Latin America May be Advancing, but Innovation is Still Elusive

Around the world there is a consistent correlation between a country’s per capita GDP and how well it scores on innovation indices – the wealthier a country gets, the more innovative it becomes. Except, that is, in Latin America, which has seen countries across the region make a step up in terms of economic development but stagnating when it comes innovation.

Examining the reasons for this “innovation gap” and how Latin America can begin to close it has been one of the main concerns of Lourdes Casanova, a Spanish author, academic and globally recognized innovation expert.

Casanova was one of the co-leaders of InnovaLatino, a two year study into innovation in the region coordinated by the Organization for Economic Cooperation and Development (OECD) and INSEAD international business school and funded by telecommunications company Telefonica.

The InnovaLatino report described a region that is heavily reliant on commodities – particularly agriculture and the extractive industries. The boom in commodity prices in recent years has driven economic growth in much of the region. However, this growth has been more reliant on the conditions of foreign markets than it has on innovation at home, and this easy route to an expanding GDP could soon no longer be viable.

“We are coming to the end of this super cycle of high commodity prices, and the region is more interested than ever in being able to move beyond natural resources,” said Casanova.

The Appales and Googles….

To achieve this, the region must create and nurture a multi-faceted “innovation eco-system,” based on an axis consisting of government, the private sector and universities, according to Casanova.

“The Apple of this world, the Facebook, the Google, are not born in a vacuum, you have to provide a system that fosters innovation,” she said.

For Casanova, this system would incorporate investments in education and university research from both the private and the public sector, government policies to promote and enable entrepreneurship, and a private sector that can provide seed money for new initiatives and is prepared to make long term research and development investments.

Currently Latin America is sorely lacking in all three areas, she says, and action is required if the region’s underperformance in innovation is to be remedied.

In education, universities should not only focus on improving the quality of education on offer but also on forging stronger links with the private sector, according to Casanova.

“There is a tremendous gap between the universities and the private sector – it is not part of the culture to work with the private sector,” she said.

To Foster Innovation

Companies also need to accept more responsibility for fostering innovation, Casanova says, especially those she dubs “national champions,” – state backed firms that function as designated vehicles for national policies, from generating employment to building international prestige, such as Ecopetrol in Colombia or Petrobras in Brazil.

“Unlike the rest of the world, the private sector in Latin America does not invest in R&D – why? Because the context has been so volatile that these companies have had a hard time surviving difficult times,” she said.

The profitable and stable national champions, which have established firm foundations and can securely plan for a long-term future, need not be restricted by such fears, according to Casanova.

“These national champions have the duty to their own countries to invest in R&D – to invest in local value chains, in local suppliers, to train them to make sure they foster innovation and entrepreneurship in their own countries,” she said.

The role of government envisioned by Casanova meanwhile, is one of a facilitator, encouraging innovation through policies such as tax breaks and public investment in research facilities and projects. The key to success in such policies is also including an element of social inclusion – not only to narrow Latin America’s falling but still sky high inequality levels but also to maximize each country’s potential.

“What happens in the region is there are tremendous gaps between those that have access to everything and those who do not have access,” she said. “Policies that have a component of inclusion are very, very important.”

Casanova offers up Colombia’s awarding winning program Vive Digital as a shining example of a government policy that promotes innovation through social inclusion. The program has massively expanded internet connectivity for the country’s low-income and rural residents, and for small and medium businesses, helping create the conditions to make Colombia’s recent IT and outsourcing boom sustainable.

Lack of Capacity and Competence

According to Casanova, in the IT and outsourcing sectors, these problems are compounded by two more: a lack of capacity to promote awareness of regional brands and capabilities abroad, and a lack of companies of a sufficient size to compete on the scale of the outsourcing giants of India or other leading locations.

Casanova highlights Brazil’s pioneering use of e-banking and e-governance as an example of how Latin American innovations slip by unnoticed by the rest of the world due to a failure to promote them.

“There are things the region can teach to the world but it is not doing so,” she said.

While this is a failure to capitalize on what Latin America has to offer, the other issue she highlights – scale – is a natural limitation on development; a country such as Colombia may be a rising star of the outsourcing world but with a population of 47 million it can never compete on scale with an India, and its population of over 1.2 billion.

The solution to this restriction is increased cooperation and integration, Casanova believes.

“Sometimes medium sized companies work extremely well but you need to have some kind of association, to create coordination, to create the synergies among them that together allow them to have the economies of scale that any large company has.”

For Latin America to truly close the “innovation gap,” this cooperation and integration needs to cross borders, according to Casanova.

“In Latin America we need to find more collaboration. The first thing I would do is integration, more collaboration between countries in R&D – as Europe has done,” she said. “The same level of integration that is happening on a very small scale should be happening among all Spanish speaking countries in Latin America.”