Conclusions and recommendations: institutional structure and policies for innovation and the dissemination of technology

Business leaders and policy makers in Latin America are showing increasing concern for innovation. Innovation is also working its way on to government agendas, although often this does not translate into action. Innovation plays an increasingly more important role for entrepreneurs as well as policy makers in Latin America, thus gaining added importance in national agendas, but often discourse translates into few concrete activities that promote technical change, innovation or technological development. Creative actions taken by firms explain their innovative behaviour, and although these reactions are not spontaneous, they are strongly influenced by and dependent upon internal capabilities and the environments in which they are embedded. Institutions, laws, regulatory frameworks and public policy play a crucial role in promoting, or inhibiting, technological innovation and dissemination, just as relations between institutions and agents facilitate access to knowledge for the most disadvantaged sectors and exchanges with other agents. Innovation activities and activities to create knowledge-based added value involve trial and error; there is great uncertainty as to the results, the costs are high, and the time frame is often unpredictable. For all these reasons, it is crucial to promote an effective, efficient, focused public policy for the long term that will foster linkages between the public and private sectors and knowledge-production centres. This will lead to synergies and complementarities, economies of scale and knowledge spillovers.

In general, national science, technology and innovation plans in Latin America now explicitly mention SMEs, but this does not translate into instruments and actions to close the technology and innovation gap. The institutional structure is hugely complex, with different bodies connected together in this area, thus reinforcing the presence of the private sector in co-ordination with the public sector. A key feature that largely explains why the institutional fabric is so complex is the lack of institutions dedicated exclusively to promoting and financing innovation in SMEs (Ferraro, 2011). In some countries, this role is the responsibility of institutions and bodies that promote innovation, such as the Financier of Studies and Projects (FINEP) in Brazil and the National Research and Innovation Agency (ANII) in Uruguay, while in others it is the responsibility of bodies that promote production, such as the Production Development Corporation (CORFO) in Chile. In some countries in the region, the institutions responsible for policies to support SMEs and innovation are of little importance in the government structure and have deficiencies such as a lack of resources to sufficiently manage the programmes. Part of the finance comes from international co-operation, which often poses a challenge to the continuity of public policies. Other problems are the lack of available human resources and weaknesses in the training system. These programmes are often determined by governments for their term of office, and there are not enough true state policies in this area (Ferraro and Stumpo, 2010). 

While the budget for science, technology and innovation policies has increased in several countries in the region, such as Brazil and Uruguay, the funds earmarked specifically for this activity in SMEs, though difficult to quantify, seem to have changed very little (Dini and Stumpo, 2011). 

Latin American countries’ policies to promote innovation in SMEs can be summarised as being instruments that directly or indirectly encourage innovation, focusing on demand, supply and linkages among actors. The policies and instruments to support innovation generally do not discriminate in favour of smaller firms or give them any special treatment (see Annex). 

Regarding policies to facilitate ICT access and use, since the mid-2000s most of the 26 Latin American countries have drawn up a digital agenda, but only 11 of them have included ICTs and the production sector as a strategic line of action (albeit only a minor one).11 Generally their digital strategies attach great importance to ICTs as a means of social integration and improving the population’s quality of life, yet there are few references to the possibility of using these technologies to boost economic development.12 Some programmes try to promote the integration of ICTs in the production sector, particularly in SMEs. Two years ago, programmes were introduced in the region to stimulate the digital inclusion of SMEs in order to bring ICT supply in line with the demand. The programmes were a step forward towards policies that approach the problems associated with incorporating and using ICTs from an integrated perspective (Box 4.4).

Most Latin American countries have defined digital agendas since the mid 2000s. However, only 11 of 26 countries have incorporated ICTs into the production sector as a strategic line of development, albeit only marginally.

The way SMEs innovate varies greatly between one firm and another, with little use of technologies and at a lethargic pace. Development policies recently introduced in Latin America have been too weak and have failed to significantly abate the companies’ difficulties. The structural diversity persists and SMEs have not raised their productivity relative to that of large firms, so they still cannot dynamically join the production structure. However, there is a consensus that STI policies need designing and implementing to help develop the economies in the long term and eradicate the gaps that exist.

To achieve this, they must focus those public policies on reducing the gap between firms of different sizes. These policies must deal with the restrictions and entry barriers faced by SMEs when innovating. Among other factors, the policies are based upon variables inherent to innovation activities, such as high sunk costs and high risks, which affect SMEs the most (Dini and Stumpo, 2011). Similarly, policies should consider the lack of qualified human resources, poor access to credit and international markets, and their linkages with government programmes to promote STI. It is important to strengthen the NISs to encourage linkages, co-operation, scientific and technological capacities and bring about closer ties between knowledge-production centres and the production sector. This will create business opportunities, improve competitiveness and create good jobs.

In Latin America, policies are needed to promote innovation in SMEs and include microenterprises too. Since there are no appropriate programmes for less-dynamic SMEs, or if there are any they are inaccessible to them, the gap between them and larger firms, where most innovation takes place, widens.

Co-ordination and greater co-operation among institutions seeking to promote SMEs is also necessary. In particular, policies are needed to promote innovation among smaller firms, where there is little innovation, and even among microenterprises, which are generally outside the scope of institutions to promote SMEs. Business-innovation development programmes are normally fashioned for the most dynamic companies, which can use and benefit from the programmes and instruments made available. However, for many less dynamic SMEs there are no appropriate programmes or they do not have access to them, which serves to widen the gap between them and larger firms. Consequently, those who design and introduce policies to stimulate innovation need to take into account the characteristics of smaller, less dynamic firms, thus opening the way for innovations in such firms, resulting in productivity gains (Dini and Stumpo, 2011). 

For public policies designed to break down the barriers to adopting technologies and encourage innovation and the effective introduction and use of technologies in Latin American business, especially among SMEs, major steps forward need to be taken in various directions at the same time. These steps are related to improving the business environments and factors associated with companies’ technologies and specific characteristics. 

a) Infrastructure: There are still problems with the coverage and cost of certain major infrastructures and the quality of service they offer. Any innovation strategy involving SMEs requires good-quality laboratories and public research centres to support and work with those firms. For ICTs, it is particularly important to have high-quality broadband so that applications based on these technologies can be utilised. Regulations to increase competition among suppliers are also needed, as well as differentiated pricing to improve access to basic services provided by laboratories and specialist centres, and even to Internet services and computer tools. 

b) Human-resource training: Using new technologies and inciting firms to adopt them is vital for innovation, and must become a higher priority in countries’ strategies to improve business performance. In addition to improving general education plans, specific training programmes must be developed in areas related to production processes and management and business techniques.

c) Specific programmes: Latin American countries need SME-focused programmes to promote business innovation, because SMEs are very often unable to access or benefit from government innovation programmes. They also need to create incentives to adopt ICT-based solutions that will help improve business management, especially among smaller firms.

d) Other indirect instruments: Other initiatives that can promote business innovation and the dissemination of technology are indirect instruments that can stoke up the creation of the types of environments needed for businesses to innovate and NIS actors to co-operate with each other. Such initiatives can also target a specific sector, for instance with the aim of promoting better quality goods and services for exporting. Improving access to high-quality infrastructure services will improve innovation capacities and access to new markets while protecting consumers and improving well-being (Göthner and Rovira, 2011).

e) Information system: Designing policies and specific instruments requires vast knowledge to adapt them to each country’s sectoral and business specificities and to companies’ characteristics and needs. If a system is built providing information on firms’ innovative behaviour and their adoption and use of technologies, follow-up studies will be able to analyse the results of the policies and tie them to company performance. The system’s design and application can then be fine-tuned. This means moving towards a solution to the problems currently identified by surveys held in the region (duplication of efforts, lack of continuity in data collection, and poor coverage, representativeness and comparability). It also means taking steps towards defining indicators to analyse in greater depth aspects that better represent the complexity of innovation processes and the use and dissemination of technology in the production fabric, as well as the impact of technologies on business performance. 

In Latin America, industrial policies are needed to encourage the development of new sectors and technologies, co-ordinate public and private efforts, increase investment in innovation (quantity and quality), create the right environment for innovation, provide finance for these high-risk activities, and encourage the training of qualified human resources. 

It is imperative that policies have targets at different levels to ensure that modernisation spreads throughout the production sector, especially among smaller firms, and to respond to the more stringent demands of larger firms and more advanced sectors. Such policies will make it possible to expand productive inclusion, reduce structural heterogeneity and speed up productivity growth.