Table 9 Evolution of sample firms’s activities upward the PDP based on research

In the cases of national suppliers which have advanced to the upper levels of capability, that is, which managed to master high level product development activities (Arteb, Lupatech and Sabó) and of the few MNC subsidiaries which have become centres of technological competence (Mahle and Sachs), based on research, it is interesting to notice that firms have significantly drawn on cooperative arrangements with universities to compensate for their lacking of technological infrastructure and internal research capabilities, in order to make upgrading viable. This is the subject of the next section.

The case studies also provide material to introduce another explaining variable which help understand the differences in the innovation capability evolution of the suppliers controlled by Brazilian nationals. The national suppliers which have advanced most in innovation capabilities are the ones whose growth strategies are more ambitious and are oriented towards globalizing: Sabó, Lupatech, Arteb and the Randon group (particularly in the case of Fras-le). If one equals entrepreneurship with the capability to understand the business, to set out ambitious growth targets which are feasible within such understanding and to mobilise the necessary resources to achieve such targets, then the leaders of these four business groups are entrepreneurs. By mobilizing financial, human and institutional resources in order to develop the innovation capabilities required to compete globally, these firms have undergone not only a process of technological learning but also of business learning.⁴² These cases are in contrast to SIFCO, which still has relied more on the conventional resources to compete – which explains why innovation capabilities are not so important and its evolution (see Table 9, for comparison).

6.2.3 A robust research basis forging an attractive environment for ODIP

One of the most significant findings in this research is the identification of two types of ODIP dynamics (ODIP dynamics types I and III) which are based on firms located in Brazil sourcing public research, universities in most cases, in order to mobilize resources and competencies which are complementary and unavailable et home. The most significant cases, with greater impact on firms’ businesses are those of ZF-Sachs, Lupatech and Sabó. It can be said that public research – its technological infra-structure and research competency – is a functional substitute for a captive research centre or an advanced engineering area.

This is only possible because Brazilian public research is robust and diversified in some technological domains and disciplines which are critical for the automotive industry. In this section, I draw from previous research (Quadros et al., 2006) in order to bring further evidence to this point. The data refer to the mapping out of research groups (RG) and their capabilities, in Brazilian research institutions, which could be actual or potential research partners to assemblers and auto parts suppliers

Results of the investigation of 265 Brazilian RGs, in 53 research institutions, revealed that the frequency of contacts and agreements between firms and RGs and their research institutions, which are related to the outsourcing of R&D and services, is much larger than usually acknowledged (Table 10) and even more so in regard to the automotive industry⁴³. The database has identified more than 400 service contracts and 360 research contracts between RGs and manufacturing or services business firms, considering the period 2000/2005. Out of them, 31% of service contracts and 19% of research contracts were with firms in the automotive industry. It was found that the fragility in the links between firms and public research seemed to be rather in the intensity and continuity of the link than in the frequency of links (Quadros et al., 2006). The first sign of the latter point was that the overall frequency of services contracts was higher than that of research contracts. This is even more pronounced in agreements with the automotive sector: service contracts are almost the double of research contracts. Secondly, the continuity of research funded by a firm is rare. There are few research contracts which have continued beyond two years. It is interesting to notice that there is some concentration of such contracts in the fields of Powertrains, Manufacturing Technologies and Materials, which are also the fields of industry-university partnerships identified in this research (section 4, cases of Mahle, Sachs, Lupatech and Sabó).

It follows an illustration of the content of the service or research agreements that RGs have declared to have (or have had) with supplier corporations, which shows the declared subject of some contracts in the field of Materials (Table 11). Research outsourcing from Brazilian suppliers has gone beyond biomaterials, to include the development of new metal alloys, major changes in manufacturing processes and corrosion control technologies.

This is so for various reasons. In the case of multinational subsidiaries, interviewees emphasized that, usually, central labs are too busy attending the corporation’s priorities and can not afford dedicating the time the Brazilian subsidiary requires. In the case of Brazilian national suppliers, the explanation is similar, with the difference that there is no central lab to turn to and problems arise either from the adaptation of licensed technologies or from new technology development, as illustrated in the cases of Lupatech and Fras-le in this research.

7. 
   Conclusions and policy implications
   

As regards the international dynamics of ODIP, an important conclusion that comes out from the analytical exercise made in section 6 is that the forces, the momentum and the learning processes from the South are as important as are the movement from the North. In the initial papers of the Brazilian study of the IDS/Marburg Project, the role attributed to MNCs as drivers of ODIP has been much emphasized. It could not been different, in dealing with the Brazilian automobile value chain, given the fact that its currently more internationalized than it used to be 20 years ago. Yet, this research has shown that the processes of innovation capability accumulation of both Brazilian subsidiaries of MNC suppliers and Brazilian national suppliers have been a decisive factor in explaining the increasing g importance they have been assuming in the global value chain.

It is more than their responding to the ODIP moves coming from MNCs headquarters or subsidiaries in OECD countries. The contribution of Brazilian MNC subsidiaries and of Brazilian national suppliers to ODIP starts before the ODIP movement from the OECD country firms and goes beyond such movement. As the evidences of sections 4 and 5 show, the entry of Brazilian subsidiaries in their corporations’ global R&D networks has not happened as a decision from above in order to build innovation capabilities, but the other way round. In the cases of Bosch, Mahle Metal Leve and of Sachs, Brazilian subsidiaries’ innovation capabilities have progressively developed along a considerable period of time, and before the model of global R&D network had diffused. Their attainment of a certain level of technological competency has been critical for them to be recognized as significant assets in a globalizing economy (reluctantly, in at least one case).

Research findings have also shown that the national auto parts supply industry has not “disappeared”, in terms of its role in innovation, unlike expected in the literature, following the de-nationalization wave of the 1990s, which affected important brands like Metal Leve, Cofap and Varga. It is interesting to notice that less known brands such as Lupatech and Randon, together with surviving brands like Sabó and Arteb have not only increased their innovation capabilities – whose accumulation has also undergone a long journey, which started much before ODIP in the North – but are becoming global actors and provoking further unfolding of ODIP, not only in Europe and the US, but also in China. As mentioned in the report, other less known brands like DHB, Aethra, Metagal and Zen are also cases which deserve more attention from researchers and policy-makers. Yet, one should not miss the fact that the general tendency towards ODIPing, including ODIP in the OECD countries, has favored the advance of capabilities in the national firms. ODIP itself helped reducing the barriers to entry into innovation activities. Thus, national suppliers have been able to mobilize knowledge from foreign KIBss (case of Sabó) and from research institutions in Brazil (cases of Sabó, Lupatech, Arteb and Fras-le).

An important change in the economic and regulatory environment, in the past 20 years, has had a role in promoting ODIP, a change whose effect on the business environment is so overwhelming that it is often underestimated. This is the increasing adoption of the liberal trade and investment policies promoted by WTO, which that have normalized the economic environment across countries and regions, contributing to enlarge markets and economic scales of operations, and pushing the most successful local/regional/players towards globalizing their operations. The push towards becoming global and the connected process of further accumulation of innovation capabilities to the stage of advanced capabilities are the factors boosting the final stage of the process of ODIPing from below.

The liberalization of markets and investment, leading to growing trade and FDI, has had an important influence on the globalization of manufacturing and innovation activities, with its consequent threats and opportunities. To put it from the perspective of the Brazilian national suppliers, 3 out of 8 Brazilian suppliers have plants abroad (Sabó, Lupatech and Fra-le), whist all of them export at least 15/20% of their sales. On the other hand, they suffer the pressure of auto-parts imports. Import tariffs on auto parts are currently low, in historical perspective, now in Brazil.

Thus the prospect for large Brazilian auto parts firms to survive and grow has gone global. This is something that starts by competing in the domestic market with new entrants and imports, but it extends to exporting and investing abroad. The frontier for growth is not the local market anymore and the scale requirements tend to be met by those who go global. In consequence, there is a major change as regards accessing technological capabilities and knowledge in order to keep innovative in products and processes. When the growth frontier was local/regional, OECD competitors were willing to transfer technology, as long as license agreements restrained licensees accessing OECD markets. Thus, as Arteb, Sabó, Lupatech and Fras-le have done, the globalizing project and having the world market as target requires that national suppliers diminish their technological dependence and seek a capability trajectory which relies more on its own mobilization of resources, including taking-over foreign firms. The most illustrative case is that of Sabó, which has assumed a considerable risk by taking-over German Kako, in the 1990s. Sabó had a clear idea that this would make it stronger, both in terms of size and in terns of technological capabilities, and make it more difficult to be taken-over by competitors. Either globalize or being globalised.

A number of lessons could be suggested for policy-making, stemming from the findings and conclusions of this research. The first and broader point is directly related to the points discussed above in regard of the globalization of Brazilian auto parts suppliers. There is a growing auto parts supply industry, controlled by Brazilian nationals, blooming in Brazil. A number of their leading firms are starting investment abroad, with the prospect of globalizing. The success of the global project of firms like Sabó, Randon and Lupatech is important to keep Brazil as an innovation space and a major exporter in the global automotive industry. This requires specific policies, which are distinctive from policies supporting firms in the domestic markets.

A second point is to do with promoting and funding the innovation activities of firms carrying out innovation activities in Brazil, either MNC subsidiaries or national suppliers. In this regard, with the recent Lei do Bem, Lei da inovação and the innovation programs set out by BNDES, Brazil has made impressive progress (though sometimes not quite recognized by firms). This has helped the growth of business firms R&D in the automotive industry. Yet, in connection with this point, the S&T policy in Brazil seems to be missing an opportunity to push firms ahead in order to establish a more robust basis of technological research. Firms and research institutions have already been collaborating and looking for more ambitious research programs aimed at innovation. They are mature for a national programme promoted by Brazilian S&T funding agencies and oriented towards pre-competitive research, with participation of the industry. This could have a significant impact on attracting MNC research centres in the automotive industry.