Innovation and challenges in regional development

Focused public policy, private-sector engagement and corporate networks are key drivers of technological change, according to a team of experts who took part in a debate promoted by FAPESP.

By Claudia Izique  |  Agência FAPESP – FAPESP invited a group of Brazilian and foreign experts on regional development to discuss S&T policy, obstacles to small business innovation, and challenges to innovation ecosystems posed by digital technology (IoT and Industry 4.0, among others).

The meeting took place on June 8, 2018, as a spinoff from the International Conference on Innovation Ecosystems, Upgrading & Regional Development held by the São Paulo Chair of Excellence in Innovation Systems, Strategies & Policy (InSySPo) at the University of Campinas (UNICAMP), São Paulo State, Brazil, on June 6-7.

The participants included FAPESP CEO Carlos Américo Pacheco; Sérgio Queiroz, a member of FAPESP’s Innovation Research Adjunct Panel; Nicholas Vonortas, a professor at George Washington University (USA) and principal investigator for InSysPo, which is supported by FAPESP under its São Paulo Excellence Chair (SPEC) program; André Furtado, a professor in UNICAMP’s Geoscience Institute; and Giancarlo Stefanuto, a public policy consultant.

The discussion, summarized in the document “Regional Innovation Ecosystems, Entrepreneurship, and Challenges for Small Business,” focused on key policy measures to stimulate knowledge-intensive firms to contribute to technological modernization and regional development, obstacles to small business innovation and ways to address them at the regional level, and the requirements for regions and cities to join the next digital wave (IoT and industry 4.0).

On the first point (policy for regional development), the specialists recognized that governments are now allocating more resources to the establishment of knowledge-intensive firms as a strategy for producing wealth, creating jobs, innovating, and offering opportunities. “These startups are a crucial part of regional innovation ecosystems, alongside universities, research institutions and financial services,” Pacheco said.

Two projects illustrate this academic-business integration: the Innovation District near the University of São Paulo (USP), an initiative of FAPESP and São Paulo’s municipal government, and a new area next to UNICAMP in Campinas where high-tech firms receive support. The challenge is to find ways and means of implementing initiatives such as these at a time when public-sector resources are severely limited.

The solution could be more private-sector involvement, according to the participants in this meeting. Recent studies by the World Bank show that the public sector is the leading investor in basic research. However, private-sector engagement in strategic innovation ecosystems is crucial to translate scientific initiatives into technological change driven by innovation.

The researchers stressed the need to foster this complementarity by introducing policies to create or attract knowledge-intensive and high-tech firms, which would act as anchors of the innovation ecosystem. In addition to creating demand for technological solutions, these anchors would sow more seeds of entrepreneurship and innovation.

This is not enough, however. “If the goal is to maximize the innovative capacity of ecosystems, anchor firms must offer assets that complement the local production structure so as to build significant interfaces with other players,” Queiroz said.

Selecting strategic partners must therefore be part of the process of formulating public policy for regional development, in which the concept of “smart specialization” is relevant.

According to Queiroz, universities should also play a more proactive role. Academic-business cooperation has made strides, but integration with value chains must be facilitated in order to create a virtuous circle of knowledge sharing at the local and regional levels.

The report approved at the end of the meeting also recommends that universities become hubs of knowledge-intensive entrepreneurship, strengthening the innovative potential of Brazilian cities and building an entrepreneurial culture through market-oriented programs of graduate studies and mentoring by experienced alumni.

The problem is how to promote cooperation between universities and companies while at the same time encouraging innovation in firms that have historically engaged in low-tech activities and are likely to be risk-averse.

The experts’ first recommendation is investment in the region’s physical and social infrastructure. Reducing travel costs, facilitating people flows and assuring access to housing, parks, bars and museums are all ways of attracting talented young people, for example. “Quality-of-life issues are closely linked to the modern logic of innovation ecosystems,” Queiroz said.

Obstacles to innovation

On the second topic – obstacles to small business innovation and ways to address them at the regional level – the discussion touched on the lack of funding, the need for more qualified personnel, and excessive regulation, among other problems requiring coordinated action by all three tiers of government.

Some of these obstacles can be surmounted by means of initiatives such as the NSF Innovation Corps (I-Corps) in the US or FAPESP’s PIPE-High-Tech Entrepreneurial Training, which supports entrepreneurs who aim to refine their business plans to include exporting. “However, forcing firms to become global too early is a risk. International competition is tough,” Furtado said, stressing that firms need to grow and invest in research and development (R&D) before seeking new markets.

Another solution involves building networks of firms to facilitate access to financing, technology and markets, the experts noted. Anchor firms are also essential here. They act as business partners in terms of access to infrastructure linked to global markets and help startups learn from more experienced professionals.

Lack of venture financing is the most daunting obstacle to innovation, according to the researchers. Tech startups need support from angel investors, crowdfunding and risk capital, among others, as well as assistance with management expertise. Several countries have financial intermediation programs to help startups make it through “Death Valley,” such as SBIR in the US and FAPESP's Innovative Research in Small Business Program (PIPE) in Brazil.

The sustainability of an innovation ecosystem also depends on building links between universities/research institutions (with their scientific and technological tools) and the business environment.

In the US, firms share facilities that provide everything from nanotechnology to advanced manufacturing labs. “These arrangements make the S&T system sustainable by sharing both basic and advanced knowledge and research costs between public institutions and the private sector,” Queiroz said.

Digital technologies

The third question answered by the experts was how cities and regions should prepare for the next digital wave. In particular, they analyzed the case of Campinas, which has high-tech centers and technical/scientific capabilities in telecommunications, software and electronics, among others, as well as a large cluster of universities, research institutions and corporate leaders in information and communication technology (ICT).

Campinas recently won support from the Inter-American Development Bank (IDB) to transform itself into a smart city. Research is underway to identify trends in IoT, understand the regional ecosystem in terms of the technology available, identify demand, and recommend action plans.

In the case of Campinas, however, any action plan must go beyond regional competencies and capabilities. “It’s vitally important to link up with other regions and countries while also engaging with new partners to enable the city to become a hub for Industry 4.0 in Brazil,” Stefanuto said.

Success depends on having clearly defined goals. Key elements of dynamic innovation environments include sharing information and making data publicly available. “These are also key elements of smart cities,” Vonortas said.

Different cities have different innovation strategies. Stellenbosch in South Africa, for example, opted for a leapfrog digital transformation strategy that involved identifying technologies used elsewhere and upgrading its own accordingly. Barcelona in Spain held public consultations to pinpoint the city’s top ten problems and obtain solutions.

“In any event, the action plan must involve public and private initiatives and requires participation by all stakeholders via calls for proposals to find the right solution to enhance the lives of citizens,” Vonortas said.

An interesting approach could entail identifying a variable with the potential to drive technological change. One such trigger could be healthcare, which urgently needs to improve.

“This could be a great opportunity for both São Paulo and Campinas to spearhead digital transformation and leverage the presence of excellent medical schools and research centers,” Vonortas said. “Bringing the region’s internationally recognized private hospitals into the discussion is also of paramount importance.”

The following participants attended InSySPo’s event: Álvaro Prata (MCTIC/Federal Government of Brazil), Anderson Ribeiro Correia (ITA/Brazil), André Alves (UNICAMP), André Gasparotti (Embraer), Antonio Carlos Marques (AUSPin), Anwar Aridi (World Bank), Arnaldo Rodrigues dos Santos Júnior (UFABC/Brazil), Bruno Fischer (UNICAMP), Carlo Pietrobelli (Maastricht), Carlos Passos (City of Campinas), Clement Bert Erboul (UNICAMP), Dirk Meissner (HSE/Moscow), Fabio Kon (FAPESP), Fernanda Ultremare (UFRGS/Brazil), Franco Malerba (Bocconi University), Gabriela Dutrénit (UNAM/Mexico), Gerson Valença Pinto (FAPESP), Giulia Marsan (OECD/France), Irineu Lima Jr. (UNICAMP), Jeong-Dong Lee (SNU/South Korea), Márcio Girão (FINEP/Federal Government of Brazil), Maureen McKelvey (University of Gothenburg, Sweden), Newton Frateschi (INOVA UNICAMP), Paola Schaeffer (UNICAMP), Paulo Feitosa (UNICAMP), Paulo Figueiredo (FGV-RJ/Brazil), Paulo Zawislak (UFRGS/Brazil), Rafaela Andrade (UNICAMP), Robbert Tijssen (Leiden University, Netherlands), Ron Boschma (Utrecht University, Netherlands), and Rosane Marques (IDB).