business, In-
novation & Skills of the United Kingdom, Embraer, in 2007, ranked third
among those companies that most invested in R&D in Brazil, totalling
£ 131 million (US$ 206 million), the equivalent to about 5% of its turnover
(Fapesp, 2010).
The Embraer project of internationalization has never set regional lead-
ership as a goal. As it is a high-technology industry with high production
costs, it sought out – from the start – information and technology among
customers and clients in the most complex and dynamic milieus. The recent
increase in its stake in the Latin America economy follows the performance
of the continent.
The investments abroad did not prevent the company from expanding
operations in Brazil, where it benefits from valuable funding sources con-
nected to BNDES. In addition, Embraer is an excellent example of how
beneficial globalization can be for the country of origin. Although 97% of
its turnover comes from foreign markets and 40% of its assets are abroad,
94% of its jobs are in Brazil (Valor Econômico, October 2010).
The benefits for Brazil, however, go beyond Embraer’s own generation
of turnover, skilled jobs and technology; they reach the entire productive
chain. The company has also attracted some of its main foreign suppliers
into the national territory (Miranda, 2007); it has paved the way for
some of its domestic suppliers to internationalize, too (Valor Econômico,
8/31/2010).
However, the challenges of a global player never cease. The regional jet
market in the last decade was severely hit by the 2008-2009 crisis, and de-
spite the difficulties, other companies such as the Japanese Mitsubishi and
the Russian Sukhoi, as well as the Chinese Comac, have tested their entry
into this market, in an attempt to break the duopoly formed by Embraer
and Bombardier (http://www.defenceweb.co.za/), which means tougher
competition.
The company responded with an improvement in its aircraft design, a
diversification of its products, particularly in the executive and military
aviation segment, in addition to the expansion of its portfolio of aeronauti-
cal service-rendering. In the area of defense, the latest project is the military
transport and refueling KC-390 aircraft, which will be the heaviest aircraft
ever produced by Embraer, capable of carrying up to 19 tons. The project
is currently going through the bidding process for the selection of suppliers
and is expected to generate more than 14 technology transfer agreements
with foreign corporations (Valor Econômico, 9/22/2010). Despite that,
FAB and the Air Force of the Czech Republic, Portugal, Chile and Colom-
bia have already ordered units (Valor Econômico 9/13/2010).
The experience Embraer has gone through makes the relationship be-
tween innovation and growth more transparent. Embraer’s network-oper-
ating system, besides stimulating a large flow of knowledge and informa-
tion, which are fundamental for the design of its aircraft, enables a constant
learning process that is internalized thanks to the quality of its technical
and managerial corps.
The mechanisms of open innovation developed by Embraer show that
its success – which had and still has strong state support – is connected with
the sources of its own business dynamism and the close ties it keeps with its
partners, suppliers and customers around the world.
Marcopolo: Design, Technology and Joint Ventures
Unlike Embraer, Marcopolo initially emerged as a regional leader, via

exports, and then moved on to expand into more distant markets (Rosa,
Rhoden, 2007). Today, however, most of its revenues and international
investments are not located in South America; in fact, its first foreign sub-
sidiary was established in Europe, for reasons that go beyond the mere
gradual expansion of its export activity. In the case of Marcopolo, as well as
Embraer, it should also be noticed that their innovative undertakings have
always been closely connected with the internationalization process, either
as a cause or a consequence.
Marcopolo’s path has been one of rapid expansion, marked by sev-
eral technical innovations starting from its earliest years. It was founded in
1949, in the city of Caxias do Sul, in Rio Grande do Sul State, and was ini-
tially dedicated to the manufacture of wooden bus bodies, handiwork that
required about three months to complete a single product. The first change
came in 1952 when the company became one of the first to manufacture
steel bodies, which made their vehicles less heavy and more resistant. In the
early 1960s, it signed its first export contract with Uruguay.
Throughout the 1960s and 1970s, Marcopolo expanded its exports to
all of South America and began expanding into Africa – first in Ghana, and
afterwards in Nigeria. It exported technology for the assembly of buses in
Venezuela and Ecuador and won several awards for the innovations intro-
duced in the design of their products (Rosa, 2006). At the same time its
exports grew, the company also expanded its operations in Brazil, by open-
ing subsidiaries in São Paulo and Rio de Janeiro and new factories in Betim,
Minas Gerais State, and Caxias do Sul, in Rio Grande do Sul State.
Since then, its ambition for growth included subsequent diversification
of products, including the launching of the microbus (1972), articulated
bus (1978) and electrical (trolley bus/1979) lines. In 1984, it was the first
company in Brazil to manufacture high-deck buses, with an extended top
floor and roof (Stal, 2007).
In 1986, a company delegation visited factories in Japan to learn about
the most advanced management techniques in the world. In 1988, as ev-
idence of their learning, Marcopolo began exporting a special minibus – the
S & S – to the United States.
In 1991, while most companies faced difficulties because of the open-
ing of the Brazilian economy, Marcopolo set up its first overseas factory in
Coimbra, Portugal. The choice of Portugal, however, was not due just to
cultural and linguistic proximity. It was an attempt to seek abroad a higher
standard of competitiveness. Besides being the gateway to the European
market, Portugal was also a source of access to the technology of the major
European bus manufacturers.
Although it was closed down in 2009, the plant in Portugal served as
a laboratory for the company to incorporate the technology of European
manufacturers, particularly through access to new suppliers and compo-
nents which did not exist in the Brazilian market. Marcopolo’s experience
resulted in innovations in its products and new challenges for their domes-
tic suppliers. Thanks to what the company learned, its vehicles have been
competing in the market worldwide (Rosa, 2006).
In the successive experiences of internationalization, Marcopolo’s per-
formance was paved by its excellence in technology, R & D and flexibility
in adapting its buses to its clients’ demands. Its productive international-

ization moves gained force with the installation of a new plant in Argentina
in 1998. This unit, however, could not withstand the 2001 crisis that rocked
the country. Only in 2007 did Marcopolo return to operations in the Ar-
gentinian territory, with the acquisition of 33% of Metalpar Argentina, a
Chilean company. However, before that, the company hadalready showed
its entrepreneurial appetite by installing new production units around the
world.
In 1999, Marcopolo acquired the Mexican company Ômnibus Inte-
grales S.A. seeking to serve the NAFTA market. The next step was the
signing of a joint venture with Mercedes Benz in Monterrey (Marcopolo
holds 74% of the company). Mercedes contributed with chassis technology,
Marcopolo with the bus body; the new company undertook the responsi-
bility to market the finished product. In 2008, the plant produced 3,214
buses and became, a leader in the Mexican market (Table 7.2).
Table 7.2 Marcopolo production by country.

Country 2003 2008 2009 2010*
**
Brazil 10,682 16,019 13,522 17,000
India – – 2,517 6,000
Mexico 1,687 3,214 1,510 1,500
Colombia 1,475 747 600 700
Argentina – 570 464 600
South Africa 399 569 280 500
Egypt – 0 207 500
Portugal 119 162 58 –
Total 14,362 21,456 19,158 26,800
Source: Marcopolo.
*
For 2010, estimates made in August, 2010.
**
For production in Brazil unassembled bus bodies for export are not included.
In 2001, it established new plants in Colombia and South Africa, and

in both cases the main emulator were projects to modernize the public
transport developed by local municipalities, which implied requirements
for nationalization of the production. In the case of Colombia, the project
was implemented in Bogotá and the possibility of reduced export tariffs
for the other countries of the Andean Pact also played a major role in the
decision to operate in that country. For this project, Marcopolo moved up

by reproducing the strategy of cooperation with leading local companies.
In the Colombian case, the choice was for Superbus. Superpolo was born
with capacity to produce 2,000 buses/year, that is, more than 1/3 of the
Colombian market share.
In South Africa, Marcopolo entered into a partnership with Scania, aim-
ing at meeting the demand of the city of Pietesburg. When the project was
completed, the Brazilian company bought a Volvo plant in Johannesburg,
where it has worked in partnership with the major chassis manufacturers
that are its main clients. As in Argentina, almost all of the components
continued to be manufactured in Brazil and assembled locally.
Since 2002, however, the company began to expand its production over-
seas, with the increasing replacement of the parts manufactured in Brazil,
and specialized in the development of overseas suppliers and export of its
technology and know-how. That year, the company made its first steps in
China, by closing a deal to sell unassembled car bodies in a joint venture be-
tween the Italian chassis manufacturer Iveco and the Chinese CBC, in the
city of Changzson. The contract, which involved technology transfer by
Marcopolo, was terminated before the expiring date in 2007. As compen-
sation, Marcopolo won the rights to install a plant for the manufacture of
components in Jiangyin City, near Beijing. However, production of buses
for the Chinese market, the largest in the world, is conditional on the for-
mation of a joint venture with a local company, and Marcopolo has stated
that it still cannot find a trustworthy partner.2
The international expansion had a new boost starting in 2006, when
Marcopolo sought other major emerging markets which were pushing
global growth. Once again, its strategy was to celebrate joint ventures with
national leaders: in India it joined the Tata Group, and in Russia, it joined
Ruspromauto.
The Indian giant was convinced to set up a joint venture inside its own
country after its representatives visited the Marcopolo plants in Brazil and
confirmed its high competitiveness potential. This partnership enabled the
Brazilian company to have a quick penetration into the Indian market: de-
2 Statement made by Rubens De La Rosa, company’s executive, during the Conferência Five-
Diamond e, at Fundação Dom Cabral, Nova Lima, Brazil, in August of 2009.
spite the fact that it was recently created (2009), the Indian plant correspond-
ed in 2010 for 60% of Marcopolo’s production abroad, and 23% of its total
production. But for design and technology, which are exported from Brazil,
at Tata-Marcopolo everything is produced locally. Tata provides the chassis
and is responsible for marketing the production (Stal, 2007). The partner-
ship represents the greatest opportunity for international business Marco-
polo has ever had, but at the same time it is also the one which entails more
risk, as it inevitably involves technological spillovers into a larger company.
In Russia, Marcopolo had 50% participation in the construction of two
plants. It had high expectations with regard to the local market, both be-
cause of its size and because of the high annual growth rates. However,
the crisis led the country’s economy to a period of stagnation and quashed
Marcopolo’s most positive expectations. A deep recession combined with
lack of credit brought the activities in Russia to a grinding halt; the new
company now waits for signs of improvement in the market. The same
entry model was successfully reproduced in Egypt in 2008: a 49% partici-
pation in joint venture with a local leader, GB Auto.
With production secured in eight countries and exports to more than
one hundred, Marcopolo is today a global company, holding 40% of the
Brazilian market and 7% of the worldwide market. It is also an exporter
of technology; its internationalization model is, above all, pragmatic and
flexible.
With the goal of continuously expanding its international market share,
Marcopolo has adopted several entry strategies, including greenfield in-
vestments and acquisitions. However, in recent years, the company has
favored joint ventures with partners that have a strong presence in their
national markets, which means rapid absorption of technology and local
know-how. Supplier networks and close associations with local or national
leaders support Marcopolo’s excellence in design and in the assembly tech-
nologies of its vehicle bodies.
Natura: Network Innovation
Natura was founded in 1969 by the young economist Antonio Luiz

Seabra. At that time, he was the manager of a cosmetics laboratory, Bionat,
owned by Pierre Berjeaut, a French beautician who lived in São Paulo.

The company, established with Berjeaut’s son, Jean Pierre, profited from the
Bionat laboratory formulas to develop its first beauty products (face, body
and hair).
The following year, however, when it had only seven employees, they
broke up their partnership, so Natura began to develop its own products,
based on herbal extracts and marine compounds. In 1972, the company
hired Anísio Pinotti, an industrial chemist with experience in the cosmet-
ics sector. He took charge of Natura research work until the early 1990s
(Ghoshal et al., 2002).
In those early years, the company’s turnover was not sufficient to allow
any project for expansion this would only change in 1974, when Seabra
joined Yara Pricoli to found Pro-Aesthetics, the company responsible for
developing the Natura direct sales system That same year, the new com-
pany already had seventy consultants (Nakagawa, 2008) in its staff,3 all
trained by Pricoli. The new sales model took root and evolved. With its
inexpensive but high quality products, Natura saw its turnover rise from
US$ 53,000 in 1973 to US$ 3 million in 1979, the year it already had one
thousand consultants (Nakagawa, 2008).
Since then, the company’s rapid growth has attracted other entrepre-
neurs like Guilherme Leal and Pedro Passos, who set up complementary
businesses with Natura partners. Among such new businesses were Eter-
nelle and Meridiana, who took up the task of distributing the products in
other states; and L’Arc en Ciel, led by Pricoli, which developed perfumes
and makeup.4 The latter, in addition to diversifying the product portfolio,
also began to produce for other companies, which led to an organizational
learning process for large-scale production (Nakagawa, 2008). In 1986, the
“Natura system”, comprising these four companies, was already generat-
ing a revenue of US$ 100 million/year, despite its low growth and the crisis
that hit the country.
3 Natura calls the salespersons “consultants”– the vast majority of whom are females – and
“the door-to-door” of its products, who only received a percentage of closed sales. The
model had been adopted by Avon in Brazil for more than a decade (Lima et al., 2008).
4 Seabra resisted incorporating perfumes and cosmetics into the Natura portfólio because he
wanted to maintain the image of company offering products with therapeutic properties for
the skin.
The first attempts at the internationalization of Natura took place in

1982, with exports to Chile through an outsourced distributor. The follow-
ing year, the company tried to establish business in Miami through the
brand Numina; five years later it entered into partnership with a distribu-
tor in Bolivia. These unsuccessful attempts led the company to discard the
U.S. market and to maintain a low-profile operation in the other countries.
Although the direct sales model worked very well in Brazil, Natura still
strove to replicate it in other countries (Lima et al., 2008, p.19-28).
Moreover, the participation of Natura partners in other complementary
businesses eventually ended up causing conflicts of priorities and interests
among them. In 1988, when Jean Pierre left the business to avoid further
discord, the remaining partners decided to merge the operations of the
Natura system into one single company. This move also functioned as a
preparation for the opening of the economy, which loomed on the horizon.
The result was the creation of the biggest cosmetics company with national
capital, reaching an annual turnover of US$ 170 million.
Aware of the potential for growth they had in their hands, Natura part-
ners took advantage of the opportunity to restructure the company. For
that to be done, they hired various professionals and consultants with ex-
perience acquired in large multinationals of the sector, such as Procter &
Gamble, Unilever and Johnson & Johnson. They set up a central office for
the company, reduced by 15% the number of employees and gave each area
manager more freedom to develop their own goals and long-term strategic
plan (Nakagawa, 2008).
Natura also intensified the professionalization of its management
system, by increasing its innovation efforts and resuming the interna-
tionalization process. In this period, Natura hired Philllipe Pommez,
a French executive, to work as research director. Pommez, a Sorbonne
Chemistry Ph.D. had been vice president of Johnson & Johnson’s head-
quarters. Today, Pommez is Natura’s vice president of internationaliza-
tion and one of the main heads in its French subsidiary (Valor Econômico,
04/12/2005).
After hiring Pommez, Natura launched some of its main product fami-
lies, such as Simbios in 1991, Chronos in 1992 and Mamãe e Bebê in 1993.
In 2000, it launched Ekos, one of the current flagships of the company,
which uses only active ingredients extracted from Brazilian biodiversity.
For the success of Natura, innovation would be the most relevant and
constant concern. In 1990, 10% of its revenue came from the sales of prod-
ucts created in the previous two years. In 2009, this percentage reached
67.5%, showing a high dependence on innovative activities R & D spend-
ing also increased. Recently, Natura decided to reduce the high number of
products launched per year and to concentrate its efforts on innovation and
the sales of its more relevant products (Frederick, Vasconcellos, 2008). Still,
the annual amount of new products is extremely high (Table 7.3).
Table 7.3 Innovative activity at Natura.

2006 2007 2008 2009
R&D (R$ million) 87.8 108.4 103 111.8
R&D (% of turnover) 3.2 3.4 2.8 2.7
New products (un.) 225 183 118 103
Share of innovations in revenue (%)* 58.3 56.8 67.5 67.5
Source: Natura
*
Percentage of the revenue of products launched in the last 2 years in relation to total revenue.
In 2001, Natura launched a new industrial complex in the town of Caja-

mar, three years later it was participating in Bovespa (São Paulo Stock
Exchange). In 2005, it surpassed Avon to become a leader in the Brazilian
cosmetics market, reaching 520 thousand representatives and US$ 1.3
billion turnover, with an average growth of 16.4% per year for 15 years
(Nakagawa, 2008). From 2005 to 2009, Natura continued to grow rapidly,
reaching 1 million consultants around the world – 170, 000 abroad – and a
US$ 2.4 billion turnover.
Natura, therefore, shows constant ability to grow both through fat and
lean years. This high growth rate, however, never led to resignation. On
the contrary, such a growth can only be achieved thanks to the systematic
renovation of its products, supported by its own R & D, by the spirit of
entrepreneurship of its forward-looking executives and by a direct sales
system with some unique characteristics, among which we can mention the
ability to entice a large number of saleswomen seeking some supplement to
their income in times of crisis.
Furthermore, as of the 1990s – when it began its most innovative phase –
Natura was successful in its internationalization process; and in 1994, it
opened its own distribution centers in Argentina and Peru, which devel-
oped an intensive training program for their saleswomen and elaborated
a plan to reward the successful management of the operations. The same
model was successfully replicated in Chile in 2002. In 2004, a new head
office of the corporation was established in Buenos Aires, to be in charge of
the company’s operations in Latin-American countries (Lima et al., 2008).
In 2005, though, Natura began its most ambitious international project:
to enter the French market – the world’s most competitive in the sector.
This choice, far from being just a mere desire for expansion – was grounded
in a strategic vision favoring the leverage of its R & D.
This change was part of a project of relative separation between research
and development, in which researchers directed themselves towards me-
dium- and long-term planning, aiming at radical innovations, while at the
same time the development teams focused on the short-term operations and
on the implementation of the plan to launch new products every year. To
optimize its innovation potential, the research activities were then assigned
to more knowledge-intensive areas. This was the main reason why the
French subsidiary was established (Frederick, Vasconcellos, 2008).
Besides having central R & D, the European subsidiary also had a dis-
tinct marketing strategy. Anticipating difficulties with the direct sales sys-
tem in France, Natura opened a shop in Paris in order to let customers try
out their products. Today, in addition to the store, Natura has a network of
1,700 consultants in that country, but still has not found an adequate way
to promote expansion.
The strategy of opening a “sensory store” would be reproduced in Mex-
ico and in 2007, in the Colombian market (Lima et al., 2008). In both coun-
tries, the activities are still incipient and the company has been considering
possible modifications to its distribution strategy. Currently, the participa-
tion in the foreign market represents about 7% of Natura’s turnover and
it has sought new strategies for faster penetration abroad, by establishing
partnerships with local companies and, more recently, by outsourcing pro-
duction abroad (Valor Econômico, October 2010).
Despite partial internationalization of its R & D and the start of produc-
tion abroad, it is in Brazil that almost all of the total value of its products is
aggregated and where the majority of its trained professionals are found. Its
main laboratory is located in Cajamar, adjacent to the company’s factory,
and houses about 250 researchers.
In 2007, Natura opened a new factory in Benevides, Pará, in order to be

closer to the Amazon ecosystem. That same year, it acquired a 300,000 m2
plot of land within the Ciatec 2 Technological Hub in Campinas to install
its future and more modern R & D center. The company has also obtained
approval for R$ 35 million loan from BNDES for the venture, which pro-
vides for initial accommodations for 300 researchers (Valor Econômico,
4/30/2007).
Also in 2007, Natura created the Natura Campus Program, which seeks
to strengthen ties with leading university centers in the country. There are
now more than 250 research groups voluntarily registered in the initiative,
which so far has received about 100 proposals for university/ business
cooperation.
If, on the one hand, Natura is recognized as an example of entrepreneur-
ship and Brazilian innovation, and has an intense concrete and symbolic
relationship with our national biodiversity, on the other hand, it shows that
one of its strengths is precisely the close connection it has always had with
international flows of knowledge.
Initially, the company emerged almost as a spin-off of a laboratory run
by a French aesthetician. In 1990s, it restructured its management ac-
tivities and its R & D, by hiring several highly qualified professionals from
multinationals in the sector. In the current decade, it was in France that it
once again sought to renovate its innovative activities. By combining R &
D with a network of salespeople that reaches nearly all walks of life, Natura
is one of the richest examples of how innovation and internationalization
can be blended with a slight Brazilian aroma.
Conclusion: Perseverance and Innovation
Innovation is an activity undertaken at crossroads, the point where

various views meet. It is also a labor of patience, requiring a great deal of
investment in human resources, engineering, research and, of course, bold-
ness and creativity.
The three cases we have discussed above illustrate different roads and
strategies adopted by companies operating in very distinct areas, facing
pitfalls, obstacles and in particular, strong competition.
Table 7.4 Internationalization of Embraer, Marcopolo and Natura.
Decade Embraer (established in 1969) Marcopolo (established in 1949) Natura (established in 1969)
1960/ 1974: Partnership with the American company Piper for a new line 1961: 1st. Export to Uruguay
1970 of light aircraft 1971: Technological license for production in Ven-
1975: First export: Uruguay (Ipanema) ezuela
1977: Export of Bandeirante to France. 1974: Export to Africa and Europe
1979: 1st. international subsidiary in Florida
1980 1981: Partnership with Italian companies for the manufacturing 1981: Export to the USA 1982: Export to Chile through out-
of AMX sourcing
1983: Subsidiary in France 1983: Subsidiary in the USA
1988: Development of CBA in partnership with the Argentinian Air 1988: Export to Bolivia. The experience
Force Commercial failure. The company is forced to review its of the 80s was not successful, and
management model for the production process Natura had to review its interna-
tionalization strategies
1990 1990: Crisis: 50% of workers are made redundant. 1990: Establishment of a plant in Portugal. The 1994: Installation of its own distribution
1993: Formation of an international risk partnership network for the Portuguese plant was in operation for 20 centers in Argentina and Peru
development of the ERJ 145 years, but was not a commercial success; the Training of local female consultants
1994: Privatization gains were technological learning. and awards for management
1999: Formation of a partnership network for the BEM 170/190 family. 1996: Export to the Middle East
1999: Sale of 20% of its capital to Dassault, EADS, SAFRAN and 1998: Establishment of their own plant in Argentina
Thales Group 1999: Plant established in Mexico
2000 2000: Commercial offices in China and Singapore 2001: Plant in Argentina closed down. Joint-ven- 2002: Distribution center in Chile, re-
2002: Joint venture in China for ERJ 145 – Maintenance Center in ture with Superbus in Colombia and plant producing the successful model
Nashville in South Africa implemented in Argentina
2004: Purchase of the Portuguese plant of OGMA 2002: Plant for component parts in China 2004: New corporate head office in Bue-
2005: Extension of the Nashville center 2004: Poloplast: components plant in Mexico nos Aires
2006: New office in Paris, extension of the Portuguese subsidiary and 2006: Joint-venture with the Tata Group in India 2005: Installation of the French subsidi-
implementation of 4 new service centers and partnership with and with the Ruspromauto Group in Russia ary, which includes an R&D center
further 38 centers in the USA and Europe 2007: Purchase of 1/3 of an Argentinian plant and a shop. Subsidiary in Mexico,
2007: Service center in Singapore. After corporate restructuring the 2008: Joint-venture in Egypt and with GB Auto also with Natura’s own shop
French companies sell their corporation interest 2009: Plant in Portugal is closed down and oper- 2010: Beginning of outsourced production
2008: Beginning of construction work of the Florida plant and two ations in Russia are discontinued because in Argentina
new industrial units in Portugal of the crisis
2010: Beginning of partnerships for the development of KC-390
175
Embraer is an example of how a company that was born (and nurtured)

with a silver spoon in its mouth and was over-protected, managed to rise
on its own. State support, which remains strong and may even be essential,
was repositioned in the mosaic of the company’s new resources, which
were created and developed in the postprivatization period. Embraer, thus
rebalanced, developed its own musculature, drank knowledge from its
network of suppliers, established partnerships to mitigate risk and began
flying high; an experience with open innovation, even before such practice
became widespread and conceptually consolidated.
Marcopolo, the third largest bus manufacturer in the world, exports
its vehicles to more than one hundred countries and maintains its ascen-
dant position through installation of factories in eight additional countries.
Added to its excellence and flexibility in manufacturing engineering is a
design process based on research and contact with customers and suppliers.
Diversification and malleability in meeting demand led the company
to set up a made-to-order production line. That is how Marcopolo won a
generous slice of the Saudi market, by developing a bus designed to meet
the needs of Muslims who made the pilgrimage to Mecca, so as to remove
possible obstacles (in this case, the roof) between the worshippers and God
(Allah). In Chile, the buses produced were taller and structured with stain-
less steel to prevent corrosion at copper mines. This “customized” service
gave Marcopolo a virtually unbeatable advantage over its competitors.
However, it was the creation of its business model that confirmed the pres-
ence of innovation in its corporate DNA. The success of the international-
ization of its activities lies in partnership agreements celebrated with major
local, regional or even global players, such as the Indian group Tata. Thus,
Marcopolo moves faster, has access to the special features of the markets
where it intends to operate, shares risks and costs and thus reduces its
chances of error. It is not by chance that, on various occasions, Marcopolo
is spoken of as the Embraer of the bus industry.
Natura, in turn, embraced the field of “eco-friendly” cosmetics, de-
rived from the Brazilian biodiversity. Perfumes, creams, deodorants, and
products for the hair, hands and body are sold directly on a door-to door or
client-to-client basis. In Brazil alone, Natura maintains a network of more
than half a million sales representatives and directly employs about 5,000
people. It has a high reputation for providing excellent working conditions
and has been described by the Monitor Group as “the most innovative
Brazilian company”. Forbes magazine has referred to Natura as the “most

desirable” company in Brazil. More than 90% of its sales are in Brazil, the
world’s third largest market in the sector, as well as most of its 600 products,
heavily based on Brazilian R & D. Innovation in Natura’s battlefield means
at the same time the possibility of growth and survival. In the world of
cosmetics, companies that do not constantly innovate, modernize and
diversify their products can hardly survive. Natura is highly dependent on
innovation and about 2/3 of its annual revenue comes from sales of products
either developed or improved in the last two years. In addition to constant
innovation in the quality and reliability of its products, innovation also oc-
curs in the distribution network, in its training system and in its managing
employees and sales representatives. One of the major companies in the
world of cosmetics, Natura is a national and regional leader. Presently, it
is heading for the internationalization of its R & D in order to be closer
to the centers that design fashion, set the tastes and trends that shape this
world. With perseverance and patience, Natura has gone through adversi-
ties along the way, but has also learned some of those lessons that only carry
meaning for those companies that can and want to learn.
In Brazil, the experience of these three companies bear similarities
and, at the same time, enormous differences. Embraer has benefited from
the government motions when it was chosenin previous times, a national
champion. It overcame its origin and now it is a bright star in the skies of
the world. Both Marcopolo and Natura have had their feet firmly planted
in the private sector from the outset. Both respected the different resources
available and each one of them, its own way, ventured out into the world.
The weight of the family business structure in their decision-making proc-
esses and dissentions among partners were never deemed insurmountable.
Both corporations generated leadership, were able to allocate their human
resources and with them they succeed in reaping the best for the company.
Ultimately, bother.
What brings these three corporations together is the spirit of innovation
that goes beyond boldness and ingenuity. The three of them have lovingly
looked after, sometimes intuitively, the little engine that keeps them run-
ning differently from other companies.
Would they, for that reason, have their future secured? Certainly not,
because, as the national and international experience insists on teaching us,
success is always the worst advisor.
PART 3
INNOVATION IN BRAZIL:
COMPARISONS AND CASES OF SUCCESS
As discussed in Part 2, decentralization of research and development
have become a reality for countries like Brazil. Indeed, in 2010 an IBM
Research laboratory was devised to be set up in Brazil. The first chapter in
this section, written by Claudio Pinhanez and Fábio Gandour, both IBM
scientists, portrays the pitfalls facing the physical installation of a large lab-
oratory in Brazil and analyzes the selection criteria for such a choice. The
positive points regarding the scientific potential of Brazil dealt with in Part
I have also been ratified by Pinhanez and Gandour, and this, in turn, could
be the determining aspects for choosing a country to be the headquarters
of an important R & D lab; both, however, decided to report on the Brazil-
ian difficulties, which range from macroeconomic aspects, such as high
interest rates, to the issue of urban violence, which was carefully taken into
consideration in the choice of the geographial location for the laboratory.
Eduardo Emrich Soares, in his efforts as president of the Biominas
Foundation – which promotes and develops biotechnology and life sciences
businesses in the country –, tells us in details how promising the global life
sciences market is; yet it is also the new frontier of knowledge in the phar-
maceutical industry. In Brazil, this sector has gained ground in the plans of
government and corporations – whether they are national or multinational –
to promote R & D.
In this sense, Biominas Foundation has been mapping its members’
interests and industry trends in order to design strategies for life sciences to
become an international platform for Brazil, not only from the standpoint
of scientific research, but also from the standpoint of business develop-
ment. When it comes to the frontiers of knowledge, global competitiveness

demands synergy among academia, business and service providers. We
have, on the one hand, the university environment with its scientific po-
tential and companies that strategically aim at settling their investments
and, on the other hand, the government, which has to establish a favorable
environment for investment in these areas.
In different ways, both IBM Research in Brazil and Biominas Founda-
tion l have, in essence, one goal in common: investing in innovation. This
involves taking risks, holding dialogues with the government and searching
for partnerships with universities – in other words, maximizing the synergy
between the actors of innovation.
8
OPPORTUNITIES, INCENTIVES AND DIFFICULTIES
IN THE ENTICEMENT AND ESTABLISHMENT
OF RESEARCH LABORATORIES IN BRAZIL:
THE CASE OF IBM RESEARCH-BRAZIL
Fábio Gandour
Claudio Pinhanez
Introduction
On June 7, 2010, International Business Machines Corporation (IBM)

announced its decision to establish in Brazil, a new lab for its research
division, IBM Research. This is a a large-sized laboratory, with the goal
of becoming a world point of reference in the creation of science and tech-
nology, and having a significant impact on the IBM Brazil and the IBM
Corporation businesses as well. This chapter intends to share the analyses
made, there arguments considered and the lessons learned throughout the
process, which eventually resulted in the announcement of so significant a
decision for various segments of the Brazilian society and for the scientific-
technological community, in particular.
If this account were written after the fact, it would run the risk of cov-
ering only the moments of glory. In this contribution, however, we have
opted to focus on the understanding the most important topics in the the
process. From the initial thoughts about establishing an IBM Research
presence in Brazil to the announcement of the decision to create the re-
search lab, we have selected the most relevant aspects which may aggregate
real value to entities making the same or similar decision.
To better understand the process of decision-making and installation for
a large- size research lab in our country, we begin this chapter with a descrip-
tion of the particular context of the case, and discuss the structure of IBM
Research and its recent globalization process. In the next two sections, we
examine some of the arguments we have faced throughout the procedures,
both for and against the establishment of a research laboratory in Brazil.

For example, the fact that Brazil grants more than 10,000 PhD degrees per
year (20% of the U.S. figure) is certainly a very positive element for national
research initiatives. On the other hand, the current legal framework for
intellectual property protection may be considered inadequate to attract
large investments in R & D (Research & Development). Due to space limi-
tations, these and many other considerations, including tax incentives and
government policies, will be concisely presented and discussed.
We then continue with a discussion of the specific process of the IBM
Research lab in Brazil, which offers a realistic illustration of the various
steps, difficulties and alternatives explored during the decision-making
process taken by IBM Research. The successive changes in the central
topics of that laboratory serve as a good illustration of the high degree of
flexibility and sensitivity that are required from its various actors. In this
particular case, the lab, when it was announced, focused on research on
natural resources, on technology for large-scale events (such as the World
Cup and the Olympic Games) and on microelectronic devices and sensors,
with emphasis on packaging.
We conclude this chapter by describing the main operational challenges
we have found to really establish the laboratory and by offering a discussion of
future prospects. Though the trajectory followed by IBM in Brazil is unique,
we believe that such an account is relevant, as there is limited literature re-
garding cases of decision-making in the implementation of laboratories.
In developing this text, we have taken the care to stick to facts rather than
rely on their interpretations. Still, we must emphasize that understanding
facts, at times, takes place through a perspective that is partly personal.
IBM Research
The establishment of a new IBM research lab in Brazil is grounded in

the existence and practices of the research division of IBM Corporation,
which is IBM Research. In this section, we intend to make an outline about
the history, values and practices of IBM Research, in order to clarify the
context in which the most important decisions were made during the in-
stallation of the lab. It is clear that these elements, being cultural factors
inherent to IBM proper, may not be present in the decisions made by other
companies, thus generating alternatives and laboratory models and rela-
tions with government and private partners.
IBM Research is a fundamental piece of IBM’s strategy as one of the
largest technology businesses in the world. Despite its 3,000 employees
worldwide, IBM Research comprises less than 1% of the 400,000 total IBM
employees, and is part of the enormous IBM R & D structure, which con-
sumes about US$ 6 billion a year, aiming at creating a competitive advan-
tage for IBM products and services. However, IBM Research is different
from the rest of the corporation and even from IBM development centers,
in its search for scientific excellence.
The first IBM research laboratory was founded in 1957 by T. J. Watson,
the man who built the modern IBM, which then operated in the premises of
Columbia University in New York. In 1961, the laboratory moved to its cur-
rent headquarters in the suburb of the city, in a building of bold lines designed
by Eero Saarinen. Gradually, other IBM Research laboratories were created
in new areas and by early 2010, there were eight of them, three in the United
States – in Almaden, California, in Yorktown Heights, New York (includ-
ing the campus in Cambridge, Massachusetts), and in Austin, Texas. There
were also labs operating in Zurich, Switzerland; Haifa, Israel; Tokyo, Japan;
Beijing, China, and in India, with a campus in Delhi and one in Bangalore.
The focus areas for IBM Research are almost as diverse as its 3,000
employees, and include, in addition to Computer Science and Electrical
Engineering, the areas of Materials Science, Mathematics, Physics, Chem-
istry, Behavioral Sciences, Services Science, Biology, Geology and Com-
putational Neurology, Economics and Finance, Business Administration
and Processes, among others. This space, similar in scope to a university,
accommodates more than 3,000 members of IBM Research, a significant
number of them educated at the best doctoral programs in the world.
In practice, two fundamental values guide these intellectual activities:
the quest for scientific excellence and its impact on IBM. Participation in
the scientific community and academic publication of findings have been
essential elements of the research process at IBM Research since its founda-
tion, and this is attested to by five Nobel Prizes awarded to its members, six
Turing Awards (the Nobel Prize for computing), nine U.S. National Med-
als of Technology and five U.S. National Medals of Science, in addition to
numerous other honors. Technologies that have had a profound impact on

the world we live in, such as Fortran, the relational database, RISC technol-
ogy, the Winchester disk, the Microdrive and the use of germanium-based
semiconductors – all of them emerged from IBM Research.
It is exactly the successful polarization of the researcher between scien-
tific excellence and impact on the company’s business that best character-
izes the worth of IBM Research for IBM. The most basic expression of this
impact is IBM’s patent portfolio, one of the world’s biggest portfolios, and
which is growing in large part due to work done at IBM Research. IBM has
since 1992 led the ranking of companies with the highest number of patents
granted in the United States, and obtained 4,914 patents in 2009. The busi-
ness of selling and licensing its intellectual property (especially patents)
generates about $ 1 billion in profits per year.
However, at IBM Research, the impact on the business goes far beyond
the creation of patents. From its founding times to the 1970s, the research
division focused mainly on technology for computers and electronic com-
ponents. With the diversification of IBM’s business areas throughout the
late 20th century, IBM Research was forced to effect some transformations
to meet its new areas of operation which included software, solutions, serv-
ices and business analytics. This transformation also included research
methods as a requirement from new areas where innovation, besides inven-
tion, is crucial. Thus, in the 1990s, IBM Research began actively working
on problems of its clients, and today, partnerships with them and govern-
ments are a fundamental part of the company’s operations. Similarly, in the
academic sphere, IBM Research has entered into agreements with more
than twenty universities and research centers worldwide.
A hallmark of IBM Research at the end of the 2010s was the globaliza-
tion of its activities. During this period, IBM researchers, supported by
several collaborative technologies, learned to work in global teams, and
IBM Research learned how to manage research strategies involving all of its
laboratories. Globalization and the corporation’s integration also become a
priority at IBM in the 2000s (Palmisano, 2006), and it is within this context
that at the end of 2009 the possibility of creating a 9th research lab was dis-
cussed. The last lab had been founded in 1998 in India and since then, the
creation of a new laboratory was such a taboo subject at IBM Research that
when Lotus Research Laboratory, located in Cambridge, Massachusetts,
was incorporated into IBM Research in 2000, it was seen as a second cam-
pus of the T.J. Watson Laboratory in New York.
Several factors accounted for the sudden interest evinced by IBM Re-
search in establishing new laboratories. Particularly important was the proc-
ess triggered by John Kelly III, the new director of the research division,
aiming at rethinking the structures of IBM Research towards its globaliza-
tion for the second decade of the 21st. century. In this sense, the enticement
factor of various countries and geographical locations were considered. The
next two sections summarize the main positive and negative aspects which
were taken into account when Brazil was selected to participate in the bid to
host the new IBM laboratory.
Why Create a Research Laboratory in Brazil?
From 2005 to 2010, several large-sized research laboratories were created

and announced in Brazil. In 2005, Google opened a development lab, with
research activities in Belo Horizonte. Among the national companies, we
witnessed the announcement of the Vale Institute of Technology (IVT), an
arm of Vale do Rio Doce. This was a major project for the expansion of Petro-
bras Cenpes, the labs of Vale Energy Solutions (a subsidiary of Vale), and a
whole process aiming to expand the structure of scientific and technological
research in the industry of sugar cane, ethanol and derivatives; this project
also included the Sugarcane Technology Center (CTC) in Piracicaba, the
newly opened National Laboratory of Bioethanol (CTBE) in Campinas, the
São Paulo Center for Bioenergy Research Program and the Bioen Program.
Foreign capital corporations operating outside Brazil followed suit: IBM,
GE, NCR and DuPont also announced the establishment of research and
development labs, with total investments surpassing US$ 450 million dollars
over the next five years, according to the specialized press (Dalmazo, 2010).
In this section we examine the political, economic, technological, academ-
ic and scientific contexts that explain this avalanche of interest in Brazil as
a base for development of advanced research and technology. In particular,
we focus on the enticements for the establishment of laboratories by corpo-
rations operating in non-strategic areas (such as the case of ethanol) which
have special incentives. The examination of possible obstacles is left for the
subsequent section.
Good Economic, Political and Social Situation in Brazil
After going through two decades of relative economic and political in-
stability, Brazil began in 1995 a successful process of stabilization of infla-
tion and economic development Today, we are the eighth largest economy
in the world and will probably surpass Italy in 2011 and enter the club of
the largest economies of the planet, known as the G7. We have a strong do-
mestic market, our population has a low debt ratio and is estimated to grow
around 6.5% in 2010; besides, we are one of the countries that least suffered
during the global crisis of 2008-2009.
The country has nearly 190 million inhabitants, and a controlled rate
of population growth, with approximately 83% of the population living in
urban areas. The Brazilian population has reached a historical position, as
the participation of the young generation has begun to decline whereas the
elderly population has begun to increase; most of the population, though, is
in the productive age bracket (Alves, 2005). With the growth of the C and
D classes in the last decade, a new mass consumption market has emerged
parallel with the existing and well-developed market for the elites. In the
political sphere, after the turbulent years of 1970 and 1980, the last two
decades saw the establishment of a stable democratic multi-party system,
based on the 1988 Constitution.
Adding to this immense natural reserves (including iron, oil, water, and
arable land), the enticement aspect of the Brazilian market is obvious for
companies around the world and their business at the dawn of the 2010s.
Thus, from the point of view of the establishment of research laboratories,
Brazil offers the advantage of being a bit more – economically and politically –
stable than other BRIC countries; on the other hand, the magnitude of new
businesses and opportunities in strategic sectors of the economy, presents
the opportunity to use a research lab as a leverage for new businesses and
goodwill by the government.
University and Quality Research Ecosystem Further

to Ample Supply of PhDs
Although economic and political stability is usually a critical factor

in the decision to establish a a research and development laboratory in a
particular country, a crucial raw material in this undertaking is represented

by people – as qualified researchers and technicians. In this respect, in
particular, Brazil enjoys a significant competitive differential in relation
to other developing countries. Today Brazil grants approximately 30,000
master’s and 10,000 doctoral degrees per year (Doutores 2010, 2010), a
number comparable to the number of PhDs formed each year in Indian
institutions as a whole, and approximately 20% of the number in the United
States. There are more than 130,000 Brazilians with a doctor’s degree and
more than 450,000 with a master’s degree. Typical salaries for PhDs in
the best universities range between R$ 100,000 and R$ 150,000 per year
(no charges included), or around US$ 100,000 (charges included), which
is quite competitive in the world, although this surpasses the cost of a
researcher in India or China.
This number of qualified professionals in the research area is the result
of a successful government policy that has been determinedly and unin-
terruptedly applied for the last forty years. It started in the 90s-80s when
holders of a Masters’ degree were systematically sent abroad for their doc-
toral degree studies; it continued with the creation of the first doctoral
programs in the 1980s, and their expansion across the country in the 1990s;
such policy generated 1,000% growth in the number of Brazilian PhDs
from 1987 to 2008 – from 1,005 in 1987 to 10,705 in 2008 (Doutores 2010,
2010). Concomitantly, scientific production also rose from 2,528 scientific
articles in scientific journals in 1987 to 16,872 in 2006, which means that
Brazil accounts for nearly 2% of worldwide scientific production (Science,
Technology and Innovation for National Development, 2007).
Most of these PhD.-forming “plants” are concentrated in federal and
state universities, some of which are among the top 200 education institu-
tions in the world, such as the University of São Paulo, the University of
Campinas, and the federal universities of Rio de Janeiro, Rio Grande do
Sul, Minas Gerais and Santa Catarina. Although the structure of some
of these institutions is still a little outdated for them to collaborate with
industries, there has been a growing interest in establishing partnerships
between industries and academia, especially after these relations were reg-
ulated by the federal Law no.10.973 of December 2, 2004, the so-called
Innovation Law.
Priority to Technological Innovation in the Brazilian Science,

Technology and Innovation Policies
Besides having a quite enticing political and economic situation and a

generous offer of qualified personnel for research and development, Brazil
can also be considered an interesting location for research laboratories, due to
some features of the government policy for Research and Development. As
articulated in the 2007-2010 Action Plan in Science,Technology and Innovation
(Pacti) (Science, Technology and Innovation for National Development,
2007), the Brazilian government strategy in this area is based on four priorities:
a. Expansion and consolidation of the national science, technology and

innovation system.
b. Promotion of technological innovation in companies.
c. Research, development and innovation in strategic areas.
d. ST & I for social development.
For our study, it is of special relevance that priority should be given to

the promotion of innovation in companies, which, in our view, makes the
big difference between the 2007-2010 Pacti policy, when compared to previ-
ous policies. This new emphasis on innovation in the corporations can be
understood primarily as a result of the global recognition of how important
innovation processes are as promoters of economic development and com-
petitiveness. However, perhaps still more important, is the number of PhDs.
produced in the country; after decades spent on building a scientific and aca-
demic structure, and having achieved a sustained level of growth, they can
now shake up Brazilian industries in their productivity and creativity under-
takings. Corporate consolidation and the emergence of new global Brazilian
companies in the first decade of this century, along with a further opening
of the market in the first decade of the twenty-first century are urging com-
panies established in Brazil to become more competitive and innovative,
particularly through structures of modern research and development.
The federal and state government policy of ST & I, operationalizes these
needs and opportunities, with the expectation of a 47% increase in national
expenditures on STI between 2006 to 2010, against an increase of 27% in
investments by companies, with about R$ 13 billion funding for four-year
research and development activities and hiring of in-company researchers
(Science, Technology and Innovation for National Development, 2007).
Agencies Fostering Development

and Research-Oriented Activities
An important feature of research and innovation supporting mechan-

isms in Brazil lies in the fact that they are relatively dispersed among
several ministries, programs, government bodies and government levels.
One of the fundamental mistakes early in the IBM procedures for the
establishment of a laboratory in Brazil was trying to find a single key
interlocutor with carte blanche to make the installation of a central R &
D viable through incentives. However, the reality is that there are several
agencies involved in ST & I policies in Brazil, and in general, they comple-
ment each other, despite being coordinated by the Science and Technol-
ogy Council (CCT).
From a scientific point of view, the Ministry of Science and Technology
(MCT) encompasses the most important of these agencies, including the
CNPq (National Council of Scientific and Technological Development),
responsible for master’s and doctor’s scholarships and for the promotion
of research in universities; and the Funds for Studies and Projects (Finep),
which offers subsidies and funding for research and innovation projects in
companies and research centers. From a financial standpoint, the Ministry
of Development, Industry and Commerce (MDIC) controls the heavy-
weight National Bank for Economic and Social Development (BNDES),
responsible for financing the Brazilian economic development, which in
recent years, has been deeply engaged in activities to support innovation in
enterprises; and the National Institute of Industrial Property (INPI), the in-
stitution controlling and managing intellectual property in Brazil. Added to
this are the Program for Coordination for the Improvement of Higher Edu-
cation Personnel (Capes) of the Ministry of Education (ME) – also respon-
sible for scholarships and actions to improve senior staff performance; the
large laboratories of the Ministry of Mines and Electric Power (MME); the
Leopoldo Americo Miguez de Mello Center for Research and Development
at Petrobras (Cenpes) in the oil area; and the Research Center for Electric
Power (Cepel) in the electric power area, as well as laboratories and institutes
of the Ministry of Defense (MD), such as the Institute of Aeronautical Tech-
nology (ITA), the Aerospace Technical Center (CTA), the Military Engi-
neering Institute (EMI), the Army Technological Center (CTEx) and the
Oswaldo Cruz Foundation (Fiocruz) of the Ministry of Health (MOH), the

focal point of research in the medical and public health areas.
Theoretically, this diversity of government bodies and agencies, some-
times with overlapping functions, could hinder interaction with the gov-
ernment in the establishment of a research and development lab. However,
given the political nature of such activity, these multiple agencies help
prevent the process from being controlled, or even blocked, in good or bad
faith, by a single individual or agency. The plurality of agencies enables
companies to seek support in different contexts and with different inter-
locutors, thus increasing their chances of success. Although it has been
potentially more laborious, the IBM experience showed that such agencies
are quite receptive to a coordinated process involving discussion and refer-
ral of proposals, which compensates for the disadvantage of a research-
promoting system where different agencies operate. In fact, based on the
experience of creating the IBM lab – discussed in Section 5 – the Brazilian
government created in November 2010 the concept of “Sala de Inovação”
(Innovation Room) a formal forum for dialogue among a company and
several federal government agencies (http://www.mct.gov.br/index.php/
content/view/326890.html).
Finally, there are in Brazil various state agencies supporting research
and development, although they generally focus more on support for Sci-
ence and Technology rather than for innovation. The São Paulo Research
Foundation (FAPESP) is the oldest and largest of these agencies, and for
the last few years it has encouraged partnerships with industries mainly
through joint programs of research support in universities and research
centers, through the Program for Research Support Partnership for Tech-
nological Innovation (Pite) (http://www.fapesp.br/materia/61/pite/pite.
htm). Typically, the company and Fapesp create a fund by means of equi-
table contributions in order to grant scholarships for research in areas of in-
terest of the company. Projects are selected by a joint technical committee.
Advantageous Tax Incentives, Subsidies and Financing

of Innovation Activities
In order to implement ST & I promoting policies by the government

several programs of incentive, subsidy and financing of innovation were
devised. The responsibility for these programs is also spread throughout

several government bodies, including the Ministry of Finance.
One of the main tax incentives is provided by Law no.11.196 of No-
vember 21, 2005, the so-called “Goodness Law” (Lei do Bem) which pro-
vides for income tax deductions and other benefits for companies investing
specifically in innovation processes. The law stipulates a deduction in the
income tax of 60% of the costs of the project, which, in practice, and for
companies that make a profit, means a reduction of about 20% in their
expenditures on innovation. Moreover, if the company shows that there
has been at least 5% annual growth in the number of researchers, there is an
additional deduction of 20%, or almost 7% of the expenses incurred in hir-
ing technical personnel. There is also a 50% reduction in Excise Tax (IPI)
for the acquisition of equipment with accelerated depreciation. In practice,
only by using the mechanisms of the “Goodness Law” can companies – the
majority of them – reduce the cost of innovation by approximately 27%,
which is considered a reasonable profit.
Finep offers some of the best forms of subsidy and funding for innova-
tion. Over the last few years, it has opened several competitive biddings for
economic subsidy for innovation, and for research and development of new
products and processes, totaling billions of reais. Typically such bids are
proposals for the development of products or processes in specific areas.
Project that are authorized can receive from R$ 500 thousand to R$ 10 mil-
lion in economic subsidy, with a minimum allocation by the company of 5
to 200% (depending on the size of the company). In addition, the projects
approved can benefit from an additional economic subsidy for the first
three years of the researchers’ salaries. Finep also has a financing program
for innovation with below-market interest rates and a 20-month grace pe-
riod for projects of up to R$ 100 million, which includes a voucher for 10%
of the value of the project can be used in programs devised in collaboration
with universities and research centers.
Incentives for The Physical Installation of R&D Centers

in Technological Parks
There are also incentives, especially in the state and municipal spheres,
for the establishment of centers of research and development in specific
localities, often called “technological parks”. Such programs are avail-

able in several Brazilian states, for example, in São Paulo, whose program
for technological parks offers different locations, some of them in close
proximity to major universities such as USP and Unicamp (http://www.
desenvolvimento.sp.gov.br / cti / parks /). The incentives for installation,
though quite distinct from one city to another, typically include tax exemp-
tion from Real Estate Tax (IPTU) and Service Tax (ISS) for a few years,
for infrastructure work, construction of service and support centers, and
resources for personnel training.
Why Not Create a Research Lab in Brazil?
The opening in this section has more answers than any institution con-
sidering the creation of a research laboratory in Brazil would like to have.
However, it is better to have prior knowledge of the obstacles and possible
alternatives to circumvent them than to be surprised by them along the
way. Thus, this section presents the main difficulties we have experienced
in the selection process for the installation of the 9th IBM Research Labo-
ratory in Brazil, as well as other obstacles identified after Brazil was chosen
among the other options.
High Interest Rates in the Market
Brazil has one of the highest interest rates among both the developed
countries and the large developing ones, ranging between 9 and 11% per year
in 2010 (http://www.bcb.gov.br/?COPOMJUROS). An analysis of the
reasons rather complex, but basically it lies in the combination of the need to
contain the government internal deficit and the control of the inflation rates.
In the 1980s and 1990s Brazil was faced with various periods of hyperinfla-
tion, and Central Bank had to keep a careful and meticulous control of the
economic growth and inflation through high interest rates – an economic
and political imperative. Therefore, funding laboratory research activities
by means of traditional bank-rate loans is in most cases simply not viable.
It is necessary to understand that in Brazil, financing for research ac-
tivities and for developing new and innovative products and services may
be arranged through special lines of credit from the government, with

reduced interest rates. The main providers of these lines of credit are
BNDES, the real engine of growth in the Brazilian economy, and Finep,
for strategic research and development activities. Both have lines of credit
with interest rates similar to those of developed countries (considering
inflation), which may make the establishment of a research laboratory in
Brazil possible.
Intellectual Property: Protection, Promotion and Adequacy

of The Brazilian Legal Framework
The promotion and protection of intellectual capital through patent

mechanisms is one of the most sensitive items in the selection process for
the location of a research laboratory. The adequacy of mechanisms for the
promotion and protection of intellectual capital bears a direct relationship
with the legal framework in force in Brazil. In the Brazilian case this frame-
work, despite having undergone constant modifications and moderniza-
tion, was built a long time ago, when industrial property was the real rep-
resentative of the productive wealth of a nation. Such a notion is illustrated
with the fact that the so-called Paris Union Convention (CUP) of 1883
instituted what is now known as the International System of Industrial
Property. This was the first attempt of an international sychronization of
the different national legal systems relating to industrial property (http://
www.inpi.gov.br/menu-esquerdo/patente/pasta_acordos/cup_html). In
an effort to industrialize Brazil, the National Institute of Industrial Proper-
ty (INPI) was created in the 1970s, more precisely on December 11, 1970,
through Law no.5.648.
The evolution in the productive processes changed this value represen-
tation day after day; industrial property makes way for intellectual capital
as the best representative of wealth in an increasingly globalized and au-
tomated scenario. In simpler words, in the past, the rich were those who
owned plants with chimneys; now, the richest are those who own the idea
of what will be produced in the plant. This process sped up with the advent of
the Internet in the 1990s, which showed the compelling need to adapt and
improve the current intellectual property legislation in almost every coun-
try in the world.
The Brazilian legal framework has been gradually modernized through

legal adjustments. In force since May 15, 1997, the Industrial Property
Law (Law no. 9.279/96) replaces Law no. 5.772/71. Afterwards, Law
no. 10.196/01 changed and added provisions to Law no. 9.279 of May 14,
1996, regulating rights and obligations concerning industrial property.1
Despite the ongoing modernization process, studies to select a location
for a research laboratory in a competitive scenario like the one we are faced
with, leads to the inevitable comparison between promotion and protec-
tion of intellectual capital among competing countries. During the stage
checking the legal feasibility of setting up the IBM laboratory in Brazil,
a comprehensive study of the Brazilian legislation was carried out, and it
included the participation of local consultancy dedicated to the topic as
well as a broad dialogue with Inpi technicians and executives. As a result of
the comparative study involving intellectual property laws in Brazil and in
other countries, some specific issues were raised. Table 8.1 summarizes the
main topics that deserved special consideration, as they would operate as a
potential obstacle to the innovation process.
Table 8.1 Issues considered problematic related to the legal system of intellectual property
protection in Brazil.
Topic Description
Disclosure According to the Brazilian legislation, the details of an intellectual capital
agreement between firms should be published, with disclosure of names,
values, terms and number of patents.
Time The patent registration procedure is long; it takes about seven to 10 years
to be completed.
Knowledge Transfer of know-how varies according to the interpretatin of the law; it
can be considered technology acquisition.
Compulsoriness The legal justification for the compulsoriness of patent licensing is not
entirely clear, as it anticipates its possibility in the case of abuse, emergence
in the national interest, dependence on another patent or public interest.
Approval The mechanism of recognition and approval of financial remittances
obtained from patents that are not registered in Brazil is also subject to
different interpretations
1 The INPI – Portal INPI. Ministry of Development, Industry and Foreign Trade – Portal INPI.
[Online] [Cited: November 9, 2010.] Available at http://www.inpi.gov.br/menu-esquerdo/
instituto.
Urban, Individual and Family Safety
Located in Latin America, with a history of Iberian colonization and

a long period spent trying to find their economic, political and, therefore,
social stability, Brazilian metropolises carry the stigma of insecurity and
violence. Currently, any of the many lists of the world’s most dangerous
cities will certainly show a Brazilian city. However, it is worth noting that
distinct groups of cities appear on these lists. Most cities are located in
countries embattled by war and/or internal tribal conflicts; following these
come the cities that are drug-dealing hubs or trafficking routes. The third
group includes cities that combine more than one justifying reason for
urban violence, such as the fragility of the local government and poor in-
come distribution.
In this scenario, we do not think that the large Brazilian cities are either
more or less dangerous than any other city of similar size in any other coun-
try in the world. Following certain precautions and adhering to certain gen-
eral warnings are essential measures to minimize any risk of harm in some
Brazilian cities; and, like other cities, ghettos and marginal areas always
mean greater risk.
When it comes to personal and family safety, we have at the moment
adopted some guidelines aligned with IBM branch in Brazil, which seeks
to minimize individual risks without divulging unnecessary warning mes-
sages that, in general, create more panic than individual or collective pro-
tection. As for individuals, given their status as employees in the commer-
cial area of an IT company, mainly in research, it is important that their
work material, including laptops, be properly protected by encryption and
backups. With the adoption of such procedures employees are advised not
to respond to any attempted theft or assault, for, in general, thieves are
more interested in the equipment itself than in its content, which, anyway,
must be protected.
In general, still in the design stage, and even after the initial implementa-
tion, we have received a high number of visits by foreign colleagues. As these
visits get more and more frequent, when we are preparing any trip abroad,
we resort to the content on the corporate intranet, which weighs up the cur-
rent risks in each country, and gives guidance on how to circumvent them.
Finally, with regard to families, the population of researchers is still too
small to require additional individual security policies, other than those
being adopted by companies worldwide. We are quite sure that an increase

in the population of researchers can lead to a re-examination of the existing
policies, to a comparison with the practices adopted in other laboratories of
our network and to the benchmarking with other companies also operating in
Brazil. In fact, a location far from large cities might be an attractive trend to
solve not only problems related to individual and collective security, but also
those problems related to housing, transport and quality of life in general.
This aspect is discussed in the section on the dilemma of geographic location.
Difficulties in Conducting Research in Collaboration

with Universities
Despite the breadth and quality of the university and national academic
arena, as explained previously, the integration between universities and
companies in Brazil is still questionable. One reason lies in the French aca-
demic tradition, the basis for some of the best universities in the country,
which values pure science as opposed to technological research. Although
this purist focus is no longer a reality in many French universities and re-
search centers, this tradition persists in many centers in Brazilian universi-
ties, which have some mistrust in partnerships with non-academic institu-
tions and, in particular, with private companies.
With the Innovation Law, considerable progress has been made. The
Law created the norm of Science and Technology Institution (ICT), a
... public administration agency or body whose institutional mission is, among
others, to conduct basic or applied research activities of scientific or techno-
logical nature,
typically universities or government research centers. From this char-

acterization, the law regulates the relationship with private enterprises and
establishes clear procedures for partnerships.
Despite the advances secured by that law, which buried the then exist-
ing debate about the ownership of private partnerships with ICTs, that law
has several components that tend to inhibit collaboration in specific ways –
which not always are appropriate to the innovation needs of companies; nor
do they ensure adequate technical and financial return to ICTs.
Language Barriers
The language barrier is also an inhibiting factor for collaborative and

global projects in the area of science and research, where English is the lan-
guage of convergence par excellence. In the IT area, however, speaking Eng-
lish has already been a critical requirement for many years, which has created
a contingent of people who manage to get their message across the world.
As we work with professionals with higher academic credentials, speak-
ing English has not been a significant barrier. However, as research agen-
das demand more and more instrumentation and, thus, a larger number
of mid-level technicians to operate and manage the instruments, we an-
ticipate some difficulty in finding operators with adequate command of
foreign languages, such as English. In this case, it is essential to have a pro-
active and preventive attitude to enable us to overcome the language barrier
without jeopardizing the researchers’ productivity because of operational
failures caused by lab testers and technicians lacking proper preparation.
The reverse side of this barrier involves foreign visitors and workers
hired overseas who come to work in Brazil. It is very unlikely that such visi-
tors can communicate in Portuguese, and even less likely that they will be
willing to learn the local language, unless they remain in the country in the
medium to long term. On the other hand, during the phases of our project,
so far there have been few occasions requiring translation work, since most
of our local partners could communicate in English, both in public and in
private. However, there were situations when interaction with external ac-
tors was hampered by a limited understanding of English by interlocutors.
The most severe cases of limitations in technical production capacity have
to do with applications for scholarships and government-subsidized proj-
ects, which must be done in Portuguese.
Secondary Labor Force and Technical Support
Finally, there is one more barrier which is difficult to overcome, at least

for the next ten years: the so-called secondary labor force, which includes
personnel with secondary and technical education level. It should be noted
that in an environment of cutting-edge research, a secondary-level profes-
sional must have adequate schooling, slightly above the average required
by other production environments, such as that required in industries.

Even cleaning and maintenance workers must have appropriate education
to enable them to understand behavior requirements in that environment,
where any inappropriate procedure can have disastrous consequences for
in-progress experiments. The need for training for emergency situations,
which requires a reasonable education level, should also be considered.
While in Brazil more than 10,000 PhDs are put on the market by the
university ecosystem each year, training of secondary manpower has not
received the attention of public policy-makers for the last years; priority
has been given to literacy and basic education. A recent report of the United
Nations Development Program (UNDP) provides evidence of this thesis:
its latest version, while showing significant progress in the national Human
Development Index (HDI), in which Brazil made a considerable advance
of four points between 2009 and 2010, also showed that in the education-
related index our performance was very poor (http://www.pnud.org.br/
pobreza_desigualdade/reportagens/index.php?id01=3596&lay=pde).
Several elements in the UNDP analysis could be used as a corollary of
this theorem, but just one is enough to clarify the current situation: the
educated adults of today underwent, on average, 7.2 years of schooling,
whereas children who start school nowadays are expected to have a school-
ing period of 13.8 years. In other words, it is very likely we will have a
better quality secondary workforce in the future, but presently the years of
schooling are not sufficient to guarantee quality, requiring greater effort to
entice, select and train mid-level lab personnel.
The Dilemma of Geographic Location
Another topic which – if it is not exactly a major barrier to establishing

a laboratory in Brazil – means a serious obstacle to the process is that of
geographical location. Criteria deemed traditional, such as proximity to
centers of excellence in academic qualification, if taken by themselves, may
lead to poordecisions. In a preliminary study, an alternative found was an
extensive list of variables (sixteen), which were consistently weighed up so
as to form a decision matrix, the study of which led to a list of preferences
that, despite being apparently coherent, will certainly be the object of fu-
ture reassessments. So far, we have been convinced that, in this first phase,
the team that manages the creation of the laboratory should be located as
close as possible to where the business teams are. The objective of the inte-
gration of these two productive segments, from the start, is to ensure good
communication between them.
However, in Brazil there is a limited number of medium and small cities
with large universities. Thus, the option to follow, for example, the model
adopted by several laboratories in the United States, where quality of life
in a smaller city combined with close proximity to professors, researchers
and students from a top university, becomes rather limited. Still, there have
been recent cases in which large-scale labs were established in cities with
reduced academic structures, such as the case of the National Laboratory
for Scientific Computing (LNCC) which was transferred to Petropolis, Rio
de Janeiro, and the establishment of the International Institute of Neuro-
science in Natal, Rio Grande do Norte State.
From an Intention to an Idea, to a Vision and to a Project
In June 2010, IBM announced the decision to create a new laboratory in

Brazil for its research division, focusing on research into natural resources,
technology for large events and microelectronics. To those who learned
about the initiative through the announcement, it may have seemed that
a decision of such nature and magnitude was made after a few weeks or
months of corporate discussion. In fact, the process was far more complex
and timeconsuming. This following section summarizes the path taken,
from the basic idea to its announcement and briefly describes each step of
the metamorphosis which leads from one objective to another. In particu-
lar, it is interesting to note the successive transformations effected in the
lab’s research agenda, showing the fluidity inherent in the whole process.
Large corporations have their own attributes. For example, they usually
have abundant resources, both in quantity and in variety, which makes it
possible for them to find whatever is needed provided they know where to
find it. To rationalize the use of these resources, control mechanisms and
clear decision criteria are needed. Such mechanisms and criteria make the
procedures especially those related to more significant and more lasting
decisions, slow and subject to interpretations that are not always perfectly
in sync. Creating a research laboratory in a new geographical location fits

into this category of significant decision because of the impact on both the
subsidiary office and on the ecosystem of the country in which it will be
established.
We can say that the entire path from an idea to an approved project
took between five and six years and ran through the “corporate jungle”
sometimes walking along known routes, and at other times having to break
new ground. Early on, around 2005, in some merely exploratory conversa-
tions with IBM Research executives, we noticed that the general subject
of “opening a new lab” did not arouse much interest; on the contrary, such
a possibility was immediately dismissed on the grounds that it was more
important to increase production in existing units, the preferred targets for
investment.
In 2007, the growth presented by the service-oriented business unit of
IBM Brazil generated a sudden high demand for professionals with better
technical qualification, as the company’s existing contingent could not meet
the market needs. The conclusion of a quick diagnosis was that there was an
urgent need to start improving technical occupations. To implement this,
an informal technical board was created; it served as a “cauldron”, where
the idea of producing innovation in a research laboratory began to “sim-
mer”. It was with this technical board that ideas – albeit timid ones – favor-
ing the implementation of research activities in Brazil began to emerge.
In 2008, with the arrival of new IBM executives in Brazil, who had been
through invaluable experience using high-level technicians to support sales
activities, the “simmering process” began to speed up. The technical board
was given a formal status and its representatives began to attend business
strategy meetings; the human resources area was called upon to start a pro-
gram to develop technical professions, and interlocutors capable of appre-
ciating the proposal for research-related activities by IBM Brazil emerged.
But for these interlocutors, the message, despite being welcome, would
fall on deaf ears, as it often happens in large companies. At that moment,
one question was unavoidable: why not extend that same procedure to the
development of scientific research activities?
The answer to this question provides our account with a new angle,
which in all likelihood, is the main activity to be anticipated and carried out
by a group planning to introduce innovation through scientific research:
elaborating the lab’s research agenda. Lack of a clear research agenda leads
to useless and time-consuming digressions. However, drawing up a re-
search agenda is no easy task, let alone a quick one, and in our case, it turned
out to be a process in constant transformation.
In another simulteaneous movement, the concept of “collaboratory”
emerged in 2008 at IBM Research; it is a collaborative lab between IBM
Research and other institutions. Like any new concept, it also gave rise
to different interpretations. A firm grasp of what “collaboratory” means,
among many definitions, requires understanding what collaboration, in
fact, is. Such understanding requires rescuing the semantic meaning of
the very word “collaboration”: the act of laboring together (from Latin co
+ laborare). Thus, a collaboratory environment would mean space or time
in which it is possible to work together on scientific research activities of
mutual interest and benefit to the collaborators. At this juncture, because
of all these parallel movements, a direct dialogue channel already existed
between the IBM Research Division and the Brazilian subsidiary.
Also in 2008, an IBM Research researcher came to Brazil with the spe-
cific goal of exploring the possibility of establishing a “collaboratory” lab in
Brazil, working alongside the core group already doing scientific research
at IBM Brazil. As from the middle of 2008 on, talks had already been initi-
ated with domestic companies with global reach in order to establish proto-
cols and agreements for collaborative research in areas of common interest
and aligned with the existing IBM Research directions. It should be noted
that in “collaboratories”, setting the research agenda necessarily results
from the identification of common interest areas involving the participants.
In our case, the interlocution among several potential partners identified
research agenda topics as varied as biotechnology, computational fluid me-
chanics and quality of services.
The exploration of these opportunities, even if not directly successful,
helped to show IBM Research executives the opportunities and advantages
of establishing a lab in an emerging country like Brazil. In parallel, IBM
Research also explored the possibility of “collaboratories” in other coun-
tries, which in some cases were accomplished, such as the IBM Exascale
Stream Computing Collaboratory in Dublin, Ireland.
The process of establishing collaboratories instructed IBM Research
about opportunities for research centers in new locations outside the tradi-
tional circuit of developed countries. As part of strategic planning studies

done in 2009 for the next ten years, IBM Research gave special attention to
the opportunity to globalize its activities, whose positive results sparked a
structured process of verification and comparison of geographical options
for the establishment of a new laboratory. Such study was led by a scientist
with extensive experience of research management and installation of IBM
laboratories. Brazil, given its experience of searching for opportunities
of collaboratories, immediately became a strong candidate, and we were
invited to draw up a project for an IBM Research lab in Brazil. The vision
was turning into a project.
In the second half of 2009, a project to build a research lab began, and
it focused entirely on innovation aligned to business, based on the Bra-
zilian positive political, economic and social development, as well as its
good university ecosystem. Nevertheless, the most time-consuming task
throughout this exercise of intellectual creation and compettion was the
creation of a research agenda – which could mean an enormous competitive
differential in relation to other competitors. In a rough retrospective count,
we could say that we have explored about thirty versions of research agen-
das during one half of the year.
After six months of hard work, we arrived at an apparently appropriate
agenda to guide the efforts of the Brazilian laboratory, which was intended
to be valid until at least the end of the decade. It included the areas of natural
resource simulation, modeling of human systems and management services
systems, eventually converging to an integrated focus on an intelligent man-
agement of natural resources. The agenda suggested creating a scientific
and technological framework for the sustainable exploration of the natural
resources of the 21st century, and involved the harmonization of the natural,
human and social processes with the extraction and production processes,
similar to the conflicts depicted in the film Avatar, by James Cameron.
In early March 2010, IBM Research decided that Brazil would be the
location for its 9th laboratory, provided it obtained significant support from
the Brazilian government. Therefore, negotiations with the government
began, primarily by IBM Research executives, who made many trips to
Brazil in March, April and May of 2010. These negotiations also had the
participation of executives from IBM Brazil, mainly from the Central Man-
agement and the area dealing with relations with the government.
It would impossible and unjust not to mention the spectacular response

from the Brazilian government at the federal level. In a demonstration of
synergy and collaboration, several federal agencies, including the Ministry
of Science and Technology, BNDES, the Ministry of Development, Indus-
try and Trade, CNPq, Finep, the Brazilian Agency for Export and Invest-
ment Promotion (Apex) and the INPI, among many others, came together
to show their keen interest in the initiative and their clear grasping of its
benefits for the national strategic and competitive objectives. This reaction
surprised everyone in a very positive way, particularly those from the IBM
Corporation, who, at every trip made to Brazil, returned home with the as-
surance that Brazil was the right place at the right time.
In this process, the research agenda underwent new and substantial
modifications, mutually agreed upon by the parties, despite reflecting
strategic areas from the Brazilian government’s point of view. To the field
of natural resources, two new research areas were added, technology related
to major events (due to Brazil’s hosting of the World Cup in 2014 and the
Olympic Games in 2016) and another area connected with the micro-
electronic industry. The area of human systems incorporated the area of
research on large events, and the study of services systems was repositioned
in the list of priorities. On June 7, 2010, after a meeting with top Brazilian
government representatives, the decision to open the lab was announced
worldwide, the focus being on three areas described above.
However, the elaboration of the research agenda was still not complete.
Due to the needs of IBM Brazil business services area, which represents
about half of the company’s turnover in Brazil, a small group of research
services for Information Technology (IT) in Brazil had been established in
2009. Concurrently with the growing interest in Service Sciences, by the
end of 2010 the decision was made to expand the agenda of the lab to, again,
include the services systems area. Thus, in November 2010, IBM Research
in Brazil had the folowing areas incorporated to its laboratory:
• Natural resources: research leading to more intelligent exploration

of natural resources, with emphasis on oil and gas.
• Human systems: research devoted to events generating human
aggregation, such as sporting events and entertainment, and in partic-
ular the 2014 World Cup and 2016 Olympic Games.
• Intelligent devices microelectronics: research into devices for a

more intelligent planet, such as sensors, field mechanisms, etc.
• Service Systems: research into the science, technology, manage-
ment and innovation of service systems, both the IBM ones and those
related to the government, banks, trade and transport.
An obvious conclusion from this trajectory is that in order to take real

advantages of the opportunity to create a research center in Brazil, it is
necessary to be simultaneously flexible and attentive to the interests and
needs of the players involved in the process. In our case, this process was
clearly illustrated by the successive changes in the research agenda, which
initially focused on issues that were specific to IBM Brazil, and later merged
with the needs of IBM Corporation (represented by IBM Research);
finally a last version was shaped with the final adjustments based on a
dialogue with the Brazilian government. The recent inclusion of the service
systems area closes the cycle, in that it goes back to the first-order needs of
IBM Brazil.
Since the moment when scientists are hired, there will be a natural crys-
tallization of the research agenda, according to the specific areas of knowl-
edge and researchers. The profiles, interests, and especially the talent of
scientists, will certainly be determining factors in shaping the agenda to-
ward a possible new version which may reflect the actual capacity of the
laboratory for scientific production.
Establishing a Laboratory in Brazil:

operational Challenges
The writing of this chapter began approximately six months after the
announcement of the decision to establish the IBM Research Laboratory
in Brazil. It is certainly very little time to try to evaluate the success of the
lab, both from the scientific and financial – and even the operational –
points of view. Given the limits of our experience in establishing a research
lab in Brazil, our goal here is simply to share some operational challenges
we have experienced and give an overview of the difficulties faced at the
beginning of the undertaking. The first challenge we were faced with was,
paradoxically, the result of the success of the enterprise. Immediately after

the public announcement of the laboratory opening, there was a flood
of inquiries, suggestions and proposals for partnerships with companies
and universities, as well as resumés sent by researchers and offers sent by
consultancy offices. Dealing with this huge volume of requests, some from
high-level contacts that required a prompt reply was a major operational
challenge, especially when we consider that a leadership had not been cho-
sen yet, nor even processes or personnel to deal with these inquiries. It
all seems obvious, but avoiding any official announcement until there is
a minimum structure is recommended. In our particular case, we did not
have this opportunity, since information about the decision to establish an
IBM Research Lab in Brazil was “leaked” to the press.
Defining first and secondary level leadership was also a very challenging
process, particularly because of the urgency given to the implementation of
the laboratory and its impact on the future as well. Brazil has some features
that make selection and recruitment of research leaders a difficult task.
The internal market, despite having a large number of qualified research-
ers, has few professionals with experience of managing a cutting-edge lab
for industrial research. Many professors who run laboratories in Brazilian
universities have never gone through the experience of managing research
with the goal of generating short-, medium- and long-term economic im-
pact, or in a context where there is a blending of trade secrets, intellectual
property and academic publication. Even professionals who have a practi-
cal understanding of the innovation process and the promotion of ideas for
the implementation phases are still rare in Brazil.
On the other hand, enticing professionals from abroad to assume lead-
ing positions in a aboratory is also a very challenging process. For example,
speaking Portuguese would be an extremely useful tool for these lead-
erships, but finding research administrators with such skill is very rare,
as there are still few Brazilians or Portuguese abroad with the necessary
experience and competence. The prospects of living (with the family) in
Brazil is another difficulty facing leading professionals, not only because
of language obstacles and cultural differences, but mainly because of the
notorious urban violence that is still associated with our country. Further-
more, the cost of living for the upper-middle class in Brazil is fairly high,
especially when we consider the possible need of foreign language schools
for children of relocated professionals. Finally, obtaining work visas for

foreigners is still a long and complicated procedure, often requiring these
professionals to work from a distance, coordinating activities in Brazil until
their employment status is regularized.
Another challenge we have experienced refers to establishing proce-
dures for enticing and hiring researchers. Although there is a large number
of young Brazilian researchers here and abroad, more efficient mechanisms
are needed to divulge opportunities in research labs. Our experience sug-
gests that the best resumés come in response to ads published in electronic
lists of scientific organizations and research communities. However, the
access to these lists is often restricted to professionals working in that area,
which requires an intensive use of the networks of Brazilian researchers
who are already part of the structure of IBM Research. Despite the dif-
ficulties, the quantity and quality of the resumés received exceeded our
expectations, which confirms our perception that there is great interest by
young Brazilian researchers in private company laboratories.
The process of selection and hiring also has posed a number of chal-
lenges, many of a cultural nature. The most common procedure for the
selection of researchers for academic careers in Brazilian universities is
the adoption of a public examination, starting with the publication of an
invitation for candidates to submit their academic history and supporting
documentation. The selection, as a rule, is made through a process that
lasts from three to five days, involving written tests, evidence of knowledge
and titles. The candidates are assessed by a board of professors from vari-
ous institutions, with the final results announced at the end of the tests.
The procedure for academic selection in Brazil is completely different
from that traditionally used in the IBM Research laboratories, which fol-
lows the U.S. academic practice, in which candidates send resumés and let-
ters of reference to universities and laboratories that may have no vacancy
officially available. Based on this information and often through informal
contacts with the professors who know the candidates, a small number
of candidates is selected for a one or two-day lab visit. Throughout this
period, the candidate is required to give a lecture in his or her field of ex-
pertise and has various interviews with researchers and research managers.
High potential candidates are then made an offer, oftentimes regardless of
the quality of other candidates. It is not uncommon for the best candidates
from one generation to receive several proposals from various universities

and research centers, making their final choice based on the salary offered,
on the reputation of the university or department and on the financial sup-
port for the research.
In this way, the dilemma over establishing a selection process for the
Brazilian laboratory to be considered efficient and fair in both cultures is
obvious. We have had the experience of hiring some professionals under
the usual American procedures, commonly used in IBM Research, guided
the selection of the candidates; however, the need to familiarize the Bra-
zilian candidates with the different stages and goals of this selection was
evident. In particular, it is difficult to ask professors in Brazil to write and
send letters of recommendation with the objectivity and candor that are
typical of the United States; such letters are absolutely essential for the
selection of a small number of candidates for interview-visits. University
professors in Brazil do not usually consider writing a letter of recommen-
dation for their students and colleagues as part of their job – and still let us
keep in mind that we are studying more culturally attuned alternatives. We
also intend to analyze the results of the first hiring processes very carefully
and to seek a better adjustment of the IBM Research selection process to
the culture of academic selection in Brazil.
An operational challenge we have been facing has, in practice, to do with
how to benefit from the economic and financial incentives offered by the
various sectors of the Brazilian government for research, development and
innovation, described earlier in this chapter. For example, to receive the
return on tax exemption provided for by the “Goodness” Law, the ade-
quate documentation of the activities carried out and its submission to the
Ministry of Science and Technology is a requirement, alongside a special
procedure stated in the company’s income tax. In our company, the lack of
knowledge and trained personnel to do these activities resulted in the need to
hire external advisors with experience and practice in such procedures. Even
temporarily, resorting to consultancy seems to be essential to the appropriate
benefit derived from these incentives and an expense to be considered as part
of the installation procedure for a research laboratory to operate in Brazil.
In much the same way, submitting proposals in response to Finep and
CNPq bids for subsidy and financing for research and development fund-
ing also requires specialized know-how. In particular, due to lack of models
and examples of successful proposals, the support provided by expert pro-

fessionals with previous experience of writing this type of proposal often
in the form of consultancy becomes a very important element. Given the
procedural rigor, the various legal requirements and the high competitive-
ness of such bids, we have noticed that a high-level multidisciplinary team
is necessary to prepare proposals, preferably conducted by a professional
project manager with theparticipation of lawyers and advisors.
On writing this chapter, we began to face the challenge of creating a
framework of collaboration and partnership with universities and research
laboratories. Moreover, we faced the traditional difficulty of finding, se-
lecting, and contacting the most appropriate partners for our mission and
modus operandi In the case of Brazilian institutions, we can see an addi-
tional challenge in the different levels of maturity for collaboration with
private companies and potential partners. For example, there have been
contacts whose conditions on intellectual property generated by a research
partnership that go far beyond any similar situation in the United States or
Europe. As discussed above, experience in university-industry collabora-
tion is still limited in Brazil, and even with the recent regulations imposed
by the Law of Innovation, there are some unrealistic expectations about
how such partnerships can be structured, both from an operational and a
legal point of view.
Prospects
As previously mentioned, the Brazilian initiative for the establishment

of the 9th IBM Research laboratory began with an idea that turned into
a vision – and then a project was born. In each step of this process, facts
emerged that ensured the viability and survival of the project, especially
after it entered a competitive arena with other geographical locations. With
regard to all the facts that emerged at every phase, competitive differentials
were identified showing that Brazil was enticing to IBM Corporation, and
this led to the final decision on creating IBM Research Brazil.
In the previous sections, we have discussed various competitive dif-
ferentials – and negative aspects – for the establishment of a research lab
in Brazil and the influence of each of them in the successive stages of the
whole process. Evidently, given the different contexts of the organizations

and their goals, these enticement factors for R & D hubs in Brazil will
contribute with different weights to the decisions of other organizations
wishing to establish a Brazilian laboratory. Even in our processing, we have
come across situations in which an apparent disadvantage – the decentral-
ization of R & D funding – later turned out to be a positive aspect, because
decentralization provides greater stability and security for the investment
to be made. Therefore, the case study of IBM laboratory in Brazil seems to
have greater importance for the survey we have carried out concerning the
various factors that may influence on the decision rather than for the opin-
ion of the authors or of IBM Research itself. This chapter is not a mapping;
it is an enumeration of possible paths, their qualities and drawbacks for the
establishment of a research laboratory in Brazil.
A very important note during this process was the continuous meta-
morphosis of the proposed research agenda for the lab. The views that dif-
ferent actors in the process had of the backbone of the lab was often at the
same time complementary and contradictory, thus generating a permanent
insecurity regarding the “monster” that was being created. For us, it is al-
most a paradox that the research agenda, which needs to be kept stable for
several years to ensure the time required for the maturation of the research
projects in a laboratory, has been the component that most often changed
in the decision process. If there is one key lesson to be learned it is that an
agenda is the basic currency of a negotiation. Discussing it lead to the cre-
ation of a common view which, if not entirely agreed upon, is shared by all
at every moment.
This flexibility and controllability of the research agenda begin to de-
crease when the first researchers are hired; they are the ones who, in prac-
tice, define the actual potential, the areas of interest and the laboratory
focus. We do not mean that it is not possible to supervise researchers and
the focus they give to their work, but rather that the existence of a base of
scientific personnel ultimately ends up determining the potential, style
and values of the laboratory. This is now the key challenge for the IBM
Research laboratory in Brazil: to find scientists who make real the vision
expressed throughout the process, and at the same time offer the institution
the necessary capacity to evolve organically with the expanding scientific
knowledge and IBM innovation needs.
This context of ongoing evolution, even if it is at times discontinuous,

explains the challenge posed by the establishment in Brazil of a research
laboratory that has a high impact both on IBM and on the scientific com-
munity. We know that any research activity is risky, involves high costs,
and demands time. Therefore, it is the sort of investment from which no
quick return is to be expected. Still, the Brazilian IBM Research lab has an
ambitious proposal: to achieve, in half the time, the same degree of maturi-
ty and productivity that other IBM laboratories have achieved – something
like how to do in five years what took ten years to materialize in Chinese
and Indian labs.
From this analysis it seems clear to us that this challenge is possible;
it requires us to be extremely competent in performing the various tasks
involved: from the establishment of the physical office to the hiring of sci-
entists; from the relationship with funding agencies to partnerships with
companies and universities; from the impact on IBM’s business to the re-
lationship with the international scientific community. Growing very fast,
but in a sustainable way, is the name of the game in emerging countries like
Brazil – and IBM Research Brazil is prepared to win this game.
9
EVALUATION OF DAY-TO-DAY
INNOVATION IN BRAZIL: THE
BIOPHARMACEUTICAL MARKET, BIOSCIENCES
AND THE ROLE OF BIOMINAS BRAZIL
The International Environment for Biopharmaceutical

Innovation: Current Situation and Outlook
The current scenario in the global pharmaceutical sector is highly chal-

lenging. Large international pharmaceutical companies must meet both the
society’s demand for new and better products and the internal pressure for
an improvement in results, especially when we take into consideration the
impact that the expiry date of patents will have in the coming years. Esti-
mates indicate that between 2011 and 2016, revenue losses attributed to the
expiry date of patents may amount to US$ 267 billion.
From a technological standpoint, the increasing knowledge of the mo-
lecular basis in pathological processes and mechanisms of resistance enables
the development of more efficient and direct therapeutic, prophylactic and
diagnostic approaches, thus creating the basis for personalized medicine.
This movement contrasts with the traditional model of the pharmaceutical
blockbusters – that is, few medicines for many patients – and sets a new
paradigm: many medicines for few patients. If for patients personalized
medicine is great news, as it enables a more effective treatment with fewer
side effects, for industries it poses the a challenge of launching more prod-
ucts and having a lower turnover.
The internal strategy used in the development of these products does not
seem to have worked out very well. Companies have been spending more
and more on research and development, although the rhythm of growth has
declined from an average annual rate of approximately 10% in the period
between 2002 and 2008 to an estimated 2.3% in the subsequent five years.
But the number of new chemical or biological medicines approved by regu-
lating agencies is declining, which means that there is an innovation gap. In
this environment, most companies place their bets on partnerships, merg-
ers and acquisitions so as to complete their on-going production portfolio
in the short-, medium- and long-term. Simultaneously, big pharmaceutical
companies have been reducing their expenditures and making redundan-
cies in their research and development units. This becomes quite evident
when we read the sector’s daily bulletins.
By analyzing these factors, we see how drastically the business model
changes. There has been a transition from a fully integrated pharmaceutical
company (Fipco) to a virtually integrated pharmaceutical company (Vipco).
A format in which industries do everything internally – from prospecting
for new molecules to the final stages of development and launching the
product – goes out, and a new model by which a large part of the processes
is carried out externally through outsourcing or partnerships with research
centers, contract research organizations (CRO) and contract manufacturing
organizations (CMO) comes in. Most international pharmaceuticals are at
some point in this transition.
Within this context, it is inevitable that these companies will be brought
closer to the biotechnology industry. Hence, the latest innovations, ther-
apeutic strategies and diagnoses, encompassing, for example, recombi-
nant proteins, monoclonal antibodies, micro-RNAs, new biomarkers and
pharmacogenetic approaches. Biopharmaceuticals now represent 17% of
the total pharmaceutical market, and are expected to reach 23% within
five years. When we consider only the list of the world’s 100 best-selling
medicines, biotechnological products (vaccines and biologically modified
products) are estimated to have their share increased in this group from
31% in 2009 to 48% in 2016.
The licensing of technology and molecules with therapeutic potential
has been on the increase. According to 2008 data, licensed products have
approached 50% of the pharmaceutical industry revenues; this means that
in 2009 alone, the biotech industry raised a record US$ 37 billion in finan-
cial partnerships with large pharmaceutical companies.
In addition to the funds from strategic partners, biotechnology com-
panies, especially the American ones, receive significant support from
venture capital (VC) funds. In 2009, the amount raised through VC was
approximately US$ 4 billion. The most promising companies, that is, those
with solid intellectual property and recognized technical and management
teams, have not just one but many joint investors.
Some of these start-ups succeed in getting to the stock exchanges, espe-
cially in the United States, England, Canada and Australia. As to the latter
two countries, there are enticing mechanisms for the public offering of
shares of emerging technology companies. Few companies, in fact, succeed
in launching commercial products and achieving substantial revenues at
the same time. Other companies are either acquired by larger ones or have
their technologies licensed; most of them, however, go astray – whether
because they did not have encouraging technical results or because they
lack financial resources.
Biosciences Innovation Scenario in Brazil: Advances,

Challenges and Daily Innovation
First of all, it is important to mention that such issues as innovation

and entrepreneurship are fairly recent in Brazil, even in the daily life of
companies and universities. If in the United States the bioscience industry
began to emerge in the 1970s (the first biotech product was human insulin,
launched in 1982), in Brazil it has only become a reality for the last ten
years, although earlier cases of company and public initiatives do exist.
Recent Advances
Despite being recent, relatively significant headway has been made in

the sector for the last few years; certainly it is still too slow and insufficient
to bring Brazil closer to more developed countries in that sector and for it
to achieve the goal set by the federal government – at the beginning of the
industrial policy programs –, that is, the goal of placing Brazil among the
top five players of bioscience in the world. There is still a lot to be done
before we take the national bioindustry for a consolidated sector, and be-
fore companies operate in a stable environment which is also conducive to
investment in innovation. Nonetheless, we can see some progress in several
key aspects, among which we highlight:
• Brazilian scientific qualification. Several federal government ini-

tiatives, such as the creation of CNPq and Capes in 1951, have con-
tributed to a significant increase in the number of Brazilian Ph.D.
researchers and scientific production, with papers published in inter-
national journals according to the Institute for Scientific Information
(ISI). The number of Ph.Ds. grew tenfold between 1980 and 2006;
from one thousand to ten thousand graduates per year. The Brazilian
participation in international publications has increased more than
130% in the last ten years, reaching approximately 2% of the total
number of articles published in 2008. Today Brazil has secured its
international reputation for excellence in some areas related to biology
and medical sciences, especially in tropical medicine, parasitology,
genomics and immunology.
• Public financing for companies. The Studies and Projects Financ-
ing Agency (Finep) published in August 2006 its first public invita-
tion for the Economic Subsidy Program, designed to finance, with
non-reimbursable resources, projects for innovation in companies.
Such a program means a notable change in the use of public resources
for research, development and innovation, which were previously
only directed at universities and research centers. During this period,
Finep has offered economic funding between R$ 350 and R$ 450
million per year. The 2010 public invitation anticipates an invest-
ment of $ 500 million in innovative projects in six key areas: informa-
tion technology and communication, energy, biotechnology, health,
defense, and social development. Although there is no limit to the size
of the companies selected, which made way for many large corpora-
tions, many start-ups and emerging companies have also succeeded
in securing these resources. This alternative funding is critical to the
survival of such start-ups, which face difficulty in obtaining other
resources.
• Structuring of innovation technology centers. In March 2006,
the Ministry of Science and Technology along with Finep made an
announcement for the creation, implementation and strengthening
of the Centers for Technological Innovation (NIT) in scientific and
technological institutions. NITs were primarily designed to be an
interface with the productive sector and to deal with the intellectual
property area of research institutions. Although the results – with

regard to an increase in the number of patents and licensing proce-
dures – are still modest, the NIT’s professional development and dis-
semination of the culture of innovation are noticeable facts.
• Advances in the regulatory framework The Industrial Property
Law (Law no. 9.279), which grants temporary privilege to authors of
inventions, was not published until 1996 and only came into force in
the following year. Without such law, there was no sense in dealing
with research, development and innovation in Brazil. In December
2004 the Innovation Act (no.10.973), was enacted; in October 2005,
it was regulated and divided into three main bases: creation of a con-
genial environment enabling strategic partnerships between academia
and enterprises; encouragement to the participation of the Science and
Technology Institutions (NIT) in the innovation process; and stimu-
lation for companies to design innovations. One of the areas showing
significant advances was that of legislation related to the procedures
to be followed in clinical trials in Brazil. The Panel Board Resolutions
(RDC) nos. 219/04 and 39/08 regarding clinical research on medi-
cines and health products in the country had a strong impact on the
professionalization of this activity. Today, there are nearly 2,000 on-
going studies in Brazil, which turns it into the main Latin American
market in conducting clinical trials.
As a consequence, we can notice a substantial increase in the number of

bioscience companies in Brazil. A study carried out by Biominas Brazil in
2009 indicated the existence of 253 bioscience companies in the country. Of
these, almost half – 173 – were created between 1999 and 2008; that means
an average of seventeen companies per year, compared with an average of
seven companies created annually between 1994 and 1998.
These companies operate mostly in the areas of human health (30.8% of
the total number of enterprises), agriculture (18%), reagents (16%), animal
health (14%), the environment (8%). Despite the important role played by
Brazil in the bioenergy sector, the number of companies developing new
technologies, products and services in this area is still rather small (4.4%).
By analyzing more specifically the 77 human health companies oper-
ating in Brazil, it is possible to notice that the main activity areas related
to biopharmaceutical innovation are: development of new therapies and

vaccines (fourteen companies) and recombinant proteins (five companies).
Enticed by a favorable scenario, the large national pharmaceutical com-
panies have also started running projects on biopharmaceutical innovation.
As previously mentioned, many of them obtained resources from the Finep
Economic Subsidy Program to finance, at least in part, their investments in
the development of new products In the near future, these companies may
well become partners in start-up companies.
Challenges
Some of the main challenges facing companies and Brazil in their at-
tempt to make progress in the bioscience sector are listed below:
• Regulatory issues. Despite the advances previously mentioned, the

issue of regulation in Brazil still has a long way ahead before reaching
maturity. A recent survey conducted by Biominas Brazil in Brazilian
bioscience companies, indicates that the regulatory issue is one of the
greatest challenges facing companies both for lack of a clear definition
by the legislation and for slowmoving regulating bodies. Though the
prospecting of new molecules is considered as one of the country’s
major assets, the access to Brazilian biodiversity remains, in fact, an
impossibility for companies and research centers. The current regula-
tory framework is Law no.2.186-16 of 2001, which, enacted to fight
biopiracy, ended up creating rigid mechanisms for bioprospecting and
access to biodiversity. A bill, already agreed between the Ministry of
the Environment and Ministry of Science and Technology – which is
stuck in Casa Civil waiting for its chance to reach the National Con-
gress – has formed high expectations in that sector. Another concern
is the current legislation regulating the registration of biological prod-
ucts – RDC no.315/2005; this is one of the most inhibiting instru-
ments for private investment in biopharmaceuticals in Brazil. There
are also great expectations from that sector concerning the publication
of a new RDC based on Public Enquiry no.49/10.
• Private instruments for investment and financing. Unlike the
scenario in other countries, there are still few venture capital funds
directed to life sciences in Brazil. The first two initiatives aimed at

structuring these funds are in their final stages of funding and begin-
ning of operations. Venture capital resources are essential to finance
start-ups in their final stages of development, commercialization and
production. The lack of this mechanism, on the other hand, brings the
companies to a halt, which has frequently occurred in several promis-
ing national enterprises. We must also stress that funds are important
not only because they grant resources to companies, but also because
they play an active role in their managerial restructuring and expan-
sion of their network of contacts.
• Intellectual Property. Although the country has a strong scientific
capacity in strategic areas, which include biosciences, as stated above,
such knowledge has still not had any effect on an increase in the num-
ber of patents.
Besides this issue, already extensively presented and discussed above,
another aspect draws the attention of the players in this sector: the
criteria for patentability of biotechnological products and processes.
A recent study conducted by INPI, comparing the criteria adopted in
different countries, concluded that Brazil and India are the countries
enforcing the most restrictive laws with regard to granting patents
in the area of biotechnology. For example, any biological material
isolated from nature, be it a micro-organism, a human or animal cell, is
not subject to patenting in Brazil, as it is not considered an invention.
This is not the case in countries such as the United States, China,
Japan and those of the European Community.
• Infrastructure. The infrastructure necessary to carry out the vari-
ous stages in the development chain of biotechnological products still
does not exist in Brazil. This includes everything, from laboratories
equipped to perform preclinical testing – following the international
standards of proper laboratory practice – to service-rendering com-
panies specialized in the production of medicines in small quantities
for clinical trials, the so-called contract manufacturing organizations
(CMO). Companies that today have to use this infrastructure usually
hire such services abroad, especially in the U.S., where such qualified
institutions are available, which implies additional costs and a com-
plex logistics in the international movement of samples and products.
• Human Resources. Despite advances in scientific and technical

qualification, Brazil still does not have a critical mass of trained per-
sonnel in key stages of bioproduct development, such as, for exam-
ple, production staggering and fermentation. Besides that, having
qualified personnel to manage biosciences companies is also in great
demand. Few national organizations have enough experienced profes-
sionals capable of managing businesses in the sector. In many compa-
nies, it is the researcher-entrepreneurs themselves that take the role
of executives – whether this is due to difficulty in finding appropriate
professionals or due to financial constraints.
The Day-to-Day Activities
By analyzing the day-to-day innovation activities in the Brazilian

biosciences sector, it is possible to divide them into two distinct groups,
depending on how long they have been operating and developing their
products.
In the first place, we have found start-ups which, in general, focus their
day-to-day activities on the research and development stages of either
a product or service, rather than on a critical analysis of the market and a
strategic planning. This effort to develop innovation is, in most cases, soli-
tary work; that is, the company interacts very little with other companies
or even with other research teams. It is important to keep in mind that
companies are created out of a research project conducted by scientists from
universities and research centers; obsession for science leads to a distorted or
incomplete view of the market. Often times, we have invited entrepreneurs
to participate in events in Brazil and abroad, and we usually hear from them
that their company is still not ready to talk to potential partners. The daily
life in innovative firms at this stage is somewhat similar to that found in
universities and research centers; it is merely the milieu that changes.
With the experience gained by Biominas in the area of incubation and
investments in companies, we have had the opportunity to meet many
researchers that are in the process of setting up companies, as well as
innovative undertakings, seeking rooms where they can implement their
projects and/or financial resources. Rarely do these entrepreneurs have even
a minimally structured business plan. Initial conversations strictly focus on
scientific issues; questions on market, management and marketing topics

are never answered. Many of those companies that are incubated isolate
themselves in their rooms and try to advance the development process of their
products. Funding for these projects comes typically from public sources or
from the entrepreneurs themselves, their relatives or acquaintances. Our
job is to advise companies, from the start, so as they can plan and develop
operations on several fronts, besides technology.
Upon reaching the second group stage, these companies are more
advanced in the development of their products and services; only then do
entrepreneurs express their concern about commercial and management
issues. They begin to seek information about the market, partners and
commercialization channels, especially when their production is ready
to be marketed. At this point, they are tremendously enthusiastic about
participating in events. Another cause for concern is the companies’ search
for funding sources. However, finding either a business partner or a financing
institution is usually a time-consuming process, because entrepreneurs need
first to establish a network of relationships and confidence with potential
partners. This delay is also caused by the very dynamics of large companies
and investors, who have other priorities and whose decision-making criteria
are rather complex.
The Biominas Brazil study of 2009 indicates the main priorities
pointed by the entrepreneurs of the sector of Brazilian biosciences. It was
not by chance that the main topics identified were: fundraising (50%),
identification of partners for commercialization (47.7%), enticement and
retention of strategic personnel (37.5%), securing a positive cash flow
(36.4%), and identification of a partner for development purposes (31.8%).
The entrepreneurs’ goals offer a good illustration of the average profile and
the needs of bioscience companies.
This situation causes lack of capital to manage the business. Public
funds are not suitable for investments in marketing and management and
“angel’s” resources are too scarce for the business demands. We have no-
ticed that companies reduce their investments in personnel, travels, events
and other areas, which, in turn, ends up by keeping potential partners and
investors away. We have analyzed many companies which are in this stage.
They deal with innovative products and services, yet they end up in a state
of partial or complete paralysis.
In both stages, companies face many obstacles, for despite making

headway, they are still undergoing a process of structuration. As a matter of
fact, even in a structured environment typical of that found in the sector’s
leading countries the number of successful companies is small; thus, it is
not difficult to guess how difficult it is for companies in emerging coun-
tries to overcome these obstacles. The entrepreneur, usually with a solid
technical background, is initially faced with major challenges when he or
she turns an idea or the result of years of research into a product or service.
It is a development process of which he or she and his or her team are not
completely aware. Moreover, the process has many new interfaces which
must be understood for short-term decisions to be made and which involve
regulatory issues, infrastructure and adequate equipment, protection of
knowledge, contracts, etc.
Nevertheless, it is possible to notice that companies that acknowledge
the importance of having some strategy from the very beginning, of follow-
ing their planning and promptly responding to the challenges that arise,
have more chances of success. Biominas Brazil has presently focused on
guiding the country’s bioscience companies in the structuring and develop-
ment of their businesses.
Our job is to participate actively with the companies’ teams in the estab-
lishment of strategies, to help them conduct their business. We have always
suggested that entrepreneurs should keep in mind the need to establish
their network, and that they should be willing to discuss their projects with
potential partners.
Bearing this in mind, Biominas Brazil went into partnership with Inter-
farma – (the Association of Pharmaceutical Industry Research) in 2009. By
offering the possibility of collaborating with large companies, we enable the
emerging bioscience industries to accelerate their learning curve and access
complementary expertise, human resources and adequate infrastructure.
For pharmaceutical research companies, this is an opportunity to access
new projects and expand their product portfolios.
In short, currently Brazil has plenty of opportunity to position itself as
one of the major life science players in the global game, given the present
international panorama of expanded partnerships for the development of
biopharmaceuticals and recent advances in the national setting. Political
stability and economic growth in recent years have also contributed to an
increase in the country’s visibility and power to entice foreign investment.
The international collaboration with universities, companies and serv-

ice-rendering enterprises can be a focal point for Brazilian companies to
reach a level of global competitiveness. To achieve this in due time, govern-
ments and the private sector must work in synergy to overcome roadblocks.
On the one hand, focused work is required to guide the most promising
companies, their executives and their technological complexity. On the
other hand, one of the first steps should be making the environment more
enticing to investors and large companies, by means of an effective regula-
tory system.
PART 4
INNOVATION IN
THE HUMAN HEALTH SECTOR IN BRAZIL
The issue of health in Brazil has been a priority for its strategic impor-
tance. One way of confirming this is to simply observe how often it appears
as a topic of debate in political campaigns. Apart from being a constitution-
ally mandated social right, health is broad enough to also impact on diverse
sectors, all equally strategic, such as education and science and technology –
and we can also discuss this topic in relation to issues ranging from infra-
structure and basic sanitation to biotechnological innovation.
The subsequent chapters were based on several interviews with experts
in the issue of health, in particular with those dealing directly with inno-
vation. Our aim is to offer a comprehensive view, incorporating different
perspectives on the matter, whether they come from the very entrepreneur,
from the government or from the scientist. In our view, these accounts
should be published, given the wealth of enlightenment the interviewees
convey with their experience.
The first part deals with regulatory issues, a crucial topic for innovation
in health, since the government of any country is accountable for safe-
guarding its population from potential problems with regard to health sur-
veillance. Jorge Kalil, director of the Immunology Laboratory at the Heart
Institute, discusses the issue of clinical trials, where we are presented with
many lessons that Brazil must learn. Jose Perez Fernandez, president of
Recepta Biopharma, also faces challenges in the regulation of clinical trials
in Brazil and the United States, and he notes that Brazil still needs to bring
international projects to the frontiers of knowledge; for it is only then that
new and more extensive knowledge and effective learning will be acquired.
Marcelo Vianna de Lima, president of the Brazilian Society of Pharma-

ceutical Medicine, points out several problems related to the regulation of
clinical research – which makes Brazil lose competitiveness in this sector.
The second part discusses the constant investment in cutting-edge hos-
pitals in Brazil; for lack of time, we could not interview other major hospi-
tals, but that does not invalidate in any way the interesting interviews held
with Luiz Vicente Rizzo, CEO of the Albert Einstein Israelite Institute for
Teaching and Research, and Luiz Fernando Lima Reis, research director of
Sírio-Libanês Hospital.
The third part highlights possible solutions to Brazilian public health via
innovation. For this discussion, we have invited two distinguished scientists:
Antonio Paes de Carvalho, of Extracta Natural Molecules, and Reinaldo
Guimarães, Secretary of Science, Technology and Strategic Inputs, of the
Ministry of Health.
In the sequence, we examine the issue of innovation in Brazilian pub-
lic laboratories, with special mention to Oswaldo Cruz Foundation and
Butantan Institute, represented by Manoel Barral Neto and Otávio Mer-
cadante, respectively.
Finally, we give a brief overview of the issue of innovation in Brazil
by discussing with representatives of one of the most important Brazilian
institutions: the National Bank for Economic and Social Development
(BNDES); João Carlos Ferraz and Pedro Palmeira give a history-based
analysis of innovation from the economic point of view, and contextualize
Brazil in this global game.
10
REGULATORY OVERVIEW
OF RESEARCH IN BRAZIL
Interview with Jorge Elias Kalil Filho1
The Immunology Laboratory at the Heart Institute (Instituto do Coração –

InCor for short), is recognized as an important center of research into illnesses
affecting the heart, lungs, kidneys and liver, as well as autoimmune disorders.
It was created in 1984, when InCor – a public and university hospital – re-
sumed carrying out transplants for the treatment of highly complex illnesses;
InCor works in association with Hospital das Clínicas (HC), which is under
the São Paulo government administration. Currently, its research lines are
concentrated on atherosclerosis, rheumatic fever, immunogenetics, transplants
and autoimmunity. It has filed five patent applications.
The hospital lab team is multidisciplinary and consists of professionals from
different areas of HC and the School of Medicine of the University of São
Paulo (FMUSP).
1 Jorge Elias Kalil Filho is an immunologist and tenured professor at the School of Medicine
of the University of São Paulo (USP). Born in Porto Alegre, he received his master’s and
doctorate in human biology from the University of Paris VII and his senior teaching cre-
dentials from USP. Doctor Kalil is the director of the InCor Immunology Laboratory , vice
president of the International Union of Immunology Societies (IUIS) and elected president
for the 2013-2016 term of office. He was adviser to Dr Adib Jatene, Health Minister, from
1995 to 1996, he founded and was the first president of the Brazilian Association of Organ
Transplants; he is president of the Brazilian Society of Immunology, director of the Clinical
Pathology Laboratory at Sírio-Libanês Hospital and vice clinical director at Clínicas Hospi-
tal. In 2011, he was appointed general director of the Butantan Institute.
At the head of the team is Dr Jorge Kalil, a physician who started working
at InCor in 1985 with the task of supervising research into transplant immu-
nology, an area for which he enjoys international reputation.
Brazil must find a way to be competitive in order to entice innovation

projects. We have improved a great deal in the area of health sciences and
now have real opportunities for innovation; evidence of this is the increase in
the number of Brazilian scientific papers published in indexed journals; for
the last few years it has increased at a faster pace here than in the rest of the
world. The number of patents, however, has not followed the same course.
This indicates that the problem is not scientific but rather regulatory. Un-
fortunately, official Brazilian bodies are enmeshed in a bureaucracy which
seems to be saying to those seeking to innovate, “I doubt you can do it”.
One example is the fact that it can take the researcher approximately ten,
twelve, fourteen months between the moment he or she defines the research
objectives and the moment he or she gets the approval of the official bodies.
In practice, government institutions make the whole process more complex.
The regulatory element assigns a very important role to the develop-
ment of a medicine in any country. The regulation must ensure quality
and, at the same time, promote the development of that specific economy.
Lately, there have been a considerable advance in Brazil with the enactment
of the Industrial Property Law (1996); after all, those who have the means
will invest them in discoveries or inventions that cannot be copied.
The creation of the National Health Surveillance Agency (Anvisa) in
1999 was vital. It is necessary to invest a great deal in it so that it can keep
a top quality staff and ensure good working conditions to the professionals
working there. Just like the Drug Marketing Regulatory Agency (CMED),
Anvisa should help Brazil become more competitive, as is the case of the
Food and Drug Administration (FDA) in the United States. That’s why an
Anvisa employee cannot merely behave and act as a bureaucrat. A medicine
cannot wait for six months or even one year to be authorized and released.
We must promote access to medicines in the country, including the access
to imported quality medicines; for that, we have to think of logical rules
that can both ensure security and stimulate development in this sector.
In practice, this translates into situations like that of the position Brazil
holds in the world as far as centers for clinical biopharmaceutical testing are
concerned. A study by the Economist Intelligence Unit, for example, shows

that we occupy the 17th place, behind Argentina and India.2 Countries like
Australia – which commissioned that survey – Chile and South Korea pro-
mote a favorable environment for clinical research in their markets.3
Patenting and Licensing Difficulties
Regulatory difficulties emerge, for example, when a discovery calls for

patenting. For a public laboratory such as the InCor Immunology Lab, it
is during this stage that the first breach in the Brazilian innovation chain
can occur. Having an invention patented in Brazil is a “Heaven help us!”,
since the problem lies in the following question: whose patent is this? If I
am from USP, I have to put its innovation agency to motion. However, as
I work at InCor, I must refer to the Zerbini Foundation, the InCor board of
trustees; so there is a series of complex rules to be followed.
A practical example of this happened with anti-venom serum, used to
counteract the effects of stings caused by a swarm of bees. This is a genu-
inely Brazilian invention; it does not exist anywhere else and it was the re-
sult of collaborative research work among the InCor Immonology Lab and
the São Paulo State University (Unesp) – Rio Claro campus – and Butantan
Institute. It was a doctoral thesis, whose author kept her study lying on her
desk for over a year before the three public institutions, all in the state of
São Paulo, found a way to share the patent for the serum she had researched
on. Now we have an international patent, which enables us to seek invest-
ment in clinical trials. There is a bottleneck in the public mechanisms.
The difficulties in patenting and in receiving financial return are great;
even so, the researcher often decides to publish an article; and that is the
end of the research, which means another breach in the innovation chain.
Personally, I have several research studies, whose publication I have post-
poned, because I believe that other scientists in the United States might be
interested in developing them.
2 This piece of information appears in the article “Trends in the globalization of clinical trials”
by Fabio A. Thiers, Anthony J. Sinskey and Ernst R. Berndt, published in Nature.
3 Australia, for example, has boasted about being the best country in the world for conducting
clinical trials, based on a 2005 study, carried out by the The Economist Intelligence Unit and
commissioned by the government.
For a foreign company to license an invention the bottleneck gets even

worse. When a patent is granted a question arises: how to transfer its devel-
opment process to the industries? In the case of the Immunology Labora-
tory, as it is a public institution, a public bid is required. Thus, if a company
encourages research, I can patent a molecule discovered, but I cannot have
its development and commercial use for the company licensed, because
first a bidding procedure must be followed. Other parties interested in
this bidding process may participate, even if they have not subsidized that
research and are not as qualified as the subsidizing body to get ahead with
the project.
Moreover, an industry may show interest in a project; yet we do not
have a consolidated research chain in Brazil. Not always do scientists mas-
ter all the steps. I may reach the conclusion that a molecule is effective; so,
for me, the process is ready and finished; for an industry, however, this is
not so. And there is no point asking us, scientists, to do more, because we
are not acquainted with the other end of the chain – production and sales –
and vice-versa.
A Broken Chain
Brazil must have a consolidated and unbroken chain of innovation, start-

ing with basic in-vitro research, pre-clinical trials and toxicity testing, and
then moving on to phases I, II, III and IV. Here we stumble upon a major
obstacle in pre-clinical stages. Any researcher who gets interested in a plant
growing in the hinterlands of Bahia state, for example, will hardly ever
be able to carry on with such a project. Brazil has taken the first step and
some phases of the research work, but we have to consider the other end of
the process, where there is a professional who knows how to pack and sell that
active principle. However, the two ends are very far from each other; there
are obstacles in between; everything is scattered around and frequently
there is no sign of international recognition, which is needed for the re-
search to advance, as is the case with toxicity tests. Multinationals prefer to
carry out their projects outside Brazil.
In immunology laboratories, when we are unable to command a phase,
we usually partner with institutions in the United States and France. But
it is our strategy to conduct research from beginning to end inside Brazil.
For toxicity tests, for example, we have been collaborating for some time
with a spin-off of the School of Veterinary Medicine and Animal Science
from USP. We intend to begin some phase I trials of the products we have
developed. For this to be done, there is another obstacle: the production
of synthesis under good manufacturing conditions. We do not have this in
Brazil. We can purchase it abroad, but it is expensive. In our lab we have
been trying to build a structure of peptide synthesis – short sequences of
proteins. Another possibility would be to collaborate with other interna-
tional academic teams that could help us.
We might already be producing at least forty peptide-based drugs.
Many of them have their patents expired and come into Brazil as gener-
ics; so once again we will have to buy the active principles abroad. What is
missing here is the same that is also missing in the field of biotechnology
products: places that comply with the so-called “good manufacturing prac-
tice” – GMP). I have had some proposals to do this at InCor, with a small
plant that would at least meet our basic needs and those of Hospital das
Clínicas. This step is not a trivial one; it is one thing to do this locally in a
laboratory scale; it is another thing to do it on a larger scale for the chemical
processes.
Brazil has good scientists and we have succeeded in keeping here quali-
fied researchers. This is fundamental, as it is no-use having the entire chain
if there is no one to operate it. Yet we lack a very important professional:
innovation process managers. In fact, a course to train and qualify such
professionals would be more than welcome.
The model manager in Brazil would be similar to that in the United
States, where small private technology development companies employ
professionals to oversee the whole research process; they check out, for ex-
ample, obstacles or products that might appeal to a particular industry, etc.
It takes different scientists to form the innovation chain, and this requires
appropriate management. In addition, we, scientists, are not very good,
for example, at placing the product on the shelves. For this to be done, the
management model of foreign pharmaceutical companies in Brazil would
also have to be less of a model in innovation. everything goes out and re-
turns to the headquarters. Here, the focus adopted by the management of
these corporations is still too oriented towards the sales of the product, to
the packaging procedures, to distribution and commercialization.
Biotechnology
Biological products have undergone a revolution throughout the world;

and this involves medicines of higher added value. Brazil, however, is far
behind in this race. These products have already been on the market for
some time, and their patent will soon expire even before we have secured
their production on a commercial scale. We have lost the fine chemistry
race, although there is still time to recover a bit of it, and now we may miss
one more “streetcar of history” if Brazil is not well placed, be it by enticing
international industries to produce here, be it by turning national com-
panies competitive through local production of such biological inputs. In
Brazil, despite representing only 2% of the number of products consumed,
they implicate 40% of the resources and are primarily produced by molecu-
lar biology, fermentation, animals or bacteria. Few countries in the world
are developing such medicines; among them are India and China. We may
still remedy this deficiency with the emergence of biosimilars, which may
not exactly be an innovation, but are at least an incorporation of new tech-
nologies in Brazil. However, depending on Anvisa regulations for the reg-
istration of biosimilars, Brazil will also be out. Furthermore, such products
mean prospects of real innovation, as something developed within our
country has been identified. Today, 99% of the cases involving innovation
die away in the scientist’ s shelf, who cannot make his or her idea prosper.
Resources for Development
Developing a medicine entails spending a great deal of money. This

amount is estimated in US$ 1 billion – in the final stages of the clinical
research, when, theoretically, the risks of a failure are reduced. If Brazil re-
ally wants to participate in innovation, it will have to take a chance either
by enticing foreign industries to invest here or by developing our national
industry, which has expanded with the production of generics and has
companies that can easily invest more in innovation, despite the fact that
they have been producing more and more commodities. This would be a
difficult process; however, it is perfectly viable, for there are good fund-
ing sources in Brazil, such as the National Bank for Economic and Social
Development (BNDES).
In the case of the Immunology Laboratory, the main funding sources

come from the National Institutes of Science and Technology (INCT) of
the Ministry of Science and Technology, which is funded by the National
Council of Scientific and Technological Development (CNPq) and the São
Paulo Research Foundation (Fapesp). The Ministry of Health still funds
projects through the Department of Science and Technology (Decit). Some
subsidizing come from the Studies and Projects Financing Agency (Finep),
which is more development-oriented, favoring, purchase of equipment.
We also seek resources in international institutions such as the National In-
stitutes of Health (NIH), in the United States, and the Agence Nationale de
Recherche sur le Sida et les viral hepatitis (ANRS) in France, which focuses
on AIDS and hepatitis. Wherever money is available, there will we be to try
to secure it for our purposes. Unfortunately, the private sector falls short of
our expectations as far as funding is concerned.
Lines of Research
The research lines in the Immunology Laboratory usually start with

the scientists’ perceptions about a scientific niche and some application
in the market. Commissioning research is not a common practice, which
indicates a poor use of such labs by the companies.
One of the niches we have identified is related to the HIV virus. We
realized that we would have to do trials with monkeys in the forest to find
a new vaccine against the virus. We believe that there are some conceptual
errors in the vaccines tested thus far and we think we know why the vac-
cines have failed. We have a proposal and even patents, whose ownership is
retained by Zerbini Foundation/InCor; however, Edecio Cunha Neto and
I are, in fact, the inventors. A further example is in other proposals of pro-
tein fragments which we believe to have an important role in the tolerance
of transplanted organs.
The Immunology Laboratory does not carry out stages III and IV,
but I have a clinical service that performs phases I, II and III. I have
already done phase II of a proposal for head and neck immunotherapy
molecule in collaboration with a surgery team at InCor. I have also done
phases II and III, by participating in vaccine trials of medicines. We have
a good clinical research team associated with our group. Besides that, the
Institute of Immunology Investigation, which is a National Institute of
Science and Technology (III / INCT), is located in the InCor premises.
I am the director of the INCT, which has 33 researchers, each one with
a different expertise, working in 23 research centers in six states, besides
the Federal District.4
Clinical research has also been done here at the hospital, where we have
a well-established and expanding area. The Center for Clinical Research at
Hospital das Clínicas was the first project authorized through a public bid
in 2005 by the Ministry of Health and the Ministry of Science and Tech-
nology so that 19 clinical university research centers could be implemented
in Brazil.5 We received the resources and developed part of the clinical
research here. We still receive funding for this
Our research is negotiated with national and multinational companies,
especially the latter. We also have some projects with new ideas from Bra-
zilian industry-sponsored researchers, but the number of such projects
is smaller because they are expensive. Most of the projects coming from
multinationals are in phases III and IV, but we want to absorb phases I and
II because they are the ones that need more accurate examining, as they
involve relevant scientific questions which we want to master. This line of
clinical trials makes sense both from the point of view of scientific empow-
erment and economic viability. Phases III and IV are virtually service-
rendering operations without major scientific issues to be resolved.
Phases I and II are often conducted in a university environment and com-
missioned by companies. Phase I basically determines toxicity and safety,
but this is rare in Brazil because few medicines developed here reach this
stage. Phase II determines the therapeutic window, or the dose to be pre-
scribed to the patient.
4 The Institute for Research in Immunology (III) was created in 2002 within the Millennium
Institutes Program of the Ministry of Science and Technology to build networks of research
in Brazil. Today, the III / INCT (Institute for Research in Immunology, National Institute
of Science and Technology) is formed by a group of 33 researchers from 23 research centers
located in six Brazilian states and the Federal District.
5 The incentive sought institutions to integrate with the National Network of Clinical
Research in Teaching Hospitals (RNPC) and proposed to spend R$ 35 million Brazilian
reais in three years. The program was later expanded.
Different parts of the institute complex, disciplines and departments

are involved in my team for the clinical stage. One of my associate profes-
sors, responsible for a part of the clinical research on HIV-AIDS and differ-
ent protocols, including his collaboration with the NIH, supervises about
35 or 40 people involved in the research.
In the laboratory, where clinical research is not done, I have nearly 70
people involved in different projects, from group heads to post-doctorate
holders, besides those who are still developing their dissertations or thesis,
and interns and visiting researchers, including some from abroad, which is
very important.
As regards the approval of new medicines, the agency is making a great
effort to qualify the staff and is studying the issue, as not everything is
regulated through norms. However, there is a bottleneck because such
rules are not always clear and simple. We do not know which route to fol-
low. As to the clinical trials, when the process involves human beings and,
in particular, foreign institutions in addition to Anvisa, they have to go
through the National Committee for Ethics in Research (Conep). Resolu-
tion 196/96, which created Conep, qualified Brazil to enter the world of
clinical research, since an ethics committee granted Brazil credibility and
recognition abroad as a serious place for research.
At the beginning, the committee had the task of evaluating all the proj-
ects, but over time we believed it would decentralize its decision-making
power and become a funding, regulatory and systematizing body. Howev-
er, it is still charged with the job of analyzing projects, which results in too
great delays in the process. Indeed, that committee could take on another
role, perhaps a more important one such as regulation and auditing.
There are hundreds of ethics and research boards throughout Brazil,
even in universities; they could well be part of the process, helping to speed
up research work. InCor has a committee for ethics in research, set up in
1994, prior to resolution 196/96, which carries out evaluations. But in addi-
tion to carrying out evaluations here Conep wants to have everything there –
in their office. This delay impairs our competitiveness power. In phases III
and IV, there is already a reasonable chain of service-rendering that could
be much more competitive if Conep were operating at a faster pace. This
delay is the main obstacle, since that institution has both physical capacity
and technical skills. Moreover, its doctors’ clinical skills are very good.
Interview with José Fernando Perez6
Biotechnology company Recepta Biopharma was created in 2006 for the

research and development of the so-called monoclonal antibodies for use in the
treatment of cancer. Its history is closely related to another research project that
placed Brazil at the cutting edge knowledge in the area of genetics: the Xylella
Genome Project, which involved the sequencing of the Xylella fastidiosa bacte-
rium – the cause of CVC (citrus variegated chlorosis disease, “praga do ama-
relinho” in Portuguese), an agent which attacks different kinds of fruit such as
oranges. Electronic engineer and physicist José Fernando Perez, Recepta CEO,
who launched the Xylella Genome Project when he was the scientific director of
the São Paulo Research Foundation (Fapesp) serves as a bridge between these
two accounts. In this account, Perez shows how cutting-edge research is possible
in Brazil even when it comes to complex issues such as those related to genome
research. However, he also makes it clear that the establishment and appro-
priate management of a virtual research network is a critical factor in success.
The Constitution and The Genome
The 1989 São Paulo Constitution resolved that at least 1% of the state
tax revenue would be transferred to Fapesp for the scientific and techno-
logical development of São Paulo state.7 With this decision, the previous
percentage of 0.5% doubled and Fapesp, besides promoting scientific de-
velopment, started promoting technological development.
In 1993, I acted as an advisor to the Fapesp Scientific Board and was
subsequently appointed as its scientific director. At that time, I had a very
clear idea about how to use the new authority the Constitution had del-
6 José Fernando Perez is an electrical engineer graduated from the Polytechnic School of the
University of São Paulo (1967), with a master’s degree in physics from the University of
São Paulo (1969), and a PhD from the Polytechnic School of Zurich (1973). He was head
professor in the physical mathematics department at the Physics Institute at USP and
scientific director of the São Paulo State Research Foundation (Fapesp) from 1993 to 2005.
He is a member of the Brazilian Academy of Sciences and the Academy of Sciences for the
Developing World (TWAS). Awarded theCommander and Grand-Cross of the Scientific
and Technological Merit Order. He is currently the CEO of Recepta Biopharma, a biotech-
nology company in the area of human health.
7 The Constitution stipulates that the funds for Fapesp will be transferred monthly and calcu-
lated after portion for the municipalities is excluded.
egated to the foundation. When interviewed for the position, I put forward
some proposals for the creation of programs and partnerships between
universities and companies, and they were given a positive reception by
the board. As I was a scientist specialized in basic research, I did not realize
that my conceptual proposal as a director cause any conflict of interest; that
is, it might be seen as an answer to my personal interests. I’ve always de-
fended the idea of financing projects with companies, but my professional
experience thus far had no connection with this.
That proposal was modeled after a very clear concept in the United
States, which is known as matching funds, whereby the federal govern-
ment, for example, grants $1 to public television for every dollar that that
television station receives from each taxpayer There was no intention of
funding projects for companies that had already developed extensive re-
search, or those which called themselves technological companies, having
developed research in universities, which meant they had their participa-
tion but ran no risk nor had any formal commitment on the project and
its outcome. In my view, a project can only be considered as such when
the company shares the risk, for this shows that it is really committed to the
program. In this sense, Fapesp created the Program for Support of Re-
search Partnerships for Technological Innovation (Pite).
The Fapesp scientific director is in charge of submitting to the board –
and implementing – the scientific policies adopted by that institution,
which is a big responsibility. I am a pragmatic person as far as innovation is
concerned; I am not a scholar or a theorist; so the first thing I did was devel-
op a project for technological innovation in partnership with universities
and companies. For the first time the word “company” entered the Fapesp
lexicon. This happened in 1995, resulting in a breach of the paradigm. To
give an idea of the difficulty we faced, the Legislative Assembly kept tabs
on us, with frequent visits by state deputies and secretaries, inquiring about
what we were doing in terms of innovation.
The Genome Project
The advances in genomics and automated sequencers in the U.S. since

1995 have opened up new avenues for the advancement of molecular genet-
ics. Given this, in October 1997, we launched the Fapesp Xylella Genome
Project. The idea came from Fernando Reinach,8 who had already started
to think about developing research into biotechnology, even though there
were those in the scientific community against it, arguing that it was not
a science and that resources could be used indiscriminately. One of the
reasons the project came to fruition was not because Brazil was advanced
in this area; it was rather because it meant a learning process, a learning by
doing, which at the same time encompassed advancing the project towards
the frontiers of knowledge, and training human resources to deal with this.
It didn’t make much sense to send PhDs abroad without integrating them
into their own projects of national interest such as those for agriculture,
health and the environment.
We thought of the project in the following way: a network of laboratories
for intensive human resources training, involving a large number of people,
because in Brazil nobody knew how to go about the genome sequencing (if
there were a properly qualified research team such technology could have
easily been developed). The requirements to participate in the network
included providing evidence of being a good scientist and showing that
the techniques developed in the Genome project would be used in the
candidates’ personal scientific projects.
In May, as we developed this idea, we thought about having only
Brazilians researchers participating in it. Later we realized that the project
would need support from an international team, which is what occurred
in certain respects. The funding was estimated at US$ 10 million to
$ 12 million, which was achieved. It was a previously unthinkable amount
for research in Brazil; however, considering the size of the project, it was
still small. Moreover, money would be no object – and never is the main
problem – given the resources available through Fapesp.
Thus, a virtual network of 34 laboratories was created in Brazil – with
the participation of some foreign ones –, and it was called Organization for
Nucleotide Sequencing and Analysis (Organização para Sequenciamento
e Análise de Nucleotídeos) and known by its acronym Onsa, a homonym
for “onça”, which means “jaguar” in Portuguese.9 The name Onsa was
8 Trained in biology and currently professor at the University of São Paulo (USP), he was
executive director of Votorantim Novos Negócios (New Business), Votorantim’s investment
funds with shares of companies such as Allelyx, CanaVialis and Amyris, all with a focus on
genetic research.
9 After the Xylella Project, Onsa went on to develop other sequences.
a humorous Brazilian version of the Tigr (“tiger”) which stands for the
Institute of Genetics Research in the U.S.
Why Xylella?
Before all of this, it was necessary to choose the organism to be researched

into. The choice of Xylella fastidiosa was the result of many interesting
factors. We arrived at the decision in the following way: it could not be too
small an organism – like a virus, for instance – for that would not justify
creating a network nor training many people; On the other hand, it could
not be too large, for that would make the research work unviable. Thus,
it would have to be some bacterium with socioeconomic relevance to the
environment or agriculture, for example.
Another possible choice considered was Thiobacillus ferrooxidans, a
bacterium that lives in extreme conditions in nature and has environmental
importance because it metabolizes metal. Due to its relevance for bio-
mining, a major Brazilian mining company showed some interest alongside
the Environmental Company of São Paulo (Cetesb), in this case for the
treatment of stagnant water.10
Choosing the bacterium to be researched into was a herculean task,
but there was some demand from the Citrus Growers’ Defense Fund
(Fundecitrus) supported by the citrus industry. Fundecitrus has a strong
focus on fighting plant diseases and was interested in the sequencing of
Xylella because of the huge losses it caused to orange producers. The trouble
was that nobody knew how to do in-vitro culture of Xylella to extract its
DNA, which is a very complicated process (hence the name “fastidiosa”,
because it grows very slowly, even inside the plant itself).
Thus, we proposed to Fundecitrus that they extend financial support to
bring to Brazil Professor Joseph Bové, who was quite acquainted with this
bacterium and who had proven it was responsible for the CVC. Professor
Bové saw this to be an extraordinary opportunity, for us, because we could
sequence the genome of the first vegetable pathogen.
The ensuing result exceeded our expectations.
10 Tigr sequenced Thiobacillus ferrooxidans.

Developments of the Genome Project for Innovation
On July 15, 2010, the journal Nature (Brazil’s biotech boom. Nature
Volume: 466 Page: 295. Date published: 15 July 2010) ran its editorial re-
ferring to the ten successful years of the Genome Project, which was also
mentioned in an article in The Economist on July 20, 2000, titled “Samba,
football and genomics”. Since then, many things have improved. There is an
article by Rogério Meneghini, “Why are there so few researchers in Struc-
tural Molecular Biology?”,11 which evaluates the change such research has
made in productivity in the area of molecular biology in Brazil. Before the
project involving Xylella was implemented, our labs did not have one and
neither knew what to do with a sequencer. After its implementation, these
techniques have become routine.
Another example can be found in the area of bioinformatics, an interest-
ing by-product which previously did not exist in Brazil When we started
the project, we had a bottleneck in that area. The genome is a text: T, C, G.
This text is split into thousands of fragments, which, in turn, have to join
again. At this point, we have already progressed to the area of computer
and information science. This was decided when we met João Meidanes
and João Carlos Setúbal, two researchers of State University of Campinas
(Unicamp), who worked in this area,12 but only with simulations. They
would simulate and then draw its genetic mapping. This experiment led to
a very productive synergy!
There are several other unfoldings that could be mentioned, because
afterwards there was a series of sequencings, due both to national and in-
ternational demand, which used the same network of labs. For instance,
the U.S. Department of Agriculture (USDA) commissioned a project on
grapes, for the Xylella had caused damage to California vineyards. Later,
we sequenced the genome for eucalyptus, cattle, cane sugar, cancer and the
leptospirosis bacterium, among others. The sequencing of cancer placed
Brazil behind only of the United States and England in this area. There
was also the creation of companies like Alellyx, which serves as an ex-
11 Published in the Jornal da Ciência, October 27, 2006.

12 Meidanes is professor at the Computer Science Institute at Unicamp and Setubal is associ-
ate professor in the Department of Computer Science at the University of Virginia, in the
United States.
cellent example of the developments that the Genome Project means for
innovation.13
The Emergence of Recepta
Recepta was a by product of all this. In 1999, when the Xylella Genome
Project was already underway, Fapesp and the Ludwig Institute for Cancer
Research (ILPC) partnered and launched the Cancer Genome Project.
ILPC wanted to study the genome, and we already had a network of labs;
so ILPC invested US$ 7 million and Fapesp contributed approximately the
same amount through the matching funds system.
The dealings with the Ludwig Institute began in 1997 when two re-
searchers started working on the Xylella Genome Project: Andrew Simpson
and Joaquim Machado. Machado went to Bordeaux, in France, and with
Joseph Bové, he learned how to grow a Xylella culture. Simpson, in turn,
led our network. We needed positive leadership and he encouraged the
group. It was very generous of that institute to invite Simpson to participate
in a project that had nothing to do with cancer; however, he recognized the
contribution that he could give to the scientific development in Brazil.
In January 2004, during a visit to the Ludwig Institute in New York, I
learned that they were changing their operational model and stimulating
biotechnology companies to bridge the gap between basic research and the
pharmaceutical industry. I thought this would be a great opportunity for
Brazil. Ludwig Institute, in turn, was interested in this type of project and
invited me to coordinate it. As my commission at Fapesp would expire in
December 2005, I began to think of someone to replace me for the posi-
tion I held entailed a lot of responsibility, so the transition deserved careful
attention.
At the time, the proposal made by that institute still lacked some more
concrete goals, such as the creation of a biotech company to develop mono-
clonal antibodies for the treatment of cancer. Ludwig Institute granted me
three years to complete a feasibility study of the project as well as some ‘sol-
ace’ to make up for my leaving Fapesp and continuing at the university. I
made some contacts with investors and signed the contract in August 2004,
13 The company was funded by the Votorantim Group and sold to Monsanto in 2009.
when I came to the conclusion that the project was feasible. However, the
contract would come into force only on the day I left Fapesp.
My first contact was with Jovelino de Carvalho Mineiro Filho,14 a major
cattle rancher and co-financer of the Ox Functional Genome Project. I also
sought out some Brazilian venture capital funds, which I was acquainted
with via the Fapesp Innovation Research in Small Companies Program
(Pipe). Jovelino also served as an important bridge between me and the
Emílio Alves Odebrecht,15 a businessman who gave me four reasons why
he would join the project: first, he trusted me; second, he trusted the in-
stitute; third, he had the feeling that the program would be useful to Brazil;
and, finally, it could be good business.
At that time I was advised not to take any venture capital funds yet,
especially from Brazilian companies, because first I would have to decide
on a single-focus company.16 Moreover, my advisor said that the return on
the investment would take a long time to come and suggested that I should
elaborate a business plan. It is at this juncture that the issue of the corporate
entrepreneurial mindset in Brazil – which only now is starting to mature –
comes into play. There were, therefore, two barriers: the first was the culture
of innovation in venture capital and the second – of a sectorial order – had
to do with the risks in the pharmaceutical industry (which are high).
Thus, we launched PR&D Biotech, a Recepta controlling company,
set up to negotiate our project with the Ludwig Institute. The partners of
PR&D are Odebrecht, Jovelino de Carvalho, José Barbosa Melo (Recepta
Biopharma finance director), and myself. Ludwig Institute is also a Re-
cepta partner.
The model that Ludwig Institute had in mind was the U.S. standard
model combining “cash, milestone payments, royalties”: licensing Recepta’s
intellectual property and antibodies, with cash up front payment; that is,
advance payment for the development of such research, which is a standard
model. Our goal was to reach the end of phase II.17 Phase III would involve
14 Physician and cattle rancher, he is member of the Recepta Board of Directors and 2nd vice-
president of the Brazilian Association of Zebu Breeders (ABCZ).
15 President of the Board of Directors of the Odebrecht Group and member of the Recepta
Board of Directors.
16 Discussion with Marília Rocca, of the Endeavor Entrepreneur Institute.
17 In phase II, tests were done to verify safety and effectiveness of the drug with a greater num-
ber of patients than in phase I.
partnerships with pharmaceutical companies. Up to phase II, tens of mil-

lion reais would be invested. Phase III involves hundreds of million because
it involves another scale of production. The goal, therefore, is to reach the
end of phase II and demonstrate that such drug has the chemical potential
to be used in the treatment of tumors, under certain conditions.
The creation of Recepta was a long process, which was completed in
October 2006. After setting up PR&D, we decided on which antibodies
would be licensed and under which conditions. We proposed that the
Ludwig Institute, instead of licensing, become a partner in the company.
Moreover, it would also contribute its know-how and immediate interna-
tionalization of the business, thus creating other opportunities. This would
give international significance and dimension to the project, while still
complying with scientific protocol.
Another relevant aspect of the negotiations was when I convinced the
Ludwig Institute that we could not develop products that would take ten
years to yield effective return. In this manner, we were able to license an
antibody that had already gone through phase I; therefore, the research
work started in phase II.
We also went into a very important partnership with the Massachusetts
Institute of Technology (MIT), which offers a program through which
MBA students are required to provide free consultancy at the end of their
studies. I visited MIT and talked with Professor Fiona Murray, who was
fascinated with our project, considering it was oriented for the treatment
of cancer, considering my personal account, and considering Brazil as the
base for the project and also considering the Ludwig Institute.18
However, Professor Murray warned me that students might not be
interested in a company which generated no turnover and reminded me of
how necessary it was to make it absolutely clear for them what sort of work
they would be offered. It was then that I submitted the project Valuation
Model, from MIT itself, designed for the development of pharmaceutical
products, and learned about the Biotechnology Competitiveness Forum in
2005. Such model is used in decision-making processes in business, and
considers, for example, whether a project should be introduced or not, tak-
ing into account its probability of success based on certain variables.
18 Associate Professor of Technological Innovation and Entrepreneurship.

This assessment was extremely important because we had a great deal

of information which needed systematizing. There were many issues and
time-consuming reflections, such as the incidence of such disease, the rate
of people afflicted with it, and how they manifest it. All these issues led us
to a very productive brainstorming. In fact, this model proved fantastic – a
process which was more important than its product.
Even before signing the contract with Ludwig Institute, we sought to
enter into a partnership with Butantan Institute with the financial support
from Studies and Projects Financing (Finep). But the agreement was only
signed after we had closed the deal with Ludwig Institute. From then on,
the project speeded up and the company’s objective became clear: research-
ing and developing biological molecules (monoclonal antibodies) for the
treatment of cancer There are seven companies in the world that sell ten an-
tibodies for the treatment of cancer. However, hundreds of them are being
researched on. This is a strategy with growing application in the world. We
are at an important frontier!
The Recepta Biopharma team consists of a network of 30 scientists, 17
of whom are Ph.Ds. and six of whom hold master’s degree. This network
was designed as follows: there is a technical-scientific “internal” team and
a technical-scientific “external” team; the latter has connections with the
partner institutions and scientists from affiliated institutions. These are all
professionals par excellence who interact very well with the collaborators
from the affiliated institutions.
We have already generated two antibodies, derived from research done in
Brazil. We also want to secure the receptors and identify the target generating
such antibody. In our research, we look for the target of the primary tumor.
The antibody recognizes certain targets and marks them. The antibody is a
biological marker. The tumor is a foreign body, but one that is not identified.
There are also other interesting studies which resort to immunosuppression.
The Ludwig Institute provides us with the gene and we generate the
antibodies. The antibody is a protein, and the target is another protein
that lies on the surface of the tumor. The protein is made by a gene. At the
Butantan Institute, this gene is placed in a mammalian cell from which
antibody is generated.
The treatment of cancer has been more and more individualized, very
personalized – a new trend. For example, only 23% of cancer patients are
eligible for treatment and of these, only 20% respond to it. We are now
beginning a test with breast cancer, for with ovarian cancer, there is an
expression of 78%, that is, 78% of patients have the target. In breast cancer,
about 70% have the target.
The Food and Drug Administration (FDA) requires the registration
of trials on the Clinical Trials site, which is updated monthly. In addition,
there are many other institutions which are our partners and help us do the
tests, such as the Sírio-Libanês Hospital, the Albert Einstein Hospital, the
Oswaldo Cruz Hospital, the Baleia Hospital in Belo Horizonte, the São
Lucas Hospital in Porto Alegre, the National Cancer Institute (Inca) and
the Cancer Institute of the State of São Paulo (Icesp).
We are engaged in a learning process; never before had a cellular lin-
eage been traced and this means the control of a pioneering technological
process. There is scientific opinion stating that even if the antibodies do
not work, the mere fact that we can master the cellular lineage technology
is sufficiently strategic for Brazil. For this reason, the Butantan Institute
agreed to a partnership because they had the lab and we could enable them
to master the technology.
Research Phase
As aforementioned, we have an antibody currently in phase II of clini-

cal trials – the phase of cellular lineage – that is being developed in Brazil.
Another antibody will enter into production, which means it will be put in
a reactor. This procedure, however, will be done outside Brazil, because we
lack a properly equipped biotechnology laboratory with international cer-
tification, which is a problem. Since this is a product to be used on humans,
a higher degree of quality is necessary.
In any case, despite having equipment available, we are still confronted
by the problem of human resources. In fact, a good manufacturing practice
(GMP) is often confused with equipment quality; and this is something
unacceptable. It has to do with excellence in human resources that, in turn,
manage the processes. With the already existing facilities a quick adapta-
tion aiming at GMP production, could be done, but even so it would take
at least one year for production to start.
For phase III, industrial scale production is needed. If we need a product

from phase III, I believe that Brazilians will be interested in establishing a
partnership for its production and, consequently, the demand will justify
the investment. In this case, several types of agreement could be made,
including production licensing and co-development.
Investment Prospects
So far, we have had no need to associate with a large company. It is inter-

esting to consider companies comparable with Recepta, such as Morphotek
(http://www.morphotek.com), located in the United States and purchased
in 2007 by the Japanese pharmaceutical group Eisai Co. Ltd. At the time of
the purchase, Morphotek had a monoclonal antibody in phase II and had
no product. Still, it was purchased for US$ 325 million, which shows a bit
of the dynamic in this market. They are now in phase III.
Interview with Marcelo Vianna de Lima19
The Brazilian Society of Pharmaceutical Medicine (SBMF), the first in

its operational area, was founded in 1971 by physicians who, since the 1960s,
had already been engaged in the pharmaceutical industry in Brazil. Its main
goal is to be a center for the study and exchange of information to encourage
professionalism amongst its members. In 1995, it launched its first graduate-
level course, and recently it has been working effectively in the industrial
sector, mainly with regard to the regulation of research work in Brazil through
seminars, congresses and courses.
Research and development (R&D) in Brazil are going to be analyzed

here within the ethical and regulatory frameworks that have recently been
19 Marcelo Vianna de Lima is a doctor specializing in pharmaceutical medicine and business

administration in the pharmaceutical industry. He is currently president of SBMF and also
acts as medical director of GE Healthcare Medical Diagnostics for Latin America. With
strong experience in the pharmaceutical sector in Brazil, in this interview, Lima discusses
issues concerning Brazilian public institutions, especially in regards to the roles sanitation
and regulation play in innovation research.
established. Our system of ethical evaluation has been the object of hot
debate since 2006, mainly by the pharmaceutical industry which identifies
structural and operational problems in it. Thus, the Brazilian Society of
Pharmaceutical Medicine (SBMF) argues that the current system cannot
cope with its primary or essential goals, whose structure is further jeopard-
ized since the problems identified are not properly addressed to bring
about a solution (Motta Ferraz; SBMF, 2009).
There is a general feeling that the relationship between the National
Committee for Ethics in Research (Conep) (http://conselho.saude.gov.
br/web_comissoes/conep/index.html) and the Committees for Ethics in
Research (CEP) of the different research institutions is rather unsatisfac-
tory, because the latter lack continuous training and qualification. As the
medical sciences evolve, new diseases are identified and research into the
mechanisms that trigger them get more detailed, studies to show that there
is a new therapy that is more effective than the previous one become more
and more sophisticated and elaborate; and the various related segments –
including the regulatory authority – must keep up with such advances. The
regulatory authority is involved in approving research into products which
are not registered in the country. Therefore, it should also have a program
as well as the ability to evolve alongside that sector.
In order to cooperate with this process of improvement and qualifica-
tion, member of the Brazilian Society of Pharmaceutical Medicine (http://
www.sbmf.org.br) have travelled twice to the capital city of Brasilia, and
working in partnership with the National Health Surveillance Agency (An-
visa), have offered qualification courses to its technicians in order to pass
on and discuss about information on new forms of diagnosis, development,
research protocols and statistical analysis.
In research work, there are two major situations: one – theoretically –
would be the ethical sanction, and the other, the approval by Anvisa, the
only official body in Brazil with legal power to authorize the entry of an
unregistered product into the country. The corresponding law is no. 6.360,
enacted in 1976, regulated by Decree-Law no. 79.094, of 1977, and all its
amendments added to Law no. 8.080, which provides for the Public Health
System. This law stipulates that the regulatory authority, at that time the
National Health Surveillance Secretary and today, Anvisa, is the only insti-
tution empowered to authorize the entry of any unregistered products into
the country solely for research purposes; such authorization, however, is

only granted after a careful evaluation of the risk-benefit aspects. Conep, a
committee of the National Health Council (CNS), would merely have the
task of assessing the ethical issue involved in the analysis and approval of
clinical trials.
Based on the regulatory framework established in Resolution no. 196,
of 1996, by the National Health Board of the Ministry of Health and other
subsequent resolutions, the rights of research subjects20 are preserved
throughout the research work grounded in three basic principles applied
after the Nazi experiments; non-maleficence, autonomy and justice. Non-
maleficence deals mainly with the principle of not causing intentional harm
to an individual for any research purpose, whatever it may be – pharmaco-
logical intervention or else. When we talk about clinical research, we refer
to any scientific experiment involving a human being.
The Origins of Research Ethics in Brazil
Research aimed at developing new pharmacological resources for the

treatment of various diseases is a natural fact, a consequence of the evo-
lution of scientific knowledge. How many people in the past died from
the Spanish flu? How many died of tuberculosis in Brazil? Nowadays, it
is difficult to accept that someone has died as a consequence of an infec-
tion caused by the tuberculosis bacillus, except for HIV-infected patients
(who are less resistant), since we have a well-publicized program and treat-
ment for tuberculosis provided by the Ministry of Health. This means a
revolution in knowledge running in parallel with a revolution in forms of
treatment. Thus, after a given time when we have a reasonable amount of
knowledge of and know a little more about a disease, proving that some or
new therapeutic resources are better than others already existing, requires
much more detailed and elaborate research work; and that means adopting
a scientific methodology, a more elaborate and solid design, aimed at prov-
ing or disproving the difference among the treatments.
20 “This is the participant being studied, individually or collectively, voluntarily, not subject to
any kind of remuneration”. Resolution 196/96 CNS (http://www.conselho.saude.gov.br/
resolucoes/reso_10.htm).
History shows us how some experiments were conducted: subjects were

submitted to extreme situations, such as intense cold, food deprivation and
other procedures without ever having given consent or even being asked
if they wanted to participate in the events they were forced to participate.
For that reason, the Helsinki Declaration (http://www.ufrgs.br/bioetica/
helsin1.htm), based on Lindemberg (city where the first Nazi experiments
were done), became a model to be followed for any and all research to
be ethically acceptable. This declaration is an agreement that everyone
respects and no research may be conducted that does not follow it. It is,
therefore, an ethical document, strengthened by various institutions and
which became a point of reference in ethical procedures for any scientific
investigation, at least in the biomedical research sector involving humans.
In Brazil, the first attempt to regulate research ethics was in 1988, with
Resolution no.1; it is, therefore, a relatively new measure. Attempts were
made to normatize what was already being practiced albeit in different
ways. Even so, the new measures adopted were not strong enough to lend
the necessary credibility to experiments and research being carried out in
Brazil. Faced with some prospects – which still exist – of the evolution and
the potential of Brazil to work more closely with worldwide programs of
research and development, and considering the need for broader participa-
tion of countries like Brazil in this international scenario of development,
consistent regulations were necessary. Thus, in 1996, Resolution no.196
of the National Health Board was published; and it created the framework
we still follow today, a regulatory and a legal framework that, despite its
being a resolution rather than a law, oversees the health regulations in our
country.
This is, therefore, a resolution passed by the National Health Board;
any institution whose research work involves humans, whether it is or not a
subsidizing institution, mirrors in that resolution to develop good research
from an ethical and moral point of view. Thence, the world realized there
was in Brazil an effective system capable of ensuring the rights of the re-
search subject as a participant (grounded in the three principles discussed
at the beginning of this section). There are studies, for example, showing
that it was from this date on – October 1996 – that the production curve
in clinical research in Brazil, which showed a very timid upward trend,
emerged exponentially, in part due to the help of foreign entities.
This movement represents the regulatory response to research develop-

ment in the area which only in recent decades Brazil has explored, thus
meeting internationally accepted standards – something that until that
moment was still rather inconsistent; The standard used in the so-called
developed countries has come into force in Brazil. For regulatory purposes
culminating in the approval of a given product in the health sector, for it
to be commercially available, certain standards and guidelines must be
followed so that the item being developed and produced in Brazil can also
be accepted by the corresponding health or regulatory agencies in interna-
tional markets. In other words, from the moment we ensure that research is
performed in this manner, by respecting these guidelines, the data gathered
in our country will be accepted as a part of the regulatory studies required
for the approval of a new diagnostic or therapeutic resource.
Anvisa and Conep: a Problem of Bureaucracy

and Predictability
The introduction of universally accepted and recognized standards for

conducting ethical research was the result of a joint effort made by various
actors involved in research work. It was also a necessary measure for phar-
maceutical industries, as in 1995 and 1996 we had a more economically vi-
able country, with a potential for growth. Moreover, the right to intellectual
property was duly respected, once, also as of 1996, Brazil was a signatory of
the Trips (Trade-related aspects of intellectual property rights) agreement.
After that, the world has come to see Brazil from a whole new perspective.
Other countries began to consider it as a country where they could develop
research projects, have the assurance that the research subjects would be
preserved and have their rights respected, besides the guarantee of confi-
dentiality of the knowledge generated by a given procedure, in that it would
be neither coped nor transferred to another company.
However, though some data available on the Anvisa website show that as
of 1996, the number of new research projects in Brazil had grown (peaking
between 2003 and 2004), this curve has declined in recent years. The reason
for this slowdown was not an ethical or legal issue, but rather the Brazil-
ian bureaucracy of that time – which is still active nowadays – and many
times showing an absolutely and purely ideological bias.
Table 10.1.
Evaluation time In CEP In Conep
First evaluation (in days) not reported not reported
First evaluation (in days) not reported not reported
First opinion within normative deadline (%) not reported 90 (2003)
79 (2004)
Final opinion within the normative deadlines norms (%) not reported not reported
Source: CEP/Conep System (1996 – 2005).
In the health sector, the law that governs the regulatory activities in
Brazil stipulates that any petition filed at Anvisa, be it for the registration
of a product or for any other reason must receive a reply within ninety
days. In the case of the registration of a pharmaceutical product, if there
is no reply from the health authority, the product can be considered as ap-
proved. However, this is not what happens; instead the regulatory agency
usually sends a notification requesting further information about the prod-
uct, which delays and prolongs the process. Optimistically speaking, it is
now possible to have a new product on the market only 12 months after
the filing date at Anvisa. Bearing in mind that this is a government agency
created to meet the needs of the population and customers, it should set
predictable deadlines. This is the Brazilian “regulatory bottleneck” that
has to be evaluated and discussed.
At Conep things are no different; but its dynamics is perhaps slightly
more complex due to the modus operandi of Conep and the Committee for
Research Ethics (CEP) of the hospital or institution developing the re-
search. For example, when analyzing a project, CEP must send it to Conep;
this operation between the two bodies takes about twenty days. This two-
fold ethical assessment that is, the need for approval by Conep following
the approval by CEP, means a bureaucratic delay for Brazilian research.
The issue is not whether it is more nor less ethical to have two bodies evalu-
ating research projects; according to CEPs, such a delay occurs because
there is not enough funding for an adequate r structuring of these units,
including hiring new people. At this juncture, we wonder why there are no
such resources. Why is the issue of financing CEPs so prohibitive?
There are no resources because Resolution no.196/96 prohibits the
CEP from charging or obtaining any funding through the companies or
entities that are requesting the registration of the product.21 Therefore, the
Committee is supported only with public funds. At least for me, it is very
difficult to understand the basis underlying this prohibition, for nowadays
no longer does it make sense to think that if an individual pays, he or she is
entitled to be given differentiated treatment. There is a series of obligations
towards CEP which require infrastructure such as a desk, a fax machine, a
computer, the internet, a telephone set, a printer, mail, paper etc; but mon-
etizing such service-rendering is not allowed.
In addition, currently we see that Conep has been evading the ethical
issue by sticking virtually an ideological issue. With the use of the phrase
“social control”, that committee, meaning to protect the research subject,
has, in fact, jeopardized the development of research work which depends
on approval, and is discriminatory when the research work receives finan-
cial support from a multinational capital institution.
To demonstrate this attitude, a brief examination of existing data will
suffice: Conep staff state that the projects they receive represent only 10%
of all projects devised in Brazil; that is, the CEPs spread throughout the
country receive 100% of the projects, but 90% are not referred to Conep.
Furthermore, there are other CNS resolutions – nos. 251 and 315 – which
emphasize that every and any project receiving foreign cooperation must
also be approved by Conep. This is the situation of the majority of the
pharmaceutical companies operating under international capital. Interest-
ingly, it is the origin of a company’s capital stock that defines which kind
of ethical review is should be applied to that particular research project.
Are there different ethical parameters in these two scenarios? What is the
ethical justification for such a position? Thus, it becomes clear how a “reg-
ulatory” matter can further complicate the partnership between domestic
and foreign institutions.22
21 VII.12 – “Freedom of work – Members of CEPs should have complete independence in

decision-making and carrying out their functions, and in maintaining confidential informa-
tion received. Thus, they may not be subject to any pressure from superiors or from individ-
uals with an interest in the research, and should be exempt from financial involvement and
not subject to conflict of interest.” Resolution 196/96.
22 In August and September 2005, UFRJ held a series of debates on Bioethics and Scientific
Research, in which there was a discussion about the efficiency of the CEP/Conep System.
The discussion is available at: http://www.ghente.org/etica/artigos_conep.htm.
The Relationship between the Pharmaceutical Industry

and Regulatory Agencies
To better understand the impact generated by these regulatory institu-

tions in pharmaceutical business, we must put ourselves in the position
of these industries. We can understand the regulatory complexity when
we position ourselves as a foreign industry – for example, an international
company operating in Brazil. It will do research on the development of a
new product, which will be part of what we call a multicentric-multination-
al study, that is, it has several centers in several countries. Thus, this foreign
corporation is a small piece of a large pizza, and for that reason, its research
project has to go through Conep.
In the second example, we again take the position of an international
company, but in this case it is not operating in the Brazilian territory. What
happens here is the creation of a partnership between the international
company and a national company. In this case, if the research is designed
only for registration purposes in the Brazilian market and there is no for-
eign cooperation or no data are sent abroad, there is no need to go to Conep;
but if the research work is part of any international project, even if it is a
project devised by a company operating with national capital, there will be
a double necessity for ethical approval of the research project. How do both
examples interfere with applied ethics in conducting a research project?
Again, are there different ethical referentialities to justify such distinction?
In short, it is difficult to understand why, from an ethical point of view, a
project for Brazil needs only the approval CEP whereas for another, with
international impact, a further review by Conep is required before the ap-
proval is granted, especially taking into account that CEP is duly registered
and accredited by Conep to carry out evaluations of research projects.
We are back to the “social control” motto, defined by the Committee
as a mechanism to protect the domestic industry, as it would have stopped
developing and growing because of international competition. On the
contrary, this limitation does exist and it has more and more entangled
the exchange of knowledge and technology, an aspect of great importance,
because all research work generates benefits for different actors: for the
industry that is developing the research; for the institution that receives
either the funding or a payment for conducting the research; for the re-
searcher, as he or she deals directly with all other researchers worldwide,

which leads to the exchange of knowledge and research practices (exchange
of information via international meetings and researcher meetings); for the
patient, who is given treatment that generally is not available (especially if
we refer to some pathologies such as neoplasia and tumors that are highly
lethal); for other patients, since a better understanding and knowledge of
the disease, its diagnosis and treatment modalities will be used for other pa-
tients in similar situations; and finally, for society, which also profits from
the research, as the amount of information, knowledge and equipment that
might be acquired, will then be available to society. Concerning the latter
aspect, for example, investments in technological resources used to enable
the research work to be carried out remain in the institution and are avail-
able for public use.
Table 10.2. Timelines for regulatory approval around the world.

Country Deadline (mounths)
United States 3
France 3
Sweden 3
Canada 3a4
Mexico 3a4
Colombia 3a4
India 4
Austrália 4
Peru 4 a 4.5
Chile 4 a 4.5
Russia 4a5
United Kingdon 5
Argentina 6
China 12
Brazil 12 a 14
Source: Hurley D. GCP Journal March 2006. 41st Annual Drug Infor-
mation Association Meeting/2005.
Based on this table, we can notice that there are many obstacles to the
development of the pharmaceutical sector in Brazil. Today, if someone asks
me how long it takes to start clinical trials of a specific research project after
having filed all the necessary documentation with CEP, my answer would
be “not before 12 months”, whereas worldwide the average span ranges
from three to four months. Despite such complications, we can notice that
both Anvisa and Conep are making efforts to overcome the current situ-
ation. Both are working on what is called “Brazil Platform”, which in my
opinion, is an interesting measure to speed up certain necessary steps that
depend on human resources as stipulated in Resolution no.196. However,
such advance depends on investment and “Brazil Platform” has been de-
bated for a long time, which raises our suspicion that the resources avail-
able have not been adequately distributed. This does not, though, change
the present requirement for approval by the two bodies in the previously
discussed situations.
Another important issue has to do with the autonomy that Brazil is
supposed to have; however, when it comes to foreign cases, Conep first re-
quires the approval of the research by the country of origin, before register-
ing the product in Brazil. Therefore, after being approved by the researcher
in the country of origin (who indicates whether the research is plausible
or not, and subsequent evaluation by an ethics committee (consisting of
at least ten professionals in the corresponding area), the research may
not be approved by Conep, which puts an end to everything previously
done by qualified personnel. In other words, the need for an evaluation by
Conep delegitimizes the work of the ethics committees that have previously
worked on the research. Although research projects are different, the ethi-
cal protection is the same for all.
Lastly, this aspect is not viewed as an additional protection both for the
national researchers and for the foreign companies. In the same way, it is
seen as a bottleneck that is harmful to the research work and to the national
development; it discourages international interest in establishing scientific
partnerships with Brazil.
Innovation in Brazil
Our environment is conducive to innovation. We have human resourc-

es, we have highly qualified medical professionals with master’s and doc-
toral degrees; throughout the country we can find centers of excellence in
various areas – tropical medicine, infectious diseases, oncology or cardiol-
ogy; and we also have financial resources. What we lack is encouragement

and assistance so that this process of innovation can be carried out without
obstacles. There is still a great deal of red tape associated with the innova-
tion process, which disturbs our full power of competitiveness. Just to
illustrate, let’s think of a real example: I enter into a partnership with a
university to develop a drug. It is in the university that scientific knowledge
can be found. With this partnership that knowledge is expected to become
something commercial and benefit thousands or millions of patients. That
improvement was the result of concerted efforts and its result should also
be reverted to both. Generally, payment for the time and expertise devoted
to the project, in the case of the university, comes in the form of royalties for
the university or the researcher. However, this issue of sharing the benefits
of the results is still very controversial in some public institutions.
Thus the problem lies not only in carrying out the research for innova-
tion, but in establishing partnerships and deciding on the distribution of
the findings. We have to create an environment that is conducive to this.
In the pharmaceutical industry arena, the regulatory framework is estab-
lished, the standards applied are of very high quality and internationally
accepted, sometimes even higher than those used in the so-called devel-
oped countries; what we do lack is the factor of predictability; that is, what
will happen as the process unfolds and when will it happen? How can we
predict when the project will begin and end?
The Brazilian Society of Pharmaceutical Medicine (http://www.sbmf.
org.br) has designed a model similar to the existing one; this time, though,
it is linked to the Ministry of Health. Essentially, it would have legislative
(proposing rules), auditing (ensure that the rules are respected) and educa-
tional (training and qualification) functions, besides the possibility of filing
appeals. This is so because according to the operational system of Conep,
in the eventuality of dissent there is no institution or agency to appeal to
besides the committee itself.
An improvement in the ethical and regulatory framework would, in
short, be made through a complete decentralization of the CEP-Conep
system (mainly in the case of multicentric projects), the adoption of the
single system of questioning (submission by the ethics committee of all
the existing questionings once and for all), the implementation of the system
of tacit approval by the institute (without any manifestation from the eth-
ics committee, within 60 days the project is granted approval), independ-

ent auditing, impartiality in the ethical evaluation of projects developed
with foreign cooperation, greater transparency and speed in the evaluation
process, and more substantial resources. Moreover, with the creation of an
institutional appellate board in the Ministry of Health, if there is any deci-
sion taken by CEPs that an industry or a researcher does not agree with, that
board can be used for arbitration. The system would be the same: CEPs are
accredited by rule of law, and thus are free to authorize every and any kind
of research.
This proposal by SBMF emerged from one of the bills brought before
the House of Representatives, such as Project n.2.473/2003 by Repre-
sentative Colbe Martins (http://www.ghente.org/doc_juridicos/pl2473.
htm). Basically, all these initiatives we are witnessing are motivated by the
need to conform to the legal support for an entity such as Conep to exist,
to improve its operations based on a better realization of its responsibilities
and to give the necessary and rightful autonomy to the various CEPs for
them to approve any research project involving humans in that institution.
Out of all this, various intense debates arise, since Conep rejects the idea of
decentralization of the system, for example. Pointing to a different direc-
tion, another frequent issue raised by the committee is that researchers do
not participate in the outline of the entire project. Unfortunately, this can
actually happen, but it is not an absolute truth. We have several examples of
researchers who, given their professional background and previous experi-
ence of conducting other research undertakings, participate in study panels
to establish new research protocols for a particular drug. However, how
come that other researchers will participate in the project if they are not
known, or if they do not have a history of participation in research? It is like
a youth category racecar pilot (a go-kart pilot, for example) wishing to race
straightaway in Formula 1. This is simply not possible. The pilot has to go
through a whole process before being qualified to participate in Formula
1 racing; the same should occur with the researcher. Brazilian researchers
are qualified to carry out any kind of research, but there is a natural process
they must go through: first, knowledge; second, cooperation.
It is important to stress that all these efforts made by the medical in-
stitutions should have the defense of ethics as their absolute priority. It is
based on this that we seek a better operationalization of the system. We
would like Conep to be accountable for quality and training of the ethics
committees so that a single accurate and competent analysis is enough to
evaluate a project.
Regarding the current status of our research work in general, I believe
that Brazil is making headway to be able to participate more intensely in
research phases 1 and 2. For that to be done, however, we are back to the
issues discussed in the preceding paragraph. Regulatory agencies should
direct their efforts towards improving the research environment, because
this is the key to get to the basis of innovation. In the case of the researcher,
he or she will only be able to join the board of a project, or its beginnings,
once the other professionals know him or her. He or she does not necessar-
ily need to be known by the multinationals; being known by the research
network and by other researchers spread all over the world is sufficient.
Today, in certain areas we have internationally acclaimed professionals who
can participate – and do participate – in the origins of projects. Unlike the
argument presented by Conep, we cannot escape the normal procedure,
where researchers are included in the international context in research proj-
ects. Conep must realize that the time has passed when Brazil was a mere
performer or agent of what is done and requested by foreigners.
To consider an example in another area: until recently, Brazil merely
listened to and complied with the IMF instructions. Today, we participate
in its strategic decisions because this is a natural process for overseeing the
development of the system; the same thing is happening with the Brazilian
researcher.
Some of the Innovation Actors
The group of actors in the innovation scenario is very diversified – and

this is a trend that must continue. I do not refer only to private hospitals
such as the Albert Einstein or the Sírio-Libanês. We also have the National
Cancer Institute and the Institute of Cardiology in Rio de Janeiro, the
Federal University of Bahia and the Maternity and Child Health Institute
(IMIP) in Pernambuco (http://www2.informazione.com.br/imip.html);
in this latter institution research projects, both in pediatrics and obstet-
rics, can be brilliantly carried out, and it was from this institution in Per-
nambuco, a reference hospital in Recife, that Maria do Carmo Guimarães
Lessa emerged; she was awarded the Kangaroo Project Prize, (http://
www.eaesp.fgvsp.br/subportais/ceapg/Acervo%20Virtual/Cadernos/
Experi%C3%AAncias/1997/15%20-%20canguru.pdf). We also have a
unit at the University of Ceará for pharmacology research, focused mainly
on bioequivalency testing, which clearly reveals that there are many ca-
pable professionals within traditional institutions. At the same time, these
professionals have further potential and are willing to be full participants
of projects from start to finish, but to do so, they face enormous difficulty.
Initiatives such as those undertaken at Sírio-Libanês and Einstein hos-
pitals show that we have a great potential for research development; these
examples serve as our calling cards outside Brazil. However, we can also
safely rely on public hospitals. The major HIV treatment projects were
all developed by Brazilian public hospitals. Such projects were successful
because the researchers quickly saw the need to meet a huge demand that
was forming. They worked very hard to develop their projects, as it is very
difficult for a doctor who has no international experience, or hasn’t gone
through this process, to understand that clinical research is not the same as
the patient clinic or the medical office. Clinical research has rules, sequences,
a check list, and requires considerable efforts; the rewards, though, are
great in the sense that there is technological development, exchange of
knowledge and benefits for both the patient and society. I even dare say
that if there is access to data and, and if they are real, the subjects for the
research, being selected from the public system, help unburden the public
coffers. From the moment the patient joins a research project, everything
that happens to him or her will be covered by the research project. Thus,
the research work also has a government aspect involved in it, as you can
generate jobs and this means more taxes collected, and some relief to the
health care system. This topic still deserves further investigation.
With respect to multinational companies, they are the major employers
in the health research sector, currently employing about 85% of available
labor force. Out of the national companies that are making efforts in in-
novation, we can mention Aché, Biolab, Cristália (which recently launched
an innovative product, the “Eleva”), and Eurofarma and EMS in the area
of generics.
In general, I have noticed that several actors are mobilizing operations in
their medical departments to stimulate innovation, through participation in
events and seminars. National examples include Interfarma, in partnership

with Biominas (http://www.biominas.org.br); and on the international
side, institutions such as the Bill & Melinda Gates Foundation (http://
www.gatesfoundation.org/Pages/home.aspx), which supports research
projects focusing on certain diseases (the same thing is happening with
Michael J. Fox for Parkinson’s – http://www.michaeljfox.org). In addi-
tion to foundations, like FioCruz, there is also a national network of clinical
research, with several participating hospitals, which receive funding from
the government to become reference centers for clinical research. I hope
that these institutions’ objectives are not tainted by any ideological and
distorted view determining distinct procedures for regulatory approval of
clinical research in Brazil, which in itself is discriminatory and unconstitu-
tional enough.
11
RESEARCH CENTERS IN CUTTING-EDGE
HOSPITALS IN BRAZIL
Interview with Luiz Fernando Lima Reis1
In 1978 the Sírio-Libanês Hospital created the Center for Studies and Re-
search, which has since been expanded and improved. By 2003, it had already
developed internship and specialization programs, created the Committee for
Ethics in Research (founded in 1996), and implemented medical residency
programs, refresher courses, symposia and lectures aimed at health profession-
als and the community in general. Furthermore, it has recently opened centers
for surgery training and scientific research development. The Center has since
then been renamed Institute of Education and Research, IEP. Currently, the
Institute has several research teams and, since 2005, it has run lato sensu
postgraduate courses.
I also share the views expressed in the previous chapters, that is, I also
believe that science in Brazil has advanced considerably – from the post-
graduation structuring to the centers of excellence generating a quite rea-
1 Biochemist graduate from Federal University of Juiz de Fora. PhD in microbiology and
immunology from New York University School of Medicine. Postdoctoral fellow in molec-
ular biology from the University of Zurich. He was a researcher at the Ludwig Institute
for Cancer Research and for ten years he directed the postgraduate studies program at the
A.C. Camargo Hospital for 10 years, which received the highest Capes score in the last two
evaluations (2002-2004 and 2005-2007). He is an IA-level researcher at CNPq. In recent
years, he has devoted himself to the studies of molecular markers in cancer, with emphasis
on methods of early detection, definition of response markers and tumor behavior. He is
currently a research director at Sírio-Libanês.
sonable level of scientific production. However, innovation has not kept up

the same pace.
I was away from Brazil for a considerable span of time – from 1986 to
1994 – doing my studies abroad. After my return my evaluation is that, for
the last sixteen years, the greatest advances in the national policies for sci-
ence, technology and scientific production lie in the stability and the evolu-
tion of the subsidizing policies.. At least until 1986, when I lived through
the whole situation, there had always been major complaints about the
inconsistency of the funding system for science and technology activities.
It was very common for the National Council Scientific and Technological
Development (CNPq) – which at that time was virtually the only govern-
ment body operating in the area; the Research Support Foundations (FAPs)
were just emerging – to issue a bid notice, to select and sign agreements for
projects, and ultimately fail to subsidize them, as no funding was released.
Since 1994, I have never personally had any difficulty in securing fund-
ing for research and I cannot think of any such cases still happening in
Brazil. An approved project means a funded project; so we could say that
we have reached some stability (even if the funding is not satisfactory). So
the first breakthrough at the federal level was such stability in the govern-
ment funding policies and the possibility that a project could be planned,
programmed and carried out. With this view, CNPq, the Studies and Proj-
ects Financing Agency (Finep) and the Coordination of Improvement of
Higher Education Personnel (Capes) no longer lacked the resources as they
previously did.
Clearly, Fapesp, Research Support Foundation of São Paulo, stands out
for the volume of the resources made available. The state constitution stip-
ulates that an automatic transfer of a share of the taxes collected be made to
Fapesp; therefore, releasing the budget is no longer a voluntary act of the
secretariat, but rather a function of the system that manages the budget.
However, I believe that a second major advance in the area of research
funding are the FAPs. At the same time, I must commend Fapemig and
Faperj, Fapesp’s equivalents in the states of Minas Gerais and Rio de Ja-
neiro, respectively, which, in general, have been improving with great ef-
ficiency. Fapesp, being the oldest, and overburdened with its commitments
is at a disadvantage because of its size. Fapemig and Faperj, which later
grew and learned from Fapesp, have had an enormously positive impact
in both states. Therefore, the FAP system contributed in an efficient and

regular way to the expansion of this budget. I would say that in Brazil
today, funding resources are no longer the biggest problem for science and
technology activities. A good project is a subsidized project. This means
that we don’t need to strive for an increase in the budget allocated for this
activity. It is a fact that we still cannot count on a very substantial funding
for projects that cost the state something of the order of millions of dollars,
but it seems to me that the difficulty experienced in the early 1980s, when
laboratories were struggling to survive, has been overcome.
Still discussing the issue of funding, particularly in the area of health,
a very important recent change was represented in the involvement of the
Ministry of Health in funding research projects. Traditionally, that govern-
ment ministry had not been a source of funding before the last eight years,
when the Department of Science and Technology (Decit)2 was given more
power, and a covenant was signed with CNPq, which allowed the Ministry
to fund research projects. So, there is now a quite significant number of
bid notices in the health sector that merge resources from the Ministry
of Health with resources from the Ministry of Science and Technology.
Another very relevant aspect of the Brazilian funding system is repre-
sented by the creation of the Sector Funds. They count on extra budget
appropriation from the Ministry of Health; besides, they have designed an
important program to support scientific and technological development.
Thus, we have the Sector Funds for Health, Biotechnology, Oil, among
others; each fund has its own coordination. These are other examples show-
ing that, in terms of funding as things have evolved significantly over the
past sixteen years.
Qualification and The Status of Research Work

and The Corresponding Government Bodies
Along with the issue of funding, another issue deserves consideration:

qualification; it has made significant advances. A closer association and
dialog among Capes, CNPq, Finep, the Ministry of Education and Minis-
2 Organ of the Secretariat of Science, Technology and Strategic Inputs (SCTIE).

try of Science and Technology allows us, today, especially through Capes,
to play an absolutely critical role regarding the researcher’s qualification
and an understanding of how to evaluate the dynamics between quality and
quantity of the Brazilian scientific production. Capes directly took on the
issue of assessing postgraduate work studies, which, in Brazil, has become
synonymous with production. That is, the bulk of our scientific production
occurs within these programs, especially in master’s and doctoral programs.
In 1998, Capes changed its evaluation system; its current grading cri-
terion now ranges from 1 to 7. Fortunately, this new system has been ap-
plied in a very professional and serious manner; its role has been extremely
important in the improvement of the quality of our scientific production.
Postgraduate courses have been positively influenced by the new Capes
system, which has evolved and reflected the reality of such courses. Capes
has also developed some programs based on its evaluation system, such
as the Program for Excellence (Proex) (http://www.capes.gov.br/bolsas/
bolsas-no-pais/proex), in which postgraduate courses with grades of 6 or
7 are granted autonomy. As a result, no longer does Capes transfer isolated
scholarships and projects; instead it transfers an amount of money at the
beginning of each year, and such money should be managed by the course
itself, according to its own criteria. Besides such independence, this mea-
sure lends more speed in changing scholarship holders and purchase of in-
frastructure equipment – extremely important aspects in any research proj-
ect. At Proex, for example, this model is applied to all graduate programs
in the country, not just in the area of health care.
When I was doing my master’s degree in Brazil, I remember how diffi-
cult and inefficient the access to scientific information was until 1986. We,
postgraduate students, ended up hiring a service for bibliographic refer-
ences which was both money-consuming and time-consuming. We used to
select keywords in a bibliographical list and every week we would receive
the corresponding texts. Today, in the “periodicals portal” you can have
full access, without any charge, to more than 15,000 international journals
in many fields of knowledge. With the speed of information the trend is
that libraries will be smaller and smaller, since most titles can now be found
electronically. Therefore, access to information is no longer a problem.
As to the debate on the quality and quantity of research, it is evident
that we have made a major leap in quantity. Our scientific output has in-
creased, and we have recently surpassed Switzerlandin this field. To this

increase the health care area certainly has made a significant contribution;
apparently it was the fastest growing in terms of production.3
With regard to quality, as already pointed out, we have also made some
progress, but perhaps not so significantly. Anyway, I believe that there is a
timeline, or kinetics, in which we first need to increase quantity, and then
improve quality. More and more the Brazilian scientific community has
published in indexed journals and, less frequently, in non-indexed jour-
nals. Currently, and rightly so, the assessment of graduate programs at-
taches more value to quality than to quantity. Once the minimum number
of published papers is reached, their quality based on the impact of the
journals where they are published, is given considerable weight in the
evaluation of the programs.
Today we have two important indicators to measure the quality of sci-
entific production. We may not like them (I particularly do), but they are
objective and universal, as good indicators should be.
The first indictor is the degree of impact of the journals where such pa-
pers are published, in which one takes into account the number of citations
of all the papers in that specific publication. The degree of impact reflects
the number of times and how long the paper in that journal is cited by oth-
ers; so a weighted average is obtained with regard to the number of papers
published by such journal – the more it publishes per year, the less its im-
pact will be in comparison to smaller magazines that publish fewer papers.
The other quality indicator which is fundamental is the number of ci-
tations per author. An author can publish many articles but if he or she
is not cited, this indicates that his or her production is not being used as
source of information for new ideas and new topics for discussion in that
specific area of knowledge. Therefore, nowadays subjectivity is no longer
used when assessing the quality of research work. I think that the technolo-
gies which are currently available to the Brazilian scientific community –
which no longer has to go abroad to gain access to them –, in addition to
3 Countries with the largest number of articles published in scientific journals indexed by
Thomson/ISI, 2009. Source: National Science Indicators (NSI), Thomson Reuters Sci-
entific, Inc. Compiled by: Coordination of Improvement of Higher Education Personnel
(Capes). Accessed on 02/16/2011. Brazil is in 13th place and Switzerland in 18th.
the multidisciplinary nature that science in the country has been adopting,
have undoubtedly improved the impact of such papers. Clearly, there is
still room for improvement, but the very decision taken by Capes – the 1
to 7 grading criterion – is a reasonable reflection of this situation. A course
graded 7 means a course with international recognition, and its scientific
production is, roughly speaking, compared with other courses of excellence
abroad. The bottom line is that we have made progress with regard to fund-
ing, infrastructure, access to technology and number of papers published
but there is still a long way ahead towards a constant improvement in the
quality of our studies. However, we have made little progress on the issue
of access to consumables and spare parts for research work.
The Bottleneck in Imports
From the viewpoint of the implementation of current research in Bra-

zil in all areas, the major bottleneck is still in the import operations. If
Brazil wants to advance in scientific and technological research, it should
direct its efforts to import activities. The bureaucratic procedures to im-
port equipment take a very long time; consequently, this is a problem.
However, there is still a chance to do some planning about this, as it is
capital which is not needed all the time. The major – and rather critical –
obstacle is the importation of reagents and spare parts. We would have a
very positive impact on the national research if we had a more efficient
system of access to consumables and spare parts.
Relying on my optimism, I repeat: I believe that the status for research
in Brazil has changed drastically over the past sixteen years. Previously,
working abroad was almost a must; otherwise you might neither have ac-
cess to information, neither to the routine life in a laboratory. Today, I see
no difference between labs in Brazil and those abroad, as far as access to
technology is concerned. I no longer see the pressing need for a student
to have overseas training to gain access to methodologies. I still think that
living abroad is important, in the same way that many professionals in the
United States go to Europe and Asia to do their doctorate or internship. I
see the idea of doing research abroad as a healthy aspect of this exchange
that occurs worldwide; no longer is it a necessary measure to be adopted by
any specific country.
The Multidisciplinary Aspect of National Research
Generally speaking, the multidisciplinary aspect of research work is an

extremely positive and recent phenomenon, especially in the area of bio-
logical sciences and life sciences. It is very common, for example, to see a
biochemical project that, during its implementation, requires immunologi-
cal or neurophysiological methods. Nowadays, if you establish a good lab
of cellular biology and a good lab of molecular biology you can have around
this infrastructure research teams with the most diversified interests using
the very same techniques. There is no doubt that in this aspect we have
greatly improved as a whole.
This is different from what occurred in the 1980s, when laboratories
worked in isolation and replicated the different areas of knowledge (al-
though this still persists in many research environments). Now, it is more
and more common to see the concept of “core facilities”, where various
teams share the same area, equipment and services, which helps reduce
costs and increase productivity. It also reflects in the multidisciplinary na-
ture of the research work, because the teams have used molecular biology
techniques, for example, thus promoting a more direct dialogue among the
different areas. In this way, the neuroscience researcher can have a closer
contact with researchers of the immunology, biology or biochemistry areas,
as they all use the same methodologies in the same research environment.
This has an extremely important impact on the renewal of ideas, exchange
of experiences and innovative solutions.
Moreover, this multidisciplinarity means more opportunities for teams
or areas that have more difficulty in publishing their papers in higher im-
pact journals. Some specific areas of knowledge only manage to publish in
low-impact journals; this is due to structural problems within that specific
area of scientific knowledge. Therefore, such areas voice their complaints
as they see that their chance of publishing in high-impact journals is slen-
der. Multidisciplinarity can help. For example, specific research on tax-
onomy of plants or animals can incorporate more advanced techniques of
molecular biology in answer to a specific demand. This enhances the im-
pact of the research. Finally, through interdisciplinarity innovation is also
on the rise. Currently, technological innovation has had an impact on dif-
ferent areas of knowledge. Let us take as an example the impact of advances
in the sequencing techniques on a large scale. All life sciences have equally
benefited from them.
The New Actors in The Innovation Scenario
Until the last five or ten years, postgraduate studies were basically lim-
ited to activities carried out inside universities; therefore, scientific produc-
tion and activities generating knowledge were almost 100% concentrated in
the universities. In recent years, though, we have seen an extremely healthy
decentralization of our model, which traditionally focuses heavily on scien-
tific production within universities (a movement that perhaps took place
in Europe and the United States longer ago). Despite this movement, we
cannot say that it is weakening universities.
Unfortunately, such decentralization still has not reached the private
sector in the way we had expected; that is, we still have to promote the
companies’ investment in scientific and technological developments. His-
torically, this is due to the lack of an adequate intellectual property policy.
In my view, it may also have to do with the lack of scientific and technol-
ogical development in the country. The fact is that Brazil lacked a science
and technology environment to press politicians to enact an intellectual
property law, which, in turn, would stimulate companies and professionals
to be aware of the opportunities inherent in the management of knowl-
edge through patents. An improvement in scientific production, with the
strengthening of postgraduate programs and the increase in the number of
PhDs since the 1980s, is changing this picture. Today, we see a clear move-
ment in the private sector seeking scientific development and hiring of new
PhDs.
Therefore, I believe that efforts should be concentrated on increasing
production in some isolated scientific institutes in universities. For ex-
ample, Embraer has huge responsibility in this movement. It is no longer
an old bankrupt and conservative company, without any room for innova-
tion; today it is a cutting-edge company, not only because it was privatized,
but because privatization took place at a time when there was availability of
PhDs, knowledge, and access to information. If Embraer had been priva-
tized 40 or 50 years ago, such an improvement might not have occurred.
Thus, its success undoubtedly stems from its being privatized (a measure
that enabled the advancement of Brazil in many ways) and because it suc-
ceeded in hiring qualified PhDs coming from high quality postgraduate
programs. Today, it is precisely because of this important critical mass
that telecommunications, oil and mining companies are advancing their
research projects. GE Healthcare expressed its interest in coming to Brazil
in order to install a teaching and research center for technological develop-
ment, specifically because we have such critical mass. IBM and Santander
have done the same. This is an emerging trend in Brazil.
Innovation in Brazil: The Role of Hospitals
A major impediment to national innovation is that public universities

and institutes rarely seem to hold a dialog with the private sector. The lack
of patents, our inefficiency in transferring knowledge to the private sector
and transforming knowledge into innovation, are the result of our difficulty
in keeping a dialogue between the public and private sectors. Again, with-
out meaning any personal judgment, I mention the yellow pages of Veja
magazine, which has recently published an interview with the dean of the
University of São Paulo (USP), João Grandino Rodas. One of the issues he
addressed was USP resistance to talk with the private sector. Every time the
university tries to approach the private sector, talks about privatization and
the fear of privatizing education emerge. These are two completely differ-
ent things; there is no cause-effect relationship between them. Universities
must keep their full academic and scientific independence; whether educa-
tion should be public and free with some kind of financial compensation,
is not a topic for this section. However, in my view, university institutions
must modernize, hold dialogs with the private sector and assume their
due role in the country’s technological development, which undoubtedly
includes the private sector.
At this point, the hospital issue emerges. Why have hospitals estab-
lished education and research institutes? The reason is: they are concerned
about their very own survival. The Sírio-Libanês Hospital decided long
ago to be not only a center of excellence, but also a center for scientific and
technological development; more recently, it created the Research Board to
speed up their project. No hospital can maintain itself as a center of excel-
lence if it is merely a replicator of knowledge. To maintain excellence, it is
necessary to be a generator of knowledge. Reasoning along the same lines,

no university can maintain itself without generating knowledge; if it does
not offer good teaching and research programs, it will go unnoticed. If a
company does not allocate a significant part of its revenue to the depart-
ment of science and technology, it will go unnoticed. IBM, Siemens, No-
vartis, and among the Brazilians, Vale and Embraer, dominate the market
only because they invest more than 5% of their revenues in research and
development.4 The same case applies to hospitals.
A hospital lacking research and development activities will always be
one step behind in the incorporation of technology and new medicines;
besides, it will lack the ability to evaluate critically the technology it is
incorporating. On the other hand, a hospital that keeps those activities as
a routine part of its operations makes headway and reaches a standard of
excellence. However, it is important to note that this is not the end activity.
The end activity in any hospital is rendering medical assistance but it will
not be able to offer high quality and pioneering assistance unless it is oper-
ating in the frontier of knowledge. The Sírio-Libanês Hospital stands out
as a pioneer in the incorporation of new technologies because we participate
in this developing technology. We have several projects in partnership with
private companies for the testing of equipment which has not come on the
market yet but which still needs to undergo some further stages of develop-
ment. As we participate in this development, we can look at this critically
so as to have more efficient equipment.
In turn, this development activity is what makes the researcher or the
physician a leader in his field of knowledge, because he or she is not just
replicating knowledge. In the oncology area, for example, where our hos-
pital has a very important role, all of our titled researchers are part of sci-
entific committees for the study and development of new drugs. Conse-
quently, such doctors keep up to date with the most advanced knowledge,
which means a clear benefit to patients. A patient that does not respond to
a treatment may have access to a new drug that is still being researched on.
In addition, there is a close connection between research activities and
a hospital ability to entice and retain talents. Leaders and opinion makers
4 The 2010 R&D SCOREBOARD, The Top 1,000 UK and 1,000 Global Companies by
R&D Investment. Department for Business, Innovation and Skills (BIS).
are invariably engaged in teaching and research. A hospital must provide

professionals with infrastructure so they can perform such activities.
Based on this dynamic, we can understand why the best hospitals in the
world are also actively involved with research. A list of the best hospitals in
the United States provides good evidence of this.5 There is not one single
hospital of excellence that is not a major generator of knowledge. This
model is not our invention; it is an absolute necessity to be in the frontiers
of knowledge. It is a cutting-edge hospital only because of this model, and,
consequently, it has enticed remarkable talents, has made considerable in-
vestments in science and technology, and has the best equipment, besides
securing a new standard of assistance.
In the case of a hospital, we believe that this model is supported by
three pillars: service-rendering proper, teaching and research. It is neces-
sary to know whether the expenditures on teaching and research are really
expenditures or an investment. This is an important issue. If viewed as an
expense, the institution does not realize the true mission of such activities
neither does it see the return that teaching and research can provide. In fact,
this practice ends up by generating revenue: statistics show that for every
one hundred articles published, just one patent can be generated from this.
However, in parallel with this, we can speak of hospitals – the Sírio-
Libanês, as an example – whose institutional and political decisions do not
place a primary focus on purely basic research. We give a strong focus to
applied research, which became known as translational research. In this
case, we use the knowledge derived from basic research to try to improve
the statistics of one hundred published works for one patent. As a result,
over the past two years, we have filed two international patent applications,
one related to a peptide that has an important biological action in meta-
bolic disorders, and another for a surgical endoscope. With this, one of the
challenges we have at the Sírio-Libanês is to accelerate the transformation
of knowledge into technology, so that we can accelerate the generation of
patents; whose financial return can, in turn, be reinvested in new research;
thus our Institute for Teaching and Research will no longer be seen as a
generator of expenses.
5 Best hospitals in America – http://health.usnews.com/best-hospitals/rankings.

The Philanthropic Model
Our research is sponsored by our own financial resources, drawn both

from the private and public sectors. Like any other research institute, we
seek financing with funding agencies. Each year, the Sírio-Libanês in-
vests a bit more of its budget on education and research, and each year we
increase our ability to internalize resources. Therefore, an increase in our
budget for research is not proportional to the increase that the hospital
gives us, thus creating a virtuous flow.
As already mentioned, it is not possible to separate good care from
advances in innovation. A hospital will only move ahead as an institution
when it has a solid balance among excellence of care, teaching and research.
Teaching is also important because there is no generation of knowledge
without imparting knowledge. How are we going to qualify talents that
will keep the hospital for the next thirty years? We must take advantage of a
good part of our professionals and entice new talents. We also have the fun-
damental social obligation to generate talents and qualified professionals to
serve society. It is not in our interest to produce and internalize knowledge
gained in order to increase competitiveness (which in no way benefits us).
Knowledge generated is knowledge that must be available to the whole
society. We are a charity organization whose mission is to improve people’s
living conditions. For that to be done, we offer teaching outside the hospi-
tal: today we have about nineteen teaching projects in partnership with the
Ministry of Health to improve the National Health System (SUS). We must
improve SUS health care to be able to improve people’s living conditions
and the quality of life of society as a whole.
One of the major advances was the change in the philanthropy law,
which occurred in 2008. Our hospital is a philanthropic institution and thus
we revert to such teaching projects the tax exemption we are entitled to.
Such teaching and research projects show enormous potential to improve
the SUS operations, but they can only be effective after their approval by
the Ministry of Health. In 2010, we invested about 70 million reais. There-
fore, our teaching and research mission also seeks improvement outside our
premises; we are qualified to qualify new talents and endow new talents
with the capacity to improve the health system as a whole.
Interlocution between The Hospital and Other Actors

in Innovation Research
We have also formed important partnerships with other institutions,

both public and private, and several international partnerships, some with
universities, and some with private international industries such as GE for
equipment. We always make an attempt to join other innovative institu-
tions so we may also participate in the process of innovation. Partnerships,
therefore, are crucial for us.
Creativity in The Connections among The Actors

in Innovation
For innovation to advance in Brazil, it is necessary to establish many and

diverse relationships among the different actors in innovation. In this, the
FAPs play an important role. Fapesp has been quite innovative in using the
system of matching funds6 and maintaining high levels of transparency in
the use of such funds. Along these lines, we wonder why the major inter-
national laboratories have not yet arrived in Brazil to do research, since we
have the necessary conditions and mechanisms to support them.
I can understand the flip side of this issue. At least, until the late 1980s,
this discussion was unthinkable. The fact that it is under debate today
shows that we are evolving. Alongside industries, there still remains some
uncertainty as to regulatory frameworks. In 1998, I was a member of the
National Biosafety Technical Commission (CTNBio) and at that time, we
would focus more on genetically modified plants rather than on medica-
tion. The issue of genetically modified soy was an example of how not to do
things. The studies carried out in recent years by CTNBio must be praised
for the progress they have made. The regulatory frameworks must be clear;
and for private investments to increase, it is important to create a favorable
climate, a climate of mutual trust,
However, I believe that we have been progressing at the right rhythm
and I am optimistic about this. I would say that companies are gradually
6 “Real financial contribution to be given by the partner company, an investment in the proj-
ect of equal value to that of the agency as a way to share risks, to witness real interest in the
company in the appropriation of technology to be developed” (Fapesp, 2004, p.52).
coming to Brazil, but the fact that they are not coming faster is, in part, our
own fault because of our legal weaknesses and because we are still novice
in this stability program (we are talking about the economic and inflation-
ary stability which lasted sixteen years). The auto industry, for example,
has made a quantum leap; the pharmaceutical industry operates at its own
speed. Our critical mass is fairly recent and only now has here been an ex-
cess of PhDs on the market, from whom the industry can benefit. Why are
there pharmaceutical research centers in Asia today? Simply because the
Asian critical mass is more than sufficient.
With respect to domestic industries, we see that it is progressing, but
still slowly. Activities in innovation research only began in recent years,
and this represents a process that we have not mastered yet. (We’re talking
about an industry that has a slower learning process.)
Brazil cannot get stuck in the repetitive models of purchase and innova-
tion; it must be very careful regarding “copies and generics”. I once par-
ticipated in a discussion at the Ministry of Science and Technology where
efforts we made to praise the development model of the pharmaceutical
industry in India and China. Close attention must be paid to this model
because it is not innovation; it is rather copying and, therefore, will not
have a long life. Many may think it is good, but I am a critic. Such a model
does not form nor generates knowledge; it merely replicates it. In our case,
the power that generics have in Brazil must be carefully considered. There
are some arguments suggesting that generics are a means for a company to
capitalize and to operate on a fundamental scale so as to achieve innovation.
However, this argument can be valid as long as it is rational to leverage
investments in R & D (Research and Development). Now, that is what
generates value and sustainability for industries.
Finally, the Brazilian pharmaceutical industry will make the great leap
in innovation when it gets convinced that its functions go beyond produc-
ing herbal medicines (which may have their usefulness). I think we are still
missing an important step in investing in science and technology. What
is needed to make this leap is a maturation of this activity of scientific
and technological development, a process that cannot happen overnight.
Generics solve the acute problem by filling in while innovation is incu-
bated. If at a given time the pharmaceutical industry does not come up with
something new and continues to justify its existence with generics, it will
fall behind. For a company to sustain itself, it must invest in innovation.

Unfortunately, for the Brazilian pharmaceutical industry, investment in
innovation is still far below what I see as a necessity so that in the next ten
years it is no longer an industry of generics, but an industry of medicines
and development.
Interview with Luiz Vicente Rizzo7
The Albert Einstein Israelite Institute for Teaching and Research (Iiepae),
established in 1998, is primarily involved with the areas of oncology, neu-
rology, hematology, orthopedics, rheumatology and surgery, the latter with
regard to new techniques. It differs from several other research institutions
in that it is linked to a philanthropic hospital. Thus, the ultimate goal of its
innovation activities is to offer patients a better service, which may later
“spread” and reach other organizations. In this manner, Iiepae can offer
more than its competitors. Profit, consequently, does notcount; so much
so that its basic research activities are loss makers. Doctor Luiz Vicente
Rizzo, a specialist in immunology, is the sole director of Iiepae. To ensure
the advances in his Institute, he uses as his motto a modified version of
Lavoisier’s Law: in nature nothing is created, nothing is lost, everything is
copied. In other words, it is from “scraps” available in science worldwide,
that Iiepae works and makes progress.
Innovation and Research in Brazil
Brazil has learned in recent years how to turn money into research.
Now we have more of both. But the first assessment to be made involves
the quality of such research. Considering scientific work from the point
7 Physician. Chief Executive Officer of the Albert Einstein Israelite Institute for Teaching
and Research. Full professor at the University of São Paulo (2005-2010), Department of
Immunology-Institute of Biomedical Sciences, University of São Paulo (ICB-USP). Head
of the Primary Immunodeficiencies Clinic-Hospital of the Medical School of USP (1999-
2008). Secretary General of the 13th International Congress of Immunology. Vice President
of the Brazilian Society of Immunology (2000-2001), President of the Brazilian Society of
Immunology (2006-2007). Member of the Academy of Sciences of the State of São Paulo.
of view of its impact, the existing quality gap is minimal. In April 2010,
the Albert Einstein Israelite Institute for Teaching and Research (Iiepae)
held the First Brazilian Symposium on Research and High Impact Scien-
tific Publications. The participants included representatives of the journals
Science,8 from Jama (The Journal of the American Medical Association), JCI
(The Journal of Clinical Investigation) and of Lancet Infectious Disease. The
Iiepae team was in charge of organizing this important event. The conclu-
sion was very simple: Brazil does a great deal of research, but it is average
research. Rarely do we see in such journals consistent and regularly pub-
lished papers by Brazilian researchers. And publication in a low-impact
journal rarely generates a standout product.
There is a very important movement aimed at showing that science in
Brazil has improved, even to justify the money spent on it. I understand
this movement, I participate in it, and I believe that resources invested in
science are always well spent, but we still spend it badly, partly because
we have needs that others do not. For example, when I was in the United
States and needed a reagent, or some input, or drugs, or anything else, I
hardly ever had to wait for more than 24 hours to receive it. In Brazil, this
would take three months. This difference makes it difficult even to publish
articles; as it takes longer, it is particularly difficult to publish an article in a
journal of high or medium impact. When it comes to the process of innova-
tion, this situation is much worse because after the first patent registration,
how to get a second patenting?
Biologically-based companies, still something of a mirage in Brazil,
are an example of this picture. Palo Alto, in California, alone has more
biotechnology companies than all of Brazil. We live in a different reality.
In science, we have taken a step ahead and the gap is not that massive; but
from the standpoint of innovation, it still is enormous.
The Genome Project of the Research Support Foundation of São Paulo
(Fapesp) is a great exception to this scenario (Nature, 2010, p.295). How-
ever, this success does not accurately reflect the costs that good research
in Brazil entail, because the rule is that the environment is all wrong for
cutting-edge research to be carried out. This confusion happens because,
8 Scientific journal published by the American Association for the Advancement of Science
(AAAS).
in addition to the enormous costs, there are other factors ranging from lack
of appropriate input to slow imports processes.
In addition, there are two other fundamental problems in Brazil: the first
is that research is based on postgraduate education, which is absolute non-
sense, because at this stage the student is still learning to become a scientist.
It is more or less like basing medical care on a medical student; the second
problem is that we have increased the amount of research, the number of
scientific articles published,9 but have not increased the quantity of products
resulting from this. Brazil is most commonly compared with South Korea,
in that we generate a very small amount of products through research.10
This scenario is partly a reflection of the type of connection that exists
between innovation and academia in Brazil. In addition to the fact that
university research programs are based on postgraduate studies, these pro-
grams are also the victims of other factors, such as the slow pace in the uni-
versity environment, which, in turn, derives from the slow pace of public
services, including the rules for publishing articles – which professors and
researchers have to comply with –, and rules for gauging their performance,
and which are not necessarily the same intended for innovation. Why is
innovation so strong an issue in Korea? Because there is a large private
investment, and innovation performance is not tied to an academic indica-
tor. I can easily speak of this subject because I have witnessed this as a full
professor at the University of São Paulo (USP).11
Private Initiative versus The University Environment
Improving the environment for innovation in Brazil does not mean that
the state should assist in structuring large laboratories, so as to compensate
for the lack of entrepreneurial culture. Improvement means the implemen-
tation of mechanisms to directly involve the private sector in this process,
9 In 1981, Brazil accounted for 0.44% (1,884) of the articles published in indexed international
journals. In 2008, this ratio was 2.12%, with about 30.4 thousand articles published, thus
surpassing Russia and Holland and taking the 13th place in the world ranking.
10 In number of articles published, Brazil was placed one position (13th) below South Korea
(12th), according to the 2008 ranking by Thomson ISI. South Korean production reached
35,569 indexed articles.
11 I was full professor in the department of immunology at the Institute of Biomedical Sciences
(ICB) at the University of São Paulo (USP). I left the university in 2010.
because profit is what moves the private sector. If an initiative seeks profit,
it will certainly take risks. Just look where success has been achieved: the
United States, where the amount of investments made by industries is infi-
nitely greater than that made in Brazil.12
The U.S. military industry, for example, is relevant because it is a mat-
ter of defense, but the government does not produce weapons; it purchases
them. And nowadays the government has been so concerned about this issue
that the U.S. Department of Defense has invested a significant portion of its
budget in biomedical research: research on breast cancer, prostate cancer,
stem cells, etc. This interest occurs for two reasons: first, and most impor-
tantly, because there are soldiers with breast cancer, which results in loss of
excellent soldiers and loss of investments; and second, because health is an
extremely powerful weapon. When a modified virus is found to increase the
incidence of breast cancer, for example, this suggests that powerful potential
armaments are at hand. In Brazil, things are different because there is no pri-
vate research: 90% of it is done in the public/governmental arena. Therefore,
we spend more than what is necessary to produce the same thing.
When the participation of the private sector works, it results in signifi-
cant innovation, and when it runs into an obstacle it seeks a basic solution
within the university, and not vice versa. Therefore, the dynamics are on the
productive side, on the side of necessity. For example, let us imagine that it is
necessary to improve the wing of an airplane. To do this, I carry out research
on the materials and then I go to the university with the following question:
given the situation I’m in, what can be done? Thus, we seek the solution to
a practical problem. In Brazil, we have isolated researchers in the university
who consider the problem as a practical one and show their willingness to
work on it. It is like a doctor seeking a patient to find out if he or she is sick.
Structure and Culture
This environment in Brazil stems from public policies and corporate

culture. If there were a culture of innovation on the side of industries,
12 The R&D/GDP relationship (Research and Development/Gross Domestic Product) in

Brazil is 1.1%, whereas in the United States it is nearly triple, from 2.7%, according to our
Ministry of Science and Technology.
universities would have a boost. On the other hand, if there were not only
universities, but also institutes such as the Butantan Institute, with a strong
innovative drive they could generate personnel and products that would be
pushed into the market. In practical terms, the business side does not have
a strong innovative component, and the other side (the university) does not
see a demand for innovation coming from the business side.
The incentives of public policies directed towards the installation of
input industries for research should be reviewed. We must also refrain
from creating future barriers that currently do not exist; a review should
also involve the issue of resources allocation. When we compare the offer
of incentives for innovation in industries, Brazil is far behind countries
like Korea, Japan, the United States and Australia. Here, it is easier to give
incentives to a volleyball team than to a research team. In this respect, São
Paulo stands alone as an island, on account of the role played by Fapesp.
The problem lies in the structure of our public policies; but this is also
a cultural issue, because a large number of Brazilian businessmen still hold
the view of the colonizer who takes away, removes, extracts, and does not
care about reinvesting in their own business, nor do they innovate or create.
However, this situation is changing for the better as shown by examples
such as those of Natura and some national pharmaceutical industries, such
as Cristália and Aché. However, in comparison with U.S. industries, there
is a striking difference. And when it comes to the university, I return to the
questions about what kind of professional we are making: an individual
with an entrepreneurial perception or someone who will continue working
at the university? Public policies are not part of my fortes, but I would say
that we must benefit those who have an innovative culture for a profession-
al who lacks an innovative view cannot be made into an innovative person.
There really is a great deal of novelty emerging in Brazil. Our country
is headed towards the right direction, but the speed and inclination of the
curve are still debatable; so much so that the quality gap remains signifi-
cant. We cannot expect the country to be one of the five largest economies
in the world without bridging this gap. Due to our political environment,
people easily forget about – or insist on forgetting about – the biography
of various professionals that have disappeared. Brazil had an economic
miracle thirty years ago. And what happened then? We haven’t been able
to keep up with this technologically speaking.
The country still has to build its base, carry out its maintenance and
find out how to get to the top and stay there. Innovation is a competitive
requirement, without which the performance of an institution may be jeop-
ardized in the medium term. History shows us that the great visionaries –
those who actually changed their countries and/or their industries – such
as Abraham Lincoln, Thomas Edison, Steve Jobs or Bill Gates, were able
to see things that only much later became clear.
Entrepreneurial Actors
A public policy environment versus natural ability – this is what we

need to have professionals with an entrepreneurial and innovative spirit.
The university milieu is not focused on creating an entrepreneur. There is
a faint representation of this in junior enterprises and business incubators,
which, admittedly, are advances. But that still does not solve the problem.
The history of postgraduate studies in Brazil is fairly recent; its mo-
mentum started during the military regime.13 Currently, professionals
travel abroad, and there is a sufficiently large mass of Brazilians who are
familiar with the paths to innovation. But rarely do they have the access or
the chance to change the public policies, which are often managed through
political ideologies rather than scientific policies. Nor are they adequately
valued in the industrial sector.
Iiepae
At this institute, a modified version of Lavoisier Law is applied: in the

world nothing is lost, nothing is created; all is copied.14 If we notice that
something has worked in a certain place, it will certainly work here. This
can be applied to any place in the world. Argentina, for example, has three
Nobel Prize winners in science; Brazil has none.15
13 The year 1965 was of great importance for postgraduate courses: 27 of them were catego-
rized at the master’s level and 11 at the PhD level, totaling 38 in the country.
14 According to Lavoisier’s Law, “in nature, nothing is lost, nothing is lost, all is transformed”.
15 Bernardo A. Houssay (1947), Luis Fedérico Leloir (1970) and César Milstein (1984) won
Nobel Prizes in this area.
And why would a hospital such as the Albert Einstein invest in research
and put more than R$ 30 million a year into the institute? Because we know
that if we care for the technological differential by adding value to service,
sooner or later we will secure and/or maintain leadership in this segment.
A country can only stand at the top when it shows technological leadership.
Otherwise, we will still be selling iron ore and importing cars. The boom
that at times occurs in the sales of commodities can only be maintained if
there is competitiveness, if the item being offered is something that, from
the point of view of value, others do not have.
The Albert Einstein Hospital sees itself as one of the actors inside a sys-
tem involving public, private and nonprofit initiatives. Here nothing is cre-
ated specifically for profit. We are like non-governmental and non-profit
institutions, like some institutions in the U.S. and Europe – institutions
that have been carrying out research to improve medical care or to maintain
technological leadership. We are neither the State, nor a company. Iiepae
has an important role, but does not depend on innovation neither wants to
sell it as a product. Innovation is not considered as a product; rather it is a
means to improve people’s health.
Our main operational lines – those ones that we deem strategic – are
oncology, neurology, hematology and certain aspects of surgery, that is,
dressings and new techniques. As it is possible to notice, the range of our
activities is wide. In the oncology area, for example, there are several pro-
grams geared either towards the improvement of diagnoses, or towards bio-
markers, since they vary from one population to another. We are interested
in specific areas. Therefore, this is an interesting program for Brazil.
Our research team is still relatively small – fifteen people. It is a multi-
disciplinary team, with researchers ranging from basic biologists to highly
trained and specialized professionals. There are also those who conduct
purely applied research, but this is still a very small team in comparison to
that of other institutes, such as La Jolla Institute for Allergy and Immu-
nology, in California. Our plan is to increase the current number to 32 by
2015. This profile is related to the financing lines offered by Fapesp, and
which involve having, for the area of human health, a wide range of profes-
sionals – from nurses to PhD professionals and/or professionals with great
expertise in the area of human health. I refer to this as translation research,
or basic research.16 The term comes from the translation of what is basic
into what is applied: translating something that was just a basic discovery
into something that has functionality. When it becomes a product, the
basic knowledge remains the same. What was knowledge is now a product.
What t was electricity is now a light bulb.
Clinical Research at The Albert Einstein Hospital
We undertake clinical research work in the above mentioned six areas;

and this is fundamental. We try to carry out more clinical research in phases
I and II. The Albert Einstein is not a volume hospital, but a general hospi-
tal; so it is not worth doing phases III or IV more intensively. We are not as
competitive as the institutes that manage to recruit 100 patients for cancer
treatment in 35 minutes. On the other hand, we are better in many other
respects. Phases I and II are those in which we want to position ourselves.
However, we do develop the whole phase when we see that a medicine,
a piece of equipment or any other health input has good and important
prospects for future application. For us this is intelligence-raising, and we
do not want to introduce any new treatment without having experimented
with it, without being sure that our personnel is duly qualified, considering
that they have previously seen any possible complications. So, we often get
involved with projects that operate at serious financial deficit, even taking
into consideration the Albert Einstein’s costs, which are usually higher.
Our clinical research work operates at a deficit because research is
discriminating. In this case, the financial criterion does not count. What
counts is the aggregation of knowledge and the view that one day we will be
able to use the findings of such research. Sometimes we get it right, some-
times we don’t. We already have two cases in phase I and phase II. We have
entered into an agreement with a foreign company with a branch in Brazil,
which planned to bring phase II in 2010 or 2011. Our differential lies in
quality, not in quantity. The global research director of this company vis-
ited us and noticed that we were working on issues that Stanford University
did not deal with.
16 Carlos Henrique de Brito Cruz, scientific director at Fapesp, refers to this as transfer of
research.
The referential for the model we are introducing here, based on Lavoisi-
er’s Law, consists of components that already exist in international non-
profit organizations in universities associated to them, and associated
hospitals.
What we are setting up cannot be identified as an already existing
model. We have been analyzing management patterns, size, and interac-
tions with hospitals, industries, universities and donors. In any case, we
see ourselves as a team that can be on the receiving end of a large donation
in the near future. We want to secure a structure which may enable us to
respond appropriately to the society needs. We have excellent examples
around the world that make us hopeful about this.
We do not receive funding from the Studies and Project Financing
Agency (Finep) because they have limitations that generally do not allow
non-governmental institutions to be granted money. But we receive grants
from Fapesp and from the National Council for Scientific and Techno-
logical Development (CNPq); we are really pleased because a former bias is
fading away, as this year we have published more than 180 scientific papers
in journals with impact above level1. This is quite a good figure.
Partnerships
Funding for research can be either public or private. There are all kinds.
And this model seems ideal, because it is better imbued with ideas. Some
partnerships are financed with our own resources, others with public or
private money, and some with donors’ money; and there are other sources.
There are also partnerships with industries and in some cases the project
was initiated by the institute itself; afterwards, the specific industry joined
us to deal with the development issue. As far as industries are concerned,
the partnerships are all based in Brazil and are all established with national
companies.
We have important international partnerships with Israel, with research
institutes that have direct contact with industries. Among them are the
Weizmann Institute of Science (http://www.weizmann.ac.il/) and Tel
Aviv University. These institutions form a triangular relationship with
start-ups in Israel. We are one leg of the tripod and this is an excellent agree-
ment for us because it makes development much easier.
We do not have any partnership with the Brazilian government for

the development of products. As the Albert Einstein is a philanthropic
hospital, we serve the government in other areas: we offer a great deal of as-
sistance, training and research, but no product development. For example,
we have some demand for research in the field of transplantation; however,
the aim is not to create something new, but improve knowledge and as-
sist the Ministry of Health. This does not involve any payment since it is
considered philanthropy. It is a positive activity which allows us to develop
research and give the government something they could not find in a public
hospital. For example, we have been conducting important research aimed
at gauging Busulfan (a drug used to treat leukemia) in the patient’s blood.
As there is a great variation in the patient’s absorption of this drug, we have
been trying to determine a pattern for the government. Iiepae is the only
place offering this kind of treatment in Brazil. Finding such a pattern can
prevent public hospitals from purchasing very expensive equipment (one
piece of equipment we have bought cost R$ 250,000). This action does not
generate development, but it does generate procedures and knowledge, and
consequently, it can generate application.
12
CONNECTIONS BETWEEN INNOVATION
AND ACCESS TO HEALTH
Interview with Antonio Paes de Carvalho1
Brazil has 22% of the earth’s total global diversity, with more than 60,000
higher-order plant species. In this respect Brazil has no competitor. How-
1 A graduate in Medicine from the Faculty of Medicine, University of Brazil (1954-9). His
first scientific experiments involved the central nervous system of the electric eel under the
guidance of Carlos Chagas. In 1957, Chagas appointed him to work in cardiac electrophy-
siology under the guidance of the American scientist Brian Hoffman, who established the
Institute’s laboratory of cardiac electrophysiology. In 1961, he defended his doctoral thesis
in medicine dealing with cardiac electrophysiology. He was then hired as an instructor and
visiting assistant professor of physiology at the State University of New York in Brooklyn,
where he continued working with atrio-ventricular conduction (Am. J. Physol., 1963).
At that time, he conceived what would be his most important scientific contribution: the
concept that the action potential of the cardiac muscle consisted of two excitable overlap-
ping, complementary and inseparable responses. The paper on of the two components of
the cardiac action potential (teaching thesis in 1964, article in Nature in 1966 and papers on
conceptual expansion between 1966 and 1971) earned him the continued support from the
National Institutes of Health (NIH / USA) and the expansion of the laboratory in Rio de
Janeiro; it also earned him the Lafi Award in 1969 and an influx of scientific initiation and
postgraduate students. Later, in 1979, he was awarded the Gold Medal of Pius XI by the
Pontifical Academy of Sciences (the Vatican), extending his activities until 1985. In the area
of academic administration, in 1964 he organized a postgraduate program at the Institute,
of which he was associate director. Between 1971 and 1972, he was dean for postgraduate
studies and research at the university. He was a member of the Federal Board of Education
from 1974 to 1980 and became full professor in 1977. He had an 8-months leave in 1978-79
to be a visiting professor and Guggenheim Fellow at the Harvard-MIT Health Sciences and
in the Technology Program and the Department of Pharmacology, Columbia University
College of Physicians and Surgeons, teaching advanced cardiac electrophysiology. From
1980 to 1985, he was director of the Biophysics Institute of UFRJ (1983). At the same time,
with Seabra, he founded Biomatrix, the first Brazilian plant biotechnology company. He
ever, only 1,500 plants of the Brazilian biodiversity have been documented
by traditional medicine. And still, there is great confusion because many
times the same plant is documented as having more than one effect, which
can range from treating an infected wound to treating a headache. Dried
plant pharmaceutical preparations used in traditional medicine are freely
marketed worldwide as food supplements and they are considered harmless.
The therapeutic use of plants is regulated as long as their actions and
power are declared in the instructions about their use, and each country sets
up its own requirements for their commercialization as herbal medicine.
There are many such products for sale in the domestic market, but almost
all of them are derived from European plants, which were brought into our
country in the colonial times and have ever since been cultivated here...
Other products are derived from the Asian flora (especially from India and
China), extracted from plants that did not previously exist in Brazil. The
registration of these products is easy as long as there is literature demon-
strating how these plants act and that their prescribed dosage is non-toxic,
or a history of prolonged use (at least 30 years) by humans without any in-
cident Unfortunately, our early indigenous culture was not graphic; so sys-
tematic and published observations are restricted to a small fraction of our
flora. Therefore, there are few herbal medicines on the Brazilian market.
The Regulatory Environment and Intellectual

Property in Biodiversity
The objective of Extracta2 is to expand the exploitation of the Brazilian

biodiversity for industrial purposes, particularly in the area of pharmaceu-
also founded ABRABE (Brazilian Association of Biotechnology Companies) in 1986; he

had a central role in drafting the then emerging Brazilian legislation on biotechnological
inventions, protection of cultivars, bioethics and biosafety and sustainable development
in the areas of biodiversity conservation. In 1988, together with Carlos Medicis Morel,
Jorge Almeida Guimarães Denucci and Tereza Cristina Martins, he created Polo Bio-Rio,
a technology park in the UFRJ campus, dedicated to the establishment of small businesses
in biotechnology and related areas, and to the integration between science and industry, an
undertaking he is still attached to acting as Secretary General of the Bio-Rio Foundation.
2 Extracta Moléculas Naturais S/A was created in 1998 by scientists and investors interested
in technological undertakings for the Brazilian biodiversity. In 2004, it became the first pri-
vate Brazilian company to obtain a special license from the Ministry of the Environment to
ticals. This involves access to genetic resources, which is not simple. The
Brazilian regulatory background is the Convention on Biological Diversity
(CBD), an international covenant signed in 19923 and ratified in 1994,
when it came into force. With the end of the Uruguay GATT Round
(General Agreement on Tariffs and Trade) and the creation of the World
Trade Organization (WTO), which began operating in 1995, the interna-
tional framework for patents was established. In Brazil, this led to the In-
dustrial Property Law in 1996, more than one year after the CBD became
effective here.
The new Brazilian patent law applies severe restrictions to the patenting
of living matter. Despite being within the limits agreed upon by the WTO
for all its members, these restrictions have huge negative consequences for
our competitiveness as regards innovation activities in a modern concept
of the biotechnology of biodiversity. Extracta, created in 1998 as a private
research, development and innovation enterprise based on biodiversity,
was born under this regulatory environment of the CBD and the Law
of Patents.
In June 2000, the government issued the Provisional Executive Act
(MP) no. 2.052. Such MP completely spoiled the access to biodiversity in
Brazil by forbidding everything in order to prevent biopiracy.4 There have
been successive amendments to this MP, which on August 23rd 2001, be-
came MP no. 2.186-16 which is reasonably possible to work with. One of its
provisions was the creation of the CGEN (Genetic Resources Management
Board) – connected with the Ministry of the Environment –, which began
operating in 2002. CGEN’s mission is to regulate access to the Brazilian
biodiversity and ensure that its economic exploitation be carried out so as
to preserve the biological diversity of our biomes and safeguard the return
of benefits to Brazil. In particular, CGEN is concerned about the access
to traditional knowledge associated with our genetic heritage and about
sharing with indigenous and traditional communities the benefits of such
knowledge whenever it is instrumental in the development of products
access, analyze and categorize the wide chemical variety of our plant biodiversity under the
Convention on Biological Diversity and the Brazilian legislation.
3 This refers to the Convention on Biological Diversity (CBD http://www.cbd.int).
4 The MP was amended after criticisms against an agreement that would be signed between
Novartis and Bioamazônia, an institution controlled by the federal government.
and services for the market. These principles flow directly from CBD and
require that there should be a fair distribution of the benefits generated by
the exploitation of genetic resources. Among the various types of benefit
returns, the technological exchanges between countries and companies
with access to operations stand as significantly as the distribution of finan-
cial benefits, which should return to Brazil as royalties resulting from the
commercial exploitation of what has been developed.
The structuring of businesses related to the Brazilian biodiversity and
genetic resources, which should, in theory, promote access and sustainable
development, with a clear return of technological and financial benefits for
Brazil becomes complex in view of the excessive regulation for the access
to our genetic heritage. Moreover, given that our patent law does not rec-
ognize inventions that are based on natural products the odds are stacked
against the entrepreneur, especially the Brazilian entrepreneur who is will-
ing to comply with the law and bring progress into the country. It is only
by having clear laws and regulations that it will be possible to make a bio-
diversity business flow smoothly, which is worthy of the Brazilian condi-
tion; after all, it is here that the highest rate of biodiversity, especially plant
species, is found. If there is no solution to these aspects, businesses become
difficult, and the big mass of investors will not show their willingness to
participate in this hurdle race.
Now to the specific barriers in the patenting system. In Brazil, patent-
ing plants and animals, either the whole or parts of them, is not allowed;
and in this aspect Brazil is not very different from other countries. How-
ever, the Brazilian restrictions affect all possible derivations from these
living beings, including their genome (which the agricultural world calls
germplasm). With such restrictions, an extremely diverse country like
Brazil self-imposes a limit on initiatives as simple as the exploitation of
a new extract, a new herbal compound or an unknown molecule found in a
plant. The enormous biodiversity of Brazil should be a factor of competi-
tive advantage for our pharmaceutical industry; this is not the case, though,
because of the self-castration imposed by the Patent Act, which does not
even minimally meet the national interests. Most of the other WTO mem-
ber countries do not impose this kind of restriction on the development of
sustainable economic activities involving their genetic heritage. This is such
a calamity for so rich a country in biodiversity as Brazil that public authori-
ties, particularly the National Institute of Industrial Property (INPI), have

already taken notice of it. Attempts, though not particularly vigorous, to
mend this situation are already underway. A bill proposed by Congressman
Mendes Thame, has already been sanctioned by all the committees in the
Congress but is still waiting to be voted on. The approval of the project, after
the basic requirements for a patent to be issued, will render it legal to protect
inventions involving chemical products derived from plants, animals and
microorganisms, without accusing their inventors and licensees of biopiracy.
Once a patent submitted to the INPI will only be evaluated and acti-
vated after six years, it seems valid to submit patent applications related to
biodiversity even before the legal and institutional framework under debate
is completed. There is simply no more time to lose. I understand it is fun-
damental to respect the harmonizing efforts already underway, but these
patent applications should be filed at INPI with all the information about
legal access to the genetic heritage, alongside a request for immediate sub-
mission to the international mechanism of the Patent Cooperation Treaty
(PCT; www.wipo.int/pct/en/texts/articles/atoc.htm). PCT makes pro-
vision for filing for a patent license of an invention in several countries
simultaneously. Before a decision on the feasibility of such patent in var-
ious market places is announced – which can take about two years – that
invention is protected. And if the decision is favorable, any country can be
chosen for the patent to be issued; this choice is made in accordance with
the particular commercial interests in each case and the characteristics of
each market. Patents protected by the World Trade Organization (WTO)
are valid in Brazil.
MP 2.186-16, despite the confusion concerning access to the genetic
heritage, is uniquely attractive for the patent, enabling it to be approved
of, as long as the legal origin for access is granted by the CGEN. Brazilian
diplomacy has insisted on this aspect as a matter for international adoption
by the CBD and the WTO as well. We understand that thestatement of
the access legal origin represents a competitive advantage for the domestic
production of our biodiversity, but this is a problem for many because such
recognition forces the international environment to admit that the medi-
cine derived from such plant comes from Brazil. The Brazilian proposal
adds, therefore, the item “legal recognition of origin” as a complementary
element to the basic requirements for a patent, which now serves only to
check inventive innovation, not obviousness or industrial application.

From impressions gathered in international meetings on the subject, it
seems to me that the Brazilian campaign will be successful, and will mean
an important obstacle to the practice of biopiracy.
Extracta and other biodiversity companies have operated under this
MP; however, a biodiversity law is needed; in fact, it is currently the topic
of an early, slow-moving debate in the Cabinet of the Presidency before
being forwarded to Congress.
Brazil and Costa Rica: Two Models
MP no 2.052/2000 scared scientists and companies because it would

not allow anyone to work. Its bureaucratic features turned the procedures
very slow. This caused many companies to stop working and drove away
large-size companies and ruined the interest in biodiversity. This hap-
pened in Brazil and in many regions of the developing world, where the
fear of biopiracy has reached unreasonable proportions. Nevertheless, in
comparison with other countries, our incredible biodiversity is not owned
by the state, as is the case of various countries. But we still need to get rid
of the bureaucratic debris created by the above mentioned MP, though it is
much better in the current MP (no. 2.186-16).
In the countries where biodiversity is said to be state-owned, it is impos-
sible for the private initiative to take any action without having the appeal
stuck somewhere inside the government. The fact is that the countries
whose biodiversity is larger are, in general, the least developed ones; in
such countries it is not possible to do effective scientific-technical work:
all the actors, even the well-meaning ones botch each other’s efforts, open-
ing the chance for corruption. The Brazilian style of direct negotiation
between public and private, foreign and local institutions, is far better than
agreements between multinationals with national governments. It was this
model of direct private/private commercial negotiations, that motivated
Glaxo Wellcome (GlaxoSmithKline) to sign an agreement with Extracta
in 1999. In an exemplary model agreement, GW funded research and
provided access to technology in exchange for the exclusive licensing of the
results obtained; the agreement was generous with respect to royalties on
the net global sales of products derived from those studies. As for licensing,
Extracta does not have the same problems other public institutions do5 in
licensing their inventions to the private sector.
As an example, Costa Rica, a country reasonably endowed with bio-
diversity built a model that worked partially. It succeeded in signing with
Merck, the U.S. pharmaceutical industry, an agreement similar to that
Extracta signed with the then GlaxoWellcome (now Glaxo Smith Kline).
Such agreement provided for an investment of U.S. $ 1 billion, which en-
abled the creation of the National Biodiversity Institute (INBio; http://
www.inbio.ac.cr/es/default.html), an institution similar to the Extracta
Extraction Center established in Rio and Belém. Costa Rica provided ac-
cess to its chemical biodiversity but the scientific work would be performed
by Merck, which would study the collection, by using their technology and
their labs to find “hits” against their targets. If there were any commercial
interest, Merck would notify Costa Rica. We do not know the size of the
collection of extracts taken from INBio. Unfortunately, as far as we know,
Merck was not successful. We wonder whether the central structure of re-
search and development (R & D) of a large international company finds it
difficult to focus on this kind of cooperation. Perhaps the correct formula
is that one adopted by Extracta, which, besides assembling its collection of
products from Brazilian plant species, trained its staff and equipped its labs
to seek success through advanced high throughout screening technologies
and in-house chemical deconvolution. The Extracta example is, therefore,
more typical of what CBD proposes: open access to biodiversity in ex-
change for financing, technology transfers, development of local research
and technical-scientific collaboration throughout the project. As the holder
of the intellectual property of the result of its agreement with GW, Extracta
has today nearly 700 active extracts of pharmaceutical interest. Most of such
extracts, the starting point in the discovery of new molecular structures,
come from unknown plant species used in folk medicine.
Around the turn of the millennium, large pharmaceutical companies
joined the wave of work focusing on the human genome, looking for struc-
tures designed for new targets. Over the years, such an area was found to be
less rich in new bioactive small molecules, the kind that generates easy-to-
5 With regard to these limitations, see chapters 6 and 10 about the Butantan Institute and
InCor, respectively.
use pharmaceutical drugs. Such studies are more complex, more expensive
and have led to a clear decline in the pipeline of innovation in recent years.
Perhaps something new may appear to attenuate this limitation. The fact
is that everyone is taking a new look at biodiversity, because what it has
brought to the pharmaceutical industry in the last 100 years is absolutely
prodigious. This includes natural products that inspired chemical synthe-
ses that are still on the market, such as Aspirin®.
Brazil, India and China
Brazil has already lost the opportunity to develop fine chemistry and
now runs the same risk regarding its rich plant biodiversity as a direct or
indirect source of new medicines. It is also missing the opportunity to par-
ticipate more intensely in the search for biotechnological medicines.6 The
constraints we have faced have also been experienced by other emerging
markets such as India and China. Owing to the same socio-political causes,
India’s patent law is as restrictive as that of Brazil. Indians, however, have
learned that there is theory and there is practice. In practice, they do what
they want, and regulations are lax when it comes to Indian undertakings
that bring benefits to the country. Foreign companies are not allowed to
work with the Indian biodiversity. China, on the other hand, is totally dif-
ferent; it has adopted a lenient policy with a broad spectrum for patenting,
although it is still perfecting a system of equal treatment of what is domes-
tic and what is foreign.
Advertising and marketing in India are fundamental attributes of this
new phase of industrialization. In fact, it gives the impression that there
is a mega-sized Indian pharmaceutical industry fueled by a large popula-
tion and enticing export agreements. The reality, however, is that India’s
pharmaceutical turnover is less than two-thirds of this sector’s turnover in
Brazil, which today reaches 20 billion dollars per year. Perhaps, the Indian
biodiversity is not even half of the Brazilian diversity. Thus, what Extracta
and other small businesses have been doing, and can do, with regard to
prospecting for plant species is of a high value.
6 Jorge Kalil, of Incor, has a similar opinion. See Chapter 10.

China and India have come into the Brazilian market with relatively
ordinary pharmaceuticals, and the Brazilian legislation is not prepared to
counter this invasion. Any product, whether it is herbal or ethical, that has
obtained registration in the United States or Europe is given a free pass
by Anvisa. Greater difficulties are faced by innovative Brazilian products
in their last stages of development, which must receive the final approval
from Anvisa. This is a criticism that must be mitigated with the realization
that the number of private Brazilian companies truly dedicated to research
development and innovation is very small indeed. The mass of R&D&I
(Research, Development and Innovation) comes from public institutions,
which are very strong scientifically speaking, but have trouble in translat-
ing this success into the commercial area.
Extracta and Glaxo Partnership
Extracta and Glaxo aimed at applying modern technology in the ana-

lyses of the Brazilian biodiversity and developing interesting and innova-
tive medicines. The idea in the agreement was to secure up to ten active
molecules, to be offered the right of first refusal to GW for final devel-
opment. Extracta would hold all the intellectual property rights on these
molecules and, of course, the financial returns in milestones and royalties.
The contract was a success, but unfortunately, it was interrupted by the
merger that created the new GSK, which chose to discontinue their studies
on natural sources of molecular innovation.
Glaxo made three points clear to Extracta. First, we would be respon-
sible for an absolutely legal and ethical conduct, with full adoption of the
CBD, defending the client from possible accusations of biopiracy; second,
it would contribute to the scientific and technological development of Ex-
tracta; and third, the industrial property of the discoveries and basic inven-
tions would be Extracta’s (and therefore Brazilian ), and Glaxo becoming
the holder of the industrial property rights in the later stages. As the holder
of the property on the natural materials, Extracta imagined it would be able
to make this a success story in Brazil. However, such a notion proved to be
mistaken, because the pharmaceutical industry proved to be uninterested
in developing products for which there was still no proof of concept. This
situation remained a problem for a long time, but now we have noticed a
gradual and renewed interest in the Brazilian chemical biodiversity from

both large pharmaceutical companies and medium-sized and large-sized
national industries. The policies encouraging technological innovation and
development of Brazilian small-sized technology companies, in a move-
ment similar to the American Small Business Innovation Research (Sbir)
greatly contributed to this.
Given the Brazilian regulations and CBD, which provided for bio-
prospecting and development of products from living raw materials, the
agreement with Glaxo was legally perfect. That was why MP no.2.052/2000
was such a great shock to everyone. When the activities of CGEN started,
Extracta requested its special license to be an extractor with business objec-
tives, the first in Brazil. Like any first case on the market, it took two-year
exhaustive negotiations to obtain authorization. The soundness of this po-
sition was confirmed when the National Congress decided to look into the
issue. All the presidents of multinational pharmaceuticals were summoned
and then accused of benefiting from our biodiversity and our market, and
of not carrying out any R&D here. At that time, Jorge Raimundo Filho, the
then President of Latin-American Glaxo, produced the agreement signed
with Extracta, showing that his company had already started such activ-
ities. Later, I invited Jorge Raimundo, who had left Glaxo after the merger
that formed GSK, to join Extracta as Director of Marketing and Business
Development, a position he still holds to our great satisfaction.
Soon after CGEN came into force in 2002, Extracta requested acknowl-
edgment that it was operating according to the legislation. In 2004, we
were the first private Brazilian company with special permission to access
biodiversity and our genetic heritage without geographical limitations, to
create a large collection of natural products for bioprospecting, that is, to
search new medicines.7
Extracta learned a great deal from its agreement with Glaxo. For a proj-
ect like this, the local structures of research and development must be di-
rectly involved. Glaxo had total understanding of this and always prompt-
ed the local people to get involved so as to fulfill one of the fundamental
requirements of CBD, which is to generate scientific and technological
7 The license is renewed every two years.

development for the country in exchange for access to its biodiversity.

Multinationals must understanding the importance of this when they seek
opportunities in biodiversity in these countries.
The Extracta Bank
The agreement with Glaxo lasted three and a half years. During this
period, the company created the Extracta Bank in an effort to build a col-
lection in order to meet the provisions of the agreement. The bank includes
more than 40,000 samples representing nearly 5,000 plant species in Bra-
zil, the largest domestic bank of its kind. The bank, which is located in the
Extracta headquarters in Rio de Janeiro, is assembled in the following way:
expeditions head out into the field and bring the material. It takes very little
of each plant, since scientific processes are very economical with regard to
the material needed: 4.5 pounds of a portion of a plant are sufficient to get
to the specific molecule required. The material is then dried, powdered,
put in watertight, oxygen-free plastic bags and stored in the dark. The
molecules of such material are extracted with ethanol. After concentration,
these alcohol dyes are kept in cold storage at -30 °C, where they remain
until their use in bio-prospecting campaigns.
Thereafter the advanced work of screening of biodiversity begins
(http://www.molecular-plant-biotechnology.info/industrial-microbiolo-
gy/screening-of-microorganisms-for-new-products.htm). Each extract is
put in 96-hole plates and which, through robotic machines, are introduced
to the intended targets either as a microorganism or an enzyme. Out of
approximately 4,900 plants, about 12,000 extracts are generated. Active
products are isolated by chromatographic techniques. By coupling these
with other techniques such as nuclear magnetic resonance, it is possible
to identify a naturally innovative substance responsible for the biological
activity detected in the original extract.
When a plant is collected in the field, there is no knowing a priori what
use it may have. The interest in the collection is in the fact that it should be
done at random. The expeditions go randomly through the woods and col-
lect a bit of everything that is fertile: flower, fruit and seed. As it is a blind
collection, truly innovative inventions and discoveries can come out of it.
Undoubtedly, known substances such as caffeine are isolated. However, all of
a sudden unknown molecules with the desired biological activity emerge

from these operations.
Something interesting about this natural collection is that behind it
there is a powerful database and modern equipment. Such equipment is
quite well known abroad, but did not exist in Brazil before the year 2000.
These pieces of equipment were among the first in the country and there
are still few of them here, as only now is Brazil waking up to this issue.
A very important result of this work was the establishment of what came
to be known as the Extracta pipeline. These are extracts of medical inter-
est that can be translated into medicines for antibiotic-resistant hospital
infections, chronic lung disease, hepatitis C, Chagas disease, tuberculosis
and diabetes type II. This process still cannot be patented in Brazil, but it
is kept as trade secret. This situation cannot persist when that medicine ap-
pears in its final stages of development, a time when the secret can no longer
be efficiently kept. The patent lasts 18 years, but the operating time is very
short, 8 to 12 years – from developing the product, having it approved
in the regulatory area and getting into the market. For that reason, we delay
the patenting as long as possible.
Given what we have done with respect to antibiotic-resistant hospital
infections, we have a low-toxicity compound with in vitro performance
equal to or better than that of competitors on the market. This is crude
extract, that is, it is collected, the alcohol extract is from the raw material is
produced and then it comes out with these characteristics.
Extracta in The Field
According to CBD conventions, the Brazilian government requires the

distribution of the benefits obtained from the use of genetic material to
the landowner where the collection is made, and this is part of the license
granted to Extracta. It does not collect on public lands because the agree-
ment in these cases takes years to be signed. To use private land, a pre-
liminary agreement is needed – the Statement of Prior Informed Consent –
which allows collectors to enter the area with permission of the owner. It is
a formality provided for in the Convention and in MP no.2.186-16, which
translates CDB strict requirements.
Every plant collected in any part of the country must have a sample
recorded in a public herbarium accredited by the CGEN. By transforming
raw material into extracts, Extracta begins a screening campaign, which
results in a certain number of extracts that proved active against the biolog-
ical target tested. The R&D&I actions run their course inside Extracta. Its
completion usually involves additional subcontracts with associated aca-
demic teams, all under strict confidentiality. It is during this phase that a
patent application is submitted to the INPI. Once phase II of clinical trials
is secured, there is a “proof of concept” to entice an industrial customer and
get him or her interested in carrying out the final development, registra-
tion, production and marketing of the new medicine. With these patents
licensed, the next step is to decide on how the business will be structured:
royalties and returns. The return of benefits to the raw material providers
and to Extracta is agreed upon and registered at CGEN in the form of a
Contract for the Use of Genetic Heritage and Return of Benefits (known in
Portuguese by the acronym “Curb”).
What is the advantage of accessing the Brazilian genetic heritage through
Extracta? The answer is that through its authorization agreement, it can
represent the land owner and other beneficiaries upon the signing of Curb,
and take full responsibility for the integrity of the return of benefits. Ex-
tracta is an intermediary in the return of this benefit, which is shared among
the company itself, the landowner and the industrial client. The industrial
client will pay the benefits as from the licensing of the product: it will devel-
op it, put it on the market and collect payment. A percentage of such return
comes back to Extracta as royalty payment, which is distributed to the scien-
tific and academic partners and to the landowner in whose land the plant
was collected. The latter, merely for authorizing the entry into his lands
for the collection, receives 2.5% of net royalty that Extracta earns with any
product on the market. In addition, the provider has the right of first refusal
in the agricultural production, in strict agreements involving adherence to a
particular production technology. This is of course a later stage of benefits.
In the midst of all this, there are many thought-provoking issues. For
example, Extracta is opening a new field of agroforestry development, be-
cause when we know which plant we want to deal with, we cannot just go
about devastating Brazilian forests searching for it. Thus, it is necessary
to find a conservative way to go about the exploitation. The simplest way is
to arrange with the owner of a farm the cultivation of the plant in an area for
which Extracta provides the original plant and the high quality clones to be
grown under an agreement providing exclusive sale of the produce. This is
more or less what the wine industry does with grape growers: the industry
delivers top quality clones and the farmer plants, harvests and sells the
grapes to the industry.
The bottleneck for Extracta lies in the question of who finances the
original discovery. This phase is only the first result that identifies the ac-
tive extract of a target, until the specific innovative molecule is discovered
and likely to be patented and licensed. A small business like Extracta can-
not afford to finance itself at this stage. Subsidies, incentive financing or a
pre-arranged purchaser of the license are necessary; such a pre-arranged
purchaser will have exclusive rights over the license; the purchaser will not
be the owner of the molecule. The international industry has stopped par-
ticipating in this process for about seven years; it is returning now, though.
Investors
Of its six main research lines, Extracta has done a lot, but not every-
thing, as this depends on financial partners. Today, though the company’s
financial partner is the government, this does not mean that Extracta sur-
vives off government resources. Extracta is supported by resources from
its clients, and at the moment, our client is the government, which lately
has encouraged the Brazilian technology program as a whole, not just with
regard to biodiversity.
With the exception of Glaxo, until recently no Brazilian or foreign com-
pany was interested in entering into partnership with Extracta to develop
our research lines. Considering that the agreement with that pharmaceuti-
cal company ended in 2003, there have been other small agreements, and
Extracta went through great difficulties. The strategy adopted by phar-
maceutical industries is requesting specific research on something of its
interest. The Brazilian private client is too small for that and cannot replace
the international private client, which disappears by abandoning the biodi-
versity; this is the case of all the major multinationals.
Now, however, there have been advanced talks about partnerships. Mul-
tinationals are once again showing an interest in biodiversity, by examining
projects, despite the fact that the changes provided for in the bill have not
materialized and the country is still not as open as it should be. Most major
local pharmaceutical companies (national ones) are not interested in a new
development project, because they want a product that is already on the
market, so they just want to produce and sell. But Brazilian companies with
greater potential for investment are starting to appear, such as Aché and Cris-
tália. It seems that this is the time to fix the relationship between national and
international companies and enter into a healthily competitive environment.
Funds for Studies and Projects (Finep) and the Foundation for Research
Support of the State of Rio de Janeiro (Faperj) are funding two research
lines and this allows Extracta to move along. But there are four lines that
are still waiting for funding. Research on Type II diabetes and Hepatitis
C have a very large market potential. Chagas Disease is a typically Latin-
American illness; understandably, it is not a very exciting market for
pharmaceuticals.
In this manner, virtually everything we have achieved in the last two
years was thanks to Finep, which adopted a system of financing innovation
much like the one that is adopted in the United States, the SBIR (http://
www.sbir.gov). In this system, the government provides millions of dollars
for investment in funds without expecting a return. If there is development
the funds go to the company; otherwise, that’s the end of the investment.
Finep told Extracta it could request as much as it needed. Extracta asked
for an amount equal to that of the agreement made with Glaxo – R$ 4.5
million. Now there is a second project, also with Finep, in which Extracta is
offering a private mid-sized Brazilian laboratory a partnership in the pro-
duction of a topical antibiotic medicine, to be put on the market by 2012.
Brazil has relied on public funding to push its small technological com-
panies. That’s exactly what happened in the United States, at SBIR with
regard to small technological companies and military agreements for ad-
vanced technological development, which created the country’s techno-
logical defense. It must be acknowledged that the measures adopted during
the Brazilian military regime turned the country’s science and technology
into what they are today; currently we hold 3% of the world scientific pro-
duction. Before this, the industry survived on donations made to the labs
by wealthy people. The military government made sure that a percentage
of the industrial funding available at the National Bank for Economic and
Social Development (BNDES) was granted to science and technology. A

huge amount of resources available ensued. In this way, the postgraduate
system was created.
Today, the conclusion to be drawn is that what hinders innovation ac-
tivities in Brazil is not lack of resources. The initial phase is the most risky,
but it is also the one that needs the least amount of resources. As a project
becomes less risky, it becomes more expensive. The government has ad-
opted a smart strategy: it has financed the most expensive stage, but asks
for the net (result) in finance from private initiatives, which directs funds
to public money. But this does not occur in the initial phase of a research
project. The new project that Extracta submitted with the participation of
a pharmaceutical company is more than net in finance because it is very in-
directly put by the company, which already has an infrastructure setup and
employees that represent the indirect costs. This is an interesting system
which has great potential to work.
With regard to the multinational pharmaceutical company, investing
in research teams in Brazil would require little money compared to what
it spends on outsourcing around the world. It could offer a great benefit
to Brazil and make a good impression on the government and the nation
as being positive for our development – and not just as a company that ex-
ploits here patents developed abroad, demanding as much as possible from
the population and the government.
Demanding as much as possible from the population is not a peculiarity
of big international pharma. A small Brazilian pharma will do worse. But
such mechanics must be tempered with the ambience, making it clear that
they are here also for the efforts towards development and progress, thus
bridging the gap between the scientific and enterprise realities, both of
which are necessary to justify the government investment in research.
Obstacles to Overcome
In Brazil, we suffer from the problem of not having all the stages of
innovation; therefore, part of this must be done abroad. For example, to
accelerate the research work, it is necessary to do pre-clinical trials abroad,
where they are quickly and very well done. What in Brazil takes between 8
and 10 months can be done abroad in one third of this time. The Brazilian
pharmaceutical industry which is conducting such development activities

enters into many agreements abroad to get the work done.
I have insisted that Extracta should do a part of the research work here
and a part abroad in order to develop an internal education force, preparing
the partner to do better and better each day. We do almost everything in Bra-
zil. Other companies are following suit, but the speed of the activities falls
too short of what we could expect if a multinational participated in this game.
With regard to human resources, if Brazil intended to be something like
Germany – a quite advanced country albeit still at an intermediate level as
far as human resources are concerned – we would need four times as many
master’s and doctor’s degree holders as we currently have. This has been
commonplace knowledge for a long time. There has been an impressive
growth in the number of masters and doctors, but this growth is happening
at a slow pace if compared to our needs. The gap is widening between our
needs and the actual number.
It is a fact that Brazil has greatly increased its participation in the ranking
of articles in indexed publications, but this is so because it is work carried
out by the scientist at the base, not by the company. Scientists are doing
well, but they cannot increase the figures because there is no funding them
if they are not attached to the productive system in some way. In the 1950s,
Brazil was ahead of South Korea with regard to any data about research
and innovation. However, we had just over 3,000 CNPq fellows abroad,
whereas South Koreans had more than 60,000. During that same period
China had more than 105,000 students doing their masters and doctoral
degrees abroad – and all of them had the guarantee that upon their return
they would be integrated into the technological industry of their country. It
is in this way that growth can be sustained.
Why doesn’t Brazil do the same? Because it is not easy. It started being
done in the military period but it came to a halt because such work is not
feasible without an authoritarian regime. In Korea, once he or she is qual-
ified, a scientist is absorbed in a company before being sent abroad for
postgraduate studies. On his or her return, he or she has the assurance
of an employment contract with that private company; and this includes
the participation of the government. Intermediate education in Korea is
100% comprehensive and advanced education involves working in this
way. What have they noticed that we have not? China, Korea and Singapore
governments are powerful. This is not done in Brazil; it is not an inherent

part of the Brazilian philosophy nor a manner of handling policies. Brazil
will have to find the best way, and perhaps this will include the participa-
tion of the major international corporations.
Extracta could benefit from a qualification program abroad. When the
large Korean conglomerates did this, they were already associated with
the government, which had planned this financing program for scientists
abroad. For a long time, even Japan had a tricky system in which they
would do reverse engineering on any machine, and produced Japanese-like
equipment for the market.
Interview with Reinaldo Felippe Nery Guimarães8
The Ministry of Health is the federal body tasked with planning and im-
plementing public policies and programs in the area of health, including the
administration of the Brazilian public health system known as Unified Health
System (SUS), one of the largest in the world. Accountable for a budget of
about R$ 70 billion in 2010, according to an estimate from the Annual Budget
Law of that same year, the Ministry of Health, the third largest among the
8 A graduate in Medicine (1971) from the Federal University of Rio de Janeiro (UFRJ). He
holds a MSc. in social medicine (1978). Between 1972 and 1984, he was a professor and
researcher in the area of Public Health (Institute of Social Medicine, State University of Rio
de Janeiro UERJ). Since 1985, he has been working in the field of planning, management
and science and technology policies; he was. Secretary of Science, Technology and Strate-
gic Inputs of the Ministry of Health (2007-2010)and was the vice president for research
and technological development at the Oswaldo Cruz Foundation (2005-2006); director of
the science and technology department of the Ministry of Health (2003-2005); Chairman
of the Higher Board of the Foundation for Research Support of Rio de Janeiro (Faperj)
(2003-2006); advisor of the Brazilian Society for the Advancement of Science (2001-2005);
associate editor of the journal Ciência e Saúde Coletiva, published by the Brazilian Associa-
tion of Health Research (Abrasco), board member editorial in the journal Health Research
Policy and Systems, published by the World Health Organization; member of the Board
of the journal Ciência Hoje, published by the Brazilian Society for the Advancement of
Science (2000-2003). He was a visiting researcher and adviser of the National Council for
Scientific (CNPq), where he coordinated the project of the Directory of Research Groups
in Brazil (1993-2003); member of the Capes Higher Board in the Ministry of Education as a
representative of the scientific community (1996-1999). He was also a member of the CNPq
Board (1985-1988 and 2007-2010), director of the Funds for Studies and Projects (Finep) of
the Ministry of Science and Technology (1985-1988), commander of the National Order
of Scientific Merit (2008), Grand Officer of the National Order of Medical Merit.
Brazilian ministries, has an array of functions including health prevention and

medical services for the population as well as the job of establishing norms
and planning the industrial policies for the health sector. Consequently, it is
also responsible for the approval of research work and medicines as well market
rules. The scope of operations of this ministry is clearly represented by SUS and
other associated government bodies, such as the National Health Surveillance
Agency (Anvisa), the Brazilian Company of Hemoderivatives and Biotechnol-
ogy (Hemobrás), the National Cancer Institute (Inca) and the Oswaldo Cruz
Foundation (FioCruz). Many of the ministry’s strategic decisions go through
the Ministry of Science, Technology and Strategic Inputs, administrated by
Reinaldo Guimarães since 2007. In the following account, doctor Guimarães,
a specialist in public health says that the government has promoted public-pri-
vate partnerships to encourage the local manufacturing of products with higher
added value, and the best support that can be given to companies is to ensure
that they have the market available for them, rather than provide financial re-
sources. For doctor Guimarães, health research in Brazil is still incipient; and
in the case of multinationals, there is lack of political will to invest more here.
The Evolution in Brazilian Innovation Activities
For the last ten years, developing countries, including Brazil, have man-
aged to create very interesting critical mass and installed research capacity
According to Thomson Reuters ranking, Brazil reached the 13th place in
indexed scientific articles in 2008.9 For historical and structural reasons,
the Brazilian model of industrialization, predominantly associated with and
subordinate to international capital, has led to a highly diversified industrial
park which offers technological sophistication in the field of innovation.
However, considering all this, it should be noted that most of the technol-
ogy of the products of such a park is imported and basically embedded in
what is produced here, for which royalties are paid. This leads to the consen-
sus that there is a relatively mature scientific base; the challenge, however, is
building a true innovation strategy out of this.
9 In 1981, Brazil accounted for 0.44% (1,884) of the articles published in international indexed
journals. In 2008, this share was 2.12%, with about 30,415 articles. With this increase, Bra-
zil surpassed Russia and Holland and was placed 13th in the world rankings compiled by
Thomson Reuters.
This growth in scientific production, in the critical mass, and in the in-
stalled research capacity was deeply centered on human resources training,
due to a very successful postgraduate program for master’s and doctoral
degrees. Thus, the present questioning about the impact of the publica-
tion of articles on the generation of end products is debatable.10 More pre-
cisely, what impact is being talked about? Considering how it is used, the
impact rate will only speed up when the Brazilian scientific production is
published in English, which is still not the case despite having already ad-
vanced a great deal.
Another important aspect to be taken into account is the clear evidence
showing that citations of scientific papers follow certain criteria whose
result is not solely based on merit. They are the result of small fraternal
scientific communities and that vary greatly in relation to their areas of
knowledge. Achieving higher impact factors in broader areas of knowledge
is very difficult. It would be necessary to be at the center of large U.S. or
European institutions. Small scientific communities can accommodate an
increase in the impact factor through a variety of manipulations. Hence,
it can be concluded that the impact of Brazilian publications is actually
greater than the indexes indicate.
As to human health, it involves several components, such as medicine
and social sciences. Some have more and others have less international
interest. For example, the science of physics is non-existing for Brazil.
Physics is a global and paradigmatic issue. In the social sciences, however,
there are issues specific to Brazil just as there are, in many aspects, medica-
tions that are specific to Brazil. Thus, it is clear that if we gauge Brazilian
research on the basis of its impact factor in international databases, such
subtleties will not be detected.
By far, the area of human health is the main sector for knowledge and
application of research in Brazil. About 25% of the total research carried
out in the country, when gauged according to the number of researchers
and active research lines are focused on health. As an example, in 2009,
the Ministry of Science and Technology, through the National Council of
Scientific and Technological Development (CNPq), implemented a pro-
10 See Chapter 11 of this edition, with an account by the executive director of the Albert Ein-
stein Israelite Institute for Teaching and Research (IIEPAE), Luis Vicente Rizzo.
gram worth nearly R$ 600 million and selected 120 national science and
technology institutions. Of these, 42 deal with human health as their main
theme. Another much older CNPq database, a directory of research groups
in Brazil, also indicated the same emphasis on human health.
Brazilian Education vs. The Mission Model
In addition to the structural aspects of transforming new knowledge into

innovation, there are others such as the successful postgraduate policies
adopted in Brazil. The postgraduate program is deemed the most successful
education program in the history of Brazilian education. However, these
policies, which prevailed for 40 years, have cast some doubts and undesir-
able side effects. One example is the hegemony, perhaps beyond what would
be necessary, of an academic format in scientific and technological research.
Postgraduate funding has administered research fundings since the
1970s. This was the main reason for the success of postgraduate policies;
although at the same time, it spoilt another extremely important institu-
tional format in the core countries, such as mission- led public research
institutes. In Brazil, the National Fund for Scientific and Technological
Development (FNDCT), established in 1969, became the main funding
source for postgraduate studies. The condition for the application of its re-
sources (carried out by Funds for Studies and Projects/Finep) was that the
projects, to be funded, had to be connected to postgraduate programs. This
was a correct measure in many cases, but it was detrimental to some fields
of technological research.
The institutes that had decided to remain outside the postgraduate arena
have faced a crisis over the last 40 years. Part of this has to do with the dis-
pute over a model and resources. Those that had no postgraduate program
received less money for research. Others adopted a more flexible policy,
such as FioCruz. The Foundation began offering postgraduate studies and
lost its nature as a mission-driven institution. It became more of an academic
institution. Only in recent years has it resumed stressing its role as a re-
search institute. The Brazilian Center for Physics Research (CBPF) was
established in 1949 to be a national institute for the development of nuclear
technology. Gradually, from the 1970s, it became an academic institution.
To break this sort of obstacle, it is necessary to create mission-focused
institutions. I see that the program of the National Institutes of Science and
Technology (INCTs) of the Ministry of Science and Technology, launched

in 2009, has been a politically deft way to approach this project.11
A Financing Model
Another aspect to be considered here is the model for the promotion

of science and technology. The Brazilian tradition is what might be called
transversal modality. CNPq and the Ministry of Science and Technol-
ogy are transversal bodies in relation to all the vertical end-components
of operations in the areas of health, education, agriculture and energy, for
example. Comparatively, the U.S. transversal institution. responsible for
this approach is the National Science Foundation (NSF; http://www.nsf.
gov). However, most resources for funding research are distributed verti-
cally through the ministries (departments) of energy, agriculture, health
and human affairs and defense, which are all vertical. For example, the
federal budget for science and technology in the United States is around
US$ 140 billion. Of this, US$ 80 billion are directed towards research.12
Of the remainder, the NSF has US$ 4 billion and the National Institutes of
Health (http://www.nih.gov) – the vertical agency of the U.S. Department
of Health – has US$ 30 billion. These are estimated figures representing
the trend and the standard in the budgets of agencies and foundations
promoting the U.S. health care system, demonstrating the financing model
adopted by countries with an Anglo-Saxon tradition. The logic is to bring
research policies and sector policies together.
In Brazil, there are two very successful examples of the application of
the vertical model. One of them is Embrapa, a research institution estab-
lished in the 1970s to meet the needs of agricultural development policies.
It has its own development agency, depending only on the federal budget.
The share of the company budget for research activities is greater than
the resources granted by CNPq and the Coordination of Improvement
of Higher Education Personnel (Capes). Another successful and more
evident example is Petrobras, which has devised its own mechanisms for
11 This program is considered an improvement of the CNPq Millenium Program Institutes.

12 Knowledge developed about the procedures and results of research, preserved by the secu-
rity rules of the U.S. government.
fostering scientific and technological research. It even created a mechanism

for human resources via covenants signed with federal universities, and it
has also implemented the Leopoldo Americo Miguez de Mello Center for
Research and Development (Cenpes).
It is, therefore, necessary to delve more deeply in the idea that health
should have a more verticalized supporting model, to bring research objec-
tives closer to the objectives of sector policies. This can help to overcome
the bottleneck of knowledge and the product on the market. At Cenpes
and Embrapa, production is applied to the line of work. Cenpes conforms
to Petrobras strategic planning, and Embrapa has its research planning
aligned with the country’s agricultural policies.
In the area of health, however, this still does not exist. For the last years,
FioCruz has been pursuing the prospect of being again a national mis-
sion-driven research institute. This has been a promising path, because
in addition to its research institutes, there are two production units: one
for medications and vaccines and the other for bioproducts, known as
“Farmanguinhos” and “Bio-Manguinhos”, respectively.
More participation of the managerial body of the health sector in the
administration of the policies for science and technology has been revealed
through more vigorous efforts since 2003, when the Office of Science,
Technology and Strategic Inputs (SCTIE) was created. The Department
of Science and Technology (Decit), for example, set up in 2000, after being
tied to that office. grew considerably and is now a major actor in funding
human research. From 2003 until the present time, the Ministry of Health
has invested about R$ 1 billion in research through SCTIE, oftentimes in
cooperation with the Ministry of Science and Technology using the sector
funds for health and biotechnology. It is also important to emphasize the
cooperation with the state foundations that support research.
Industries and Research
In Brazil, the relationship between the areas of health and industry is

less significant when compared with the cases of Embrapa and the agricul-
tural sector, or Petrobras and the energy sector, as these companies almost
exclusively produce goods and render services. In the health sector there is
a duality: the goal is related to social inclusion and the population’s well-
being, which corresponds to the social policies. However, the health sector
also incorporates an important industrial complex whose market must also
meet the needs of the public health system. Hence, the importance of the
Ministry of Health in the encouragement of research, development, inno-
vation and industrial production in the area of health.
For the last years, we have sought to foster this relationship. Between
2003 and 2006, we developed new connections between research and de-
velopment in universities and research institutes; and, starting in 2007,
we created the Industrial Complex and Innovation in Health Depart-
ment (http://www.ensp.fiocruz.br/portal-ENSP/inform/materia/index.
php?matid=16,979) within this secretariat, and developed articulations
between industries and the health industrial complex. This includes a set of
health policy goals, which sometimes are aligned, and at other times at odds
with the market interests. It is, therefore, necessary that the SUS federal
administration body responsible for most of the expenditures on industrial
products, participate in this scenario.
Native research in the private sector of the pharmaceutical area has been
poorly managed in Brazil, both by multinational and national companies.
Data from the Survey of Technological Innovation (Pintec; http://www.
pintec.ibge.gov.br/), of the Brazilian Institute of Geography and Statistics
(IBGE), provide evidence of this. The pharmaceutical industries world-
wide apply about 15% of their turnover in R&D (Research and Devel-
opment) whereas Brazilian industries – both national and international –
apply in 0.5% (a great deal in clinical research).
This is a rather obscure issue; some of its aspects are related to choices
Brazil made in the 1980s and 1990s when there was a trade opening and a
harmful deregulation which affected our domestic industry. An excessive
and careless exposure to competitors was harmful to important segments
of the health industrial complex, especially pharmochemicals. Despite the
fact that at that time this sector was still incipient and, therefore, not com-
petitive it was totally destroyed with the opening of the economy.
In the 1990s, besides the policy of trade opening, a mistaken policy of
intellectual property was set up: it discouraged research in the industrial
sector, as a new system of granting patents to products which were far from
being a novelty or from being useful, came to be adopted. In the early 1990s,
Brazil had a considerable industrial capacity in the health sector. So was the
case of India, a country of small and non-competitive companies; despite

conducting better chemistry research than ours, India, like Brazil, was un-
able to become a global standout. Today, however, India is a global play-
er. Both India and Brazil are signatories of the Trade-Related Intellectual
Property Rights Agreement (Trips), in force since 1995, but the difference
is that India fully used the ten-year time frame to apply the agreement, giv-
ing the local industry a chance to develop, whereas Brazil immediately ap-
plied the agreement. Additionally, the Brazilian Intellectual Property Law,
enacted in 1996, granted incomprehensible benefits to the international
pharmaceutical industry, such as pipeline mechanisms, for example.13
There is a rather mythical and journalistic idea that innovation typically in-
volves radical discoveries such as new molecules, equipment, etc. Obviously,
radical innovations are welcome, but even in companies that call themselves
research companies, innovation most frequently corresponds to small, non-
radical advances that can generate a very significant impact on the market.
Radical innovations involve much higher risks than incremental in-
novations. To compete in this field, financial muscles are required in order
to manage increasingly greater risks. We should not expect Brazilian com-
panies to enter this playing field in the short term. We must begin cau-
tiously. It is a serious mistake to say that an industry that does research in
formulation does not innovate. It is innovation indeed, and it has always
been in this way. Only with incremental innovations does a company begin
to develop, based on technical knowledge, curiosity about improving the
product, and thus it gets to the radical discoveries. We do have some com-
panies working along these lines, but they are few.
As stated earlier, the weight of the financial support, in this case, would
be less important for these companies. The National Bank for Economic
and Social Development (BNDES) has a magnificent program of support,
financing and equity interest aimed at the health-industrial complex, not
only for medications, but also for pharmaceuticals, equipment and vac-
cines. But the national pharmochemical and pharmaceutical companies
do not need financing; they need a market. The public policies exert much
13 In a figurative sense, the term pipeline refers to products in their development phase and,
therefore, still in the pipeline that connects research to trade; that is, such products and proc-
esses have not reached the consumer market and, hence, can still be protected. The pipeline
can also stand for a revalidated patent (Di Blasi, Garcia, Mendes, 2000, p.159).
more influence through the purchasing power of the regulatory issue, as

is the case today, than through financial support. The thing is to stimulate
public-private partnerships. And the responses have been positive.
The Ministry of Health
There is a peculiarity about Brazil: we have 18 public and semi-public

pharmaceutical labs.14 Until 2006, most of these laboratories were devoted to
producing pharmaceutical commodities, connected with basic pharmacy for
consumption by the State itself (in the case of Farmanguinhos, its activities
also involved antiretrovirals). In 2006, our public health system had about
25% of the total market of medicines in Brazil. In that year, the Minisitry
of Health decentralized this basic pharmacy because the competition, with
regard to commodities, was unfair towards private industries. Another
issue is to expect Brazilia to set up the specific needs of the Brazilian states
and municipalities.
Such decentralization put public laboratories in a vacuum. In 2007, the
Ministry of Health wondered about the role performed by these laborato-
ries: whether or not they would be able to compete in supplying the public
system with medications of higher technological content. An alternative
was found in the public-private partnerships for the development of high
cost products which were considered a priority for SUS. This has been
done and there are twenty partnerships in operation, for which the annual
purchase of the 25 medicaments involved amounts to nearly R$ 1 billion.
Generics
Another aspect of the Brazilian health policies is the encouragement to

the consumption of generic medicines. Proposals have been discussed at
the Federal Government level so as to strengthen the role of such medi-
cines, in that they should be given preference in the bidding processes of
the health system. The policies for generics is extremely successful in Brazil
as far as growth is concerned, for the sales increased from approximately
14 Farmanguinhos and Bio-Manguinhos, for example, are federal-public companies. The

Butantan Institute and the Foundation for Popular Medicine (Furp) state-public bodies in
the state of São Paulo. The Ezequiel Dias Foundation (Funed) is a state-public entity in the
state of Minas Gerais.
R$ 943 million to over R$ 3 billion between 2003 and 2008, an increase of

288%.15 In the U.S., for example, generics hold approximately 55% of the
market, whereas in Brazil this figure is 20%. It is possible and necessary to
increase this participation.
Despite the fact that generics are still expensive in Brazil in compari-
son with European countries and the United States, they certainly have
promoted access to medications. Currently, an important door has been
opened for the industry of generics, especially upon the expiration date
for patent protection concerning a group of more sophisticated medicines,
which are highly relevant for both the population and the market.
Another issue to be considered is the strengthening of Brazilian phar-
mochemicals. Whether it is in the industry of generics or brand-name
medicines, there are too many imported intermediate products, active
pharmaceutical ingredients (IPAs), and finished medicines. Medicines and
their components are largely responsible for the Brazilian trade deficit; in
order to reverse this situation, a more competitive participation of APIs
manufactured in the country is necessary. This requires an amendment of
Law No. 8,666 (bidding processes), and proposals for this measure have
already been made. In 2008, the Ministry of Health authorized public labo-
ratories to purchase services from private pharmochemicals, establishing
a dynamic which involves not the purchase of the raw material, but rather
the technological service of the pharmochemical industry, and the latter, in
turn, purchases the IFAs. As it can select IPAs through a criterion of qual-
ity – since it is not limited by the lower purchase price, which is required in
the direct purchase of a public laboratory – this can be a form of incentive.
Another measure to be examined in the next administration is to give prior-
ity to the public purchase of generics that participate in biddings and that
have acquired IFAs in national pharmochemicals
Anvisa
One more aspect – this time in the regulatory area – is the performance
of the National Health Surveillance Agency (Anvisa). No medicine-man-
15 Data provided by the Brazilian Association of Prescription-Free Medicaments Industries

(Abimip).
ufacturing company actually likes Anvisa, just as U.S. industries are not
particularly fond of the Food and Drug Administration (FDA). This is so
because no regulated institution ever likes its regulator; and Anvisa is the
object of severe criticism. Nevertheless, it is today a world-class agency.
There is room for improvement in the regulatory environment and growth
of the pharmaceutical industry and equipment in Brazil, which forces An-
visa to make operational adjustments. Moreover, by realizing that exemp-
tion is at the base line, the technical criteria and defense of the competition,
Anvisa role is also that of setting industrial policies as is the case with the
FDA or any other regulatory agency.
However, since Anvisa has a technical baseline, no second-class prod-
uct is registered just because it is a national product and of the interest of
the public health system. From this baseline, it is understandable and nec-
essary that Anvisa collaborate with the industrial policies. Being connected
to the Ministry of Health and being committed to the public health system,
it can, for example, help industrial and health policies to speed up the pro-
cedures for the approval of a product that is considered a priority for the
Ministry. Despite criticism suggesting the opposite, there is a very strong
professional and competent interaction between the Anvisa board and us
Multinational Industries’ Model
We would very much like the multinationals, to invest in production

in Brazil, rather than import finished medications; and we would also like
Brazil to be chosen as the headquarters of R & D centers for these compa-
nies, without restricting themselves to clinical research. Clinical research
should not be overlooked, but investments could be extended to other
phases. Recently there have been movements in that direction, via the
decentralization process of worldwide pharmaceutical investment; and
this does not affect the national pharmaceutical industry. A multinational
company that operates and manufactures in Brazil has a positive impact on
the trade balance, pays taxes and provides jobs.
Despite this, many multinationals are heading for India and China,
which is understandable, because both countries have a solidly growing
market. What’s inconceivable is going to Singapore and not coming to Bra-
zil. I hope that those institutions associated with Interfarma (Pharmaceuti-
cal Research Industry Association) get convinced that investing in Brazil is

a good idea. What they mainly lack is a political decision to take this step.
The debate held in 2009 about the modern pneumococcal vaccine in
the national immunization program and incorporation by the government
in September of 2009 was an example of such decision-making capacity.16
This happened because 95% of the immunization market in Brazil are pub-
lic; and to incorporate this vaccine, two competitors, both multinationals,
were considered. The winner, in addition to an agreement for the supply
and transfer of technology of the vaccine to public laboratories (a public-
private partnership), agreed, in another contract, to establish a platform
for the development of products of interest of the public health sector in
Brazil. This was an investment in innovation in the area of dengue, yellow
fever and other areas important to our country. We have received proposals
from multinationals putting forward ideas that are closer and closer to more
radical innovations. However, the crisis in the chemical synthesis and the
uncertainties in the biology area are making everyone nervous.
16 The National Immunization Program in Brazil, starting in 2010, implanted the 10-valent
conjugate pneumococcal vaccine for children.
13
INNOVATION IN PUBLIC LABORATORIES
Interview with Manoel Barral Netto1
The Gonçalo Moniz Research Center (CPqGM) is one of the seventeen

institutes that comprise the Oswaldo Cruz Foundation – FioCruz. Located
in Bahia, it represents Fiocruz in that State and stands out in the research
areas of pathology, immunopathology, molecular biology, parasitology, ecol-
ogy, and in the control of infectious and parasitic diseases. The Advanced
Laboratory of Public Health (LASP), one of the ten CPqGM laboratories,
is accredited as a leading center for the isolation and classification of HIV-1
in Brazil. CPqGM, in addition to research, develops activities aimed at the
qualification of human resources, with emphasis on the postgraduate course
in Human Pathology, offered in partnership with the Federal University of
Bahia (UFBA).
1 A graduate in Medicine from the Bahia School of Medicine (UFBA) in 1976. He holds a
Doctor’s degree in human pathology (1988), and is a member of the Brazilian Academy of
Sciences and commander of the National Order of Scientific Merit. He is currently a senior
researcher at the Oswaldo Cruz Foundation (FioCruz-Bahia) and professor at the Bahia
School of Medicine (Federal University of Bahia). He was Dean of Research and Graduate
Studies at UFBA, director of the School of Medicine of Bahia and director (Director of
Theme and Sector Programs) of CNPq. Former member of the CNPq Scientific Technical
Advisory Committee (CATC). He is currently the Chairman of CNPq’s Lattes Committee
and member of the Management Committee of the Health Sector Fund (MCT). He works
in the area of immunoparasitology. The most recurring subjects of his scientific work are:
leishmaniasis, immunoregulation and vaccines.
Brazilian Performance Indicators in Innovation:

Quality and Quantity
The issue of quantity and quality of the Brazilian scientific produc-

tion which reveals a great deal about our current situation in innovation,
must be carefully considered and evaluated, as the quality parameters are
not totally acceptable. Typically, the standard is defined by the number of
citations per article published, but this involves factors that are not only
quality-based; such a criterion should take into account the importance of
that production for the country. China, for example, has had an outstand-
ing increase in quantity, but according to the current quality parameters,
it has not followed this growth and did not present a reasonably adequate
standard of quality.
Actually, standard of quality involves other factors, such as tradition.
Every country that grows at a slightly higher rate tends to have a gap be-
tween quality and quantity. However, the term quality per se is not clear
and, therefore, I would not use it, mainly because its indicators do not
necessarily reflect the importance of the scientific production. In that case,
we cannot state that there isn’t quality in our scientific production; yet we
must realize that these indicators may spark off a debate in that we need to
find out whether our standard of quality is keeping up with that of quan-
tity. However, I think it is difficult to form an accurate judgment stating
that, based on these standard indicators, our scientific production is poor
in quality. This assessment serves only as a warning.
Another issue that must be considered is whether this “low” quality
is related to the fact that we don’t have a tradition in many of the areas
in which we have started producing and for that reason we have not been
cited. We must be wary when we evaluate this aspect to avoid being exces-
sively pessimistic. I submit my views considering research work in general;
but, in particular, in the case of health sciences, I believe that this view does
not apply to all areas. Some of our research fields are more advanced than
others, which might be the cases of infectious diseases and parasitology. In
the area of public health, I also believe that we have done much better than
certain countries. Therefore, in general, with respect to the quality of our
research, the indicators serve as a warning, and I wouldn’t agree with the
view that we currently do poor quality research.
On the other hand, the question that should be asked is why our per-
formance in the area of innovation is not so significant. On this subject,
opinions are similar; there is almost a consensus about this. We find it diffi-
cult to translate this scientific advance into innovation. My understanding
is that we assume the position of having a strongly academic production;
and worldwide academic production is not strong with regard to innova-
tion. Even American universities don’t generate many patents based on
academic knowledge (and let us not forget that their model is much more
efficient than ours). The great power of innovation comes from the indus-
trial sector itself when companies carry out research. This is, therefore,
an obvious problem for us, but as for me, it comes as no surprise if we
examine our standard of production of knowledge, it is strongly academic
and government-centered. In this scenario, we have been producing what
we can produce. If we want to change this and advance with regard to in-
novation, we must find out and implement the mechanisms that really urge
companies to do research, so that innovation ways can emerge. It is worth
noting that the university milieu does not have a leading role in this innova-
tion process, but rather participates and helps in the process.
The Role of Public Institutions in Innovation and the FioCruz

Model
With regard to the role played by public institutions in innovation, we

must consider the investment factor. On the one hand, universities are
strong in personnel training and qualification, even for the industrial sector
(but to have qualified staff, it’s necessary to do good research). On the other
hand, if we consider government institutions, even those whose main role
is not to offer personnel training, we can notice that, in general, they invest
in a science area which is less committed to an end result that is applicable
and profitable – in the sense that this is an investment that the private sec-
tor will not place great emphasis on. This is beneficial to the whole country;
when investments are made in research whose result is not connected with
covering costs, it is possible to generate extremely important data based on
which better investments can be made.
In Brazil, the current amount of investment is still too insignificant
to generate knowledge less reliant on the outcome; and even smaller are
corporate investments. It is important to emphasize that eventually, in a

dynamic project, an industry will have the need for more basic research,
but it will be already committed to achieving a particular product or more
practical result, whereas in the academic milieu there may also be applied
research, but this is not the main objective of the project, which is qualifica-
tion and generation of knowledge (developing a product is not a necessary
operation). For academia, the research paper and qualification of adequate
personnel are the end products. For the company, a research paper may
mean absolutely nothing.
Still with regard to the government sphere, we must give some thought
to public research institutes that, unlike public universities – which deal
with a more universal field – direct their efforts towards areas that may
not interest, industries or that offer industries no prospect of profit, but,
nevertheless, are in the interest of the country (such as areas of strategic
importance). Here we are talking about complementarity. A further and
important role played by these public institutes is that they cooperate with
the industrial sector. If we consider, for example, what would be a model
for basic research on health care in the National Institutes of Health (NIH,
www.nih.gov), we can see that 60 to 70% of researchers collaborate with
industries in some way; and let us also consider that NIH (different from
the Food and Drug Administration/FDA, www.fda.gov, and the Centers
for Disease Control and Prevention/ CDC, www.cdc.gov, which are much
more focused and specific) is a basic institution that invests without any
direct commitment to the end product. Its focus is on R & D (Research and
Development), but it interacts extensively with private industries. This is
the model that I think would be useful to Brazil.
In FioCruz I also see a complementary model. To make this assessment,
in which the institution plays a more complementary than a competitive
role, we must analyze the Brazilian situation. There is no clear market de-
mand for FioCruz, nor for such institutes. Institutes collaborate with other
government agencies, and this eventually leads to the generation of internal
demand. For example, FioCruz has Bio-Manguinhos and Farmanguinhos,
public companies that demand development solutions directly from Fio-
Cruz (this is a specific case, for both are institutions within a larger institu-
tion). Probably, the government research institutes will be able to better
fill their role of cooperation when the industries get stronger and require
research without necessarily investing in the chain of knowledge as a whole.

Industries will the able to use one arm of this chain of knowledge and then
do the rest either cooperatively or alone (internally). Therefore, this situ-
ation occurs because we have limited investments in research on the part
of industries in all areas, not just the health area. Moreover, we have done
little research outside academia or government institutes, which means
scientific production that is mostly for the government via universities and
public institutes.
The Embrapa Investment Model vs. the Health Care Model
When Embrapa was set up, it already had a proposal directed towards
applied research, which, in the case of health care is not true for public
institutes. When the Oswaldo Cruz Institute was founded in 1900, or the
Butantan Institute, in 1901, both had applied research as their main focus.
After being restructured in the 1970s, however, they adopted an academic
role, thus losing their focus on applied research. There are several aspects
to this structural remodeling, but one of them coincides with the decline of
the national industry in the health care area (at the end of the military dic-
tatorship, the academic department of such institutes was also affected by
restructuring). Moreover, since the question of human resources qualifica-
tion at that time was not an issue, these institutions also had their share of re-
search dismantled, which, on the other hand, left them with fewer resources
and aggravated the status of research in the health care area.
The second aspect that accounts for the success of the Embrapa model
more consistently than the models attempted within the field of health
care is that tropical agriculture is a field that Embrapa knew how to exploit
without facing much international competition (here I don’t want to under-
mine its performance; I’m just pointing out a situation that is not the same
for the health care area). We cannot forget that in the international division
of labor, Brazil ended up specializing in commodities, with emphasis on
agriculture. In turn, a third aspect of Embrapa success has to do with the
fact that industries in the area of agriculture managed to get stronger with
discoveries made by Embrapa whose knowledge could have an application.
(something that health-related industries have major difficulties in achiev-
ing). Thus, a virtuous cycle between Embrapa and companies was created;
Embrapa would provide solutions and companies took great interest in this
relationship, considering it significant for their competitiveness.
As to the health care area, most of the knowledge necessary to attend to
the population’s common diseases is produced in various locations. If we only
consider tropical diseases, for example, we can notice that Brazil has a prom-
inent role in research, but there is no interaction with the industrial sector.
Tropical diseases do not have the same market as medicines and equipment,
which ends up by not being of the interest of big pharmaceutical industries as
a whole. Dealing with such diseases, taken as an example, becomes the job of
the government or philanthropic organizations such as the World Health Or-
ganization; it is a fact that such diseases do not represent an enticing market.
These aspects partly explain the particularities in the health sector and
also reveal the differences in related institutions and models. Even in the
case of tropical diseases, we don’t have a clear outline in relation to sci-
entific and technological issues as well as innovation, mainly because, in
general, companies are not interested in transferring this knowledge to in-
novation. Currently, Brazil ranks third in scientific production of parasitic
diseases and fourth in infectious diseases, not far behind the United States,
England and France. We are clearly in a leading position because this is a
field where we have more international competitiveness due to our coun-
try’s nosological pattern.
The Transition from Scientific Research to Innovation
In my view, the hypothesis that we experience great difficulty in moving

from primarily academic research to innovation makes a lot of sense; this
is probably closely connected with the fact that we don’t have an industrial
sector prompting such a process. Although we have a significant academic
mass, there are several gaps throughout the development process, in which
this mass of professionals is not adequately structured to ensure the imple-
mentation of all stages of the process in our country. Each researcher does
what yields better publications, and not necessarily that which is currently
most useful to reach the end product.
There is a strong tendency on the part of research in the area of health
indicating that it has expanded for publication sake, to ensure international
visibility with regard to competitiveness, but there is no concern about
bringing the process to the point of innovation, thus generating a product

that comes on the market. This also happens because the private sector has
no demand for research. Each company sticks to what is most comfortable
from the point of view of competition, without necessarily having encour-
agement for a change of focus so as to generate the other steps in the chain.
This panorama is typical of the government framework, because we don’t
have a company strong enough to stimulate the entire chain. Brazil does not
have a very strong tradition of planning and completing these steps.
Public-Private Partnership in Research for Innovation
Any attempt to draw a plan of strategic cooperation between the in-

dustrial sector and the government in the area of health care, must face
the question of frequent changes in the priorities set by the government,
which is very evident in the field of research. Priorities change even before
they develop and reach an advanced stage. In part, this explains why public
investments are not properly made; they are not long-lasting or committed
enough to developping or advancing in a particular subject. In this unsteady
position, we see no clear goal.
Consequently, we are faced with difficulty in planning, in which we set an
exaggeratedly short-term deadline for certain priorities. Additionally, pro-
grams launched by the State end before they can be thoroughly and clearly
assessed. This lends itself to a repetition of the problem, thus preventing us
learning from previous mistakes. Unless there is more stability in these poli-
cies, this situation will persist and we won’t be able to close the cycle. In the
business area, it is necessary to reach the end of the development process to
achieve the desired economic results, and thus bring the process to an end.
An alternative to change the government position and to promote bet-
ter relations with industries would be to give encouragement for negotia-
tion and debate, which can be done in the long term. Government-foster-
ing organizations, and the scientific and technological community must
be involved, without exception. All the players in both research and in-
novation process must participate in the negotiation. Considering that the
government has a lot of power in this negotiation, it would be interesting if
other actors in this game – funding sources, communities and institutions –
were strengthened.
Bahia FioCruz
To talk about strengthening of institutions, we must have a debate con-

cerning their structure; let’s use Bahia FioCruz as an example. As for our
part in research, it is not possible to distinguish it from that carried out in
a university environment. As a whole, the Oswaldo Cruz Foundation has
its share of scientific production and research. In the case of Bahia FioCruz
and the Gonçalo Moniz Research Center (CPqGM), the latter is an insti-
tute where we have developed almost 100% of our research activities. We
currently do not have a binding commitment to the production of inputs.
Our main interest is in participating in the technological park of Bahia State.
Therefore, we operate just like an academic department: projects are put for-
ward, we seek funding, most of it abroad (in funding agencies), and the in-
stitute provides infrastructure and ensures good conditions for the research
work. We can deal with – and have received – demands from the Ministry of
Health, in the same way that an academic department would receive them.
In this academic freedom, we have teams expressing more interest in
participating in input development as well as protection of intellectual
property. In fact, taking the size of our institute into account there is no set
goal to be achieved with regard to having patents granted.
Researchers who look for a position at FioCruz somehow are more in-
clined to conduct research applied to the health area. Those who have prefer
research in other areas are enticed by universities. Since FioCruz attracts
researchers in the more technology-based area of health, we can offer an
important element for product development. Out of the ten Bahia FioCruz
labs at least three of them focus on the development of inputs: there is one
lab with a strong emphasis on research in the diagnosis and a vaccine for
leptospirosis; there is another researching mainly into leishmaniasis, engaged
in finding a vaccine, too; and a third lab is involved in research of vaccines
based on less conventional approaches, that is, not based on parasite prod-
ucts, consisting of complementary approaches, which use components that
help the parasite to establish itself, for instance, products of the vector saliva.
These teams are under no institutional obligation to do this kind of
research, which is more applied and focused on the development of a prod-
uct. After beginning with a purely scientific view, the teams showed a keen
interest in getting to a technological angle.
Obstacles to Public-Private Cooperation of A Different Order
Our laboratory obtained a U.S. patent for the use of sand fly saliva
products (leishmaniasis vectors), which stemmed from a strictly academic
question when collaborating with a team of researchers in that country.
Our institution has no restriction for establishing this type of partnership,
which led to this U.S. patent. So far, we have not collaborated or entered
into any partnership with enterprises but from the FioCruz point of view
this is possible. In my opinion, this type of collaboration must be carefully
regulated to avoid problems, including ethical ones.
Studies on the collaboration profile of the NIH show that in recent
years, there has been a decline in the number of partnerships between NIH
researchers and companies, especially after 2004, when such partnership
was submitted to an ethical review. Whether the situation was too lenient
before or whether it became too restrictive afterwards is a question that
needs further analysis. In any case, it shows that it is necessary to have
clearly defined policies.
In Brazil the notion still persists that collaboration with private indus-
tries is something undesirable. Thus, to repeat, if we are to adequately
encourage cooperation, we should make a very comprehensive plan that
encompasses discussions about what is ethically acceptable, so that we can
promote a debate about the whole picture. This issue – in close proximity to
social ethics – about the view held by the institutions is really commonplace
and cannot be neglected in any debate about either research or innovation
in Brazil. To encourage this cooperation, we have to revisit the issue within
both society and institutions, and define the role of each participant, show-
ing more clearly the limits of each actor.
Although we have financing policies to encourage scientific research
by companies in Brazil, we have no comprehensive study about why this
is so difficult to be carried out. Other aspects such as each one’s social and
ethical views are barely discussed. If, historically, we are suspicious about
partnerships between the government and a private institution, then a bet-
ter clarification is needed. Cultural aspects are extremely important for an
effective change in attitude. I hold an optimistic view on this matter; how-
ever, if efforts are not directed to the Brazilian tradition, history and society,
then research done in public-private partnerships will take much longer to
occur. It’s a matter of clarifying and showing a new way of perceiving this
relationship. Although we are talking about health, the university milieu
needs to be more open to society. I can say this because we are not just
talking about companies; this interaction is also important for associations
and non-governmental organizations, in addition to various other fields of
knowledge that should participate in this interaction.
Accordingly, it is necessary to address the cultural issue. Brazil needs
a more comprehensive plan rather than just think about making invest-
ments. The international picture is highly competitive and requires firm
action on our part. If Brazil wants to excel in innovation in the health care
area, it needs a strategy adopted by more than one or two governments run-
ning. And it necessarily needs to be negotiated with society in order to be
more solid and better planned – and prevail.
How to Engage Brazil in The Innovation Movement
To be successful in this movement, we need first to focus, choose and

find where Brazil can be competitive and make a concerted effort to achieve
our aims. Considering the health field, where can we be competitive? We
should choose sectors with higher potential, since a non-focused effort will
not be successful (in this respect, we are confronted with another Brazilian
problem: the difficulty in setting priorities). Moreover, the focus should be
on the long term to really give a certain area the chance to mature; thus it
will stand out and become more comprehensive.
The second topic is education. Not long ago Brazil began to invest in
education and qualification of personnel for research (to have more scien-
tists). I think the moment has come to speed up such qualification, given
that data about this show a large deficit.2 Data from the National Science
Board and Science and Engineering Indicators 2010 show that in 2000,
Brazil accounted for 2% of the international population of people aged 15 or
2 With due respect for other areas of knowledge, it is worth pointing out that innovation
delegates an important role to the engineering area. According to the Education Statistics of
the Education Database: Graduates by Field of Education 2010 (OECD), Brazil has 11%
of graduates in the engineering areas and exact science, which is a low figure when compared
to, for example, Germany, Canada, South Korea, Japan and the United Kingdom which, on
average, have 26.4%.
above with tertiary education, the same percentage it had in 1980. In other
words, although Brazil has improved a great deal, it still keeps the same in-
ternational percentile. Some countries have fallen, such as Russia (from 13 to
7%) and the United States (from 31 to 27%), whereas others have risen such
as China (from 5 to 11%) and India (from 4 to 8%). From the point of view of
education, if we consider the existing competitiveness, we stand now exactly
where we were twenty years ago. Consequently, if we want to be competitive
in science, certainly education must be given the highest priority.
Another important issue is what makes a city an enticing location for in-
vestment in innovation. As very relevant factors probably we should men-
tion quality of life and safety, very prevalent problems in Brazil. Adding to
what we have discussed about education, I can see three major problems
for the development of S&T&I (Science, Technology and Innovation) in
Brazil: first, our lack of a clear focus and priority in the long run; second,
the lack of a proper education to enable us to fulfil our aspirations; and
third, the quality of life and the issue of safety. All this shows that it is
not enough to only think about science to promote it (plans must be more
global, comprehensive, and cultural, covering other aspects besides science
and technology).
Based on the above reflections, I think that, at least in the short term, we
still have a low competitiveness level to be able to develop a strong technol-
ogy-based national industry or to entice foreign industries to the national
territory. Upon thinking of increasing competitiveness and analyzing the
existing models, we have some concerns. I am concerned about the Singa-
pore model representing the ideal model for long-term planning. Such a
model might be worthwhile for short periods, if we focus on the rooting of
innovation very early on. Qualifying personnel, on the other hand, is what
in the long run can ensure stability to the process.
Finally, we refer to one more of our weaknesses, which is no less impor-
tant and essential to introduce Brazil into the global innovation movement:
the lack of appropriately qualified staff in the management of research
projects. In general, I agree with the view that we need a research leader
with strong management skills who can take a project from the beginning
and develop it until its final stage. In fact, this problem results from our lack
of planning, which prevented us from detecting such a necessity in time to
promote the qualification required. In the planning of Bahia FioCruz,
this idea is inherent in the proposal for a structural renewal which includes
introducing the figure of the research manager, someone who, for example,
oversees all our institutional efforts on researching leishmaniasis and co-
ordinates the efforts being made. Furthermore, it is necessary to organize
and link the technological approaches together. Even in research lines for
different diseases, the technological solutions can be similar. It is important
to have someone with this gumption to negotiate with different groups and to
coordinate all efforts and investments being made.
We have a proposal for the institutional creation of this figure capable
of coordinating efforts in different areas, not only within a single project.
Even if this change of structure is approved, who will serve this role? Who
will these people be? There is the scientist, who is concerned about other
issues; and there is the manager, who currently has little command of the
scientific jargon and problems. Universities have to be agile and empower
this specific type of professional.
Interview with Otávio Azevedo Mercadante3
Since it was founded in 1901, the Butantan Institute ((IB) has focused
on research and development of biotechnological products. It started with the
production of serum to combat bubonic plague and became the largest producer
of serums and vaccines in Latin America, as well as the largest provider of
vaccines for the Ministry of Health. It comprises 15 laboratories, a plant and
the Vital Brazil Hospital. In 2009, its plant produced 107,836,014 doses of
vaccines and 332,551 doses of serums. In its laboratory, by using animals and
vectors such as snakes, ticks and caterpillars, researchers have carried out stud-
ies to find solutions to different diseases. In 2012, a plant for hemoderivatives
is due to open, and for the past five years, IB has developed a project aimed at
putting to good use the biodiversity of venomous animals in the Amazon region.
The five basic lines of research at the IB are the study of animals (animal
biology, evolution and biodiversity), basic research on poisons, bio prospecting,
3 A Graduate in Medicine (1964) and resident physician at the University of São Paulo (1967);
he has a Master’s degree in public health from the same institution (1970). He was the head
of Jose Serra’s cabinet in the Ministry of Health (1998-2002), technical director and director
of the Butantan Institute (2003-2010).
development of pharmaceuticals and development of new vaccines (adjuvants

and biopharmaceuticals).
Otávio Azevedo Mercadante is the executive director and Chairman of
the IB Board of Directors; he is a graduate in Medicine specialized in public
health. In this account, he talks about the autonomy of research institutes and
shows how Butantan Institute has acted to overcome barriers to innovation,
such as the legal framework and the lack of autonomy in the Brazilian research
institutes.
Innovation in Brazil
Currently Brazil has carried out a correct diagnosis and has tried to
find solutions to the issue of innovation. One of such diagnoses is the need
to invest in innovation, which is already leading to the structuring of an
important system of Science & Technology. With this system, the country
quickly improved its position in some traditional indicators of scientific
production, as the number of articles and citations in indexed publications
shows.4 Another aspect of this diagnosis is that Brazil qualifies doctors for
universities or research institutes, but very little of this manpower is used
in the productive sector.
This distance separating scientific production from the productive sec-
tor has helped to make more acceptable the relationship between produc-
tion of knowledge and generation of wealth, jobs and production of goods.
This perception, however, is more rooted in the main public funding bod-
ies. Universities still show some resistance, as a partnership with the pri-
vate sector involves the issue of profit, which for many, is opposed to the
notion implicit in the production of knowledge. In the area of public health,
such resistance is even stronger, because health is a public good. As for
the private sector, pharmaceutical companies show little interest not only
because of legal problems, but also because of the lack of culture in a part-
nership with research institutions; so much so that other industries, such as
the auto industry, innovate more in Brazil. In countries with higher rates
4 In 1981, Brazil accounted for 0.44% (1,884) of the articles published in indexed international
journals. In 2008, the share was 2.12%, with about 30,000 articles. With such rates Brazil
surpassed Russia and Holland and was placed 13th in the world ranking.
of innovation, such resistance has been overcome, at least in part, and this
encourages the development of projects.
A Legal Hurdle Racing
The most serious, the main impediment to the evolution of innovation

in Brazil had to do with the legal framework, which is also a failure when
compared to that of many other countries. It is a fact that some progress was
made with the Industrial Property Law (1996), with the Federal Law on
Innovation (2004) and the Innovation Act of the State of São Paulo (2008);
what is missing is the correct construal of such laws, because they are so
intricate that they are open to interpretation. Therefore, even though ideo-
logical barriers of resistance are overcome in agreements with the private
sector, the legal issue remains. The IB has repeatedly been faced with the
fact that the regulation of issues such as technological innovation, intellec-
tual property and partnerships among producers of knowledge are unkown
to legal bodies of both the federal and state governments. There is no body
of laws, no accumulation of knowledge in this area. The paradox is that in
the private legal area there are law offices that have full command of this
subject. It would be interesting, therefore, to have study programs, short or
long term, directed to improving the government professionals’ expertise.
Thus, the IB research/business relationship faces an obstacle that is
much more legal and regulatory than marketing-oriented. IB has faced
problems related to intellectual property that have been dragging on for
years. There were situations in which project financiers, at some stage in
their research, began to wonder:
What security can I have on a return, if I invest $ 20 million dollars? What

kind of legal security can I have that a competitor will not challenge or even
appropriate the partnership established?
The Difference between Innovation and A Pen
In addition to the issue of understanding the innovation laws in many

situations, this matter clashes with Law no. 8.666/93, which deals with
bidding processes and public administration contracts. The premise in

this law is that the state must ensure equal competition amongst all suppli-
ers. But how to choose a company in terms of innovation? How to choose
a partner for licensing the use of research, in order to make it a marketable
product? It is necessary to look for a company interested in partnership
and check which research line such a company plans to develop and com-
pare it with the research line an institute, such as the Butantan Institute,
wants to develop. In this sense, the idea of opening a bidding process is
not productive, because it is not like buying the cheapest pen. Therefore,
the innovation law gets stuck when it contradicts the provisions of Law
no. 8.666/93. There is a legal solution for this: it is enough to take innova-
tion for an exception; so it does not need to fit within the framework of
that law.
Another rather polemical problem has to do with the autonomy of uni-
versity institutes and, in special, research institutes. In general, research in-
stitutes in Brazil are direct administration bodies, with no legal personality;
therefore, their degree of autonomy is very low. This is the case with the IB,
which has the National Register of Corporate Taxpayers (CNPJ), but lacks
the most important thing: an attorney general. It is the legal counsel of the
São Paulo State Secretary of Health that represents the Butantan Institute
whereas the university has its own attorney general.
In our day-to-day, problems related to this situation arise, for example,
in patent applications. The National Institute of Industrial Property (Inpi)
accepts the application because we have CNPJ registration. But strictly
speaking, this is illegal; it has no legal consistency and there are legal opin-
ions on this respect since its patent belongs to the State Government. This
obstacle is not difficult to overcome, if autonomy comes to be seen as some-
thing positive, rather than harmful, as it is viewed today.
In an attempt to solve the problem of autonomy in patent applications,
we thought about designing a proposal for delegation of power, to avoid
situations such as the governor himself having to sign an application at
Inpi, making the process slower and cumbersome. According to our proj-
ect, the governor delegates the application and signing of contracts, etc. to
the director of the institute. This is not an absurd situation, for within the
IB, the director can sign a contract for construction work on State lands.
IB Funding
The legal fragility is made clear even in commercial revenues earned by

the IB. The products are manufactured by the institute, but must be sold
by the Butantan Foundation (FB), which has the obligation to transfer the
funds to IB. The FB is a private entity, with a president and board of trustees,
which consists of the same members of the IB board; and this promotes
synergy between the two institutions.
The Foundation’s turnover is around US$ 280 million dollars a year,
a significant part of which is generated by the purchase and packaging of
the products. The foundation has limited itself in terms of personnel costs,
which is at the most, 10%. The remainder consists basically of investments
and the purchase of vaccines as input to be packaged. The State govern-
ment budget for IB is R$ 64.8 million. For this and the next few years this
turnover is expected to increase exponentially.
The projects devised by the IB are funded by the State Government, the
Ministry of Health and other funding agencies (Fapesp, Finep, BNDES
etc.), in addition to resources received from the private sector, when part-
nerships are created. In 2010, IB received R$ 4.7 million from federal fund-
ing agencies, and R$ 10.6 million from state funding (Fapesp).
The Researcher and Intellectual Property
The IB has about 30 patents, most of which are from the Butantan
Foundation (FB) which applies for them on two occasions: when the re-
searcher enters into a partnership with the private sector and seeks the
foundation, because the institute has difficulty submitting the application,
or when the product was developed by IB. Thus, there are two systems: in
the relationship with private industries the researcher is expected to have
some income through licensing, by means of intellectual property; but
when it comes to the foundation, in the case of vaccines, for example, the
reverse occurs; the product is being protected against a copy. It is also worth
approaching a problem concerning a patent, but now from the researcher’s
perspective: he or she must decide whether the research is to eventually
become a marketable product or whether it is to be published in the form
of an article to give notoriety to its author. This is so because, according to
the Law of Innovation, the researcher is the inventor, but as an employee

of the institution, the patentee is the institution. Here is another legislative
bottleneck to be resolved.
This is a complex situation, but there is a set of guidelines for intellectu-
al property that, although in questionable ways, somehow have managed to
solve this issue. One is when the researcher gives up his or her patent rights;
if you develop a vaccine in IB, for example, it will be sold to the Ministry
of Health for free distribution. In other cases, when there is a relationship
with the industry or other research institutions, the researcher is entitled to
share the royalties.
Apparently, the FB has enjoyed an excellent situation. It is a private
company, registered at the CNPJ; it has non-public legal personality and
autonomy. However, industries question about how come that FB can apply
for a patent if it doesn’t have a researcher, for he/she is linked to the insti-
tute. This is a new issue. There is a line of thought that advocates the idea
that the foundation is the legal operator both of the patents and the sales of
the products, as if the Center of Technological Innovation (NIT) were part
of the foundation, which seems strange.
This is a knot common to every Brazilian foundation that is difficult to
untie. I have forwarded a proposal to the governor suggesting that the Insti-
tutes of Science and Technology in the State of São Paulo create the so-called
NITs, giving autonomy to the institute director to sign agreements file
patents, negotiate royalties, revenues etc. And the proposal still provides
for the payment of patent applications in the IB budget, which is not much
in the beginning, but may increase upon an application to international
bodies, whether in the United States or in the European Union. Even if
we consider the Madrid Protocol, it is necessary to pay more. Besides, this
budget should provide for the funds received from royalties and the negoti-
ation of patents concerning studies carried out by IB (all costs and revenues
concerning vaccines go to the Foundation). This change is not impossible,
but gets stuck in the State budget legislation, which has several restrictions.
The law of innovation provided for the creation of an NIT at the insti-
tutes of science and technology in universities and in research institutes as
well. An NIT unit is to deal with innovation with regard to the external re-
lations of the institutes. One unit must assess whether a product developed
by the institute is patentable; another unit (a more commercial-oriented
one) must negotiate with a company in order to put such product on the
market. At IB, measures to create a NIT have already been taken, but still
they have not been officially materialized.
The IB Researcher
Of the IB R$ 60 million budget, 60% refer to the payroll. The researcher

is the key element of innovation. There are 190 full-time researchers work-
ing on research, and 75% of them have doctorates; they always seek to make
the connection between research and the potential therapeutic effect; they
are also engaged in publishing papers, which are evaluated according to the
number, the quality of the scientific journal and its impact (citations). In
these criteria, IB is very well positioned in the ranking of scientific produc-
tion in Brazil.
This quality status is something that the private sector must find out.
We have a postgraduate course in biotechnology at the University of São
Paulo (USP) with a narrower focus, and toxinology, the study of toxins and
poisons. For industries, this is a very interesting line, as the hypothesis is
that such toxins have effects and thus mechanisms for coagulation, pain,
and proliferation of tumor cells to be identified. And such research work,
in the inverse, means the cure.
Partnerships with The Private Sector
Currently, IB has three types of partnerships with the private sector; one
of them involves an association with the companies which are established in
the institute facilities; mostly dealing with R & D development. This group
includes partnerships with Ouro Fino Agribusiness for the production
of veterinary vaccines, and with Recepta Biopharma for the development of
monoclonal antibodies.
A second type of partnership stipulates that a large part of product
development, particularly the final stages, should be done outside IB, in
facilities provided by the companies. An exemplary case is that of Cristália
for the development of adjuvants and vaccines. Another type is the part-
nership with a consortium of labs: Biolab, Biosintética and União Química
(now Biolab and Aché Laboratory). Since 2000, this partnership has in-
cluded the participation of institutions such as Fapesp and Finep, which

joined the group in the meantime. This agreement allowed the progress of
the research work about the development of an analgesic made from rattle-
snake venom, an anti-inflammatory from a caterpillar, an anti-tumor from
tick saliva, and an anti-hypertensive from snake venom. Such partnership
has led to four patents; and the most up-to-date studies are that of analge-
sics and anti-tumors.
Many times, this work has generated legal uncertainties for the compa-
nies. The patent, for example, allowed IB to reach a stage in which the ap-
plication of more resources would be necessary so that the research should
continue and tests could be conducted, but, due to the lack of structure in
Brazil, this has to be done abroad. Then another problem emerges: the lack
of a complete R & D (Research and Development) chain in Brazil. For the
preclinical test phase (with animals), in particular, there are still internal
options missing and this is an area of heavy investment. All these toxicity
tests are done on genetically selected animals of differentiated lineage. It
happens that in these cases, public funds cannot be used – nor would they
be enough, anyway.
The third type is that of transfer of technology. One line is with Sanofi
for the influenza and rabies vaccine. This partnership includes the Minis-
try of Health, since the vaccines are supplied for distribution to the public
health system. The transfer began in 2001 and ended in 2011, with all the
steps performed in the IB plant. In the case of blood derivatives, we have
taken into account the purchase of an important part of GE equipment for
the plant.
14
INNOVATION AND BNDES
Interview with João Carlos Ferraz and Pedro Palmeira1
Innovation is a strategic priority for the National Bank for Economic and
Social Development (BNDES). In his inaugural address in 2008, BNDES
President Luciano Coutinho pointed to a new direction: “Industries must ac-
celerate their processes of innovation at all levels: new and differentiated prod-
ucts, new processes, a continuous increase in productivity and improvements in
the quality of management and governance. In the comprehensive view of the
great Joseph Schumpeter, innovation is the driving force behind the creation of
dynamism and the ability to compete for the national systems. Therefore, inno-
1 João Carlos Ferraz is a graduate in Economics and an expert on issues related to industrial
organization and competition, innovation and business strategies, financing and productive
development policies. Before joining the board BNDES board of directors, he was the direc-
tor of the Division of Productivity and Management ECLAC (Economic Commission for
Latin America and the Caribbean), at the UN agency in Santiago, Chile, between July 2003
and June 2007. He graduated in Economics from the Catholic University of Minas Gerais
in 1977, and in Journalism from the same institution in 1978. Six years later, he received
his PhD in Economics of Innovation and Public Policies from the University of Sussex,
England. He is a professor at UFRJ, where he was the director of the Institute of Economics
between 1998 and 2003. He was also a visiting professor at the University of Tsukuba in
Japan. He also supervises doctoral theses, dissertations and undergraduate monographs, in
addition to publishing articles in journals, and writing books and book chapters.
Pedro Lins Palmeira Filho is a graduate in Chemical Engineering from the Federal Univer-
sity of Rio de Janeiro (1982) and has a Master’s degree in Business Administration from the
Pontifical Catholic University of Rio de Janeiro (1996). He is currently Head of Department
of the National Bank for Economic and Social Development (BNDES) and is responsible for
the institution’s operations in the Industrial Health Complex.
vation in the business area should receive encouragement and systemic support
with, redoubled commitment”. According to BNDES sources, the investment
portfolio in innovation totaled R$ 5.7 billion in March 2010, of which R$ 1.5
billion in February represented the portfolio of Profarma projects (investment
program for companies in the Health Industrial Complex).
Below are comments made by João Carlos Ferraz, a PhD in Economics
from the University of Sussex in England and currently BNDES planning
director, and Pedro Lins Palmeira Filho, BNDES manager and current head
of the department of intermediary chemical and pharmaceutical products in
that government institution.2
With this interview we intend to show why innovation is important in com-

petitive international relations and in the policies being adopted. In general,
we intend to focus on Brazil and outline the development stage of innovation as
well as its determinants, besides discussing public policies and, in particular,
the role and space occupied by BNDES. Therefore, the analysis that follows
covers general aspects but also offers some special details about the pharma-
ceutical industry.
The Importance of Innovation
We have been going through a period of financial crisis resulting in

structural changes. The last time this took place was during the Great De-
pression, from the second half of the 1930s to the early 1940s, in the United
States, when the unemployment rate was 14%, credit did not increase and
there was no increment in capital reserve. However, industrial production
in the U.S. grew between 8-10% per year, a very significant rate for that mo-
ment, which can be explained mainly by the incorporation of technical prog-
ress and new production practices, which were part of the Fordist model.
The great challenge that the United States faced was the discrepancy
between the assets and the then existing qualifications, and the assets and
the qualifications needed for the next wave of development. A symbol
2 An interview with Palmeira about this topic is available in the bulletin dedicated to Techno-
logical Innovation at Unicamp (http://www.inovacao.unicamp.br/report/entre-palmeira.
shtml).
of the changes was the serial production of ships during the war. It was
at that time that the basis for pharmaceuticals, electronics and modern
chemistry emerged.
We are currently going through a similar period: unemployment in the
U.S. persists, capital is being burned, new competing countries such as
China are gaining entrance to the market, and interestingly enough, even
despite all this, technical progress keeps a strong pace in the areas of biotech-
nology, chemistry, nanotechnology and electronics. The structural change
taking place will shape a new paradigm, and despite the fact that we do not
know what will happen, we have, for instance, some trajectories defined, for
example, by the experimental stem cell, which is something quite new.
A company that is prepared to gain more knowledge will have better
chances of avoiding this disparity between the necessary assets and the for-
mer assets, and will, therefore, be more prepared for the competition that
looms stronger and stronger.
Innovation in the Pharmaceutical Sector and the

Boost in Biotechnology
We believe it is possible to move quite easily from the general to the par-
ticular, since what has been called innovation gap is occurring in the global
pharmaceutical industry. We have been experiencing a crisis – in the stricto
sensu of the word – in that the productivity of research efforts and develop-
ment (R & D) has been decreasing since the beginning of the last decade.
According to reports from the Food and Drug Administration (FDA), the
number of new chemical entities or molecules released into the market has
drastically decreased, whereas spending on R & D, in particular by big
pharmaceutical companies, has increased considerably. Consequently, the
gap between expenditure and result is what has often been referred to as
the innovation gap.
We have noticed that there is a new technological trajectory being out-
lined and what was previously a little suspicious now seems to surface
more concretely: now, we truly wager on the biotechnological trajectory
as the new basis for knowledge so as R & D in the healthcare industry can
be carried out. In this way, the recent moves made by large multinational
pharmaceutical companies reveal their attempts to incorporate intangible
assets related to capacity in biotechnology. The most significant move
was the acquisition of Wyeth by Pfizer in the midst of the 2008 crisis; and
more recently, the acquisition of Genentech by Roche. What can be seen,
therefore, is that biotechnology is on the way to become the new technol-
ogical route, which offers the pharmaceutical industry new opportunities
for innovation. It still seems to us to be a dynamic industry, one that will be
long-lasting, given the technological opportunity presented by biotechnol-
ogy and the possibility of appropriating returns from innovation through
intellectual property mechanisms, as well as through the advantages from
being a first mover on the market.
This movement, in turn, has also opened a lot of markets that formerly
did not exist. What will probably happen to these innovation efforts –
when they start to generate results – is that there will no longer be a falling
curve of productivity in innovation due to the creation of opportunities not
yet envisioned. Thus, at this point, productivity in research is starting an
ascending trend. This boost in biotechnology has even caused multination-
als to question the target of their research activities. If the main objective of
a multinational company used to be the desire to become a blockbuster in
the sales of a medicament, nowadays their efforts are more segmented. We
have witnessed some efforts being taken by companies such as Roche, to-
wards trying to identify, by means of a biotechnology-based diagnosis kit,
individuals with certain genetic anomalies that would be more compatible
with a given medicament, which would be more effective.
The Impact of the Technical Advances in the Organizational

Structure of Enterprises
If we are headed towards ultra-segmentation, some questions arise:

what is the implication of this for the organization of pharmaceutical com-
panies or, more generally, for industrial companies? To what extent can
this involve the reorganization of the innovation activity in a large compa-
ny? The trend is for companies to open up and practice open innovation,3
3 The term was developed by Henry Chesbrough, a U.S. professor who, on analyzing the
behavior of companies throughout the 20th century, noticed a structural change in their
organization for innovation at the end of the century. Instead of using a closed model, the
companies opted to license innovation processes (such as patents) to other companies, thus
enabling an open flow of resources and knowledge between companies and the market.
without losing their governance of the process by keeping the network

under control.
In electronics/services, for example, a company can work with the con-
cept of segmentation and network operation, posing problems for its net-
work of partners, which may include research institutes, other companies
and even its own employees. Such partners compete in a model that is
something like that of taxi service; that is, the company which is closest and
more suitable to the customer will the one that will serve that customer.
But even so, the central company preserves the command of the chain. This
model corresponds to something that BNDES started studying more deep-
ly in 2011: healthcare research in order to boost pharmaceutical innovation.
This is so because the most important asset interesting for innovation no
longer is the industrial asset; now it is this proximity of industries to places
where health research is in fact conducted (hospitals of excellence). Again,
the model is similar to that of the taxi, in which the company may try to
be the first to arrive and sponsor research on a specific molecular marker,
which may lead to the discovery of a new molecule or biomolecule that acts
upon that marker and interferes in some way with the mechanism of a given
disease, for example.
Therefore, we can see that technical progress is somehow being restruc-
tured; not only the company agenda, but also of the organization of the
company in its relation with partners and the innovation chain are being
restructured. This is what is happening in the world of production, and the
pharmaceutical industry is a particular case, a specific example of this.
Public Efforts to Foster Innovation
The National State in each country, invariably, has always been behind
the scientific, technological and innovation efforts in countries where sci-
ence, technology and innovation are strategically relevant. They may have
different models (like the Japanese, who copied the Soviet model, and the
Americans, who, in turn, have the military industry and universities be-
hind it), but public efforts have always existed.
Nonetheless, with the recent crisis, this activism has increased. Coun-
tries that spend at least 2% of their GDP on R&D are maintaining or in-
creasing their expenditure. In the current relationship between the private
and public sector the innovation policy employed is: if there is a fall in
private investments, the States compensate this with public budgets to help
companies in times of shrinkage, due to a crisis or to financial problems
until they recover. Some countries have increased their investments in in-
novation even during the crisis. In particular, the United States and China
are more active than the average.
The United States is launching the Recovery Act based on innovation;
efforts to grant tax exemption are concentrated on two directions: first,
to make companies more innovative and, second, to invest in intelligent
infrastructure (this is a clear example of the State taking advantage of the
financial crisis to try to maintain and strengthen leadership when the crisis
ends). China, in turn, is still more active. About a year ago, the government
launched a project known as indigenous innovation policy, which corre-
sponds to one of the pillars of its economic policy and which determines the
active use of the State’s purchasing policy, in a country where state partici-
pation is already high. This measure not only serves to encourage Chinese-
capital-based companies but mainly to meet the criterion that the company
has to patent in the country. This policy is causing problems, mainly for
multinational companies that have investments in China and have noticed
that that market is being deliberately closed.
With respect to the requirements to carry out research, there has been
a great effort and it is natural to find contradictory forces in building a
regulatory framework for biotechnology products in the health area. We
have noticed that Europe has advanced more rapidly in the regulation of
biotech products that are not new (we have not used the terms biosimilars
or biogenerics to avoid ideological discussions), but interestingly, the regu-
latory framework in Europe is nearly based on a “case by case” situation.
The first non-new biotechnological products were approved about six or
seven years ago by Sandoz company, but later the company began to work
in the area of generics or non-new biotechnological products. Unlike the
European movement, what we have witnessed in the United States is a
predominance of the current influence of big pharmaceutical companies
that, to some extent, ask for some improvement in the regulatory frame-
work in order to relax certain conditions, so that non-new biotechnological
products can appear.
In turn, Brazil, at this very moment, has a regulatory framework under

construction, which was the object of a public consultation carried out by
the National Health Surveillance Agency (Anvisa), which also provides for
some conditions for the registration of non-new biotechnological products.
The solution found by Anvisa followed the European path of building a
“case-by-case” regulatory dossier: the company would prove the compa-
rability of its product with a reference product of biotechnological origin.
Thus, our regulatory framework has been a “case by case” decision, on the
one hand, but now, with regard to biotechnology, on the other hand, it is
being developed with different nuances, in accordance with international
reference.
Brazil in Innovation
With regard to innovation where does Brazil stand? As to the size and
importance of the Brazilian economy in the world and as far as innovation
is concerned, we are lagging behind. The main issue is that we do not do
justice to the size and importance of the Brazilian economy. Brazil spends
between 1 and 2% of its GDP on R & D investments; in the private sector,
this figure is about 0.55%. Meanwhile countries similar in size to ours are,
in general, spending 2% to 2.5%, and at least 1.5% for the private sector.
Brazilian companies are less likely to invest in innovation and we have
identified two reasons for this: the first is the issue of risk. Companies op-
erating today went through a long period of uncertainty that lasted 20 or 25
years. At that time, they had to adopt measures to avoid falling into debt.
In general, during that time, a propensity for long-term investment was not
on the corporate agenda, in general; the second reason is that the structure
of the Brazilian industrial production is, in relation to countries that have
higher expenditures, much more inclined towards sectors that invest little
in technological research.
However, the period of uncertainty is now behind us, and we notice
many new features and phenomena in the current Brazilian context of
innovation. An important example is the Business Mobilization for In-
novation (MEI), coordinated by the National Confederation of Industries
(CNI), which aims to double the number of innovative companies in four
years. This is a novelty which indicates a change of attitude by the Brazil-
ian business community with regard to innovation. In this respect, Robson

Andrade, president of CNI, played a significant role in highlighting the
importance of MEI agenda in the CNI agenda.4 This means, therefore, that
companies are indeed moving toward greater investment in innovation,
taking a more active role, in comparison with. the past.
Another factor of change, associated with the previously mentioned
one, is that the country’s investment is expanding. Today we talk about
investments from 2014 to 2020. This is occurring mainly in the energy
sector (including oil, gas and ethanol) and in agribusiness foods, two sec-
tors where there is greater activity by companies seeking prominence and
leadership in the market through innovation.
This profile and the trends in the Brazilian business community are
reinforced by the domestic market factor, whose size is very enticing to
companies. And, importantly, there is not and there cannot be a dichotomy
between the domestic and foreign markets in companies which show pro-
pensity for internationalization.
When BNDES shaped its program to boost innovation, the plan was
originally oriented towards large companies, leaders in the market segment
in which they operate, both in the domestic and international markets. Soon
after, programs for small businesses were created. More recently, Brazilian
companies with foreign capital expressed their willingness to establish re-
search and development centers in Brazil (not just for clinical trials, but ef-
fective centers of research and development). This last undertaking, added
to the entry of small businesses into the market, accounts for two new and
interesting phenomena, whose reason, in general, is that the Brazilian mar-
ket has become so significant and so important for its size, especially for
multinationals, that investing in R & D has become indispensable.
In the Brazilian pharmaceutical industry, investments in internal R&D
are 0.7% of the turnover, which for the pharmaceutical industry, is very
little. We can see two types of companies: large companies that already
show a very accelerated process for the accumulation of technological ca-
4 In general lines, MEI arose from work developed by CNI in partnership with BNDES, the
Ministry of Science and Technology and the Ministry of Development, to create connections
for innovation on a nationwide scale. It is, therefore, a dialogue between industries and the
federal government to promote innovation in Brazil.
pacity for innovation; and another group – medium-sized and capitalized

companies – which is still in an early stage in this process of accumulation
of skills. In Brazil, the first group consists of subsidiaries of foreign capital
multinational enterprises – those likely to have such organizational and
technological competences in their structure, necessary elements for cut-
ting-edge innovation activities, which, nevertheless, with rare exceptions,
are not practiced in the Brazilian territory.
Of the group of national capital companies – making an exception in
that if we get the sum total of the turnover of the ten top national capital
companies, such turnover would not reach one tenth of Pfizer’s worldwide
turnover (therefore, when we refer to large national capital companies, we
are relativizing the Brazilian market itself) –, if we take the seven largest
companies, what we have noticed is that there is something that deserves
a more optimistic look. The controlling shareholders of these companies
seem to perceive that the strategy of the commercial machinery is being
recovered. If such controlling shareholders intend to keep their assets in
the long-term, then the strategy of selling medicines based on a mature or
old portfolio may be short-lived. Thus, there must be a redirection towards
innovative activities and a bolder bet on higher-risk investments in innova-
tion. In this case, innovation ranges from incremental innovations – for ex-
ample, launching generics that require the development of a new formula –
to innovations that are close to being radical.
The Brazilian market has a greatly enticing power in this respect. As
we know, the government has made a big effort to encourage innovation
by optimizing the purchasing power, an apparently very interesting and
successful design with the participation of public laboratories and private
companies, transferring technology so the products may be developed in
Brazil, and more than that, prompting the verticalization of the production
of the major pharmaceuticals in Brazil. This Public-Private Partnership
(PPPs) design, based on Ordinance No. 908, involves not only national
capital companies but also foreign capital ones, in a set of partnerships that
both types of companies have adhered to.
What we would like to highlight is that currently Brazil enjoys a very
favorable environment for innovation. While there is little growth in more
mature economies, especially in the United States (which accounts for half
of the global pharmaceutical market), in Brazil, there are indicators of a
two-digit market growth, between 12 and 14% over the next five years. If
we take into consideration that stage of marked changes in the Brazilian age
pyramid – where our epidemiological profile has changed from infectious
and contagious diseases to chronic and degenerative diseases – and add to
this the issue of social mobility that has been sustained for the recent years,
we find what some specialists in the sector have drawn our attention to: a
significant explosion in a demand for health services in the coming years.
This is certainly attractive for companies, both of national and foreign cap-
ital, stimulating them to rethink about their operational strategies in Brazil.
The Biotech Companies
The technological opportunity that the pharmaceutical industry – which

we now discuss – has been experiencing has to do with biotechnology. Most
of the innovation content, in hard values, is derived from biotechnology,
which, in our opinion, marks a turning point for Brazil in the area of health.
We believe that biodiversity companies have an important role to play
in this process. However, such a role is embedded in the chain of biotech-
nology values as a whole. It seems unreasonable to think that a company
created in a university will develop a biotechnology-based medicament
verticalize and submit it to preclinical, clinical tests, phases 1, 2, 3, as well
as multicentric testing, and then register and market the product, that is,
transform itself into a true pharmaceutical company. What we see as a great
opportunity for these companies is the inclusion of strategic intelligence in
the chain of values of the Brazilian biotechnology area. We believe that a
move to push all this and get closer to the end consumer, whether it is the
government or the retail market, should be the task of the pharmaceutical
company effectively established in Brazil. Undoubtedly, there is, however,
a lot of room to be occupied by small-size biotechnology-based industries.
BNDES
We can state that there has been an increasing priority for bringing
technology and innovation in the agenda of the government policies. A
second aspect is that the business dynamic indicates that part of the private
sector is really pushing hard for public policies to be more active, flexible
and effective to support the investor. In Brazil, the share of public funding
in private investment still lags behind the international standard. There is
also a third aspect: a growing demand for tools and instruments, resources
and a regulatory framework.
Regarding the supply of infrastructure in recent years, increased invest-
ments have been made, especially of a public nature, in human resources
qualification and in the expansion of the capacity of labs in Brazil. There
has been a significant increase in resources for higher-level staff qualifica-
tion and investment in universities. In recent years, in turn, the resources
available have become very significant, such as those from Funds for Stud-
ies and Projects (Finep). Additionally, BNDES has activated a policy to
support innovation more than it had in the past. These actions are dictated
by the policies aiming at supporting science, technology and innovation,
under the coordination of the Ministry of Science and Technology and the
Productive Development Policies the latter of which also makes innovation
a priority.
As to the regulatory framework, within the innovation and intellec-
tual property law stipulations there have been significant advances, though
they still leave a lot to be desired. In the case of BNDES, the pharmaceuti-
cal and information technology sectors have, for some time, been the most
organized areas of the bank with regard to innovation; they had already laid
out in a very organized way specific programs using tools designed for spe-
cial problems faced by these industries, based on an interpretation of both
the international and the national scenarios. These sectors are the ones that
best profit from the plentiful supply of instruments offered by BNDES.
To cope with this dynamic, for the last three years BNDES has reformed
its line of credit with the Investment Support Program,5 making it much
more attractive, in a great effort to arouse the companies’ interest in inno-
vation. The Technological Fund (Funtec) has been activated6 and an area of
enterprising capital – separated from the capital market – has been created
5 The general objective here is stimulate the production, purchase and export of capital goods
and technological innovation. The program was launched in June 2009 and, according to
figures supplied by the Bank, by May 2010, R$ 439 million had been disbursed in the area
of innovation by the PSI – Innovation program, according to figures.
6 The basic objective of the fund is to support technological development and innovation of
strategic interest of the country. The Fund has been in operation since 1964.
to work exclusively with funds for more technology-oriented companies.

The major effort to be undertaken in the near future is to make innovation
the mainstream of the bank, to inoculate the positive virus of innovation in
our activities.
We have made a great effort, though still not enough, to coalesce with
our institutional partners. Finep, in particular, was capitalized with bank
support, and today it is the only fina2ncing agent for innovation. The
Ministry of Health, in turn, is another very strong partner. Despite this,
BNDES depends on businesses that should maintain and show interest in
continuing and ensuring this pro-innovation trajectory. The path has been
laid out and now we must both implement and guarantee it. Innovation is
not a fad; it is a permanent priority.
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ABOUT THE AUTHORS
Anselmo Takaki
Anselmo Takaki is a graduate in International Relations from the São Paulo State
University (Unesp); he was an exchange student at the University of São Paulo, and
is currently studying for a master’s degree in science and technology policies at the
Geoscience Institute of State University of Campinas (Unicamp). He works as a
consultant at Prospectiva Consultancy – Business Strategies and Public Policies.

A professor at the Gleb Wataghin Physics Institute of the State University of
Campinas (Unicamp), Carlos Henrique de Brito Cruz received a degree in Elec-
tronic Engineering from the Aeronautics Technological Institute (ITA) in 1978 and
received a master’s degree (1980) and a PhD in sciences (1983) at the Gleb Wataghin
Physics Institute (Unicamp); he was guest researcher at the Instituto Italo Latino-
Americano at the Università degli Studi, Rome (Italy), visiting resident at the AT&T
Bell Laboratories in Holmdel (USA), and visiting professor at the Université Pierre et
Marie Curie in Paris (France); director of the Gleb Wataghin Physics Institute (from
1991 to 1994 and from 1998 to 2002) and dean of research at Unicamp (from 1994
to 1998); He was chancellor of Unicamp from April 2002 to April 2005 and presi-
dent of Fapesp from1996 to 2002; since 2000 he has been a member of the Brazilian
Academy of Sciences; currently, he is a scientific director of Fapesp (2005-2011).
Claudio Pinhanez
A services scientist, professor and media artist, Claudio Pinhanez has been a
researcher at IBM Research since 1999; presently, he has been working in the areas
of services science, ubiquitous computing and human-computer interfaces. He
is currently a manager of the research team in systems and services of the newly
established laboratory of IBM Research in Brazil. He received his PhD in 1999
from the MIT Media Laboratory. He was also a visiting researcher at ATR-MIC
(Japan) in 1996, and at the Sony Computer Science Laboratory (Japan) in 1998.
He is a senior member of ACM, the Association for Computing Machinery, and a
member of the IBM Technology Academy.

Eduardo Emrich Soares has been the President of Biominas Foundation since
August 2003 and a board member of several biotech companies, besides being an
industry representative for various initiatives aimed at developing the biotechnol-
ogy sector in Brazil, such as the Forum for Biotechnology Competitiveness of the
Ministry of Development (MDIC) and the Brazilian Association of Biotechnology
Companies (Abrabi). He is a graduate in Biology with a major in Biochemistry and
Molecular Biology from the Federal University of Minas Gerais (UFMG), and did
his postgraduate studies in financial administration at the Dom Cabral Foundation
(FDC) and in business administration at the Getúlio Vargas Foundation (FGV).
Fábio Gandour
Chief scientist at IBM Brazil, Fabio Gandour coordinates the research area in
the company’s Brazilian subsidiary, which is part of the research model based on
the concept of “science as business”. He has been an IBM employee for nearly
20 years. His initial responsibility in IBM was in the area of health informatics, a
segment where he worked to develop solutions and marketing strategies. Recently,
he became a manager of new technologies, establishing an effective channel of
collaboration between the IBM Research Division labs and the local market. He
is a Medicine graduate from the University of Brasília and received his PhD in
Computer Science.
Fernando Galembeck
Fernando Galembeck is a graduate in Chemistry from the University of São
Paulo and he holds a Doctor’s degree in Chemistry from the same institution. He
did his postdoctoral work at the Universities of Colorado and California, and is a
full professor at the University of Campinas, where he teaches courses in colloids
and surfaces, polymers, applied chemistry, physical chemistry, general chemistry
and microscopy. Galembeck started his research work with Pawel Krumholz, and
then worked with biophysical chemistry, colloids and surfaces. He published his first
paper on nanoparticles in 1978. His more recent work deals with problems of poly-
mer surfaces, adhesion and wettability, interaction between colloidal particles and
nanoparticles, formation and properties of nanocomposites, properties of non-crys-
talline solids, especially aluminum phosphates and mechanisms for the electrification
of insulators. He has made methodological contributions on separation techniques
based on membranes and analytical, electronic and probing microscopy. He has filed
18 patents, seven of which have been licensed. Two products based on these patents
have come on the market. With other companies, he has developed several projects
dealing mainly with the creation and development of new advanced materials and
manufacturing processes.
Galembeck has a leading position in Unicamp, in the Ministry of Science and
Technology, in the National Council for Scientific and Technological Develop-
ment, in the Brazilian Academy of Sciences, in the Brazilian Society of Chemistry,
in the Society for the Advancement of Science, besides offering consultancy in
planning to government institutions and businesses.
He has received various awards: the Golden Retort (Siquirj), Fritz Feigl (CRQ-4),
the Simon Mathias and Innovation (BSC), the Innovation (Abiquim), the Eloísa
Mano (ABPol), the Pelúcio Ferreira (FINEP) and the Álvaro Alberto Science and
Technology Award (CNPq/Wessel), the most important Brazilian science and
technology award.
Gabriel Kohlmann
Gabriel Kohlmann is a graduate in International Relations from Trevisan
Business School, São Paulo. He worked as an analyst of relations with investors
at Indusval Multistock Bank. He has conducted research on the liberalization of
the financial services market under the hypothesis that Brazil becomes an OCDE
member. Currently, he is studying for a master’s degree at the University of Ap-
plied Sciences in Germany and is a consultant at Prospectiva Consultancy Busi-
ness Strategies and Public Policies.
Glauco Arbix
Glauco Arbix is the CEO of Funds for Studies and Projects (Finep), full pro-
fessor in the Department of Sociology at the University of São Paulo (USP), a
member of the National Council for Science and Technology (CCT) and a Tinker
Visiting Professor at the University of Wisconsin-Madison (United States). He
was the general coordinator of the Observatory for Innovation and Competitive-
ness of the Institute for Advanced Studies at USP (2007-2010), president of the
Institute of Applied Economic Research (IPEA, 2003- 2006), general coordinator

of the Center for Strategic Affairs of the Republic Presidency (NAE, 2003-2006),
member of the Group of Advisers of the United Nations Development Program
(UNDP-United Nations, 2006-2009) and a Fulbright New Century Scholar
(2009-2010). A professor of Political Science at Unicamp (1996-1997) and Getúlio
Vargas Foundation (FGV-SP, 1995), he did his postdoctoral studies at the Massa-
chusetts Institute of Technology, MIT (USA, 1999 and 2010), at Columbia Uni-
versity (United States, 2007 and 2009), at the University of California, Berkeley
(USA, 2008) and the London School of Economics (UK, 2002).
Luiz Carlos Zalaf Caseiro

Luiz Carlos Zalaf Caseiro is a graduate in Sociology from the University of São
Paulo, where he is studying for his master’s degree in Sociology. He has experi-
ence in the field of sociology of development, working mainly on public policies,
socio-economic development, innovation and multinational companies in emerging
countries. He also is a research fellow at the Observatory for Innovation and Com-
petitiveness at the Institute of Advanced Studies/USP, under the coordination of
professors Glauco Arbix (Sociology/USP) and Mario Salerno (Poli/USP).
Marco Antonio Zago

Marco Antonio Zago is a graduate in Medicine from the Ribeirão Preto School
of Medicine of the University of São Paulo. He is a full professor at the Univer-
sity of São Paulo, a member of the Brazilian Academy of Sciences and the dean
of research at the University of São Paulo. His area of expertise is medicine, with
emphasis on hematology. Zago was the president of CNPq (National Council for
Scientific and Technological Development) from 2007 to 2009. He is a coordinator
of the Cell Therapy Center of Ribeirão Preto, and was the president and scientific
director of the Ribeirão Preto Blood Center Foundation and clinical director of the
Clinics Hospital of Ribeirão Preto.
Ricardo Ubiraci Sennes

Ricardo Ubiraci Sennes is a partner at Prospectiva Consultancy and profes-
sor of International Relations at the Pontifical Catholic University of São Paulo
(PUC-SP). He holds a PhD and a master’s degree in Political Science from the
University of São Paulo (USP) and a bachelor’s degree in Economics from PUC.
He was the coordinator of the Office of the Brazilian Center for International Rela-
tions (CEBRI) in São Paulo and is currently a member of the editorial board of the
journal Foreign Affairs LatinoAmérica. Sennes was a visiting researcher at the USP
Center for International Relations, at the Woodrow Wilson Institute in Washing-
ton, D.C., and at the Iberian and Latin American Studies Center at the University
of San Diego. He is currently the general coordinator of the Group for the Analysis
of the International Scenario (GACINT) of the University of São Paulo.
Ronald Dauscha
Ronald Dauscha is a graduate in Electrical Engineering from the Polytechnic
School of the University of São Paulo (1983); he did a specialization course in in-
dustrial administration at the Federal University of Paraná (1996). He holds an
internal Siemens S3 regional MBA (1998) (awarded for best student and team) –
and an MBA in Corporate Finance from FGV (2000). He was one of the coordina-
tors of Pite (small companies) and Pipe (large companies) of Fapesp (São Paulo
Foundation for Research Support). He is also responsible for the Innovation and
Technology Management at Siemens do Brazil, focusing on supporting all the com-
pany’s activities in research, development and engineering, besides the strategic
alignment of local R&D Centers. He was the executive director of C2i (Internation-
al Innovation Center), connected with the Paraná Federation of Industries. In De-
cember 2010, he returned to Siemens as a Director of Technology and Innovation.

Sergio Robles Reis de Queiroz is a graduate in Civil Engineering from the
Polytechnic School of USP (1978); he also has a bachelor’s degree in Philosophy
from the Faculty of Philosophy, Letters and Human Sciences of USP (1983), and a
master’s (1987) and PhD (1993) degree in Economics from the Unicamp Econom-
ics Institute. He is a full professor and associate professor (2004) in the Depart-
ment of Science and Technology Policies at the Unicamp Geosciences Institute:
he was a graduate fellow at the Institut Européen des Hautes Etudes International
in Nice, France (1980), and did his post-doctorate in Science and Technology
Policy Research (SPRU), at the University of Sussex, England (2000) as a Fapesp
fellow, developing studies on the internationalization of technology, which is the
focus of the research work he has currently supervised. He was twice the Head of
Department (1993-1995 and 2001-2003), deputy secretary of the São Paulo State
Secretary of Science, Technology and Economic Development (2006), and coordi-
nator of the Science and Technology Department of the São Paulo State Secretary
of Development (2007).
SOBRE O LIVRO
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EQUIPE DE REALIZAÇÃO
Edição de texto
Tatiana Ferreira de Souza (Preparação de original)
Alzira Allegro (Revisão da versão)
Capa
Estúdio Bogari
Editoração Eletrônica
Eduardo Seiji Seki
Through a collection of analyses from
experienced managers in technology
and research, Technological Innovations
in Brazil creates a compelling national
perspective on the challenges related
to development of research in the
country, especially in the area of health.

Technological Innovations in Brazil

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Technological Innovations in Brazil

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Ricardo Ubiraci Sennes

Antonio Britto Filho

CULTURA ACADÊMICA EDITORA

Translation of Inovações Tecnológicas no Brasil.

CIP – BRASIL. Catalogação na fonte

overview of the current national research and innovation framework. Such

SCIENTIFIC POTENTIAL OF BRAZIL

S & T improvements and innovations are absorbed by society in a natural

Long-term policies, which can also be described as State policies, have

Two Relevant Indicators of a Result: Articles and Patents

Two important indicators of an outcome in S&T that help to form a gen-

Citations per article two years after publication

As to the evolution in the number of patents granted by Uspto (United

Locations and Modalities of Research

On the other hand, companies tend to dedicate themselves much more

All the improvements in machinery, however, have by no means been the

a) Basic Research: a systematic study directed toward wider knowl-

c) Development: a systematic application of knowledge or under-

D spending by companies. In England, the State invests 1.5 billion dollars

University-Company Relationship in R&D

It is worth going into further details about academic R & D funding

21% Federal Government

The share of investment by industries in academic research in the Unit-

However, there is one type of activity to which the company needs to

Human Resources for R&D

Counting the number of active researchers in Brazil is no easy task.

the level of dedication of those considered as researchers to defining what

Private, non-profit research institute 1% 1% 1% 1% 1% 1% 1% 1% 1%

% per sector, (FT)

Total researchers Researchers in companies Researchers in Universities

competitiveness at a level comparable to some of our competitors as shown

Human Resources Education for Research in Brazil

In 2008, 800,318 students completed their undergraduate studies in all

centage points, showing an 85% increase in relation to the 1% it had in 1995.

Agricultural Sciences and Veterinary Medicine 1% 2% 1% 3% 2% 2% 1% 1% 3% 2% 2% 1%

Less documented has been the lack of professionals in the areas of

8 Viotti; Baessa, Características do emprego dos doutores brasileiros, p.11, graphic 1.

Figure 1.8 Evolution in the number of PhDs awarded annually.

PhD Academic Degree (log)

The second challenge related to PhD professionals is their limited

Development of Post-Graduate Education and

The development of post-graduate education contributed to, and was

Table 1.6 Academic degrees of teaching staff in Brazilian universities.

Specialization in Areas of Knowledge

All regions 100% 51% 19% 3% 3% 10% 16% 49%

that of several other countries. In Korea, for example, this percentage is

0 2,000 4,000 6,000 8,000 10,000 12,000

Figure 1.10 Quantity of PhDs awarded according to area of knowledge.

A caveat is necessary at this point: by making comparisons we do not

cation and production of knowledge) 24 thousand more doctors would be

Companies must have a central position in developing innovation,

A fundamental constraint that undermines the basis of the whole sys-

General Overview: The Reasons for Success

Scientific articles written by authors living in Brazil and published in

1996 1998 2000 2002 2004 2006 2008

This is an optimistic view in that it does not subordinate success to a

What would the conditioning factors of this success be? Globally, it

for the completion of projects, resulting from investments by the federal

Investments in Science and Technology

nology, coordinated by CNPq, of the R$ 609 million applied in the first

Profile of the Brazilian scientific production

The Web of Science lists 94,406 publications authored in Brazil in a five-

Table 2.3 Knowledge area of 26 studies published between 2001 and

therefore, to enable a new medication to reach the market. Experience