Brazilian Policies on Cluster Development

Institutional background, technical design and some lessons learnt

Renato CaporaliPhD on Economic Development

University of Paris

SME’s exports evolution

Some figures about SMEs exports

• SMEs represent 62% of the Brazilian exporting enterprises;

• In 2011, 11.858 SMEs exported US$ 2 billion - less than 1% of the total Brazilian exports;

• The average amount of exports per enterprise is US$ 170.000.

Some figures about SMEs exports

• But exporting SME’s were already 11.800 in 2006;

• It means that no real progress has been achieved in total number of SME’s exporting …

• … while during the period from 2002 to 2008, the growth rate of SME’s exports surpassed 10% per year.

Brazilian concept of Micro and Small enterprises

• The Law of Micro and Small Enterprises (2006) defines:

– Micro enterprises: annual sales up to US$ 180,000

– Small enterprises: from US$ 180.000 to US$ 1,800,000

Export’s data from SMEs

• A quite diversified agenda : 5 main items cover only 14% of the total exported ;

• Sectors which export most :

– Micro: Precious stones, garment, auto-parts, and furniture.

– Small: furniture, shoes, auto-parts, marble and granite, wood.

• Latin America is the main destination, corresponding to 25% of SME’s exports.

A low level of internationalization

• Brazil’s SMEs show a low level of internationalization.

• An expression of :

– low grade of economic development of most SMEs;

– SME’s low level of integration to international value chains;

– And the size of the country.

The Brazilian policies for SMEs

• Brazil has made strong advances in the development of policies for Micro and Small companies;

• In 1990: creation of SEBRAE, the Brazilian Support Service for Micro and Small Enterprises, with annual budget of US$ 1,5 billion.

• Brazilian law excludes medium enterprises from the public policies for small businesses.

The Brazilian policies for clusters: first steps

• In its first decade, SEBRAE concentrated on building a network of external consultants, creating methodologies to stimulate entrepreneurship culture, and a toolbox of management skills for small companies.

• In 2000, SEBRAE started considering it own self as responsible for structural development initiatives.

• Clusters Policy was launched in 2001-2002.– first attempt on Industrial Policy since the 80’s.

• In 2004, the Annual Budget Plan established 60% of the annual budget to be spent in collective actions.

The brazilian clusters developmentpolicy

• Policy started studying international experience: mainly Italy, France and Spain.

• With support of Interamerican Development Bank basic methodologies for the development of clusters have been created.

• By 2006, some evaluations demonstrated impressive results.

• The policy then became an economic, political and intellectual fashion.

– This “fashion consensus” would charge its price later on.

The brazilian clusters developmentpolicy

• In 2007, more than 300 clusters were receiving resources to support common/joint initiatives.

• The Government created the Brazilian Agency for Promotion of Exports –APEX (2002).

• APEX stimulated export consortiums, mainly to overcome the scale limit of small companies.

• The results were negatively affected by legal constraints and cultural issues.

Basic elements of Brazilian clusters policy

• The clusters intervention methodology articulates a mix of entrepreneurial education, access to technology and market information, collective interactions and institutional networking for technical services;

• Intense access to market fairs, attempts to reduce information gaps on technology and information assimetry in credit solutions.

• Resources are mostly spent to subsidize such initiatives.

The Brazilian clusters : the origin

• Most Brazilian clusters were born from :

– (i) strong currency devaluation;

– (ii) high level of unemployment of the 80’s Brazilian structural crisis.

• A “survival entrepreneurship” productive system.

• Almost all of them were consolidating comparative advantages when the economy entered a phase of currency evaluation and declining levels of unemployment (from 2004 until now).

Some macroeconomic issues

• From 2001 to 2010, wage levels (Unit Cost of Labor) have grown, in dollars, more than 200%;

• Just from 2010 to 2013: 17% more !

• The protection effect of a devaluated currency disappeared.

• Brazilian Manufacture exports stagnated after the 2008 crisis;

• And in the last 2 years they began to decline.

• In this context, cooperation networks created could not perform miracles.

A first essential lesson

• A first important lesson: cooperation networks, in conditions of strong currency overvaluation, are not capable of reversing macroeconomic trends.

• Costs on labor force, energy, and industrial inputs remain the basis of economic competitivity for sectors not knowledge based...

• … which happens to be the greatest part of SME’s clusters.

A first essential lesson

• To be totally effective, clusters policies – as industrial policies in general – must be followed by real exchange rate policies

• as China and India have shown over the last decades.

• If it is not possible to have active exchange rate policies, watching costs evolution closely become decisive.

Elements for an evaluation

• Nevertheless, a comparison on clusters maturity before and after projects demonstrates impressive results.

– Take a look at: www.sigeor.sebrae.com.br • SIGEOR : “Result Oriented Management System”

Elements for an evaluation

– Business models were modernized ;

– Management tools were disseminated ;

– Technology evolution was accelerated ;

– Entrepreneurial interaction on a higher level.

The Brazilian clusters development policy

• Unfortunately, a comprehensive evaluation of Brazilian cluster policy, as a modality of industrial policy, has not been pursued.

• And a shift towards productive chain approach was induced after the launching of the Industrial Policy of 2006;

• Just by when the first clusters projects were being completed.

• Abundant data have been produced by evaluating tools, but systematic data analysis has not yet been accomplished.

• So, evaluation remains at the level of case by case;

• Let’s check a couple of cases.

Some results from clusters projects

• Cluster of Santa Rita de Sapucaí municipality

• Specialization: Electro-electronic products.

• Project Objective: to promote the access to international markets to 55 enterprises participating in the project.

• Actions:– 130 courses and training activities;– 5 participations in market fairs;– 2 technical missions abroad;

Some results from clusters projects

• This cluster has structured various clusters projects, over the last 10 years;

• Global exports from the cluster of Santa Rita;

• 2006 : US$ 5.7 million;

• 2009 : US$ 7.8 million;

• 2010 : US$ 7.6 million – the project starts

• 2012 : US$ 12.4 million – end of the project.

Some results from clusters projects

• At the end of the project, started with 15 exporting enterprises, 33 out of 55 launched exporting activities.

– In 2010, 15 SME’s participating exported US$ 1.4 million;

– In 2011, 22 SME’s participating exported US$ 2,7 million;

– In 2012, 27 SME’s exported US$ 3.1 million (+ 90% over 2010).

Some results from clusters projects

• Project: Internationalization of the Productive Chain of Petroleum and Gas

• Objective: to promote exports and international business (transference of technology, joint-ventures and partnerships);

• 187 SME’s participating

Some results from clusters projects

• Actions for the Internationalization of SME’s from the petroleum and gas productive

– 30 courses and training;

– 18 international missions gone abroad;

– 12 international missions brought to Brazil;

– 180 entrepreneurial diagnosis;

– 9.500 hours of consulting services provided;

– 2 market studies achieved;

Some results from clusters projects

• Exports in:

– 2008 : US$ 189 million

– 2010 : US$ 650 million

• Joint-ventures of EU$ 5.0 million established.

• Of course, there are many projects with less impressive results…

• … but Brazilian experience does suggest that clusters projects produce positive results.

• Because knowledge, technical solutions and market information do make the difference.

Elements for an evaluation

Some lessons learnt (1)

• The problematic of “capture by leading groups” remains relevant…– … but working with the avant-garde is inevitable.

• Need to overcome excessive anxiety for immediate results.

• A definitive lesson: clusters development are medium to long term initiatives:

– 5 years to produce irreversible results.

Some other lessons learnt (2)

• SME’s entrepreneurs are avid for knowledge;

• A policy to accelerate entrance to the knowledge economy!

Some lessons learnt (3)

• It is a huge challenge to make institutions (government, universities, technological centers) to envisage the potentialities of SME’s emerging sectors;

– Institutions must understand themselves as an institutional tissue responsible to promote entrepreneurial development.

Some lessons learnt (4)

• In consequence, one of the hardest challenges is institutional coordination.

• Cooperation networks require significant shifts on normal mental models;

• But, within the clusters, cooperation must be seen as a result to be produced, not a starting point.

Some lessons learnt (5)

• The “Eastern lesson”: perseverance !

• Consistent evolution is connected to knowledge and attitudes: more money may not produce more results.

• Time management must be closely monitored : there must be a political sensibility for timing issues.

• That means: the timetable of actions is one of the problems of the project, something to be managed and not a passive variable.

Clusters projects are one of the most democratic forms of industrial policies !

rcaporali.56@gmail.com