SIEMENS

Brazil’s economy grew by 7.5 percent in 2010. If the country keeps up this pace it could become one of the world’s top five economies in 20 years. Today, Brazil mainly exports raw materials. What role do research and development play in the Brazilian economy?

Cruz: Only a small one, unfortunately. The universities are doing good work. Around 12,000 doctorate degrees are awarded in Brazil every year, and Brazilian researchers publish about 30,000 scientific articles in international publications. An area where there’s still a problem is the creation and use of relevant innovations in business. There’s still insufficient communication between academia and the business community, so a lot of potential remains unexploited. Companies and universities need to talk to each other more and do so in a more structured manner.

Silva: I agree. There’s no doubt that we Brazilians are innovative. Just take a look at the industries for renewable energy sources or aviation, for example. Our work there is definitely world class. But we are still finding it very difficult on the whole to transform innovations into successful products. This is due in part to the conditions under which entrepreneurs have to work. For example, Brazil ranked 127th in the World Bank’s Doing Business Index for 2010 — between Mozambique and Tanzania. Entrepreneurs have to deal with too many regulations, prohibitions, and obligations. Business people call this drawback the “custo Brazil,” the “Brazilian surcharge.”

Why is it so difficult to turn an idea into an innovative product in Brazil?

Cruz: It has to do with our history. Until the 1980s our country’s top economic objective was to replace expensive imports with local products. High import tariffs and barriers reduced competition for local goods, making it easier for them to hold their own in the market. Unfortunately, it also enabled low-quality Brazilian products to become successful. It certainly wasn’t a recipe for top quality, and it didn’t serve as an incentive for innovation. A period of great economic uncertainty began in the 1980s, when inflation skyrocketed. Back then, a company benefited more from hiring a clever accountant who was good at planning the cash flow than from recruiting an innovative engineer. Many companies are just now slowly learning how important innovations are.

Silva: There are also some very concrete obstacles. They include the fact that many companies have innovative technologies and a feasible business plan but don’t have access to the necessary capital. This problem is further exacerbated by Brazil’s very high interest rates. What’s more, people whose business idea has failed often don’t get a second chance in Brazil. By contrast, if you fail in the U.S., people don’t immediately consider you a loser; they believe you’ve gained valuable experience. The attitude of many Brazilians — particularly the younger ones — is problematic. Many of them think it’s more desirable to get a cushy job at a government ministry than to establish one’s own company. Innovation begins in your head.

What kinds of problems have you experienced in setting up a business in Brazil?

Silva: Recently we tried to launch a new company whose products were a natural latex-based skin cream and pharmaceutical applications. Two researchers at a university in São Paulo had contacted me in 2002 and told me that latex contains special proteins that can slow down the aging of skin and accelerate the healing of wounds. Even though I now hold several international patents, the banks refused to give us any money. Instead, my friends and I have had to pool our savings and talk to investors from the U.S. The major difficulty for the company is the lack of investment.

Cruz: I once had my own small company, when I was 19. With my partners we were the first to commercially make lasers in Brazil, and we even sold a few. To some extent, it was a bit of tinkering around, of course, and I gave it up when I began to study. But it allowed me to make enough money as a student to buy a car. Had the economic climate been different back then, I might not have pursued a career in academia but instead tried to become an entrepreneur.

What sorts of things can Brazil do to become more innovative?

Cruz: There are some very specific things that we can do. For example, we can look at targeted subsidies and tax incentives. It would make sense to support Brazilian companies a bit with start-up subsidies in areas where they have an advantage. I’m thinking here of commercial use of the biodiversity in the Amazon region by the pharmaceuticals industry, for example. Other possibilities include the development of innovative technologies that could move us forward in the area of bioenergy or make offshore oil drilling more efficient. The same applies to tax incentives, which should make it easier for companies to invest more in innovation.

Silva: The aviation university where I studied is an example of how governments can successfully invest in education. Without this university and its graduates, we would never have been able to establish Embraer, which is now one of the most successful companies in Brazil. Nevertheless we have to get to the root of the problem and improve education in general — from elementary school all the way up to university level. For example, there simply aren’t enough foreign professors and students in our country. Believe it or not, for years many Brazilian colleges were not allowed to employ professors from abroad. That was one of the results of the protectionist mentality.

What role do big international companies play with regard to research and development in Brazil?

Cruz: Foreign companies often bring their highly developed innovation culture to our country, and in this way they serve as role models for Brazilian businesses. They also do this by showing how investments in innovation can boost profits. A culture of innovation can be communicated, for example, when international companies work closely with local suppliers, or if people change employers and bring a lot of informal knowledge to their new jobs. More than half of the money spent on research and development in Brazil comes from international companies such as Siemens.

Silva: We must also create innovative companies of our own that can succeed on the world market. And I’m not talking about firms that extract raw materials out of the ground and ship them abroad. We need to generate more value within the country, but that isn’t possible without innovation.

After achieving success with aircraft manufacturer Embraer, in which industry do you expect Brazil to achieve its next big global hit?

Silva: Probably in information technology and health. It would obviously be great if our country further expanded its exploration of our very well known biodiversity.

Which location is better for conducting research, São Paulo or Rio de Janeiro?

Cruz: Rio is one of the most beautiful cities in the world and I was born there. We Brazilians joke that if you live in Rio, during your working hours you think about where you will enjoy yourself afterwards. In São Paulo, on the other hand, you think about work while you’re enjoying yourself. But joking aside, both of these cities are strong centers of innovation that will complement each other funds.