No 2011 FINAL English

InnovaLatino: Fostering Innovation in Latin America is the result of a two-year collaboration between the leading international business school
INSEAD and the OECD Development Centre, and funded by the Fundacin Telefnica. The objective of InnovaLatino was to research innovation dynamics in the business and public sectors in Latin America, drawing attention to and learning lessons from innovation experiments underway in the region, and advocating greater policy attention to innovation in national development strategies. This InnovaLatino report draws upon new evidence, information and analysis regarding innovation in Latin America. The report presents results from an exclusive survey of over 1500 manufacturing rms from eight countries (Argentina, Brazil, Chile, Colombia, Costa Rica, Mexico, Peru, and Uruguay). The report also brings together over 50 case studies vignettes of various rms and organizations identied as innovation leaders in their sectors. Together, these data highlight that innovation means more than catching-up or even leapfrogging by imitating innovative rms from more developed economies. In several revealing cases, Latin American businesses are redening global business by developing new business models. The report highlights several critical success factors for fostering innovation and describes how several countries have institutionalised good practices that create a better environment for innovation. InnovaLatino highlights ve aspects of Latin American economic reality in order tooffer important lessons for countries seeking to strengthen their innovation capacity: innovation in a natural-resource-abundant economies; policies to build innovation skills by enhancing formal education and linking universities and the business sector; partnering and cluster policies; innovation and green growth; and the importance of information systems to monitor and assess innovation policies. Latin American economies like other emerging markets illustrate that our conception of innovation can no longer be limited to the activities of laboratories and investment in research and development. In a changing world where emerging economies are rapidly developing and increasing their relevance, Latin America has to be an innovation leader. InnovaLatino: Fostering Innovation in Latin America shows that Latin American organisations offer many examples of successful innovations. Business leaders and public policy makers must focus on multiplying those examples and ensure that innovation at the micro level translates into more productive economies at the macro level.
InnovaLatino: Fostering Innovation in Latin America
Report
Fundacin Telefnica
InnovaLatino: Fostering Innovation in Latin America
Fundacin Telefnica
12
Fundacin Telefnica
Fundacin
Published by Ariel and Fundacin Telefnica, in collaboration with Editorial Planeta, who does not necessarily share the views expressed in it. All contents are the solely responsibility of their authors. Fundacin Telefnica, 2011 Gran Va, 28 28013 Madrid (Espaa) Editorial Ariel, S.A., 2011 Avda. Diagonal, 662-664 08034 Barcelona (Espaa) of the texts: OECD of the texts: INSEAD of the texts: Fundacin Telefnica of the cover: Mauco Sosa / Neo Labels Company S.L. Editorial coordination of Fundacin Telefnica: Rosa Mara Sinz Pea First printing: May 2011 ISBN: 978-84-08-10449-0 Legal Deposit: M. 23.083-2011 Printing and binding: Unigraf, S.L. Printed in Spain
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InnovaLatino: fostering innovation in Latin America
coleccin Fundacin Telefnica
Index
Foreword, by Cesar Alierta ...................................................................................................................................................................................................................................................................................................................................................................................... Acknowledgements ................................................................................................................................................................................................................................................................................................................................................................................................................ Preface, by Soumitra Dutta and Mario Pezzini.................................................................................................................................................................................................................................................................................................. Executive Summary ................................................................................................................................................................................................................................................................................................................................................................................................................. 1 Innovation in Latin America................................................................................................................................................................................................................................................................................................................................................................ 1.1 Defining Innovation: What is Innovation? Who Innovates? ...................................................................................................................................................................................................... 1.2 Why Innovation Matters for Development........................................................................................................................................................................................................................................................................... 1.3 Innovation Performance in Latin America in a Comparative Perspective.............................................................................................................................................. 1.4 Developing New Indicators of Innovation............................................................................................................................................................................................................................................................................... A.1 The 2010 InnovaLatino Survey ................................................................................................................................................................................................................................................................................................................................ Innovation in Latin America: Evidence from the Region .......................................................................................................................................................................................................................................... 2.1 Institutional Changes for More Effective Innovation Policies .............................................................................................................................................................................................. 2.2 Examples of Innovation in the Business Sector ........................................................................................................................................................................................................................................................ 2.3 Latin American Innovation in Times of Economic Crisis ..................................................................................................................................................................................................................... 2.4 Country Profiles............................................................................................................................................................................................................................................................................................................................................................................................. Innovation in Latin America: mobile applications adoption and socio-economic development .................................................................. 3.1 Mobile Penetration in Latin America..................................................................................................................................................................................................................................................................................................... 3.2 The Mobile Applications Ecosystem .......................................................................................................................................................................................................................................................................................................
3.2.1 Socio-economic Development................................................................................................................................................................................................................................................................................................................. 3.2.2 Evolution of the Mobile Ecosystem .............................................................................................................................................................................................................................................................................................. 3.2.3 User Adoption Levers .................................................................................................................................................................................................................................................................................................................................................... 3.3.1 3.3.2 3.3.3 3.3.4 3.3.5 3.3.6 Spread of Mobile Applications Capable Handsets ..................................................................................................................................................................................................................................... Extend Data Network Coverage while Reducing Entry Barriers.................................................................................................................................................................................. Convergence in Enabling Platforms............................................................................................................................................................................................................................................................................................ Encourage Mobile Application Development Ecosystems....................................................................................................................................................................................................... Develop Cross-industry Agreements ......................................................................................................................................................................................................................................................................................... Foster Public Private Partnerships.................................................................................................................................................................................................................................................................................................... 3.1.1 The Socio-Economic Impact of Mobile Telephony ......................................................................................................................................................................................................................................
VII XI XIII XV 1 3 9 15 19 25 27 28 35 38 39 59 60 60 63 64 66 69 71 72 73 73 74 74 74 75 76 76 78 83 88 89 91 95
3.3 The future of mobile applications in Latin America ......................................................................................................................................................................................................................................
4 Ways Forward for Innovation Policy in Latin America..................................................................................................................................................................................................................................................... 4.1 Five challenges to innovation in Latin America ......................................................................................................................................................................................................................................................... 4.1.1 Innovation in a Natural-Resource-Abundant Economy................................................................................................................................................................................................................ 4.1.2 Human Resources, Education and the University-Business Link ................................................................................................................................................................................ 4.1.3 Partnering and Cluster Policies .............................................................................................................................................................................................................................................................................................................. 4.1.4 Innovating and Green Growth............................................................................................................................................................................................................................................................................................................... 4.1.5 Measurement................................................................................................................................................................................................................................................................................................................................................................................ 4.2 Towards an Effective Policy Agenda for Innovation......................................................................................................................................................................................................................................... Vignettes..............................................................................................................................................................................................................................................................................................................................................................................................................................................................
References......................................................................................................................................................................................................................................................................................................................................................................................................................................................... 125 Acronyms and Abbreviations.......................................................................................................................................................................................................................................................................................................................................................................... 131
Foreword
ver the past decades, the management of innovation and business creativity has been the focus of many a report, article and book, often authored by prestigious scholars.
The 20th century was characterised by the unprecedented development of scientific and technological innovation. Today, innovation is an essential characteristic of both developing and emerging economies, encompassing all spheres, from the technical to the commercial and organisational. A silent revolution is underway, nonetheless, providing yet another reason for companies from developed countries to position themselves in emerging markets. Indeed, 2010-2020 will be the decade of emerging economies, as they set the standard for growth and their middle classes expand, and as they become the originators of more disruptive innovations. This will also affect the profile of multinationals from OECD-member countries. We can observe two powerful trends: on the one hand, a boom of emerging multinationals in leading sectors, with high value added and strong technological components; on the other, increasing levels of re-imported innovation from emerging economies by multinationals from OECD member countries. Emerging economies are no longer characterised by low technological intensity. During this decade, we will see many more emerging multinationals project their innovations a global level. According to the United Nations, approximately 21,500 multinationals are currently located in emerging economies. Some of these are already world leaders in their respective sectors: for example, the Mexican cement-company Cemex or the Chinese battery-manufacturer BYD. Although Latin America is not Palo Alto or Tel Aviv in terms of technological companies and start-ups, important private-sector and governmental initiatives are sprouting, also offering unparalleled opportunities for public-private partnerships. More innovative companies from the region reaching a global scale will positively impact the regions productive diversification, competitiveness and economic development. We know that Latin America can generate companies in leading sectors, such as telecommunications and aeronautics. We can imagine that in the future, technological giants, Latin American Huaweis or Facebooks, will see the day. The fact that one of the founders of Facebook is, in fact, Brazilian, can be used as proof, were it necessary, of the immense pool of talent that exists in Latin America. Clearly, pure good will not suffice but it is an essential condition. Begetting more companies and entrepreneurs requires time and the set-up of a complex favourable ecosystem efforts to this end need to encompass investments in education, adequate financing. Notwithstanding this complexity, the good news is that from Mexico to Chile, via Colombia or Brazil, many countries are well on their way in achieving this. The private sector will play a key role in developing capacity for financing business and entrepreneurial innovation, in particular in the following sectors: high-tech, including public health; logistics; and even raw materials and agro-industry. Investment in venture capital and private equity lags behind in Latin America, representing barely 2% of the world total, on a par with Africa. In 2009, of the over USD 3,500 billion raised globally through these vehicles, only USD 4.4 billion was set aside for Latin America. These funds were fundamental in the take-off in Palo Alto and Tel Aviv, and in fomenting the start-ups and leading industries of the USA and Israel. Whereas in the USA they reach 0.3% of GDP, they represent only 0.03% of Latin Americas regional GDP, below the global (0.17%) and European averages (0.19%). Today, the tide has turned. Companies and countries in the region are conscious of having entered a new era of innovation, where new markets are created through products and services that are being permanently upgraded, and whose eventual obsolescence is an integral part of design. Having recognised the fundamental value of innovation in fomenting business creation and sustainability, financial markets and institutional funds participate much more actively in financing innovative companies. National and regional public authorities are multiplying policies destined to stimulate and encourage innovation, while at the same time aiming to eliminate barriers to creative impulses in the market. Promoting innovation has become imperative for big and small business groups, for associations and individuals, for States and regions. The rhetoric transcends the fields of technology or business, and has become relevant in all spheres of society, such as education, health, or justice. Inno-
vating and entrepreneurial have become some of the most attractive terms in public rhetoric throughout the region. Telefnica remains loyal to its commitment to the region and its position as one of the principle global telecommunication operators. In its countries of presence, Telefnica contributes to economic and social development through a range of innovative services and solutions intervening in multiple spheres of society. Latin America today is a leading region in terms of economic dynamism, as well as creativity and courage in the face of new social and technological challenges. The InnovaLatino Report aims to stimulate our attention to the efforts in favour of innovation in business and social sectors, in a region in full transcendence. The Report contributes to the debate on key success factors for the business communitys innovation processes and for innovation incentives proposed by public policy. Through its Foundation, Telefnica partnered with two prestigious institutions recognised for their analysis of innovation: the Organisation for Economic Co-operation and Development (OECD), whose tradition guarantees intensive dialogue with key private and public actors in economic and social development; and INSEAD, an academic institution dedicated to business training and research, whose prestige is recognised in the management of creation and innovation. The objective of InnovaLatino is to identify sectors and experiences with the highest potential for the region, highlighting success stories that deserve to be compared to global best practices and extracting conclusions for the definition of policies that promote innovation in particular country contexts. Many countries in Latin America no longer stop at catching up with developed economies; they have to compete with the dynamism of other emerging economies. The imperative of innovation is more pressing than ever before. In particular, the InnovaLatino Report studies initiatives to stimulate innovation and to unfold new public and private policies across different countries. It also studies the impact that the deployment of mobile telecommunications has had on the creation of new social and business capacities in the regions markets. The business community and the so-called decision-makers, both private and public, will find useful baseline information for the definition of their innovation strategy, be it technical, organisational, commercial or financial. They can also appreciate how these practices will contribute to economic growth and sustainability in their geographic sphere of influence. The general public can identify how innovation is gradually transforming Latin America, and how the culture of innovation, disseminated through different social actors, will be key to maintain and increase the current economic dynamism of the region. We hope that InnovaLatino, through its multidimensional focus, will contribute to the definition of a new innovation agenda in the region. The strategy should rely on the collaboration of different actors who can respond to the challenges currently faced by the region. Latin America is at a cross-roads. The boom in raw materials should not be seen as the end of the line rather, the current moment is a unique opportunity to invest in innovation and diversification, to convert short-term capital into long-term capital, and to support the emergence of Latin American Huaweis and Facebooks over the next decade. Cesar Alierta Chairman of Telefnica Foundation
Acknowledgements
his Project has been developed under the supervision of Soumitra Dutta, Academic Director of INSEAD eLab and Roland Berger Professor of Business and Technology, and Mario Pezzini, Director of the OECD Development Centre. Lead authors of the report were Lourdes Casanova, Francesca Castellani, Jeff Dayton-Johnson, Nils Fonstad and Caroline Paunov. From both INSEAD and the OECD, the contributions of ngel Alonso Arroba, Carlos lvarez, Rolando Avendao, Thays Cunha, Rita Da Costa, Christian Daude, Daniela Fina, Carolina Hartley, Alba Martnez, Batrice Melin, Anna Pietikinen, Severin Resch and Nijole Vileikis to the final version of this report are gratefully acknowledged. The two institutions would also like to thank Adri Alsina, Meenakshi Bhutoria, Cristina Casanova, Shilpa Dodda, Magali Geney, Michle Girard, Ana Gonzlez, Elsa Miroux, Roxana Romero, Lene Rousseau and Vicky Zachariadou for their support to the process of elaborating the report and dissemination activities. Moreover, the participation of Christos Mastoras and Juan Jos de la Torre from Booz & Co in the development of the MAAF framework in Chapter 3 is gratefully acknowledged. Special thanks to Hazel Hamelin for her support in editing the report, as well as Paula Anderson, Luciana Cainelli, Nallely Carro, Carol Cordeiro, Mauriana Favilla, Yunuen Milln, Mara Urbano, Alejandra Valenzuela for proof-reading help. This report benefited greatly from the advice and input provided by several individuals. We would like to especially mention key contributions from Juan Jos Llisterri, Juan Carlos Navarro and Flora Painter from the InterAmerican Development Bank; as well as Alessandra Colecchia, Jean Guinet Vladimir Lpez Bassols, Daniel Malkin, Annalisa Primi, and Andrew Wyckoff, from the OECD. Special thanks are due to Diego Molano, Minister of Information Technology and Communications of the Government of Colombia, and formely an energetic member of the projects steering committee representing Telefnica. We would also like to recognise the active participation in various stages of the authoring process of colleagues from a wide range of institutions, in particular those who participated in key events of the InnovaLatino project: the Innovation Indicators for Latin America Workshop, held in Paris in March 2009; the Experts Meeting on the subject of Benchmarking Innovation for Development in Latin America, held in Buenos Aires in September 2009; and the panel discussion on Fostering Innovation in Latin America at the III Latin America and the Caribbean - European Union Business Summit in Madrid in May 2010. These colleagues include: Mario Albornoz (RICYT); Laura lfaro (Harvard Business School); Marcelo Arguelles (Bio Sidus); Lino Baraao (Minister of Science, Technology and Innovation of Argentina); Carlos Henrique de Brito Cruz (FAPESP); Mauricio Crdenas (Brookings Institution); Gabriel Casaburi (IDB); Mario Cimoli (ECLAC); La Contier de Freitas (Ministry Science & Technology of Brazil); Gustavo Crespi (IDB); Jonathan Eaton (Pennsylvania State University); Joo Carlos Ferraz (BNDES, Brazil); Fred Gault (International Development Research Centre, Canada); Hugo Hollanders (UNU-MERIT); Orlando Jimnez (Ministry of Economics of Chile); William Maloney (World Bank); Andr Nassif (BNDES, Brazil); Beatriz Nofal (Agencia Nacional de Desarrollo de Inversiones, Argentina); Rafael Oliva (BNDES, Brazil); Carlos Osorio (Adolfo Ibaez University, Chile); Martn Redrado (President of the Central Bank of Argentina); Ral Rivera Andueza (Foro Pro Innovacin, Chile); Andrea Saltelli (European Commission); Francisco Sagasti (FORO Nacional/ Internacional); Jorge Souto (INDEC). The authors are grateful to the Inter-American Development Bank (IDB) not just for their substantive input but also for co-financing project events with us; the United Nations Economic Commission for Latin America and the Caribbean (ECLAC); the Ibero-American Secretariat (SEGIB); and the Brazilian National Bank for Economic and Social Development (BNDES). The insights and support of the members of the InnovaLatino Advisory Board is gratefully acknowledged. The team thanks the members for their valuable contributions: Gastn Acurio (CEO, Astrid and Gastn, Peru), Csar Alierta (Executive President, Telefnica), Jos Mara lvarez-Pallete (Executive President, Telefnica Latinoamrica), Emilio Azcrraga Jean (President & Chief Executive Officer, Televisa, Mexico), Alicia Brcena (Secretary Gen-
eral, ECLAC), Luciano Coutinho (President, BNDES), Frank Brown (Dean, INSEAD), Pamela Cox (Vicepresident, Latin America and the Caribbean, World Bank), Clarisa Estol (Former President, Banco Hipotecario, Argentina), Luiz Fernando Furlan (Co-Chairman of the Board Brasil Foods SA), Juan Jos Gutirrez (President, Pollo Campero, Guatemala), Enrique Iglesias (Secretary General, SEGIB), Andrnico Luksic (Director & Vicepresident, Banco de Chile ADS, Chile), Gilberto Marn Quintero (President, Mabesa, Mexico), Luis Alberto Moreno (President, IDB) and Mario Pezzini (Director, OECD Development Centre). Finally, we would like to thank the Telefnica Foundation for its generous financial support for this project. We would like to express our gratitude in particular to several colleagues from the Foundation and the Telefnica corporation: firstly, Francisco Blanco for his role in the inception of the project, as well as Lus Abril, Ignacio Cobisa, Jos de la Pea Aznar, Arancha Dias-Llado, Javier Nadal, Javier Santiso and Mercedes Temboury.
Preface
atin America has emerged from the global financial crisis, earlier and more vigourously than many other parts of the world. Growth projections are encouraging, and higher than those forecast for OECD economies. Many speak of the beginning of a Latin American decade, during which the region will grow steadily and address long-standing development challenges. Why focus on innovation in this context? A new scenario in innovation is emerging. In this new context, Latin American countries and Latin American companies can become global leaders. The regions macroeconomic performance and resilience to the crisis prove that governments have the capacity to design and carry out responsive and sustainable policies. An improved fiscal space provides the region with a new window of opportunity for overcoming the eternal challenge of low productivity by engaging in more sustainable models of growth. The regions economies can make the leap and become global leaders by investing in innovation more inclusively and more systemically. Pro-innovation policies and financing need to be based on a comprehensive understanding of innovation. Our conception of innovation can no longer be limited to the activities of laboratories and investment in research and development. This reports original firm-level indicators and data show that small and large firms in the region are innovating in this broader sense, even as most research and development expenditure in the region is concentrated in the public sector. On a global level, Latin America must focus not only on catching up with its Northern neighbours but also on competing and collaborating with other emerging economies like China and India. Many countries in Latin America have already made large strides to tackle these challenges. These efforts now need to be continued and intensified, in order to reach the full development potential of innovation. We provide some pointers on how to do this, taking into account Latin Americas specific characteristics. Governments should concentrate on exploring how to introduce innovation in natural-resource sectors, to link innovation with green growth, to promote further partnering and cluster policies for innovation, to invest in human capital, and, finally, how to best measure and monitor innovation and policies to promote it. This report has been produced jointly by INSEAD and the OECD Development Centre, supported by the Telefnica Foundation. INSEAD is one of the worlds leading and largest graduate business schools, bringing together people, cultures and ideas from around the world to change lives and transform organisations. The OECD Development Centre helps policy makers in OECD and developing countries find innovative solutions to the global challenges of development, poverty alleviation and the curbing of inequality. This collaboration between a private and a public organisation has been conducive to a multi-dimensional assessment of the state of innovation in Latin America, and the elaboration of comprehensive policy options for the regions governments for driving forward this important agenda. This report is not intended as the end of a project, but rather as a platform for further debate -- a debate that, we hope, will promote more and better innovation in Latin America. Soumitra Dutta Academic Director of INSEAD eLab INSEAD Mario Pezzini Director OECD Development Centre
Executive Summary
This report by the InnovaLatino project, a joint venture between the business school INSEAD and the OECD Development Centre, provides a multi-dimensional overview of the state of innovation across Latin America and makes policy recommendations to government and business leaders in the region (and beyond) with the aim of promoting more and better innovation in the service of economic and social progress. Individual chapters pose a series of questions that are fundamental to our understanding of economic development and the contribution of science, technology and entrepreneurship to that process.
What is innovation, and how is it different in Latin America?

According to the widely-used Oslo Manual guidelines for measuring innovation, published by the OECD and European Union, innovation centres on firms and takes the form of the adoption of a new product, production process, marketing- or business model. Innovation is important for development because it contributes to economic growth, higher levels of productivity, exports and foreign trade, and even social outcomes like better health. Innovation can improve wages for skilled workers, although it may reduce or widen earnings inequality among working people, making the monitoring of trends in inequality and the supply of skilled workers of prime concern to policy makers. Similarly, innovation can enhance or undermine the survival rate of firms. It is an inherently risky proposition not all innovators succeed. Conventional measures of innovation activity include expenditure on research and development (R&D), patents and scientific publications. On all of these counts Latin America fares badly in comparison with OECD countries, as well as with emerging economies in Asia. The United States, the European Union and Japan dominate worldwide research and development (R&D), for example, although the world share of each of these OECD members has been gently slipping in recent years, while that of China has picked up sharply. Among Latin American economies, Brazil leads in R&D, but both the level and growth of its world share remain tiny (Figure 1).1
The 2010 InnovaLatino Survey
The 2010 InnovaLatino Survey was implemented under the supervision of the OECD Development Centre. The initial sampling framework was established by the Gallup Consultancy Group and Ipsos International implemented the survey across eight countries Argentina, Brazil, Chile, Colombia, Costa Rica, Mexico, Peru, and Uruguay via its respective country offices. The objective was to gather up-to-date information on innovation activities among a large number of firms in the region, including information regarding the impact of the 2008-2009 economic crisis upon firms innovation projects. The scope and methodology of the survey differ from those of national innovation surveys implemented by national statistical agencies in many of these countries. As such the survey responses reported and analysed in this report will not always coincide those reported based on other surveys. The survey targeted only firms in the manufacturing sector (comprising categories 15-37 of the ISIC Rev. 3 classification), allowing for uniformity of what is meant by innovation across different firms. The disadvantage of this restriction is that services a large but heterogeneous sector of the economy in all Latin American countries, ranging from hospitals and universities to informal street vendors are not represented among the surveyed firms. Two hundred cases were randomly selected from a list for each country, based on publicly available firm registries including credit bureaus, industry chambers, industry associations and phone directories. A random stratified sample was selected aiming at over-representing medium and large firms in terms of employment. The oversampling of larger firms was necessary to capture innovative activity, which is highly concentrated in (though not entirely restricted to) larger firms according to survey evidence in many countries. As a result of the restriction to manufacturing and the emphasis on larger firms, the initial sample is, by design, not representative of the entire population of firms in the eight countries covered. The survey was implemented between November 2009 and January 2010 in all eight countries, and post-stratification weights based on firm size and sector of activity were implemented to better reflect the population of firms in each country. These weights were constructed with reference to firm size and innovation-intensity of the firms sub-sector.
1 For a complete description of the 2010 InnovaLatino Survey and its methodology, please refer to the Box in the Executive Summary or Appendix 1 of Chapter 1: The 2010 InnovaLatino Survey.
InnovaLatino: Fostering Innovation in Latin America XIV

Figure 1. GLobAL InnovATIon TrenDS In oeCD reGIonS AnD SeLeCTeD eMerGInG eConoMIeS
45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 2% 1.4% 1.4% 1996 1997 16% 37%
Evolution of global share of total R&D (1996-2007, percentage)
32% 27% 23%
13% 9% 1.8% 1.5% 2007
1998 1999 United States EU-27
2000
2001
2002 Japan China
2003
2004 2005 India Brazil
2006
120%
Global share of triadic patent families (1997-2007, percentage)
116%
100%
80%
60% 37%
40%
20%
16%
14%
7%
6%
4%
11%
0%
3% India
9% China
Russian
South Africa 1997
Brazil 2007
Executive Summary XV
note: Patent counts are based on the priority date, the inventors country of residence and fractional counts. The data come mainly from the database Worldwide Patent Statistical Database (September 2009) of the european Patent office. Source: UNESCO Science Report 2010, Patent Database 2010 and Scopus Database 2009. R&D data includes 30 OECD and 79 non-OECD economies.
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 21%
Change in global share of total R&D (1996-2007, percentage) 91%
18%
21% 12%
21% 12% 13% 2% 3%
China
Russian
1996
India 2007
Brazil
South Africa (2006)
30%
Global share of scientific publications (1997-2007, percentage) 28% 25.1% 25.1%
25%
20%
18.5%
15%
13%
10% 7% 5% 5% 3% 1.6% 2.1% 3.3%
2%
0%
0.6%
1.4%
EU-27
United States
Japan 1997
China 2007
India
Russian
Brazil
InnovaLatino: Fostering Innovation in Latin America XVI

Figure 2. FIrMS InTroDuCInG ProDuCT InnovATIonS ThAT Are neW To The WorLD, The nATIonAL MArkeT or To The FIrM. (AS A PerCenTAGe oF ProDuCT InnovATInG FIrMS In MAnuFACTurInG)
100% 80% 60% 40% 20% 0%
18% 49%
14% 54%
36%
9% 48%
15% 49%
23%
17% 40%
17% 43%
10% 36%
58% 33% Overall 32% Argentina 6% Brazil
58% 42% Mexico
43% Chile
36%
19% Firm
40% Peru
54% Uruguay
Colombia Costa Rica National
Global
note: Percentage of manufacturing firms reporting product innovations to the world, the national market or the firm. Source: 2010 InnovaLatino Survey.
But these conventional measures do not tell the whole story. While by definition an innovation must be new, such as the adoption of a worlds first product elaborated in a laboratory and protected by patents, new may also mean new to the national market or new to the innovating firm. A survey of more than 1,500 large manufacturing firms in Latin America carried out for this report suggests that worlds first innovations are a relatively small share of the total reported by firms (Figure 2). The key for policy makers and business leaders, then, is how to encourage productive risk taking so that firms choose new-to-the-market and new-to-the-firm innovations that move their economies closer to the technological frontier (as broadly understood), ensuring that these micro-level innovations add up to macro-level improvements in economic development.
The case of mobile applications

Mobile applications provide an informative window to look in greater depth at the interrelationship between technological progress and technological adoption, the interaction of public and private actors, and, most important, the complicated web of socioeconomic consequences of these processes for development in Latin America. Since the liberalisation of telecommunications markets across Latin America in the 1990s, the arena has been marked by new operators, increased competition and high levels of subscription particularly among mobile telephone users. The number of mobile subscribers reached 462 million in 2009, almost five times the number of fixed lines, representing a penetration of approximately 85%, well above the global average of 58%, and above levels observed in other emerging markets in Africa or Asia. Mobile phones have increased the efficiency of business activities for actors in the informal economy, and among small and medium enterprises. In particular, small business users save time on journeys around congested cities or between isolated rural communities. Governments are turning to mobile applications to give lower-income groups access to public services. Mobile services can not only increase the access of citizens to government services such as tax filing and school registration but can also improve the flow of information between the government and its citizens and increase the engagement of society in general in governmental decisions. Such mobile applications hold considerable promise in private markets as well. A case in point is m-financial services, in which the boundaries between traditional banks and telecom operators have blurred (spurred in part by liberalisation and deregulation in financial and telecommunications markets). The future of mobile applications and their potential to bring socio-economic benefits depends upon a mix of technological and economic factors, including competition among competing technical standards.
Executive Summary XVII
What is happening in national innovation systems in Latin America?

If Latin American firms are not innovating at the same rate as their counterparts elsewhere whether we apply a broad or a narrow definition there are nevertheless encouraging signs of positive change in many countries in the region. Such changes can be seen in the policy-making apparatus and also in the activities of countless businesses. On the policy-making side, several countries have institutionalised good practices in ways that promise to create a better environment for innovation. During the last decade, Chile has created a National Council for Innovation and Competitiveness to ensure that ministries and departments co-ordinate their actions and take a suitably long-term view of innovation policy. The country has also established a Fund for Innovation and Competitiveness that channels a portion of copper export revenues to foster investment in innovation. Similarly, Argentina has created a new Ministry of Science Technology and Productive Innovation, a promising institutional innovation to promote more coherent policy making. Finally, Brazils institutional innovations include the widely-praised activities of FINEP, the federal innovation financing agency, which in recent years has created an innovation incubator and venture capital vehicles to promote innovation. Innovations of every kind can be found in the business domain and across different sectors of the economy. The Mexican cement multinational Cemex, for example, in spite of its rocky prospects during the global financial crisis, has pioneered a business model for the effective absorption of acquired firms that helped fuel Cemexs global growth. Brazils Embraer, an aircraft manufacturer, has developed a reverse outsourcing model of product innovation, using its in-house engineering expertise to combine manufactured inputs from high-income economies. Chilean winery Via Concha y Toro has developed a marketing innovation (the so-called silver bullet strategy, based on a handful of highly visible high-quality wines) that allow it to successfully position its wines in export markets around the world. Such examples from relatively large and globally oriented firms have been matched by others from small and medium sized firms, and social entrepreneurs with non-profit objectives.
What are the key components of an innovation policy agenda for Latin America?
Latin America is poised before a window of opportunity. Prices of its commodity exports are once again headed upwards. Substantial sums of capital are flowing into the region as global investors increasingly see it as a safe haven compared to troubled economies in Europe and other traditionally desirable investment destinations. (How the world has changed!) But these opportunities must be seized by governments and firms alike to put Latin American economies on a higher growth path, and render them more capable of confronting the social deficits that still mark the region. These opportunities will inevitably be accompanied by new challenges, not least the difficulty of innovating in a context of appreciating national currencies. As such, decision makers must focus their energies on developing a new innovation policy agenda and move quickly to put it in place. This report presents some general strategic orientations that should be useful to many national governments in the region. However, operationalising these means first moving to the particularities of the national, and in many cases sub-national, levels. 1. Innovation in Latin America starts with people researchers, entrepreneurs, managers, employees, suppliers and customers of firms. Empowering people to innovate calls for more and better education for all. As countries pursue that educational goal, they will equip their economies to become better able to absorb, adopt, adapt and generate new ideas and technologies. 2. A second group of actors in an innovation system are firms. Businesses are the place where knowledge and ideas are translated into new products, services and business models. Innovation policy should recognise the diversity of firms in terms of size and sectoral specificities, and foster actions and instruments suited to the characteristics of the economy. In particular, targeted support to micro, small and medium-size enterprises
InnovaLatino: Fostering Innovation in Latin America XVIII

is vital given their importance for employment generation and also because of their vulnerability to failure in their early years. Strengthening institutional and infrastructure capacities for scientific research and developing incentives to support the diffusion and application of scientific outcomes to production development are key elements of success in innovation policies. A tangible and intangible infrastructure for innovation is crucial. It requires investment and the provision of adequate regulatory frameworks. High-speed broadband connections, in particular, offer an important platform for boosting entrepreneurial activity in many countries of the region, but also for the provision of basic public services like health and education to disadvantaged sectors of the population. As innovation is an inherently risky undertaking which requires long-term financial commitment, public policy must encourage adequate financing to enterprises. Successful innovation policy requires a long-term commitment from legitimate institutions with clear mandates, as well as coordinated action between ministries, agencies and other levels of government, calling for improved means for designing and implementing coherent policies. In addition to coherence among ministries, actors and policy domains, innovation policy implies greater coherence between supply- and demand-side policies. The former typically include funding basic research or increasing levels of schooling; the latter include smart regulations, standards, pricing, consumer education, and tax measures. Policy measures to unleash and support entrepreneurial creativity in Latin America cannot ignore policies directed toward the informal sector. Roughly one out of two workers in the region is part of the informal sector and in some countries a majority of middle-class householders work in the informal sector. Effective innovation policies cannot overlook this part of the economy.
3. 4.
5. 6. 7.
8.
Chapter
Innovation in Latin America
Chapter
Innovation in Latin America
Innovation is imperative for firms to respond successfully to new opportunities and threats, and for countries to enhance their development and social well-being. In Latin America and the Caribbean, innovation the adoption of new products, production processes, marketing methods, and business models has risen to the top of the agenda for decision makers in government and business alike. Partly in response to the financial crisis that began in 2008, policy makers and business leaders are rethinking the paradigm for successful economic development and looking for new sources of growth. In their search, innovation, in its many dimensions, will loom large as a powerful promoter of sustainable and inclusive growth and development. Productivity has lagged in Latin America relative to OECD countries and other emerging economies, and the regions policy makers recognise that enhancing innovation can help to close that gap.1 Innovative businesses will also be necessary to make future growth cleaner and more environmentally sustainable, there will be a rising need for institutions and policies that support and orient the transition to new growth models. Decision makers in Latin America face the same challenges as in many OECD economies seeking to consolidate existing innovation processes, supporting investment in innovative sectors (such as green technologies), and creating the conditions to bring more players into the innovation game. While the challenges for Latin America are specific to its context and history, and shaped by the heterogeneity that characterises production structures across and within its countries, the experiences of other countries can be relevant to the region. By participating in the global debate on how to foster innovation for growth, successes and failures in policy and business practices can be identified and imitated. As the western world struggles to recover from the global financial crisis, new players are emerging in the innovation arena, challenging decades of primacy of a small number of high-income OECD countries. China has dramatically increased both expenditure and employment in R&D. It is not alone: Brazil, the Russian Federation, India and South Africa are likewise increasing their presence in global science, technology and innovation (Figure 1.1). Moreover, Brazil, China and South Africa have reduced the share of their patents involving international co-invention over the past decade, a sign that they are strengthening their domestic capacity to innovate. Latin America is both a protagonist in the expansion of global innovation and challenged by the emergence of new actors such as China and India. Most Latin American economies were surprisingly resilient to the global financial crisis; a resilience due in part to disciplined macro-economic policies and mitigating external factors.2 But to achieve sustainable growth and development at a rate sufficient to address social needs in the region, structural changes in economic development strategies will be needed. The objective of the InnovaLatino project (box 1.1), of which this is the first report, is to contribute to and inform these debates, to celebrate Latin American innovation wherever it has emerged, and to encourage it where it has not. The report draws attention to the variety of innovations happening in the region and makes the case for moving innovation higher up the policy agenda, reflecting the urgency for Latin America to close the innovation gap relative to OECD countries and other emerging economies, including China and India. The InnovaLatino report discusses the features and challenges of innovation for the region and presents initial elements of an innovation policy agenda. It is organised as follows: Chapter 1 provides a brief overview of what innovation means and why it is important not only to investors and business owners, but more generally for economic and social development. The innovation performance of Latin America is placed in a global context. By conventional measures such as research and development (R&D) as a share of economic activity or the number of patents filed Latin America suffers from an innova-
1 IDB (2010) exhaustively reviews the Latin American productivity gap, and the policy measures that might help to close it, including policies to promote more and better innovation. See also the InnovaLatino background paper by Daude (2010), which focuses on the productivity-innovation link in Latin America. 2 OECD (2010e), Latin American Economic Outlook 2011.
1. Innovation in Latin America 3
box 1.1. The InnovALATIno ProjeCT

InnovaLatino is a joint project between the OECD Development Centre and the business school INSEAD (led by its eLab), supported by the Telefnica Foundation. The objective of the project is to research innovation dynamics in the business sector in Latin America, both in the sense of drawing attention to and learning lessons from innovation experiments underway in the region, and advocating greater policy attention to innovation in national development strategies. To this end, the project team has undertaken original research, combining economic and statistical analysis with case studies of different innovators. In preparation for this report, the project designed and sponsored a survey of 1,500 relatively large manufacturing firms in eight countries of the region, to provide recent data on their innovation strategies (further details are provided in the appendix to this chapter), and trends in innovation investment in response to the global context. Intense dialogue and consultation with key stakeholders, policy makers and experts are central to the project. In April 2009, the team hosted a workshop on innovation indicators in Paris, with participants from the Ibero-American Network of Science and Technology (RICYT), the UN Economic Commission for Latin America and the Caribbean (ECLAC), the Inter-American Development Bank (IDB), the European Commission, and a host of think-tanks and research institutions from OECD and Latin American countries. An October 2009 workshop organised in co-operation with the IDB in Buenos Aires brought together policy makers from Argentina, Brazil, Chile, Uruguay and renowned international experts on innovation and development. Since the projects inception, team members have participated in a large number of forums and conferences, presenting project results, communicating the message of celebrating innovation, and staging a special panel on Innovation in Latin America during the Business Summit of the EU-LAC Summit in Madrid in May 2010. Accompanying the publication of this first project report is a series of more technical background papers by members of the project team. A project website (www.innovalatino.org) aims to provide country-level information and indicators of economic performance, as well as case studies of innovative firms.
tion gap. Moreover, the changing face of innovation means that developing countries are no longer simply trying to catch up with high-income economies, but also competing with dynamic emerging economies in some sectors. Even applying alternative indicators, statistics suggest that Latin American governments and businesses have much work to do. This report, it is hoped, will provide useful input to that collective effort. Despite lagging behind, things are on the move in Latin Americas innovation ecosystem. Several countries have created new, more coherent institutions for encouraging innovation and have implemented new policies on innovation. Businesses both private and public are also demonstrating that innovation is happening in Latin America (covered in Chapter 2). The next chapter focuses on innovation in a sector where Latin America has emerged as a global leader mobile telecommunications. Within a decade, the region has not only witnessed a dramatic uptake in mobile telephony but also the deployment of this innovative technology for socio-economic development. New capabilities provided by mobile devices are creating opportunities for improving the lives of the lower socio-economic segments of society, enhancing the viability of small enterprises, supporting the growth of the telecom market and overall socio-economic development of Latin American markets. The final chapter focuses on five dimensions of a new innovation agenda for Latin America: i) structural challenges for innovation in a natural resource-abundant economy, ii) the education system and other institutions linked to the development of skilled human resources, iii) collaborative arrangements between public and private institutions in the development of innovative and technology transfer activities and the development of cluster policies, iv) opportunities for future innovation linked to green growth, v) appropriate measures for monitoring and evaluating progress in innovation.
1.1 Defining Innovation: What is Innovation? Who Innovates?

The Oslo Manual (OECD/Eurostat, 2005a) first published by the OECD and Eurostat in 1992 and currently in its third edition defines innovation at the firm level as the implementation of a new or significantly improved
InnovaLatino: Fostering Innovation in Latin America 4

Figure 1.1. GLobAL InnovATIon TrenDS In oeCD reGIonS AnD SeLeCTeD eMerGInG eConoMIeS
45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 2% 1.4% 1.4% 1996 1997 16% 37%
Evolution of global share of total R&D (1996-2007, percentage)
32% 27% 23%
13% 9% 1.8% 1.5% 2007
1998 1999 United States EU-27
2000
2001
2002 Japan China
2003
2004 2005 India Brazil
2006
120%
Global share of triadic patent families (1997-2007, percentage)
116%
100%
80%
60% 37%
40%
20%
16%
14%
7%
6%
4%
11%
0%
3% India
9% China
Russian
South Africa 1997
Brazil 2007

note: Patent counts are based on the priority date, the inventors country of residence and fractional counts. The data come mainly from the database Worldwide Patent Statistical Database (September 2009) of the european Patent office. Source: UNESCO Science Report 2010, Patent Database 2010 and Scopus Database 2009. R&D data includes 30 OECD and 79 non-OECD economies.
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 21%
Change in global share of total R&D (1996-2007, percentage) 91%
18%
21% 12%
21% 12% 13% 2% 3%
China
Russian
1996
India 2007
Brazil
South Africa (2006)
30%
Global share of scientific publications (1997-2007, percentage) 28% 25.1% 25.1%
25%
20%
18.5%
15%
13%
10% 7% 5% 5% 3% 1.6% 2.1% 3.3%
2%
0%
0.6%
1.4%
EU-27
United States
Japan 1997
China 2007
India
Russian
Brazil

product (good or service), or process, a new marketing method, or a new organisational method in business practices, workplace organisation or external relations. This definition focuses on innovation as an economic phenomenon which has impacts on the performance of businesses and of the economy as a whole. While this economic sense of innovation is emphasised in this report, in the context of developing economies, the potential of innovation to address wider social challenges is equally important. This report will accordingly consider the social dimension of innovation. There are thus four types of innovation, united by the notion of novelty: a new good, a new process, a new way of selling something or organising the workplace. box 1.2 provides a Latin American example of each type of innovation. Far from being limited to products generated by laboratory research, the range of activities embraced by these four types of innovation is remarkably broad.3 4 5 6 There are three ways in which an innovation can satisfy the novelty condition central to its definition: innovations can be new to the firm, to the market, or to the world. As shown by innovation surveys in the region, in
box 1.2. LATIn AMerICAn exAMPLeS oF DIFFerenT TyPeS oF InnovATIonS

These examples of innovation in Latin America illustrate the various categories of the concept, and demonstrate the range of innovations taking place in the region. The Variable Specific Impulse Magnetoplasma Rocket (VASIMR), developed by Costa Rican astronaut and physicist Franklin Chang Daz is a textbook example of product innovation that is new to the world.4 The VASIMR is an electro-magnetic thruster for spacecraft propulsion that may one day be used for space transport. Chang Daz has founded a company (Ad Astra), based in the United States and Costa Rica, to develop the VASIMR and other advances in rocket propulsion technology. The Brazilian plane maker Embraer has built its success on an innovative manufacturing process and organisation in which it shares risks with and outsources production to partners in developed economies. Although Brazil had its own supply of excellent engineers in aeronautics, the company initially did not have the resources to invest in the production of planes. Hence out of necessity it had to innovate and share risks and returns with partners from developed economies who designed parts of the plane for Embraer in return for a share of the returns generated from the sales. Today, this model of risk sharing has become a globally accepted standard for the aeronautical industry at large.5 Havaianas flip-flops, produced by Brazilian footwear and textile company Alpargatas, have become a globally successful brand, thanks to the firms marketing innovation. Going against all expectations and common practice, Alpargatas repositioned the brand from the low end of the market to the high end. During its first 30 years, Havaianas were considered a cheap sandal for low-income consumers in Brazil. During the 1990s, the firms management radically changed its strategy, investing in advertising and exports to make Havaianas high-end footwear among consumers in Europe and the United States. The brand has gone from 44 different models in 1993 to over 6,000 today.6 Cinpolis is a good example of business model innovation because the firm has successfully adapted the traditional movie theatre venue into a space where all kinds of entertainment can be enjoyed collectively. After opening its first cinema in Mexico in 1993, Cinpolis today owns 2,320 screens worldwide, making it the fourth movie distributor in the world and the largest film distributor and theatre chain in Latin America. This international firm employs 15,190 people and has a presence in Mexico, Colombia, Costa Rica, Guatemala, Panama, Peru and El Salvador. In June 2010, Cinpolis entered India, and plans to enter the Chilean and Argentinian markets next. In Latin America, Cinpolis introduced the concept of multiplexes with modern equipment that include stadium-sized cinemas equipped with a digital sound systems and enormous screens. This was its main competitive advantage when entering India, one of the biggest film markets in the world. In 2010, Cinpolis reached an agreement with FIFA for exclusive rights to broadcast the football World Cup matches in its cinemas with digital quality.
3 In Latin America, Brazil and Chile follow the Oslo Manual in their definition of innovation at the firm level, while countries like Argentina and Uruguay follow the Bogot Manual, which includes some nuances in the methodology designed to capture the characteristics of innovative processes in the region better. 4 See Chang-Daz (2000). 5 Casanova (2009). 6 Casanova (2009).

Latin America the majority of innovations carried out by firms are new to the firm or to the domestic market. Statistics from the 2010 InnovaLatino Survey confirm that most innovations in Latin America are not new to the world. In the category of product innovation, for example, four out of five businesses that introduced a new product define it as an innovation for the national market or firm, but not for the world market (Figure 1.2). While the proportion differs across countries, the share of firms introducing worlds first products is less than 35% for all cases.7 In addition to different types of innovations, there are different types of innovators, depending on the size of the organisation and the primary type of benefit sought. These distinctions are significant because they represent different approaches to innovation and consequently underscore a challenge for those intent on fostering innovation: policy makers should specify what kind of innovator they seek to support with a particular policy tool. Innovators can be differentiated along two dimensions, yielding six varieties of innovators (Figure 1.3). The first dimension is by size of the organisation (e.g. the number of full-time equivalents (FTEs) in the organisation). Size both enables and constrains how effectively and efficiently an organisation engages in innovation activities. It also influences the kinds of resources it has access to for innovating. The second dimension distinguishes between organisations driven primarily by maximising profits and those driven by maximising social benefits, such as poverty reduction, healthcare for the poor, social justice, and improved literacy. Social innovation can be defined as initiatives where social improvements are the primary objective and generating profit is a secondary concern.8 Understanding the benefits that an innovator seeks enables analysts to assess more accurately what critical success factors correlate with different outputs. Taken together these help define different types of innovators (box 1.3). Customers and users alike can be innovators. Brazil offers a relevant example, where the government has actively shaped an environment that supports customers and users as innovators (box 1.4).
Figura 1.2. FIrMS InTroDuCInG ProDuCT InnovATIonS ThAT Are neW To The WorLD, The nATIonAL MArkeT or To The FIrM. (AS A PerCenTAGe oF ProDuCT InnovATInG FIrMS In MAnuFACTurInG)
100% 80% 60% 40% 20% 0%
18% 49%
14% 54%
36%
9% 48%
15% 49%
23%
17% 40%
17% 43%
10% 36%
58% 33% Overall 32% Argentina 6% Brazil
58% 42% Mexico
43% Chile
36%
19% Firm
40% Peru
54% Uruguay
Colombia Costa Rica National
Global
note: Percentage of manufacturing firms reporting product innovations to the world, the national market or the firm. Source: 2010 InnovaLatino Survey.
7 Consistent with the methodology of country-surveys, the answers are based on the opinions of participants. Therefore, these results should be interpreted in conjunction with other evidence to draw cross-country conclusions. Please see Appendix 1, at the end of this chapter, for more on the methodology for the InnovaLatino Survey. 8 See the work of INSEAD professor Filipe Santos (2009). More specifically, Santos (2009) argues that social entrepreneurs are predominantly focused on value creation from an activity (i.e., engaging in activities that increase the utility of societys members after accounting for the resources used in those activities) rather than value appropriation from an activity (i.e., capturing a portion of the value created by an activity). Social entrepreneurs pursue their social objectives drawing on a variety of funding models that range from fully reliant on philanthropy and government subsidies to fully commercial. Some social entrepreneurial initiatives are purely charitable; others also have a commercial objective. Words such as hybrid and blended are often used in the definition of social entrepreneurship. Nonprofits generating earned income can be a source of controversy. Social entrepreneurs are an important driver of social development in the way they enhance empowerment, particularly among marginalized groups.

Figure 1.3. SIx DIFFerenT InnovATorS bASeD on TWo DIMenSIonS
Large (> 50)
Large firms (e.g. Global Latinas) Corporate social responsibility
Public institutions
Organization size
Small to medium (10-50)
SMEs and entrepreneurs
Social entrepreneurs
Individual Profits for owners
Customers & users
Social benefits Primary type of benefit sought
Source: Authors.
Figure 1.4. PerCenTAGe oF MAnuFACTurInG FIrMS ThAT APPLIeD For InTeLLeCTuAL ProPerTy rIGhTS ProTeCTIon
90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
78% 70% 50% 42%
77%
79%
85% 75% 74% 62% 46% 33% 48% 47% 36%
56%
Argentina
Brazil
Chile
Colombia Large
Costa Rica Small
Mexico
Peru
Uruguay
note: Small firms are those with 50 or fewer employees, large firms are the remainder. Source: 2010 InnovaLatino Survey.

Figure 1.5. PerCenTAGe oF MAnuFACTurInG FIrMS WITh ACCeSS To ForeIGn MAChInery
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 15% Argentina 14% Brazil Chile Colombia Large
76%
79% 69%
86%
82% 72% 51% 37% 23%
86%
33%
34%
43%
27%
Costa Rica Small
Mexico
Peru
Uruguay
1.2 Why Innovation Matters for Development

Does innovation contribute to both general economic performance and social welfare? The question is worth asking, particularly for middle-income economies like those in Latin America, where vast development deficits exist. Moreover, if governments are called upon to foster innovation using public resources, there should be a strong case that such innovations confer economic and social benefits (beyond private returns to innovators) on citizens in general and the least favoured members of society in particular. This section briefly reviews the evidence that innovation (according to a variety of measures) makes an important contribution on a number of dimensions, including growth, productivity, exports, employment, wage inequality, firm survival, and health and well-being. Economic Growth. Beyond investments in physical and human capital, innovation investments are critical for long-term economic growth. Economies with higher rates of R&D investment have higher growth rates, as predicated by economic theory and confirmed by statistical analysis. Government and university-led research has a positive and significant effect on productivity.9 Firm Productivity and Exporting Activities of Firms. Innovation has had mixed effects on firm productivity. Results of the OECD Microdata Project find that most successful product innovators are also more productive (OECD, 2010d). Similar evidence exists for process innovations and firm productivity. However, there may be circumstances where positive effects will not be immediate, for instance, if a firm that introduces a new product incurs significant adjustment costs these might depress productivity, at least in the short to medium
9 See Grossman and Helpman (1991) and Aghion and Howitt (1998) for a detailed discussion on the role of innovation for growth. Cross-country studies find a positive correlation between aggregate R&D expenditures and GDP growth. Econometric analysis of OECD countries during the 1980s and 1990s finds that the level of R&D intensity has a significant effect on growth in real per capita GDP, and that stocks of domestic business R&D, public R&D and foreign R&D all have positive and significant effects on productivity growth, as does the stock of human capital (OECD 2003; Khan and Luintel, 2006). In particular, business R&D had a positive and significant impact on total factor productivity (TFP). Moreover, its impact increases over time and is higher in countries with R&D intensity, suggesting the presence of increasing returns. Box 1.3 in OECD (2010d) provides an overview on the relationship between innovation and growth.
box 1.3. FIve DIFFerenT TyPeS oF InnovATorS In LATIn AMerICA

Large Firms: Since 1984, when Adolfo Grobocopatel founded Los Grobo, the company has grown into one of the largest grain producers and agricultural service providers in the world - yet it owns no land, no tractors, nor harvesters. Los Grobo provides logistical and grain storage services to farmers, and produces soy, corn and wheat on a total of 300,000 hectares in Argentina, Brazil, Paraguay and Uruguay. Los Grobos innovative business model consists of an information-technology facilitated network of 3,800 small and medium agricultural suppliers. At its headquarters, 100 people provide inputs such as seeds, finance, technical advice, sale and marketing of crops, and the deployment of technologies such as GPS and agricultural simulation models to help the network of farmers manage soil resources and deal with climate risk. Gustavo Grobocopatel, Adolfos son and now president of Los Grobo, explains: We are not big... but many. Los Grobo has received significant global recognition. It was featured in the Best Sustainability Report developed by the Global Reporting Initiative, in 2000 it became the first grain producer in the world certified as ISO 9001 compliant, it has received the Solidarity entrepreneur award given by Ecumenical & Social Forum, Leadership in innovative organisational models applied to agriculture by Fundece, and first place in a CSR Survey organised by the magazine Valor Sostenible. Los Grobo received the Argentine National Prize for Quality in 2010, the first in the sector to receive it following its 2006 prize for Leadership and Innovation in the business model applied to the Agricultural Sector. Corporate Social responsibility: Causas.org is an NGO created in 2005, by Arturo Franco, Vidal Cantu and Adolfo Franco, whose initial intention was to use the internet to more efficiently link employees from corporations looking for volunteer opportunities with the organisations offering them. Causas.org has verified, registered and classified over 9,650 NGOs. Consequently, it has developed into a comprehensive online directory of Mexican civil society. Causas.org gives each civil organisation in Mexico a free domain and hosts a simple website where an NGO can communicate its mission and vision, social action, as well as blog, post videos and photographs, and most importantly, solicit volunteers. Participating NGOs can also administer their own websites. Causas.org provides people looking to volunteer a place on the web where they can search and compare various NGOs. In the first stage of the programme, Causas.org received financial support from companies like Axtel, Coca-Cola Femsa, Cinepolis, and Scotiabank. These companies also participated in Causas.org Corporate Volunteering Programme that generated more than 3,000 social action opportunities for their employees. In 2009, Causas.org was one of the winners of the National Solidarity and Volunteering Awards given by the government of Mexico. Small and medium size firms: Guerra Creativa provides design services by leveraging crowd sourcing in ways not previously seen in concept-to-design processes. If a client wants a new logo or webpage, Guerra Creativa will host a design contest for a fixed period (e.g., 21 days), then will enable the client to evaluate entries (often over 100), to select a winner. Guerra Creativa uses this process to design logos, websites, stationery, flash or 3D designs. Guerra Creativa also enables designers to interact and learn from each other, hosts exhibitions of their work online and provides feedback on the designs of others. A section of the site allows users to get exclusive tutorials, with step-by-step instructions for different techniques and advice from their interactive creative director. Currently, the community includes 3,400 designers who have already uploaded more than 11,000 designs and a total membership of 6,000 clients. Social entrepreneurs: In 1995, Rodrigo Baggio, a former Intel executive, founded the Centre for Digital Inclusion (CDI) based on the concept of helping people to help themselves. CDI Community Centres have three principal objectives: they are self-managed, self-sustainable, and they implement the CDI pedagogy. This unique approach requires that by the end of each four-month course, students will have used technology as the main tool to initiate, plan, implement and complete a social advocacy project aimed at changing an aspect of their lives. At the same time, CDI provides the teachers with training on the use of computers and pays them higher-than-average salaries (USD200 per month, which is more than twice the average salary of a teacher in the public school system). Currently, there are CDI franchises in 753 schools in Brazil and 100 abroad with 1,036 volunteers, 1,726 educators and 600,000 people from low-income communities have been certified. When CDI mobilised five internal working groups from different disciplines to innovate new solutions for efficient growth, the result was the creation of a new multimedia learning environment, new courses, new services with business plans, revised performance indicators, a new monitoring process, and an online platform for communication and collaboration. With the support of James Wolfensohn, former President of the World Bank and the Wolfensohn Institute, CDI is in the process of expanding to the Middle East and North Africa (MENA) region, to be followed by India and other parts of Africa. Time magazine named Baggio one of 50 Latin American Leaders of the New Millennium. Public Institutions: Public institutions are also significant innovators. A number of Latin American governments have launched public programmes to tackle poverty in innovative and effective ways. Colciencias in Colombia, founded in 1995, is a public entity that promotes science, technology and innovation activities. With a USD200 million budget, Colciencias funds research in universities and companies, technical development centres, awards scholarships to doctoral students, and helps set up regional information technology projects. The entity is focused on creating an attractive research environment for scientists in Colombia and has been active in establishing collaboration with research institutions in Europe and the United States. Since 2006, 22 technological development centres have been created, 1,161 research groups have received funding from the programme, 1,045 doctoral students have received scholarships, and 203 companies have received funding for scientific innovation activities, most of them co-funded by the firms.
Source: INSEAD (2010).
box 1.4. CuSToMerS AnD uSerS AS InnovATorS In brAzIL

Customers and users are individuals and groups who engage in activities that create new value for themselves and for fellow users, typically drawing on and adapting existing products or services. Eric von Hippel and colleagues (Baldwin and von Hippel 2009; Oliveira and von Hippel 2009; von Hippel 2005) provides a complementary approach to framing user-based innovation: Innovation users are individuals or firms that expect benefit from using an innovation, while innovation providers are firms or individuals that expect to benefit from selling a product or service based on one or more innovations. An innovation is user-developed if the developer expects to benefit from its use, and provider-developed if the developer expects to benefit from sales. This type of innovator is becoming more prevalent as developments in Information and Communication Technologies (ICTs) enable customers and users to increasingly draw on ICTs as platforms for engaging in collaborative activities that were previously too costly to practice and coordinate. In addition, firms have developed ways to profit (not necessarily directly) from these types of collaborative efforts. Traditionally, economists, policy makers, and business managers of large firms assumed that innovation followed a producer-developed mode i.e., that an innovation originates from a producer who then supplies it to consumers via goods and services that are for sale (Baldwin and von Hippel, 2009). However, innovations by customers and users are increasingly a viable and attractive alternative to producer-developed innovations. Open innovation systems, for example, are collaborations between key external partners (or, from the perspective of a producer, collaborations between a producer and key partners, customers and users) that emphasise the value of integrating knowledge from outside of the producer firm (i.e., from key partners, customers and users) (Chesbrough 2003). After Baldwin and von Hippel modelled different modes of innovation based on a variety of costs (design, architectures, and communication), they concluded that: Innovation by individual users and also open collaborative innovation are modes of innovating that increasingly compete with and may displace producer innovation in many parts of the economy. (2009: 2) For several years, Latin American economists, policy makers, and business managers have expanded from traditional approaches to innovation to include and foster alternative modes, such as innovation by customers and users. This is most evident in Brazil. A popular genre of user-generated innovations is open-source software software that is developed by users (who often happen to be professional software developers) and meets a specific set of criteria, such as its licence must allow for free redistribution, access to the source code, modifications and derived works; the licence must not discriminate against any person or group, it must not restrict anyone from making use of the programme in a specific field of endeavour, and the software must be software independent and technology-neutral (Open Source Initiative, 2009). Since 2003, when Sergio Amadeu was appointed by President Silva to head Brazils National Institute of Information Technology, the Brazilian government has promoted the adoption of open source software, accelerating its use by universities, business and government agencies from the national, to state, to regional level. The government has promoted the use of open-source by a series of policy initiatives, such as stating preference for opensource software and mandating its use in a programme that helps subsidise financing for low-cost personal computers. It has cited several reasons for promoting the use and development of free open-source software: the costs of use are significantly less than commercially developed alternatives and thus it is more accessible to a broader segment of the population; discarded old computers can be reused by replacing their out-of-date operating systems with open-source operating systems; it provides opportunities for more people to develop valuable ICT-related skills; and it gives people more software options to choose from. In February 2009, Brazils Ministry of Education announced it would be supplying 356,000 Linux-based virtualised desktops in each of the countrys 5,560 municipalities. At the time, this was the largest such deployment in the world. The government estimated that the cost of the PCs, with the PC sharing hardware and software, would be less than USD50 per seat and that Brazil would save roughly USD47 million in up-front costs with this switch, and thanks to the 1 to 10 model, about USD9 million in energy costs annually.
Source: INSEAD (2010).
term. This may explain why positive productivity effects are not always found. But even if the innovating firm suffers in terms of productivity for a time, its customers, suppliers or competitors could conceivably enjoy productivity gains as a result of positive spillovers from the innovating firm.10 In high-income countries there
10 A study of Argentinian firms (Chudnovsky et al., 2006) likewise shows a positive impact of innovation on productivity. A significantly negative impact of technological adjustments on TFP was found in a study of Colombian plants (Hugget and Ospina, 2001). There is also evidence that product innovation specifically may weaken or even reverse TFP growth (Parisi et al., (2006), Harrison et al. (2008), and Hall et al., (2007)).

is a positive association between export intensity and innovation.11 It is likely that exporting activities can both be both outcomes and enablers of innovation activities; the primary direction of causation is controversial.12 Employment. Innovation impacts on well-being by creating demand for new and possibly better paid jobs. This is particularly likely to occur if innovations successfully expand firms markets.13 Some types of innovation, however, may be labour-replacing. But even in such a case, innovation is still potentially a net creator of jobs: if the effect of the change is to reduce the firms costs, and thus the price of the good it sells, then demand for the product will rise, thereby increasing demand for workers. Or more generally, an innovation may change the dynamics of the labour market, creating a demand for new types of jobs. The varying effects of innovation on employment growth can account for the mixed evidence from statistical studies of the subject.14 On average, about two-thirds of firms in the 2010 InnovaLatino Survey, including both large and small firms, found that innovation led to both job creation and job saving (Figure 1.6). Wage inequality. Just as technologies generate different levels of demand for skilled and unskilled workers, innovations may increase demand for skilled workers at the expense of unskilled workers. In Latin America, where society is marked by high levels of income inequality, this could be particularly harmful. Chile and Mexico, for example, have seen greater wage inequality over recent decades, partly driven by technological upgrading (often as a result of openness to foreign trade), whereby wages for skilled workers have risen relative to their less skilled counterparts.15 In the long run, however, changes in the skills composition of the labour force could reverse such trends. Firm survival. Innovation is an inherently risky activity. Are innovating firms more susceptible to failure, (even if the most successful are outstanding performers) or more likely to endure? The answer to this question has major implications for the social effects of innovation. Plant shutdowns lead to unemployment and a host of other negative impacts. In OECD countries, R&D investment has an impact on the survival rate of innovating firms that is positive overall.16 However, since R&D activities are generally related to technologically-intensive innovations and few firms in developing countries are engaged in such activities, that evidence only speaks to a small part of innovation in Latin America and other developing countries. In Chile, innovating firms are less likely to drop out of the market
11 See e.g. Basile (2001) for Italy, Roper and Love (2002) for the United Kingdom and Germany. 12 Holmes and Schmitz (2001) model the possibility that innovation incentives rise as export markets expand. Significant evidence demonstrates that good firm performance leads to export activities. An important explanatory factor is that exporting involves substantial costs that have to be recovered and only those firms with significant profit potentials will do so (Clerides et al., 1998). Lopez (2004) and Alvarez and Lopez (2005) provide evidence of productivity changes prior to exporting activities, suggesting moreover that dynamic firms have greater export opportunities, at least in Chiles case. Aw et al. (2007) provide econometric evidence based on information on productivity and R&D, suggesting that innovation is a key ingredient for benefitting from trade. Also, Baldwin and Gu (2004) find for a set of Canadian firms that exporters tend to be more innovative before and after export market entry. 13 Vivarelli and Pianta (2000). 14 Most (but not all) studies find a positive effect of product innovation on employment. For process innovations, by contrast, the evidence is less consistent. This may be because process innovations can in some circumstances turn out to be labour-replacing without off-setting increases in labour demand from increased production. But it is equally possible that findings are affected by data limitations, as increases in labour demand spurred by innovations may only arise in future time periods, after new machinery has been introduced, whereas labour replacements of technologies will arise at the same time as new machinery is introduced; in that case, researchers will tend to underestimate the offsetting job creation effects. Van Reenen (1997), Greenan and Guellec (1997), and Harrison et al. (2008) find pro-employment effects of innovation in OECD countries. For studies that find no relationship, or a negative one, see e.g. Brouwer et al. (1993), Greenan and Guellec (2000), for their sectoral level analysis, and Klette and Forre (1998). 15 Bustos (2009) shows for Argentina, during the period 1992-6, that increases in wage inequality are due to trade-induced technology adoption that demands skills upgrading. Verhoogen (2008) finds similar evidence of an even stronger innovation-related measure product quality upgrading on skills upgrading, with resulting impacts on wage inequality in Mexico over the 1990s. Esquivel and Rodrguez-Lpez (2003) and Gallego (2006) likewise find suggestive evidence that technological change contributed to wage inequality in Mexico over 19942000 and in Chile in the 1980s. Similarly, Fajnzylber and Fernandes (2009) look at skills demand and technology adoption from abroad and find evidence of a positive relationship in the case of Brazil. This evidence does not, however, hold for all periods systematically across all countries. For instance, Pavcnik (2003) finds no evidence of a relationship between technology adoption and skills upgrading for the case of Chilean manufacturing firm employees. 16 Esteve Perez et al. (2004) and Hall (1987) find a positive impact for R&D activities on firm survival. Cefis and Marsili (2006) find a positive effect for innovation on firm survival but their study relies on subjective measures of innovation for a cross-section of firms.

Figure 1.6. PerCenTAGe oF MAnuFACTurInG FIrMS rePorTInG InnovATIon LeD To job CreATIon AnD job SAvInGS
90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Argentina 41% 30%
78% 80% 57%56% 63% 59%
69% 67%
75% 77% 62% 54% 43% 38%
Brazil
Chile
Colombia
Costa Rica Job savings
Mexico
Peru
Uruguay
Job creation
when they adopt cautious innovations, that is, new projects that are relatively small relative to their overall volume of sales.17 Health. While this report focuses primarily on firms, markets and regions, the benefits of innovation extend beyond actors and institutions directly involved in innovation activities. Innovation clearly impacts on social well-being and quality of life. For example, most R&D in the area of medical research and equipment is done in a small number of countries,18 and health investments are larger (in absolute and relative terms) in developed countries,19 pointing to the importance of technological progress and knowledge as a major driver of the reduction in mortality rates around the world. The diffusion and adoption of innovations in health care occurs through channels largely outside of private markets, in which public policy plays an important role. Brazil, for example, has developed an extensive capacity in the biopharmaceutical industry thanks to a strong public commitment to R&D and a well-articulated policy mix on health, industry and technology. The application of ICTs in the delivery of public health services provides another example of the relationship between innovation (as embodied in ICTs) and health outcomes (see Chapter 3). Latin American countries are converging with richer countries in terms of life expectancy much more rapidly than their productivity performance might suggest. Indeed, countries that had lower levels of life expectancy in 1960 have seen more rapid improvements on that measure, and Latin American and Caribbean countries have been part of the process (Figure 1.7).
17 Fernandes and Paunov (2009) find that for Chilean firms, the probability that innovators exit the market is one percentage point lower than for non-innovating firms, a large effect in practical terms, given that the probability of exiting the market for all firms in the sample is 10 per cent overall. Exploring the role that risk may play for the relationship between innovation and survival, they find that only cautious product innovation has a significant positive effect on survival, whereas more risky innovations do not enhance firm survival. Cautious innovation mimics the risk-minimising diversification principles from the finance literature; new innovations will only be introduced on a small scale relative to the overall production. 18 For example, according to OECD figures, as of 2002 almost 85 per cent of the OECDs R&D expenditure in the pharmaceutical sector was concentrated in just five countries (France, Germany, Japan, the U.K. and the U.S.). 19 According to World Health Organizations statistics while the average per capita public health expenditure in Latin America and the Caribbean is around 320 US dollars (in PPP terms), for OECD countries this average is more than six times Latin Americas (around 2100 US dollars). Data are available at: http://www.who.int/whosis/en/index.html

Figure 1.7. CATChInG uP In LIFe exPeCTAnCy 1960-2007 0.8
0.7
China
0.6
The Gambia
Oman Bhutan Indonesia
0.5
Guinea
Vietnam Saudi Arabia
Nepal Bangladesh
0.4
0.3
0.2
0.1
Libia Egypt Maldivas Jordania Algeria Senegal Bolivia Guatemala Morocco India HondurasNicaragua Papua New Guinea Siria Eritrea Madagascar Comoros Vanuatu Mali United Arab Emirates Mauritania Peru Burkina Faso Sudan Laos Tunisia Iran Republic of the Korea Samoa Djibouti Niger Mongolia El Salvador Qatar Haiti Gabon Equatorial Guinea Afghanistan Cambodia Turkey Ecuador Ethiopia Dominican Republic Pakistan Togo Chile Cape Verde MalaysiaBahrain Macau Benin Guinea-Bissau Philippines Mexico Kuwait Sierra Leone Somalia So Tom and Prncipe Ghana Colombia Costa Rica Brazil Solomon Islands Thailand Panama Singapore Angola Malawi Brunei Venezuela Belize Hong Kong Fiji Mauritius Albania Portugal Cuba Japan Luxembourg Bosnia and Herzegovina Chad Tonga Macedonia Germany Micronesia Lebanon Barbados Greece Belgium Republic of the Congo Cameroon Nigeria Canada Iraq Mozambique Tajikistan Guyana Sri Lanka Argentina France Finland Suriname Spain Australia Israel Burundi Uganda The Bahamas Croatia Ireland Puerto Rico Slovenia New Zealand Netherlands Antilles Kenya Central African Republic Paraguay Poland Malta United Kingdom Tanzania Uzbekistan Democratic Republic of the Congo Turkmenistan Jamaica SwedenUnited States Uruguay Italy Switzerland Liberia Moldova Romania Namibia Grenada Armenia Austria Netherlands Cyprus Georgia Norway Cte d'Ivoire Rwanda Hungary Denmark Trinidad and Tobago Estonia Czech Republic Bulgaria Belarus Azerbaijan Latvia South Africa Lithuania Botswana
Log difference Life Expectancy 2007 - 1960
Ukraine
Zambia
0.1
Lesotho Suazilandia
Zimbabwe
0.2 3.4
3.5
3.6
3.7
3.8
Life Expectancy (1960, logs)
3.9
4.1
4.2
4.3
4.4
note: The figures show trends in life expectancy for a panel of 170 countries over the period 1960-2007. beta convergence is said to occur if the countries with lower initial levels of life expectancy improve more quickly over time. Thus, the downward slope of the best-fit line in this figure indicates that countries with lower initial levels of life expectancy (in 1960) enjoyed a larger increase in life expectancy -- which is measured on the vertical axis -- over the subsequent 47 years. Latin American and Caribbean countries are shown in red. Source: Daude (2010), based on World Bank, World Development Indicators.
1.3 Innovation Performance in Latin America in a Comparative Perspective

A frequently cited indicator of innovation performance is R&D investment as a share of gross domestic product (GDP). Latin American economies are well below the OECD average, and the regional average is barely above a tenth of the R&D expenditure of South Korea (Figure 1.8). There is nevertheless a wide diversity within OECD economies, with some OECD countries such as Greece, Poland and Turkey closer to Latin America than to the top performers. Note that R&D is necessary for certain kinds of product innovations, and that it may increase firms capacities to adapt new technologies more generally. At the same time, R&D investment measures only a part of the innovation economy. The different economic structures of OECD and Latin American states may lead one to expect lower rates of R&D investment in the latter. Economic sectors with lower R&D intensity for example, natural resource-based sectors such as agriculture, mining and petroleum extraction account for a larger share of GDP in Latin America than in OECD countries, and therefore aggregate R&D investment rates in Latin America could be expected to be lower. In this discussion, it must be highlighted that Latin America is a heterogeneous region, characterised by the coexistence of different production structures. (In Chapter IV we attempt to compare more carefully R&D investment rates within sectors between Latin America and OECD countries, finding that when this correction is made only part of the R&D gap disappears.)
Figure 1.8. r&D exPenDITure AS A ShAre oF GDP (In PerCenTAGeS) (2007 or LATeST AvAILAbLe yeAr IF InDICATeD)
Honduras (2004) Nicaragua (2002) Guatemala (2006) Paraguay (2005) Peru (2004) Ecuador Colombia (2006) Panama (2005) Bolivia (2002) Uruguay (2006) Costa Rica (2004) Mexico Argentina Chile (2004) Brazil (2006) Latin America OECD Poland Greece Portugal Spain France United States South Korea
0.04% 0.05% 0.05% 0.09% 0.15% 0.15% 0.18% 0.25% 0.28% 0.36% 0.37% 0.38% 0.51% 0.67% 0.30% 0.57% 0.58%
1.02% 2.33% 1.51% 1.35%
2.02%
2.77% 2.5% 3.0%
3.37% 3.5% 4%
0%
0.5%
1.0%
1.5%
2.0%
notes: All oeCD values for 2008, including oeCD average, except Mexico and Greece (2007). The average for Latin America is computed for the Latin American countries in the graph including Mexico and Chile and use World bank data. Source: Main Science and Technology Indicators (2010-2), OECD Statistics, World Bank, World Development Indicators.

Figure 1.9. PATenT APPLICATIonS To The euroPeAn PATenT oFFICe (2008, by PrIorITy DATe AnD CounTry oF reSIDenCe oF APPLICAnTS AnD InvenTorS)
Venezuela 0 Uruguay 1 El Salvador 1 Peru 2 Guatemala 3 Ecuador 3 Costa Rica 3 Panama 9 Colombia 15 Argentina 19 Chile 23 133 Mexico 359 Brazil 44 Latin America OECD Portugal Greece Poland Hungary Turkey Spain South Korea 73 75 106 148 270
4,215
1,092 1,000 2,000 3,000 4,000 5,000 6,000
6,406 7,000
note: These statistics are simple counts based on the date of application and the applicants country of residence. The oeCD average is obtained using information for 31 oeCD countries including Mexico and Chile (which are also included in the average for Latin America) and excluding Slovenia. The average for Latin America is computed only for the Latin American countries included in the graph. Source: OECD Patent Database, 2009.
Patent applications provide another indicator of the innovation intensity of an economy. The patenting gap between OECD and Latin American countries is wide; even the top Latin American performers Brazil and Mexico are well below the OECD average (Figure 1.9).20 As for R&D investment, a high degree of heterogeneity among OECD countries exists, with a small number of leaders (not all of them OECD countries) dominating in patent activity. In 2006, Japan, the United States, South Korea, Germany and China represented 76 per cent of all patent filings.21 The share of high-technology exports as a share of all manufacturing exports are usually used as a proxy for technological specialisation of production structures. Latin American countries are less specialised in high-tech exports than OECD economies (Figure 1.10). However, this indicator does not capture the effective value-added generated in the country, and there are some caveats regarding its interpretation. For example, the case of
20 Figure 1.9 shows the number of patent applications to the European Patent Office (EPO) under the patent co-operation treaty protecting inventions in each of the 142 signatory countries. Data from the EPO, rather than national patent offices, is used in the interest of comparability in quality of patents. Note that we chose these specific data out of a concern over their comparability. This, however, is not to deny that other indicators might be equally appropriate, including triadic patent statistics, information on obtained patents rather than patent applications. Another option would have been to use applications/patents obtained at USPTO. 21 WIPO (2008).

Figure 1.10. hIGh-TeChnoLoGy exPorTS AS A ShAre oF ToTAL MAnuFACTurInG exPorTS (In PerCenTAGeS) (2008 or LATeST AvAILAbLe yeAr IF InDICATeD)
Panama Honduras (2007) Peru Venezuela Colombia Guatemala Uruguay El Salvador Bolivia Nicaragua (2007) Ecuador Chile Dominican Republic Argentina Paraguay Brazil Mexico Costa Rica Latin America OECD Turkey Spain (2007) Poland Portugal Greece Japan Hungary South Korea (2007)
0.03% 1.21% 2.23% 3.51% 3.75% 4.12% 4.23% 4.35% 4.43% 4.46% 4.55% 6.15% 7.53% 9.02% 9.32% 11.97% 7.72% 1.74% 5.16% 5.24% 8.38% 9.96%
19.41%
38.65%
14.49%
17.87% 15% 20%
24.15% 25% 30%
33.45% 35% 40% 45%
0%
5%
10%
notes: high-technology exports are defined as products with high r&D intensity, such as in aerospace, computers, pharmaceuticals, scientific instruments, and electrical machinery. The oeCD average is obtained using information for all 32 oeCD countries including Mexico and Chile (which is also included in the average for Latin America). Average for Latin America is computed only for the Latin American countries included in the graph. Average for oeCD for 2008. Source: World Bank, World Development Indicators.
Costa Rica is basically explained by Intels share of activity in the small economy; in Mexico, maquila activities have a similar effect on statistics. Trademarks can be used as a proxy for complementary innovation activities and offer an interesting perspective on the intensity of investment in the protection of intangible elements of innovation. Trademarks are also more frequently used in sectors with relatively greater importance in Latin America, such as textiles, foods and beverages. In line with expectations, the gap between Latin America and OECD countries persists, but is less pronounced in the case of trademarks (Figure 1.11). Productivity can be used as another much broader measure. Changes in productivity at the macroeconomic level are typically measured using the concept of total factor productivity (TFP). In principle, the TFP measure proceeds as in the following illustration.22 Suppose that one knows the quantities of all the inputs types of la-
22 Formally, defining TFP requires defining the economys production function, that is, specifying how inputs, X, are combined to generate output, Y: Yu = AuFu(Xu) where F specifies the production technology -- the way outputs are transformed into output. A denotes TFP of economy i at time t. Note that if Y increases between t and t+1, and there is no change in the input vector X, the increase is attributable to TFP growth, an increase in A. Empirically, since A cannot commonly be observed in the data it is obtained as a residual using information on output, prices and assumptions regarding the production functions.

Figure 1.11. TrADeMArk APPLICATIonS, DIreCT reSIDenTS
Nicaragua (2007) El Salvador (1997) Bolivia (2007) Honduras (2007) Uruguay Panama Costa Rica (2007) Guatemala (2007) Paraguay (1993) Ecuador (2007) Venezuela (2000) Colombia (2007) Peru Chile (2007) Argentina (2007) Mexico Brazil Latin America OECD Hungary Greece Poland Portugal Spain Turkey South Korea United States
1.2 1.7 1.9 2.4 4.4 4.4 5.9 6.0 6.0 6.1 13.3 14.1 15
30.8
55.3 56.6
0 3.3 6.4 14.7 15.5
19
97.9
47.9 62.1 50 100
107.5 150 200
250
246.2
300
note: The number of applications refers to those presented for registration with the national or regional trademark office. The average for the oeCD was obtained using 31 oeCD countries, including Chile and Mexico, also included in the average for Latin America. The average for Latin America is based only on those countries of the region included in the figure. Source: World Development Indicators, World Bank.
bour, equipment, infrastructure, etc. used to produce Argentinas gross domestic product in 2010. Now suppose that there is absolutely no change in the available inputs no growth in the labour force, no new machines, no depreciation in equipment, etc. between 2010 and 2011, but that GDP is higher in the latter year. The difference in growth is attributed to TFP, which is roughly speaking the efficiency with which inputs are combined. At least part of TFP growth can be explained by innovation, which should allow an economy to produce more output from a given quantity of labour and capital. Chiles TFP growth exceeded that of the United States over the last half century, and Brazils nearly matched the US rate (Figure 1.12).23
23 The way that TFP is measured requires a lot of statistical information, which means that it is usually only available with a considerable lag. For this reason, Figure 1.12 ends in 2005, hence readers may suspect that TFP has reversed the trend in recent years, which witnessed vigorous economic growth leading up to the global economic crisis. While complete and up-to-date data are not yet available for all of the countries in this graphic, early indications from some countries suggest that it is highly unlikely that there has been any inflection point in the graph of TFP in more recent years.

Figure 1.12. ToTAL FACTor ProDuCTIvITy (TFP) rATIo (2005 verSuS 1960)
Chile United States Panama Brazil Dominican Republic Ecuador Uruguay Bolivia Colombia Peru Jamaica Latin America Mexico Argentina Costa Rica Paraguay El Salvador Venezuela Honduras Nicaragua
0.2
0.4
0.483
1.306 1.28 1.273 1.199 1.144 1.117 1.088 1.083 0.965 0.943 0.938 0.895 0.842 0.833 0.829 0.758 0.694 0.68 0.8 1 1.2 1.4
1.552
0.6
1.6
1.8
note: For each country, the bar shows the ratio of TFP in 2005 to TFP in 1960. If the ratio is greater than one, TFP has increased over those 45 years; otherwise, it has declined. Source: Daude (2010).
1.4 Developing New Indicators of Innovation

The statistical evidence provided above highlights some aspects of innovation activities in Latin America. By developing a set of additional indicators other features of innovation can be better understood. To better measure innovation, policy makers and researchers are moving beyond the aforementioned indicators. Prominent examples of new measures for OECD countries are those focusing on investment in intangibles and data from firm innovation surveys, including the percentage of firms that introduce new-to-market products and marketing and organisational processes (to measure innovation at the firm level). INSEADs Global Innovation Index (GII), meanwhile, seeks to broaden the set of variables used to monitor innovation performance to include those more relevant to developing countries. Efforts are under way to develop such indicators for Latin American countries as the basis of a better understanding of their innovation performance. Innovation derives from a combination of tangible and intangible assets and investments. The tangibles include machinery, equipment and structures, while the intangibles cover organisational and human capabilities, software, as well as trademarks and immaterial assets for which customers are ready to pay (such as design). That this plays a potentially important role in growth can be seen by jointly considering changes in the value of output per worker (Figure 1.13). An analysis of this relationship reveals that intangible assets represent a large share of the increase in labour productivity over the last decade, signalling a concrete and important payoff from innovation activities. Interestingly, when the dimensions of innovation beyond R&D are taken into account, the economic sectors in OECD countries where high rates of innovation are observed include sectors not conventionally thought of as innovative. Printing and paper products or textiles and clothing, for example, in some countries have rates of innovation as high as those observed in communications or financial services. While this indicates that the set of innovators is far wider and that cross-industry differences may be less powerful, it is also the case that inno-

Figure 1.13. InTAnGIbLe CAPITAL ACCounTS For A LArGe ShAre oF LAbour ProDuCTIvITy GroWTh PerCenTAGe ConTrIbuTIonS, MArkeT SeCTor, 1995-2006 (or neAreST AvAILAbLe yeAr)
70% 60% 50% 40% 30% 20% 10% 0% 27% 61%
45%
40% 32% 30% 30% 30%
29% 22% 20% 20% 19.5% 19% 7% 4% 4% 2% 1% 1%
19%
11% 10%
19% 2%
10% 7%
8% 5%
6% 8%
5.5% 8.5%
2%
7%
3% 5%
5% 8%
8% 3%
5%
5%
7.4% 3%
Re Slo pu va ec bli k c h Re pu bl ic Sw ed en
ce
ce
ria
lia
n ai
es
an
do
pa
an
ar
at
an
ee
ra
st
nm
ng
Au
Gr
St
Au
Fi
Fr
ite
Cz
Un
note: The estimates are based on national studies. They do not yet reflect standardised methods and definitions. Figures for japan refer to the whole economy. As shown in various oeCD studies, labour productivity can be affected by demographic trends and employment dynamics, e.g. in Spain. Source: OECD, based on COINVEST and national studies. Reference to COINVEST http://www.coinvest.org.uk/
vation tends to be dominated by a relatively small proportion of firms. In Australia, for example, less than 10 per cent of firms account for 80 per cent of innovation expenditure and innovation sales.24 OECD analyses at the firm level help to show the complementary nature of innovation including, for example, the share of firms that introduce new-to-market product innovation, differentiating by R&D and non-R&D performers (Figure 1.14). In all countries, a higher share of businesses with in-house R&D introduced new products than those without an R&D capacity, demonstrating the importance of R&D. But in many countries including Luxembourg, Norway, Mexico and Australia non-R&D firms introduced new products at nearly the same rate as their R&D counterparts. One-dimensional measures as presented in this chapter are often too limited to capture the diversity in innovation in emerging markets. For this reason, INSEAD developed the Global Innovation Index (GII) in 2007 (box 1.5), a composite indicator which emphasises alternative mechanisms for financing such as the availability of micro-finance to stimulate innovation at the grassroots level in emerging markets.
24 OECD (2010a).
Un
Contribution to intangible capital Contribution from tangible capital Labour productivity growth
ite
De
Ge
Ki
rm
nl
st
Ja
Sp
Ita
ly

Figure 1.14. neW-To-MArkeT ProDuCT InnovATorS, 2004-06
80% 70% 60% 52% 50% 40% 30% 20% 10% 0% 31% 30% 33% 29% 29% 20% 12% 20% 24% 67%
65% 65%
63% 62%
61%
58% 57%
54% 53% 52% 52% 51% 50% 48% 43%
45%
43%
42% 40% 39% 39% 34% 30% 20% 23%
25% 13%
27%
17%
16% 9% 7%
9%
note: In Luxembourg 52% of non-r&D performers introduced new-to-market innovations as compared to 63% of in-house r&D performers. Source: OECD (2010), Measuring Innovation: A New Perspective, OECD, Paris, based on OECD, Innovation microdata project.
The launch of an Innovation Strategy by the OECD at its ministerial-level council meeting in May 2010 points to the importance of focusing more on non-technological innovations and the contribution of innovations to development has preceded the emerging paradigm in OECD countries (box 1.6). Though the above efforts address a broader range of countries (beyond Latin America) many of the messages of the strategy are relevant and useful for Latin America and the Caribbean. Indeed, innovation is a common challenge for all world economies, and the changing innovation scenarios characterised by new technological paradigms, new opportunities and the increasing speed at which changes take place requires new, better-tailored policy models. In some ways, one of the key messages of the OECD Innovation Strategy the need to link technological change with a clear vision of its impacts on the demand side, business models and societal wellbeing is, and always has been, a key concern of Latin American innovation and development thinking. Latin America and the Caribbean, is facing rising challenges in a global context characterised by the growing relevance of worldwide innovation networks and a growing need for endogenous capacities to reap the benefits
Cz Au e Ice ch str la Re ia nd pu (2 bli 0 c Lu 02 xe -0 m 4) bo u Ire rg la Ca S n Ne we d na da th de er n (2 la 00 nd 2Es s 04 to ,m ni an a uf Ch ac il tu e rin No g) rw M ex Be ay ico lg (2 ium 00 6 De -07 nm ) ar So Jap k ut an h (19 It Af a ric 99 ly a -20 (2 00 01) Au So 2st 04 ut ra h lia S ) Ko re (2 pai 00 n a (2 600 U 5- nit Por 07) 07 ed tu , m K ga an ing l uf do ac m tu rin g)
Innovative firms without R&D Innovative firms with in-house R&D
box 1.5. InSeADS GLobAL InnovATIon InDex

The Global Innovation Index (GII) was developed by INSEAD in 2007 as a research project and a methodological tool to assess countries ability and preparedness to leverage innovation advances for increased competitiveness and development. It uses indicators from various sources, including hard data collected by international organisations, such as the International Telecommunication Union (ITU), the United Nations, and the World Bank, as well as survey data from the Executive Opinion Survey conducted annually by the World Economic Forum. The GII uses this wide range of indicators which relate to a broad set of issues -- listed below -- to create a composite indicator. The GII combines information from five input pillars and two output pillars. Each of these is further broken down into sub-pillars (see www.globalinnovationindex.org for more details): Institutions: This pillar tries to capture the macroeconomic stability and the institutional framework of a country. Nurturing a regulatory framework that attracts business and helps to foster their growth by giving them an adequate measure of incentive and protection is essential for every nation that plans to boost innovation. human Capacity: The level and standard of education and research activity in a country are the prime determinants of its innovation capacity. But human capital and the rate of innovation are interdependent and complementary to each other. ICT and General Infrastructure: Infrastructure is a crucial pillar that supports innovation by feeding into the innovation system through two channels. Not only does it foster the growth of businesses, it also raises the standard of living in the economy, thus raising productivity levels and consequently overall efficiency. An extensive network of infrastructure thus forms the backbone of any economy by aiding smooth transaction, transportation and delivery of capital, bringing down transaction costs and in turn increasing market accessibility. Market Sophistication: This pillar tries to capture the state of credit availability and the condition of creditors and investors in an economy. While developed markets exhibit structured financial set-ups and a well-functioning venture capital market, this pillar recognises that in emerging markets a large portion of the economy is informal. business Sophistication: This pillar captures the nature of the business environment and its conduciveness to innovation activity in the economy. Scientific outputs: This is the first pillar of the outcome of innovation. It covers factors like number of patents, number of scientific publications, growth rate of labour productivity, entrepreneurship rates and employment in the knowledge-intensive sector. This pillar covers most variables which are traditionally seen as measures of innovation. Creative outputs: The second output pillar measures whether innovation has produced results in the creative industry and raised standards of living. It includes many non-traditional measures of outputs of innovation activities. The most recent third edition of the GII, published in 2010, ranks 132 economies around the world and provides useful regional comparisons and overall lessons. The entire report can be downloaded from : www.globalinnovationindex.org and the site also provides access to the underlyling ata and associated modelling tools.
Source: www.globalinnovationindex.org.
of a rapidly changing global arena and close the innovation gap. The remainder of this report looks at what governments and businesses in the region are doing to close that gap and concludes by making recommendations for policy makers.
box 1.6. The oeCD InnovATIon STrATeGy

The OECD Innovation Strategy draws on significant work carried out by more than 15 committees and their working parties across 10 OECD directorates, including numerous analytical projects, workshops, conferences, a series of country roundtables with policymakers and stakeholders. A specialist, high-level expert advisory group has provided guidance throughout the development of the project. These Innovation Strategy deliverables provide policy makers with a comprehensive and cross-cutting policy guidance package setting out the priorities for structural reforms that can accelerate innovation-led growth: In-depth OECD analysis of policies for innovation (OECD, 2010a), A compendium of indicators to help position economies in the context of a broad notion of innovation, track developments in innovation processes, and monitor the implementation of the strategy (OECD, 2010b) Four aspects of the Innovation Strategy are directly relevant to Latin America. First, innovation requires matching R&D investments with a series of investments in capabilities, human resources and the productive application of new ideas, not only deriving from strictly technological advances. Second, successful innovation increasingly involves various forms of collaboration among a rising set of stakeholders (firms, institutions, customers, etc.). Third, innovation is no longer the exclusive domain of a small number of high-income countries; emerging economies, notably China and India, are demonstrating leadership in innovation, a development that both challenges the position of Latin American economies and offers new opportunities. Finally, innovation must increasingly be green, to find new, more sustainable models of economic development and address increasingly pressing environmental challenges.
Appendix
The 2010 InnovaLatino Survey
The 2010 InnovaLatino Survey was implemented under the supervision of the OECD Development Centre. The initial sampling framework was established by the Gallup Consultancy Group and Ipsos International implemented the survey across eight countries Argentina, Brazil, Chile, Colombia, Costa Rica, Mexico, Peru, and Uruguay via its respective country offices. As such, the survey was not elaborated jointly with national statistical agencies, though they were consulted beforehand in some cases, and they provided information after the survey, as is detailed in Table 1.A1. The objective was to gather up-to-date information on innovation activities among a large number of firms in the region, including information regarding the impact of the current economic crisis upon firms innovation projects. The objective was not to duplicate or update national innovation surveys based on nationally representative samples. Rather, the responses reported and analysed in this report provide evidence on the innovation strategies used by manufacturing firms in eight Latin American countries, as well as insights regarding how these strategies have been affected by the 2008-9 economic crisis. The InnovaLatino Survey used Oslo-Manual type questions: e.g. asking whether innovations were new to the market or only to the firm, asking which among four types of innovations were undertaken, etc. Nevertheless, the survey design and methodology was different than the case of innovation surveys periodically undertaken (usually among a much larger sample of firms) by national statistical authorities. For example, other innovation surveys sometimes ask firms about innovative activity during the last two to three years; the InnovaLatino Survey, motivated in part by an interest in the effects of the global financial crisis, only asked about innovation undertaken during the previous year. As such, the summary statistics reported in this report will not necessarily correspond to statistics published by national authorities based on their own innovation surveys. The survey targeted only firms in the manufacturing sector (comprising categories 15-37 of the ISIC Rev. 3 classification), allowing for uniformity of what is meant by innovation across different firms. Such uniformity is difficult to find in the service sector, for example, which includes insurance firms, television repair providers, hospitals and a much broader set of economic activities. (In some countries, innovation surveys of the service sector have addressed this problem by looking only at a narrow slice of service providers: just hospitals, for example.) The disadvantage of this restriction is that services a large sector of the economy in all Latin American countries are not represented among the surveyed firms. Two hundred cases were randomly selected from a list for each country, based on publicly available firm registries including credit bureaus, industry chambers, industry associations and phone directories. A random stratified sample was selected aiming at over-representing medium and large firms in terms of employment. The
Table 1.A1. SourCeS uSeD To obTAIn PoPuLATIon ShAreS, by CounTry
Country
Argentina Brazil Chile Colombia Costa Rica Mexico Peru Uruguay
Agency
INDEC IBGE INE DANE INEC INEGI INEI INE
Data Source
National Economic Census, 2003/2004 National Firm Census, 2004 Manufacturing Firm Census (ENIA), 2004 National Manufacturing Census, 2006 Information provided directly by the Statistical Office National Economic Census, 2004 National Firm Census, 2007 Information provided directly by the Statistical Office

oversampling of larger firms was necessary to capture innovative activity, which is highly concentrated in (though not entirely restricted to) larger firms according to survey evidence in many countries. As a result of the restriction to manufacturing and the emphasis on larger firms, the initial sample is, by design, not representative of the entire population of firms in the eight countries covered. The survey was implemented between November 2009 and January 2010 in all eight countries. Special care was taken to interview those most closely involved with innovation activities of the firm. In the large majority of cases this involved interviewing the highest ranking officer or the owner of the firm, whenever the latter was directly involved in conducting the business of the firm. A double strategy was used to interview the identified individuals with 80% phone-assisted and 20% in-person interviews. A total of 1,507 valid observations were obtained. Post-stratification weights based on firm size and sector of activity were implemented to better reflect the population of firms in each country. These weights were constructed with reference to firm size and innovationintensity of the firms sub-sector. The two size categories chosen are i) firms with more than 50 employees and ii) firms with 50 and fewer employees. The two sectoral categories are i) medium and high-technology sectors (including ISIC Categories 23, 24, 25, 26, 27, 28, 29, 30, 31, 32, 33, 34, 35) and ii) low-technology sectors (including ISIC Categories 15, 16, 17, 18, 19, 20, 21, 22, 36, 37). The latter categorisation is based on the OECD classification based on R&D-intensities of sectors.1 Weights are then obtained for each country for each of these four categories by dividing the population shares by the sample shares. Population shares were retrieved from the the most recent available information provided by National Statistical Offices, with the sources and years differing by country (details are provided in Table 1.A1). These weights are applied for all statistics reported throughout the report. Note that such post-survey adjustments are not a substitute for a fully-stratified sample before the fact.
1 http://epp.eurostat.ec.europa.eu/cache/ITY_SDDS/Annexes/htec_esms_an3.pdf
Chapter
Innovation in Latin America: evidence from the region
Chapter
Innovation in Latin America: evidence from the region
Innovation is a systemic phenomenon which requires the interaction of institutional and market incentives. The concept of the national innovation system (NIS), which concerns the elements and relationships which interact in the production, diffusion and use of new, and economically useful, knowledge ... and are either located within or rooted inside the borders of a nation state,1 is particularly relevant for policy analysis. This chapter looks at recent changes to innovation systems in Latin America in two dimensions. First, the institutional domain, focusing on changes in policy making in several countries that aim to provide a more effective and coherent innovation policy environment. Second, it presents a framework for understanding innovation decision making within businesses, illustrated with examples from the region. The chapter draws upon evidence from the 2010 InnovaLatino Survey to examine how the global context has affected the innovation profiles of manufacturing firms, pointing to the need to strengthen policies to support innovation. The assessment of policy frameworks in the region focuses on Chile and Mexico, taking advantage of OECD Innovation Policy Reviews carried out for each of these countries, using a single methodology and comparable quantitative and qualitative indicators. The emphasis on Chile and Mexico stems from the availability of these studies but it should not be inferred that innovation policy is unimportant in the other countries of Latin America. Indeed, as the quantitative evidence in Chapter 1 illustrates, Brazil and Argentinas innovation performances match or exceed that of Chile and Mexico on some dimensions. As such, other studies on Brazil and Argentina are reviewed here, though not always strictly comparable with the systematic analysis included in OECD Innovation Policy Reviews.
2.1 Institutional Changes for More Effective Innovation Policies

Innovation is affected by several policy and structural dimensions. One relates to framework conditions: macroeconomic stability, regulatory environment and infrastructure development. A second set of factors relates to structural conditions and technological incentives, such as the production structure of an economy (specialisation, heterogeneity of actors, etc.), patterns of trade and foreign direct investment, and micro-characteristics such as human resources and education, access to finance, the availability of business services, and intellectual property regimes. A third element has to do with the density of interactions and linkages between different actors in the public and private sectors, such as firms, research centres and universities. The NIS approach encourages us to think about innovation in a more complex framework, shifting attention to interdependencies among the various agents, organisations and institutions. In Latin America, national innovation systems are generally characterised by: (i) R&D financing centred on public research institutions (typically 60 per cent of overall innovation expenditure is publicly financed); (ii) scant coordination between research institutions and the private sector, which limits spillover effects, and (iii) a lower propensity of businesses to innovate compared with other emerging markets or OECD countries. Experiences in OECD and Latin American countries have shown that the performance of innovation systems rests upon the coexistence of targeted, sustained policies aimed at fostering science, technology and innovation and a series of other elements, including:
1 Lundvall (1999, p.2). Markus Balzat and Horst Hanusch (2004, 196), meanwhile, have described an NIS as a historically grown subsystem of the national economy in which various organisations and institutions interact with and influence one another in the carrying out of innovative activity. The analytical objective is to apply a systemic approach to innovation in which the interaction between technology, institutions, and organisations is central. See Groenewegen, J. et al (2006) for a review of the evolution of the NIS concept.
2. Innovation in Latin America: Evidence from the Region 29

political recognition of the importance of knowledge-related investments, along with appropriate budgetary allocations; sound governance arrangements that involve stakeholders in the definition of policy orientations, priorities and management of implemented policies; a policy mix that takes account of the challenges inherent to the innovation system and the need for institutional flexibility to allow a tailored policy response; favourable framework conditions in the business environment that foster firms incentives and capacity to innovate (e.g. access to capital, competition and intellectual property regimes); a physical and ICT infrastructure that facilitates the location and development of knowledge and innovation investment platforms; a well-educated workforce and sustained efforts to develop skilled human capital.
Innovation policy challenges are different in developed and emerging economies: the former need to create incentives to maintain established competitiveness and growth levels, while the latter need to put in place mechanisms and incentives for catching up and investing in capabilities that allow new frontiers to be discovered. For many Latin American emerging economies, the role of government should ideally combine the ability to leverage private financing, given the high share of state financing of innovation activities, and to provide strategic guidance in the catching-up process. More advanced economies such as Israel have benefited from government leadership in the national innovation effort.2 The Inter-American Development Bank (2001) summarises the responsibilities of government in leading a national innovation strategy as follows: Where there are national innovation systems whose backbone is a myriad of competing private firms that use decentralised decision-making and respond to market signals, the government has a multiple role. First, it must assume a leadership role. Second, it has a rule-setting function, in the exercise of which it must create a general policy environment conducive to private investment in technological innovation. Third, it must perform a planning function. Fourth, it has a fundamental role to play in human resource development. Fifth, it must be responsible for promotion functions. Sixth, it cannot escape undertaking productive functions within an otherwise predominantly private innovation system. And seventh, it has to discharge a regulatory function.3 Notwithstanding important strides in improving framework conditions (i.e. macroeconomic stability, progress on human capital accumulation), Latin American countries weaker capacity to articulate policy orientations and co-ordinate priorities across various national stakeholders has resulted in innovation systems characterised by a focus on technology adoption rather than innovation, low synergy levels, limited inter-institutional interaction, scant public R&D institutionbusiness linkages, modest public policy relevance.4 This is partly a reflection of their reliance on commodity exports, which tend to be less intensive in R&D, and as such generate fewer technological change and growth-enhancing spillovers (as discussed in further detail in Chapter 4). Generally, innovation policy in Latin America and the Caribbean needs to gain credibility a goal that monetary and fiscal policy makers in the region have attempted to meet in recent years. A number of evaluations and analyses of national innovation systems have been carried out in the region by individual countries and by international organisations such as the UN-ECLAC, IADB, and the OECD. Sagasti (2010) provides a detailed overview of science, technology and innovation policy in Latin America from its origins to the present. The following section looks at four examples, two of which are based on OECD innovation policy reviews of the countries in question.
2 OECD (2009a) provides some detail on current innovation policies. 3 IDB (2001). 4 Rosenwurcel (2008).

Chile.5 In the mid-2000s, innovation became a critical element on the Chilean governments development policy agenda after years of lagging economic competitiveness, low R&D expenditure (0.7 per cent of GDP in Chile vs. OECD average of 2.2 per cent), dependence on the exploitation of natural resources, and an economy dominated by sectors low in innovation intensity. Additionally, an innovation policy framework that had historically favoured basic public research over business innovation had led to a business sector lacking an entrepreneurial culture and innovation initiative. This resulted in a low rate of innovation among firms and an over-concentration of activities with low innovation potential (Table 2.1). The Chilean Government has recently introduced a series of measures to improve policy effectiveness. These include (i) the creation of a National Council for Innovation and Competitiveness (CNIC), a body responsible for long-term national innovation strategy; (ii) the elaboration of a strategy for 2006-2010 by the CNIC, aimed at strengthening different segments of Chiles national innovation system; (iii) an increase in resources to implement the strategy through the introduction of a tax on royalties from mining activities directed to the creation of a Fund for Innovation and Competitiveness (FIC), with a view to creating a sustainable source of financing for innovation, (iv) R&D tax incentives; and (iv) a reform of competition policy. While it is too early to undertake a comprehensive review of these reforms and their impact, several risks and weaknesses that continue to undermine the success of the strategy can be highlighted. The creation of the CNIC has separated policy design and implementation, in line with international best practices, but institutional challenges persist, mainly in terms of co-ordination across funding institutions. These include Innovachile,6 a part of CORFO (the Foundation for Development Promotion) in the Ministry of Economy, and CONICYT (the National Commission for Scientific and Technological Research) in the Ministry of Education. 7 Implementing an effective mechanism to ensure that different stakeholders are aligned in their implementation of the strategy could resolve this weakness. Moreover, a shortage of specialised human resources hampers both public and private efforts. The Becas Chile Programme is, in this respect, extremely valuable. Its efforts can be enhanced by matching the programme with demands for skilled personnel at the cluster level. Small and medium sized enterprises (SMEs) are often resource-constrained in their innovation activities. Both constraints call for stronger public-private co-ordination. Co-operation with universities and public research institutes is the least valued form of co-operation (after co-operation with competitors): innovation surveys reveal that only 10 per cent of innovative firms co-operate with public research institutes or universities in the innovation domain.8 To foster interaction, government funding schemes favour technological consortia that rely upon co-ordination between private enterprises and research institutes.9 Further efforts in this direction are crucial. It is important to note that the initial response of the private sector to the new measures has been muted, suggesting that the need to promote learning about the opportunities of innovation among companies is equally important. That said, advances in areas like incubation and the establishment of seed capital and venture capital funds have been significant, as in the case of Fundacin Chile (box 2.1). However, entrepreneurial efforts continue to be hindered by restrictive regulations entry and exit regulations, for example, have thwarted initiatives and the authorities are considering reforms to reduce red tape and simplify administrative requirements.
5 This section also draws upon OECD (2007b), OECD-IDB (2010), and Innovation Policy in a country in transition to development: challenges in design and implementation, a presentation made by Carlos Alvarez at the OECD Development Centre on 18 June 2010 (Alvarez 2010). 6 InnovaChile focuses on supporting business innovation and entrepreneurship. 7 CONICYT focuses on public support for scientific and technological research and the development of specialised human capital, and runs the Fund for the Promotion of Scientific and Technological Development (FONDEF) that requires matching public grants with private funds for applied research projects. Other funding agencies are the Millennium Scientific Initiative (Ministry of Planning) and the Foundation for Agricultural Innovation (FIA) (Ministry of Agriculture), supporting innovation in the agricultural sector. 8 See also Benavente (2006). 9 Technological Consortia Programme of CONICYT, CORFO and FIA. Innovachile also runs similar programmes.

Table 2.1. STrenGTh-WeAkneSS-oPPorTunITy-ThreAT (SWoT) AnALySIS oF The ChILeAn nATIonAL InnovATIon SySTeM
Strengths
Stable macroeconomic framework and well-functioning product markets International openness Reliable regulatory and legal frameworks Political commitment to increased support for innovation Trustful relationship between government, public servants and the private sector Strong export-oriented and resource-based industries Significant core of dynamic firms and entrepreneurs with innovative business models Accumulated learning and a proven model for upgrading resource-based industries through knowledge and technology Pockets of excellence in scientific research
Weaknesses
Rents from the exploitation of natural resources exceed those that can be expected from most innovations Logistic challenges due to geography Basic research-centred innovation system Very low level of business R&D and innovation, including in foreign-owned firms Weak innovation governance, with a lack of a high-level overall strategy, and weak regional actors Fragmented, R&D-centred, project-based public support system with duplication of effort and blind spots Very narrow market for knowledge Underdeveloped and partly outdated infrastructure for technology diffusion Low supply of seed and risk capital Severe bottlenecks in the supply and mobility of Human Resources for Science and Technology
opportunities
Greater exploitation of value-added innovation in resource-based industries Build innovative clusters around existing dynamic export-oriented industries Important potential of the service sector, from lowskilled jobs to knowledge-intensive business services Exploitation of Chiles environmental advantages to capture a larger share of the high-end tourism market Turn logistic constraints into innovation challenges Advance as a regional leader in selected niches in the industrial and services sectors Derive unexpected benefits from serendipity in science and technology through sustained investment in quality basic research
Source: OCDE (2007b).
Threats
Long-term trends in long-distance transport costs of low value-added exports International specialisation lock-in of products with lowincome elasticity in world demand Marginalisation as a source and destination of international flows of high-skilled human capital Increasing regional disparities Shortage of specialised human resources needed for innovation Loss of human and social capital if the current level of inequalities is not reduced Deterioration of misused capabilities, notably in engineering sciences
Proposed legislation to ease bankruptcy procedure promises to boost the incentive for entrepreneurs to establish start-ups, while reducing the downside risk.10 Mexico.11 The Mexican national innovation system has benefited from renewed government efforts since 2000 (Table 2.2). A raft of measures to prioritise innovation started with the adoption of the CONACYT Law and the Special Programme for Science and Technology (PECiTI) from 2001-06, followed more recently by the PECiTI for 2008-2011. Legislative and regulatory initiatives implemented between 1999 and 2006 have helped to shape the current institutional setting and governance of Mexicos science and technology system, creating a com-
10 OECD/IDB (2010). 11 This section draws mainly upon OECD (2009c).
box 2.1. FunDACIn ChILe

Founded in 1976 by the Chilean government and the ITT Corporation (United States), the core mission of Fundacin Chile is to transfer state-of-the-art technology, management techniques and human skills to natural resource-intensive sectors in alliance with local and global knowledge networks. Fundacin Chile has developed an original and effective model for transferring technologies and developing innovative responses to economic opportunities. It creates new companies and joint ventures, carries out R&D, adapts foreign technology for product and process innovation for client companies in the public and private sectors, and fosters the creation of technological consortia and the diffusion of technology to SMEs. Fundacin Chile has been quite successful in incubating new ventures through entrepreneurship and technological innovation. Examples where the foundations achievements can be seen today include the creation of pioneering salmon firms and provision of technological services that were fundamental for the take-off of the industry in Chile; abalone and turbot farming; development of the technological concept of vacuum-packed meat and other innovations; quality control and certification of fruit for export; introduction of new berry species and varieties in Chile; associative development in the forestry industry, which led to the implementation of new forestry management models; high-quality wine production; and furniture for export. In recent years, Fundacin Chile has been increasingly active in the field of biotechnology (forestry genetics and DNA vaccines for aquaculture, among others), financial engineering and information (venture capital), and management. Its activities in the areas of skills upgrading focus on lifelong learning, distance education, and the use of ICT in education and management education.
Source: www.fundacionchile.cl. and OECD (2007b).
plex set of rules and decision-making processes that influence the interactions among the different actors in the system. Despite progress on several fronts as a result of these measures, the authorities fell short of the objective to increase R&D funding to the level of one per cent of GDP by 2006. Expenditure in 2007 was 0.38%, leaving Mexico behind other OECD countries. Business investment in innovation has nevertheless increased both in absolute terms and as a share of total R&D resources. Despite this increase, overall R&D resources are still limited and the decline of public financing (as a percentage of GDP) needs to be addressed as private initiative is unlikely to compensate for reduced public funding. In Mexico, as elsewhere, the two tend to be complementary. Reforms have tackled the governance structure of public research centres, whose performance is now evaluated on the basis of the social relevance of their research activities and the degree of business co-operation, among other criteria. Federal investment in scientific and technological infrastructure has also risen but structural weaknesses remain. The strengthening of the national system of research has bolstered the scientific community, and scientific production and quality have improved substantially. Research is nevertheless highly centralised and knowledge diffusion is limited. An insufficient skills supply constrains the innovation capacity of the productive sector. Demand also lags behind as firms have been reticent to hire highly skilled people, limiting knowledge diffusion and the capacity to absorb new innovations. In terms of policy instruments to promote innovation, tax incentives are a larger proportion of the total support in Mexico compared to other countries with similar schemes. But such incentives fail to benefit most firms, given that smaller firms tend not to engage in R&D activities. Accordingly, emphasis has shifted to other instruments, such as grants and loans, to stimulate innovation efforts among SMEs. Short-term challenges include the ongoing improvement of governance to ensure more effective leadership and coherence in policy formulation and implementation, as well as sustained spending on R&D through better designed programmes. In the long term, the existing incentive system must be reviewed in order to move from one centred on public research institutions to one based on firms. The development of Produce Foundations (PFs) in Mexico demonstrates the possibility of turning a traditionally low-tech sector agriculture into a more knowledge-intensive economic activity (box 2.2).

Table 2.2. SWoT AnALySIS oF The MexICAn nATIonAL InnovATIon SySTeM
Strengths
A set of top-quality universities (both public and private) and public research centres A sizeable pool of qualified scientists A relatively large domestic market A set of globalised, internationally competitive firms Regional and sectoral clusters of excellence Attractiveness for FDI inflows into specific sectors The accumulated experience of some public agencies for the promotion of STI and economic development Well endowed with natural resources Cultural diversity as a source of creativity
Weaknesses
Inefficient governance of the NIS Unbalanced policy mix Low budget allocation and weak political commitment to STI policy Bureaucratic management of support programmes A very low level of public/private co-operation; low mobility of human resources in Science and Technology Poor performance of the education system; low qualification of the labour force Insufficient technological infrastructure Low technological absorptive capacity of the vast majority of SMEs Weak Intellectual Property Rights culture Little competition in some sectors; barriers to enterprise creation; deficient corporate governance in the publicly owned industrial sector Premium on imported technology Financial markets ill-adapted to innovation-related investment
opportunities
A young population Geographical proximity to the United States Incipient development of a significant pool of engineers Growing demand for knowledge-intensive social goods Insertion in global knowledge networks and technological platforms Diversification of production and trade towards goods and services with higher knowledge content Engagement of SMEs in more innovation-driven strategies Technology diffusion around multinational enterprises in line with the development of innovation-based global value chains Biodiversity as a potential economic asset
Threats
Growing competition from emerging economies Accelerated expansion of the scientific and technological frontier Intensifying global competition for talent High economic and technological dependence on low growth economies Poor linkages with dynamic emerging regions experiencing rapid economic, scientific and technological development Regional concentration of innovation capabilities
Source: OCDE (2009c).
Argentina.12 In 2007, Argentina created a new Ministry of Science, Technology and Productive Innovation, a promising institutional innovation to promote more coherent policy making and address the features of the countrys innovation system, underscored by various assessments. A recent budget increase in the domain of innovation and efforts to strengthen measures to support business innovation demonstrate its importance for the current government. Several issues need to be addressed, including the limited interaction between the actors concerned (the education system, the production system, and public institutions such as research councils and research associations), the absence of knowledge-intensive sectors in the economy, scarce public R&D resources and resulting lack of credit financing for SMEs innovation activities, and a shortage of private sector participation in innovation financing.
12 This section draws on Lopez, A (2007), Rozenwurcel et al. (2008), and Chudnovsky (1999).
box 2.2. MexICAn ProDuCe FounDATIonS

Produce Foundations (PFs) in Mexico are regarded as a major institutional innovation in terms of the collaboration between producers and agricultural research institutions. PFs emerged in response to the process of economic liberalisation, as the limitations of the domestic national innovation system in fostering sectoral competitiveness became evident. PFs are civil society organisations involving a diverse range of actors, including farmers, researchers, extension officers, policy makers, private companies, entrepreneurs and nongovernmental agencies; they were established to manage public funds for agricultural research. PFs provide an innovative mechanism to bring farmers and researchers together, provide education about and access to new and improved crop varieties, and provide new information and communication technologies. Since their creation, the PFs have become major stakeholders in Mexicos innovation system, influencing the design and implementation of agricultural policies, science, technology and innovation policies, as well as the transformation of public research institutions.
Source: IFPRI (2009) and OECD (2009c).
The limited linkages between research institutions and the private sector explain to some extent why technological performance is not commensurate with scientific production. University and research institutions are perceived by businesses as the least relevant sources of technological knowledge, and a lack of incentives and policy instability negatively affect co-operation. As a result, research institutions see no advantage in pursuing long-term objectives, while the low knowledge-intensive nature of most national enterprises makes them less keen to co-operate with researchers. Limitations in the skills supply (especially in technical fields) and the quality of education also hinder innovation performance. While scarce budget resources play a part, it is also the case that many institutions function poorly and that the mismatch between skill supply and skill demand is growing. Brazil.13 Though Brazil boasts excellence in some niches (e.g. biotechnology), its R&D expenditure is still low by OECD standards, at about one per cent of GDP, most of which is public spending directed to universities and research centres. Basic research is the main output, with only a small number of scientists employed in the private sector. Though most expenditure is centrally financed, state governments play an important role in the process, sometimes combining both federal- and state-level resources (as in the state of So Paulo). Traditional indicators of innovation outputs like scientific production also point to underperformance when the size of the economy is taken into account. Patenting scores are low. Innovation surveys reveal that process innovation is the most prevalent form of innovation, mainly to reduce costs by turning to enhanced technologies. Human capital, particularly tertiary education attainment, is still a major constraint on innovation performance and limits both innovation output and absorption. Human capital shortfalls are exacerbated by the limited share of students specialising in science, math and engineering. University-business co-operation is still embryonic. While public money has historically been used to fund public universities, more recently it has been selectively directed towards strategic sectors such as energy and biotechnology. In the 1990s, innovation financing began to target co-operation between research institutions and the private sector. Until recently, grant financing was non-existent; it was introduced in 2000 under the Innovation Law, operating through the FINEP, to increase private innovation investment (box 2.3).14 Public procurement, though not yet regulated, has also been envisaged as an instrument for technological development. The Plan of Action for Science, Technology and Innovation 2007-2010 aims to strengthen the role of science, technology and innovation in sustainable development. It envisages an investment of almost $23 billion, half
13 This section draws on Lopez, A (2007), Rozenwurcel et al. (2008) and Brito Cruz and Mello (2006). 14 Lei de Inovacao y Lei do Bem.
box 2.3. FIneP

FINEP, the Brazilian federal innovation financing agency, offers an integral support credit line that finances all aspects of a technological innovation business plan, including project formulation, the purchase and installation of machinery, equipment and technical instruments, the licensing or purchase of technology, training, technical assistance and the provision of initial working capital. FINEP also offers a pre-investment credit line to finance engineering consulting services, as well as technological, environmental and product quality management. A public institution under Brazils Ministry of Science and Technology, it aims to promote innovation, economic, technological and social development. Another main objective is to develop an ecosystem for venture capital (VC) investments, and in this way forge institutional relationships between local and international investors. In 1999, it created INOVAR, a technology incubator co-founded with the Multilateral Investment Fund (MIF), which has profoundly changed the venture capital landscape in Brazil. INOVAR was instrumental in founding the Brazilian venture capital/private equity association ABVCAP, which partners with a range of institutions to promote capital market development, venture capital and entrepreneurship.
Source: Authors based on interviews and public online sources.
from the Ministry of Science and Technology and half from the ministries of Mines and Energy, Health, Education, Agriculture, and the National Bank of Economic and Social Development (BNDES). The plan has four strategic priorities: (i) to expand and consolidate the National System of Science, Technology and Innovation by increasing human resources in scientific research and improving the research and educational infrastructure; (ii) to promote innovation in the industrial sector, with several instruments designed to foster private research and development; (iii) to support research and innovation in strategic areas, particularly biotechnology, biofuels and biodiversity; and (iv) to foster science popularisation and education. Despite challenges in the Brazilian national innovation system, Brazilian firms have been able to achieve worldclass innovation in several sectors, notably aeronautics, automobile engines and agriculture. If Brazil is to extend its innovative capabilities beyond these areas it will need to target and prepare specific sectors for increased competition and tackle broader structural problems with its economic and educational policies. Recommendations from various evaluations include: (i) reducing the tax burden and import tariffs on capital goods in order to facilitate productivity-enhancing machinery use; (ii) continuing to enhance higher education and vocational training, (iii) strengthening institutional co-ordination among actors in the innovation system, and (iv) giving continuous support to innovation and industrial policy.
2.2 Examples of Innovation in the Business Sector

This section looks at innovation dynamics from the point of view of the entrepreneur. Firms basically face three steps when assessing challenges and opportunities for innovation (Figure 2.1): 1. Assessing the situation. 2. Creating resourcefully. 3. Adapting in the moment.15 Assessing the situation. Successful innovators are adept at developing and maintaining a deep understanding of the situation in which they are working. For them, an important part of the innovation process is continuously making sense of changing needs, opportunities and threats in the environment. In their accounts of how they
15 This practice-based framework is based on Fonstad (2003). Tamm (2004) likewise conceives of the innovation process in a similarly tripartite way: idea formulation, problem solving and real-time application. Arthur (2009) theorises technology in a way that is consistent with our framework as well.

Figure 2.1. Three PhASeS oF InnovATIon DeCISIon-MAkInG: A FrAMeWork
Different types of innovators...
...engage in a process of innovation...
... that results in different types of innovations... Product Business process Marketing and branding Social innovation
Large firms (e. g., Global Latinas) Small and medium-sized enterprises Customers and users Corporate social responsability efforts Social entrepreneurs Public institutions
Assesing the situation
Adapting in the moment
Creating resourcefully
developed an innovation, they often remark that their efforts were triggered by identifying an opportunity or need in their environment. In the case of small to medium-sized enterprises, the initial assessment is often made by the founder or by the team of founders. Large firms often include details of how they developed close relations with their customers. Creating resourcefully. Successful innovators must be able to make do with whatever is at hand. Sometimes, this resourcefulness arises from necessity (e.g., unable to access financial resources to purchase a new technology, an innovator develops a new way to use existing technology). In other cases it emerges when an innovator identifies an opportunity for creatively re-using what is already there. Latin American businesses that compete for the regions large number of customers with low levels of disposable income have to be especially resourceful to be profitable. Public policy can enhance firms capacity to create resourcefully by expanding the set of resources available to them at critical junctures. This includes access to finance, but also a ready supply of people with the necessary skills to introduce novel products and production processes. The importance of resourceful creativity also illustrates the contribution of R&D: by increasing the supply of useful technical knowledge, R&D enhances the set of resources available to fuel resourcefulness by businesses. Adapting in the moment. Innovators often fail, but successful ones learn from their failures, changing their emerging solutions in response to the situation at hand. Adapting in the moment refers to changing extemporaneously either the emerging innovation, the process of creating the innovation (including the design of the innovating organisation), or both. As the innovating organisation grows, adapting in the moment becomes more challenging. Executives at large firms typically express envy at the nimbleness of small and medium sized enterprises to adapt in the moment, and strive to redesign their organisations to become more agile. The fundamental paradox to being agile is having a set of routines and structures that remains constant. Adapting in the moment is a distinguishing feature of successful high-growth SMEs.16 During a period of rapid growth, SMEs typically innovate in the way they are organised i.e., they adapt or introduce new organisational elements, such as new customers, new roles (e.g., assigning an area of responsibility to a new employee), new
16 Loosens (2009).

organisational processes (e.g., introducing quality control processes, a governance board), and new sources of funding. Policy makers can help firms adapt in the moment by promoting networks to increase the information available to decision makers in a complex environment. These might include co-operative ventures among firms, particularly relevant to SMEs which lack the benefits of economies of scale, and business-university partnerships, which are of interest to small and large firms alike. The three phases of innovation decision making are evident in the experiences of successful Latin American firms. Examples can be found among the multilatinas, Latin American multinationals, as described in Casanova (2009). Latin American multinationals have developed important innovations in their business models, management processes and marketing of products and services. The most successful have been able to adapt to and change the rules of the game set out by the multinational corporations from developed countries. Cemex has developed a unique and powerful globalizing model based on three pillars: the use of technology, a devastatingly effective approach to acquisitions, and a smart marketing and branding strategy that has particular appeal in low-income markets such as Mexico (box 2.4). The Brazilian aircraft manufacturer Embraer has built a reverse outsourcing model which has given it great flexibility in production and delivers lower labour costs than its main rival, Canadian-based Bombardier (box 2.5). Brazilian cosmetics manufacturer Natura Cosmticos and Mexican beer manufacturer Grupo Modelo are both included for their successful model of taking a local brand global. In the area of strong branding, Chilean wine-maker Via Concha y Toro (box 2.6) pioneered a completely new industry in Chile, becoming one of the worlds top exporters of high-quality wine in the process. Mexican bakery firm Grupo Bimbo has built its extraordinary global scale upon an integrated model of production and delivery, which covers everything from the milling of the flour to the delivery of its products. This control over a complex supply chain has given the company a significant competitive edge over its rivals. Tenaris, the global Argentinean firm that makes sophisticated high-tech seamless steel pipes for the oil and gas sector, has a unique multicultural model which enables it to span the world and draw from a worldwide talent base to create super-effective multinational teams. Usually decisions to innovate are taken within firms, although there are notable exceptions such as non-business actors in the public sector. A broader view of innovation and development must systematically address these different types of innovation. For example, the wave of anti-poverty programmes developed in Latin America in recent decades (Bolsa Famlia and Fome Zero in Brazil, Chile Solidario in Chile, Progresa/Oportunidades in Mexico) can legitimately be interpreted as novel ways for governments to fight poverty. They involve innovations in processes, organisation and marketing in a non-profit sense. A second exception has to do with innovations by private firms in the area of corporate social responsibility (CSR), which have an impact on poverty and well-being in the countries where the firms operate. CSR in itself is
box 2.4. CeMex

Since its foundation in Mexico in 1906, CEMEX has become one of the worlds three largest building materials companies with 50,000 employees in 50 countries. The company has long been a pioneer in the application of technology to generate value and improve the way its employees perform their work. In early 2010, CEMEX aimed to improve the collaboration practices of its workforce to generate innovation on a global scale. Shift is the platform that has revolutionized the way CEMEX works. It enables employees to upload and share their profiles, exchange ideas and best practices through blogs, wikis, and discussion forums, and interact live, through chat, voice, and videoconference. What started with a small investment and only 1,000 users in January, grew to 20,500 at the end of the year, and keeps growing. These users have created communities and contributed to numerous discussions with their peers around the world that have yielded impressive results so far. Product development is now considerably faster while costs for travel, testing and research have decreased through real time interaction in Shift. With more than a year in operation, Shift was recognized with a prestigious Forrester Groundswell Award (Collaboration category) in 2010 and featured in numerous publications around the world, including Forbes, Computerworld, MIT Tech Review and Expansin.
box 2.5. eMbrAerS reverSe ouTSourCInG MoDeL

Instead of making components for big firms in the advanced economies of the United States, Europe and Japan, Embraer draws on the best component suppliers in the developed nations to meet its own needs: reverse outsourcing. Owing to the companys past obsession with technological prowess over commercial viability, its engineers can design new planes from scratch. As wages are typically much lower than those in the developed world, this gives Embraer a significant cost advantage. The company also finds that the reverse outsourcing model helps it to respond more flexibly to peaks and troughs in demand. One other key element of the business model that was developed with great success by former Embraer CEO Mauricio Botelho was to create a more customer-focused organisation. To make sure that the company would not lose sight of its customers needs, he created five profit centres based on region and geography, light aircraft and government sales to embed a more market-focused approach. An entrepreneur was put in charge of each division and given full responsibility to develop and improve customer relations. The combination of reverse outsourcing and customer focus has proved a winning one for Embraer.
box 2.6. vIA ConChA y Toro

Chilean winery Via Concha y Toro was founded in 1875 by Melchor Concha y Toro, a lawyer and entrepreneur who bought an estate in the Maipo Valley near Santiago to plant vines imported from Bordeaux. The company has grown to become one of Chiles biggest exporters of wine and is one of the top ten wine companies in the world. At the heart of its success is its branding strategy, based on what is known as the silver-bullet approach. This means the company commits to a dual-pronged branding strategy, developing and promoting volume sales of mass brands alongside smaller sales of very high-premium elite brands the silver bullets at the same time. The purpose is to gain an excellent reputation, in this case among elite wine tasters. This in turn helps to lift the volume brands to a relatively high price level and maintain in consumers minds the perception that, for the market, the wines are of extremely good quality. Concha y Toros successful branding strategy has made the company one of the top world players in a very difficult market. Twice in a row, the UKs Decanter magazine has named the companys CEO, Eduardo Guilisasti, one of 50 most influential wine personalities in the world, a fitting testament to the companys successful operating and branding approach.
not an innovation, however, and the economic and development impacts of innovations in CSR are secondary compared with innovation in the core business of firms. A third exception, which involves neither businesses nor government, is in the realm of social entrepreneurship,17 where individuals seek new ways to improve the well-being of disadvantaged households and communities, often in the heterogeneous sector of non-governmental organisations (NGOs). To the extent that some social entrepreneurs are also part of profit-seeking businesses, the analysis in this chapter is relevant to their situation. However, non profit NGOs fall outside the domain of this study, as the public policy responses required to harness the energies of social entrepreneurs and scale up their innovations are qualitatively different from those considered here.
2.3 Latin American Innovation in Times of Economic Crisis

What is the outlook for businesses in the recovery phase from the global economic crisis and how will innovation fare in this context? According to the OECDs Latin American Economic Outlook 2011, Latin America has in
17
Casanova and Hoeber(2008).
box 2.7. brAzILS nATIonAL DeveLoPMenT bAnk

The Brazilian government has had an important role in the rapid recovery of the crisis through its national development bank, BNDES, the largest development bank in the world and Brazils largest lender. Several Brazilian companies positioned themselves in 2009 among the ten largest in the world, in sectors as diverse as aeronautics (Embraer), food (Brazil JBS-Friboi Foods), banking (Ita-Unibanco), mining (Vale), paper (Fibria) and oil (Petrobras). What role did BNDES play? Following the unexpected collapse in the value of the Brazilian currency in October 2008, public banks (Banco do Brasil and Caixa Federal mainly) as well as BNDES took action to address the crisis, accounting for 73% of the loans to business in 2009. BNDES Participaoes (BNDESPAR) contributed to the creation of Brasil Foods, a result of the merger of Sadia and Perdigo, and of Fibria with USD 2.4 billion, resulting from the merger of Aracruz Cellulose and Votorantim Celulose e Papel. BNDES also supported with USD760 million the merger between JBS and Friboi in what was the second largest private equity investment in the past three years in Brazil. With the subsequent acquisition of the U.S. Pilgrims Pride, the company became the largest beef producer in the world. BNDES also helped create the tenth biggest bank in the world by market capitalisation from the merger of Banco Ita and Unibanco. As a result, BNDES is one of the largest shareholders of the biggest corporation in Brazil, Vale, with almost 17% of its shares if the holding company includes Valepar, 9% of Brasiliana Eletrobras, 6% of Telemar, Copel and JBS-Friboi, and 4% of Petrobras. Although more than 50% of BNDES investments are concentrated in energy, its reach extends across all sectors and sizes of business.
Source: Casanova and Dumas (2010).
many ways weathered the storm much better than other regions, but growth nevertheless slowed significantly compared to pre-crisis rates. The productive sector was hit hard, particularly in terms of the appetite for investment: fixed investments in Latin America fell by 13.6% in 2009.18 Businesses interviewed for the 2010 InnovaLatino Survey revealed that some investments in innovation were dropped due to the impact of the crisis. Such evidence is economically unsurprising given that investment in innovation projects tends to be pro-cyclical,19 that is, R&D expenditure and other forms of innovation activity rise during economic good times and decline during recessions. The crisis has, furthermore, constrained access to financing, both via its effect on internal cash flows and by reducing access to external funds, and is thus likely to have played a major part in the slowdown in reported innovation. Analysis of the survey data confirms that more vulnerable firms were more likely to discontinue innovation projects than their less vulnerable counterparts. Notably, firms with access to public financing were less likely to discontinue their projects, while young firms which tend to suffer more from limited access to credit than older firms were more likely to do so. Public financing thus served as a stabiliser of firms ongoing innovation projects. Amidst this somewhat bad news for reported innovation, there are nevertheless positive signs for innovation. Many surveyed firms had introduced new products and processes during the crisis and felt confident about a rapid improvement in their countrys economic performance. If we look at the private sector in Brazil, for example, the recovery after the crisis has been very fast due to the financial support provided by BNDES (box 2.7).
2.4 Country Profiles

Eight country profiles provide information regarding national innovation systems. These profiles have three principal objectives. The first is to underscore that in any country innovation consists of a rich diversity of or-
18 OECD (2010e). 19 OECD (2009f).

ganisations producing different types of innovations for different purposes under a variety of conditions. Innovation looks quite different depending on what perspective is taken i.e., a country-level or a firm-level perspective. The second objective is to bring together much of the data included in this report from a country perspective, using key innovation data from the perspective of the eight countries included in the 2010 InnovaLatino Survey (although these profiles do not necessarily constitute a comprehensive collection of the data included in the report nor a complete profile of innovation in each country). A third objective is to encourage those who strive to strengthen innovation in Latin America to consider the richness of innovation from both country-level and firmlevel perspectives and foster stronger links between these levels. Each country profile consists of four sections: 1. Key Facts This section presents basic facts about the country, such as where it is located in Latin America, population, GDP per capita, and key sectors. Source: World Development Indicators, World Bank. 2. Country-level Indicators What existing indicators can help us assess innovation at the country level? This section consists of three types of indicators (16 in total) related to innovation: 1. Indicators that represent country-level factors that enable innovation 2. Indicators that represent different types of innovations 3. Indicators that represent the potential effects of innovations. We have included indicators that represent various aspects of innovating in emerging economies, such as the use of information and communication technologies and innovations related to the creative arts. The country-level information is interpreted as follows. For example, in the index of political stability from the country profile for Argentina depicted below, the length of the striped portion of the bar on the left (and the number inside that portion) represents the value of that index for Argentina. The bold portion of the bar on the right (in terms of length and the number inside) represents the average value of the index for OECD countries. The dotted middle section of the bar depicts the average value of the index for all Latin American and Caribbean countries. Atop the bar, the arrows indicate whether the variable is currently rising or falling for Argentina, Latin American (LAC), and OECD countries; the numbers atop the bar show the rate of change of the index. Thus the example indicates that political stability is rising in Argentina and OECD countries, but falling in Latin America overall. Sources: OECD; World Bank, and World Trade Organization. 3. Firm-level view of innovation: Excerpts of data from the2010 InnovaLatino Survey What does innovation look like from the point of view of a firm? This section consists of data in response to 12 questions from the 2010 InnovaLatino Survey. The InnovaLatino Survey provides evidence on innovation strategies used by manufacturing firms in eight Latin American countries, as well as insights regarding how these strategies have been affected by the 2008-9 economic crisis. The objectives, design and methodology of the Survey differs from that of innovation surveys periodically undertaken by national statistical authorities. As such, the summary statistics reported in this report will not necessarily correspond to statistics published by national authorities based on their own innovation surveys. For a more detailed description of the 2010 InnovaLatino Survey, see Annex 1 in Chapter 1. Source: 2010 InnovaLatino Survey.

4. Innovative Organisations What do different kinds of organisations innovate? This section briefly summarises InnovaLatinos work on developing over 55 vignettes of innovations occurring across Latin America, within both large and small firms, in pursuit of either profits for owners and/or of social benefits (the full set of vignettes is included in an appendix to this report). It consists of two parts: 1. A figure mapping five types of innovators based on two dimensions (size of organisation and primary benefit sought by innovators profit or social benefit), and the name of an organisation within the country that represents that type of innovator. 2. A vignette of an exemplary organisation to further illustrate the kind of innovation engaged in. These country profiles, like the data they draw on, will change with time. For the latest, more detailed versions of the country profiles, visit www.innovalatino.org. The InnovaLatino Survey provides evidence on innovation strategies used by manufacturing firms in eight Latin American countries, as well as insights regarding how these strategies have been affected by the 2008-9 economic crisis. The objectives, design and methodology of the Survey differs from that of innovation surveys periodically undertaken by national statistical authorities. As such, the summary statistics reported in this report will not necessarily correspond to statistics published by national authorities based on their own innovation surveys.
Innovation in Argentina from a variety of perspectives
InnovaLatino Profile of Argentina

COUNTRY-LEVEL INDICATORS
Examples of macro-level indicators collected from a variety of sources. We consider those indicators in blue to represent factors that enable innovation; those in red to represent innovations; and those in green to represent effects of innovations. Bars indicate the last value available for the country, LATAM average or OECD average, Arrows indicate the annual rate growth in the last 5 years for the country, LATAM average and the OECD average.
Argentina
Political stability Start a business time Graduates in tertiary school per 100 people
42.10
3% 3%
1% 35.79
LATAM
OCDE
75.03 44.10 7%
0%
27.00
8% 13.90 0.11 3% 19% 19% 5% 6% 0% 7% 3% 0% 5% 9% 4%
0.12
n.d.
10% 0.06 7315.07
6% 12% Total researchers per million labor force 979.50 524.38 Internet subscribers per 100 people Personal computers per 100 people Mobile phone subscribers per 100 people Percentage of paved roads 13% 41% 7.98 3% 9.03 8% 4.37 116.46 0% 29.40 8% 27% 8% 25.97 42% 4.44
23.88 48.54 25% 84.40 79.15 681.33 4215.11 111.81
Gross expenditure on research 67.32 39.29 and development per capita

9% 1% Number of patents 19.20 47.47
High technology exports as % of manufacturating exports International quality certifications
5% 6.62 16% 8812.00
13% 4.15 17% 2455.72 138.62 6% 9093.31 33481.90 17920.40
9% 22% Royalties receipts in US$ per capita 2.46 9.80 Gross Domestic Product per capita 8% 14332.8
In the middle of a recovery period after the financial crisis, the Argentinean Secretary of Science, Technology and productive innovation started in 2003 a series of policies to strengthen the R&D sector in Argentina. Thanks to the investment in programs as R@ICES, which looked for connect the Argentinean scientist living abroad and support their return; or INNOVAR a national innovation competition, the dynamic of GERD per capita of Argentina (13% ) is only exceeded by Uruguay (15%).
0.16 Growth rate last 5 years 0.14 0.12 0.10 0.08 0.06 0.04 0.02 0.00 30.00 Peru Mexico
Gross expenditure on research and development per capita Uruguay Argentina Colombia Chile Brazil Costa Rica LATAM 39.29 70.00 170.00 270.00 370.00 470.00 570.00 LATAM 8% OECD Average 583.42
Average last 5 years

This country profile was developed in November 2010. The most complete and updated InnovaLatino Profile of Argentina (including sources) is available at: http://www.innovalatino.org/argentina.html
FIRM-LEVEL VIEW OF INNOVATION

Excerpts of data from the InnovaLatino 2010 Survey
Average value of participating large firms Average value of participating small firms % of firms with more than 50 percent of employees holding technical education 41.7% 12.3% 49.7% 13.9% 49.6% 15.2% 15.3% 79.4% 75.4% % of firms who applied for intellectual property rights protection 78.5% % of firms receiving external financial resources and considering financial support as important 22.8% % of firms reporting awareness of leading public support programs 51.3% % of firms with access to foreign machinery 75.8% 66.4% 90.4% % of firms planning to innovate more 72.4% % of firms considering gain of market share and/or new markets as very important effect of innovation 61.0% % of firms earning more than 30 percent from innovation 29.4% % of firms finding innovation efforts led to: a. Cost reductions 76.8% b. Job creation 62.7% c. Job savings 59.6% 24.9% 58.3%
Population, total (Millions): 40.28 GDP, PPP (Millions, constant 2005 international $): 531.72 Foreign direct investment, net inflows (% of GDP): 1.27 GINI index: 48.81 Main 4 exports as % of Total Exports Processed agricultural products: 38.88 Manufactures: 34.18 Primary: 16.51 Fuel and energy: 10.57
% of firms conducting projects with foreigners
% of firms that introduced product innovations
40.5% 27.1% 38.7%
INNOVATIVE ORGANIZATIONS
Examples of innovative organizations in Argentina. For each country, InnovaLatino has developed vignettes of different types of innovators, depending on two dimensions: 1. the size of the organization; and 2. the primary type of benefit sought. Here we highlight one innovative organization. For additional examples, please visit: http://www.innovalatino.org/argentina.html
large Corporate social responsibility (e.g., Grupo Arcor) Public institutions (e.g., Prosper-AR) Guerra Creativa Guerra Creativa provides design services by leveraging crowd sourcing in ways not previously seen in concept-to-design processes. If a client wants a new logo or webpage Guerra Creativa will host a design contest for a fixed period of days (e.g., 21 days), then will enable the client to evaluate entries (often over 100), to select a winner. Guerra Creativa uses this process to design logos, websites, stationery, flash or 3D designs. Guerra Creativa also enables designers to interact and learn from each other, exhibit their work online and provide feedback on the designs of others. There is a section that allows all users to get exclusive tutorials, with step-to-step instructions of different techniques. By 2010, their community included 3,400 designers who had uploaded more than 11.000 designs with a total membership of 6,000 clients.
Size of organization small to medium
Large firms (e.g., Los Grobo) SMEs and entrepreneurs
individual
Social entrepreneurs (e.g., Responde) profits for owners Primary type of benefit sought social benefits
Innovation in Brazil from a variety of perspectives
InnovaLatino Profile of Brazil

Brazil
3% 38.30
1% 35.79 120.00
LATAM
OCDE
75.03 5% 10% 0.06 7315.07 7% 44.10 0.11
0%
8% 13.90 3% 19% 19% 5% 6% 0% 7% 3% 0% 5% 9% 4%
0.10
4%
9% 12% Total researchers per million labor force 628.70 524.38 Internet subscribers per 100 people 25% 5.20 21% 16.09 77.56 42% 4.44 8% 4.37 17% 84.40
23.88 48.54 25% 111.81 79.15 681.33 4215.11 13% 4.15 17% 2455.72 138.62 16.03 17920.40
Personal computers per 100 people

Mobile phone subscribers per 100 people 10% Percentage of paved roads 5.50 Gross expenditure on research and development per capita
8% 25.97
6% 8% 92.14 39.29
6% 1% Number of patents 358.70 47.47 High technology exports as % of manufacturating exports International quality certifications 31% 22% Royalties receipts in US$ per capita 2.42 9.80 Gross Domestic Product per capita 5% 10296.50 6% 9093.31 0% 12.38 19% 14539.00
33481.90
President Da Silva implemented the program Computers for All a program which has as main objective to make possible the population that does not have access to the computer, to acquire a quality equipment, with operational system and applicatory in free software. The Computers for All project is part of the Brazilian federal government's Program of Digital Inclusion, initiated in 2003, the program was launched in parallel a package of reduction of taxes for computers through Lei do Bem.
0.27 Growth rate last 5 years 0.22 0.17 0.12 Colombia 0.07 0.02 0.03 0.00 Peru Brazil
Personal computers per 100 people
Mexico Chile Uruguay Argentina LATAM 6.75 Costa Rica OECD Average LATAM 7.6%
10.00
20.00
30.00
40.00
50.00

This country profile was developed in November 2010. The most complete and updated InnovaLatino Profile of Brazil (including sources) is available at: http://www.innovalatino.org/brazil.html

Average value of participating large firms Average value of participating small firms % of firms with more than 50 percent of employees holding technical education 18.4% 31.4% 42.1% 26.5% 88.1% 14.4% 21.8% 82.6% 88.3% % of firms who applied for intellectual property rights protection 69.5% % of firms receiving external financial resources and considering financial support as important 22.0% % of firms reporting awareness of leading public support programs 89.7% 79.4% % of firms conducting projects with foreigners 30.2% 81.6% % of firms with access to foreign machinery
Population, total (Millions): 193.73 GDP, PPP (Millions, constant 2005 international $): 1831.73 Foreign direct investment, net inflows (% of GDP): 1.65 GINI index: 55.02 Main 4 exports as % of Total Exports Transport equipment & parts: 44.02 Metallurgical products: 40.50 Soybeans, meal & oils: 13.40 Chemical products: 2.08
% of firms that introduced product innovations % of firms planning to innovate more
87.4% % of firms considering gain of market share and/or new markets as very important effect of innovation 37.7% % of firms earning more than 30 percent from innovation 34.5% % of firms finding innovation efforts led to: a. Cost reductions 84.8% b. Job creation 68.6% c. Job savings 86.1%
34.5% 29.3%
82.7% 78.1% 79.1%
Examples of innovative organizations in Brazil. For each country, InnovaLatino has developed vignettes of different types of innovators, depending on two dimensions: 1. the size of the organization; and 2. the primary type of benefit sought. Here we highlight one innovative organization. For additional examples, please visit: http://www.innovalatino.org/brazil.html
large Corporate social responsibility (e.g., Petrobas) Public institutions (e.g., FINEP) Center for Digital Inclusion (C.D.I.) In 1995, Rodrigo Baggio, a former Intel executive, founded the Center for Digital Inclusion (CDI) based on the concept of helping people to help themselves. CDI Community Centers are based on three principal objectives: they are self-managed, self-sustainable, and they implement the CDI pedagogy. This unique pedagogy requires that by the end of each 4 months course, students will have used technology as the main tool to initiate, plan, implement and complete a social advocacy project aimed at changing an aspect of their realities. Currently, there are CDI franchises in 753 schools in Brazil and 100 abroad with 1.036 volunteers, 1726 educators and 600,000 people from low-income communities certified. CDI mobilized 5 internal working groups from different disciplines to innovate new solutions for efficient growth.
Large firms (e.g., Marcopolo)
individual
SMEs and entrepreneurs (e.g., Stefanini) profits for owners
Social entrepreneurs social benefits
Primary type of benefit sought
Innovation in Chile from a variety of perspectives
InnovaLatino Profile of Chile

Chile
3% 66.00 27.00 0.09 0% 11%
LATAM
1% 35.79 44.10
OCDE
75.03 7%
0%
8% 13.90 3% 19% 19% 5% 6% 0% 7% 3% 0% 5% 9% 4%
10% 0.06 7315.07
0.11
15% 12% Total researchers per million labor force 832.56 524.38 Internet subscribers per 100 people Personal computers per 100 people Mobile phone subscribers per 100 people Percentage of paved roads Gross expenditure on research and development per capita 9% 3% 20.20 8% 76.21 39.29 1% 47.47 11% 6.68 35% 17% 4103.00 2455.72 13% 4.15 23% 8.49 6% 14.11 42% 4.44 8% 4.37 9% 8% 25.97
23.88 48.54 25% 84.40 79.15 681.33 4215.11 16.03 17920.40 138.62 111.81
88.06
26% Number of patents 22.60 High technology exports as % of manufacturating exports
International quality certifications
5% 22% Royalties receipts in US$ per capita 3.80 9.80 Gross Domestic Product per capita 5% 14464.50 6% 9093.31
33481.90
The validation of quality system requirement by the local firms could be seen as one measure of competitiveness in the country. Conscious about the importance of quality guarantees for the international exchanges of the SMEs, Chilean government has developed the aid to initatives impacting quality and productivity and which results can lead to certification by recognized normes (as ISO and HACCP). As result, Chile is the most dynamic country on International Quality Certifications in the region for the period 2004-2008.
0.37 Growth rate last 5 years 0.32 0.27 Peru
International quality certifications Chile
0.22 Uruguay Costa Rica 0.17 0.12 0.07 0.02 0.03 LATAM 1.837 Colombia Mexico Argentina
Brasil
LATAM 17%
OECD Average
50.00 1950.00 3950.00 5950.00 7950.00 9950.00 11950.00 13950.00 15950.00 17950.00

This country profile was developed in November 2010. The most complete and updated InnovaLatino Profile of Chile (including sources) is available at: http://www.innovalatino.org/chile.html

Average value of participating large firms Average value of participating small firms % of firms with more than 50 percent of employees holding technical education 28.2% 20.2% 56.0% 33.1% 45.2% 33.1% 22.6% 78.4% 84.2% % of firms who applied for intellectual property rights protection 76.6% % of firms receiving external financial resources and considering financial support as important 29.9% % of firms reporting awareness of leading public support programs 69.2% % of firms with access to foreign machinery 69.2% % of firms conducting projects with foreigners 59.1% 93.5%
Population, total (Millions): 16.97 GDP, PPP (Millions, constant 2005 international $): 221.58 Foreign direct investment, net inflows (% of GDP): 7.76 GINI index: 52.00 Main 4 exports as % of Total Exports Copper: 50.10 Fresh fruit: 5.60 Cellulose: 4.90 Salmon & Trout: 3.80
94.3% % of firms considering gain of market share and/or new markets as very important effect of innovation 42.1% % of firms earning more than 30 percent from innovation 27.1% % of firms finding innovation efforts led to: a. Cost reductions 81.4% b. Job creation c. Job savings 54.2% 67.3%
48.9% 47.3%
72.0% 56.4% 52.6%
Examples of innovative organizations in Chile. For each country, InnovaLatino has developed vignettes of different types of innovators, depending on two dimensions: 1. the size of the organization; and 2. the primary type of benefit sought. Here we highlight one innovative organization. For additional examples, please visit: http://www.innovalatino.org/chile.html
large Corporate social responsibility (e.g., Minera Los Pelambres) Public institutions (e.g., ForoInnovacin) Recycla Chile S.A. Established in 2003, Recycla Chile is the first and only electronic waste recycling company in Chile. Recycla Chiles recycling process disarms electronic appliances by extracting and separating the raw materials to be later transformed and reused. The remaining scraps are treated using specialized machines. At the same time, this entity provides environmental sustainability consultancies in Chile and other Latin American countries. The company employees are men and women with a criminal record and/or former prisoners. The idea is to offer them jobs to avoid them to become repeat offenders. In 2008, Recycla Chile was internationally recognized with the Energy Globe Award and the Dubai International Award for Best Practices. In 2009, the World Economic Forum selected Fernando Nilo, Recycla Chile CEO, as a Tech Pioneer.
Large firms (e.g., Falabella)
individual
SMEs and entrepreneurs (e.g., Elemental) profits for owners
Innovation in Colombia from a variety of perspectives
InnovaLatino Profile of Colombia

16% Political stability 8.10 Start a business time Graduates in tertiary school per 100 people
Colombia
35.79 14% 20.00
1%
LATAM
OCDE
75.03 44.10 7%
0%
8% 13.90 3% 19% 19% 5% 6% 0% 7% 3% 0% 5% 9% 4%
5% 0.03
10% 0.06 7315.07 23.88 48.54 31% 8% 25.97 681.33 4215.11 13% 4.15 16.03 17% 2455.72 138.62 6% 9093.31 25% 84.40
0.11
9% 12% Total researchers per million labor force 151.27 524.38
Internet subscribers per 100 people

Personal computers per 100 people Mobile phone subscribers per 100 people Percentage of paved roads
70% 4.07 15% 7.61
42% 4.44 8% 4.37 88.50
111.81 79.15
9% 14.40
10% 8% Gross expenditure on research and development per capita 12.17 39.29 6% Number of patents 14.83 High technology exports as % of manufacturating exports International quality certifications 15% 2.88 1% 47.47
13% 7696.00
17920.40
33481.90
During the last five years, Colombia has been increasing its number of Internet subscribers remarkably. Colombian rate of growth of internet subscribers is the highest in LATAM. The Colombian government has set as a target total coverage and efficient use of ICT technologies by the whole population in the country in 2019. The guidelines are collected in the ICTs National Plan 2008-2019 (www.colombiaplantic.org) led by the Ministry of Communications.
0.80 Growth rate last 5 years 0.70 0.60 0.50 0.40 0.30 0.20 0.10 0.00 0.00 Costa Rica Peru Colombia
Internet subscribers per 100 people Uruguay LATAM 0.42 OECD Average
Mexico Brazil Argentina Chile
LATAM 4,44 5.00
10.00 Average last 5 years
15.00
20.00

This country profile was developed in November 2010. The most complete and updated InnovaLatino Profile of Colombia (including sources) is available at: http://www.innovalatino.org/colombia.html

Average value of participating large firms Average value of participating small firms % of firms with more than 50 percent of employees holding technical education 52.8% 17.3% 33.1% 26.0% 60.6% 34.3% 35.2% 82.7% 89.8% % of firms who applied for intellectual property rights protection 79.2%
Population, total (Millions): 45.66 GDP, PPP (Millions, constant 2005 international $): 371.47 Foreign direct investment, net inflows (% of GDP): 3.10 GINI index: 58.49 Main 4 exports as % of Total Exports Petroleum & petroleum products: 31.25 Coal: 16.49 Coffee: 4.70 Nickel: 2.21
% of firms receiving external financial resources and considering financial support as important 37.0% 74.1% % of firms with access to foreign machinery 86.1% % of firms conducting projects with foreigners 17.9% % of firms that introduced product innovations 100% % of firms planning to innovate more 86.1% % of firms considering gain of market share and/or new markets as very important effect of innovation 59.2% % of firms earning more than 30 percent from innovation 32.4% % of firms finding innovation efforts led to: a. Cost reductions 85.2% b. Job creation 75.0% c. Job savings 75.0% % of firms reporting awareness of leading public support programs
31.2% 46.6%
66.9% 62.2% 55.1%
Examples of innovative organizations in Colombia. For each country, InnovaLatino has developed vignettes of different types of innovators, depending on two dimensions: 1. the size of the organization; and 2. the primary type of benefit sought. Here we highlight one innovative organization. For additional examples, please visit: http://www.innovalatino.org/colombia.html
large Corporate social responsibility (e.g., Empresas Pblicas de Medelln) Large firms Public institutions (e.g., Federacin (e.g., Colciencias) Nacional de Cafeteros de Colombia) SMEs and entrepreneurs (e.g., Datatraffic) profits for owners Primary type of benefit sought Parquesoft Colombian Parquesoft is a non-profit innovation incubator that supports the creation and sustaining of micro enterprises in the field of software and technology. In 1999, Orlando Rinc Bonilla founded Parquesoft in Cali, Colombia. Today the network includes twelve technology centres in Colombia and Parquesoft firms provide services to 42 countries. The network is designed to allow continuous exchange of ideas between the companies and as opposed to traditional incubators the companies do not leave Parquesoft when they have reached a certain size, but stay on and continue to grow within the network. The incubator promotes indigenous IT entrepreneurial activity and targets young people and those from socially marginalized groups.
individual
Innovation in Costa Rica from a variety of perspectives
InnovaLatino Profile of Costa Rica

Costa Rica
Political stability Start a business time Graduates in tertiary school per 100 people 1% Total researchers per million labor force 121.71 Internet subscribers per 100 people Personal computers per 100 people Mobile phone subscribers per 100 people Percentage of paved roads 14% 41.61 3% 25.20 43% 3.88
65.10
2%
LATAM
1% 35.79 44.10 19% 10% 0.06
OCDE
75.03 7%
0%
60.00 0.22 12% 524.38 42% 4.44 23.11 6% 8% 4.37 84.40 8% 25.97
5%
8% 13.90 0.11 3% 19% 19% 5% 6% 0% 7% 3%
7315.07 23.88 48.54 25% 111.81 79.15 681.33 4215.11 44.66 4% 13% 4.15
2% 8% Gross expenditure on research and development per capita 31.33 39.29 11% 1% Number of patents 3.00 47.47
High technology exports as % of manufacturating exports
0% 16.03 5% 9% 4%
18% 17% International quality certifications 236.00 2455.72
17920.40 138.62 6% 9093.31 33481.90
The 2009 edition of the World Development Indicators of the World Bank placed Costa Rica as the fourth high technology exporter. The success of the high technology exports sector is the result after diversification of exports developed 20 years ago, a series of incentives to non-traditional exports and a frame of a tariff advantages in the trade with U.S.A and Europe. This evolution has encouraged the installation of foreign companies and the demand for qualified workers.
0.20 Growth rate last 5 years 0.15 0.10 0.05 0.00 0.05 0.10 0.15 Chile Uruguay Peru
High technology exports as % of manufacturating exports
Brazil Argentina
OECD Average Mexico
Costa Rica
LATAM 13% 30.00 40.00 50.00
Colombia LATAM 7,29 0.20 0.00 10.00 20.00

This country profile was developed in November 2010. The most complete and updated InnovaLatino Profile of Costa Rica (including sources) is available at: http://www.innovalatino.org/costarica.html

Average value of participating large firms Average value of participating small firms % of firms with more than 50 percent of employees holding technical education 22.1% 33.8% 45.9% 31.1% 33.7% 43.0% 21.3% 94.2% 84.9% % of firms who applied for intellectual property rights protection 75.1% % of firms receiving external financial resources and considering financial support as important 38.1% % of firms reporting awareness of leading public support programs 44.7% 82.2% % of firms conducting projects with foreigners 58.4% % of firms that introduced product innovations 77.9% % of firms planning to innovate more 77.4% % of firms with access to foreign machinery
Population, total (Millions): 4.58 GDP, PPP (Millions, constant 2005 international $): 46.18 Foreign direct investment, net inflows (% of GDP): 4.61 GINI index: 48.91 Main 4 exports as % of Total Exports Manufactured goods: Excluding maquila and free-trade zone output: 21.41 Non-traditional agricultural: 11.60 Bananas: 6.99 Coffee: 2.61
% of firms considering gain of market share and/or new markets as very important effect of innovation 49.6% % of firms earning more than 30 percent from innovation 61.5% % of firms finding innovation efforts led to: a. Cost reductions 83.2% b. Job creation 71.7% c. Job savings 77.4% 47.9% 62.5%
79.6% 64.8% 66.1%
Examples of innovative organizations in Costa Rica. For each country, InnovaLatino has developed vignettes of different types of innovators, depending on two dimensions: 1. the size of the organization; and 2. the primary type of benefit sought. Here we highlight one innovative organization. For additional examples, please visit: http://www.innovalatino.org/costarica.html
large Corporate social responsibility (e.g., Grupo Monge) Large firms Public institutions (e.g., Conicit) Caf Britt Established in 1985 by Steve Aronson, Caf Britt is a gourmet coffee roaster and high end chocolate manufacturer in Costa Rica. By 2010, the company employed 850 people, operated more than 50 stores in five countries, and had coffee and chocolate production facilities in Costa Rica and in Peru. In 2009, revenues were US$ 40.9 million. The companys core value as a countryof-origin producer with strong local identity remains a guiding principle as it continues to expand in the region. Caf Brit is a patron of the arts and a partner in community development. It pays fair prices to local farmers who produce consistently high quality coffee. In 2009, for a second consecutive year, Caf Britt was ranked a top business leader in Central America by regional business publication Summa Magazine.
Size of organization small to medium individual
SMEs and entrepreneurs (e.g., Hotel Punta Islita) profits for owners
Social entrepreneurs (e.g., Laura Lang) social benefits
Innovation in Mexico from a variety of perspectives
InnovaLatino Profile of Mexico

Mexico
12% 24.40
1% 35.79
LATAM
OCDE
75.03 44.10 7%
0%
26% 13.00 0.05 0% 10% 0.06
8% 13.90 3% 19% 19% 5% 6% 0% 7% 3% 0% 5% 9% 4%
0.11 7315.07
7% 12% Total researchers per million labor force 459.52 524.38 Internet subscribers per 100 people Personal computers per 100 people Mobile phone subscribers per 100 people Percentage of paved roads 48% 7.05 11% 13.85 42% 4.44 8% 4.37 84.40 8% 8% 25.97
23.88 48.54 25% 111.81 79.15 681.33 4215.11
14% 69.85 50.00
9% 8% Gross expenditure on research and development per capita 56.19 39.29 4% 1% Number of patents 133.00 47.47 High technology exports as % of manufacturating exports International quality certifications 8% 4990.00 22% 9.80 4% 14495.30 6% 9093.31 17.09 17% 2455.72 4%
13% 4.15 17920.40 138.62
16.03
Royalties receipts in US$ per capita 4.13

Gross Domestic Product per capita
36%
33481.90
Trade of intangibles has been increasingly his importance for economic activity and international competitiveness, since recently there has been more trade in intellectual property. Trade in intellectual property, could be measured by royalties and license fees (receipts for this case) for the which Mexico has historically lead this indicator and increased it in a positive direction during the period 2004-2008, passing from 0.89 dollars per capita to 4.1 dollars per capita.
0.60 Growth rate last 5 years 0.40 0.20 0.00 0.20 0.40 0.60 30.00 Costa Rica 10.00
Royalties receipts in US$ per capita Brazil Colombia Mexico Peru Argentina Uruguay Chile
OECD Average
10.00
30.00
50.00
70.00
90.00
110.00

This country profile was developed in November 2010. The most complete and updated InnovaLatino Profile of Mexico (including sources) is available at: http://www.innovalatino.org/mexico.html

Average value of participating large firms Average value of participating small firms % of firms with more than 50 percent of employees holding technical education 42.2% 20.4% 48.4% 40.7% 41.8% 23.5% 16.5% 72.1% 74.6% % of firms who applied for intellectual property rights protection 85.3% % of firms receiving external financial resources and considering financial support as important 31.2% % of firms reporting awareness of leading public support programs 55.0% % of firms with access to foreign machinery 72.5% % of firms conducting projects with foreigners 53.2% % of firms that introduced product innovations % of firms planning to innovate more 79.8% % of firms considering gain of market share and/or new markets as very important effect of innovation 56.0% % of firms earning more than 30 percent from innovation 41.3% % of firms finding innovation efforts led to: a. Cost reductions 88.9% b. Job creation 57.8% c. Job savings 68.8% 30.1% 63.2% 96.3%
Population, total (Millions): 107.43 GDP, PPP (Millions, constant 2005 international $): 1335.26 Foreign direct investment, net inflows (% of GDP): 1.60 GINI index: 51.61 Main 4 exports as % of Total Exports Manufactured goods: 82.52 Oil: 13.45 Agricultural products: 3.39 Mining products: 0.63
62.7% 60.2% 51.3%
Examples of innovative organizations in Mexico. For each country, InnovaLatino has developed vignettes of different types of innovators, depending on two dimensions: 1. the size of the organization; and 2. the primary type of benefit sought. Here we highlight one innovative organization. For additional examples, please visit: http://www.innovalatino.org/mexico.html
large Corporate social responsibility Large firms (e.g.,Cinpolis) SMEs and entrepreneurs (e.g., Pineda Covalin) profits for owners Primary type of benefit sought Public institutions (e.g., CONACYT) CEMEX Patrimonio Hoy Patrimonio Hoy is an innovative Corporate Social Responsibility (CSR) program developed and supported by CEMEX. Founded in Mexico in 1906, CEMEX is one of the worlds three largest building materials companies with 50,000 employees, US$ 14.7 billion of net sales in 2009, and presence in more than 50 countries across five continents. In 1998, CEMEX introduced Patrimonio Hoy to provide shelter to people of low income. The program is one of the pioneers of social innovation in Latin America. CEMEX provides the assistance and resources to build and improve houses with a low cost and efficient micro-credit system, contributing to the development of the region. The project has benefited more than 300,000 families in five different countries; 180,000 of them received more than US$ 67 million in loans, with a loan repayment rate of 99%.
Social entrepreneurs (e.g., Causas.org) social benefits
Innovation in Peru from a variety of perspectives
InnovaLatino Profile of Peru

3% 19.10 41.00
Peru
Political stability Start a business time
35.79
1%
LATAM
OCDE
75.03 44.10 0.11 7315.07 23.88 48.54 84.40 25% 111.81 79.15 681.33 4215.11 7%
0%
17%
8% 13.90 3% 19% 19% 5% 6% 0% 7% 3% 0% 5% 9% 4%
n.d. 10% Graduates in tertiary school per 100 people n.d. 0.06 n.d. 12% Total researchers per million labor force n.d. 524.38 26% Internet subscribers per 100 people 2.57 Personal computers per 100 people 16% 10.01 42% 4.44 8% 4.37
Mobile phone subscribers per 100 people

Percentage of paved roads 1% 13.88
38% 74.24 8% 25.97
10% 8% Gross expenditure on research and development per capita 8.69 39.29 6% 1% Number of patents 1.50 47.47 High technology exports as % of manufacturating exports 3% 2.06 13% 4.15
16.03 17920.40 138.62
27% 17% International quality certifications 688.00 2455.72 25% 22% Royalties receipts in US$ per capita 0.06 9.80 Gross Domestic Product per capita 8% 8507.04 6% 9093.31
33481.90
Competition among three main operators wit the reduction in the cost of lines and of mobile equipments, has encouraged the impressive increasing in the number of mobile phone subscribers in Peru. The annual growth rate for the period 2004-2008 allows to see with optimism the accomplishment of the objective fixed by the Peruvian Ministry of Transport and Communications to expand the mobile service to 80 over 100 people in 2011.
0.50 0.45 0.40 0.35 0.30 0.25 0.20 0.15 0.10 0.05 0.00 0.00
Mobile phone subscribers per 100 people Peru Uruguay Colombia Argentina LATAM 25%
Growth rate last 5 years
Costa Rica
Mexico 40.00
Brazil Chile OECD Average 100.00 120.00
20.00
LATAM 54.8 60.00 80.00 Average last 5 years

This country profile was developed in November 2010. The most complete and updated InnovaLatino Profile of Peru (including sources) is available at: http://www.innovalatino.org/peru.html

Average value of participating large firms Average value of participating small firms % of firms with more than 50 percent of employees holding technical education 18.7% 23.8% 47.2% 22.2% 23.8% 36.7% 25.5% 85.1% 96.2% % of firms who applied for intellectual property rights protection 73.7% % of firms receiving external financial resources and considering financial support as important 63.3% % of firms reporting awareness of leading public support programs 52.3% % of firms with access to foreign machinery 51.4% % of firms conducting projects with foreigners 84.8% 100%
Population, total (Millions): 29.16 GDP, PPP (Millions, constant 2005 international $): 228.54 Foreign direct investment, net inflows (% of GDP): 3.65 GINI index: 50.52 Main 4 exports as % of Total Exports Gold: 25.30 Copper: 22.07 Fishmeal: 6.26 Zinc: 4.56
92.6%
% of firms considering gain of market share and/or new markets as very important effect of innovation 55.8% % of firms earning more than 30 percent from innovation 18.3% % of firms finding innovation efforts led to: a. Cost reductions 89.0% b. Job creation 89.2% c. Job savings 85.4% 65.3% 42.1%
73.5% 72.9% 75.6%
Examples of innovative organizations in Peru. For each country, InnovaLatino has developed vignettes of different types of innovators, depending on two dimensions: 1. the size of the organization; and 2. the primary type of benefit sought. Here we highlight one innovative organization. For additional examples, please visit: http://www.innovalatino.org/peru.html
large Corporate social responsibility (e.g., Grupo Arcor) Large firms Public institutions (e.g., CONCYTEC) Ajegroup Ajegroup is a Peruvian-based family-owned company that manufactures, distributes and sells soft drinks (e.g., Big Cola and Cola Real), fruit juices, beer, and water. In 1990, the Aaos brothers founded the company with US$ 20,000. By 2010, the firm will have sale of US$1.3bn from selling 17 trademarks across 16 countries and had experienced five consecutive years of persistent growth of 30 per cent. The firm credits its success in part to its ability to create a distribution system that works with the specific conditions of emerging markets. Recognizing that street vendors are an important way to reach clients, Ajegroup has developed a distribution system that ensures their products reach street vendors. This type of business process innovation has enabled to Ajegroup to continue entering new and especially competitive emerging markets, such as Brazil, Vietnam and Indonesia.
individual
SMEs and entrepreneurs (e.g., Astrid y Gastn) profits for owners
Social entrepreneurs (e.g., Ciudad Saludable) social benefits
Innovation in Uruguay from a variety of perspectives
InnovaLatino Profile of Uruguay

Uruguay
Political stability Start a business time Graduates in tertiary school per 100 people 11%
75.10 65.00 0.08 12% 1%
5%
LATAM
1% 35.79
OCDE
75.03 7% 44.10 0.11
0%
8% 10% 0.06 7315.07
8% 13.90 3% 19% 19% 5% 6% 0% 7% 3% 0% 5% 9% 4%
Total researchers per million labor force 373.24 524.38

Internet subscribers per 100 people Personal computers per 100 people Mobile phone subscribers per 100 people Percentage of paved roads 15% 8% Gross expenditure on research and development per capita 36.67 39.29 19% 1% Number of patents 1.00 47.47 High technology exports as % of manufacturating exports 8% 3.08 13% 4.15 61% 8.59 3% 12.99 42% 4.44 8% 4.37 104.70 43% 1%
23.88 48.54 25% 84.40 8% 25.97 681.33 4215.11 16.03 17920.40 138.62 111.81 79.15
90.00
25% 17% 2455.72 International quality certifications 999.00 5% 22% Royalties receipts in US$ per capita 0.02 9.80 Gross Domestic Product per capita 8% 12734.20 6% 9093.31
33481.90
The investment in science and technology underwent a continuous growth after the last socioeconomic crisis of the country. According to the Secretary of Science, Technology and Productive innovation (SecyT) the investment between 2001 and 2005 raised a 115%. Even if Uruguay is not in the first position at the average investments level, the efforts developed the last century expressed by the dynamics of the indicator, reflect the interest of governments to boosting the innovation in the region.
0.25 Growth rate last 5 years 0.20 Uruguay 0.10 Colombia 0.05 0.00 0.15 Chile
Total researchers per million labor force OECD Average LATAM 12%
Mexico
Brazil Argentina
Costa Rica 940.00 LATAM 371,5 1940.00 2940.00 3940.00 4940.00
0.05 60.00

This country profile was developed in November 2010. The most complete and updated InnovaLatino Profile of Uruguay (including sources) is available at: http://www.innovalatino.org/uruguay.html

Average value of participating large firms Average value of participating small firms % of firms with more than 50 percent of employees holding technical education 35.2% 34.1% 35.6% 17.3% 35.3% 27.1% 25.6% 71.7% 77.1% % of firms who applied for intellectual property rights protection 62.3% % of firms receiving external financial resources and considering financial support as important 43.2% % of firms reporting awareness of leading public support programs 83.9% % of firms with access to foreign machinery 86.4% % of firms conducting projects with foreigners 100% 70.4%
Population, total (Millions): 3.34 GDP, PPP (Millions, constant 2005 international $): 40.06 Foreign direct investment, net inflows (% of GDP): 4.00 GINI index: 47.06 Main 4 exports as % of Total Exports Meat & products: 20.18 Wool & products: 2.80 Processed rice: 8.54 Hides & skins: 3.15
100%
% of firms considering gain of market share and/or new markets as very important effect of innovation 35.2% % of firms earning more than 30 percent from innovation 64.8% % of firms finding innovation efforts led to: a. Cost reductions 51.3% b. Job creation c. Job savings 51.3% 45.7% 60.9% 19.9%
45.9% 42.7% 39.5%
Examples of innovative organizations in Uruguay. For each country, InnovaLatino has developed vignettes of different types of innovators, depending on two dimensions: 1. the size of the organization; and 2. the primary type of benefit sought. Here we highlight one innovative organization. For additional examples, please visit: http://www.innovalatino.org/uruguay.html
large Corporate social responsibility (e.g., EFICE S.A.) Public institutions (e.g., UruguayINNOVA) Telemforo In 1997, Alberto Amorim and Martn Palomeque created a new concept of traffic ights and with it a firm named Telemforo. This new concept improves the impact of the red light in a traffic light by adding a luminous panel that diffuses messages and images. The screen consists of red light emitting diods (LEDs), synchronized and controlled by software that enables the client to choose the place, the hour and the composition of the message broadcasted. The firms clients are mainly municipalities that use this new system to broadcast security messages to drivers and pedestrians. Some of the messages are Please dont drink and drive. Walk. Take the bus. Take a cab. But dont return with a drunk driver. Telemforos system provides 160.000 visual impacts a month in Uruguay. Currently, other cities in Argentina, Bolivia, Peru and Spain are in the process of installing Telemforo in their municipalities.
Large firms (e.g., Memory) SMEs and entrepreneurs
Social entrepreneurs (e.g., Rosario Garca y Santos y Asociacin de Mujeres Rurales del Uruguay) social benefits
profits for owners Primary type of benefit sought
Chapter
Innovation in Latin America: mobile applications adoption and socio-economic development
Chapter
Innovation in Latin America: mobile applications adoption and socio-economic development

3.1 Mobile Penetration in Latin America
Since the market liberalization of the 1990s, many new telecoms operators have entered the region and increased competition has led to reduced prices and better service levels. A new telephone infrastructure has been built, mainly focused on mobile telecommunication, and mobile adoption has been extended to areas that previously lagged in terms of telecom penetration particularly the Andean region in countries such as Venezuela, Colombia, Ecuador, Bolivia, and Peru (Figures 3.1 and 3.2 present mobile and Internet penetration in Latin America at the end of 2009). Like many emerging markets around the world, Latin America has witnessed explosive growth in mobile phone penetration over recent years. Consumers increasingly favor mobile phones over fixed lines. The number of mobile subscribers reached 462 million in 2009, almost five times the number of fixed lines, representing a penetration of approximately 85%, well above the global average of 58%. In some countries, such as Argentina, El Salvador, Panama, Guatemala and Uruguay, penetration surpassed the 100% threshold. Venezuela, Paraguay, Colombia and Chile are very close to full coverage. Due to the strong competition among telecom companies, high average per capita income and a higher level of urbanization (75% of Latin Americas population live in cities) among other factors, the average mobile penetration in Latin America is higher than in emerging markets in Africa and Asia. Competition has spurred growth by making services more affordable to people with lower incomes or usage of mobile services. Mobile phones and adoption of mobile services have become more feasible for consumers, in Latin America as elsewhere, mostly due to reduced prices and greater incentives to service all market segments. The introduction of per-second billing and pre-paid cards, along with pro-competitive regulation, such as number portability, have played a key role in empowering consumers relative to the costs they incur for service. Operators have also developed new initiatives to assist with affordability, which benefit some users, by offering schemes for people living abroad to pay for mobile services, such as in the case of relatives or friends. In 2009, 75% of mobile subscribers in Latin America were prepaid. While such levels are not uncommon around the world, in developed and developing countries, pre-paid services have provided a very effective business model for operators and are particularly popular among low income users that would otherwise face barriers to the availability of credit. Operators have also introduced offers with reduced up front hand-set prices, in return for long term contracts and higher usage charges, that make joining a network more accessible for low income users.
3.1.1 The Socio-Economic Impact of Mobile Telephony

There is considerable evidence to show that the spread of mobile telecommunications improves economic growth and consumer well-being in poor countries. Evidence also points to a positive correlation between teledensity and quality of life indicators controlling for Gross Domestic Product (GDP) per capita such as longer life expectancy, lower infant mortality and lower illiteracy. The economic and social benefits of mobile telephony are greater in low-income communities, particularly in rural areas with limited access to other means of communication. Besides the direct benefit of mobile devices, which enable communication between people, communities and entities, accrued indirect benefits include the facilitation of entrepreneurship and job search, the reduction of information asymmetries and market inefficiencies, and cost savings from the substitution of transportation.
3. Innovation in Latin America: mobile applications adoption and socio-economic development 61

Figure 3.1. MobILe AnD InTerneT PeneTrATIon In LATIn AMerICA 2010 (ForeCASTeD) In reLATIon To GroSS DoMeSTIC ProDuCT (GDP) Per CAPITA (%)
1.4 1.3 1.2 1.1 1 Subscribers (% of population) 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0
38% 40% 45% 103% 104% 16,500$ 118%
135%
137% 129% 129%
18,000 17,000 16,000

109%
15,000 14,000 13,000
101%
104%
97% 97% 97% 97% 97% 97% 97% 97% 97% 97% 97% 97% 97% 97% 97% 97% 97% 97% 97% 94% 96% 93% 92% 12,000 11,550$ 87% 84% 11,000 77% 68% 61% 55%
10,000 9,000 8,000 7,000 6,000
57%
8,300$ 65% 8,200$
6,800$ 43%
33% 33% 33% 33% 33%
40% 5,200$ 5,000 4,950$ 33% 33% 33% 33% 33% 33% 33% 33% 4,400$ 33% 33% 33% 33% 33% 33% 4,000 29% 3,500$ 3,200$ 3,150$ 3,000 16% 17% 18% 2,450$ 1,900$ 2,000 13% 12% 1,800$ 10% 12% 1,150$ 4%
48% 6,500$ 43%
1,000 0
Source: Authors based on data from Pyramid research.
Mobile phones have proved to be an extremely helpful device for low-income users in their daily business activities. Often part of the informal economy, such users particularly value the mobility that phones provide. Similarly, small and medium enterprises (SMEs) owners utilize mobiles as an important sales tool, often to sell their services and products, assess distribution channels, contact customers, or provide post-sales support and follow-up. The increased contact with clients and suppliers allows SMEs to close purchase and sales transactions at fairer prices. In addition, they make better use of their time as phones can reduce the need to commute.
Ko r ne ea zu e M la ex ico Ch Ur ile u Ar gua ge y nt in a Br a Pa zil na Co m st a Do a m Co Ric in ica lom a n Re bia pu bl ic Pe Ec ru u El ad Sa or l Gu vad at or em Pa ala ra g Ho ua nd y ur a Bo s liv Ni ca ia ra gu a
So
Ve
ut
Internet Users (2010) Mobile Subscribers (2010)
Mobile Subscribers Latin America (2010) Internet Users Latin America (2010)
GDP per Capita
GDP per Capita (USD)
10,200$ 10,100$ 9,700$

Figure 3.2. GroWTh oF FIxeD, MobILe AnD InTerneT uSerS (AS % oF PoPuLATIon) In LATIn AMerICA
120% 100% 80% 60% 40% 20% 0% 17% 15% 2006 19% 18% 2007 24% 18% 2008 28% 18% 2009 33% 18% 2010 (F) 69% 56% 44% 38% 18% 2011 (F) 18% 2012 (F) 81% 103% 89% 97% 108%
112%
50%
18%
2013 (F)
Fixed telephone
nota: F = forecast. Source: Authors based on data from Pyramid research.
Mobile telephony
Internet users
With a population of 572,680,000 inhabitants living in 149,388,000 households and a GDP of US$4 trillion, Latin America is a middle-income region, with average nominal GDP per capita of US$6,936 in 2009.1 The strong economic growth in Latin America since 2002 has been highly beneficial to the poor; the size of the middle class in the region has increased in every country. Between 1990 and 2007, the poverty rate2 decreased by 12 percentage points and extreme poverty decreased by 9.1 percentage points. Nevertheless, in 2009 the region was still home to 183 million poor people, 33.1% of the total population, including over 74 million (about 13.3% of the total population) living in extreme poverty.3 Mobile telephony provides an important channel to increase their socio-economic development and mobility, and offers a tool to reduce poverty in these under-privileged segments of the population. Several governments are actively using mobile technology to help drive development. In particular, they are turning to mobile applications as a way to give low-income groups access to services which will help them improve their lives. Mobile services not only can increase citizens access to government services, such as tax filing and school registration, but can also improve the flow of information between the government and its citizens, and increase societys engagement in governmental decisions in general.
1 Source: World Bank Latin America http://data.worldbank.org/region/latin-america-and-caribbean. Accessed on 15 December 2010. 2 The World Bank considers those living with less than US$1.25 per day as poor and extreme poverty refers to those living with less than US$1.00 per day. 3 Source: Economic Commission for Latin America and the Caribbean (ECLAC) with the Spanish acronym, CEPAL, http://www.eclac.org/cgi-bin/getProd.asp?xml=/ prensa/noticias/comunicados/4/41804/P41804.xml&xsl=/prensa/tpl-i/p6f.xsl&base=/tpl-i/top-bottom.xsl. Accessed on 15 December 2010.

Figure 3.3. MobILe APPLICATIonS ADoPTIon FrAMeWork (MAAF)4
Socio-economic development
User adoption levers
Mobile applications
Mobile ecosystem evolution
Source: Booz & Co and INSEAD.
3.2 The Mobile Applications Ecosystem

The Mobile Applications Adoption Framework (MAAF) was created to understand the ecosystem that is conducive to the proliferation of mobile applications in order to explain the dynamics of mobile application growth (Figure 3.3). The framework revolves around interrelated dimensions, ranging from macro-level factors to user-centric dynamics. Specifically, it addresses key questions across three areas:4 Socio-economic Development: What are the macro-level factors driving the overall growth in mobile penetration? 2. Mobile ecosystem evolution: What are the industry-level factors driving the supply of mobile applications? 3. user Adoption Levers: What are the user-centric factors driving the demand for mobile applications? 1. We use the above framework to understand the adoption and impact of mobile applications in Latin America.
4 The contribution of Christos Mastoras and Juan Jos de la Torre from Booz & Co. to the development of the framework MAAF and to this chapter is gratefully acknowledged. Barbara Martns comments were also very helpful.

Figure 3.4. SoCIo-eConoMIC DynAMICS: key FACTorS
Education & learning
Economic development
Mobile applications
Markets liberalization
Source: Booz & Co. and INSEAD.
3.2.1 Socio-economic Development

The three key factors for socio-economic development are Economic Development, Education & Learning and Market Liberalization5 & Competition (see Figure 3.4). Although these factors are not exhaustive, they include the most relevant aspects. For example, pricing strategies and customer service are associated with the market-facing activities of mobile operators and are therefore inherently embedded in Competition; mobile licensing, privatization and effective and efficient regulation that promotes both competition and investment in the sector are captured by the Market Liberalization factor; and macro-level aspects such as investment environment and cultural considerations are embedded within Economic Development and Education respectively.
3.2.1.1 Economic Development
Past research has claimed that Information and Communications Technology (ICT) penetration is associated with income levels and correlated with Gross Domestic Product (GDP) per capita. There used to be a strong correlation between fixed line phone penetration and Gross Domestic Product/capita. However, this correlation no longer holds true for mobile phone penetration. As Figure 3.1 shows the perceived correlation is contradicted by a range of countries, specifically at the low end of the Gross Domestic Product per capita range. Eight of 18 countries analyzed in the figure achieved over 90% population coverage, despite low per capita incomes.
5 Market liberalization in this sense concerns the overall regulatory framework for mobile operators. To the extent that much of the regulatory framework in Latin American countries is not specifically targeted at mobile applications, these aspects are considered as part of the socio-economic dynamics affecting overall mobile penetration. Nevertheless, regulation, or regulatory oversight, exists related to mobile services, including applications: non discrimination, limitations on unreasonable blocking, measures in favor of transparency, among other possible examples. Chile has passed legislation to this effect.

Figure 3.5. LITerACy rATe 15-24 yeArS oLD 1990 AnD 2007
120%
99% 99% 98% 100% 96% 95% 97% 98% 98% 98%98% 98% 97% 96% 95% 93% 93% 92% 95% 85% 84% 73% 98% 98% 98% 99% 98% 96% 95% 95% 99% 94% 96% 96% 90,3% 89% 95% 87% 74%
100%
80%
68%
60%
55%
40%
22%
20%
0%
Source: Authors based on data from ECLAC and SEGIB (2008).
According to the World Bank, the weak correlation between GDP per capita and mobile penetration is indicative of two other declining myths. The first is that the rural poor are not able or not willing to pay for mobile telecommunication services. The second is that natural barriers such as lack of education or electricity prevent mobile take-up. Given these dynamics, it is fair to say that we shall continue to see high adoption of mobile telephony all over Latin America. Still, economic development and associated higher incomes are inevitably enablers, i.e. provide a positive context for the drivers of adoption and usage of mobile applications.
3.2.1.2 Education & Learning
The expanding reach of education in Latin America aids the adoption of mobile applications. Specifically, increasing literacy rates (see Figure 3.5), high proportions of population speaking foreign languages, and the introduction of e-learning are natural enablers for mobile applications. School attendance and literacy rates have increased and the United Nationss Millennium Development Goals are within reach. The literacy rate has risen from 92% in 1990 to over 96% in 2007, and primary school attendance is close to 100%. However, the quality of education and the subsequent functional illiteracy pose a major problem, diminishing the benefits of mobile applications. In Latin America, the education gap mirrors the income gap between rich
Am Ar eri ge ca nt in a Bo liv ia Br az i Ch l Co il lo e m Co bi st a a Ri ca Cu Ec ba u El ad Sa or l Gu vad at or em al a Ha Ho it nd i ur M as e Ni xic ca o ra g Pa ua na Pa ma Do ra gu m in ay ica n Per Re u pu b Ur lic ug Ve ua ne y zu el a

Literacy rate of 15-24 years old 1990 Literacy rate of 15-24 years old 2007
La
tin

and poor. Around 50 million people cannot read or write and are unable to compete in todays economy. Mobile applications can help alleviate this situation. Camner, G. et al. (2009) states that mobile phones can transform learning environments in interactive environments. Mobility is a resource that adds value to traditional education and supports personal and individual development. For example, teachers can support ill or disabled students through mobile phones as a permanent way of learning. It is a way of increasing school attendance and encouraging students to fulfill their goals.
3.2.1.3 Market Liberalization and Competition
Market liberalization and the resulting intensifying competition has enabled emerging markets to undergo a significant transition, from monopolistic to liberalized telecom markets which has driven mobile adoption. Within this context, deregulation has provided an increasingly favorable legal and regulatory environment. Thanks to these factors, and to pro-competitive regulation, Latin America currently with the exception of Mexico has a highly competitive environment for mobile operators. Typically, four to five operators serve each market, which includes local operators and international companies like Telefnica, Amrica Mvil or Telecom Italia.6 Converging boundaries across sectors have also spurred deregulation and market liberalization to aid the adoption of mobile applications. A case in point is m-financial services where the boundaries between traditional banks and telecom operators have blurred, driven by technological trends, consumer demands, deregulation and market liberalization. Traditional mobile payment services simply use the phone as an access device to initiate and authenticate transactions from existing bank accounts or payment cards, an extension of traditional payment methods such as the Internet or a bankcard. Mobile phones are increasingly utilized as platforms for operations with financial institutions, and for accessing bank accounts, whether checking, savings, or loans. When mobile payment services are not based on an underlying bank or payment card account, the telecom operator typically acts as an intermediary, authorizing, clearing and settling the payment through normal banking channels, thus performing mobile banking functions or m-banking. According to GSM Association7 in 2010 there were 49 live deployments of mobile payment services and an additional 70 in development in the world. Several such initiatives are also underway in Latin America. In the future, cash, cards and other modes of payment will be replaced by mobile phone applications that will allow remote payments, bank account information and authentication processes among others.
3.2.2 Evolution of the Mobile Ecosystem

The mobile ecosystem, which defines the supply of mobile applications, extends far beyond telecom providers. Figure 3.6 presents the six key elements of a robust mobile ecosystem: Vibrant developer community. Defined business models. Customer sophistication and readiness. Technological readiness. Competitive intensity. User interface.
6 Pro-competitive regulation has been important to the development of mobile applications in many markets. Because of the technological nature of telecommunications, operators -- whether old or new -- can have significant market power in areas such as backbone facilities, local loops, mobile termination, international roaming services and so forth. When there is insufficient or ineffective regulation, there can be barriers to the introduction of new services such as financial services over mobile networks. 7 Source: http://www.gsmworld.com/our-work/mobile_planet/mobile_money_for_the_unbanked/index.htm Accessed by 15 December 2010.

Figure 3.6. evoLuTIon oF MobILe eCoSySTeM: key eLeMenTS
User interface
Developer community
Competitive intensity
Mobile applications
Business model
Technological readiness
Customer sophistication and readiness
3.2.2.1 Developer Community
Most mobile applications are developed by developer communities, which base their applications on a common set of tools such as Application Programming Interfaces provided by operators, handset manufacturers and vendors. Handset and software manufacturers have typically grouped their development tools around specific operating systems or platforms. For example, Microsoft has established the Windows Mobile community, Google has launched the Android operating system, Apple the iPhone platform and Nokia the Symbian-OVI community. Mobile operators have also made efforts to launch their own developer communities. For example Orange France Telecom has developed the Signature Community and Telefnica established the Movilforum community in 2001 in 14 countries in Europe and Latin America. Most of these communities include programmers from Latin America, especially from countries with a strong engineering tradition such as Mexico, Brazil and Colombia.
3.2.2.2 Business Models
Business models bring together the different stakeholders of the mobile applications ecosystem setting the rules of engagement and commercial interplay between parties. Business models also define how the providers engage the end-user to capture the upside of opportunities in this space. Traditional business models featured the operator as the gatekeeper between providers and the end-user. However, the development of new business models based on converging technologies and open standards is enabling new players to step in, fostering the development and launch of innovative mobile applications. Consider the following example: the National Federation of Coffee Growers created the Intelligent Coffee Identification Card in order to bring more than 300,000 coffee farmers closer to financial services. This joint venture with Telefnica MoviStar and Banco de Bogot is a mobile banking project in which the Intelligent Coffee card works as a cash-in and cash-out tool. The profit obtained by coffee sales is deposited by the Federation in the Identification Card along with the benefits given by the national government (e.g. crops renovation and protec-

tion). Once the money has been credited, the farmer can use the card to withdraw cash or buy at selected stores. Note that the Intelligent Coffee card is different from a bank account. Even though it has similar functions to those of a debit card, it is cheaper, works in remote areas and the bank - in this case Banco de Bogot - only provides the equipment to make the system work (e.g. information technology providers and teller machines). Because of the high mobile penetration in the country at almost 92% in 2009, Telefnica managed to facilitate the use of the Coffee card as a mobile information resource. With this service, farmers are able to check coffee prices and the last five operations in their Intelligent Cards via their mobile phones. According to the company in 2009, in only one month 127 coffee growers of four municipalities made more than 1,300 transactions using Short Message Service (SMS); an average of 43 operations per day. The Intelligent Coffee card is therefore 1) an identification card for the coffee grower members of the Federation; 2) a practical and efficient way of receiving payments of coffee crops sales; 3) an innovative solution to withdraw money from teller machines and Terpel gas stations, buy goods from authorized points of sale and recharge prepaid mobile phones; and 4) a user-friendly approach to develop mobile banking. This ecosystem of public and private sector partners in Colombia provides an example of how to create a sustainable and innovative business model for mobile application deployment.
3.2.2.3 Customer Sophistication
There are many factors which affect customer sophistication but economic income, level of education and the overall maturity of the telecoms sector are key determinants. As a countrys Gross Domestic Product increases and its citizens have greater disposable income, consumer expectations from and willingness to spend money on mobile application services increase. This trend can be expected to continue in Latin America over the years to come, assuming that economic progress in the region is maintained. The government also plays an important role both as a leader and facilitator in determining customer sophistication. In Brazil, for instance, where the tax filing system is almost entirely handled electronically, mobile technology has just been added as an extra feature, a means to automatically communicate via SMS that tax reimbursement has been deposited in the taxpayers bank account. Also, with all towns and municipalities having mobile coverage thanks to the rules attached to the new 3G licenses, the opportunity for the government to start providing innovative m-government services has increased considerably. The government of the Federal District in Mexico (DF) has implemented a number of projects that benefit its citizens. Citizens can obtain information about payments on automobile and property taxes via cell phones. They can also access information about payments and request codes to process payments via SMS. Telephone operators participating in this project are Telcel (part of Amrica Mvil, the biggest telco in Mexico), Iusacell (part of the Grupo Salinas) and Movistar (part of the Spanish Telefnica)l. Users must send a text message to the number 98888 with the name of the request, code or account number. The cost per message is about US$ 0.08 including taxes.
3.2.2.4 Technological Readiness
Area coverage and the number of mobile devices, the two essential ingredients to access the mobile network, have grown tremendously in Latin America. Coverage across Latin America exceeds 90%. Also, as of 2009, over 500 million mobile devices were available, which is an average of 0.9 mobile phones per inhabitant. The introduction of 3G is also expected to ramp up significantly over the next years. According to data from Pyramid Research, about 8% of the population across Latin America had access to 3G services in 2009 with this proportion expected to rise to nearly 50% by 2013. Special efforts are being made to increase coverage to the remote parts of Latin America. Consider the case of Legal Amazon, a very poor region in Brazil and with a low population density, which was cut off from the world due to lack of infrastructure. The challenge was to access more than 30,000 people from the Amazon living in 143 villages in Belterra, Santarm and Aveiroand. In late November 2009, Vivo the largest mobile operator in Brazil with more than 55 million subscribers and Ericsson inaugurated the first communications tower to allow wireless and mobile access in Legal Amazon. The project lead by the Non-Governmental Organization

(NGO) Sade e Alegria aims to connect the communities that are members of the NGO. It seeks to improve public policies as well as health and education public services. For a remote region, increased technological readiness brings the local population access to benefits in health and education which were previously nonexistent or difficult to obtain. For example, doctors and educators who go by boat along the Amazons rivers to provide services to poor social communities can now have access to mobile phones to get in touch with the community and hospitals with advanced expertise. The increased mobile coverage also provides support to the communication learning network of the Rede Mocoronga de Comunicao Popular, an initiative of Sade e Alegria. This program trains young people in the field of telecommunications; they create community reports that are reproduced in radio programs, videos, local journals and Internet blogs.
3.2.2.5 Competitive Intensity
The intensity of competition affects the overall dynamics of the mobile applications market, as it stimulates innovation, pushing the boundaries of mobile applications. Having reached nearly 100% penetration in many markets, mobile operators are now seeking further growth opportunities in mobile applications. However competition is mounting from value chain players like handset manufacturers as well as from non-telecom players, fuelled by the industry standardization, convergence of technologies and overall deregulation. As competition mounts in Latin America, innovation in applications development will also increase.
3.2.2.6 User Interface
The User Interface is a key driver of mobile applications adoption as it represents the vehicle via which users can access and use applications. The more developed the interface, the more likely the end user is to adopt mobile applications. Most of the handsets in the Latin American market are what can be called basic features handsets, which provide basic mobile applications based on SMS. The industry is in the middle of a transition from mobile phones as simple devices with black and white screens to smart computational devices, capable of tasks similar to a full fledged computer such as an Apple iPhone. These features of the user interface create the perfect platform to unleash the creativity of developers for innovative mobile applications. As the price of smart phones comes down, the availability of these phones to the general population in Latin America will multiply.
3.2.3 User Adoption Levers

User adoption levers are the factors nearest to the end-customer driving mobile application adoption. Three levers relevance, accessibility and affordability (see Figure 3.7) are the building blocks that service providers use to synthesize the value proposition to the user in order to foster take-up. While the levers can individually drive take-up as standalone factors, demand growth entails the use and application of all three levers.
3.2.3.1 Relevance
Relevance is a key customer-centric driver of adoption. Demand is driven by the development and commercialization of mobile applications that fulfill a core customer needs in everyday life essential functions that the user would seek to perform on a regular basis such as access to information, management/transfer of money, access to healthcare and access to education. Keeping mobile applications relevant to the end-user implies generating strong value propositions and delivering these value propositions to the customer through a compelling implementation of the mobile application. Consider the example of m-health services. Mobile information technology is used to improve primary health care service delivery in Special Indigenous Health Districts that serve indigenous communities throughout Brazil. Mobile devices are used by a professional staff in multidisciplinary health teams that provide services to these communities, many of which are located in remote areas. The Department of Indigenous Peoples Health maintains a register of individuals living in indigenous communities.

Figure 3.7. uSer ADoPTIon LeverS
Relevance
Accesibility
Mobile applications
Affordability
Information about health services is linked to this population registry to monitor vaccination coverage and health indicators. In the program, data entry modules are created for use with mobile devices and replace paper forms and manual data entry. The first module was for immunizations services, to be followed by the creation of modules for nutrition, oral health, and maternal and child health over the next three years of the project. The project is being implemented in 18 of 34 Special Indigenous Health Districts, where the use of mobile technologies can be compared to the current paper form-based system. The Department of Indigenous Peoples Health, depending of Fundao Nacional de Sade (FUNASA) will be implementing the program with the technical assistance of the Pan American Health Organization (PAHO). In addition to technical expertise, PAHO will support training activities and facilitate the grant.
3.2.3.2 Accessibility
For an end-user to purchase and use a mobile application, it must be accessible. Namely, there must be awareness around the application and an effective distribution mechanism to the customer. Accessibility has been aided by the expansion of the coverage and quality of mobile networks, the increasing reach of formal and informal sales and distribution networks, as well as the increasingly wide availability of low-cost affordable phones. As such, both mobile operators and handset manufacturers have contributed to expanding accessibility. However, enhancing access to mobile applications in remote parts of Latin America frequently requires innovative models of partnerships across different stakeholder groups. Consider the case of Perus Kausay Wasi Clinic. In the Sacred Valley of the Incas, in the surrounding territory of Cusco and Machu Picchu, the magnificence of the landscape makes for a stark contrast with the omnipresent poverty. Poor living conditions, a lack of running water and electricity, along with harsh climate conditions that makes houses humid, dirty and covered with mud, are the main causes of sickness and high mortality rates. With the goal of improving health care access and quality to nearby inhabitants, the not-for-profit Kausay Wasi

Health Clinic was founded in 2005 in the rural village of Coya, 1.5 hours from Cusco. The clinic is based on an idea and funded by the Americans Gido del Prado and his wife Sandy. It was founded together with the help of 200 local residents. At first, the clinic was completely isolated and had no connectivity of any kind. Fixed line telephony installation was attempted without success due to geographical difficulties. As a result, information either arrived late or in some cases not at all, making patient care very precarious. Partnering with Qualcomms wireless telecommunications research and development department, the Kausay Wasi Health Clinic found a way to improve its services through the wireless reach initiative. Qualcomm installed wireless technology in the clinic, connecting it to the world. It also provided funding for laptops, camera and video mobile phones, data cards, IT equipment and connectivity fees. Together with FACES Foundation which provides expertise in the surgical treatment of children with facial deformities the clinic has improved the lives of children in numerous cases related to cleft lip and palate, burns and accidents. In the same way, elderly people have benefited from general medical care as well as orthopedic, gynecological and dental care. Between 12 and 15 volunteer doctors from the U.S. Medical Teams International of Portland, Oregon, regularly visit the clinic and provide medical services free of charge to the poorest mountain villagers in need.
3.2.3.3 Affordability
We have seen that one barrier to mobile adoption in emerging markets is low disposable income. Therefore, the overall monetary cost of accessing and utilizing the mobile application is critical in developing markets. As the supply of mobile applications has increased exponentially, prices have declined thereby helping to extend mobile applications to larger parts of the population in Latin America. Affordability needs to be reflected all across the mobile application value chain, from the handset, which makes it possible to provide applications, through the data access cost to the application itself.
3.3 The future of mobile applications in Latin America

In recent years, the evolution of the telecommunications market and information technologies in Latin America have experienced strong expansion mainly driven by demand as mobile telephony became more affordable, prompting operators to make heavy investments in infrastructure networks. By some estimates this corresponds to as much as 20% of all the foreign direct investments (FDI) made in the region in the last 20 years. The number of jobs directly or indirectly related to the mobile industry in the region amounts to over 2.3 million. The greater accessibility to Internet provided by mobile technology, when compared to fixed line Internet, and its potential to foster the development of communities through the empowerment of SMEs, entrepreneurs and women in particular has not been fully tapped. Recommendations in this concluding section of the chapter can be drawn across the three dimensions of the Mobile Applications Framework (Figure 3.8). As discussed before, the deployment of mobile phones across developing communities has a multi-dimensional positive impact on sustainable poverty reduction. Thus, going forward, it remains important to make the mobile phone as cheaply and widely accessible as possible, while developing and creating an environment that fosters the development of mobile applications centered on the end-user. Thus, to further develop the mobile application ecosystem and help to realize the vast economic potential of mobile applications and ensure that even the poorest members of society can attain its benefits stakeholders need to focus on six initial areas: 1. 2. 3. 4. Spread of Mobile Applications Capable Handsets. Extend Data Network Coverage while Reducing Entry Barriers. Convergence in Enabling Platforms. Encourage Mobile Application Development Ecosystems.

Figure 3.8. Mobile ApplicAtion Adoption FrAMework (MAAF): Full view
Education & learning
User interface
Developer community
Economic development
Relevance Competitive intensity
Accesibility Business model
Mobile applications
Affordability Customer sophistication and readiness Markets liberalization

Technological readiness
5. Develop Cross-industry Agreements. 6. Foster Public Private Partnerships. These six elements are closely interrelated. Some are enablers of mobile applications directly on the demand side, others have a fostering or empowering role for the mobile application ecosystem, therefore affecting the supply side.
3.3.1 Spread of Mobile Applications Capable Handsets

As indicated throughout the chapter, handsets are the first and the direct interface between mobile applications and end-users. They are also the device on which users run and execute the mobile applications. Therefore, they enable the demand from the end-users. It is not enough to offer affordable handsets to the end-users, stakeholders need to focus on getting Mobile Application Capable devices to the end-users. Only by following this approach can they guarantee that end-users will have a full opportunity to take-up mobile applications. One illustration is Brazils New Baby Phone initiative, whereby the government supplements the aid basket provided to low-income and under-privileged mothers with a newborn baby, with an affordable portable phone. However, efforts to date have been largely ad hoc and are not driven by operators or service providers themselves. This leads to a limited global impact and hence a limited potential for job creation as well as the expansion of the communication benefits. Without a systematic approach, the vast potential of the market will not be realized. The time is right for a systematic, productized approach to shared access, with specifically designed terminals and service propositions designed for shared access in the home, the office and via public access pay phones.

In conclusion, mobile phones are set to become the most easily accessible and ubiquitous communications devices in rural areas. Easy availability of low priced new handsets with basic features and the emergence of secondary markets for used devices, whose prices are even lower, bring them within reach of even the poorest of the poor. Thus stakeholders need to focus on lowering the cost of ownership of mobile application capable handsets, making mobile phones affordable to all while generating a broad reachable market.
3.3.2 Extend Data Network Coverage while Reducing Entry Barriers

Stakeholders need to continue to foster overall socio-economic development with particular emphasis on mobile and Internet technologies. To achieve these, data access is critical. Thus, extending the data coverage beyond cities to rural areas, where thousands of potential users await, becomes a priority. In addition, innovative modes of mobile phone access allow phone sharing through SIM cards and to pay for airtime through micro-prepayment. This promotes an even more rapid adoption by low-income end-users and allows mobile applications to start spreading through the communities. Examples can be taken not only from Latin America, but also from other developing markets such as Africa where shared Internet phones have started as a trend to provide low-income users with their first access to the Internet. Innovations such as micro-prepay (which allows the purchase of very small amounts of airtime) and low-cost pricing strategies for data services can help low-income users access the mobile applications ecosystem. Finally, stakeholders also need to focus on providing end-users with affordable access rates to data networks, which in turn allows and fosters the development of mobile applications. One way to encourage this is by offering flexible pricing models and plans that offer affordability and choice, even for very low-income customers. Examples include but are not limited to cheap handsets, micro prepayments or top-up cards.
3.3.3 Convergence in Enabling Platforms

Contrary to the Internet world, where standardization and common platforms have prevailed, the mobile ecosystem has developed into a scattered landscape regarding technological approaches for access technologies, developer communities and handset operational systems. Late homogenization and standardization in the developed world has not yet reached Latin Americas poor. On the one side GSM, the market leader with a growing influence, is becoming the de-facto standard for mobile networks. On the other, several operators continue to utilize CDMA networks due to economic and internal competences issues. Thus, achieving interoperability between access technologies remains a challenge. Also, the existence of several different access technologies jeopardizes the possibility for operators to benefit from new trends in access technologies. For example, the new technology of Radio Access Network (RAN) sharing would allow competitors to share their mobile towers, which would reduce their capital expenditure and operational expenses and thus allow more affordable prices to the end-user. At the same time, there are interoperability problems on the developers platforms. As explained in previous sections, developers can adhere to one or many development communities, each of them with its own set of developing tools. This generates inefficiencies, as most mobile applications developed for a particular platform either cannot be used or require major adaptation to be used in another environment. For example, a developer creating an iPhone application based on the iPhone toolkit needs to redo the whole application to have it run on a Nokia phone, as this uses the Symbian OS and therefore the Symbian toolkit. The consequence of this lack of interoperability is an increase in the cost of development (more development is required to reach more users), which is transferred to the end-user, that is, a higher cost of the mobile application. Thus, mobile application stakeholders need to aim for and foster the development of open standards, which communicate with each other, allowing the seamless integration of different development ecosystems through common interface layers. To achieve this goal, stakeholders need to work together to define standards and ways to allow the interoperability of mobile applications, while maintaining the benefits of separate environments.
3.3.4 Encourage Mobile Application Development Ecosystems

Another element that needs to be considered is the availability of wide-ranging, relevant and affordable mobile applications for the Latin American market. Currently, most applications are developed for mature markets and later translated for the Latin market. This does not always work as anticipated, due to cultural conditions that make the adoption of these applications difficult. Moreover, applications may not reflect the needs or desires of the Latin American market, which implies underserved areas not getting the value that mobile applications can add. Hence stakeholders need to work to develop an innovation ecosystem in Latin America, which encourages developers and start-ups to jump into the mobile applications space and develop mobile applications relevant to the market. An understanding of the local context and the creation of local content are important for successful mobile application development in the region.
3.3.5 Develop Cross-industry Agreements

The evolution of mobile technologies, along with the convergence of Internet and media, has generated a new set of possibilities and uses for the mobile phone. As described throughout the chapter, the mobile phone is now much more than a simple voice communication device; it is a tool that can offer a number of applications across industries. Examples vary from parking payment to health control issues. Hence, stakeholders in the mobile ecosystem need to be aware that these new possibilities will require the contribution of telecom outsiders companies, organizations and government entities that belong to different industries but that, by interacting with the telecom ecosystem, can generate further value for them and the telecoms industry. For example, governments are increasingly seeing the convergence of banking and technology as an opportunity to expand access to finance for low-income groups. But this new interaction requires a combination of skills, tools and strategies from a dispersed number of stakeholders who will need to address operational, regulatory and political issues. Only by combining forces can entities from different industries help to solve issues and requirements such as: Allowing nonbank agents, such as local stores, to offer cash-in/cash-out services to customers. Adopting a risk-based approach to anti money-laundering actions and countering terrorist financing rules. For example, many countries now allow agents to perform customer screening. Developing competition policies that encourage innovation but protect against customer-unfriendly monopolies.
Using m-finance as an example, enabling low-income people to benefit from technology-enabled financial access will require work at many levels from different stakeholders. Easy participation, soaring penetration, and irresistible economics have already ensured that these interations add value to all the elements involved. However, it will require willingness and openness to succeed in the long term.
3.3.6 Foster Public Private Partnerships

Access to mobile networks, services and mobile applications is still far from universal, and advances are needed to reach the poorest people. Thus public policy initiatives like public private partnership (PPP) funding schemes could be introduced to make this happen. By sharing the risk and the rewards with third-party public entities, government can attract a number of potential investors willing to take the required risk with the goal of achieving specific forecasted revenues. It also offers a way for government to speed up the development of infrastructure and intellectual property, which in this case can benefit the mobile applications supply. There is strong evidence that telecoms roll-out is linked to higher levels of foreign direct investment and economic development. In such a situation, fostering the development of the mobile ecosystem through public private partnerships can be beneficial for the private and public sectors alike, while creating the means to materialize and unleash the mobile applications potential in Latin America.
Chapter
Ways Forward for Innovation Policy in Latin America
Chapter
Ways Forward for Innovation Policy in Latin America
While Latin America suffers from an innovation gap (Chapter 1), recent developments both at the level of public institutions and private businesses are encouraging (Chapter 2). The diffusion of mobile telephony applications provides a concrete illustration of the successes and the setbacks associated with innovation in Latin America, as well as a case study in the interaction between public and private players (Chapter 3). To foster the contribution of innovation to the regions development this concluding chapter looks at an innovation policy agenda for Latin America in the wake of the global financial crisis, and raises some open questions about that agenda with a specific focus on the post-crisis period. One important aspect needs to be highlighted: given the current state of development of Latin American countries, an overwhelming majority of its companies lack the endogenous technological capacities to develop innovative activities or the absorptive capacity to access external knowledge. A gradual learning process will therefore be necessary, requiring the strengthening of critical components of national systems of innovation (in particular, institutional support designed to foster access to and diffusion of knowledge and technology) and of a structure that incentivises investment in innovative activities. In moving forward, five aspects of Latin American economies some particular to the region, others universal are particularly relevant in guiding this learning process. i) ii) iii) iv) v) As most Latin American economies rely heavily on the exploitation of natural resources, innovation strategies must be coherent with this pattern of specialisation though they may take many forms. The education system and institutions linked to the development of skilled human resources must be marshalled to better serve innovation. Collaborative arrangements are needed between public and private institutions in the development of innovative and technology transfer activities and of cluster policies. As in other parts of the world, opportunities abound for future innovation linked to green growth. Adequate information systems are needed in order to monitor and assess innovation policies.
Finally, the central elements for the innovation policy agenda are discussed.
4.1 Five challenges to innovation in Latin America

4.1.1 Innovation in a Natural-Resource-Abundant Economy
Taken as a whole Latin America has a different production structure from that of most OECD economies. This pattern of specialisation is closely linked to the relative abundance of natural resources (though some OECD countries share this characteristic, including Australia, New Zealand and Norway). In general, the production and export of basic goods natural resources but also primary industrialised goods such as food and beverages, wood and basic metals1 is more important to the regions economies. Agriculture and industry weigh relatively more in Latin America compared to the world average, while services accordingly account for a slightly smaller share of GDP (Figure 4.1). The most extreme instances of industrial predominance are Chile (47 per cent
1 This is the definition of basic goods developed by the UN Economic Commission for Latin America and the Caribbean (ECLAC). See for example, Ocampo and Parra (2003).
4. Ways Forward for Innovation Policy in Latin America 77

Figure 4.1. breAkDoWn oF GDP by reGIon AnD by SeCTor (%)
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
6%
3% 28%
2% 27% 29%
14%
32%
32% 18%
62%
69%
71% 53% 54%
Latin America
World Services
EU Area Industry
South Asia Agriculture
Sub-Saharan Africa
Source: Key Development Data & Statistics, World Bank, 2009 (data from last available year).
of GDP) and Venezuela (58 per cent). In both, the importance of extractive industries to the industrial figures is evident, with copper in Chile and petroleum in Venezuela.2 This specialisation in basic goods production and exports implies a lower level of R&D expenditure and of technologically-based innovation than in countries with a different production structure though the example of Norway is an exception to the rule. An abundance of natural resources may equally divert investors attention to sectors in search of rents with potentially fewer resources for more innovation-intensive sectors. If the appropriate rate of R&D expenditure, or of innovation more generally, varies with the economys production structure, then it may be that Latin American economies are not under-investing in innovation, given their specialisation in natural-resource intensive basic goods. As such, policy advice should not be to raise the R&D intensity of the economy, but rather to consider whether the mix of economic activities is the most appropriate to meet longterm development objectives.3 However, even if one adjusts for the difference in production structures, Latin American economies still have an innovation shortfall.4 The challenge, then, for Latin American economies is to define how to promote innovation in the natural resource sectors that currently dominate the economy and the measures required to further develop other sec2 World Bank (2009), as referenced in Figure 4.1. 3 See ECLAC (2008) and ECLAC (2005). 4 Maloney and Rodrguez Clare (2007) measure innovation shortfalls, taking into account the productive structure of the economy, as described in this paragraph. The basic idea is to take the R&D investment rate in various sectors of a country like Chile: R&D in agriculture, R&D in mining, R&D in services, etc. Then, take data on the sectoral composition of output for Germany, and weight each of the Chilean sectoral R&D rates by the proportional contribution of that sector to output in Germany. The resulting number measures what Chiles R&D investment rate would be, if it had the same productive structure as the German economy. If the weighted number is lower than Germanys R&D investment rate, one can meaningfully speak of an innovation shortfall in Chile. This is only an approximate exercise: R&D rates surely differ from one sector to another, but might also vary substantially within a sector, depending ultimately upon the technologies chosen by firms. In this study, Germany was used as the benchmark, but correcting for industry structure can be done more generally. Kirner et al (2009), for example, finds that even in Germany, technology levels depend more on the individual firm than on the sector; that is, there are high-tech firms in low-tech sectors, and low-tech firms in high-tech sectors.

tors which offer higher productivity gains. Until recent years, most Latin American countries saw no need to choose between these two options. Innovation policies were neutral, channelling funds through open contests, so that public resources were directed to those sectors where demand was uncovered (either by companies or universities and technology centres). This resulted in a high concentration of funds in natural resources sectors. Only lately have strategies been developed with a clear sectoral focus, and the choice of sectors has been pragmatic: to support the strengthening of competitive clusters around natural resources, as well as to simultaneously encourage the development of emerging sectors. In this context, some firms/sectors, such as EMBRAPA, the Brazilian Agricultural Research Corporation, are rising to the challenge of boosting innovation in natural-resource-intensive sectors. In the field of policy initiatives, Chiles Development Agency (CORFO) has launched focused programmes to promote process innovations in the mining sector and to introduce new species of fish in the aquaculture sector. Similarly, in Argentina the development of dynamic clusters linked to natural-resource-intensive sectors has received public funding (from FONTAR - Fondo Tecnolgico Argentino) to execute both individual and associative innovation projects. This has been the case, for example, of the agricultural machinery cluster. Over the next few years Latin American innovation policies are expected to continue focusing on strengthening the competitiveness of natural resource-based sectors, building on existing competitive advantages to develop new advantages based on the regions unique knowledge. This requires consistent and long-term investment in specialised capacities as well as the development of innovation agendas aligned with emerging market opportunities, overcoming the aforementioned short-termism and rent-seeking behaviour. This underlines the importance of strengthening pro-innovation institutions capable of formulating and implementing long-term strategies underpinned by solid public-private agreements.
4.1.2 Human Resources, Education and the University-Business Link

4.1.2.1 Schooling and the Supply of Innovators
Human resources are vital to innovation. Successful innovation policy must, accordingly, be grounded in measures to help people acquire (or upgrade) and deploy the skills and creativity they need to innovate. This begins with formal schooling starting from early-childhood interventions, all the way up to doctoral-level university studies but also extends to the context in which educational institutions interact with the business sector and the way that information flows among them in the innovation system. In Latin America, where schooling achievement rates lag behind those in OECD economies, skills shortages could be limiting innovation, as has been suggested by an OECD study on Brazil. 5 According to information from the InnovaLatino survey, 75% of the firms interviewed considered that skilled personnel were essential for their innovation activities, while only 20% reported that at least one in two employees had a university or technical education. Discussion about skills for innovation often focuses on tertiary education, in particular on university education in the natural sciences and engineering, which furnishes the skills for much of the innovation observed in science and technology sectors. It also focuses on the availability of technicians; hence the importance of professional or vocational colleges and schools. But if innovation is broader than science and technology, as argued in Chapter 1, then the skills required for an innovative economy are likewise broader. By embracing a wider definition of innovation that emphasises organisational and marketing innovations, the importance of other disciplines, notably management, is highlighted. While a lack of sufficiently skilled personnel can clearly be an obstacle to innovation, it is equally true that highly trained staff will not innovate in the absence of sufficient opportunities to make use of their abilities in the local context. This state of affairs may lead to emigration or brain drain which means the benefits of
5 Brito Cruz and de Mello (2006) conclude that human capital constraints are a main constraint on innovation in Brazil; see also Jaumotte and Pain, 2005b) for evidence on skills and innovation in OECD economies.

Figure 4.2. PubLIC exPenDITure on eDuCATIon (ALL LeveLS oF eDuCATIon)
30% 25% 20% 15% 10% 5% 0% 4.3% 5.6% 14.9% 13% 14.5% 24.7%
% of total government expenditure
% of GDP OECD
% of GDP per head
Latin America
notes: a) The graph shows un-weighted averages for each region and takes into account only those countries for which 2003-05 data are available. b) The Latin American average includes Argentina, bolivia, Chile, Colombia, Costa rica, Mexico, Panama, Paraguay, Peru and uruguay. c) because of data availability the oeCD average excludes Australia, Canada, Germany, Luxembourg and Turkey. oeCD Development Centre calculations based on oeCD and uneSCo World educational Indicators, uneSCos Institute of Statistics database. Source: OECD Latin American Economic Outlook 2009.
education do not feed into the host economy directly.6 Alternatively, the capacities of highly-skilled staff will be under-exploited. While Latin American countries have made notable improvements in education in recent years, significant shortcomings persist. Overall educational expenditure is lower in Latin America than the OECD average, but high by international standards. As a share of government spending, education expenditure in Latin America compares favourably with those in OECD countries, though expenditure per pupil lags considerably (Figure 4.2). There is a specific deficit in tertiary education in Latin America a factor that may limit the availability of researchers. The gap in the availability of researchers between the Latin American and OECD average is striking. Chile, Argentina and Brazil are the three best performers of the region (Figure 4.3). The quality of the education provided matters as much or more as the quantity. The OECDs PISA survey is particularly useful in this respect as it provides internationally comparable results on test scores in science, mathematics and reading for over 50 countries. It shows that the test scores of the six Latin American countries surveyed are behind the OECD averages in all fields including mathematics and science (Figure 4.4). While lower scores can be partly explained by lower expenditure per pupil, they are not the entire explanation. True, Latin American countries fall below the average performance according to education expenditure levels, but other
6 Historical examples demonstrate that the lag between the upgrading of peoples education levels and the onset of an industrialisation that might absorb them as workers can be quite long. Sweden had created an exceptional primary education system by 1760, but self-sustained industrialisation would wait until 1880 or so. In the meantime, Sweden was home to what Sandberg (1979) called the impoverished sophisticate- poorly employed but highly educated. Though the lag was shorter in the East Asian economies of the 20th century, they too knew decades of impoverished sophisticates.

Figure 4.3. ReseaRcheRs (in 2007 oR latest available yeaR, peR thousand labouR FoRce, Full-time equivalent)
Guatemala El Salvador (2000) Panama (2004) Paraguay (2004) Ecuador Nicaragua (1997) Colombia Bolivia (2002) Costa Rica (2005) Venezuela Uruguay (2002) Mexico Brazil Chile (2004) Argentina Latin America OECD Average Turkey Poland Hungary Greece Portugal Spain United Kingdom South Korea
0.09 0.12 0.14 0.15 0.16 0.20 0.26 0.27 0.28 0.36
0.83 0.86 1.27
0.63
2.03 2.41 2.15 6.87 3.63 4.10 4.23
5.02 5.53 5 6 7 8
8.22 9
9.17 10
note: *the oecd average is obtained using oecd statistics for all 31 oecd countries in 2007 or the latest available year including mexico and excluding switzerland and slovenia. the average for latin america is computed for the latin american countries in the graph including mexico and chile and uses Ricyt statistics, except for mexico. Source: OECD Main Science and Technology Indicators 2009 (OECD), Network on Science and Technology Indicators (RICYT).
emerging economies in the study spend similar amounts per pupil and yet 15-year olds in Lithuania, Poland, or Macau, China substantially outperform their Latin American counterparts.7 Do Latin American 15-year-olds aspire to careers in science and technology? A recent report based on the OECDs PISA survey concludes that the quality of science education is only one way of developing such an interest other incentives are required that complement the educational system, such as better content on the Internet on science or entrepreneurship, prizes for student projects, as well as cultural events that kindle such an interest.8 The presence (or absence) of such incentives is likely to derive from more general social attitudes toward both innovation and entrepreneurship.
4.1.2.2 Policies to link universities and the business sector in Latin America and beyond
Poorly functioning links between public research institutions and industry are among the most critical failures of national innovation systems in Latin America. Relationships among the various actors in the innovation system firms, universities, public agencies are of central importance not only to facilitate and increase the flow of information, but also to find the right mix of skills and knowledge for economic progress. Research institu-
7 OECD (2007c) provides further detail on that question. 8 OECD (2009e).

Figure 4.4. 15-yeAr oLDS PerForMAnCe on PISA SCIenCe exAMS, SeLeCTeD CounTrIeS
Colombia Brazil Argentina Mexico Uruguay Chile Latin America Other emerging Average OECD 0 100 200 Science 300 Mathemathics
381
402 413
405 386 412 401 388 398 416 419 425 427 427 426 421 405 393 408 440 437 432 501 496 493 400 Reading 500 600 447 449
note: regional averages are simple averages of countries in PISA sample. Mexico is included in oeCD and Latin America average. The average science score for all oeCD countries is 500. Source: OECD (2010) PISA 2009 Results: What Students Know and Can Do: Student Performance in Reading, Mathematics and Science (Volume I).
tions bring the knowledge and research skills, while businesses ensure that the research focus is on developing new products and/or processes for national and international markets. It is the latter aspect that ensures innovation has economic benefits for the firm as well as for the economy at large. Where this kind of co-operation takes place, there is more successful innovation, particularly when small firms are involved.9 But co-operation is not easy: the objectives of researchers and private business are not always aligned. Low levels of co-operation between the private and public sectors is one of the main challenges in Latin America. Understanding these dynamics is crucial for improving policy design.10 In OECD countries, attempts to combine university and enterprise incentives for a closer relationship have included the creation of science parks, an extension of research joint ventures, and a host of incentives for univer9 Jaumotte and Pain (2005letter?). 10 An analysis of collaboration and innovation patterns in Latin America based on innovation survey is available in the forthcoming study by the UN Economic Commission for Latin America and the Caribbean (ECLAC) and IDRC.
box 4.1. InveSTInG In eDuCATIon AnD huMAn CAPITAL: PoLICy exAMPLeS FroM The reGIon
Education and innovation are fundamental elements of Chiles development strategy. To this end, the government launched the Becas Chile Programme (BCP) in October 2008, seeking to catalyse a significant leap forward in the quantity and quality of human capital in Chile through an out-of-country investment in technical, professional and graduate education. When the programme reaches a steady state of 3,300 students approved per year, projected participation will represent around 20% of Chiles overall graduate degree enrolments. The programme also offers an extensive range of professional and technician development opportunities. Significantly, the BCP involves a doubling of Chiles PhD enrolments as a step to strengthening tertiary education among the workforce and the research capacity of the Chilean economy. As a complement to in-country measures the BCP offers value by: drawing on resources of other countries to fill gaps in local capacity for human capital formation; injecting a demand-side stimulus to reform an insular system of higher education supply stimulating productivity improvements by further opening up Chilean thinking to international best practices, internationalising the Chilean workforce, and connecting the next generation of Chilean leaders to international networks. The BCP is innovative in several ways and is more wide ranging than previous programmes. For the first time, technicians and educators are included and there is parity of treatment of employees from the private and public sectors. Deliberate efforts have been made to expand the participation of people from less advantaged backgrounds, including women, indigenous Chileans, people with a disability, people outside the metropolitan region, and people who have not had the opportunity to learn a foreign language. Steps have been taken to provide an integrated framework for participants, including through a one-stop-shop approach. A concerted communications campaign alerts and informs potential participants to the new range of opportunities, including through regional information fairs and promotional visits, a single Becas Chile website and a call centre. Several international agreements with governments or tertiary institutions have been struck to reduce the cost of the programme (by subsidizing tuition costs) and to increase students access to foreign institutions (through free language courses abroad covered by the recipient foreign institutions). A recent review of the National Policies for Education of Chile undertaken by the World Bank and the OECD commended the Chilean authorities for the Becas Chile initiative and its successes. It also put forward recommendations for improving the programme, specifically in the following areas: the strategic integration with national priorities; the attraction and reinsertion of BCP graduates to Chile; the operational integrity and efficiency of the programme as a whole; and the policy changes and institutional restructuring that best further the development of advanced human capital in Chile.
Source: OECD and World Bank (2009).
box 4.2. CrITICAL FACTorS For The SuCCeSS oF PubLIC/PrIvATe PArTnerShIPS In InnovATIon: LeSSonS FroM oeCD CounTrIeS
Long-term commitment from both government and industry, based on a shared vision. Critical mass but also depth of the national and regional innovation systems. PPPs should not create high-technology islands but be embedded in local and regional innovative clusters, and benefit innovative SMEs as well as large firms. Programmes to promote large PPPs can be complemented by measures to support smaller P/P research teams (e.g. Austrias CDL programme, Australias ARC Linkage Grants and Fellowships programme). Building on existing networks without neglecting areas in which potential actors are still dispersed (e.g. multidisciplinary research) and/or inexperienced in accessing government support. Efficient steering mechanisms that ensure a sustainable balance between public and private interests, especially: (i) competitive selection of projects and participants; (ii) optimal financing; (iii) efficient organisation and management; and (iv) rigorous evaluation.
Source: OECD (2005b).
sity and public institutions to collaborate with business, such as funding to commercialise public-sector technology; ownership over publicly-funded research to promote patenting and licensing of innovation, improved governance of universities to establish an interactive mechanism for priority settings and funding from the
box 4.3. TeC De MonTerrey

Founded in 1943 by a group of local businessmen with the aim of providing highly skilled personnel to the thriving corporations in Monterrey, Mexico, the Instituto Tecnolgico de Monterrey Tec de Monterrey now has 32 campuses and 24 corporate universities for over 100,000 students and another 87,000 on line across the country, and 22 international offices around the world, . It is ranked as one of the best universities in Latin America. The university is credited with having an impact on building an entrepreneurial and innovative culture in the region. In 1978, university professors and local business jointly created a business programme to foster entrepreneurs. By 2010, the programme had evolved into Training for Leadership in Entrepreneurship Development, hosting about 8,900 students per year. As a result of these entrepreneurship programs, a network of 63 business incubators and 14 technology parks has emerged. Technology transfer and the creation of competitive businesses with the participation of students, alumni, faculty and community members is a main interest for the Tec de Monterrey. Among Mexican universities, it is a leader in patent applications.
private sector, mobility of researchers between public and private sectors. Private-public partnerships, like joint research centres, have also been implemented, though the private funding commitment is relatively lower than public and varies across countries. A potential for a public/private partnership (PPP)11 arises if and when public and private sectors have complementary interests and cannot be as efficient when acting alone. Such partnerships might, for example, allow parties to share risks more acceptably, or to jointly benefit from spillovers of new knowledge and other outputs that the individual parties could not appropriate if acting alone. PPPs are powerful tools to promote collaborative research, particularly in areas where innovation is deeply rooted in science. They are particularly well suited to building innovative networks in new multidisciplinary research fields. In these and other situations, a PPP can have a longer-term benefit by building trust and personal networks that facilitate further formal and informal co-operation (box 4.2). While enhanced collaboration across research institutions and enterprises maximises the return on public funding of R&D, results have been disappointing in Latin America. Innovation surveys reveal poor interaction and this negatively affects innovation activity. Microdata analysis supports the importance of co-operation with knowledge-creating institutions in promoting firms investment in innovation. The InnovaLatino survey highlights that cooperation with institutions and firms more generally is increasingly recognised as important. For more than two in five firms (44%) cooperation is very important for the development of their innovation activities, and about the same proportion (41%) actually engage in some form of cooperation. Universities in Latin America like Tec de Monterrey (box 4.3) can play an important role in this area.
4.1.3 Partnering and Cluster Policies12

Given the complexity and high cost of many forms of innovation, businesses increasingly recognise the benefits of partnering. Collaboration allows them to share costs, expertise and have access to technologies. In the wake of trade liberalisation in Latin America and elsewhere, international co-operation among businesses is becoming more relevant. Such collaboration can be relatively formalised (foreign direct investment, equity shares, licensing, franchising) or informal and ad hoc. The OECD Innovation Strategy emphasises the key role of collaboration in innovation. In the majority of countries analysed as part of the OECD Innovation Microdata Project, collaboration with foreign partners was found to be at least as important as domestic co-operation. Notably, Chile performed similarly to other OECD countries, which may be thanks to the high degree of international col-
11 OECD (2005b). 12 This section draws heavily on OECD (2007a), Pietrobelli and Rabellotti (2004), OECD (2009b), OECD (2010d), and ECLAC in ENG(2009).

Figure 4.5. CoMPAnIeS WITh ForeIGn AnD nATIonAL CoLLAborATIon In InnovATIon ACTIvITIeS, 2004 06
60% 50% 40% 30% 33.3% 25.3%
note: The industries included are: Mining and quarrying; Manufacturing; electricity, gas and water; Wholesale trade; Transport and storage; Communications; Financial intermediation; Computer and related activities; Architectural and engineering activities; and Technical testing and analysis. For Australia (2006-07), business Characteristics Survey 2006-07; Canada (2002-04, manufacturing), Survey of Innovation 2005; Iceland (2002-04), CIS-4; japan (1999-2001), j-nIS 2003; South korea (2005-07, manufacturing), South korean Innovation Survey 2008; new zealand (2006-07), business operations Survey 2007; South Africa (2002-04), South African Innovation Survey 2005. Source: OECD (2010f).
laboration pursued by Fundacin Chile (box 2.1), but also suggests that Latin American countries are capable of reaching the benchmarks established in high-income countries. A large share of firms interviewed as part of the InnovaLatino survey drew upon varied information sources: in addition to information resources internal to the firm, information was received from providers, clients and other firms. Information from private consultancies and universities, as the figure says was less frequently cited. Percentages were lower for smaller firms (figure 4.6). The importance of partnership at a macro level has been emphasised by the literature on clusters. Clusters, according to an oft-cited definition, are geographically close groups of interconnected companies and associated institutions in a particular field, linked by common technologies and skills. They usually exist within a geographic area where ease of communication, logistics and personal interaction is possible. Clusters tend to be concentrated in regions and sometimes in a single town.13 The presence of a dynamic cluster increases the competitiveness of the host region or country.
13 Porter (2003).
an d C Cz S hil ec w e h ed R e Ne ep n So th ubl ut er ic h la Af ric A nds a us (2 tr 00 ia 2Be 04 lg ) i No um rw Es ay Ne t De oni w Ze Lu nm a al xe a a m r Ice nd bo k la (20 ur g n Un d ( 06Ca na ite 200 07 da d 2- ) Ki 0 (2 ng 4) 00 Ja do 2- pa So 04 n Ire m ut , m (19 la h Ko an 99 nd re uf -20 a ac 0 (2 A tu 1) 00 us rin 5- tra g 07 lia , m (2 Ch ) in an 00 a uf 6ac 07 tu ) r Po ing rt ) ug a S l Ge pa rm in an y Ita ly
National collaboration only International collaboration
22.8% 22.7% 22.3% 23% 19.2% 19% 4.1% 1.6% 26.2% 18.8% 0.6% 19.6% 20% 17.2% 17.3% 13.3% 12.7% 3.6% 8.4% 16.3% 2.3% 15.3% 25.5% 19.8% 3.3% 5.3% 18.3% 10% 24.1% 15.7% 16.8% 19.3% 19.2% 16.7% 16.2% 11.4% 10.2% 14% 13% 16.9% 14.5% 16.1% 14.1% 9.3% 9.2% 9.9% 7.6% 9.1% 6% 4.9% 0%
Fi
nl

Figure 4.6. SourCeS oF InForMATIon uSeD For InnovATIon
90 80 70 60 50 40 30 20 10 0 66
83
75
81
45 29 20 33
Internal Sources
Providers, Clients, Other firms Small
Private Institutes and Consultancies Large
Universities
Source: 2010 InnovaLatino Survey.
box 4.4. FInLAnD: SuPPorTInG PArTnerShIPS In InnovATIon

Tekes, Finlands Technology Development Agency, is the main government financing and expert organisation for research and technological development. Operating under the Ministry of Employment and the Economy, its mission is to boost the development of Finnish industry and the service sector through technology and innovation. In 2008, Tekes invested a total of 579 million in projects with businesses, universities and research institutes. Currently, about half of the total envelope is allocated through programmes that target strategic research and development areas identified in collaboration with the business sector and researchers. The programmes are forums for the exchange of information and networking between businesses and research groups, and enable partners to carry out ambitious research and development initiatives by providing a gateway to collaborating with the best research groups and innovative companies in Finland. Many programmes place special emphasis on participation by small businesses and promote cooperation with major companies and research institutes. International companies that operate in Finland can also apply for funding. Tekes input to the programmes is not just financial: although about half of the cost is borne by Tekes, the programmes also include services such as models for defining shared visions, seminars, training and international visits. The programmes increase exchange of information and skills by providing professionals with networking opportunities and the very latest information on new innovations in their fields. Within the Tekes programmes, every year businesses participate in about 3,800 projects and research-intensive universities in about 1,500 projects. Some examples of on-going programmes are: BioRefine: to generate new and unique expertise in the processing of biomass and apply it to the creation of processes, products and services related to biorefineries. Digital Product Process: to boost the competitiveness of companies with better use of information technology in product processes. Sapuska: to improve the international competitiveness of the Finnish food industry. Sustainable communities: to develop sustainable and energy efficient areas and buildings.
Source: www.tekes.fi

By creating productive interdependencies among firms, clusters provide an enabling environment for innovation. Perhaps most importantly, geographical proximity, and the pooling of skilled workers, as well as of education and training centres lead to greater circulation of people and knowledge. This flow of knowledge and ideas is seen as one of the major benefits of clustering, as not only investment in R&D but also the results of such activities are shared and spread over a geographical area. If new ideas are not circulated widely their potential impact on growth is curtailed, thus undermining the return on the initial (often public) investment. An empirical study of biotechnology firms, for example, found that clustered firms were eight times more likely to innovate than geographically remote firms, with the largest effects for firms located in clusters that were strong in their own specialisation.14 In this context, the fact that many countries in the world have implemented cluster policies is not surprising. The possibility of replicating the success of groups of dynamic companies with a potential to generate highquality jobs as well as innovative behaviour and the massive involvement of SMEs is certainly attractive. During the last decade, a number of Latin American governments implemented policies to promote clusters for different purposes: fostering SMEs, like the Arranjo Productivo Local programme carried out by SEBRAE in Brazil, promoting regional development as in the case of the cluster programme of Antioquia, Colombia, or looking for innovative solutions to challenges faced by a sector or group of companies, as in the case of the Technology Consortia Programme implemented by Corfo in Chile. Just as there are various policy dimensions to the promotion of clusters, the targets and recipients of support also vary: e.g. leading or lagging regions, strategic sectors, or specific actors or groups of actors, such as universities or SMEs. Similarly, a wide variety of instruments are used to promote clusters (Table 4.1). Lack of adequate access to finance is a recurring limitation on the spread of innovation, especially in emerging economies. This bottleneck can be eased by encouraging private investment, for example by including venture capital in cluster programmes, providing assistance to SMEs in their search for funds, and offering tax incentives for funds invested in innovation projects in defined clusters. Direct (e.g. grants) and indirect (e.g. tax credits) public financing for innovation projects themselves not mediated by private actors in the financial market can likewise ease financing constraints, as in Chile, where funds are secured from a mining tax channelled through the National Innovation Council for Competitiveness. Some important lessons have emerged from the first wave of cluster policies that are of relevance to all Latin American economies. As a starting point, the objectives and targets of cluster policies and programmes must be clearly defined. Precision is made complicated by the involvement of a mix of policy levels in their design and of administrative levels in their implementation. Without clearly defined goals, it is difficult to monitor and evaluate policies and their achievements. At the design stage it is therefore essential to clearly establish co-ordination and roles of these different levels and sectors of government. In terms of continuity, policies should not be linked to political cycles but should ensure that adequate and explicit exit strategies for public-sector involvement are established as private investment and entrepreneurship grows in these clusters (this does not mean that public enterprises established as part of the cluster will be shut down). There is a clear link between the evaluation of programme success and targets and a successful exit strategy for the public sector what triggers are considered signals for the timely disengagement of public support? The sustainability of programmes once public participation is phased out also depends on early inclusion of the private sector in their implementation. Often, the private sector is best equipped to react rapidly to changes in national or international markets in this sense, the strategy of picking winners for support by the public sector must be accompanied by sufficient flexibility and monitoring systems to provide room for policy making and informed policy and programme re-orientations. But collaboration is not confined to firms. Various authors have cited the increasing importance of collaboration between firms and their customers (von Hippel, 2005). User-led or customer-led innovation is critical to getting complex and sophisticated products and processes right. Innovations driven by users are often widely distrib-
14 OECD (2009b), Aharonson et al. (2004), Storper and Venables (2004).

Table 4.1. InSTruMenTS ProMoTInG reGIonAL SPeCIALISATIon AnD CLuSTerS
engage actors
Identify clusters Support networks/clusters Conduct mapping studies of clusters (quantitative and qualitative) Use facilitators and other brokers to identify firms that could work together Host awareness raising events (conferences, cluster education) Offer financial incentives for firm networking organisations Sponsor firm networking activities Benchmark performance Map cluster relationships
Collective services and business linkages

Improve capacity, scale and skills of suppliers (mainly SMEs) SME business development support Brokering services and platforms between suppliers and purchasers Compile general market intelligence Co-ordinate purchasing Establish technical standards Labels and marketing of clusters and regions Assistance to inward investors in the cluster Market information for international purposes Partner searches Supply chain linkage support Export networks Collect and disseminate labour market information Specialised vocational and university training Support partnerships between groups of firms and educational institutions Education opportunities to attract promising students to region
Increase external linkages (FDI and exports)
Skilled labour force in strategic industries
Collaborative r&D and commercialisation

Increase links between research and firm needs Support joint projects among firms, universities and research institutions Co-locate different actors to facilitate interaction (i.e., science parks, incubators) University outreach programmes Technical observatories
Commercialisation of research
Ensure appropriate intellectual property framework laws Overcome barriers to public sector incentives in commercialisation Technology transfer support services Advisory services for non-ordinary financial operations Public guarantee programmes and venture capital Framework conditions supporting private venture capital
Access to finance for spin-offs
Source: OCDE (2007a).
uted rather than concentrated, with the result that innovations are combined in so-called innovation communities. In these informal user-to-user co-operation networks, users help each other to solve problems and innovate. Guerra Creativa, part of the Argentinian creative agency Connaxis, provides a Latin American example of a crowdsourcing community for design services. Products include logos, websites, stationery and 3D and Flash designs. Guerra Creativa offers opportunities for interaction and learning for its 3,400 creatives customers and other members of its user-to-user network who have so far uploaded more than 11,000 designs. Furthermore, innovation in co-operation with customers, like innovation generally, goes beyond high tech. As Chapter 2s case studies of Latin American innovators illustrate, the agility of successful enterprises is often at-

tributed to their close relationships with their customers. Cemex and other innovators in the region, for example, have introduced marketing innovations adapted to the low income levels of their customers.
4.1.4 Innovating and Green Growth

The OECD Innovation Strategy draws attention to the need to mobilise innovation to address global challenges such as environmental and social sustainability. Innovation is of central importance to combat environmental degradation since it is a key factor in making green growth possible through the development and deployment of environmental technologies. A particularly pressing challenge for the international community such as reducing greenhouse gas emissions is one area where innovation could mean the difference between optimistic and pessimistic climate change scenarios in decades to come. Specifically, innovation can help make the shift to energies that emit less greenhouse gasses. The International Energy Agencys Energy Technology Perspectives (IEA, 2008) simulates a technological trajectory in which a 50 per cent reduction in CO2 emissions is achieved through aggressive innovative activities across a range of areas, such as carbon capture and storage (CCS), nuclear energy, renewable energy, and end-use efficiency gains (Figure 4.7).15 The need to invest in innovation to combat global challenges like greenhouse gas emissions will require international co-ordination of research needs and priorities, levels of financing and the provision of other incentive or reward systems for innovation, evaluation, mechanisms to ensure technology transfer, equity and sharing of benefits, capacity building to enable countries to absorb innovations and the benefits from them, and governance frameworks that establish and legitimize policy actions. In these international co-operative efforts, Latin American governments must be willing to play their part, as: i) no single country can successfully address the problems alone; ii) individual countries are unwilling to bear the cost of addressing global challenges alone because they cannot appropriate the benefits; and iii) individual efforts by multiple countries are likely to be more costly and less successful than co-ordinated, co-operative efforts. As a contribution to meeting these challenges, the OECD Project on Sustainable Manufacturing and Ecoinnovation was launched in 2008 under the auspices of the Committee on Industry, Innovation and Entrepreneurship (CIIE), with the aim of accelerating sustainable production by manufacturing industries as a new opportunity for value creation. In its initial phase the project produced a detailed analysis of the features of eco-innovation in manufacturing, including an overview of existing strategies and policy initiatives for eco-innovation in OECD countries (OECD, 2010c). The latter provides potentially very interesting perspectives for Latin American policy makers. At the local level, too, Latin American governments and firms can innovate to shift to a more green growth model than the current one. The most widely touted example is that of biofuels. Indeed, Latin America and the Caribbean may have the greatest potential (together with sub-Saharan Africa) in the world for the expansion of biofuels in part thanks to good climatic conditions and because it has a substantial land area that is currently not used for crop production or could be converted from pasture to sugar-cane production. Latin America is the second-largest biofuels-producing region of the world. Brazil dominates the regions production, producing ethanol from sugar cane, with Colombia a distant second. Brazils capacity to move into second-generation biofuels production with net lifecycle greenhouse gas emission reductions is probably as great or greater than in any other emerging or developing economy.16 Examples of green innovation, though perhaps isolated at present, extend well beyond biofuels in Latin America. Grupo Islita, for example, a member of the World Heritage Alliance for Sustainable Tourism, leads a group of Costa Rican enterprises with the common goal of promoting responsible tourism practices that foster cultural authenticity, economic opportunity, and optimum environmental stewardship.
15 However, the scenario is based on optimistic assumptions about the progress of key technologies and requires deployment of technologies costing up to USD 200 per tonne of CO2 saved when fully commercialised. If these technologies fail to reach expectations, the costs may be as much as USD 500 per tonne. 16 OECD/IEA (2010),
4. WaysForwardforInnovationPolicyinLatinAmerica 89
Figure 4.7. Contribution oF key teChnologies to Climate Change mitigation
70 60 50 40 30 20 10 0 2005 WEO 2007 450 ppm 2010 2015 2020 2025 2030 2035 BLUE Map emissions 16 Gt ETP 2008 analysis 2040 2045 2050 Baseline emissions 62 Gt
Emissions GT CO2
Carbon capture and storage (CCS) industry and transformation (9%) Carbon capture and storage (CCS) power generation (10%) Nuclear (6%) Renewables (21%) Power generation efficiency and fuel switching (7%) End use fuel switching (11%) End use electricity efficiency (12%) End use fuel efficiency (24%)
Source: IEA (2008).
4.1.5 Measurement
Innovation measurement is critical both for improving evidence of innovative behaviour among agents and to support policy monitoring and follow up. Evaluation of policies and practices is essential to verify regularly that objectives are indeed met, particularly in a setting where public resources face many competing demands. Moreover, adopted policies can only be improved if regular quantitative and qualitative assessments of their impacts are conducted. Indeed they will have greater legitimacy and credibility where a meaningful assessment of their impact has been undertaken and communicated among all actors in the innovation system. This is a challenging task since policy assessments on innovation need to take into account the uncertainties of the innovation process and the externalties that occur.
box 4.5. The oeCD InnovATIon STrATeGyS MeASureMenT AGenDA

A number of policy issues the role of broader (beyond R&D) innovation, the growing importance of the public sector in innovation, and better assessment of the economic impact of innovation to name but a few require improved measurement. The project has engaged the international community and advanced the measurement agenda, but work remains to be done in the following areas: 1. Improve the measurement of broader innovation and its link to macroeconomic performance. Science, technology and innovation surveys need to be redesigned to take a broader view of innovation and improved measurements are needed to link science, technology and innovation policies to economic growth. 2. Invest in a high quality and comprehensive data infrastructure to measure the determinants and impacts of innovation. Sound policy advice will rely on a comprehensive data infrastructure, including at the sub-national level. The backbone of such infrastructure is a high quality business register. Linking different data sets and exploiting the potential of administrative records will improve understanding and reduce respondent burden. 3. recognise the role of innovation in the public sector and promote its measurement. There is a need to account for the use of public funds, measure the efficiency of producing and delivering public policies and services, and improve learning outcomes and the quality of the provision of public services via innovation. 4. Promote the design of new statistical methods and interdisciplinary approaches to data collection. Design of policies for innovation needs to take into account the characteristics of technologies, people and locations, as well as linkages and flows among them. New methods of analysis that are interdisciplinary in nature are necessary to understand innovative behaviour, its determinants and its impacts at the level of the individual, firm and organisation. 5. Promote the measurement of innovation for social goals and of the social impacts of innovation. The current measurement framework fails to measure the social impacts of innovation. Measures that assess the impact of innovations on well-being, or their contributions to achieving social goals, need to be promoted. This includes better measurement of the people dimension of innovation.
Source: OECD (2010b).
Meaningful overall evaluation of the success or failure of policies, in turn, requires accurate and timely quantitative and qualitative information on the state of innovation in a country in all its dimensions. The links between informational value, systematic data collection, international compatibility and careful evaluation are spelled out in the measurement agenda of the OECD Innovation Strategy (box 4.5). Among the shortcomings of current innovation indicators, the first, as pointed out throughout this report,17 is that existing measures are ill-suited to monitoring the innovation economy of middle-income countries such as the majority in Latin America. Frequently cited variables such as R&D expenditure, patents and scientists in the population, are undoubtedly of great importance, but they focus on technologically-oriented, patentable innovations, and fail to capture non-technological innovations and new-to-market or new-to-firm innovations. The development of new and more comprehensive indicators as advocated by the OECD Innovation strategy will help improve innovation measurement and policy assessment. A second shortcoming is that available indicators are better at measuring the inputs of the innovation process than the outcomes of the exercise. R&D expenditure, test scores of secondary school students, and others cited in this report provide important information on the mobilisation of resources to foster innovation, but they do not measure the effectiveness with which those inputs are transformed into innovation: the adoption and implementation of new products, processes and business models. For these reasons, and in parallel with the OECD Innovation Strategy, the InnovaLatino website (www.innovalatino.org) provides country-by-country information on innovation, both quantitative and qualitative. The construction of this database of online indicators will be an ongoing initiative of the InnovaLatino project.
17 See Chapter 1 for discussion and Country Profiles in Chapter 2 for sets of indicators.
4.2 Towards an Effective Policy Agenda for Innovation

There can be no single one-size-fits-all innovation policy, particularly given differing national circumstances and priorities; individual countries will inevitably pursue different paths to foster innovation. Policy formulation and implementation involves continuous learning, associated with trial and error. As economies advance towards a more knowledge-intensive composition of production, institutions will need to be adapted and upgraded, and the private sector will place a higher priority upon knowledge and innovation and consequently demand a change in public policies.18 The policy mix should be pragmatic and problem-solving in nature, and tailored to countries needs. States actions must provide strategic orientation, mitigate risks for the private sector, and encourage the generation of positive externalities. This chapter closes with some general strategic orientations that may be of use to many national governments in the region.19 However, the next step in addressing the questions raised in this report is to move to the particularities of the national, and in many cases sub-national, levels. 1. Innovation in Latin America starts with people as researchers, entrepreneurs, managers, employees, suppliers and customers of firms. Furthermore, citizens must be persuaded of the potential benefits that science and technology can bring to society. Empowering people to innovate calls for more and better education for all. As Latin American countries pursue that educational goal, they will also equip their economies to become better able to absorb, adopt, adapt and generate new ideas and technologies. But education per se, while necessary, is not sufficient. A cultural environment conducive to innovative behaviour must be established one that does not, for example, judge or punish failure too harshly. 2. A second group of actors in an innovation system are firms businesses are the incubators which turn knowledge and ideas into new products, services and business models. The private sector is responsible for the majority of innovation expenditure in many OECD countries, much of it by large firms. Nevertheless, innovation policy should recognise the diversity of firms in terms of size and sectoral specificities, and foster actions and instruments suited to the characteristics of the economy. In particular, targeted support to micro, small and medium-size enterprises is important given their importance for employment generation, as well as their vulnerability to failure in their early lives. Responses from the InnovaLatino survey indicate that firms are aware of the factors that matter for their innovation performance, including the availability of skilled staff, access to external financing resources, access to information and communication technologies (ICTs) and, to a lesser degree, to foreign knowledge (via the use of foreign machinery or relations with foreign companies). 3. Science is a cornerstone of innovation policy. Some Latin American countries have a long tradition of supporting scientific research an effort that should be maintained and improved. Strengthening institutional and infrastructure capacities for scientific research and developing incentives to support the diffusion and application of scientific outcomes to production development are key elements of success in innovation policies. Also, given the relatively small size of science programmes in all but the largest Latin American countries and the risks associated with frontier research, governments might want to stimulate international scientific co-operation, both with neighbouring countries and with countries outside the region in order to benefit from scale economies and international knowledge flows. 4. Tangible and intangible infrastructure for innovation is crucial in Latin America as well as in OECD countries. It requires investment and the provision of adequate regulatory frameworks. High-speed broadband connections in particular promise to provide an important platform for greater and more productive entrepreneurial activity in many countries of the region, but also for the provision of basic public services like health
18 This dynamic perspective is spelled out in greater detail by ECLAC (2005). 19 Many, though not all, of these orientations coincide with those of the OECD Innovation Strategy (OECD 2010a,b).

and education to disadvantaged sectors of the population. Broadband is, furthermore, a critical platform for businesses, as the example of the Intelligent Coffee Identification Card in Colombia illustrates (Chapter 3). As innovation is inherently a risky investment, requiring a long-term financial commitment, public policy must encourage adequate financing to enterprises. This can take many forms according to national circumstances: grants, preferential credit, guarantees and equity provision, as well as fiscal incentives. Public procurement can also be deployed to facilitate the financing of private-sector innovation activities. Governments in Brazil, Chile, Colombia and Mexico (among others) have recently established programmes to encourage private equity and venture capital, financing mechanisms that have hitherto been key to channelling financial resources to innovation in the experience of the United States. Latin Americas share of world-wide venture capital remains tiny. Successful innovation policy requires long-term commitment from credible institutions with clear mandates, and it will also need coordinated action between ministries, agencies and levels of government, requiring improved means of designing and implementing coherent policies. The need for policy coherence, for a whole of government approach, requires stable platforms for co-ordinating actions, a focus on policies with a medium- and long-term perspective, and leadership by policy makers at the highest level. The budget process can help to develop a long-term vision for innovation by enhancing co-ordination and helping to secure funds on a multi-annual basis. Involving stakeholders citizens, firms, universities, the financial sector and more in policy design, implementation and evaluation can produce policies that meet development goals more effectively. In addition to coherence among ministries, actors and policy domains, innovation policy should seek greater coherence between supply- and demand-side policies. The former typically include funding basic research or increasing levels of schooling; the latter include smart regulations, standards, pricing, consumer education and tax measures. Purely supply-side or demand-side policies are not sufficient to stimulate innovation in economies where production and management are increasingly carried out within complex public/private networks.20 Indeed, rather than distinguishing between supply- and demand-side policies, a new typology might emphasise horizontal policies (fostering human capital formation and supporting diffusion and assimilation of foreign knowledge), vertical and selective policies (encouraging co-operation and articulation among universities, research centres and firms) and competition policies (promoting domestic agents upgrading in global value chains). Policies must not only be coherent and balanced, they have to be designed and implemented in a political context, and hence arrived at through a democratic and consultative process that can serve to channel knowledge and information from people and firms. This means that policy makers must avoid the threat of capture of the policy process by political actors, businesses and others, who will legitimately lobby to promote their interests. The requirement of policy coherence for innovation is urgent in all countries, but nowhere more so than in developing countries, where innovation policy must be meaningfully embedded within national development strategies. Innovation and other development policies can, under the right circumstances, be mutually reinforcing, but the complexities involved are not to be underestimated. Policy measures to unleash and support entrepreneurial creativity in Latin America cannot be divorced from policies directed toward the informal sector. Roughly one of every two jobs in the region is in the informal sector, and in some countries a majority of middle-class households work in the informal sector.21 Effective innovation policy cannot occur on the margins of this part of the economy. Whether governments reach out to support would-be innovators constrained by their informal status, or dismantle the incentives that, according to a
5.
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20 Collective interaction favours economies of scope in knowledge accumulation and innovation through technological interrelations and complementarities between firms and institutions devoted to science and technology (Arthur, 1989; Dosi, 1998). Networks, in turn, foster externalities and increasing returns in production processes and industrial organization (Cimoli and Dosi, 1995; Dosi, 1998). 21 (OECD 2009e).

recent IDB study, serve to sustain the large, low-productivity informal sector, they must be aware that the tools used to address the informal sector will have an impact upon innovation and vice versa (IDB, 2010). 9. There is a need, finally, to improve the capacity of Latin American countries to evaluate policies; hence the importance of the measurement agenda. Investment in the creation of institutions that support the development and implementation of evaluation in the region is of key importance. In addition, the evaluation agenda can benefit from an explicit link with policy follow-up. Increasing evaluation efforts in the region will also help to raise awareness and enhance policy credibility and legitimacy.
Vignettes
Introduction and Disclaimer
The following vignettes present a summary of a range of innovations taking place across Latin America within large and small firms, encompassing both the public and private sectors. We define companies from the region as those with headquarters and with majority ownership in a Latin American country. Our goal was to uncover local success stories to inspire entrepreneurs and business people. We give priority to organizations that have had an impact beyond their home country, but we do not seek to rank them. Presenting a diversity of countries, industries, company size and innovation types (including a focus on sustainable development) has been our main criteria for making the selection. The vignettes describe innovations during 2009 and 2010 as such, they are not intended to provide a forecast of future success. While we will seek to enlarge the list with new innovators over the lifetime of the project, our main concern is to use this opportunity to recognize and celebrate ongoing innovations within Latin America. Sources of information used to compile the vignettes include company websites, annual reports, interviews with company executives and media articles.
Classification Criteria of Innovators

InnovaLatino has classified organizations along three dimensions: Private and public institutions (blue banners), which foster innovation in the country Companies classified by size: big firms (yellow banners) firms with more than 250 employees. small and medium-size firms (pink banners) and entrepreneurs firms with about 250 employees. Social innovation, which includes: Corporate social responsibility (CSR) (green banners) Policies implemented by companies designed to have a positive impact on the environment, consumers, employees, communities, other stakeholders and the wider public sphere. Social entrepreneurs (purple banners) cases ranging from social innovators (entrepreneurs who seek to make a profit as well as an impact on society) to non governmental organizations.
Innovation by any of these organizations can include business model innovation or innovation around a product or service. It is often the case that the firm innovates in both dimensions.
Table of organizations described

A total of 55 vignettes from eight countries Argentina, Brazil, Chile, Colombia, Costa Rica, Mexico, Peru and Uruguay are summarized in the table below.
Costa Rica
Conicit Proinnova
Argentina
Institutions Promoting Innovation Prosper-AR
Brazil
FINEP
Chile
ForoInnovacin Fundacin Chile
Colombia
Colciencias
Mexico
CONACYT Tec de Monterrey Cinpolis Oxxo Softtek
Peru
Concytec
uruguay
Uruguay Innova
Bio Sidus Los Grobo Large Firms
Marcopolo Natura Cosmticos
Falabella Sonda
Federacin Nacional de Cafeteros de Colombia Grupo Nacional de Chocolates
Caf Britt
Ajegroup Alicorp Interbank
Memory
SMes and entrepreneurs CSr
Pol-Ka Guerra Creativa Grupo Arcor
Stefanini UNICA Petrobras
Elemental
Datatraffic
Hotel Punta Islita
Pineda Covalin
Astrid y Gastn
Kizanaro Telemforo Efice S.A
Minera Los Pelambres
Social Innovation
Empresas Pblicas de MedellnEPM Kangaroo Foundation
Grupo Monge
CEMEX
Buenaventura
Social entrepreneurs
Responde
Center for Digital Inclusion (CDI)
(CDI) Recycla Chile
ParqueSoft
Laura Lang
Causas.org
Ciudad Rosario Saludable Garca
Vignettes 97
Argentina
ProsperAr
Public Institution
www.prosperar.gov.ar
Founded in 2006, ProsperAr is Argentinas Investment Development Agency, a public agency within the Ministry of External Relations and International Trade that encourages and promotes foreign direct investment in Argentina. Since its founding it has embarked on a number of initiatives to promote investment, such as: 1) worldwide promotion efforts to attract investment; 2) personalized assistance to international investors in order to facilitate investment projects at all stages of the investment process; 3) identification and elimination of local barriers to investment; and 4) the launch of various innovation/entrepreneurship programs to improve and increase Argentinas entrepreneurial culture and skills. ProsperAr provides various funds (seed capital, venture capital, financing programs for SMEs) to facilitate access to long-term financing for productive investment and funding for innovation. The agency is particularly eager to promote the green technology, renewable energy and infrastructure sectors. Since 2007, ProsperAr has assisted 165 projects, representing foreign investment of US$8,900 million and creating 13,300 new jobs.
Bio Sidus S.A.
Large Firms/Product Innovation
www.sidus.com.ar
Bio Sidus, is a biopharmaceutical company that was founded in Buenos Aires in 1983 as a subsidiary of Sidus S.A. In 1990, Bio Sidus achieved its first biogenetic product: recombinant human erythropoietin (EPO), the first recombinant human protein fully developed and manufactured in Latin America. Over the years, it expanded its portfolio to include biogeneric products (e.g., biosimila), bio molecules, proteins for human consumption, plant (commercialized through Tecnoplant) and animal biotechnology and fine chemicals. By 2009, under the direction of Marcelo Luis Argelles Ugarteburu, Bio Sidus had over US$40 million in sales, 75% from exports to more than 30 countries primarily in Latin America and Asia, including China, India, Pakistan and Indonesia. The firm controlled over 55% of the Latin American market for EPO and was an important player in the biogenetics market, estimated to be worth around US$20 billion. With annual investments in R&D of over US$2 million, its projects include: development of systems to produce recombinant proteins, use of biotechnology to obtain raw materials for human health, clinical investigation of genetically modified proteins, development of transgenic cattle for obtaining recombinant human proteins for therapeutical use, development of genetically modified vaccines against bacterial infections, development of controlled release systems for macromolecules, development of diagnostic systems (methods for qualitative and quantitative determination of a wide range of infectious diseases such as Hepatitis C, etc.) and biotechnology plants (varieties resistant to viruses or herbicides, geno-typification of species, etc.). In collaboration with the Argentine Direccin Nacional del Antrtico, Bio Sidus aims to isolate, identify and characterise Antarctic bacterial strains in pursuit of whole genome sequencing.

Los Grobo
business Model
www.losgrobo.com
Since 1984, when Adolfo Grobocopatel founded Los Grobo in Carlos Casares, Argentina, the company has grown into one of the largest grain producers and agricultural service providers in the world - yet it owns no land, no tractors nor harvesters. Los Grobo provides logistical and grain storage services to farmers. It produces soy, corn and wheat on a total 300,000 hectares in Argentina, Brazil, Paraguay and Uruguay, and has introduced technical innovations such as no-till farming. Los Grobos innovative business model is based on an IT-facilitated network of 3,800 small and medium agricultural suppliers. About 100 people at headquarters provide inputs such as seeds, finance, technical advice, sale and marketing of crops, and the deployment of technologies such as GPS and agricultural simulation models to help the network of farmers manage soil resources and deal with climate risks. In 2009, Los Grobo traded more than 3 million tons and generated US$750 million in revenues. Los Grobo has received significant global recognition: it was featured in the Best Sustainability Report developed by Global Reporting Initiative; in 2000 it became the first grain producer in the world to be certified in ISO 9001; it has received the Leadership in innovative organizational models applied to agriculture given by Fundece; and was ranked first in a CSR survey conducted by the magazine Valor Sostenible. Los Grobo won the Argentine National Prize for Quality in 2010, the first in the sector to receive it, following its 2006 prize for Leadership and Innovation in a business model applied to the agricultural sector.
Pol-Ka
business Model
www.pol-ka.com.ar
Based in Buenos Aires, Pol-Ka is a producer of a number of television series in soap opera format that include action, drama, comedy and suspense. It is part of the Argentine media group Grupo Clarn. The production company was founded in 1994, when Adrian Suar and Fernando Blanco created a pilot TV show called Poliladron. The highly successful show introduced a new way of producing TV series. Pol-Ka employs 350 people working in 7 production teams, developing TV shows from the original idea, through the scriptwriting process to the post production phase. Shows are adjusted to the requirements of each market and audience. Each step is coordinated and managed by Pol-Kas International Department working with agents and clients from different parts of the world. In 2005, BVI-Disney selected Pol-Ka to produce Desperate Housewives for Argentina and six other Latin American countries. By 2006 it had reached coproduction agreements with Fox Europe and other international companies such as RCN, Televisa, (the largest media company in the Spanish-speaking world) and HBO. Currently, Pol-Ka is one of the largest and most successful television producers in South America and has produced more than 5,000 hours of TV programs.
Vignettes 99
Guerra Creativa
Service Innovation
http://es.guerra-creativa.com/
Guerra Creativa provides design services by leveraging crowd sourcing in ways not previously seen in concept-to-design processes. If a client wants a new logo or webpage, Guerra Creativa will host a design contest for a fixed period (e.g., 21 days), and then help the client to evaluate the entries (often over 100) and select a winner. Guerra Creativa uses this collaborative process to design logos, websites, stationery, flash and 3D designs. It also enables designers to interact and learn from each other, hosts online exhibitions of their work, and provides feedback on the designs of others. One section allows users to have exclusive tutorials, with step-by-step instructions for different techniques and advice from their Interactive Creative Director. Currently this community includes 3,400 designers who have already uploaded more than 11,000 designs, and a total membership of 6,000 clients.
Grupo Arcor
Large Firm/CSr
www.arcor.com
Founded in 1951, Grupo Arcor produces a wide range of food products. Currently, through Bagley Latinoamrica S.A., it is South Americas largest manufacturer of cookies and crackers and the main exporter of sugar confectionery products in Argentina, Brazil, Chile and Peru. In addition, Arcor manufactures paper and corrugated cardboard in sheets and boxes for packaging, dairy products, confectionery, dressings, cleaning and personal hygiene products, and frozen goods. Today, Arcor offers its products in 120 countries worldwide. In 2009, in the top 100 ranking of the U.S. magazine Candy Industry, Arcor was ranked 14 and was the first Latin American company, with revenues of US$2.2 billion. The group has built a successful distribution model. In order to guarantee the best product quality at an affordable price it is self-sufficient in its main strategic inputs. To reduce costs and ensure supplies it is vertically integrated in the production of packaging for its products and for agro-industrial inputs with a high impact on its end products. Through Converflex S.A. it has participated in the flexible containers market for 40 years and has an installed capacity of 12,000 tons per year. In November 2010, Arcor was nominated Best Company by the Chamber of Commerce of the United States in Argentina in the business-oriented management sustainability category. The award recognizes companies that include management sustainability (environment, social and economical practices) in their corporate government practices. This was part of the vision of its founders and is implemented through the Arcor Foundation, which promotes 1,500 educational projects in Argentina. Working with 8,500 organizations, it has developed 25 programs aimed at over 1 million children in Argentina, and a further 130,000 in Brazil. Its social responsibility actions seek to minimize accidents in the workplace and the environmental impact of its manufacturing plants.

Responde
Social Innovation
www.responde.org.ar
In 1999, Marcela Bentez founded Responde as a non-governmental organization with the aim of preserving Argentinas rural towns from disappearing as a result of community members leaving for larger cities in search of better opportunities. To dissuade community members from leaving (and often ending up in worse economic conditions), Responde developed a series of programs that help people from 600 rural communities to identify economic opportunities, such as tourism using local resources, working with local officials to build cultural centres and community spaces and providing workshops to up-skill these officials. In 2008, Responde introduced REVIVAL, a project adapted from pay to volunteer models that are popular with other volunteer organisations, using it as one among many sources of funding. It involves first seeking the host communitys permission and acceptance before placing a volunteer, screening for volunteers who will provide a direct and critical benefit to the community (rather than simply accepting anyone willing to pay), and keeping the fee low to cover operational and maintenance costs (rather than add markups).
Brazil
Financiadora de Estudos e Projetos (FINEP)
Public Institution www.finep.gov.br
Financiadora de Estudos e Projetos (FINEP), also known as the Brazilian Innovation Agency, is a publicly owned agency linked to the Ministry of Science and Technology, based in Rio de Janeiro. Since its foundation, FINEP has had a dual role: it provides grants to non-profit institutions, such as universities and research centers, and it lends money to companies to promote innovation. In 1999, a Science and Technology Sectorial Fund was created to finance Brazilian research, development and innovation. FINEP is the executive body responsible for the management of these funds. In 2009, FINEP managed US$1.6 billion, benefiting over 2,100 firms. Major business initiatives in partnership with universities are also associated with FINEP funding, such as the development of the Tucano aircraft by Embraer (Empresa Brasileira de Aeronutica). Recently, FINEP created new instruments to support nascent high-tech firms. Some have been developed within the Inovar Project, supported by the Inter-American Development Bank (IDB). This includes venture capital, provided mainly through risk capital funds. Another instrument is the Programa de Apoio Pesquisa em Empresas (PAPPE, or Program for Supporting Research in Enterprises) a program to provide research grants to individuals in small companies, similar to the Small Business Innovation Research Program (SBIR) in the US. In 2010, the G20 chose FINEP as a model of an innovation agency for promoting innovation in emerging markets.
Vignettes 101
Marcopolo
Product Innovation
www.marcopolo.com.br
Marcopolo S.A was founded by Paulo Bellini and six other young mechanics in 1949 in Caxias do Sul, in Rio Grande do Sul. In 1991, it established its first factory abroad, in Coimbra, Portugal. The following year it signed a contract with Dina Autobuses S.A de C.V of Mexico to supply bus bodies and technology. Unlike its competitors, Marcopolo is vertically integrated, producing about 80% of the components and accessories in Brazil, including seats, windows, panels, and roof racks. By 2010, Marcopolo had over 13,000 employees. For the first semester of 2009 total revenues were US$13.3 billion. The bus firm operates in Argentina, Colombia, Mexico and South Africa. In 2007, Marcopolo created the first Brazilian bus powered by hydrogen. It has since distributed hydrogen-powered buses via its operations in Latin America. Currently, Marcopolo is developing a new line of buses called Generation 7. This green bus is more respectful of the environment: it needs less fuel, emits fewer gasses that contribute to the greenhouse effect, and consists of recyclable components. The bus is made from a special foam developed at the Technological Aerospace Centre, which allows it to have one of the lowest aerodynamic coefficients ever achieved by a bus (cx 0,42), comparable to the coefficients achieved by passenger cars. This coefficient is directly connected to the reduction of fuel consumption. In May 2010, Marcopolo received a prize the Industry Distinction for Generation 7. It also had the honour of building the bus of the Brazilian football team for the 2010 World Cup.
Natura Cosmticos S.A.

business Model/Product www.natura.net
Natura Cosmticos is a pioneering manufacturer of eco-friendly personal cosmetics, fragrance and personal hygiene products. Founded in 1969 by Luiz Seabra, Natura went public on the So Paulo Stock Exchange in 2004. Today it is one of the largest cosmetic companies in the world. The company has 6,200 employers, sells more than 900 products, and has revenues of US$2.31 billion. Naturas products are sourced from indigenous communities. The companys success is a result of its combined innovations in product development and its direct sales business model. Currently, Natura operates one of the largest direct sales networks, with over one million sales representatives (called consultoras), mostly women, throughout South America. With a vision of bem estar bem (i.e., well-being well) it has successfully integrated socially responsible practices with satisfying consumer demand for natural products. Natura focuses on a two-pronged strategy. The first emphasizes ethics, transparency and open communication channels with all stakeholders who interact with the company. In 2008, Natura developed and implemented the Natura Management System, an organizational model based on management by process, catering to business units and regional units. The second is to create and pursue key performance indicators that promote both profits and sustainable development. In 2007, Natura launched a Carbon Neutral Program in an effort to reduce its greenhouse gas emissions by 33% within five years and fully offset emissions that cannot be avoided. Naturas main goal is to create value for society as a whole, integrating economic, social and environmental dimensions.

Stefanini
business Model/ Product
www.stefanini.com.br
Founded in 1987 in Brazil, Stefanini is a global provider of information technology consulting, development and integration services. The company is the largest native Brazilian IT consulting company. It is organized as a franchise, where each manager is both in charge of the commercial area and the quality of the services provided, with the objective of improving the manager-client interaction and, at the same time, quality and reliability. The firm works in a decentralized way, since each units business manager is motivated to act like its owner. Currently, Stefanini has 8,700 collaborators, of which 1,500 work abroad. In 2009, Stefaninis gross income was US$400 million, 22% from international clients. Stefanini is currently in North and South America, Europe, and India. According to the Dom Cabral Foundation rankings, it is the most internationalized Brazilian IT Company. In 2010, the International Association of Outsourcing Professionals named Stefanini the best company for outsourcing in Latin America. As the company sees it, management and service initiatives and a relationship-based clientele are what make Stefanini innovative.
Unica (Unio da Industria da Cana-de-Aucar)

business Model (Cooperative) www.unica.com.br
Unio da Industria da Cana-de-Aucar (Unica) is the Brazilian Sugarcane Industry Association. It was created in 1997, following the consolidation of the countrys sugarcane industry, and represents more than 20 producers of sugar, ethanol and bioelectricity. Unicas members represent more than 50% of all ethanol produced in Brazil and 60% of overall sugar production. Currently, Unica operates in the US, Belgium and Asia to help promote the exports of ethanol to those countries. The main objective of the organization is to promote demand for ethanol as a clean and renewable transport fuel. In 2008, UNICA producers exported 1,519.4 million litres of ethanol to the United States, the biggest buyer of Brazilian ethanol, as well as to 63 other countries. Currently, Unica is working on the development of large-scale production of bioelectricity for the Brazilian market. Ethanols success depends largely on the existence of Unica. Unica innovates in the way Brazils ethanol is marketed, exported and branded.
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Petrobras
Large Firm/CSr
www.petrobras.com.br
Based in Rio de Janeiro and founded in 1953, Petrobras is the largest company in Latin America by market capitalization and eighth in oil exploration worldwide. In 2009, it had 71,000 employees, a net income of US$118 billion and profits of US$18 billion. In 2003, Petrobras was the first Brazilian company to sign the Global Compact, which is part of the Dow Jones Sustainability Initiative. It is also part of the Brazilian Business Council for Sustainable Development (CEBDS) and uses the Ethos Institute indicators (a Brazilian association of companies interested in developing their activities in a socially responsible manner). The companys policy is to bring social environmental results to society and aggregate social technologies without risking profitability. Petrobras included its entire social project in a single program, Petrobras Zero Hunger, which has helped 11 million people. The Petrobras Development & Citizenship Program aims to contribute to local, regional, and national development, helping to rehabilitate people and groups who live in conditions of social risk in Brazil. The program is investing US$710 million from 2007 to 2012, and aims to reach four million people directly. Petrobras has won several awards as the Company of Dreams of Young People and Brand of Trust. These prizes show that Petrobras is a world leader in implementing social programmes.
Center for Digital Inclusion (CDI)

Social Innovation www.cdi.org.br
In 1995, Rodrigo Baggio, founded the Center for Digital Inclusion (CDI) in Rio de Janeiro, based on the concept of helping people to help themselves. CDI Community Centers have three principal objectives: they are self-managed, self-sustaining, and they implement the CDI pedagogy. This unique pedagogy requires that by the end of each 4-month course, students will have used technology as the main tool to initiate, plan, implement and complete a social advocacy project aimed at changing an aspect of their existence. At the same time, CDI provides training on the use of computers and pays teachers higher-than-average salaries (US$200 per month, more than twice the average salary of a teacher in the public school system). Currently, there are CDI franchises in 753 schools in Brazil and 100 abroad, with 1,036 volunteers, 1,726 educators, and 600,000 people from low-income communities certified. CDI mobilized five internal working groups from different disciplines to innovate new solutions for efficient growth. The result was the creation of a new multimedia learning environment, new courses, new services with business plans, revised performance indicators, a new monitoring process, and an online platform for communication and collaboration. With the support of James Wolfensohn, former President of the World Bank and the Wolfensohn Institute, CDI is in the process of expanding to the Middle East and North Africa, to be followed by India and other parts of Africa. In 2000 Time Magazine named Baggio as one of 50 Latin American Leaders of the new Millennium.
Chile
ForoInnovacin
Private Institution
www.foroinnovacion.cl
In 2005, Ral Rivera created ForoInnovacin with a group of Chilean universities, think tanks, trade and business associations. ForoInnovacin is a non-profit action tank aimed at creating in Chile a more entrepreneurial and innovative society. Most ForoInnovacin projects are joint public-private efforts and involve a number of services for entrepreneurs, such as assistance on idea generation, networking, mentoring, diagnosis of business risks, advice on developing a back-up plan, and helping failed entrepreneurs get back on their feet. It also supports programs to enhance innovation and growth in Chile on a macro level, helping, for instance, to position Chile as a nearshore hub for global service exports. One of its main initiatives is Avonni, the main national innovation award that recognizes the innovative capability of Chilean entrepreneurs. In 2010, over 500 projects applied for this award. Another major initiative is Innovacien, a network of innovative schools, which are piloting Information Technology upported approaches to learning.
Fundacin Chile
Public/Private Institution
www.fundacionchile.cl
Founded in 1976, Fundacin Chile is a non-profit organization founded by the Chilean government and the ITT Corporation (the predecessor of AT&T) of the United States with the objective of transferring state-ofthe-art technology, management techniques and human skills to natural resource-intensive sectors, in alliance with local and global knowledge networks. Fundacin Chile creates new companies and joint ventures, carries out R&D, adapts foreign technology for product and process innovation for client companies in the public and private sectors, and fosters the creation of consortia for the diffusion of technology to small and medium enterprises. Fundacin Chile has created 76 companies that in total have contributed more than US$2 billion to the countrys economy. Examples include the creation of pioneering salmon farms; provision of technological services; abalone and turbot farming; development of the high-tech concept of vacuumpacked meat and other innovations; quality control and certification of fruit for export; introduction of new berry species and varieties in Chile; associative development in the forestry industry, which led to the implementation of new forestry management models; high-quality wine production; and furniture for export. In recent years Fundacin Chile has been increasingly active in the field of biotechnology (forestry genetics and DNA vaccines for aquaculture, among others), financial engineering and information (venture capital), and management. Its activities in the areas of skill upgrading focus on lifelong learning, distance education, the use of technology in education, and business education.
Vignettes 105
Falabella
business Model
www.falabella.com
Falabella is a leading Chilean retailer of apparel, accessories and household products. The company also distributes a diverse set of products (e.g., groceries, perishables and non-food items such as apparel, electronics, homeware, furniture and toys) through hyper and supermarkets, manufactures textiles and fabrics, and through the Falabella Bank offers financial services (e.g., issuance of credit cards, insurance brokerage, bank and travel agency). Falabella pioneered the integration between the bank and the hyper and supermarkets was in the retail sector in Latin America. The company had revenues of US$6.9 billion in 2009. Its real estate division develops and manages the supermarkets, hypermarkets and shopping centres, and is also responsible for securing land and buildings for new stores. A broad product portfolio protects the company from demand fluctuations in certain product categories. Currently, Falabella operates in Chile, Argentina, Colombia and Peru, with 73 department stores, 101 specialty stores, 43 supermarkets, 13 malls, 43 million credit card accounts and 67 million employers. Its leading market position in many of its business areas increases its bargaining power to achieve economies of scale and provides significant levels of brand awareness. The combination of retailing power and financial services enables the company to capture more value and remain innovative in both industries, offering products to both middle and working-class customers in Latin America. In 2010, the financial magazine Euromoney named Falabella the best-managed company in Chile. It was also awarded a prize for the Highest Standard of Corporate Governance in Chile. In 2011, Falabella plans to open 40 stores in four Latin American countries.
SONDA S.A.
business Process
www.sonda.cl
Founded by Andrs Navarro in Santiago de Chile in 1974 as a venture capital investment between his family and one of the biggest Chilean oil corporations, Copec, SONDA has pioneered the provision of Information Technology services, systems integration and software development in the region. In 1984, SONDA began expanding internationally, establishing a subsidiary in Peru, and later in Argentina, Ecuador, Uruguay, Costa Rica, Colombia, Brazil and Mexico. SONDA is a public company where Navarros family holds 55% of the stock, with more than 5,000 clients, 250,000 users and 400,000 items of IT equipment under contract. In 2009 its total revenue was US$703 million. Developing and delivering solutions and services both for government and private sector clients in a wide range of areas, the firm has contributed to the modernization of diverse government agencies and helped companies to become more competitive. SONDA has created several innovative solutions that have had a major impact on the quality of life of citizens, such as a new identity system for Chileans, an electronic voucher system for health care services, an automated control system for traffic in big cities, and an electronic payment and clearing system for the new public transportation system in Santiago de Chile. In 2007, SONDA acquired the Brazilian Information Technology company Procwork, thereby becoming one of the main IT service providers in Brazil and one of the largest SAP integrators in Latin America.

ELEMENTAL S.A.
business Model/ Product Innovation
www.elementalchile.cl
Founded in 1994, Elemental S.A. is a Chilean for-profit company with a social orientation, and a partnership with Copec (a Chilean oil company) and the Universidad Catlica. It implements urban development projects such as infrastructure, public space and housing projects, with the objective of improving the quality of life of the poor. Having built over 1,000 units and designed another 2,000, Elemental is currently working on several large-scale projects, including public markets, social housing and public buildings. With a team of 15 people, including architects, engineers and builders, the company develops projects with the participation of the community. The goal is that social housing projects will gain in value over time. Their motto is safe, economic and fast incremental self-construction. The cost of each unit is about US$7,500 for a 40 m2 half house, and they provide the structure and materials for constructing the second half by the owner. Their aim is to build inclusive cities and projects have been launched in Brazil, Mexico, Portugal, China and the US. Elemental has won several awards, most recently the 2010 Brit Insurance Design Awards in the architecture category.
Minera Los Pelambres

Large Firm/CSr www.pelambres.cl
The worlds fifth largest copper mine, Los Pelambres was founded in the 1920s by William Braden. In the 1990s it became Antofagasta Holdings, which belongs to the Luksic family. This private Chilean company with 700 employees is dedicated to the production of copper and molybdenum. Located at 3,600m altitude in the Andes, the mine produces 339,000 tons of copper concentrate a year, with Asia and Europe as significant export markets. Its conveyor belt is the longest and the most efficient of its type in the world, with reserves of 2.2 billion tonnes of fine copper. In 2008, total sales were US$2.17 billion. In 2002, Fundacin Minera los Pelambres was founded as an entity that focuses on three areas: education, productivity and irrigation systems. With help of different public and private institutions it has developed technical education and training programs for people from rural areas, activities to promote entrepreneurship, and specific projects to improve irrigation for farmers, which at the same time help to improve productivity. For this work Minera los Pelambres has received different awards in Chile such as Premio Gestin Social y Responsabilidad Social by Semanario Tiempo and Premio Universidad Tecnolgica INACAP for human capital development in Choapa province. Investors and operators alike pay close attention to efficiency, reducing carbon-dioxide output significantly and using electricity efficiently. For this achievement the company was awarded the National Prize for Power Efficiency by the Chilean Ministry of Economics.
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Recycla Chile S.A.
Social Innovation www.recycla.cl
Established in 2003, Recycla Chile is the first and only electronic waste recycling company in Chile. It incorporates innovation with management strategies based on social, economic and environmental sustainability. Recycla Chiles recycling process disarms electronic appliances by extracting and separating the raw materials to be transformed and reused. The remaining scraps are treated using specialized machines. At the same time, the entity provides environmental sustainability consultancy services in Chile and other Latin American countries. The company employs men and women with a criminal record and/or former prisoners. The goal is to offer them jobs to prevent them becoming repeat offenders. In 2008, Recycla Chile was internationally recognized with the Energy Globe Award and the Dubai International Award for Best Practices. In 2009, the World Economic Forum selected Fernando Nilo, Recycla Chile founder and chief financial officer, as a Tech Pioneer.
Colombia
Instituto Colombiano para el Desarrollo de la Ciencia y la Tecnologa (Colciencias)
Public Institution www.colciencias.gov.co
Founded in 1995, Colciencias is a public entity that promotes science, technology and innovation activities in Colombia. With a US$200 million budget, it funds initiatives such as research groups, scholarships for doctoral students, corporate research activities, the establishment of technical development centers, and the promotion of regional technological projects. The entity is focused on creating an attractive research environment for scientists in Colombia and has been very active in fostering collaborations with research institutions in Europe and the United States. Since 2006, 22 technological development centers have been established, 1,161 research groups have received funding from the program, 1,045 doctoral students have received scholarships, and 203 companies have received funding for scientific innovation activities, most of them cofunded by the firms. The challenge for Colciencias is to coordinate the National System of Science, Technology and Innovation (SNCTI), with the goal of fostering a scientific, technological and innovative culture in Colombia.

Federacin Nacional de Cafeteros de Colombia (Fedecaf)
business Model/ Product http://www.federaciondecafeteros.org/ www.cafedecolombia.com
La Federacin Nacional de Cafeteros de Colombia (National Federation of Coffee Growers of Colombia) or Fedecaf is one of the largest non-profit agricultural associations in the world. In Colombia, 94% of coffee producers have less than 12 acres of coffee. The federation is focused on improving the living conditions of more than 560,000 rural families dedicated to coffee growing. Founded in 1927, the Federation sponsors projects that have had a positive impact in the lives of millions of Colombians, including schools, electric power supplies, roads, housing, and health care centers. Every day the Federation invests US$1 million in the well-being of Colombian coffee growers. They also brand Colombian coffee with the Juan Valdez marketing campaign. In 2007, Colombian coffee was recognized by the European Union with the Protected Geographical Indication. It was the first non-European food product to achieve this distinction in this demanding market. The national coffee fund (Fondo Nacional del Caf, FNC) has long served as the primary instrument for Colombian coffee policy formulation and implementation, and its latest goal is to open a chain of Juan Valdez coffee houses throughout the world.
Grupo Nacional de Chocolates S.A.

business Model www.grupochocolates.com
The Compaa Nacional de Chocolates Cruz Roja was founded in 1920. In 2006, the food company was renamed Grupo Nacional de Chocolates S.A. In 2010, revenues were US$4,566 billion. The company specializes in six product lines: cold meat, cookies, chocolates, coffee, ice cream and pasta production and is the largest firm in the Colombian food sector. It has 37 subsidiaries and its products are sold in more than 70 countries, with direct operations in 11 Latin America countries and production plants in six. The company employs 28,500 people. The firm focuses its investments and research on nutrition, health, and the global environ ment. In 2008, Grupo Nacional de Chocolates created Vidarium, a nutritional research center, with the objective of generating knowledge about healthy nutrition in order to improve the quality of the firms products. In 2009, IMAGIX, a new system of innovation, was created by companys employees to promote innovative ideas and make innovation part of the company culture.
Vignettes 109
Datatraffic
Product Innovation
www.datatraffic.co.cc
Established in 2008 by an engineering student at the Universidad de los Andes, Datatraffic S.A. is a company focused on providing innovative geo-referencing solutions to its clients, including vehicle tracking and location of points of interest on digital maps that are published on the internet. Datatraffic combines hardware technologies which allow a considerable reduction in operating costs for transport companies worldwide. By gathering real-time information about Bogotas traffic flow, integrating it with historical data collected by the transit official authority, and the emergencies reported to the citys 911 number, Datatraffic has developed mobility algorithms that help to find solutions to the citys traffic problems. In 2009, the companys revenues were US$95 million. The firm combines software development with hardware devices, creating new solutions for the Colombian market aimed at tackling the problem of petrol consumption among transport and oil and utility companies, for which petrol represents 40% of their direct costs. Datatraffic tracks the exact consumption of each vehicle and manages the data in order to avoid internal theft. In 2009, Datatraffic won the silver medal in the 2009 Imagine Cup hosted by Microsoft
Empresas Pblicas de Medelln (EPM)

Large Firm/CSr www.epm.com.co
Empresas Pblicas de Medelln (EPM) is an integrated state-owned utilities company which operates in Colombia. It provides electricity, natural gas, water, sanitation, and telecommunications services. Its growth strategy is based on a MEGA (Meta Grande y Ambiciosa) plan for 2015. The goal is to reach US$5 billion in revenues, 60% of which will come from Colombia and the remaining 40% from abroad. In 2009, the company had revenues of US$2.3billion and profits of US$1.3 billion. Corporate Social Responsibility is key and is based on two programs. The first initiative aims at expanding services to underserved populations. Thanks to programs like All With Gas, Everybody Connected and Social Hiring 42,000 rural homes in the Antioquia province have electricity and almost all of Medellins homes have access to water (from 70% in 2007). The second is based on environmental management by making many of its processes more sistematic. This includes researching clean and renewable energies, supporting development in regions where it operates, and expanding Corporate Social Responsibility best practices to the chain of suppliers. In 2009, EPM was recognized as the public service company with the best reputation in Colombia and the eighth most respected in the country by Monitor Empresarial de Reputacin Corporativa-Merco (Merco), a study by the Spanish firm Justo Villafae Consultants, which analyzes variables such as economic and financial revenues, ethical, social and environmental responsibility, and internal reputation.

Kangaroo Foundation
CSr http://kangaroo.javeriana.edu.co/
In the late 1970s, Hctor Martnez Gmez and Edgar Rey Sanabria, both doctors with the Colombian Maternal-Infant Institute, developed the kangaroo mother care method in response to high rates of mortality among low-birth weight infants resulting from overcrowding and insufficient resources like shortage of incubators in neonatal intensive care units. The kangaroo mother care method is a caring alternative for premature and low-weight babies at birth. The main objective is to encourage mothers to keep their premature babies warm by continuously holding them skin-to-skin, nourishing them exclusively with breast milk, and returning home early with their child in the kangaroo position. The method has been so successful that UNICEF now promotes it worldwide. In 2003, the World Health Organization published a guide with the following statement: Kangaroo care, to me, is the first gift you can give to your baby in the Neonatal Intensivecare units from Liza Cooper, the national director of a March of Dimes program that supports families in neonatal intensive care units and promotes the practice among healthcare workers.
ParqueSoft
Social Innovation
www.parquesoft.com
In 1999, Orlando Rincn founded ParqueSoft to help micro enterprises and entrepreneurs from underprivileged communities in the Valle del Cauca. Within an open space, enterprises are organized in blocks with different teams. Each one is a software company that designs, develops and sells different types of software, including optics, artificial intelligence, bioinformatics and tools for nanotechnology. Every two months, ParqueSoft organizes 8-week internships for 150 young people. The company is focused on creating social value. It provides support and infrastructure for business development and trains people to become more innovative, reliable, and competitive in the market. ParqueSoft is a non-profit and understands that all entrepreneurs in the network can help each other to grow their creativity and talent. A policy of zero bureaucracy helps them reduce the rental and logistics cost to US$300 per year per person. Through its network of 15 science and technology parks, it provides administrative and business development services to 1,000 software entrepreneurs, 300 companies and 500 clients in 42 countries all over the world. Since its foundation, this organization has created 967 jobs and 339 ventures. Unlike other incubators, ParqueSoft clients do not exit upon maturation; rather they give back by aiding the development of the network. In 2005, Rincn was nominated by Dinero Magazine in Colombia and the Schwab Foundation from the World Economic Forum as the Colombian Social Entrepreneur of the Year.
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Costa Rica
Consejo Nacional para las Investigaciones Cientficas y Tecnolgicas (CONICIT)
Public Institution www.conicit.go.cr
In 1972, the National Council for Scientific and Technological Research, CONICIT, (Consejo Nacional para la Investigaciones Cientficas y Tecnolgicas) was established to strengthen Costa Ricas capacity to foster science and technology. Today, CONICIT provides funding and training for researchers and scientists, grants loans for technological development and scientific research, and donates equipment and materials to laboratories and research centers in the public and private sectors. CONICIT has helped introduce new research practices, new technologies in a variety of sectors, and public policy mechanisms intended to foster innovation. For example, it funded a group of researchers from the School of Biology at the University of Costa Rica who developed an organic method for protecting palm trees from bacteria that attack them and can ruin up to half a plantation. It has also funded new technology to help improve the detection of pre-cancerous growths. Using video endoscopes, doctors can better monitor, track and analyze lesions along the digestive tracks of patients, enabling them to improve the diagnosis of cancer, identify precancerous lesions in hundreds of patients, and establish epidemiological patterns and frequency of early and advanced gastric cancer.
PROINNOVA
Public Institution
http://proinnova.ucr.ac.cr/
PROINNOVA is the technology transfer, intellectual property and innovation management office of the University of Costa Rica (UCR). It was created in 2005 to foster a better understanding of innovation processes and improve the management of intellectual property in Costa Rica. One of the weak points of innovation implementation in Latin America is the lack of integration between universities and the private sector. PROINNOVA is a clear example of what can and should be done. It has contributed to the creation of a National Innovation System in Costa Rica and to the development of strategic alliances between the UCR and Costa Ricas private companies. Both work together on intellectual property topics such as copyright and industrial secrets transfer. PROINNOVA participates by publishing two guides: Ideario (Idea Repertoire) and Buscador Inteligente (Intelligent Search Engine). Both guides explain how an innovation can be implemented and nurtured. PROINNOVA complements the guides with courses on the subject. Its ideas have been adopted by other universities in Central America and Mexico. PROINNOVA is a member of the United Statess Association of University Technology Managers.

Caf Britt
Marketing/branding
www.cafebritt.com
Established in 1985 by Steve Aronson, Caf Britt harvests, roasts and ships gourmet coffee and is a high-end chocolate manufacturer in Costa Rica. It has expanded to offer fair trade and gourmet coffee from Peru and Mexico, as well as fine food products and specialty gifts and the company has wholesale and online sales in 20 countries. By 2010, it employed 850 people, operated more than 50 stores in key tourist locations in Costa Rica and in the airports of Lima, Santiago, Curaao, Miami, Antigua and Mexico. The Caf Britt stores provide a unique opportunity to move up the value chain and to market the Costa Rican coffee to global customers. It has coffee and chocolate production facilities in Costa Rica and in Peru. In 2009, revenues were US$60 million. The companys core value as a country-of-origin producer with strong local identity remains a guiding principle as it continues to expand in the region. Caf Britt is a patron of the arts and a partner in community development and environmental protection. It pays fair prices to local farmers who produce consistently high quality coffee. In 2009, for a second consecutive year, Caf Britt was ranked a top business leader in Central America by regional business publication Summa Magazine.
Grupo Islita: Hotel Punta Islita

Product Innovation http://www.grupoislita.com/ www.hotelpuntaislita.com
Tourism has become the second-largest generator of foreign direct investment in Costa Rica. It generates US$2.14 billion per year, contributes 7.2% of the countrys Gross Domestic Product and employs almost 15% of the population. Grupo Islita leads a group of Costa Rican enterprises with the common goal of promoting responsible tourism practices that foster cultural authenticity, economic opportunity, and optimum environmental standards. As a member of the World Heritage Alliance for Sustainable Tourism, Grupo Islita is committed to promoting and preserving World Heritage Sites through sustainable tourism. Hotel Punta Islita, one of the hotels of the group, has helped to create 20 successful micro companies, including two small restaurants, a fish processing plant, two guest transport companies, a motor bike repair shop, a contractor, two convenience stores, a souvenir shop, and five established community arts groups. 52% of the money the hotel generates is invested in the local communities. It is well known for the amount and diversity of training that it provides to employees, investing in skills as a way to invest in innovation, such as workshops in arts development and English as a second language, and has awarded scholarships for a Bachelors Degree in Digital Animation, spa therapist programs, and an aesthetician technical degree. Hotel Punta Islita has been recognized by travel publications and responsible tourism organizations for its top-level service and commitment to sustainability. In 2009, it was named Worlds best service - Central and South America and included in the top 500 hotels by Travel and Leisure Magazine. In 2010, the hotel was the winner of the Virgin Holidays Responsible Tourism award.
Vignettes 113
Grupo Monge
Large Firm/CSr http://www.imonge.com/
Founded in Costa Rica in 1970, Grupo Monge is a leading family-owned retailer of consumer electronics, household appliances and furniture in Central America, serving mainly low and middle-to-low income consumers. It now has 325 stores in the region. The companys activities include a wholesaling operation in Costa Rica and a consumer finance arm that complements the retailing business by providing customers with financing for in-store purchases. Grupo Monges innovative business model consists of applying the latest retailing processes to an underserved market segment traditionally serviced by informal, unorganized, and often more expensive, stores. Another distinct aspect of Grupo Monge is its strong social responsibility programs, such as A Centroamrica le tengo Fe and Apoyo Comunitario. These two programs have granted 1,000 scholarships and have helped over 10,000 families in the region, introducing information and communication technologies into schools. As a result of this and other programs like Grupo Monges, Costa Rica has one of highest concentrations of computers in classrooms in Latin America. In September 2009, Grupo Monge launched a new furniture line made from wood and renewable materials to promote environmental best practices in the manufacturing process. Currently seven Grupo Monges suppliers are implementing these practices and their products are stamped with a green line seal.
Laura Langs Climate Change Friendly Program

Social Innovation www.ashoka.org/llang
In May 2007, social entrepreneur and Ashoka Fellow Laura Lang, along with four institutional partnersa citizen organization, two academic institutions, and a private company, founded Climate Change Friendly Program (CCF). CCF was set up to promote eco-literacy and environmentally responsible ways of living, offering individuals a practical option to compensate for their greenhouse gas emissions by making carbon trading accessible to ordinary citizens and small businesses in Costa Rica. The group aims to combat climate change through the reforestation of degraded areas throughout Latin America and the Caribbean. CCF calculates average carbon emissions from everyday activities (i.e. car travel) and determines the number of trees that must be planted to offset these emissions. Interested individuals and companies can purchase a certificate or sticker that identifies them as carbon neutral. The entity uses the funds to replant native species in high-priority areas in Costa Rica. During its first year of operation, CCF raised US$40,000 and planted 6,500 trees. One year later, 35,000 trees were planted. The trees are monitored for three years and replaced if necessary. Lang is exploring opportunities for international replication with environmental organizations in Central America and the Caribbean. Within the next five years she envisions CCF as an international initiative channelling financial resources into reforestation, recycling, sustainable agriculture and alternative energy sources.
Mexico
Consejo Nacional de Ciencia y Tecnologa (CONACYT)
Public Institution www.conacyt.mx
El Consejo Nacional de Ciencia y Tecnologa (CONACYT) or the National Council of Science and Technology, was established in 1970 to increase quality, competitiveness and innovation, especially in the areas of information and communication technology, biotechnology, and advanced materials in Mexico. It is also responsible for the elaboration of science and technology policies in the country. Its goal is to consolidate a national system of science and technology that corresponds to the countrys priority demands, to provide solutions to specific needs, and contribute to higher standard of living and social inclusion. By 2025, CONACYTs goal is for Mexico to invest 2% of the countrys gross domestic product in research and development. CONACYT initiatives and programs include the funding of scholarships for doctoral students inside and outside Mexico, tax reductions for R&D-intensive firms, and the establishment of research centers. In 2001, a fiscal stimulus package was amended to enable Research & Development intensive firms to deduct 30% of their income tax. Due to this fiscal stimulus, the number of those firms increased from 252 in 2001 to 2,000 in 2005. In 2009, after the swine flu scare, CONACYT created a fund to help finance AH1N1 virus research that included 41 projects and US$8 million in funding. At the same time, it granted 16,170 scholarships to Mexican students in higher education and approved 209 scientific and research projects worth US$16 million.
Tecnolgico de Monterrey
university/education/PPP http://www.itesm.edu
Founded in 1943 by a group of local businessmen with the aim of providing highly-skilled personnel to the thriving corporations in Monterrey, Mexico, Tec de Monterrey has 64 campuses throughout the country, 22 international offices around the world, 24 corporate universities for 136,307 students and an additional 87,366 registered in on-line programs. It is ranked as one of the best universities in Latin America. The Tec encourages research through 135 research centers. In 1978, university professors and local businessmen jointly created a program to foster entrepreneurship. By 2010, the program had evolved into the Training for Leadership in Entrepreneurship Development and now hosts about 8,900 students per year. As a result of these entrepreneurship programs, a network of 63 business incubators and 14 technology parks has been promoted. Technology transfer and the creation of competitive businesses with the participation of students, alumni, faculty and community members is a main interest for the Tec de Monterrey. Among Mexican Universities, the Tec de Monterrey is one of the leaders in patent applications. The university encourages and has had a significant impact on building an entrepreneurial and innovative culture in the region.
Vignettes 115
Cinpolis
Large firm/business model
www.cinepolis.com
After opening its first cinema in Mexico in 1993, Cinpolis today owns 2,320 screens worldwide, making it the fourth movie distributor in the world and the largest film distributor and theatre chain in Latin America, with revenues of US$675 million in 2009. This international firm employs 15,190 people and has a presence in Mexico, Colombia, Costa Rica, Guatemala, Panama, Peru and El Salvador. In June 2010, Cinpolis entered India, and plans to enter the Chilean and Argentinean markets next. In Latin America, Cinpolis has introduced the concept of multiplexes that includes stadium-sized cinemas equipped with digital sound systems and enormous screens. This was its main competitive advantage when entering India, one of the biggest film markets in the world. Recently, the firm created the concept of cinema luxury with Cinpolis VIP, with personalized services for high-end clients. Other services include the satellite transmission of international events like concerts or sports events in its cinemas with digital 3D quality. In 2010, Cinpolis reached an agreement with FIFA for exclusive rights to broadcast the football World Cup matches in its cinemas.
Oxxo
business Model
www.oxxo.com
Established in 1977 in Monterrey, OXXO is the largest chain of convenience stores in Latin America, with 7,500 stores in 350 cities. The company is wholly owned by the beverage company FEMSA which initially conceived OXXO as an outlet for its beer and soft drinks products. OXXO has delivered double- digit sales growth during the last five years through a combination of rapid expansion and growth. In 2009, its revenues were US$3.85 billion. Its success lies in the development of a computerized operating system that tracks merchandising, warehouse operations, assortment planning and pricing. Additionally, the system is able to identify specifically what customers want to find in each OXXO, and track customer preferences and expectations. At the same time, OXXO provides services to facilitate everyday life, such as payment for public services. In 2009, OXXO opened 800 additional stores.

Softtek S.A.
business Process
www.softtek.com.mx
In 1982, Softtek S.A. was founded as the first Latin American firm specialized in providing information technology services. In 2007, Softtek created Nearshore Goes Global (Nearshore 2.0), a software that gives customers the possibility to work offshore with the comfort of offering services in the same time zone, the socalled near shore. The company is a software integrator of Enterprise Resource Planning packages such as the German SAP. Its growth has been sustained by a unique system of incentivizing entrepreneurship among employees. For much of the companys history the majority of employees have had compensation packages that are 100% variable. Employees are encouraged to pursue new ideas and start new projects with their compensation being linked to the success of their efforts. Currently, the firm has 6,000 associates, and operates in North and Latin America, Europe and Asia. Softtek was the first Latin American firm to earn Capability Maturity Model Integration (CMMi) Level 5, the highest level that a company can acquire. Revenues in 2008 were US$220 million, including 55% from clients in the United States. It has eight global delivery centers in Mexico, China, Brazil, Argentina and Spain.
Pineda Covaln
Marketing/ branding
www.pinedacovalin.com
In 1995, Pineda Covaln was founded by Cristina Pineda and Ricardo Covalin in association with the Mexican National Institute of Anthropology and History. The company started in Mexico City by making cuff-links and ties for companies such as Volkswagen and Coca Cola, to finance their own fashion projects. Initially, products were sold in the Museum of Anthropology and History, the Bellas Artes and the Museum of Modern Art, but due to their success new channels were opened in hotels such as the Four Seasons, Marriott, Nikko, and Sheraton. Since then, the company has focused on promoting Mexican culture through the production and distribution of design pieces (silk ties, scarves, handbags, cushions and other fine products) inspired by pre-Hispanic influences such as the Huichol, Mayan and Zapotec cultures. In the last ten years, Pineda Covaln has become a global fashion brand and its products can be found in museum shops and select boutiques in North America, Europe and Latin America. In 2002, Fashion Group Mexico awarded Pineda Covaln the Estrella de Plata for its work in Mexican design. In 2005, the company represented Mexico at the Global Fashion Show in Europe, and in 2006 it served as a representative of Mexican fashion at the United Nations.
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CEMEX Patrimonio Hoy
Large firm/CSr www.cemexmexico.com
Patrimonio Hoy is an innovative corporate social responsibility (CSR) program developed and supported by CEMEX. Founded in Mexico in 1906, CEMEX is one of the worlds three largest building materials companies, with 50,000 employees, US$14.7 billion in net sales in 2009, and a presence in more than 50 countries across five continents. In 1998, CEMEX introduced Patrimonio Hoy. The program is one of the pioneers of social innovation in Latin America. CEMEX provides the assistance and resources to build and improve houses with a low cost and efficient micro-credit system, contributing to the development of the region. The project has benefited more than 300,000 families in five countries; 180,000 of them have received more than US$67 million in loans, with a loan repayment rate of 99%. Patrimonio Hoy has become a case study taught in major universities. It has won recognition from the Organization of American States (OAS), the Interamerican Development Bank (IDB) and the World Bank. In 2009, Cemex won the United Nations Habitat Business Award for Patrimonio Hoy as an outstanding innovative business model that promotes social development.
Causas.org
Social Innovation
www.causas.org
Causas.org is a non governmental organization (NGO) created in 2005 by Arturo Franco, Vidal Cantu and Adolfo Franco. It aims to strengthen Mexican civil society by introducing the use of information technology for the development and professionalization of the NGO sector. By verifying, registering and classifying 9,650 Non Governmental Organizations (NGOs), Causas.org has developed a comprehensive online directory of Mexican civil society. It gives each civil organization in Mexico a free domain and hosts a simple website where a Non Governmental Organization can communicate its mission and vision, social action, as well as blogs, post videos and photographs, and, most importantly, solicit volunteers. Participating organizations can also administer their own websites. Causas.org provides a place on the web where people looking to volunteer can search and compare various NGOs. In the first stage of the program Causas.org received financial support from companies like AXTEL, Coca-Cola, FEMSA, Cinepolis, and Scotiabank. These companies also participated in Causas.org Corporate Volunteering Program, which generated more than 3,000 social action opportunities for their employees. In 2009, Causas.org was one of the winners of the National Solidarity and Volunteering Awards presented by the Mexican government.
Peru
Consejo Nacional de Ciencia, Tecnologa e Innovacin Tecnolgica CONCYTEC
Public Institution http://portal.concytec.gob.pe/
Founded in 2005, the Consejo Nacional de Ciencia, Tecnologa e Innovacin Tecnolgica (CONCYTEC) or National Council of Science, Technology and Technological Innovation coordinates and evaluates government actions in the area of science, technology and innovation. It also promotes economic development through science and technology programs and projects within public institutions, academia, businesses and social organizations. The organization supports the social policies of the Peruvian government focused on reducing poverty and improving the quality of life of marginalized people. In 2009, CONCYTEC launched an initiative to provide financial support to more than 1,000 researchers over the next five years. CONCYTEC sponsors an annual INNOTEC Peru innovation competition, where firms, researchers, NGOs and inventors are encouraged to present their scientific results and innovative ideas.
Ajegroup
Product Innovation
www.ajegroup.com
Ajegroup is a Peruvian-based family-owned company that manufactures, distributes and sells soft drinks, fruit juices, beer, and water. Their most popular brand, Big Cola and Cola Real, has an annual production of 3.1 billion liters, of which Mexico alone accounts for 2.5 billion. In 1990, the Aaos brothers founded the company with US$20,000. By 2010, the firm had sales of US$1.3 billion from selling 17 trademarks across 16 countries and had experienced five consecutive years of growth of 30 per cent. Having decided to expand into other Latin American countries because of the difficult social conditions in Peru during the early 90s, in only 20 years Ajegroup has challenged the power of global players such as Coca-Cola and Pepsico Inc. throughout Latin America by offering similar beverages at lower prices than those world leaders. The firm credits its success in part to its ability to create a distribution system that works in the specific conditions of emerging markets. Recognizing that street vendors are an important way to reach clients, Ajegroup has developed a distribution network that ensures their products reach them. This type of business process innovation has enabled Ajegroup to continue entering new and compete in other emerging markets. According to Jorge Lopez Doriga, corporate director of Ajegroup: We started in an emerging nation and we go to emerging countries... the distribution channels and philosophies often are similar, and [there is an] entrepreneurial spirit. The company is diversifying into beer in Peru. By the end of 2010, Ajegroup had already invested US$3 million in a new plant in Brazil and US$10 million in a plant in India. The company has 22 production plants worldwide and a 7% share of the Mexican market, 17% in Venezuela, 7% in Colombia, 12% in Guatemala, 18% in Ecuador, 15% in Peru and 16% in Thailand.
Vignettes 119
Alicorp S.A.
Product Innovation
www.alicorp.com.pe
Founded in 1928 as Grupo Romero, the firm was renamed Alicorp S.A. in 1997. With 2,314 employees and total revenues of US$3.7 billion in 2010, Alicorp is the largest consumer goods company in Peru. The firm produces, imports and exports food for humans and animals, cleaning products and products derived from cotton oil. Its products are exported to 14 countries that include Chile, Colombia, Haiti, Panama and the United States, and it has operations in Argentina, Colombia and Ecuador. In January of 2010, Alicorp created a Bakery and Gastronomy Innovation Centre, whose main objective is to develop and create new products with the help of customers. In the process, the center also seeks to track changes in the consumption habits of Peruvians. Currently, the company is working on a project whereby it transfers know-how to Peruvian bakers. Perus artisan bakers compete internationally, presenting their best-baked goods in international contests such as Pans World Cup - France 2012, which managed to qualify Peru as the country with The Best Bread in the World. The involvement of the bakers in the contest is sponsored by Alicorp and the Peruvian Association of Employers of Baking and Pastry, which seeks to enhance the value and quality of various breads in the country.
Interbank
business Model/ Social Innovation
www.interbank.com.pe
Owned by Intergroup Financial Services, Interbank is a medium-size Peruvian financial institution, with a market share of 11.2% by assets, serving 1,400,000 clients. Interbank is a top contender in the retail segment, boasts the countrys largest Automated Teller Machines (ATMs) network, and also sells insurance. Since 2002, it has been ranked by business magazines among the top ten best companies to work for in Peru and the best bank to work for in Peru. Its social responsibility efforts are focused on providing education and health care services and sponsoring environmental and cultural initiatives. Interbanks support totals US$20 million per year. It offers 200 full scholarships to college students, and promotes entrepreneurship and leadership. In the area of public health, the company is also one of the biggest donors. Interbanks employees supported Hospital del Nio, donating 150 blood units to young patients in the burns unit. In the cultural arena, Interbank sponsored a national competition which offers to the 24 winning works an exhibition in the Torre Interbank gallery. Conscious of its environmental and ecological impact, Interbank has signed agreements with cities for the upkeep of parks and gardens.

Astrid y Gastn
Product Innovation
www.astridygaston.com
Founded in 1994, Astrid y Gastn is a medium-size for-profit firm but equally dedicated to improving social well-being. What started as Astrid y Gastn, a French restaurant in Lima, has now become a Latin American restaurant chain with a global presence. Representing the new Peruvian cuisine, their restaurants are in Quito, Santiago de Chile, Bogot, Caracas, Mexico, Madrid and Panama. In 2003, they launched the cellarstyle restaurant Tanta followed by La Mar with the traditional Peruvian marinated fish cebiche and Los Hermanos Pascuale for barbecue. Astrid and Gastn, the restaurants owners, have become ambassadors for Peruvian cuisine. They transform 1,500 traditional recipes a year and reinvent them as haute cuisine. They promote indigenous agricultural products by using traditional and locally sourced ingredients, training street vendors to meet required health standards, and contributing to Perus youth with a Chef School. They believe their success derives from taking advantage of what they call a treasure that belongs to all Peruvians, referring to the variety and quality of local agricultural products and the rich cuisine with roots in the indigenous population. In 2009, Gaston Acurios achieved revenues of US$100 million and plans to invest US$12 million in 2010.
Buenaventura
Large firm/CSr www.buenaventura.com
Founded in 1953, Compaa de Minas Buenaventura is Perus largest publicly traded precious metals company and a major holder of mining rights in Peru. The company is engaged in the mining, processing, development and exploration of gold, silver and other metals via wholly owned mines, as well as through its participation in joint exploration projects. Buenaventura currently operates several mines in Peru. In 2009, Buenaventura reported operating revenues of US$881.5 million. In order to raise awareness among the workforce and reduce accidents and injuries, Buenaventura trains workers to detect, identify and record all of the hazards related to each of their tasks, makes safety tours to demonstrate active leadership through the example of each mines general manager, and provides on-site theoretical and practical training. In 2009, its fatal accident frequency rate (FAFR) fell by 50% compared to 2008. By improving living standards it is an ally in the quest to achieve the integrated development of the surrounding communities. One of its social goals is to improve access to and management of the watershed system surrounding its operations by promoting the construction of dams, canals and irrigation systems. For example, in Uchucchacua, under an agreement with PRONAMACHS and the Community of Oyn, Buenaventura created a program to recover 20 hectares of degraded pasturelands, which benefited 600 members of the local community. It also offers electric power transmission and engineering consulting services. Currently, Buenaventura complies with the highest environmental standards and is committed to corporate governance best practices. In 2009, Germanischer Lloyd renewed the ISO certification for Buenaventuras Julcani, Orcopampa, Uchucchacua and Antapite mining units, and granted certification to Shila-Paula mine for the first time. In 2010, Buenaventura implemented an Environmental Management System based on the ISO 14001 standard.
Vignettes 121
Ciudad Saludable
Social Innovation www.ciudadsaludable.org
Founded in 1989, Ciudad Saludable works in partnership with municipalities to improve the health and living conditions of people living in Perus poorest areas by turning waste collection in urban slums into a profitable enterprise. Solid waste management is a serious problem in Peru. The organization has created employment and organized over 1,500 waste collectors. In upscale suburbs, where the city government collects the trash, waste collection payment rates are below 40%, whereas in the districts where Ciudad Saludables microenterprises work, payment rates are over 80%. The services are more dependable and less expensive than those provided by municipal governments. Through the use of incentives, women and children are targeted and encouraged to pay a modest monthly fee for trash collection. With health promotion messages, the organization emphasizes that waste collection will improve their familys health at a cost equivalent to just one bottle of beer each month. Ciudad Saludable regularly rewards its customers: either with gifts, such as kitchen baskets, upon receipt of early payment, or by planting trees in front of their houses. This entity has collaborated in the development of the first laws to regulate the activities of waste recyclers in Peru, as well as Latin America. It has established two other organizations: Peru Waste Innovation, a consulting firm specializing in solid waste management, and Healthy Cities International (New York), which is in charge of replicating Ciudad Saludables model worldwide. In 2008, Albina Ruz, Executive Director of Ciudad Saludable, received the Energy Globe Award trophy in the Earth category.
Uruguay
UruguayINNOVA
Public Institution www.uruguayinnova.org.uy
UruguayINNOVA is a cooperative program founded in 2009 between the European Union and the Uruguayan government to strengthen the generation and transfer of technology to Uruguay and adjust technological knowledge to the country by building alliances between the private sector, academia and scientific communities. UruguayINNOVA focuses on four main lines of action: supporting the implementation of research programs in the national biotechnology research center, supporting the process of internationalization of software centres, improving the existing national science park, and promoting Research & Development clusters. The program is expected to have a significant impact on the technological sector in Uruguay in the years to come. One of the initiatives is the financial support of the Institute Pasteur Montevideo, which will receive US$100,000 per year for the next five years. This financial aid will be used to support technology projects in genomics, protein biochemistry and cell and molecular biology. The initiative has just been evaluated positively by the European Union, emphasizing its satisfaction with relevance, efficiency, impact, and sustainability.

Memory
Product Innovation
www.memorycomputacion.com
Memory develops accounting and managerial software for small and medium enterprises. Memory Computacins innovative business model involves focusing on and servicing the needs of administrative staff in small and medium size companies with low levels of software literacy. One of their products, Memory Conty, delivers basic accounting reports, solving accounting issues, as well as being a key tool for information to help the companys management. Currently, Memory is the primary accounting and management software solutions provider to 40,000 small and medium enterprises in Uruguay and over 50,000 users in Latin America. Memory has won several prizes, such as the Guia Award for the most innovative Uruguayan company. In 2009, Endeavour Foundation selected Memory as one of the best entrepreneurial companies in Latin America, and its international development and expansion was highlighted by CNN news.
Kizanaro
Product Innovation
www.kizanaro.com
Kizanaro is a small Uruguayan sports information technology company. With 17 employees, it commercializes products and services for football teams as well as for media and entertainment. Through videos and specialized platforms, Kizanaro offers sports analysis software as a tool to evaluate the performance of a team and its rivals on the field. The company offers an innovative portfolio including: K-Studio Professional, a software that analyses team and individual football tactics; K-Real Time, a system that allows the Head Coach to receive real time and objective data about the match; K-Scouting, a product that keeps track of individual players throughout the season and compiles a report on their performance in images and video; and Playmaker, a football moves editor that replaces the paper boards used to plan game tactics. Currently, Kizanaros products are used by the Uruguayan national football team and by some Uruguayan professional first division clubs. In 2009, Red Innova chose Kizanaro to participate in the First Encounter of Innovation, Technology and Internet for Spanish and Portuguese-speaking markets as one of the 15 most innovative companies in Latin America. It also won first place in the Imagine Cup Uruguay worldwide innovation prize run by Microsoft.
Telemforo
Product innovation
www.telemaforo.deuruguay.net
In 1997, Alberto Amorim and Martn Palomeque created a new concept in traffic lights and with it a firm named Telemforo. This new concept improves the impact of the red light in a traffic light by adding a luminous panel that diffuses messages and images. The screen consists of red light emitting diodes (LEDs), synchronized and controlled by an electronic circuit. The centrally-controlled software enables the client to choose the place, the time and the composition of the message broadcast via the screen. The firms clients are mainly municipalities that use the system to broadcast security messages to drivers and pedestrians. Some of the messages are Please dont drink and drive. Walk. Take the bus. Take a cab. But dont return with a drunk driver. Your destiny is yours. Telemforos system has 160,000 visual impacts per month in Uruguay. Other cities in Argentina, Bolivia, Peru and Spain are in the process of installing Telemforo in their municipalities. In 2011, Telemforos main goal is to enter the Brazilian market.
Vignettes 123
EFICE S.A.
Large firm/CSr
www.efice.com.uy
EFICE S.A. is a company which manufactures chlorine, caustic soda and derivatives through the electrolysis of salt. As the firm is the largest private consumer of electricity in Uruguay, their main strategy is to reduce electricity use. In 1998 Efice subscribed to the program Responsible Care, signalling their desire to comply with the highest standards of quality in order to avoid accidents among employees and not harm the environment. EFICEs technology development and know-how are a source of national pride and its products are of value because they improve peoples quality of life. For example, the World Health Organization (WHO) estimates that three million people die annually from drinking water that has not been treated with chlorine. In Uruguay, epidemics such as typhus and cholera have finally been banished with EFICEs chlorine. Efice S.A. has demonstrated the excellence of its processes and products by achieving ISO 9001 certification.
Rosario Garca y Santos

Social Innovation www.amru.org www.deliciascriollas.org
Social entrepreneur Rosario Garca y Santos was nominated an Ashoka Fellow for her work towards the empowerment of rural women and helping them improve their contribution to the economy. She has helped to enhance quality of life among rural households in Uruguay. In 1994, Rosario Garca y Santos founded the non-governmental organization Asociacin de Mujeres Rurales del Uruguay (Uruguayan Rural Womens Association, AMRU) in order to provide families in the countryside with the opportunity to live and work by trying to end gender-based discrimination. Despite the fact that the majority of women grouped in AMRU live in different regions of Uruguay, they have much in common: they are women, they live in the countryside, and they are small farmers or rural workers. In a country which is predominantly urban, (only 6.3% of the population lives in rural areas), AMRU has contributed to the development of public policies for the rural sector. The Association was created with 64 rural womens groups, all from different regions. Currently there are 200 clusters, which include 2,000 women and 10,000 beneficiaries. Rosarios Cooperative created Delicias Criollas (Creole Delights), a common brand for womens products from different rural areas. For each type of product the association helps the producer with a specific business plan and social marketing strategy. The cooperative is a financial tool which allows rural families to generate income for the economic empowerment of women, and whose aim is to sell their products in domestic and foreign markets. The food products are natural, with home-made ingredients of excellent quality and representative of the national heritage. Creole Delights currently groups 200 rural producers of 60 different products sold in the domestic market. Some of the groups that belong to AMRU develop social activities with the goal of improving education, health and housing, among others.
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Acronyms and Abbreviations

BCP BNDES CEO CNIC CONACYT CONICYT CORFO CSR ECLAC EMBRAPA FDI FONTAR GDP GII ICT IEA IDB LAC MAAF NGO NIS OECD PISA PPP R&D RICYT SME SMS SWOT TFP UNESCO Becas Chile-Programme National Bank of Economic and Social Development (Brazil) Chief Executive Officer Council for Innovation and Competitiveness (Chile) National Council for Science and Technology (Mexico) National Commission for Scientific and Technological Research (Chile) Foundation for Development Promotion (Chile) Corporate Social Responsibility United Nations Economic Commission for Latin America and the Caribbean Brazilian Agricultural Research Corporation Foreign Direct Investment Argentine Technological Fund Gross Domestic Product INSEADs Global Innovation Index Information and Communications Technologies Internal Energy Agency Inter-American Development Bank Latin America and the Caribbean Mobile Applications Adoption Framework Non-Governmental Organisation National Innovation System Organisation for Economic Co-operation and Development Programme for International Student Assessment Public-Private Partnership Research and Development Ibero-American Network of Science and Technology Small and Medium-sized Enterprises Short Message Service Strength Weakness Opportunity Threat-analysis Total Factor Productivity United Nations Educational, Scientific and Cultural Organization

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InnovaLatino: Fostering Innovation in Latin America is the result of a two-year collaboration between the leading international business school

InnovaLatino: Fostering Innovation in Latin America

InnovaLatino: Fostering Innovation in Latin America

InnovaLatino: fostering innovation in Latin America

coleccin Fundacin Telefnica

3.3 The future of mobile applications in Latin America ......................................................................................................................................................................................................................................

What is innovation, and how is it different in Latin America?

InnovaLatino: Fostering Innovation in Latin America XIV

Evolution of global share of total R&D (1996-2007, percentage)

32% 27% 23%

13% 9% 1.8% 1.5% 2007

1998 1999 United States EU-27

2002 Japan China

2004 2005 India Brazil

Global share of triadic patent families (1997-2007, percentage)

South Africa 1997

Change in global share of total R&D (1996-2007, percentage) 91%

21% 12% 13% 2% 3%

South Africa (2006)

Global share of scientific publications (1997-2007, percentage) 28% 25.1% 25.1%

10% 7% 5% 5% 3% 1.6% 2.1% 3.3%

InnovaLatino: Fostering Innovation in Latin America XVI

100% 80% 60% 40% 20% 0%

58% 33% Overall 32% Argentina 6% Brazil

58% 42% Mexico

Colombia Costa Rica National

The case of mobile applications

Executive Summary XVII

What is happening in national innovation systems in Latin America?

InnovaLatino: Fostering Innovation in Latin America XVIII

Innovation in Latin America

1. Innovation in Latin America 3

box 1.1. The InnovALATIno ProjeCT

1.1 Defining Innovation: What is Innovation? Who Innovates?

InnovaLatino: Fostering Innovation in Latin America 4

Evolution of global share of total R&D (1996-2007, percentage)

32% 27% 23%

13% 9% 1.8% 1.5% 2007

1998 1999 United States EU-27

2002 Japan China

2004 2005 India Brazil

Global share of triadic patent families (1997-2007, percentage)

South Africa 1997

1. Innovation in Latin America 5

Change in global share of total R&D (1996-2007, percentage) 91%

21% 12% 13% 2% 3%

South Africa (2006)

Global share of scientific publications (1997-2007, percentage) 28% 25.1% 25.1%

10% 7% 5% 5% 3% 1.6% 2.1% 3.3%

InnovaLatino: Fostering Innovation in Latin America 6

box 1.2. LATIn AMerICAn exAMPLeS oF DIFFerenT TyPeS oF InnovATIonS

1. Innovation in Latin America 7

100% 80% 60% 40% 20% 0%

58% 33% Overall 32% Argentina 6% Brazil

58% 42% Mexico

Colombia Costa Rica National

InnovaLatino: Fostering Innovation in Latin America 8

Large (> 50)

Large firms (e.g. Global Latinas) Corporate social responsibility

Small to medium (10-50)

SMEs and entrepreneurs

Individual Profits for owners

3.3 The future of mobile applications in Latin America ......................................................................................................................................................................................................................................