1. 2 nd Phd Conference in Economics RESEARCH IN ECONOMICS: Aims and Methodologies This event is organised by and for PhD students confronted with the need to critically question methodological tools and approaches used in their research works.

2. 23-25 September 2004 Università degli Studi di Pavia, Pavia, Italy Key Deadlines June 15, 2004 abstract submission, in the format indicated. paviaconference2004@debating.it www.debating.it

3. Local Systems of Innovation in Developing Countries: Evidence from a Brazilian Furniture Cluster Andrea Morrison Università del Piemonte Orientale, Novara, Italy Cespri-Bocconi, Milan, Italy e-mail: andrea.morrison@uni-bocconi.it Globelics Summer School, Lisbon June 1 st 2004

4. AIMS AND OBJECTIVES 1. Reconstruct the Local Innovation System (actors and linkages) 2. Contribute to a better understanding of clusters’ dynamism in developing countries. Providing further empirical evidence on: The innovation behaviour of clustered firms. The organisational changes occurred to the local innovation system.

5. THEORETICAL BACKGROUND Many studies shares the assumption that knowledge is one of the main determinant of economic growth, Clustering firms originate their dynamic competitive advantages from the ability to generate, adopt and diffuse knowledge. Nevertheless, production and diffusion of knowledge remain a controversial issue, stemming from different interpretations of the knowledge concept itself (information vs knowledge). Theoretical issues coming at the forefront: understanding the dynamic competitive advantages of clusters, analysis should be addressed to the factors affecting the knowledge system (Bell and Albu, 1999). when the focus of the analysis is on cluster’s innovation capacity, attention should be paid to knowledge flows and sources (Lissoni, 2001). Recognising the importance of ‘openess’ (e.g. to avoid lock-in), more attention should be paid to the organisational characteristics of the system.

6. Organisational structure and knowledge absorption and diffusion: Boundaries of the system –“Openess” Systemic Interactions –Cooperation vs opportunistic behaviours Actors’ characteristics –Large vs Smes Firm Scarce cooperation Openess closeness hetogeneity homogeneity Factors affecting knowledge diffusion within the cluster Factors affectins knowledge absorption from external sources Cluster Low dynamism High dynamism Strong cooperation Analytical Framework: clusters within LIS source: adapted from Bell and Albu, 1999

7. SAO BENTO CLUSTER: MAIN FEATURES Main figures of the industry - Number of firms: 199 (1999) (60 with more than 20 employees) - Turnover: US$ 181.298 (45% of local production) - Employees: 7.048 (59% share of employees in the region) - Export: US$ 166.466 (1999) (Santa Catarina region is one of the main Brazilian exporters in furniture). - Brazilian export: US$387.000; Italian export US$8 million; Mexico, US$ 1.3 million (1997). Cluster characteristics -Highly verticalised -Highly diversified production -Almost 90% is exported

8. SAO BENTO CLUSTER: brief history The origin of Sao Bento furniture industry dates back to the late ‘800s, In the 1920s the move from craftsmanship to furniture industrial production becomes observable. Since then, regional economy, began to revolve around the furniture business The seventies represented the consolidation age, small firms turned into industrial companies. The furniture sector became dominant in Sao Bento manufacturing industry. In the eighties, a major restructuring process hits the Brazilian economy. The debt crisis depressed domestic demand, forcing firms to look for new markets abroad. Many firms went bankrupt. Moreover firms had to face a shift in customers’ tastes. In the nineties, the transition started in the ‘80s came to an end, transforming the cluster into the main Brazilian furniture exporter. Firms rapidly renewed its stock of fixed capital, thanks to a stable macro-economic setting, which favoured imports, but they became highly dependent on international purchasers and on local brokers.

9. METHODOLOGY We provide a sketch of the innovation system in two periods: the innovation activity performed by local firms network of linkages, both local and external to the cluster. Areas investigated: firm production activity; technological capabilities (education, skills, R&D or Design dept., funding; type of innovation; the evolution of the co-operative relationship for a specific innovation; the co-operative behaviour with innovative organisations; the productive linkages with customers and suppliers. Empirical analysis was carried out in the Santa Catarina (Sao Bento, Campo Alegre, Rio Negrinho) The fieldwork was based on a structured questionnaire submitted to 18 furniture manufacturers. Only furniture firms belong to the sample; information about suppliers and specialised subcontractors were gathered through second hand materials.

10. RESULTS: TECHNOLOGICAL CAPABILITIES -1 indicators of technological capabilities show that firm are still weak trend is positive for most of these indicators firms investments are biased towards production capacity large firms invest more in basic learning activities Overall smes and large firms do not differ significantly as far as investments in technological capacity are concerned

11. RESULTS: INNOVATION PATTERNS - 2 product innovation is almost absent. Firms mostly operate as subcontractors of foreign buyers. process innovation is almost absent. Basically adoption of ready- made packages. some organisational innovation has been detected (e.g. lay-out) exception are those firms specialised in niche markets (baby bedroom, pools, etc.) or operating on both internal and international markets.

12. RESULTS: KNOWLEDGE SOURCES - 3 brokers has been identified as the main source of information for innovative ideas and technical change. International fairs are also important sources of information external sources (to the cluster) increase importance with respect to internal ones. This trend is common to both smes and large firms smes firms rely more on local sources with respect to large ones brokers took over the role of clients as main source for information and innovative ideas

13. RESULTS: LOCAL INNOVATION SYSTEM -4 a set of institutions supporting firms’ innovation activity has been set up recently (ctm, promosul, promovel) firms demonstrate to prefer ‘joint action’ within a well defined institutional setting (such as ctm) rather than horizontal cooperation. cooperation, either horizontal and vertical, is scarce horizontal cooperation in research (e.g. material, design, etc) and innovation activities is absent.

14. firms clients Local system National system of innovation Tech. centres Sao Bento’s innovation system at the beginning of 1990s

15. Sao Bento’s innovation system in 2001 Firms Global buyers Local system National System Tech. centers International knowledge sources Brokers

16. CONCLUSION IIs this cluster building technological capabilities in order to sustain ‘upgrading’ processes? Since technological capabilities are weak and innovative capacity is poor, export performance could be undermined as soon as macro conditions (or external competition) will change. Local innovation system requires strong policy interventions in order to increase its openness and complexity, in particular: - Non-technological ‘gatekeepers’ (brokers) activity should be complemented and replaced in those fields mainly related to technological activities by other actors (CTM, etc). - The observed institutional dynamism suggests us that local actors may be able to promote a more structured innovation system.

17. Further Research Analyse in depth brokers –Who they are (spin off of furniture firms…) –How they interact (network analysis) –What knowledge/information transfer to local buyers Analyse in depth global buyers –Do they disclosure their knowledge? –Do they favour/hinder ‘upgrading’ processes?

18. Grazie (Thank you) andrea.morrison@uni-bocconi.it paviaconference2004@debating.it www.debating.it