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Fundação Dom Cabral Research Team

André Almeida Giuliano CretoiuGuilherme Dayrell Mendonça José P. RossettiPaulo Tarso Vilela Resende

Introduction

This report was prepared in accordance with “Projeto Vínculos” work plan.

Jointly conducted by Deutsche Gesellschaft für Technische Zusammenarbeit GmbH (GTZ),� Fundação Dom Cabral (FDC),� the United Nations Conference on Trade and Development (UNCTAD),� and Instituto Ethos,� the project’s objective is to increase the productive capacity,� efficiency and competitiveness of the Brazilian domestic business sector by strengthening and multiplying business linkages between Transnational Corporations (TNCs) and local Small and Medium Enterprises (SMEs).

Based on the idea that these linkages fosters the dissemination of technology and know how - mostly in management,� productive processes and marketing – thus contributing to the creation of a more dynamic and competitive businesses sector,� both nationally and internationally,� the project ultimately helps companies lead more sustainable existences.

In order to determine the most effective ways of establishing and developing such linkages,� a comprehensive analysis and assessment of the current business environment in Brazil was produced. Organized in three phases,� this report is intended to: (1) provide an overview of the general conditions of the Brazilian economy; (2) present an historical evolution and evaluate the trends of the FDI currently made in Brazil; (3) present the current stage of TNC-SME business linkages; and (4) review the existing strategies,� policies and practices to promote such linkages.

PHASE I : ECONOMIC AND INVESTOR PROFILES IN BRAZIL

Chapter 1 – Origins and Evolution of FDI in the Brazilian Economy: this chapter presents the current stage of the Brazilian economy,� focusing on its capacity to attract and integrate investments. It also investigates the existing environment with regards to the promotion of business linkages by analyzing its capacity to integrate local suppliers in TNCs’ supply chain.

Chapter 2 - Foreign Direct Investment (FDI) Profile in Brazil: this chapter presents investors’ profile by type of investment,� industry,� geographic origins. In addition to that,� we also include an analysis of foreign direct investments’ historical trends in Brazil.

PHASE II : SURVEY ON TNC-SME LINKAGES IN BRAZILChapter 3 - Survey of TNCs and SMEs in Brazil: the current stage of linkage activities and the critical factors for their creation and strengthening are identified in this chapter. It presents the results of a survey on TNCs view on the reduction of transaction and factor costs through the integration of local suppliers and their perception on the building up of SMEs supplier network as a long-term investment. The criteria used by TNCs to integrate SMEs as well as SMEs main concerns are also contemplated.

PHASE III : REPORT ON PUBLIC STRUCTURE IN BRAZIL TO SUPPORT SMEsChapter 4 - Report on Existing Public Policies in Brazil as Potential Sources to Linkage Development: this chapter presents a review of the existing strategies,� policies and practices that aim to promote TNC-SME linkages in Brazil. It exhibits the summary of the most important public policies in Brazil. Once the most important surveyed public policies have been gathered,� several analyses are conducted. Those analyzes give an idea of important sources of promotion agencies,� economic field representation,� regional concentrations and intrinsic characteristics of each policy that may help the linkage promotion process.

The electronic version of this document presents a navigation bar on its left-hand side. Through “bookmarks” you have access to the summary and through “pages” you can go directly to a specific page.

Summary

PHASE I: ECONOMIC AND INVESTOR PROFILES IN BRAZIL

CHAPTER 1 – Origins and Evolution of FDI in the Brazilian Economy 06 1.1 Wide-Ranging Vision of the Brazilian Economy 07 1.2 FDI inflows into Brazil 12 1.3 Transnational Corporations (TNC) in Brazil 13

CHAPTER 2 – Foreign Direct Investment (FDI) – Profile in Brazil 22 2.1 Introduction 23 2.2 FDI Main Genesis 24 2.3 Types of FDI 29 2.4 FDI Breakdown by Sectors 31 2.5 Chief Forms of Investments 38 2.6 FDI Key Factors and Location Importance 42 2.6.1 Theoretical Studies 42 2.6.2 Empiric Studies 44 2.7 Conclusion 45

CHAPTER 3 – Surveys of TNCs and SMEs in Brazil 46 3.1 Methodology of Analysis 47 3.2 TNC Survey Results – Business Linkages Programme – General Analysis 48 3.2.1 General Business Environment 48 3.2.2 Corporate Policy on Local Linkages 55 3.2.3 Service Linkages 66 3.2.4 Features of Local Partner Development 69 3.2.5 Obstacles to Local SME Linkages 75 3.2.6 Institutional Support to Local Linkages 78 3.3 TNC Survey Results – Business Linkages Programme – In-Depth Analysis 81 3.3.1 Analysis Based on Region 81 3.3.2 Analysis Based on Country of Origin 89 3.3.3 Analysis Based on Nature of Business 99 3.4 SME Survey Results – Business Linkages Programme – General Analysis 115 3.4.1 General Business Environment 115 3.4.2 Business Linkage Experience 122 3.4.3 Features of Supplier / Business Partner Development 127 3.4.4 Limitations with Linkages 134 3.4.5 Institutional Support to Local Business Linkages 137 3.5 SME Survey Results – Business Linkages Programme – In-Depth Analysis 139 3.5.1 Analysis Based on Nature of Business 139 3.5.2 Analysis Based on Region 154 3.5.3 A Summarized Analysis Resulting from The Macro-Economics,� FDIs,� TNCs and SMEs – Recommendations Based on the First Three Chapters 162

PHASE II: SURVEY ON TNC-SME LINKAGES IN BRAZIL

CHAPTER 4 – Report on Existing Public Policies in Brazil as Potencial Sources to Linkage Development 163 4.1 Introduction 164 4.2 Scope of the Report 165 4.3 Methodology 166 4.4 List of Codes Used in the Technical Analyses 168 4.5 Strategic Analysis of Surveyed Policies in Brazil 170 4.6 Joint Analysis Between Policies and Related Agency 178 4.6.1 Policies Related to Several Ministries 178 4.6.2 Policies Related to the Public Banking System 183 4.6.3 Policies Related to Sebrae and Senai 185 4.6.4 Policies Related to Regional Development Agencies 186 4.7 Table of Most Important Policies – as Linkage Source 187 4.7.1 Analysis of the Number 5 Ranking Policies on the Sensitivity Scale 187 4.7.2 Analysis of the Number 4 Ranking Policies on the Sensitivity Scale 190 4.8 In-Depth Analysis 191 4.8.1 Analysis over Nature and Specific Nature Crosstabulation 191 4.8.2 A Summarized Analysis Resulting from the Policy Report – Recommendations 193 4.9 Conclusion 195 4.10 Recommendations 196 4.11 Individual Frames of Each Policy 205 4.11.1 Chemical,� Personal,� Care,� Cosmetics (1) 205 4.11.2 Tourism (2) 207 4.11.3 Agribusiness (3) 209 4.11.4 Textiles,� Leather and Shoes (4) 211 4.11.5 Timber and Furniture (5) 215 4.11.6 Construction (6) 216 4.11.7 Automotive (7) 217 4.11.8 Mining and Metallurgy (8) 218 4.11.9 Biotechnology and Pharmaceutical (9) 220 4.11.10 Computer And Info Technology (10) 222 4.11.11 Electronics (11) 223 4.11.12 Aerospace and Transport (12) 224 4.11.13 General (13) 227

REFERENCES 247

APPENDIx – Complementary Analyses for Linkage Partners Selection 250 Methodology of Analysis 254 Specific Practices in the Development of National Supply Chains 261 Conclusion 265

PHASE III: REPORT ON PUBLIC STRUCTURE IN BRAZIL TO SUPPORT SMEs

�

Origins and Evolution of FDI in the Brazilian Economy

Chapter 1

PHASE I: Economic and Investor Profiles in Brazil

� �

1.1 Wide-Ranging Vision of the Brazilian Economy

Any in-depth wide-ranging vision of the Brazilian economy must initially consider two important aspects: the historic evolution of its growth and of its internal economic relations as well as its world ranking as measured by its GDP size (Gross Domestic Product).

Growth and internal relations evolution – A 4.50% long-term annual average variation of Brazil’s GDP in 1960-2006 surpassed world economic expansion in the same timeframe (3.97%). This comparatively good performance is an outcome of the 60s and 70s,� two decades when the Brazilian economy enjoyed its highest growth – respectively 7.17% and 8.63% per year,� roughly twice as high as worldwide figures. Despite an explosive demographic boom at that time,� slightly above 3% a year,� Brazilian annual per capita GDP was growing over 4.8%. At such a clip,� it doubled every 15 years.

However,� this growth rate slacked off in the past twenty-five years. In the 80s the economy expanded,� on the average,� by a scant 1.42% a year,� and Brazil’s 1981-1990 accumulated expansion was a rather meager 15.14%. A key reason for such lackluster performance was the foreign debt crisis. Faithful to its nationalist and protectionist strategy,� Brazil’s military government at the time privileged leveraging foreign funds,� channeled to state-owned companies,� as part of an overall Foreign Direct Investment framework (FDI). This type of financing could have been successful,� if these foreign-funded projects generated enough foreign exchange fruit to cover future amortization plus interest. But this was not the debt equation. A significant amount of funds financed infrastructure projects (electric power,� telecommunication,� highways and the like),� which do not generate foreign exchange revenue. Hence,� as contracts came due,� no funds had been generated to amortize them. Two other factors worsened a situation,� which was bad enough to begin with,� namely (1) a strong face-value interest expansion in the late 70s and early 80s,� and (2) a strategic choice made favoring an import-substitution economic system,� in line with a nationalist conception,� which bore no foreign liquidity fruits.

Attempting to avoid jeopardizing its international economic relations,� in the 80s the Brazilian government directed practically all its macroeconomic-policy instruments to encourage,� as much as possible,� positive trade balances and to honor its foreign debt obligations – despite the model built thus far. Within this framework,� three movements were triggered simultaneously: (1) heavy wage compression,� seeking to reduce production costs in all competitive chains; (2) monetary adjustment below the inflation prices of state-company basic supplies,� such as oil,� petrochemicals,� electricity,� steel making,� telecommunication; and (3) maxi-devaluations of the foreign exchange rate.

Responding to cost / foreign exchange incremental ratios well below one to one,� for fifteen years mega trade surpluses were generated (US$12 billion a year),� allowing Brazil to escape foreign bankruptcy. In addition to such hefty trade balance surpluses,� the country also counted on International Monetary Fund assistance and on debt renegotiation,� during the more critical stages of the ratio between amortization liabilities and generation of current account surpluses. These were hard times,� known as stagflation,� part stagnation (due to home market compression) and part inflation (due to aggregated supply & demand asymmetry and to foreign exchange pressures).

��

The 90s usher in a new Brazilian economic reality. The three-legged nationalism / state ownership / protectionism model now yields to an altogether radically new strategy: global competitive insertion,� privatizations and market opening. This new strategy was a radical break in Brazil’s direction and in its international economic relations,� with thorough structural changes in the international balance of payment accounts. Some of the more relevant highlights in this new reality were the following:

1990-1994

Trade balance remained positive until 1994,� generating US$ 12 billion annual commercial surpluses. The inertial forces of the 80s were still at work,� as no substantial changes occurred in the regime nor in foreign exchange policy. Exchange adjustment remained linked to monetary adjustment,� which translated into significant gains for exporters (appreciations due to productivity and scale gains did not apply to the exchange rate).

Despite a good trade surplus,� the current account balance remained rather modest and even deficit-ridden. The reason for this was a heavy service deficit (75% of it from interest levied on foreign debt).

FDI (Foreign Direct Investment) remained low,� with no significant reaction compared to previous decades’ levels. In all likelihood,� this was due to a wait-and-see attitude in expectation that the strategic revolution triggered in 1990 would mature and consolidate. After all,� the 1990 Presidential election might mean a step backward,� some wondered at the time.

Thus,� the foreign debt process went on. High foreign exchange appreciation fueled new debts,� which were also necessary to close foreign accounts,� a major source for Brazil to face and handle amortization.

1995-199�

The strategic reordering started in 1990 continued under new President Fernando Henrique Cardoso,� elected in 1994. Indeed,� the new federal administration went further,� especially as regards economic opening and privatizations. The aforementioned strategic revolution was definitely consolidated and Brazil reached price stabilization,� with its economic plan known as Plano Real (“Real” being the name of the new national currency).

However,� foreign accounts changed significantly. The annual trade balance was inverted,� from a US$12 billion positive annual figure to US$6 billion negative annual numbers. Market opening and stabilization explain such turnaround. Market opening was one of the anchors in price stabilization,� and this opening affected the production chains from end to end. Imports of raw materials,� semi-finished products,� components,� final consumer goods and capital goods increased substantially. In order to meet home market expansion (caused by price stabilization and by a reversal of the historic process of income concentration),� significant amounts of exports were now redirected to domestic market consumption. Consequently,� imports increased 120.2% (in 1990-1994 their annual average had been US$24.9 billion. By 1995-1998,� it had risen to

�� 9

US$55.2 billion). On the other hand,� exports grew 37.1% (annual average of US$49.6 billion in 1995-1998,� as compared to US$36.2 billion in 1990-1994).

Current account balance nose-dived to strongly negative figures. Between 1995 and 1998,� it accumulated a US$105.8 billion deficit,� the highest ever in Brazilian economic history.

On the other hand,� FDI inflows also reached historical heights in the same four-year period,� rising from a 1990-1994 yearly average of US$800 million to US$15.8 billion a year,� a twenty-fold increase,� fueled by foreign capital co-participation in strategic-area privatizations,� acquisition of private Brazilian companies and new macroeconomic conditions in the country. However,� the US$63.0 billion FDI inflowing into Brazil were well below the US$105.8 billion current account deficit. As a result,� Brazilian foreign debt rose to a figure tantamount to the difference between the two flows: in 1994,� it had reached US$148.3 billion and,� in 1998,� US$223.8 billion.

1999-2002

President Fernando Henrique Cardoso’s re-election in 1998 ensured maintenance of Brazil’s strategic reorientation pillars. Nevertheless,� a high-impact change was triggered in the foreign exchange accounts: the Central Bank’s management of administrative ranges was now replaced by a floating system. Trends in major balance-of-payment accounts then began to change. In 2001,� the trade balance swiftly rid itself of its aforementioned US$6.0 billion negative level and rose to a positive US$13.1 billion figure in 2002.

Consequently,� current account negative balances also migrated from above US$30 billion a year (1997-1998) to US$24 billion a year (1999-2001) and US$7 billion a year (2002). Foreign vulnerability in current transactions was sharply reduced.

However,� given the difficulties in furthering privatizations (in power generation,� for instance),� in rekindling home economic growth and in view of the growing attractiveness of new emerging economies (China,� New Asian Industrial Economies,� Central and Eastern Europe),� FDI inflows into Brazil declined to half the level reached in the heydays of privatization and market opening: from US$32.� billion (2000), it tumbled down to US$1�.5 billion (2002).

Yet,� unlike in the previous four years (1999-2002),� FDI inflows (US$100.4 billion) surpassed the current account deficit (US$80.3 billion). This difference explains the stabilization of the foreign debt balance,� followed by its reduction.

2003-200�

Riding the coat-tails of strong world economic growth,� and more directly due to China’s needs of basic supplies,� Brazilian exports hit record numbers: twice they doubled,� as compared to 2002,� reaching US$24.8 billion in 2003 and US$46.1 billion in 2006.

1010

Current account transactions overcame their longstanding history of negative balances. Truly outstanding trade balances were translated into current account surpluses,� far outpacing service deficits. Accumulated positive balances amounted to US$43.3 billion in this four-year period,� generating a corresponding reduction in the foreign debt balance.

However, FDI inflows in this same four-year period lagged behind the previous four-year figures. Yearly FDI inflow averaged US$15.5 billion, a whooping 61.8% reduction as compared to US$25.1 billion in 1999-2002.

Tables 1 and 2 below show the flows and movements we have just described.

Brazil in a worldwide GDP ranking

Despite the good numbers reached in the foreign sector,� especially the generation of positive results in trade and current accounts and the reduction of foreign debt in the past few years,� Brazil’s economic growth remained low,� compared to major emerging countries,� and even if judged in terms of the world economy as a whole. As we have already pointed out,� average Brazilian annual growth has lagged behind the world average for a full quarter of a century. Hence,� the country has been overtaken by others in the ranking of world economies,� judged by GDP size.

In the late 70s,� Brazil had climbed as high as being the world’s 7th economy,� behind only the United States,� Japan,� Germany,� the United Kingdom,� France and Canada. By the same criterion used in the 70s (adjusted official foreign exchange),� in 2006 Brazil had fallen to the 11th position in the world ranking. In twenty-five years,� it lost ground to China,� Italy,� Spain and Russia (following its recovery after the major tumble when the former Soviet Union came to its demise).

Judged by the PPP criterion (Purchasing Power Parity),� Brazil is the world’s 10th economy. This criterion certainly measures more precisely the actual effective size of a national economy compared to the others. Both methods (adjusted official foreign exchange and PPP) are found in Table 3.

Brazil’s attractiveness in world terms

The three aspects we have just explored (economic growth trajectory,� international economic relations,� and ranking among the world’s major economies) are highly important in the definition of the attractiveness of countries to FDI (Foreign Direct Investment) flows. Obviously,� other factors are also of major importance,� such as a country’s institutional bases,� its government’s strategic guidelines,� its national diversity,� availability and cost of production inputs,� receptiveness to foreign capital,� risks involved (especially legal insecurity,� rule changes,� nationalization,� structural foreign exchange crises),� the country’s macro-economic status,� corporate configuration and dimensions in the country.

Judged by an overall gathering of all these crucial items,� Brazilian world attractiveness presumably lies in the upper middle echelon. Some of Brazil’s strengths are the following:

Strategic and geopolitical importance in global terms. Consolidation of its democratic political system.

1010 11

Reordering of its economy:

Stabilization: end of the recurring inflation cycles. Greater opening of the trade and financial markets.

An expressive market in global terms:

GDP size – the world’s 11th economy,� if judged by the foreign exchange criterion,� and 10th by PPP (purchasing power parity). Regional economic weight and leadership. Expansion potential.

Diversity – a wide array of productive activities:

Abundance and diversity of natural capital.Diversity of soils and climates.Void cells in the input-output matrix are rare and far between.

A solid and up-to-date financial system:

Leading-edge technology. Outstanding portfolio of products. Institutional coverage and scope.

Updated production capacity:

Changes and innovations bear a growing technological content.Certified production chains.

Production chains enjoy clear-cut competitive edges:

Agriculture (grains,� fibers,� bio-energy inputs).Animal production (small,� mid-size and large animals).Mining.Ethanol and bio-diesel.Processed food.Paper,� pulp and cardboard.Steel making and metallurgy. Textiles,� footwear and leather. Wood and furniture. Transportation and hauling materials.

These production chains feature a satisfactory combination of five favorable characteristics: (1) world-level competitiveness; (2) high production capacity; (3) exportable surplus; (4) low dependency on imports; and (5) low capital / product incremental ratio in most major industries.

These and other favorable pluses must have been the paramount factors attracting FDI to Brazil in the past five decades,� and this last half-century has been precisely the most intensive period in Brazilian industrialization.

1212

1.2 FDI inflows into Brazil

In current amounts,� FDI investments to the tune of US$248,�538 million have flowed into Brazil in the last twenty-five years. This magnitude of inflows has been visibly influenced by economic conditions and by political-institutional factors alike.

FDI averages in the 90s considerably surpassed those found in the 80s. Tables 4 and 5 show a historic series,� comparing FDI inflows to GDP (Table 4) and FDI share in gross fixed capital formation in Brazil (Table 5). Total FDI inflow in that timeframe reached 1.89% of the Brazilian GDP (US$248.5 billion vis-à-vis US$13.2 trillion). This ratio varied considerably throughout that time period. It bottomed out at 0.37%,� in the second half of the 80s,� following the end of Brazilian military governments. Top numbers (between 5.3% and 5.4%) occurred in the last two years of the 20th century,� at the height of Brazil’s privatization and economic opening processes.

As regards the process of gross fixed capital formation,� foreign capital share in Brazil reached a historic average of 9.39%,� meaning that the effort to build a productive structure in the country has depended strongly on public and private national investments (90.61% of total investments in 1981-2006). The historic national average of investments as GDP share has remained low,� when compared to other emerging countries. Tables 4 and 5 reveal that the investment rate in Brazil is 20.1% of its GDP (US$2.65 trillion compared to US$13.17 trillion). Foreign investment share in this little-satisfactory average was quite significant in 1998-2002 (more than doubling its own historical average). However,� it has declined in the last four years,� to levels close to those in the past.

Chart 1 synthesizes the likely reasons for this five-year decline. We also point to some favorable incipient expectations,� which could expand FDI share in forming Brazil’s production structure in the coming years.

1212 13

1.3 Transnational Corporations (TNC) in Brazil

Albeit FDI share in Brazilian gross fixed capital formation may appear seemingly modest,� nevertheless Transnational Corporations (TNC) are among the largest enterprises now operating in the country,� in terms of capital genesis. As regards total operating revenue,� the TNCs are having a growing role. Indeed,� their share of it was around 30% until the 90s and has remained roughly 40% ever since (see Table 6).

Table 7 lists the annual operating revenues of the top 1,�000 companies operating in Brazil,� as per their capital genesis. Altogether,� 591 of them are Brazilian private capital,� 69 are state-owned companies and 340 are transnational. This third group is broken down by countries,� in descending revenue order.

The data suggest that,� if judged by country of origin,� TNC revenue in Brazil is relatively pulverized. The top five countries (USA,� Germany,� France,� Italy and Spain) account for US$155.4 billion of the US$262.5 billion earned by the TNC listed. As for total revenue of the 1,�000 largest corporations,� those from the aforementioned top five countries reach 23.9% or 59.2% of the entire TNC group. The remaining 40.8% of total revenue of the top 1,�000 companies in Brazil are scattered among companies from 40 other countries.

Two further aspects related to TNCs in Brazil also point to such scattering:

Sector breakdown. FDI stock in Brazil is predominantly invested in services (65%),� with telecommunication,� financial intermediation,� auditing / consulting,� and trade receiving the lion’s share. Altogether,� 33% of FDI is invested in industry (especially automotive,� chemical,� food,� machinery and equipment). The primary sector (extractive activities,� farming & ranching) is endowed with 2% of FDI inflow. However,� FDI participation in this primary sector will likely increase in the coming years,� as various enterprises related to bio-energy production develop.

FDI entry forms. As shown in Table 8,� in 1990-2006 TNCs were actively engaged in Mergers & Acquisitions (M&A) in Brazil. In a total of 4,�546 such M&A transactions,� 2,�324 (tantamount to 51.1%) had foreign participation. In view of the wide-ranging scattering of such M&As,� it is quite likely that,� in the past fifteen years,� TNC breakdown in Brazil according to production segments has become more scattered if compared to previous decades.

1414

TABLE 1.1 Historic Record of Brazil’s Economic Growth: A Worldwide Comparison

1960s 1970s 1980s 1991-2006

Year World Brazil Year World Brazil Year World Brazil Year World Brazil

�0

�1

�2

�3

�4

�5

��

��

��

�9

�0

3,�5

3,�1

4,�6

5,�0

6,�3

5,�6

5,�6

3,�3

4,�8

5,�7

3,�9

8,�8

6,�5

0,�4

3,�6

2,�4

6,�8

4,�4

9,�7

9,�4

10,�4

�1

�2

�3

�4

�5

��

��

��

�9

�0

3,�7

4,�7

5,�9

2,�3

1,�3

5,�3

4,�4

4,�1

4,�0

2,�6

11,�4

11,�9

13,�9

8,�1

5,�2

10,�3

4,�9

5,�0

6,�8

9,�2

�1

�2

�3

�4

�5

��

��

��

�9

90

2,�0

0,�6

2,�8

5,�1

4,�4

3,�6

3,�9

4,�6

3,�6

3,�2

- 4,�3

0,�9

- 2,�9

5,�4

7,�9

7,�5

3,�6

- 0,�1

3,�2

- 5,�1

91

92

93

94

95

9�

9�

9�

99

00

01

02

03

04

05

0�

2,�5

3,�2

3,�6

4,�8

4,�3

4,�0

4,�1

2,�5

3,�3

4,�8

2,�4

3,�0

3,�2

4,�2

4,�5

4,�8

1,�3

- 0,�6

4,�4

5,�6

4,�2

2,�7

3,�3

0,�1

0,�8

4,�4

1,�5

1,�4

0,�5

4,�9

2,�8

2,�7

Accumulated 65,17% 99,82% - 45,48% 128,82% - 39,30% 15,14% - 78,75% 48,31%

Average 4,67% 7,17% - 3,82% 8,63% - 3,37% 1,42% - 3,70% 2,49%

Sources: World Bank and IBGE National Accounts Center.

1414 15

TABLE 1.2 Brazil’s Strategic Revolution: High-Impact Changes in The Foreign Front

US$ BILLION

Year Trade balanceCurrent accounts

Foreign Direct Investment

(FDI)

Total foreign debt

19901991199219931994

10,�710,�615,�312,�910,�4

- 3,�8- 1,�46,�1

- 0,�6- 1,�7

0,�30,�11,�60,�72,�0

115,�4123,�4135,�9145,�7148,�3

1995199619971998

- 3,�2- 5,�6- 8,�4- 6,�5

- 18,�4- 23,�5- 30,�5- 33,�4

4,�310,�819,�028,�9

159,�2179,�9200,�0223,�8

1999200020012002

- 1,�2- 0,�62,�6

13,�1

- 25,�3- 24,�3- 23,�2- 7,�6

28,�632,�822,�516,�5

225,�6216,�9210,�0212,�8

2003200420052006

24,�833,�644,�846,�1

4,�211,�713,�913,�5

10,�118,�215,�118,�8

214,�9201,�4169,�5168,�8

Source: Central Bank of Brazil.

TABLE 1.3 Top Economies in 2006 (US$ Trillion)

ADJUSTED FOREIGN EXCHANGE RATE PURCHASING POWER PARITY (PPP)

1. United States2. Japan3. Germany4. China5. United Kingdom6. France7. Italy8. Canada9. Spain10. Russia11. Brazil

13,�264,�462,�892,�552,�362,�231,�841,�271,�220,�980,�96

1. United States 2. China3. Japan4. India5. Germany6. United Kingdom 7. France8. Italy9. Russia10. Brazil

13,�269,�234,�244,�102,�612,�102,�011,�891,�791,�73

Sources: World Bank and FMI. Medians of preliminary estimates.

1�1�

TABLE 1.4 FDI Inflows Into Brazil

Period / YearsUS$ Million % Ratio

FDI (a) GDP (b) (a)/(b).100

1981-1985

Total 9.882 1.120.100 -

Annual average 1.976 224.020 0,�88

1986-1990

Total 6.410 1.731.110 -

Annual average 1.282 346.222 0,�37

1991-1995

Total 11.009 2.471.195 -

Annual average 2.202 494.239 0,�45

1996 10.792 775.475 1,�39

1997 18.993 807.814 2,�35

1998 28.856 787.889 3,�66

1999 28.578 536.554 5,�33

2000 32.779 602.207 5,�44

2001 22.457 509.797 4,�41

2002 16.590 459.379 3,�61

2003 10.144 506.784 2,�00

2004 18.166 603.994 3,�01

2005 15.193 796.284 1,�91

2006 18.689 966.000 1,�93

1981-2006 248.538 13.168.821 1,89

Sources: Central Bank of Brazil and IBGE.

1�1� 1�

TABLE 1.5 FDI Share in Gross Fixed Capital Formation in Brazil

Periods / Years

US$ Million% Ratio (a)/

(b).100FDIGross fixed

capital formation

1981-1985

Total 9.882 229.956 -

Annual average 1.976 45.991 4,�30

1986-1990

Total 6.410 398.155 -

Annual average 1.282 79.631 1,�61

1991-1995

Total 11.009 479.906 -

Annual average 2.202 95.981 2,�29

1996 10.792 149.356 7,�23

1997 18.993 160.432 11,�84

1998 28.856 155.135 18,�60

1999 28.578 101.409 28,�18

2000 32.779 116.166 28,�22

2001 22.457 99.257 22,�63

2002 16.590 84.158 19,�71

2003 10.144 107.390 9,�45

2004 18.166 118.262 15,�36

2005 15.193 158.699 9,�57

2006 18.689 193.200 9,�67

1981-2006 248.538 2.647.462 9,39

Sources: Central Bank of Brazil and IBGE.

1�1�

TABLE 1.6 Share Evolution of National,� State-Owned and Transnational

Companies Among Brazil’s Top 500 Corporations

YearTotal revenue %

National State-owned Transnationals

1980 35,�9 31,�6 32,�5

1985 40,�7 30,�8 28,�2

1990 42,�8 26,�2 31,�0

1995 43,�6 23,�1 33,�3

2000 35,�7 18,�7 45,�6

2005 38,�3 17,�5 44,�2

2006(a) 40,�1 19,�6 40,�3

(a) 2006 data contemplating the largest 1,000 companies.Source: ExAME Magazine: Maiores e melhores (the largest and best).

1�1� 19

CHART 1.1 Some Determinants of Recent FDI Inflows into Brazil

Regional determinants Country-specific determinants

Latin American political instabilityMercosur Market de-articulationResistance to FTAA (a.k.a. ALCA)Latin American countries strategic guidelines contrary to global corporate interests:

VenezuelaEcuadorBoliviaArgentina

Economic growth lags behind other emerging areas:

New Industrial AsiaEastern Europe

Interruption of privatizationsReduction of Mergers & AcquisitionsLow economic growth in past 25 yearsCompetitiveness indicators now worse: decline in FDI & WEF rankingsHolders of central power alternate:

Risks of strategic discontinuitiesChanges in regulation

Low availability levels of base industry suppliesInfrastructure system collapse:

EnergyTransportation

Country risk is highSocial conditions and lack of security & safety

Favorable expectations

Global economic expansion: Brazil well positioned as a relevant supplier of basic inputs Internal macroeconomic foundations under controlExternal vulnerability has been overcome:

Current accounts surplus Declining foreign debtRecord-breaking foreign exchange reserves top US$ 100 billion

Country risk declining Investment opportunities:

Basic sectorsIntermediate supplies

2020

TABLE 1.7 1,�000 Top Corporations Operating in Brazil as per Their Capital Genesis

Number of companies

Shareholding controlOperating revenue

(US$ Million)591 Brazilian 260.610,�469 State-owned 127.400,�994 American 73.021,�229 German 28.249,�030 French 21.359,�623 Italian 16.874,�617 Spanish 15.883,�78 Luxembourgian 9.185,�316 Japanese 9.060,�413 Swiss 8.696,�54 Anglo-Dutch 8.315,�110 Mexican 8.125,�911 English 7.519,�95 Belgium 7.503,�82 Bermudan 6.780,�711 Luso-Spanish 6.589,�21 Franco-Brazilian 4.846,�56 Swedish 4.468,�06 Dutch 4.189,�94 Korean 3.307,�87 Portuguese 3.220,�41 Brazilian-Paraguayan 2.616,�43 Finn 2.573,�84 Chilean 1.100,�44 Canadian 1.050,�24 American/Brazilian 1.027,�24 Norwegian 892,�02 Pulverized shareholding 767,�31 Australian 527,�61 Swiss/Swedish 479,�91 Austrian 472,�41 Anglo-French 389,�51 Swiss/New Zealander 388,�91 Korean/Dutch 336,�01 Israeli 331,�11 Brazilian/Korean 322,�92 Argentinean 292,�41 Brazilian/Luxembourgian 283,�91 Spanish-Chilean 255,�81 Brazilian-Chilean 206,�12 Brazilian-German 189,�01 Brazilian-Spanish 183,�21 Swedish-Finn 141,�71 South African 129,�61 English/Swedish 126,�51 Danish 97,�51 Finn/Brazilian 92,�3

1000 - 650.482,�4

Source: ExAME Magazine: Melhores e Maiores (the best and largest),� July 2006.

2020 21

TABLE 1.8 TNC Share in Recent M&A Cycle in Brazil

YearTotal M&A

transactions(a)

Accumulated annual average

Foreign participation in

M&A transactions (b)

% of foreign capital share (b)/(a) . 100

1990 186 186 56 30,�1

1991 184 185 47 25,�5

1992 262 211 83 31,�7

1993 245 219 86 35,�1

1994 175 210 94 53,�7

1995 212 211 130 61,�3

1996 328 227 167 50,�9

1997 372 246 204 54,�8

1998 351 257 221 62,�9

1999 309 262 208 67,�3

2000 353 271 230 65,�2

2001 340 276 194 57,�1

2002 227 273 84 37,�0

2003 230 266 114 49,�6

2004 299 271 199 66,�5

2005 215 264 125 58,�1

2006(a) 318 267 82 52,�7

Period 4.546 267 2.324 51,1%

Sources: PriceWaterhouse – Coopers (years 1990 to 1992) – Fundação Dom Cabral (year 1993) – KPMG (years 1994 to 2006).

22

Source: Metha Consultoria Empresarial Ltda.

Foreign Direct Investiment(FDI) Profile in Brazil

Chapter 2

PHASE I: Economic and Investor Profiles in Brazil

22 23

2.1 Introduction

Based on an October 2005 study,� this present work seeks to update elements characterizing Foreign Direct Investments (FDI) in Brazil. Towards this end,� we have used official data systematically published by Brazil’s Central Bank,� especially its Media Notes – Foreign Sector. Data coverage is through November 2006 (foreign sector data through year’s end 2006 will only be available on January 27,� 2007,� as per the Central Bank’s official calendar). No differently from this study’s original version,� we have again used publications by SOBEET – Brazilian Society of Studies of Transnational Corporations and Economic Globalization (Sociedade Brasileira de Estudos de Empresas Transnacionais e da Globalização Econômica),� as well as by multilateral agencies,� especially UNCTAD. We have also used our own team’s works. Research was carried through November 2006,� save for FDI inventories.

This report’s structure is no different from its first version. Thus,� in Item 2 are shown the main FDI sources. Item 3 covers investment types. FDI breakdown by main sectors of the economy is found in Item 4 and its main forms in Item 5. Key FDI factors and location importance are found in Item 6,� Conclusions in Item 7 and Bibliographic references in Item 8.

As in the original version,� technical coordination of this research was entrusted to Professor Antonio Corrêa de Lacerda. The text was jointly written by Antonio Corrêa de Lacerda,� Claudemir Galvani and Fernando Ribeiro.

2424

2.2 FDI Main Genesis

Among the world’s top 100 Transnational Corporations (TNC),� assessed as per assets in countries outside their home base,� nearly all of them hold assets in Brazil. Even before Brazilian home-market internationalization,� harking back to legendary President Juscelino Kubitscheck de Oliveira (1955-1960),� major multinationals were already present in Brazil.

A brief historic digression shows that,� as far back as in late 19th century,� Brazil had a significant amount of FDI (Foreign Direct Investment) of British origin,� mainly concentrated on railways and publics utilities. Following World War I (1914-1918),� British capital gradually and inexorably yields to American direct FDI inflows. Generally speaking,� the United States holds the upper hand throughout most of the 20th century.

In the second half of the 20th century,� German investments secure their place in the sun,� precisely at the time that the Kubitschek federal administration (1955-1960) accelerates Brazilian industrialization. Nevertheless,� American investment inflow remains dominant. Indeed,� FDI inventory ascertained in 1995 by the Central Bank of Brazil points to the USA as the largest holder of productive assets in Brazil throughout the 20th century (one-fourth of the US$42 billion amount). Germany,� largely due to its investments in Brazil in the second half of the 20th century,� ranks second in FDI in the Brazilian economy (14% of the total – see Table 2.1 herein).

TABLE 2.1 FDI Breakdown by Country of Origin (US$ million – %) 1995 and 2000

Stock 1995 (US$ million)

(%)Stock

2000 (US$ million)

(%)

United States 10.852 26,�0 24.500 23,�8Spain 251 0,�6 12.253 11,�9Holland 1.546 3,�7 11.055 10,�7France 2.031 4,�9 6.931 6,�7Germany 5.828 14,�0 5.110 5,�0Portugal 107 0,�3 4.512 4,�4Italy 1.259 3,�0 2.507 2,�4Japan 2.659 6,�4 2.468 2,�4Switzerland 2.815 6,�8 2.252 2,�2Canada 1.819 4,�4 2.028 2,�0Sweden 567 1,�4 1.578 1,�5United Kingdom 1.863 4,�5 1.488 1,�4Tax Havens* 5.703 13,�7 18.691 18,�1Other Countries 19.077 45,�8 62.380 60,�6Total 41.�9� 100.0 103.015 100.0

(*) Tax Havens: Dutch Antilles, Bahamas, Barbados, Bermudas, Cayman Islands, Canal Islands, Antigua and Barbuda, Aruba, Guernsey, Liechtenstein, Luxembourg, Panama, Uruguay, British Virgin Islands.Source: Prepared based on data from Central Bank of Brazil.

2424 25

Significant changes,� from the standpoint of the origin of FDI in Brazil,� occur in the last five years of the 1990s. Indeed,� 2000 figures point to new FDI investors in the Brazilian economy1. The United States remains atop,� maintaining its FDI share vis-à-vis 1995 (Graph 2.1). Germany not only loses relative share but also withdraws investments in this same time period (Table 2.1).

TABLE 2.2 FDI Breakdown by Country of Origin (US$ Million – %) 1996-2000

and 2001-November 2006

Sum of Inflows 1996-2000

Sum of Inflows 2001 - Nov/06

(US$ Millions)

(%)(US$

Millions)(%)

United States 24.537 23,�7 19.668 19,�0Holland 9.650 9,�3 18.931 18,�3Spain 21.548 20,�8 7.537 7,�3France 7.903 7,�6 7.090 6,�8Germany 1.677 1,�6 4.872 4,�7Japan 1.471 1,�4 4.203 4,�1Portugal 7.563 7,�3 3.896 3,�8Canada 1.101 1.1 3.760 3,�6Italy 1.613 1,�6 2.513 2,�4Switzerland 1.119 1,�1 2.205 2,�1United Kingdom 2.065 2,�0 1.706 0,�6Belgium 1.644 1,�6 1.252 1,�2Sweden 1.578 1,�5 634 0,�6Argentina 424 0,�4 0 0,�0Tax Havens* 12.833 12,�4 16.627 16,�6Other Countries 6.963 6,�7 8,�755 9,�0Total** 103.�� 100,0 103.�51 100,0

(*) Tax Havens: Dutch Antilles, Bahamas, Barbados, Bermudas, Cayman Islands, Canal Islands, Antigua and Barbuda, Aruba, Guernsey, Liechtenstein, Luxembourg, Panama, Uruguay, British Virgin Islands.(**) Amounts differ from those entered into the Balance of Payments because they refer to gross investments in capital share but not in merchandises.Source: Prepared based on data from Central Bank of Brazil.

On the other hand,� Spain and Portugal,� initially (1998-2000),� and Holland later (2002-2004) emerge as major FDI sources for the Brazilian economy (Tables 2.1 and 2.2 and Graph 2.2). In the first case,� Spain and Portugal were solidly engaged in the privatization processes (Graph 2.3). Indeed,� Portugal’s FDI share grows significantly from 1995 to 2000. Portuguese assets within total foreign assets in Brazil barely scratched the surface in 1995,� at a meager 0.5%. Five years later,� it had leapt to a hefty 4.4%. However,� Portuguese FDI in Brazil loses momentum after 2001,� yet Portugal remains a relevant investor in its former colony (in late 2006,� roughly 3.8% of flows accumulated since January 20012 (see Table 2.2).

1 FDI 1995 and 2000 inventory data are based on the Foreign Capital Census (base years 1995 and 2000),� prepared by the Brazilian Central Bank. We hence have added the accumulated inflows for the 1996 - 2000 and 2001 time periods,� down to the latest available data.2 In order to evaluate Portuguese FDI in Brazil after 1995,� see LACERDA & LEITE NETO (2004).

2�2�

Worth mentioning is the expressive share of Tax Havens in Tables 2.1 and 2.2. Most often,� such FDI comes from Holdings headquartered in these countries. From this standpoint,� such Tax Havens are just mere intermediaries in FDI operations (Mergers & Acquisitions and tabula rasa Greenfield Projects). Other countries (such as Luxembourg and Holland) show high FDI inflow and outflow. This is precisely because they headquarter Holdings of transnational corporations3. One way to adjust information as per FDI country of origin is to identify the nationality of the controlling Holding operating in the Tax Haven. Such classification of FDI inflow is shown in Table 2.3. A sharp decline of FDI from Tax Havens can be observed,� precisely because primary-origin countries are identified before such funds find their way into a Tax Haven.

TABLE 2.3 FDI Breakdown per Home Country of the Holding (US$ million - %) 1995 and 2000

Holding’s country of origin

Inventory 1995 Inventory 2000

(US$ million)

(%)(US$

million)(%)

United States 11.510 27,�6 28.918 28,�1Spain 170 0,�4 12.785 12,�4Holland 1.413 3,�4 9.746 9,�5France 2.845 6,�8 7.062 6,�9Germany 6.493 15,�6 5.129 5,�0Portugal 87 0,�2 4.325 4,�2Italy 1.801 4,�3 2.771 2,�7Japan 2.641 6,�3 2,�510 2,�4Switzerland 2.323 5,�6 2.083 2,�0Canada 815 2,�0 2.092 2,�0Sweden 553 1,�3 1.499 1,�5United Kingdom 1.724 4,�1 2.586 2,�5Tax Havens* 3.301 7,�9 12.975 12,�6Other Countries 6.020 14,�4 8.533 8,�3Total* 41.�9� 100,0 103.015 100,0

(*) Tax Havens: Dutch Antilles, Bahamas, Barbados, Bermudas, Cayman Islands, Canal Islands, Antigua and Barbuda, Aruba, Guernsey, Liechtenstein, Luxembourg, Panama, Uruguay, British Virgin Islands.Source: Prepared based on data from Central Bank of Brazil.

3 Just as an example,� in 2003 Luxembourg was the developed country on the receiving end of the highest FDI volume (US$91 billion inflow,� some 14.4% of the world total),� but at the same time it invested US$101 billion in FDI (16.3% outflow of the world total). In 2005,� Luxembourg’s FDI inflow reached US$3.7 billion and its FDI outflow was US$2.9 billion (UN data,� 2006). Luxembourg’s figures portray fiscal and tax favorable specificities of that country,� yet largely characterize all Tax Havens,� such as those located in the Americas,� most notably the Cayman Island and Uruguay. Data in Table 2.3 were compiled by the team responsible for this text.

2�2� 2�

30,�028,�026,�024,�022,�020,�018,�016,�014,�012,�010,�0

Stock 1995

1997 1999 Stock 2000

2002 Jan.-Nov/.06

2004

16,3

Graph 2.1 – USA’s FDI share in Brazilian total (1995 & 2000 FDI and annual flows) (%) 1995-Nov. 2006

Source: Prepared based on data from Central Bank of Brazil.

Increase in Spanish FDI in Brazil is even more impressive. Limited to scant 0.6% of all FDI in the country back in 1995,� it rose sharply to 12% by the year 2000,� making Spain number-two in the overall Brazilian FDI inventory. Despite some loss of steam after 2001,� Spain still ranks among the three top investors in Brazil,� according to data accumulated between 2001 and November 2006. Table 2.2 shows a curve inflexion throughout 2006.

Holland’s pattern is quite different from that of Portugal and Spain. Dutch FDI in Brazil was mostly associated to acquisitions in the trading and financial intermediation areas,� and not to privatization opportunities. Thus,� in the 2001 to November 2006 figures,� Holland is one of the more relevant origins of FDI in Brazil – indeed,� ranking just below the United States (Table 2.2).

40,�0

35,�0

30,�0

25,�0

20,�0

15,�0

10,�0

5,�00,�0

Stock 1995

1997 1999 Stock 2000

2002 Jan.-Aug./05

20041996 1998 2000 2001 2003

Spain Holland Portugal

Graph 2.2 – Share of FDI from Spain,� Holland and Portugal in total FDI in Brazil (1995 and 2000 FDI and annual flows) (%) 1995-Nov. 2006


2�2�

United States: 16,�5

Spain: 14,�9

Portugual: 5,�7

Italy: 3,�1

Chile: 1,�2

Other Countries: 6,�8National Capital:51,�7

Graph 2.3 – Investor origin in privatization process (%) 1991-Nov. 2006

Source: Prepared based on data from Central Bank of Brazil and from BNDES (National Bank for Economic and Social Development).

2�2� 29

2.3 Types of FDI

FDI in Brazil can be typified through ranges of investments made. However,� data available for such analysis go back to 2001 only. Thus,� our following analysis is constrained by such time period. This FDI typology is methodologically adequate,� inasmuch as it classifies Head Office intention in FDI-associated operations (Mergers & Acquisitions and Greenfield Projects).

Table 2.4 breaks down FDI frequency by amount ranges. The inflow distribution is rather curious: on average in this timeframe,� about 50% of the operations privilege two ranges,� namely,� up to US$10 million and between US$100 million and US$500 million. This is an indication that,� in 25% of the cases,� the foreign investor in Brazil is increasing the stock capital in a company already managed by non-residents,� as the operations up to US$10 million in all likelihood indicate. The other 25% of large operations (between US$100 million and US$500 million) probably pertain to acquisitions of existing companies or to green field investments (Table 2.4).

Approximately 32% of the FDI operations are in intermediate ranges from US$10 million all the way to US$100 million. This distribution frequency likely indicates a foreign investor already present in the Brazilian economy,� since these amounts of funds seem more compatible with capital increase or even with inter-company loans,� rather than with mergers & acquisitions or large green field investments (Table 2.4).

A different analysis emerges from the remaining 20% of FDI operations. On the average for this period,� they refer to FDI above US$500 million. In such a case,� it is extremely likely that these are FDIs associated to significant acquisitions or to sizable expansion of the installed capacity of productive assets already in Brazil (Table 2.4).

Therefore,� our conclusions in the previous version of this report regarding FDI investors in Brazil still stand. Data available as late as November 2006 did not bring about any significant change in this investment pattern. Thus,� the type of FDI investor in Brazil,� broken down per monetary range of investment,� can be thusly classified:

a) half the operations concentrate on two amount ranges,� similarly proportioned to each other: FDI inflow up to US$10 million (stock capital increase in companies already under foreign management) and between US$100 million and US$500 million (acquisition or production expansion);

b) 30% of FDI inflows are by an investor (between US$10 million and US$100 million) probably already present in the Brazilian economy,� on the receiving end of inter-company loans or expanding stock capital); and

c) 20% of FDI inflow pertain to investors making sizable disbursements (minimum of US$500 million),� most likely in acquisitions or in installed capacity expansion.

3030

TABLE 2.4 FDI Types in Brazil per Amount Ranges (US$ million) 2001-Jan.-Nov. 2006

Amount range involved in operations

Jan.-Nov.

2001 2002 2003 2004 2005 200� Average

Up to US$10 million 28,�8 26,�0 30,�7 19,�4 21,�3 25,�1 25,�2

US$10 million to US$20 million 9,�1 8,�0 9,�0 6,�3 6,�8 7,�7 7,�8




US$500 million to US$1 billion 10,�4 22,�9 13,�2 4,�3 19,�7 7,�3 13,�0

More than US$1 billion 5,�3 - - 23,�8 - 6,�0 11,�7

Total excl. privatizations (US$ million) 20,144 1�,93� 13,0�� 20,542 20,043 1�,9�2 -


3030 31

2.4 FDI Breakdown by Sectors

In this report’s previous version,� three elements explained FDI sector breakdown and inventory,� namely: prevalence of tertiary-sector activities in the value-adding structure (a clear trend in contemporary capitalism); relative prices in the Brazilian economy in the second half of the 1990s; and the privatization processes in the same time period.

In this updated report version,� there has been a relative time adjustment in the role of privatization,� but an exchange rate appreciation and a structural change in the value-adding composition have retained their roles of paramount importance in defining FDI sector breakdown.These elements explain the inversion of secondary and tertiary-sector proportions in FDI inventories between 1995 and 2000 (Table 2.5).

Thus,� a first glimpse into explaining such inversion would point to a change in the value-adding structure,� as the tertiary sector gains more and more space over the traditional secondary sector 4. The GDP structure bears witness to this same contemporary trend,� from the standpoint of demand in developed countries. It might be further added that,� among developing economies,� Brazil has one of the highest third-sector shares in its GDP5.

4 A sector breakdown of the 2004 Brazilian GDP bears out this phenomenon: 55.6% of the value added to basic prices was generated in the macro sector of services,� 38.9% in industry and 10.1% in ranching / farming (IPEA/DATA,� 2005).5 FDI associated to privatizations concentrates exclusively on telecommunications. Brazilian Central Bank’s terminology,� which includes the Post Office in the telecommunication services,� has been used in this paragraph.

3232

TABLE 2.5FDI Breakdown per Sector of Activity (US$ Million - %) 1995 and 2000

Economic Activity

Stock 1995 Stock 2000

(US$ million)

(%) (US$ million)

(%)

Agriculture, cattle-raising and mineral extraction 925 2,2 2.401 2,3

Industry 27.907 66,9 34.726 33,7

Vehicle & automotive production 4.838 11,�6 6.351 6,�2

Chemical products 5.331 12,�8 6.043 5,�9

Food and beverage production 2.828 6,�8 4.619 4,�5

Machines and equipment production 2.345 5,�6 3.324 3,�2

Basic metallurgy 3.005 7,�2 2.513 2,�4

Eletronic & Communications equipment production 785 1,�9 2.169 2,�1

Rubber and plastic item production 1.539 3,�7 1.782 1,�7

Paper & pulp item production 1.634 3,�9 1.573 1,�5

Non-metalic mineral production 854 2,�0 1.170 1,�1

Machinery,� equipament & electric material production 1.101 2,�6 990 1,�0

Other industries 3.648 8,�8 4,�191 4,�1

Services 12.864 30,9 65.888 64,0

Post office & telecomunication 399 1,�0 18,�762 18,�2

Services rendered mainly to companies 4.952 11,�9 11.019 10,�7

Financial intermediation (insurance & private pensions excluded) 1.638 3,�9 10.671 10,�4

Eletricity,� gas & warm water 0 0,�0 7,�116 6,�9

Wholesale and intermediate commerce 2.132 5,�1 5.918 5,�7

Retail commerce 669 1,�6 3.893 3,�8

Computer and related activities 115 0,�3 2.543 2,�5

Other services 2.958 7,�1 5.966 5,�8

Total 41.696 100,0 103.015 100,0

Tables 2.5 and 2.6 show,� respectively,� the sector breakdown of FDI inventories and accumulated flows in the Brazilian economy in the aforementioned timeframes.

Worthy of attention is the fact that the relative evolution of the tertiary sector is associated to higher FDI investments in Post Office & Telecommunication,� Financial Intermediation,� Electricity,� Gas & Warm Water6. All these industries were part of the Brazilian privatization process. As seen in Chart 2.6,� on average privatization-related funds were responsible for 28% of gross FDI inflow in shareholding participation in the tertiary sector.

6 Beyond these sectors,� it is of the utmost importance to highlight that FDI inflows into services refer also to investments in Holdings. This fact tends to overestimate this sector’s share in FDI flows and inventories. Basically,� FDI into Holdings are entered as “Services Rendered to Companies”. For 1995 to 2004 flows,� it accounted on average for 13.44% of total FDI inflows.

3232 33

TABLE 2.6 FDI Breakdown per Activity Sector (US$ Million - %) 1996-2000 and

2001-November 2006

Added Inflows 1996-2000

Added Inflows 2001-Nov./2006

(US$ million)

(%) (US$ million)

(%)

Agriculture, raching & mineral extraction 1.782 1,7 7.150 6,9

Oil extraction 862 0,�8 23.45 3,�3

Others 920 0,�9 3.453 3,�6

Industry 18.632 18,0 41.130 39,7

Automotive 4.728 4,�6 7.311 7,�1

Chemical products 3.335 3,�2 6.942 6,�7

Food and beverage 2.856 2,�8 10.903 10,�5

Machines & equipment 1.240 1,�2 1.759 1,�7

Rubber & plastic items 707 0,�7 1.345 1,�3

Electrical machines & equipment 685 0,�7 1.376 1,�3

Tabacco products 418 0,�4 184 0,�2

Basic metallurgy 535 0,�5 2.795 2,�7

Others 1.448 1,�4 4.867 4,�7

Services 83.274 80,3 55.371 53,4

Services rendered to companies 17.743 17,�1 4,�827 4,�7

Telecommunications 22.717 21,�9 18.379 17,�7

Electricity power & gas 13.324 12,�8 7.288 7,�0

Financial intermediation 15.953 15,�4 7,�574 7,�3

Wholesalers commerce 4.441 4,�3 882 0,�9

Retailers commerce 3.373 3,�3 812 0,�8

Computer & I.T. activities 1.696 1,�6 1.365 1,�3

Construction 530 0,�5 1.195 1,�2

Vehicle commerce & repairs 544 0,�5 494 0,�5

Total commerce 8.358 8,�1 9.024 8,�7

Recreation,� cultural & sports activies 316 0,�3 437 0,�4

Others 2.717 2,�6 5.282 5,�1

Total* 103.688 100,0 103.651 100,0

(*) Amounts differ from those entered into the Balance of Payments, inasmuch as they refer to gross capital inflow, excluding investments in merchandises.


3434

A second approach to FDI sector breakdown explores the importance of relative prices in investment allocation. It is well known that relative prices are fundamental in investment decisions. One of its forms is used here,� namely,� the actual foreign exchange rate as conveyor of the exchange relations between a basic home-basket of consumer goods and services and a wider basket of good and services from various Brazilian commercial partners,� weighted in terms of their share of Brazilian trade. From this standpoint and unlike the previous version of this report (which used a bilateral Brazil-USA actual exchange rate),� in this version we have widened and expanded our concept of relative price. However,� the results are similar to those in the first report.

Graphs 2.4 and 2.5 indicate the ratio between sector breakdown of FDI flows and the actual exchange rate evolution. A clear correlation points to a more expensive basket of goods and services to the Brazilian consumer,� as compared to the basket offered to Brazil’s trade partners (exchange rate appreciation). This can be explained by the concentration of FDI inflows in the tertiary sector – which,� in general,� is less prone to international trade. Specifically,� Graph 2.5 indicates,� via a linear regression obtained from the Minimum Square Method,� that devaluations in the actual foreign exchange rate are followed by a heftier share of the secondary sector in FDI sector breakdown.

1997 1999 2002

140,�0

130,�0

120,�0

110,�0

100,�0

90,�0

80,�0

70,�060,�0

Jan.-Nov./06

20041996 1998 2000 2001 2003 2005

55,�0

50,�0

45,�0

40,�0

35,�0

30,�0

25,�0

20,�0

15,�0

10,�0

5,�0

Actual ExchangeRate (CPI; Base Jul./94=100)

Particip. Industry in Total FDI (%)

Actual Exchange Rate (CPI ,� Jun./94 =100)

Particip. Industry in Total FDI (%)

Graph 2.4 – Actual foreign exchange rate (IPCA deflated,� base June 1994 = 100) and secondary-sector share in total FDI (%) 1996 - Jan.-Nov. 2006


3434 35

1,�0

0,�8

0,�6

0,�4

0,�2

-0,�8

-0,�6

-0,�4

-0,�2

0,�0

0,�0-0.1-0.2-0.3 0.1 0.2 0.3 0.4 0.5

y = 1,�994x + 0,�0142R2 = 0,�4705

Var Ln (Ind. Particip. Total FDI)

Var

Ln (

Effe

ctiv

e Ex

chan

ge R

ate)

Graph 2.5 – Ratio between actual foreign exchange rate (IPCA deflated,� base June 1994 =100) and secondary sector share in total FDI (scattering in first difference of natural logarithms) 1996-Jan.-Nov. 2006


A third event explaining the tertiary sector’s prevalence in FDI inflows has to do with a near total concentration of the privatization processes in the tertiary sector. Indeed,� the heavy FDI volume channeled into Telecommunication,� Electric Power and Gas is largely explained by the inflow of funds associated to privatizations (Tables 2.7 and 2.8).

Privatizations in the second half of the 1990s are part of PND (National Destatization Plan),� created back in 1990 as part of a wider program to reformulate the State role in the economy. Between 1990 and 1994,� PND privatized companies in steel making (Usiminas),� fertilizer and petrochemical sectors (altogether,� 33 companies were sold for US$9 billion). After 1995,� PND expands to privatizing Utilities (electricity,� transportation,� telecommunication),� privatizing mammoth mining company CVRD (Companhia Vale do Rio Doce) and encouraging state-level privatizations.

Between 1995 and 1996,� a total of 19 companies were privatized (total amount of US$5.1 billion). Privatization in the telephone industry started in 1997,� initially in mobile cell phones (US$4 billion). Approximately US$15 billion were collected by different Brazilian states,� as they sold their minority shareholding in several companies from different sectors.

In 1998,� one dozen holdings in the Telebrás system (fixed line and long distance) were sold for US$20 billion. Activities cooled off somewhat in 1999 but,� in the following year,� 60% of Banco do Estado de São Paulo’s stock capital was sold to Santander for US$4 billion. Also in the same year 2000,� PND collected altogether US$10.2 billion with sales at the federal and state levels. PND loses considerable steam after the year 2000,� as no major transactions occur,� save in electric power distribution.

3�3�

Graph 2.3 displays the share of privatization-bound FDI in the total amount of FDI inflow into the tertiary sector. For 1996-2002,� privatization-related FDI on average represented 28% of total FDI in the tertiary sector (over 40% in 1996,� 1997 and 1999). A US$230 million FDI inflow,� in July 2006,� for the privatization of a state-owned power distribution company,� explains the 5.8% rise in privatization inflows within all tertiary sector FDIs. However,� this is an sporadic event at best,� in no way representing a trend back to privatization processes.

40,�0

35,�0

30,�0

25,�0

20,�0

15,�0

10,�0

5,�00,�0

1997

1999

2002

Jan.

-Nov

./06

2004

1996

1998

2000

2001

2003

2005

45,�0

50,�0

40,�3

40,�9

30,�1

43,�6

29,�2

8,�6

2,�7

5,�8

Graph 2.6 – Share of privatization-bound FDI in gross FDI inflow for shareholding in tertiary sector (%) 1996-Jan.-Nov. 2006


3�3� 3�

TABLE 2.7 Sector Breakdown of Privatization Funds (US$ Million) 1996-Jan.-Nov. 2006

Privatization* Total Gross Inflows in

Percentage Holding

Electricity Sector

Telecommunications Gas Others** Total Privatizations

1996 1.760 544 - 341 2.345 10.496

1997 3.079 433 574 1.163 5.249 18.743

1998 1.927 4.167 - 27 6.121 28.840

1999 1.020 6.659 1.106 - 8.785 31.372

2000 693 2.289 295 3.774 7.051 33.403

2001 - 622 - 457 1.079 21.093

2002 - 280 - - 280 18.960

2003 - - - - - 13.087

2004 - - - - - 20.542

2005 - - - - - 20.043

Jan.-Nov./2006

230 - - - 230 19,�203

(*) Includes debt from inter-company loans.(**) Financial intermediation and insurance privatizations included.Source: Prepared based on data from Central Bank of Brazil.

TABLE 2.8 Share of Privatization Funds in Total Sector FDI inflows (US$ Million - %) 1996-Jan.-Nov. 2006

Telecommunications Electricity and Gas

FDI inflows Total

Privatizations Privatizations / Total (%)*

FDI inflows Total

Privatizations Privatizations / Total (%)*

1996 611 544 89,�0 1.626 1.760 108,�2

1997 831 433 52,�1 3.554 3.653 102,�8

1998 2.580 4.167 161,�5 2.202 1.927 87,�5

1999 7.797 6.659 85,�4 2.970 2.126 71,�6

2000 10.897 2.289 21,�0 2.972 988 33,�2

2001 4.198 622 14,�8 1.443 - -

2002 4.166 280 6,�7 1.534 - -

2003 2.810 - - 651 - -

2004 2.970 - - 1.191 - -

2005 3.958 - - 1.571 - -

Jan.-Nov./2006

277 - - 898 230 25,�6

(*) Figures may surpass 100% due to double counting in converting loans into investments.Source: Prepared based on data from Central Bank of Brazil.

3�3�

2.5 Chief Forms of Investments

FDI forms can be based on the UN’s definition of FDI (2005: page 325),� according to which an FDI reflects a long-term relation between a foreign investor and the host economy,� to the extent that this investor can decisively intervene in the management of a domestic company. Within this framework,� shareholding participation is the initial,� most common and frequent FDI form. Within this same UN definition framework,� another FDI form pertains to headquarter – branch/subsidiary relations,� via inter-company loans.

Shareholding participation can be through Mergers and Acquisitions (M & A) or through tabula rasa Greenfield Investments. M & A can be autonomous,� if not linked to a privatization process. Otherwise,� such FDI inflows are earmarked for the acquisition of de-stated assets by non-residents.

Other technical considerations must be mentioned. FDI flows in Brazil take into account the net balance between foreign funds inflow & outflow associated to shareholding plus the credit & debt balance of inter-company loans (Figure 2.1). The difference must be crystal-clear between FDI in Brazil and net FDI,� contemplating the balance between FDI in Brazil and Brazilian FDI Abroad.

Foreign Direct Investment in

Brazil

PercentageHolding

Inter-company Loans

Inflows

Outflows

Credits

Debits

Greenfield

M&A

Autonomous

Privatizations

Figure 2.1 – Forms of FDI inflows


Figure 2.1 data indicate that FDI inflow into Brazil is strongly defined by funds associated to shareholding participation and,� to a lesser extent,� defined also by inter-company loans. This pattern has not changed after our data updating in late 2006.

3�3� 39

35.000

30.000

25.000

20.000

15.000

10.000

5.000

0

-5.000

Foreign DirectInvestiment in Brazil (Net.)Percentage holding (Net)Inter-company loans

Graph 2.7 – FDI composition in Brazil (US$ million accumulated in 12 months) Dec. 1995-Nov. 2006


An assessment of gross FDI in capital formation leads to distinguishing relative FDI share in Mergers & Acquisitions and in tabula rasa Greenfield Projects. Table 2.9 and Chart 2.9 demonstrate FDI breakdown and form in the past ten years in Brazil. Even after our late 2006 updating,� the pattern in this report’s previous version remains valid. On average for the period through late 2006,� Mergers & Acquisitions accounted for 47.8% of gross FDI (gross FDI in shareholding plus credits of inter-company loans). As previously mentioned,� this squashes the fear that M&A-type FDI in Brazil (mere equity transactions) would only in part represent expansion of installed capacity.

In our timeframe,� investment rate evolution (Gross Formation of Fixed Capital / GDP),� calculated in constant 1980 values,� is the lowest since as far back as,� at least,� 1970. In the 70s,� the Brazilian investment rate was 23%. It fell to 18.5% in the 80s and slid further down to 15.3% into the 90s. Between 1995 and 2005,� the investment rate declined even further,� to 14.7% (IPEA data,� 2006). These numbers indicate the scant FDI contribution to the evolution of the investment rate in the Brazilian economy in the last ten years (Graph 2.8).

4040

TABLE 2.9 FDI Breakdown in Brazil (Greenfield,� M&A and Inter-Company Loans)

(US$ Million) 1995-Nov. 2006**

Gross inflows percentage holdingl*Total

(Greenfield + M&A)

Gross outflows

percentage holding

Inter-company

loans (Net)

Foreign Direct

Investment in Brazil

M&A totals

Period Greenfield M&A (auton.)

M&A (private)

Total

1995 3.714 1.761 0 1.761 5.475 1.237 166 4.404

1996 3.960 4.191 2.345 6.536 10.496 603 898 10.791

1997 6.697 6.815 5.249 12.064 18.761 1.944 2.176 18.993

1998 1.104 21.255 6.121 27.376 28.480 3.002 3.377 28.855

1999 22.014 572 8.786 9.358 31.372 1.389 -1.405 28.578

2000 10.390 15.962 7.051 23.013 33.403 3.387 2.763 32.779

2001 14.090 5.924 1.079 7.003 21.093 2.328 3.692 22.457

2002 13.063 5.617 280 5.897 18.960 1.842 -528 16.590

2003 7.816 5.271 0 5.271 13.087 3.767 823 10.143

2004 13.903 6.639 0 6.639 20.542 1.971 -405 18.166

2005 16.243 5.800 0 5.800 22.043 6.998 21 15.066

Oct./05-Nov./06

16.228 7.255 230 7.485 23.713 8.728 2.718 17.703

(*) Conversions, merchandises & reinvestment included.(**) Nov. 2006 refers to 12-month accumulated data.


GreenfieldsM&As

Inter-company Loans (Credit)30.000

25.000

20.000

15.000

10.000

5.0000

1995 1997 1999 2002 Out./05-Nov./06

20041996 1998 2000 2001 2003 2005-5.000

Graph 2.8 – FDI breakdown by Greenfield,� M&A and Inter-company Loans (US$ Million adj.) 1995 – Nov. 2006*

(*) Nov. 2006 refers to 12-month accumulated data.


4040 41

180,�0

160,�0

140,�0

120,�0

100,�0

80,�0

60,�01995 1997 1999 2002 20041996 1998 2000 2001 2003 2005

35,�0

30,�0

25,�0

20,�0

15,�0

10,�0

5,�0

0,�0

136,�5

32,�8

69,�8

15,�2

164,�9

4,�4

FBCF (US$ bi corr)

FBCF (US$ bi corr)IDE (US$ bi corr) IDE (US$

bi corr)

Graph 2.9 – Gross formation of fixed capital and FDI flows (US$ billion adj.) 1995-2005


A relevant element in this expressive weight of Mergers & Acquisitions (M & A) in total FDI in Brazil (funds inflow & outflow balance directed to shareholding acquisition plus inter-company loan credit & debt balance) is found in the privatization processes. As seen in Graph 2.10,� M&As associated to privatization account for roughly 18% of FDI in Brazil (average for 1996-2002). As mentioned before,� the curve reversal in 2006 was a sporadic stand-alone event of privatization of a state-owned power distribution utility.

35,�0

30,�0

25,�0

20,�0

15,�0

10,�0

5,�0

0,�0

1997

1999

2002

Jan.-Nov./06

2004

1996

1998

2000

2001

2003

2005

21,�7

-5,�0

30,�7

1,�4

Graph 2.10 – Privatization funds share in total FDI (%) 1995-Jan.-Nov. 2006


4242

2.6 FDI Key Factors and Location Importance

2.6.1 Theoretical Studies

Most theoretical studies seeking to explain FDI flows emphasize factors specific to multinationals,� especially elements related to competition between multinationals and local companies. Albeit considered by early economic thinkers,� only with Ohlin (1933) the topic of Productive Internationalization began featuring a vigorous development of arguments striving to explain FDI. Possible high profits in expanding markets,� causally linked to lower interest rates in a Multinational’s home country,� led companies to internationalize their production through FDI investments. Overcoming trade barriers and ensuring steady flows of raw materials were other powerful factors favoring FDI.

A new theoretical formulation of how a Transnational Corporations (TNC) behaves in terms of its FDI starts with Hymer (1976). TNCs would be able to compete with local companies provided they had some compensatory advantages,� such as the existence of market structures with imperfect competition,� in which the TNC could leverage its technology,� capital access,� economies of scale and even eventual macroeconomic policies (especially trade protectionism). If such advantages were present,� then it would make rational sense for the TNC to internationalize its production through FDI,� rather than just engage in foreign trade. Even internationalization through patent licensing would be avoided,� given imprecise legal definitions of patent value – which raises transfer costs.

Caves (1971) and Kindleberger (1969) slightly alter Hymer’s arguments,� showing that,� rather than a Transnational Corporations (TNC) determining market structure,� it is more likely the other way around. In such case,� monopolistic competition will be the defining vector of a TNC behavior. FDI explained by the existence of competitive edges,� defined as TNC-specific assets (product differentiation,� access to capital,� position in a market imperfect in its factors,� capability & capacity differences) which allow a TNC to compete with local companies led to an approach known as HKC (Hymer,� Kindleberger and Caves).

A second line of arguments postulates that FDI occurrence derives from the need to internalize transaction costs. This hypothesis is explored by Buckley and Casson (1976 and 1981),� as well as by Buckley and Ghauri (1991). In this case,� markets imperfect in intermediate goods would imply high transaction costs,� inasmuch as the flows of such intermediate goods would be dominated and managed by different companies. Hence,� those TNCs capable of articulating and integrating these markets would reduce such costs,� because some intangible assets specific to a TNC (marketing & design management,� patents,� brand,� innovation capacity,� etc.) would raise the cost of transferring such assets.

The hypothesis of internalizing transaction costs explains the worldwide integration of TNC production plants,� specifically in intermediate-product markets. It is an issue of clarifying the dilemma a TNC faces regarding the three-legged possibilities of internationalizing its production (export,� granting patents or FDI). If both production and control remain in the home country,� the company exports. If the TNC prefers to produce abroad but would rather maintain control in its home country,� patents come into play. Thirdly,� if the TNC decides to produce and to control production abroad,� FDI is the venue.

4242 43

Vernon (1966) introduces the product life cycle model. In this approach,� Multinationals would expand sequentially. Inasmuch as product and process innovation initially occur in more capital-endowed countries,� and since these are labor-saving innovations,� gradually production migrates to lesser-capital countries,� specifically to developing countries. Simultaneously,� in the former countries (more capital-endowed),� production is reoriented to now products,� which are the outcome of new innovation cycles. Hence,� TNCs would initially meet market needs through trade flows. Later,� they would open commercial representation and,� finally,� start producing abroad through subsidiaries. No theoretical summary of FDI and TNC can escape referring to Dunning’s Paradigm (1993 & 2002),� a.k.a. OLI (Ownership,� Location,� Internalization). Among other factors,� Multinationals exist because they hold differentiated assets. They thus enjoy compensatory competitive edges over local companies,� to the extent that they hold privileged ownership (ownership) of certain tangible or intangible assets. If it holds such assets,� a TNC can then directly enjoy their advantages to the extent that it finds more advantageous to internalize these assets abroad,� rather than selling them off. In this case,� there is stimulus to internalization (internalization). However,� direct TNC production abroad will only occur if there are location advantages to justify production in that country and not elsewhere (location). Four reasons thus guide a TNC decision: search for resources,� for markets,� for efficiency and for strategic assets.

Despite all the controversy over FDI in the Brazilian economy,� it is possible to pinpoint the main bibliographic references conducive to a reflection on FDI in Brazil. We would lead off mentioning the SOBEET Letters (Brazilian Society for Studies of Transnational Companies and Economic Globalization). These Letters evaluate Production Internationalization from the standpoint of external insertion into the Brazilian economy.

Within this framework,� Maria Helena Zockun,� FIPE researcher (Fundação Instituto de Pesquisa Econômica) and a professor at EA/USP (Escola de Economia e Administração da Universidade de São Paulo) deserves special mention for her pioneer work in evaluating FDI sector breakdown in Brazil. Professor Reinaldo Gonçalves from UFRJ (Rio de Janeiro Federal University) is also to be lauded,� especially for his text “Globalization and De-nationalization” (GONÇALVES,� 1999). Antônio Corrêa de Lacerda,� a PUC-SP (Pontifícia Universidade Católica de São Paulo) professor,� has long been working on the internationalization of the Brazilian economy. Among other works,� he has authored “The Impact of Globalization in the Brazilian Economy” (LACERDA,� 1998),� “De-nationalization: Myths,� Risks and Challenges” (LACERDA,� 2000) and “Globalization and Foreign Investment in Brazil” (LACERDA,� 2004).

Upon request by the Brazilian Foreign Relations Ministry,� SAIE (Foreign Investment Consulting Service,� linked to the International Financial Corporation and the World Bank) drew up a study on “Legal,� Administrative and Political Barriers to Investments in Brazil”. This study provides room for the relevance of non-economic themes (bureaucracy,� patent legislation,� legal procedures,� etc) in decisions to internationalize production units in Brazil (World Bank,� 2001)7.

7 For further information,� SOBEET Letter n. 19 summarizes this document.

4444

2.6.2 Empiric Studies

Empiric studies seeking to identify the relative importance of various FDI determinants end up emphasizing more the location factors,� inasmuch as available information seldom allows evaluation of the importance of the aforementioned capital-ownership advantages,� because surveying and gathering such information depends on company cooperation. Therefore,� currently-used variables are market size,� GDP growth rate,� economic stability,� degree of opening in the economy,� among other institutional variables.

The possibility of endogenous problems in the relation between FDI and product growth must be appraised because,� if on one hand,� FDI flows later tend to increase product growth rate (since these flows represent gross capital expansion),� on the other hand,� product dynamics can influence FDI intake.

A sample of 28 developing countries in 1987-2000 led Nunnenkamp and Spatz (2002) to find significant Spearman correlations among FDI and GDP per capita,� risk factors,� years of schooling,� foreign trade constraints,� factors complementary to production,� administrative bottlenecks,� and cost factors.

However,� other factors (such as population,� GDP growth,� hurdles to corporate entry into Brazil and after-entry,� technology regulation) did not prove to be significant.

In a survey of several Eastern and Central Europe empiric works,� Holland et al. (2000) showed evidence of econometric associations between market size and growth potential through FDI inflows.

Macroeconomic variables (market size,� fiscal deficit,� inflation,� foreign exchange regime,� in addition to risk perception,� economic reforms,� trade liberalization,� natural resources,� hurdles to investment,� red-tape,� etc.) play a significant role in explaining FDI flows,� according to Garibaldi et al. (2001). These authors have used a dynamic universe of 26 transition countries between 1990 and 1999.

Campos and Kinoshita (2003) have panel-analyzed 25 transition economies between 1990 and 1998 and found evidence that FDI is influenced by clusters,� market size,� inexpensive labor,� plentiful natural resources,� good institutions,� commercial opening,� and fewer constraints to FDI flows.

4444 45

2.7 Conclusion

Throughout 1995 through November 2006,� FDI inflowing into the Brazilian economy reached an annual average of US$19.3 billion,� as compared to yearly averages of US$6.7 billion between 1970 and 2004. Recent UNCTAD data show that world FDI flows must have reached US$1.2 trillion in 2006. This figure would place Brazil’s relative share of total world FDI flows at 1.5% in 2006,� vis-à-vis a 2.5% annual average since 1995. Expansion and intensification of production through worldwide FDI is one relevant explanation. However,� another explanation lies in events peculiar to the Brazilian economy,� which has brought great dynamics into FDI inflows. This analysis leads to the following conclusions,� which remain valid even after our final data updating in late 2006:

American capital historically prevails among countries investing in Brazil. However,� although the United States have remained a leading FDI investor in Brazil,� other major investors have risen in the time framework of our analysis: Portugal,� Spain and the Netherlands. A relative concentration of Tax Havens points to a strategy common to many countries,� namely,� fund movements associated to tax benefits by having a Holding in a Tax Haven. An analytic and methodological effort was made to fine-tooth comb through such FDI flows and discover their real national origins. This was conducive to a redistribution of FDI flows into Brazil in 1995 and in 2000.

As for types of FDI investors,� our monetary-amount-range methodology indicated that,� according to the average for the time period studied,� slightly less than half of the FDI inflows were large investments associated to acquisitions made by major multinational companies or investments in production capacity expansion. On average for the same timeframe,� about ¼ of the FDI inflows top off at US$20 million.

In all likelihood,� this range of investment means shareholding participation of non-residents in companies already controlled by them.

A sector analysis pointed to the prevalence of the tertiary sector in FDI flows after 1995 and in the 2000 FDI inventory. Three explanations stand out regarding this phenomenon: GDP composition per activity sectors,� the effects of the foreign exchange rate in investment allocation,� and the privatization process.

Analysis of FDI forms in Brazil in that time period have indicated a scarce contribution of FDI flows to capital increase in the Brazilian economy. Indeed,� only 50% of gross FDI in shareholding was associated to green field investments. The other half pertained to mergers and acquisitions.

Lastly,� the central elements in deciding to internationalize production and in the location decision by Transnational Companies were dealt with in the section entitled “Key FDI Factors and the Importance of Location”. An effort has been made to summarize the main theoretical and empirical contributions to this topic. It was ascertained that,� in deciding to internationalize its production,� a Transnational Company must have enough assets to be able to compete with local companies.

Solid location decisions hinge on the existence of the following elements in the host country: market size,� strategic assets,� natural resources as well as efficient and qualified human resources.

4�

Surveys of TNCs and SmEs in Brazil

Chapter 3

PHASE II: Survey on TNC-SME linkages in Brazil

4� 4�

3.1 Methodology of Analysis

This report exhibits the results and the analyses of two surveys,� conducted during the months of October,� November and December of 2006,� with TNCs and SMEs in Brazil. As indicated,� the data are the results of a pair of surveys with the following characteristics:

As a survey,� the data set do not contain a sample size that permits statistical and probabilistic evaluation,� as it could be the case of statistical researches.As a survey,� all the analyses are limited to frequencies and histograms,� and not subjected to in-depth statistical investigation,� considering tests and analytical comparisons.

The samples have the following sizes:

SMEs: 105 companies. Among this total,� 55 showed previous business linkage experience with TNCs.TNCs: 25 companies.

Data were examined based on frequency charts and tables that show the following information:

Frequency: the absolute number of answers to each question.Valid Percent: the percentage representation of the absolute number of answers to each question.Counts: the number of answers where more than one alternative answer to a certain question was possible. So,� in general,� the count variable is equal or greater than the absolute number of respondents to a certain question.

To avoid an exaggerated size of this documents and also to short the text size for each question,� this report is characterized by the following format:

Chapter division for TNCs and SMEs.Within a chapter,� for example for the TNC analyses,� subchapters are presented considering the main questions of the primary Unctad’s questionnaires to TNCs and SMEs.For each issue on the subchapter,� the results and analyses are exhibited in the following order: graphs and tables,� following by a basic analysis of the percentages and bullets remarking the most important conclusions in a very direct and short way.

It is important to note that all the analyses have been restricted by the features and limitations that constitute the core of surveys that are subjective to further investigations to guarantee consolidated and robust probabilistic inferences.

4�4�

3.2 TNC Survey Results – Business Linkages Programme – General Analysis

3.2.1 General Business Environment

3.2.1.1 Federal States

The analysis starts with the spatial representation of the surveyed TNCs concerning their location on the Brazilian states (Figure 3.1).

Figure 3.1 – Brazilian Federal States

This spatial representation is followed by Table 3.1 and Graph 3.1 that show the frequencies of the TNCs by states.

4�4� 49

TABLE 3.1Frequencies and Percentage for the Sampled Federal States

Federal States Frequency Percentage

São Paulo (SP) 18 72,�0Minas Gerais (MG) 3 12,�0Bahia (BA) 1 4,�0Paraná (PR) 1 4,�0Rio de Janeiro (RJ) 1 4,�0Rio Grande do Sul (RS) 1 4,�0Total 25 100,0

SP

MG

RS

RJ

PR

BA

18

3

1

1

1

1

Graph 3.1 – Frequencies of the sampled Federal States

The Federal States of São Paulo (SP),� Minas Gerais (MG) and Rio de Janeiro (RJ),� located at the Southeastern Region,� and the Federal States of Rio Grande do Sul (RS) and Paraná (PR),� from the Southern Region,� accounted for a total of 96% of the 25 TNC respondents. Therefore,� the sampled TNCs in Brazil are mainly located at the wealthiest regions of the country. Only one TNC company is actually located out of these regions,� specifically in Bahia (BA),� Northeastern region.

Location decision in Brazil,� mainly to TNCs,� is significantly based on market scale,� logistics,� and tax incentives. That is why the southern region concentrates most of the TNCs in the country.

5050

3.2.1.2 Country of Origin

Graph 3.2 shows the country of origin of the surveyed TNCs. The graphical representation is followed by a frequency table (Table 3.2) that shows the percentages of each worldwide region from where TNCs are originated.

Brazil

USA

Germany

Sweden

Mercosul

Japan

11

1

1

1

6

5

Graph 3.2 – Frequency for the country of origin

TABLE 3.2 Frequency and Percentage for the Country of Origin

Country Frequency Percentage

Brazil 11 44,�0USA 6 24,�0Germany 5 20,�0Japan 1 4,�0Mercosul 1 4,�0Sweden 1 4,�0Total 25 100,0

5050 51

3.2.1.3 Number of Employees

Graph 3.3 and Table 3.3 exhibit the size of the surveyed TNCs by ranges of employee numbers.

Over 5000

2001-5000

1001-2000

500-1000

Under 500

32,�0

24,�0

28,�0

8,�0

8,�0

Graph 3.3 – Percentage for the number of employees

TABLE 3.3Frequency and Percentage for the Number of Employees

Number of Employees Frequency PercentageUnder 500 2 8,�0500-1000 2 8,�01001-2000 7 28,�02001-5000 6 24,�0Over 5000 8 32,�0Total 25 100,0

According to Graph 3.3,� a total of 84% of the sampled TNCs have at least 1001 employees. They can be defined as a set of big companies which probably influences the rest of the production chain. The other 16% are equally divided into the “500-1000” and “Under 500” categories (see Table 3.3).

3.2.1.4 Nature of Business (Business Sectors)

The surveyed TNCs were divided into groups represented by their economic sector of business. The results are shown in Graph 3.4 and Table 3.4,� following.

5252

4

4

3

2

1

1

1

1

1

1

1

1

1

1

1

1

Chemical and Petrochemical

Automotive

Steel Industry

Mechanical

Telecommunications

IT / Technology and Communications

Services

Paper and Pulp

Mining

Metallurgy

Machines and equipment

Pharmaceutical

Electroeletronic

Cosmetics

Retail

Foodstuff

Graph 3.4 – Frequency for the business sectors

TABLE 3.4 Frequency and Percentage for the Business Sectors

Sectors Frequency PercentageAutomotive 4 16,�0Chemical and petrochemical 4 16,�0Steel industry 3 12,�0Mechanical 2 8,�0Foodstuff 1 4,�0Retail 1 4,�0Cosmetics 1 4,�0Electroeletronic 1 4,�0Pharmaceutical 1 4,�0Machines and equipment 1 4,�0Metallurgy 1 4,�0Minning 1 4,�0Paper and pulp 1 4,�0Services 1 4,�0IT / Technology and communications 1 4,�0Telecommunications 1 4,�0Total 25 100,0

5252 53

The TNC companies are mainly representatives of the heavy industry such as Automotive (16%),� Chemical and Petrochemical (16%),� Steel Industry (12%),� Mechanical (8%),� and Metallurgy (4%) as shown in Table 3.4. The other sector industries accounts for 44% of the sample.

Business linkages in Brazil must consider the growing volume of TNCs that still fit on the commodity related firms. Therefore,� the business linkages between TNCs and SMEs in Brazil should be developed respecting the specific characteristics of those productive chains. This observation is more pertinent when it comes to linkages in the Northeastern Region where the petrochemical sector is increasingly achieving more and more volumes.

3.2.1.5 Annual Turnover (US$)

Graph 3.5 and Table 3.5 show the annual turnover of the surveyed TNCs.

Over 1 billion 800

800 million-1 billion

501-800 million

Under 500 million

16,�0

48,�0

8,�0

8,�0

28,�0

Graph 3.5 – Frequency for the Annual Turnover

TABLE 3.5Frequency and Percentage for the Annual Turnover

Annual Turnover (US$) Frequency PercentageUnder 500 million 2 8,�0501-800 million 7 28,�0800 million-1 billion 12 48,�0Over 1 billion 4 16,�0Total 25 100,0

Respondents were asked to inform the annual turnover of their companies,� based on the American currency (US dollar). According to Graph 3.5,� TNCs most cited annual turnover is the “800 million-1 billion” category,� accounting for nearly half of the sample (48%). Only 8% percent of the respondents mentioned earnings below the 500 million range.

5454

3.2.1.� Nature of Activity in Brazil

When asked about the nature of their activities in Brazil,� and according to Graph 3.6 and Table 3.6,� respondents concentrated by answers in the manufacturing activity.

Manufacturing

Retail

Services

Distribution

Extrativism

Assembly

Representation

Financial Institution

0 10 20 30 40 50 60 70 80

Percentage of respondents

Graph 3.6 – Percentage of respondents – Nature of activity in Brazil

TABLE 3.6 Counts and Percentage of Responses – Nature of Activity in Brazil

Activity Counts Percentage of ResponsesManufacturing 18 47,�4Retail 4 10,�5Assembly 3 7,�9Extractivism 3 7,�9Distribution 3 7,�9Services 3 7,�9Financial Institution 2 5,�3Representation 2 5,�3Total 3� 100,0

Accordingly,� manufacturing is by far the most representative business activity of the surveyed TNCs in Brazil,� having been cited by 72% of the 25 respondents. In addition,� as shown in Figure 3.7,� 16% are directly involved in retailing,� services (12%),� distribution (12%),� assembly (12%) and extractivism (12%).

The results point to a very clear direction for the business linkage promotion. SMEs are mostly expected to be inserted in the productive chain as inbound suppliers of services and products to feed the production lines,� since most of the TNCs have their core business concentrated on the transformation of raw materials into intermediary or finished products.

72

16

12

12

12

12

8

8

5454 55

3.2.2 Corporate Policy on Local Linkages

3.2.2.1 Locational Decision-making

Central Question (originated from the primary questionnaire from Unctad):WHAT IS YOUR COMPANY’S CORPORATE POLICY ON LOCALIZATION OF PRODUCTION OR SOURCING OF SERVICES?

AnsweredNo answered

2 8%

23 92%

Graph 3.7 – Valid answers for locational decision-making

Level of the labour force available

Logistic infrastructure (transportation modals)

Network of Suppliers

Tax allowances

Other incentives of the government

Clustering possibilities

Characteristics of the market

Natural resources

0 10 20 30 40 50 60 70


60,�9

56,�5

39,�1

39,�1

34,�8

26,�1

17,�4

8,�7

Graph 3.8 – Percentage of respondents – Locational decision-making factors

5�5�

TABLE 3.7 Counts and Percentage of Responses – Locational Decision-Making Factors

Policy Counts Percentage of Responses

Level of the labour force available 14 21,�5

Logistic infrastructure (transportation modals) 13 20,�0

Tax allowances 9 13,�8

Network of suppliers 9 13,�8

Other incentives of the government 8 12,�3

Clustering possibilities 6 9,�2

Characteristics of the market 4 6,�2

Natural resources 2 3,�1Total 65 100,0

The level of labor force available (60,�9%) and the logistic infrastructure (56,�5%) were the only alternatives mentioned by more than half of the 23 respondents who actually answered this question (see Graphs 3.7 and 3.8). In addition,� according to Table 3.7,� tax allowances (13,�8%),� network of suppliers (13,�8%),� other incentives of the government (12,�3%) and clustering possibilities (9,�2%) had lower determination on decision-making regarding production facilities or sourcing of services localization.

TNCs decide to locate in Brazil mostly based on the level of labor force. This points to a very clear business linkage line of action: ”SMEs should be capacitated in terms of level of labor force to their insertion on the TNCs productive chains”.

3.2.2.2 Local manufacturing

Central Question (originated from the primary questionnaire from Unctad):DO YOU HAVE LOCAL MANUFACTURING?

Graph 3.9 – Local manufacturing

Yes No

3 12%

22 88%

5�5� 5�

According to Graph 3.9,� 88% of the 25 surveyed companies,� have local manufacturing. Alternatively,� 22% argued that do not employ activities of this nature in Brazil.

3.2.2.3 Production Activity

Central Question (originated from the primary questionnaire from Unctad):WHAT IS THE TYPE OF PRODUCTIVE ACTIVITY?


Producer

Assembler

Transformer

Extraction

Processor

0 10 20 30 40 50 60 70

60,�9 77,�3

18,�2

13,�6

9,�1

80 90

9,�1

Graph 3.10 – Percentage of respondents – Production activity

TABLE 3.9 Counts and Percentage of Responses – Production Activity

Activity Counts Percentage of Responses

Producer 17 60,�7Assembler 4 14,�3Transformer 3 10,�7Processors 2 7,�1Extraction 2 7,�1Total 2� 100,0

According to Graph 3.10,� a total of 77,�3% respondents were mainly producers and constituted by far the most representative group of the 22 who actually have manufacturing activities in Brazil. On the other hand,� the extraction activity was the least mentioned by only 2 respondents (see Table 3.9).

5�5�

3.2.2.4 Local Production

Central Question (originated from the primary questionnaire from Unctad):PLEASE DESCRIBE WHAT IS LOCALLY PRODUCED.


Non-perishable products

Perishable products

Services

Raw materials

Industrial products

0 5 10 15 20 25 30 35

36

40

28

28

24

16

Graph 3.11 – Percentage of respondents – Type of products produced locally

TABLE 3.10 Counts and Percentage of Responses – Type of Products Produced Locally

Variables Counts Percentage of ResponsesNon-perishable products 9 27,�3Services 7 21,�2Perishable products 7 21,�2Raw materials 6 18,�2Industrial products 4 12,�1Total 33 100,0

The two top ranked types of goods produced by the sampled TNCs,� are non-perishable products (27,�3%) and perishable products (21,�2%) (see Table 3.10). The latter refers mainly to products which do not last for a long time such as food or beverages. The sourcing of services is the only kind of product originally related to the Service Sector and was cited by 28% of the respondents (see Graph 3.11).

5�5� 59

3.2.2.5 Imported materials

Central Question (originated from the primary questionnaire from Unctad):WHAT MATERIALS ARE IMPORTED?

Import Do not import

3 12%

22 88%

Graph 3.12 – Materials importing


Non-perishable Products

Raw materials

Perishable products

Machinery

Services

0 10 20 30

50

40

31,�8

22,�7

9,�1

31,�8

50 60

Graph 3.13 – Percentage of respondents – Type of materials imported

�0�0

TABLE 3.11Counts and Percentage of Responses – Type of Materials Imported

materials Counts Percentage of Responses

Non-perishable products 11 34,�4Perishable products 7 21,�9Raw materials 7 21,�9Machinery 5 15,�6Services 2 6,�3Total 32 100,0

Half of the 22 respondents,� who imported products,� would buy internationally non-perishable products (see Graph 3.13). In second place,� perishable products (31,�8%) and raw materials (31,�8%) reached equal ratings. On the other hand,� the sourcing of services was the least mentioned having only 2 TNCs cited it (see Table 3.11).

An important source of business linkages could be the replacement of import volumes to local supply through SMEs in non-perishable and perishable products,� as well as raw materials in the same magnitude.

3.2.2.� Importing Justification

Central Question (originated from the primary questionnaire from Unctad):WHY IS NOT SOURCED LOCALLY?


The product is not produced locally

Technology regarding to production and transportation not available locally

Cost

Confidence

Tax allowances

0 10 20 30

77,�3

40

45,�5

13,�6

4,�5

40,�9

50 60 70 80 90

Graph 3.14 – Percentage of respondents – Importing justification

�0�0 �1

TABLE 3.12 Counts and Percentage of Responses – Importing Justification

Reason Counts Percentage of Responses

The product is not produced locally 17 42,�5Technology regarding to production and transportation not available locally

10 25,�0

Cost 9 22,�5Confidence 3 7,�5Tax allowances 1 2,�5Total 40 100,0

The major reason pointed by TNCs for not buying locally is the fact that what they need is not produced in Brazil (42,�5%). In addition,� technological issues regarding production and transportation activities were ranked in second place as limitations for local sourcing (see Table 3.12). At last,� confidence in the Brazilian supplier and tax allowances were the least mentioned and also the only two alternatives with less than 40% of the respondents having cited them (see Graph 3.14).

�2�2

3.2.2.� Benefits of Local SmE Linkage

Central Question (originated from the primary questionnaire from Unctad):FOR YOUR COMPANY,� WHAT ARE THE BENEFITS OF LOCAL SME LINKAGE PARTNERS?


Cost

Increase of the flexibility

Local resources and labour force

Faster and better adaptation of technologies and products to local market conditions

Better relationship with the government

Increase of the specialization (focus on the core competencies)

Access to new markets

Revenue increase

Promote inovative solutions to existing products

Risk-sharing

Promote local development

0 10 20 30

32

40

32

20

8

28

50 60 70 80

36

36

48

52

64

68

Graph 3.15 – Percentage of respondents – Benefits of local linkage

�2�2 �3

TABLE 3.13 Counts and Percentage of Responses – Benefits of Local Linkages

Benefits Counts Percentage of Responses

Cost 17 16,�0Increase of the flexibility 16 15,�1Local resources and labour force 13 12,�3Faster and better adaptation of technologies and products to local market conditions

12 11,�3

Increase of the specialization (focus on the core competencies) 9 8,�5Better relationship with the government 9 8,�5Revenue Increase 8 7,�5Access to new markets 8 7,�5Promote innovative solutions to existing products 7 6,�6Risk-sharing 5 4,�7Promote Local Development 2 1,�9Total 106 100,0

The access to new markets,� promotion of innovative solutions to existing TNC products,� risk-sharing and promotion of local development were the least mentioned alternatives and figured at the bottom of Table 3.13. On the other hand,� the major benefits perceived by TNCs for sourcing locally are costs,� increase of flexibility and contracting local resources and labor force (see Graph 3.15). As a result,� it can be said that local sourcing may provide better conditions for local adaptation and TNCs business development.

SMEs should be developed to be capacitated to offer low costs,� customized operations and high level of resources and labor force.

3.2.2.� Supply Chain Partnership

Central Question (originated from the primary questionnaire from Unctad):PLEASE INDICATE AT WHICH PART OF THE SUPPLY CHAIN YOUR LINKAGES TAKE PLACE.

24 96%

1 4%

Answered No answered

Graph 3.16 – Valid answers for Supply Chain Partnership

�4�4


Services

Packages / raw materials

Distribution

Manufacturing and outsourcing

Marketing and sales

0 10 20 30

70,�8

40

66,�7

54,�2

41,�7

58,�3

50 60 70 80

Graph 3.17 – Percentage of respondents – Area of supply chain partnership

TABLE 3.14 Counts and Percentage of Responses – Area of Supply Chain Partnership

Part Counts Percentage of Responses

Services 17 24,�3Packages / Raw materials 16 22,�9Distribution 14 20,�0Manufacturing and outsourcing 13 18,�6Marketing and sales 10 14,�3Total �0 100,0

As shown in Graph 3.17,� most of linkages in the TNC supply chain take place at the service sourcing level. It was also considered significant that packages / raw materials,� distribution and manufacturing/ outsourcing were also cited by more than half of the 24 respondents who actually answered that question (see Graph 3.16). At the bottom of Table 3.14,� Marketing and Sales were cited only by 10 participants.

SMEs have higher chances to be inserted on the productive chains of the surveyed TNCs through the supply of services as well as packaging and distribution. The supply of raw materials will highly depend on the economic sector involved in the business relationship.

�4�4 �5

3.2.2.9 Linkage Partners Selection

Central Question (originated from the primary questionnaire from Unctad):HOW DO YOU SELECT YOUR LOCAL LINKAGE PARTNERS?


Costs (logistics,� freight,� delivery)

Quality

Flexibility (supply,� negotiation,� delivery and responsiveness)

Trustworthiness

Delivery lead times

Logistics / inventory

Other (Environmental,� social and ethical issues)

0 10 20 30

72

40

68

52

48

56

50 60 70 80

40

32

Graph 3.18 – Percentage of respondents – Criteria for local linkage partners selection

TABLE 3.15 Counts and Percentage of Responses – Criteria for Local Partners Selection

Selection Counts Percentage of Responses

Costs (logistics,� freight,� delivery) 18 19,�6Quality 17 18,�5Flexibility (supply,� negotiation,� delivery and responsiveness) 14 15,�2Trustworthiness 13 14,�1Lead times 12 13,�0Logistics/ inventory 10 10,�9Other (Environmental,� social and ethical issues) 8 8,�7Total 92 100,0

First and foremost,� costs,� quality of the product,� flexibility and trustworthiness are determinant for a Brazilian supplier to be inserted in a TNC supply chain,� as shown in Table 3.15. Secondly,� TNCs mentioned lead times and logistic capabilities. At last,� environmental,� social and ethical issues were cited only by 8 respondents. For further information on this subject,� please see Appendix 1.

��

3.2.3 Service Linkages

3.2.3.1 Local Sourcing Activities

Central Question (originated from the primary questionnaire from Unctad):WHICH OF THE FOLLOWING ACTIVITIES DOES YOUR COMPANY OUTSOURCE LOCALLY?

1 4%

24 96%

Answered Not answered

Graph 3.19 – Valid answers for local sourcing activities

��


45,�8

0 10 20 30 40 50

37,�5

33,�3

33,�3

25

20,�8

20,�8

20,�8

16,�7

16,�7

16,�7

16,�7

12,�5

12,�5

12,�5

12,�5

12,�5

12,�5

12,�5

8,�3

8,�3

General Services

Machinery

Transportation

Automotive

Food,� beverages and tobacco

Telecommunications

Construction

Retail

Technology and computers

Public services

Chemical and petrochemical

Plastics and rubber

Steel Industry and Metallurgy

Mining

Cosmetics and hygiene

Pharmaceuticals

Electronics

Textiles

Wholesalers and export

Electric

Paper and pulp

Graph 3.20 – Percentage of respondents – Activities outsourced locally

��

TABLE 3.16 Counts and Percentage of Responses – Activities Outsourced Locally

Activities CountsPercentage of

ResponsesGeneral services 11 11,�2Machinery 9 9,�2Automotive 8 8,�2Transportation 8 8,�2Food,� beverages and tobacco 6 6,�1Retail 5 5,�1Construction 5 5,�1Telecommunications 5 5,�1Plastics and rubber 4 4,�1Chemical and petrochemical 4 4,�1Public services 4 4,�1Technology and computers 4 4,�1Wholesalers and export 3 3,�1Textiles 3 3,�1Electronics 3 3,�1Pharmaceuticals 3 3,�1Cosmetics and hygiene 3 3,�1Mining 3 3,�1Steel industry and metallurgy 3 3,�1Paper and pulp 2 2,�0Electric 2 2,�0Total 9� 100,0

Once again,� the service sector is the most outsourced activity by TNCs in Brazil having accounted for 45,�8% of the total of 24 respondents who answered the question. Naturally,� this result can be explained by the fact that most SMEs are increasingly developing core competencies in the service sector,� which have less market entry barriers. Heavy industry sectors such as Steel Industry and Metallurgy,� Paper and Pulp and Electric figured only at the bottom of Table 3.16.

�� 9

3.2.4 Features of Local Partner Development

3.2.4.1 main Features of Local Partners Development

Central Question (originated from the primary questionnaire from Unctad):PLEASE DESCRIBE THE MAIN FEATURES OF YOUR COMPANY’S LOCAL BUSINESS LINKAGE PARTNERS’ DEVELOPMENT PROCESS.

28%

312%

2080%

Have developing programDo not have developing programNot answered

Graph 3.21 – Developing Program

Routine evaluationContract execution

Promote technology transferring

SME Training

Info production

FeedbackWork teams

SME product development

0 10 20 30 40 50 60 70 80

70

55

55

45

40

40

40

30


Graph 3.22 – Percentage of respondents – Main features of local partners development

�0�0

TABLE 3.17 Counts and Percentage of Responses – Main Features of Local Partners Development

Feature Counts Percentage of ResponsesRoutine evaluation 14 18,�7Guarantee of the Contract Execution 11 14,�7Promote technology knowledge transferring 11 14,�7SME training 9 12,�0Work-teams for joint problem solving 8 10,�7Feedback 8 10,�7Efficient production information sharing 8 10,�7SME product development 6 8,�0Total �5 100,0

The routine evaluation procedure and the guarantee of the contract execution are the most employed features on the process of development of local suppliers (see Graph 3.22). However,� they can be characterized as less collaborative features than SME training,� work teams for joint problem solving,� feedback,� efficient production information sharing and SME product development. These features received lower ratings from the respondents,� as shown in Table 3.17. Therefore,� there is a greater concern to whether the contract specification will be met or not as compared to providing the ideal means for reaching expected operational result.

TNCs in Brazil do not show consolidate history of collaborative relationships with their partners. Therefore,� the insertion of SMEs on the big productive chains should be primarily based on the capacity of the SME to comply with contract deals and execution.

3.2.4.2 Assistance to Access Capital / Investment Finance

Central Question (originated from the primary questionnaire from Unctad):DOES YOUR COMPANY ASSIST LOCAL LINKAGE PARTNERS IN ACCESSING CAPITAL/INVESTMENT FINANCE?

1 4%

17 68%

7 28%

Help Do not helpNot answered

Graph 3.24 – Financial help

�0�0 �1

Loan negotiation moderator

0 10 20 30 40 50 60 70 80

75

25


Institutional fund raising

Graph 3.24 – Percentage of respondents – Type of financial assistance

TABLE 3.18 Counts and Percentage of Responses – Type of Financial Assistance

Assistance Counts Percentage of ResponsesLoan negotiation moderator 3 75,�0Institutional fund raising 1 25,�0Total 4 100,0

According to Graph 3.23,� only 7 out 25 TNCs actually assist their SME partners to access any kind of financing. Specifically,� 75% of those act as loan negotiation moderators whereas 25% help SMEs to get institutional fund raising.

The volume of help in getting financial assistance provided by the surveyed TNCs is not significant,� showing a clear sign of lack of interest in financially helping their partners,� even in a indirectly way.

3.2.4.3 Direct Financial Assistance

�2�2

Central Question (originated from the primary questionnaire from Unctad):DOES YOUR COMPANY ASSIST LINKAGE PARTNERS WITH DIRECT FINANCIAL ASSISTANCE?

1 4%

17 68%

7 28%

Help Do not helpNot Answered

Graph 3.25 – Direct financial help

Advanced Payment

0 10 20 30 40 50 60


57,�1

42,�9

28,�6

28,�6

14,�3

Cost Sharing

Loans

Fair Prices

Special Funds Creation

Graph 3.26 – Percentage of respondents – Type of direct financial assistance

�2�2 �3

TABLE 3.19 Counts and Percentage of Responses – Type of Direct Financial Assistance

Assistance Counts Percentage of ResponsesAdvanced payment 4 33,�3Cost sharing 3 25,�0Fair prices 2 16,�7Loans 2 16,�7Special funds creation 1 8,�3Total 12 100,0

Once again,� only 7 out 25 TNCs actually assist their SME partners with direct financial assistance (see Graph 3.25). The most common procedures along these lines are advanced payment of sourced goods,� cost sharing and more fair buying prices which accounts for 75% of the available options. Loans and special funds creation represents only 25% of that share on direct financial investment practices.

3.2.4.4 Consulting and Technical Assistance

Central Question (originated from the primary questionnaire from Unctad):DOES YOUR COMPANY PROVIDE CONSULTANTS/TECHNICAL ExPERTS FROM YOUR FIRM TO ASSIST LINKAGE PARTNERS?

6 24%

19 76%

Help Do not help

Graph 3.27 – Consulting and technical assistance

�4�4

Production

Services

Supplies

Distribution

Marketing

0 10 20 30 40 50 60 70 80

68,�4


52,�6

36,�8

26,�3

21,�1

Graph 3.28 – Percentage of respondents – Area of technical assistance

TABLE 3.20 Counts and Percentage of Responses – Area of Technical Assistance

Assistance Counts Percentage of ResponsesProduction 13 33,�3Services 10 25,�6Supply 7 17,�9Distribution 5 12,�8Marketing 4 10,�3Total 39 100,0

According to Graph 3.27,� technical assistance is only offered by 19 out of 25 TNC respondents. In addition to this,� it is mainly directed to tackling production and service inefficiency issues,� as shown in Table 3.20. Marketing,� distribution and supply problems had response ratings which accounted for 41% of the total marked options and did not figure as the main areas of technical expertise support provided by TNCs in Brazil.

SMEs should expect technical assistance from the surveyed TNCs on their production lines,� in order to achieve higher quality of what has been supplied to the TNCs supply chains.

�4�4 �5

3.2.5 Obstacles to Local SME Linkages

3.2.5.1 Barriers Related to Business Environmental Limitations

Central Question (originated from the primary questionnaire from Unctad):PLEASE INDICATE WHICH BARRIERS COULD PREVENT YOUR COMPANY FROM FORMING/ExPANDING LINKAGES WITH LOCAL SMEs.

14%

24 96%

Mentioned limitations Did not mention limitations

Graph 3.29 – Business environmental limitations

Laws,� regulations

Infrastructure

Social-economic context

Political climate

Lack of institutional support

0 10 20 30 40 50 60 70 80


12,�5

16,�7

50

58,�3

75

Graph 3.30 – Percentage of respondents – Barriers related to business environmental limitations

��

TABLE 3.21 Counts and Percentage of Responses – Barriers Related to

Business Environmental Limitations

Barriers: Counts Percentage of ResponsesLaws,� regulations 18 35,�3Infrastructure 14 27,�5Social-economic context 12 23,�5Political climate 4 7,�8Lack of institutional support 3 5,�9Total 51 100,0

According to Graph 3.30,� laws and regulations along with infrastructure and the socio-economic context were mentioned by at least half of the 24 respondents and,� therefore played a pivotal role as limitative issues for business linkages expansion with SMEs in Brazil. It was also considered important that they totalized 86,�3% of the total of marked options. The political climate and the lack of institutional support only accounted for 13,�7% of the total.

Initiatives to promote business linkages between TNCs and SMEs in Brazil,� according to the surveyed TNCs,� should go on the direction of providing better public environments related to laws and regulations (flexibilities) and better logistics infrastructure to accommodate higher level of services on their supply chains.

3.2.5.2 Barriers Related to SmEs Limitations

This question is related to the inner SME limitations. In other words,� it is related to the perception of the TNC in relation to the SME limitation,� and not the environment surrounding the TNC/SME business linkage.

3 12%

2 8%

20 80%

Mentioned limitations Did not mention limitations Not answered

Graph 3.31 – Internal SMEs Limitations

��

Service level Technological level

Quality

Production capacity

Ethics / contract honoring

Prices Management capacity

Credit access

0 10 20 30 40 50 60 70 80

70


7065

55

50

5035

10

Graph 3.32 – Percentage of respondents – Barriers related to SMEs limitations

TABLE 3.22 Counts and Percentage of Responses – Barriers Related to SMEs Limitations

Barriers Counts Percentage of ResponsesTechnological level 14 17,�3Service level 14 17,�3Quality 13 16,�0Production capacity 11 13,�6Prices 10 12,�3Ethics – contract honoring 10 12,�3Management capacity 7 8,�6Credit access 2 2,�5Total �1 100,0

According to Graph 3.32,� the technological level along with the service level and the quality of the product are regarded by TNCs as crucial SMEs limitations for the expansion of business linkages in Brazil. Alternatively,� management capabilities and access to credit play a minor role accounting only for approximately 10% of the total percentage of responses (see Table 3.22).

The development of SMEs to be inserted in TNCs productive chains should take into consideration policies that facilitate the accomplishment of higher technological and service levels to the SMEs.

��

3.2.6 Institutional Support to Local Linkages

3.2.�.1 Local Agencies Support

Central Question (originated from the primary questionnaire from Unctad):HAS YOUR COMPANY RECEIVED ANY SUPPORT FROM LOCAL PROMOTION AGENCIES TO ASSIST WITH LOCAL LINKAGES? IF YES,� PLEASE DESCRIBE.

4

16% 6 24%

1560%

ReceivedHas not receivedNot answered

Graph 3.33 – Local agencies support

Financial support

Management support

Logistics support

Human Resources Support

Consultancy

Training

Partners search

0 10 20 30 40 50 60 70 80 90


83,�3

16,�7

16,�7

16,�7

16,�7

16,�7

16,�7

Graph 3.34 – Percentage of respondents – Type of local agencies support

�� 9

TABLE 3.23 Counts and Percentage of Responses – Type of Local Agencies Support

Support Counts Percentage of ResponsesFinancial support 5 45,�5Management support 1 9,�1Logistics support 1 9,�1Human resources support 1 9,�1Consultancy 1 9,�1Training 1 9,�1Partners search 1 9,�1Total 11 100,0

According to Graph 3.33,� only 6 out of the 25 TNCs actually had support offered by local promotion agencies. Specifically,� this assistance has been mainly on fields related to direct financial support,� which accounted for 45,�5% of the responses. As shown in Table 3.23,� management,� logistics,� human resources,� consultancy,� training and partners seeking support were equally mentioned by one respondent each.

3.2.�.2 Specific Agencies

Central Question (originated from the primary questionnaire from Unctad):MAIN LOCAL INVESTMENT PROMOTION AGENCIES AND/OR LOCAL SME DEVELOPMENT AGENCIES IN ASSISTANCE WITH LOCAL LINKAGES.

BNDES

Sebrae

Development Bank

Development Institution

Others

0 10 20 30 40 50 60 70 80


16,�7

16,�7

16,�7

33,�3

66,�7

Graph 3.35 – Percentage of respondents – Local promotion agencies

�0�0

TABLE 3.24 Counts and Percentage of Responses – Local Promotion Agencies

Agencies Counts Percentage of ResponsesBNDES 4 44,�4Sebrae 2 33,�3Development Bank 1 11,�1Development Institution 1 11,�1Others 1 11,�1Total 9 100,0

The main agencies which provide support for business linkages in Brazil are the BNDES and Sebrae according to Graph 3.35. Specifically,� they accounted for a total of 66,�6% of responses. Development bank and development institutions only had 2 respondents in total.

This conclusion comply with the findings from the Existing Public Policies Report that has pointed to BNDES and Sebrae as the most important promotion agencies in Brazil to support linkage developments.

�0�0 �1

3.3 TNC Survey Results – Business Linkages Programme – In-Depth Analysis

3.3.1 Analysis Based on Region



TABLE 3.25

Regions vs. Local Manufacturing Activity

Local manufacturingLocal manufacturing

Activity TotalYes No

Regions

MG/RJCount 4 0 4

% 18,�2% ,�0% 16,�0%

PR/RS/BACount 3 0 3

% 13,�6% ,�0% 12,�0%

SPCount 15 3 18% 68,�2% 100,�0% 72,�0%

TotalCount 22 3 25

% 100,0% 100,0% 100,0%

MG/RJ

PR/RS/BA

SP

4

3

15

3

0 2 4 6 8 10 12 14 16

Yes

No

Graph 3.36 – Counts for regions vs. local manufacturing activity

According to Table 3.25 and Graph 3.36,� São Paulo is the only sampled Federal State that has companies which do not have local manufacturing activities. Alternatively,� it is the main sampled Federal State in terms of production activities having accounted for nearly 69% of that total.

�2�2



MG/RJ

PR/RS/BA

SP

4

3

15

3

0 2 4 6 8 10 12 14 16

Yes

No

Graph 3.37 – Counts for regions vs. imports activities

TABLE 3.26 Counts for Regions vs. Imported Products

CATEGORIES mG/ RJ PR/RS/BA SP ROW TOTAL

Perishable products 2 0 5 7

Machinery 2 0 3 5

Raw materials 2 2 3 7

Non-perishable products 1 2 8 11

Services 1 0 1 2

Total � 4 20 32

According to Graph 3.37,� São Paulo again figured as the only sampled Federal State comprised by companies that do not import products. As a whole,� a total of 22 out of 25 companies do import products. The non-perishable products are the most imported by São Paulo companies,� whereas raw materials are mainly bought abroad by companies from Minas Gerais (MG) and Rio de Janeiro (RJ) and Paraná (PR),� Rio Grande do Sul (RS) and Bahia (BA). It was also considered significant that the last three States did not mention the import of perishable and machinery products.

�2�2 �3


Central Question (originated from the primary questionnaire from Unctad):PLEASE DESCRIBE THE MAIN FEATURES OF YOUR COMPANY’S LOCAL LINKAGE PARTNERS’ DEVELOPMENT PROCESS.

TABLE 3.27 Counts for Regions vs. Local Partner Development Activities

Categories mG/ RJ PR/RS/BA SP Row Total

Promote technology knowledge transferring 1 3 7 11Guarantee of the contract execution 1 3 7 11Feedback 1 2 5 8Efficient production information sharing 1 2 5 8Routine evaluation 1 2 11 14SME training 1 1 7 9SME product development 1 1 4 6Work-teams for joint problem solving 1 0 7 8Total � 14 53 �5

Firstly,� the TNCs from Minas Gerais (MG) and Rio de Janeiro (RJ) equally marked each of the eight local development features in Table 3.27. Secondly,� for the set comprised of the Paraná (PR),� Rio Grande do Sul (RS) and Bahia (BA) companies,� the promotion of technology knowledge transferring and the guarantee of the contract execution are the most significant practices employed in the sake of fostering local development. At last,� for the companies from São Paulo (SP),� routine evaluation procedures are by far the most used development technique.

3.3.1.4 Assitance to Access Capital / Investment Finance


TABLE 3.28

Region vs. Assistance to Access Capital / Investment Finance

Assitance to Access Capital/ Investment Finance

Assistance to Access Capital/ Investment Finance Total

Yes N/A No

Regions

MG/RJCount 0 0 4 4

% ,�0% ,�0% 23,�5% 16,�0%

PR/RS/BACount 1 0 2 3

% 14,�3% ,�0% 11,�8% 12,�0%

SPCount 6 1 11 18

% 85,�7% 100,�0% 64,�7% 72,�0%

TotalCount � 1 1� 25

% 100,0% 100,0% 100,0% 100,0%

�4�4

MG/RJ

PR/RS/BA

SP

0 2 4 6 8 10 12

Yes

No

N/A

4

2

6

11

Graph 3.38 – Counts for regions vs. financial assistance

According to Table 3.28 and Graph 3.38,� financial assistance of any kind is provided by TNCs in Minas Gerais and Rio de Janeiro. In contrast,� TNCs from São Paulo are the most involved in offering such sort of help. As a whole,� TNCs which actually provide such assistance were outnumbered by those that do not in all of the studied Federal States.



TABLE 3.28 Region vs. Direct Financial Assistance

Direct Financial AssistanceDirect Financial Assistance

TotalYes N/A No

Regions

MG/RJCount 1 0 3 4

% 14,�3% ,�0% 17,�6% 16,�0%


% ,�0% ,�0% 17,�6% 12,�0%

SPCount 6 1 11 18

% 85,�7% 100,�0% 64,�7% 72,�0%


% 100,0% 100,0% 100,0% 100,0%

�4�4 �5

MG/RJ

PR/RS/BA

SP

0 2 4 6 8 10 12

Yes

No00

N/A11

6

3

3

Graph 3.39 – Counts for regions vs. direct financial assistance

TNCs from the States of Paraná,� Rio Grande do Sul and Bahia are the only which do not assist their business linkages partners with direct financial assistance. Once again,� TNCs which actually provide such assistance were outnumbered by those that do not in all of the Federal States studied.

3.2.1.� Consulting and Technical Assistance


TABLE 3.30 Region vs. Consulting and Technical Assistance

Consulting and Technical AssistanceConsulting and

Technical Assistance Total

Yes No

Regions

MG/RJ

Count 2 2 4

% 10,�5% 33,�3% 16,�0%

PR/RS/BA

Count 2 1 3

% 10,�5% 16,�7% 12,�0%

SP

Count 15 3 18

% 78,�9% 50,�0% 72,�0%

TotalCount 19 � 25

% 100,0% 100,0% 100,0%

��

MG/RJ

PR/RS/BA

SP

Yes

No3

15

2

2

2

0 2 4 6 8 10 12 14 16

Graph 3.40 – Counts for regions vs. consulting and technical assistance

TABLE 3.31 Counts for Regions vs. Area of Technical Assistance

Categories mG/ RJ PR/RS/BA SP Row TotalProduction 1 2 10 13Services 1 0 9 10Supply 0 2 5 7Distribution 1 0 4 5Marketing 1 0 3 4Total 4 4 31 39

Proportionally,� consulting and technical assistance is more offered by TNCs in São Paulo than in other regions. According to Table 3.30,� it accounted for approximately 79% of the total. That support is mainly directed to production,� followed by the services,� supply,� distribution and marketing areas of the SMEs.

3.3.1.� Business Environmental Limitations

Central Question (originated from the primary questionnaire from Unctad):PLEASE INDICATE WHICH BARRIERS PREVENT YOUR COMPANY FROM FORMING/ExPANDING LINKAGES WITH LOCAL SMEs.

��

TABLE 3.32 Counts for Regions vs. Business Environmental Limitations

Categories mG/ RJ PR/RS/BA SP Row TotalLaws/Regulations 3 2 13 18Socio-economic context 1 1 10 12Infrastructure 3 2 9 14Political climate 0 1 3 4Deficient public assistance 2 0 1 3Total 9 � 3� 51

Once again,� according to Table 3.32,� Laws and Regulations were the most cited business environmental barriers that could prevent the TNCs to form or expand their linkages with local SMEs. Furthermore,� it was also considered significant by the TNCs from MG/RJ and PR/RS/BA that the infrastructure limitations could play a negative role in the promotion of local business linkages.

3.3.1.� Internal SmEs Limitations


TABLE 3.33 Counts for Regions vs. Internal SMEs Limitations

Categories mG/ RJ PR/RS/BA SP Row TotalTechnological level 3 2 9 14Quality 3 1 9 13Service level 3 2 9 14Ethics – contract honoring 3 1 6 10Production capacity 2 1 8 11Prices 2 1 7 9Management capacity 1 0 6 7Credit access 0 0 2 2Total 1� � 5� �1

As shown in the three top ranked options in Table 3.33,� TNCs from either MG/RJ,� PR/RS/BA or SP equally consider the technological level,� the quality and the service level as the most considerable barriers that could prevent the SMEs from expanding their business linkages. On the other hand,� little concern was given to the access to credit or the management capacity (see the bottom of Table 3.33).

��

3.3.1.9 Local Agencies Support


TABLE 3.34

Regions vs. Local Agencies Support

Local Agencies SupportLocal Agencies Support

TotalYes N/A No

Regions

MG/RJCount 2 0 2 4

% 33,�3% ,�0% 13,�3% 16,�0%


% ,�0% ,�0% 20,�0% 12,�0%

SPCount 4 4 10 18

% 66,�7% 100,�0% 66,�7% 72,�0%

TotalCount � 4 15 25

% 100,0% 100,0% 100,0% 100,0%

MG/RJ

PR/RS/BA

SP

Yes

No

N/A

0 2 4 6 8 10 12

2

2

3

44

10

Graph 3.41 – Counts for regions vs. local agencies support

Local Promotion Agencies have been considerable more effective in promoting business linkages in São Paulo (SP) and Minas Gerais (MG) and Rio de Janeiro (RJ). On the other hand,� they are not even mentioned by TNCs from Paraná (PR),� Rio Grande do Sul (RS) or Bahia (BA).

�� 9

3.3.2 Analysis Based on Country of Origin



TABLE 3.35 Country of Origin vs. Local Manufacturing

Local manufacturingLocal manufacturing

TotalYes No

Country of Origin

BrazilCount 10 1 11

% 45,�5% 33,�3% 44,�0%

Germany/Sweden/USA/Japan/Mercosul

Count 12 2 14

% 54,�5% 66,�7% 56,�0%

TotalCount 22 3 25

% 100,0% 100,0% 100,0%

9090

Brazil

InternationalYes

No

10

12

2

0 2 4 6 8 10 12 14

Graph 3.42 – Counts for country of origin vs. local manufacturing activity

TABLE 3.36 Counts for Country of Origin vs. Locational Decision-Making

Categories Brazil International Row Total

Level of the local labour force 6 8 14Logistic infrastructure 6 7 13Tax allowances 5 4 9Other incentives 5 3 8Clustering possibilities 4 2 6Network of suppliers 4 5 9Characteristics of the market 2 2 4Natural resources 2 0 2Total 34 31 �5

According to Graph 3.42 and Table 3.35,� both Brazilian and International (Germany,� Sweden,� USA,� Japan and Mercosul) TNCs have mainly manufacturing activities. Furthermore,� as shown in Crosstab 3.36,� they have taken into account mostly the level of the local labor force available,� the logistic infrastructure and the tax allowances policies as locational decision-making features.

9090 91



TABLE 3.37 Country of Origin vs. Materials Import

Imported materialsImport materials

TotalYES NO

Country of Origin

BrazilCount 10 1 11

% 45,�5% 33,�3% 44,�0%


Count 12 2 14

% 54,�5% 66,�7% 56,�0%

TotalCount 22 3 25

% 100,0% 100,0% 100,0%

Brazil

InternationalYes

No

10

12

2

0 2 4 6 8 10 12 14

Graph 3.43 – Counts for country of origin vs. material import

TABLE 3.38 Counts for Country of Origin vs. Imported Products


Non-perishable products 4 7 11

Raw materials 4 3 7

Perishable products 3 4 7

Machinery 3 2 5

Services 1 1 2

Total 15 1� 32

9292

The vast majority of Brazilian and foreign TNCs do import products (see Graph 3.43 and Table 3.37). Furthermore,� non-perishable products are the most imported,� followed closely by raw materials and perishable products. Machinery and services ranked solely at the bottom of Table 3.38.



Brazil

InternationalYes

N/A

0 2 4 6 8 10 12

10

10

2

2No

Graph 3.44 – Counts for country of origin vs. local partners development

TABLE 3.39 Counts for Country of Origin vs. Development Activities


Routine evaluation 7 7 14Promote technology knowledge transferring 5 6 11Guarantee of the contract execution 5 6 11Work-teams for joint problem solving 4 4 8SME training 4 5 9SME product development 3 3 6Feedback 3 5 8Efficient production information sharing 3 5 8Total 34 41 �5

9292 93

According to Graph 3.44,� only 2 International TNCs do not foster local development. Nevertheless,� 20 out of the 25 companies actually do. Moreover,� the routine evaluation,� promotion of technology transferring and the guarantee of the contract execution were similarly mentioned by both Brazilian and International TNCs as the most import features in the process of local development.



TABLE 3.40 Country of Origin vs. Assistance to Access Capital / Investment Finance

Assistance to Access Capital/Investment Finance

Assitance To Access Capital/ Investment Finance Total

Yes N/A No

Country of Origin

Brazil

Count 2 0 9 11

% 28,�6% ,�0% 52,�9% 44,�0%


Count 5 1 8 14

% 71,�4% 100,�0% 47,�1% 56,�0%

Total

Count � 1 1� 25

% 100,0% 100,0% 100,0% 100,0%

Brazil

International

Yes

N/A

0 2 4 6 8 10

No

2

9

5

8

Graph 3.45 – Counts for country of origin vs. financial assistance

9494

As shown in Graph 3.45 and Table 3.40,� financial assistance is fairly more provided by International TNCs. Similarly,� those that do not provide are mostly Brazilian companies. As a whole,� 7 out of the 25 TNCs actually offer help along these lines.



TABLE 3.41 Country of Origin vs. Direct Financial Assistance


TotalYes N/A No

Country of Origin

BrazilCount 4 1 6 11

% 57,�1% 100,�0% 35,�3% 44,�0%


Count 3 0 11 14

% 42,�9% ,�0% 64,�7% 56,�0%


% 100,0% 100,0% 100,0% 100,0%

Brazil

International

YES

N/A

NO

4

6

3

11

0 2 4 6 8 10 12

Graph 3.46 – Counts for country of origin vs. direct financial assistance

9494 95

The direct financial assistance is slightly more executed by Brazilian TNCs (see Graph 3.46). In addition,� the set of International TNCs have a greater amount of companies which do not provide direct financial assistance.



TABLE 3.42 Country of Origin vs. Consulting and Technical Assistance

Consulting And Technical Assistance

Consulting And Technical Assistance Total

Yes No

Country of Origin

Brazil

Count 6 5 11

% 31,�6% 83,�3% 44,�0%


Count 13 1 14

% 68,�4% 16,�7% 56,�0%


% 100,0% 100,0% 100,0%

Brazil

International

Yes

No

6

5

13

0 2 4 6 8 10 12 14

Graph 3.47 – Counts for country of origin vs. consulting and technical assistance

9�9�

TABLE 3.43 Counts for Country of Origin vs. Area of Technical Assistance

Categories Brazil International Row TotalServices 5 5 10Production 4 9 13Distribution 2 3 5Supply 2 5 7Marketing 2 2 4Total 15 24 39

According to Graph 3.47 and Table 3.42,� the consulting and technical assistance is proportionally more offered by International TNCs than by the Brazilian ones. In addition,� the production and the services areas of business are the most technically helped by both set of TNCs. Supply and Marketing only figured at the last positions of Table 3.43.



TABLE 3.44 Counts for Country of Origin vs. Business Environmental Limitations


Laws/regulations 10 8 18Infrastructure 8 6 14Socio-economic context 6 6 12Deficient public assistance 2 1 3Political climate 1 3 4Total 2� 24 51

Once again,� according to Table 3.44,� Laws and Regulations were the most cited business environmental barriers that could prevent the TNCs to form or expand their linkages with local SMEs. The political climate,� at the bottom of Table 3.44,� was the only alternative that the Brazilian counts were outnumbered by the International ones. That is,� for the International TNCs the political climate plays a bigger role in providing barriers for the expansion of business linkages with SMEs companies.

9�9� 9�



TABLE 3.45 Counts for Country of Origin vs. Internal SMEs Limitations

Categories Brazilian International Row TotalTechnological level 8 6 14Service level 7 7 14Quality 6 7 13Ethics – contract honoring 6 4 10Production capacity 5 6 11Prices 4 6 10Management capacity 4 3 7Credit access 0 2 2Total 40 41 �1

As shown in Table 3.45,� the technological and service levels and the quality of SMEs products figured as the top most mentioned barriers for the expansion or formation of business linkages. The management capacity and the access to credit did not reach considerable amount of counts and,� consequently,� were classified at the bottom of Table 3.45.



TABLE 3.46

Country of Origin vs. Local Agencies Support


TotalYes N/A No

Country of Origin

BrazilCount 4 2 5 11

% 66,�7% 50,�0% 33,�3% 44,�0%


Count 2 2 10 14

% 33,�3% 50,�0% 66,�7% 56,�0%


% 100,0% 100,0% 100,0% 100,0%

9�9�

Brazil

International

0 2 4 6 8 10 12

Yes

No

N/A

4

2

5

2

10

2

Graph 3.48 – Counts for country of origin vs. local agencies support

Local Promotion Agencies have mainly supported Brazilian TNCs,� as shown in Table 3.46 and Graph 3.48. Specifically,� the International companies accounts for 66,�7% of the companies which have not been offered yet any support from the Local Promotion Agencies.

9�9� 99

3.3.3 Analysis Based on Nature of Business



TABLE 3.47 Nature of Business vs. Local Manufacturing

Local manufacturingLocal

manufacturing TotalYes No

Nature of Business

Automotive,� Transportation and Mechanics

Count 7 0 7

% 31,�8% ,�0% 28,�0%

Construction,� Public Services and General Services

Count 0 1 1

% 0% 33,�3% 4,�0%

Foods,� Beverages and TobaccoCount 1 0 1

% 4,�5% ,�0% 4,�0%

Metallurgy,� Steel Industry and MiningCount 5 0 5

% 22,�7% ,�0% 20,�0%

Pharmaceuticals,� Cosmetics and TextilesCount 2 0 2

% 9,�1% ,�0% 8,�0%

Retail,� Export and FurnitureCount 0 1 1

% ,�0% 33,�3% 4,�0%

Rubber,� Plastics,� Chemical,� Petrochemical,� Paper and Pulp

Count 5 0 5

% 22,�7% ,�0% 20,�0%

Technology,� Computers,� Telecom and Electric

Count 2 1 3

% 9,�1% 33,�3% 12,�0%

TotalCount 22 3 25

% 100,0% 100,0% 100,0%

100

Automotive,� Transportation,� Mechanics

Construction,� PB/GN Services

Food,� Beverages,� Tobacco

Metalurgy,� Steel,� Mining

Pharmaceuticals,� Cosmetics,� Textiles

Retail,� Export,� Furniture

Rubber,� Plastics,� Chemical,� Petrothemical

Techmology,� Computers,� Telecom,� ElectricYes

No

0 1 2 3 4 5 6 7 8

7

5

2

5

2

Graph 3.49 – Counts for nature of business vs. local manufacturing

According to Graph 3.49 and Table 3.47,� the Automotive,� Transportation and Mechanical; Metallurgy,� Steel and Mining; Rubber,� Plastics,� Chemical,� Petrochemical,� Paper and Pulp sectors are the main manufacturers of the sample accounting for approximately 77,�2% of the total. The only sets of business sectors which do not produce locally are the Retail,� Export and Furniture; Construction,� Public and General Services.

100 101



TABLE 3.48Nature of Business vs. Materials Import

Imported materialsImport materials

TotalYes No

Nature of Business


Count 6 1 7

% 27,�3% 33,�3% 28,�0%


Count 0 1 1

% ,�0% 33,�3% 4,�0%


% 4,�5% ,�0% 4,�0%

Metallurgy,� Steel Industry and Mining

Count 5 0 5

% 22,�7% ,�0% 20,�0%

Pharmaceuticals,� Cosmetics and Textiles

Count 2 0 2

% 9,�1% ,�0% 8,�0%


% 4,�5% ,�0% 4,�0%


Count 5 0 5

% 22,�7% ,�0% 20,�0%


Count 2 1 3

% 9,�1% 33,�3% 12,�0%

TotalCount 22 3 25

% 100,0% 100,0% 100,0%

102

Automotive/Transportation/Mechanics

Construction/PB/GN Services

Food/Beverages/Tobacco

Metallurgy/Steel/Mining

Pharmacentricals/Cosmetics/Textiles

Retail/Export/Furniture

Rubber/Plastics/Chemical/Petrochemical

Technology/Computer/Telecom/Electric

0 1 2 3 4 5 6 7

YES

NO

6

5

2

5

2

Graph 3.50 – Counts for nature of business vs. materials import

TABLE 3.49 Counts for Nature of Business vs. Imported Products

CategoriesNon-

perishable Products

Perishable Products machinery Services Raw

materialsRow Total


5 0 0 0 1 6


2 0 0 0 0 1

Foods,� Beverages and Tobacco 1 0 0 0 0 1


1 1 3 1 2 8

Retail,� Export and Furniture 1 1 0 0 2


1 3 2 1 3 10


0 0 0 0 0 0


0 2 0 0 0 2

Total 11 � 5 2 � 32

102 103

According to Graph 3.50 and Table 3.48,� the Automotive,� Transportation and Mechanical; Metallurgy,� Steel and Mining; Rubber,� Plastics,� Chemical,� Petrochemical,� Paper and Pulp sectors are the main importers of the sample accounting for approximately 72,�7% of the total. As shown in Table 3.49,� non-perishable products are more imported by the Automotive,� Transportation and Mechanical sectors whereas the perishable products by the Rubber,� Plastics,� Chemical,� Petrochemical,� Paper and Pulp companies.



TABLE 3.50 Nature of Business vs. Main Features of Local Development Partners

main Features of Local Partners Development

main Features of Local Partners Development TotalYes N/A No

Nature of Business


Count 6 1 0 7

% 30,�0% 33,�3% ,�0% 28,�0%


Count 1 0 0 1

% 5,�0% ,�0% ,�0% 4,�0%

Foods,� Beverages and TobaccoCount 1 0 0 1

% 5,�0% ,�0% ,�0% 4,�0%


Count 5 0 0 5% 25,�0% ,�0% ,�0% 20,�0%


Count 1 0 1 2

% 5,�0% ,�0% 50,�0% 8,�0%

Retail,� Export and FurnitureCount 1 0 0 1

% 5,�0% ,�0% ,�0% 4,�0%


Count 3 1 1 5

% 15,�0% 33,�3% 50,�0% 20,�0%


Count 2 1 0 3

% 10,�0% 33,�3% ,�0% 12,�0%

TotalCount 20 3 2 25

% 100,0% 100,0% 100,0% 100,0%

104









0 1 2 3 4 5 6

Yes

No

N/A

6

5

3

2

Graph 3.51 – Counts for nature of business vs. local partners development

TABLE 3.51 Counts for Nature of Business vs. Local Development Activities

Categories

Pro

mo

te

tech

no

log

y kn

ow

led

ge

tran

sfer

rin

g

Wo

rk-t

eam

s fo

r jo

int

pro

ble

m

solv

ing

SmE

trai

nin

g

SmE

pro

duc

t d

evel

op

men

t

Gua

ran

tee

of

the

Co

ntr

act

Exec

utio

n

Feed

bac

k

Effi

cien

t p

rod

ucti

on

in

fo s

har

ing

Ro

utin

e Ev

alua

tio

n

Ro

w T

ota

lAutomotive,� Transportation and Mechanics

5 2 3 2 3 4 3 4 26


3 3 3 2 2 2 2 3 20


1 1 1 1 1 1 1 1 8

Retail,� Export and Furniture 1 1 1 1 1 1 1 1 8


1 0 0 0 2 0 0 1 4


0 0 0 0 1 0 0 0 1

Foods,� Beverages and Tobacco 0 0 0 0 0 0 0 1 1


0 1 1 0 1 0 1 3 7

Total 11 � 9 � 11 � � 14 �5

104 105

According to Graph 3.51 and Table 3.50,� once again the Automotive,� Transportation and Mechanical; Metallurgy,� Steel and Mining; Rubber,� Plastics,� Chemical,� Petrochemical,� Paper and Pulp sectors are the main local developers of the sample accounting for approximately 70% of the total. In contrast,� the Pharmaceutical and Textiles; Rubber,� Plastics,� Chemical,� Petrochemical,� Paper and Pulp sectors have companies which do not implement any developing program. As shown in Table 3.51,� the most fostered areas are the promotion of technology knowledge transferring and the guarantee of the contract execution with 11 counts in total. The latter,� for instance,� is more applied in the Automotive,� Transportation and Mechanical sectors.



TABLE 3.52

Nature of Business vs. Assistance to Access Capital / Investment Finance

Assistance to Access Capital / Investment Finance

Assistance To Access Capital / Investment

Finance Total

Yes N/A No

Nature of

Business


Count 3 1 3 7

% 42,�9% 100,�0% 17,�6% 28,�0%


Count 1 0 0 1

% 14,�3% ,�0% ,�0% 4,�0%


% ,�0% ,�0% 5,�9% 4,�0%


Count 1 0 4 5

% 14,�3% ,�0% 23,�5% 20,�0%


Count 0 0 2 2

% ,�0% ,�0% 11,�8% 8,�0%


% 14,�3% ,�0% ,�0% 4,�0%


Count 0 0 5 5

% ,�0% ,�0% 29,�4% 20,�0%

Technology,� Computers,� Telecom and Eletric

Count 1 0 2 3

% 14,�3% ,�0% 11,�8% 12,�0%


% 100,0% 100,0% 100,0% 100,0%

10�









N/A

No

0 1 2 3 4 5 6

3

Yes

3

1

1

1

1

4

2

1

5

2

Graph 3.52 – Counts for nature of business vs. financial assistance

As shown in Table 3.52 and Graph 3.52,� financial assistance is mainly provided in the Automotive,� Transportation and Mechanical business sectors. However,� it can be said that it is poorly implemented in Brazil,� as only 7 out of the 25 TNCs actually have it currently underway. The Rubber,� Plastics,� Chemical,� Petrochemical,� Paper and Pulp sectors is the main set of business sectors that do not have it implemented accounting for nearly 30% of that total.



1

10� 10�

TABLE 3.53 Nature of Business vs. Direct Financial Assistance


TotalYes N/A No

Nature of Business


Count 1 0 6 7

% 14,�3% ,�0% 35,�3% 28,�0%


Count 1 0 0 1

% 14,�3% ,�0% ,�0% 4,�0%

Foods,� Beverages and Tobacco

Count 0 1 0 1

% ,�0% 100,�0% ,�0% 4,�0%


Count 2 0 3 5

% 28,�6% ,�0% 17,�6% 20,�0%


Count 0 0 2 2

% ,�0% ,�0% 11,�8% 8,�0%


% 14,�3% ,�0% ,�0% 4,�0%


Count 2 0 3 5

% 28,�6% ,�0% 17,�6% 20,�0%


Count 0 0 3 3

% ,�0% ,�0% 17,�6% 12,�0%


% 100,0% 100,0% 100,0% 100,0%

10�









Yes

No

N/A

6

2

3

2

2

3

3

0 1 2 3 4 5 6 7

Graph 3.53 – Counts for nature of business vs. direct financial assistance

According to Graph 3.53 and Table 3.53,� direct financial assistance is poorly provided by TNCs mainly in the Automotive,� Transportation and Mechanical; Metallurgy,� Steel and Mining; Technology,� Computers,� Telecommunications and Electric; Rubber,� Plastics,� Chemical,� Petrochemical,� Paper and Pulp business sectors. On the other hand,� the latter have the greatest amount of companies which offers direct financial assistance along with Metallurgy,� Steel and Mining business sectors.



10� 109

TABLE 3.54 Nature of Business vs. Consulting and Technical Assistance

Consulting and Technical Assistance

Consulting and Technical

Assistance Total

Yes No

Nature of Business


Count 6 1 7

% 31,�6% 16,�7% 28,�0%


Count 1 0 1

% 5,�3% ,�0% 4,�0%


% 5,�3% ,�0% 4,�0%

Metallurgy,� Steel Industry and MiningCount 2 3 5

% 10,�5% 50,�0% 20,�0%

Pharmaceuticals,� Cosmetics and TextilesCount 2 0 2

% 10,�5% ,�0% 8,�0%


% 5,�3% ,�0% 4,�0%


Count 5 0 5

% 26,�3% ,�0% 20,�0%


Count 1 2 3

% 5,�3% 33,�3% 12,�0%


% 100,0% 100,0% 100,0%

110








Technology/Computer/Telecom/ElectricYES

NO

0 1 2 3 4 5 6 7

6

2

2

3

5

2

Graph 3.54 – Counts for nature of business vs. consulting and technical assistance

TABLE 3.55

Counts for Nature of Business vs. Area of Technical Assistance

Categories

Dis

trib

utio

n

Sup

ply

Pro

duc

tio

n

Ser

vice

s

mar

keti

ng

Ro

w T

ota

l

Pharmaceuticals,� Cosmetics and Textiles 2 1 1 1 2 7

Automotive,� Transportation and Mechanics 1 4 6 1 1 13

Metallurgy,� Steel Industry and Mining 1 0 1 2 1 5

Retail,� Export and Furniture 1 0 1 0 0 2

Construction,� Public Services and General Services 0 0 0 1 0 1


Rubber,� Plastics,� Chemical,� Petrochemical,� Paper and Pulp 0 2 3 3 0 8

Technology,� Computers,� Telecom and Electric 0 0 0 1 1 2

Total 5 � 13 10 4 39

110 111

The consulting and technical assistance has been mainly implemented by the Rubber,� Plastics,� Chemical,� Petrochemical,� Paper and Pulp; Automotive,� Transportation and Mechanical business sectors. Specifically,� the latter have more programs directed to assisting in the Supply and Production areas,� as shown in Table 3.54. Rubber,� Plastics,� Chemical,� Petrochemical,� Paper and Pulp technical assistance is mainly turned to solving production and outsourcing services issues.



TABLE 3.56 Counts for Nature of Business vs. Business Environmental Limitations

Categories L

aws/

Reg

ulat

ion

s

Infr

astr

uctu

re

Po

litic

al C

limat

e

So

cio

-Eco

no

mic

Co

nte

xt

Def

icie

nt

Pub

lic

Ass

ista

nce

Ro

w T

ota

l

Automotive,� Transportation and Mechanics 4 4 3 3 1 15

Metallurgy,� Steel Industry and Mining 4 4 0 2 2 12


4 2 0 3 0 9

Pharmaceuticals,� Cosmetics and Textiles 2 1 0 1 0 4



Retail,� Export and Furniture 1 1 0 0 0 2


Total 1� 14 4 12 3 51

Once again,� according to Table 3.56,� Laws and Regulations were the most cited business environmental barriers that could prevent TNCs to form or expand their linkages with local SMEs. In addition,� Laws and Regulations barriers are more perceived by TNCs from the Automotive,� Transportation and Mechanical; Metallurgy,� Steel and Mining; Rubber,� Plastics,� Chemical,� Petrochemical,� Paper and Pulp business sectors. On the other hand,� the political climate and the deficient public assistance played a minor role in the TNCs point of view of the Brazilian business environmental situation.

112



TABLE 3.57 Counts for Nature of Business vs. Internal SMEs Limitations

Categories

Tech

no

log

ical

Le

vel

Pro

duc

tio

n

Cap

acit

y

Qua

lity

Pric

e

Serv

ice

Leve

l

man

agem

ent

Cap

acit

y

Cre

dit

Acc

ess

Eth

ics

Co

ntr

act

Ho

no

rin

g

Ro

w T

ota

l

Automotive,� Transportation and Mechanics 3 3 4 3 5 2 1 3 24

Metallurgy,� Steel Industry and Mining 3 1 2 1 2 2 0 2 13

Rubber,� Plastics,� Chemical,� Petrochemical,� Paper and Pulp 3 2 3 3 3 0 0 3 17

Technology,� Computers,� Telecom and Electric 2 1 0 0 1 0 0 0 4


Pharmaceuticals,� Cosmetics and Textiles 1 2 2 1 1 1 1 1 10


Construction,� Public Services and General Services 0 0 0 0 0 0 0 0 0

Total 14 11 13 10 14 � 2 10 �1

As shown in Table 3.57,� the technological and service levels,� the quality of SMEs products and the production capacity figured as the top most mentioned barriers for the expansion or formation of business linkages. The management capacity and the access to credit did not reach considerable amount of counts and,� consequently,� were classified at the bottom of Table 3.57. For instance,� the service level represents the greatest concern for the Automotive,� Transportation and Mechanical business sectors,� whereas the technological level does for the Metallurgy,� Steel and Mining industries.

112 113



TABLE 3.58Nature of Business vs. Local Agencies Support


TotalYes N/A No

Nature of Business


Count 2 1 4 7

% 33,�3% 25,�0% 26,�7% 28,�0%


Count 0 0 1 1

% ,�0% ,�0% 6,�7% 4,�0%


Count 0 1 0 1

% ,�0% 25,�0% ,�0% 4,�0%


Count 3 0 2 5

% within VI.1. LOCAL AGENCIES SUPPORT

50,�0% ,�0% 13,�3% 20,�0%

% of Total 12,�0% ,�0% 8,�0% 20,�0%


Count 0 0 2 2

% ,�0% ,�0% 13,�3% 8,�0%

Retail,� Export and Furniture

Count 1 0 0 1

% 16,�7% ,�0% ,�0% 4,�0%


Count 0 1 4 5

% ,�0% 25,�0% 26,�7% 20,�0%


Count 0 1 2 3

% ,�0% 25,�0% 13,�3% 12,�0%


% 100,0% 100,0% 100,0% 100,0%

114




Metalic/Steel/Mining

Pharmaceuticals/Cosmeticals/Textiles



Technology/Computers/Telecom/Electric

Yes

N/A

0 1 2 3 4 5

21

4

1

1

3

2

2

1

14

12

No

Graph 3.55 – Counts for nature of business vs. local agencies support

Local promotion agencies are considerable active in the Metallurgy,� Steel and Mining industries as,� according to Graph 3.55,� it is the only set in which the companies that do not have any kind of support are outnumbered by those which actually have. On the other hand,� the Technology,� Computers,� Telecommunications and Electric business sectors along with Food,� beverages and tobacco; Rubber,� Plastics,� Chemical,� Petrochemical,� Paper and Pulp and Construction,� Public and General Services have not received so far any kind of support from Local Promotion agencies.

114 115

3.4 SME Survey Results – Business Linkages Programme – General Analysis

3.4.1 General Business Environment

3.4.1.1 Federal States

The analysis starts with the spatial representation of the surveyed SMEs concerning their location on the Brazilian states (Figure 3.1).

Figure 3.1 – Brazilian Federal States

This spatial representation is followed by Table 3.59 and Graph 3.56 that show the frequencies of the SMEs by states.

TABLE 3.59

11�

Frequencies and Percentage for the Sampled Federal States

Federal States Frequency PercentageBahia (BA) 40 38,�1

Pernambuco (PE) 35 33,�3

Espírito Santo (ES) 7 6,�7

São Paulo (SP) 6 5,�7

Alagoas (AL) 5 4,�8

Minas Gerais (MG) 4 3,�8

Distrito Federal (DF) 3 2,�9

Sergipe (SE) 3 2,�9

Ceará (CE) 1 1,�0

Santa Catarina (SC) 1 1,�0

Total 105 100,0

BA

PE

ES

SP

AL

MG

SE

DF

SC

CE

40

35

7

6

5

4

3

3

1

1

Graph 3.56 – Frequencies of the sampled Federal States

Companies from the most developed regions in Brazil (Southern and Southeastern) were outnumbered by those from the Northeastern Region,� regarded as least wealthy area in the country. To illustrate this point,� the Federal States of Bahia,� Pernambuco,� Alagoas,� Sergipe e Ceará totalized 84 out of the 105 (see Graph 3.56).

Again,� the sample was selected to concentrate most of the companies from the Northeastern Region,� due to the objectives of the social and environmental Projeto Vínculos in Brazil.

11� 11�

3.4.1.2 Number of Employees

Graph 3.57 and Table 3.60 exhibit the size of the surveyed SMEs by ranges of employee numbers.

TABLE 3.60 Frequencies and Percentage for the Number of Employees

Number of Employees Frequency Valid Percent

10 a 49 31 29,�5

50 to 99 35 33,�3

100 to 250 14 13,�3

251 to 499 17 16,�2

Above 500 3 2,�9

N/A 5 4,�8

Total 105 100,0

Above 500

251 to 499

100 to 250

50 to 99

10 to 49

N/A

2,�9

16,�2

13,�3

33,�3

29,�5

4,�8

Graph 3.57 – Percentages for the number of employees

The vast majority of the surveyed companies (62,�8%) has currently up to 99 direct employees (see Table 3.60). According to Sebrae,� Brazilian public institution dedicated to SMEs development in the country,� that set of companies is classified as small enterprises. On the other hand,� approximately 32,�4% are considered as medium companies,� with at least 100 workers. Five companies did not fill in this information,� accounting as “N/A” in Graph 3.57.

11�

3.4.1.3 Annual Turnover

Graph 3.58 and Table 3.61 show the annual turnover of the surveyed SMEs.

TABLE 3.61 Frequencies and Percentage for the Annual Turnover

Annual Turnover (US$) Frequency Valid Percent

Bellow 550 thousand 3 2,�9

Between 550 thousand and 2,�3 million 4 3,�8

Between 2,�3 and 4,�9 million 23 21,�9

Between 4,�9 and 14 million 9 8,�6

Between 14 and 28 million 7 6,�7

Above 28 million 13 12,�4

N/A 46 43,�8

Total 105 100,0

Above 28 million

Between 14 and 28 million

Between 4,�9 and 14 million

Between 2,�3 and 4,�9 million

Between 550 thousand and 2,�3 million

Bellow 550 thousand

N/A

12,�4

6,�7

8,�6

21,�9

3,�8

2,�9

43,�8

0 5 10 15 20 25 30 35 40 45 50

Graph 3.58 – Percentages for the annual turnover

Respondents were asked to inform their annual turnover in US$ (based on a Brazilian Real to US Dollar Exchange Rate in January/07 where US$1 equals 2,�15 Brazil’s Real). As shown in Table 3.61,� 46 companies out of the 105 surveyed SMEs (43,�8%) did not answer this question. Based on the remaining respondents’ information also displayed in Graph 3.58,� the most representative set was comprised of companies with annual turnover from 5 million onwards (49,�6%). Only 6,�7% of the companies had earnings below that value.

11� 119

3.4.1.4 Nature of Business

The surveyed SMEs were divided into groups represented by their economic sector of business. The results are shown in Graph 3.59 and Table 3.62,� following.

TABLE 3.62 Frequencies and Percentage for the Business Sectors

Variables Frequency Percentage

Textiles 13 12,�4Construction 13 12,�4Food,� beverages and tobacco 10 9,�5Diverse Services 8 7,�6Chemical and Petrochemical 7 6,�7Telecommunications 6 5,�7Electric 5 4,�8Plastics and Rubber 5 4,�8N/A 4 3,�8Health Sector 4 3,�8Technology and computers 4 3,�8Retail 3 2,�9Machinery 3 2,�9Furniture 3 2,�9Paper and Pulp 3 2,�9Wholesalers and export 2 1,�9Electronics 2 1,�9Pharmaceuticals 2 1,�9Mining 2 1,�9Transportation 2 1,�9Automotive 1 1,�0Financial Market 1 1,�0Steel Industry and Metallurgy 1 1,�0Public Services 1 1,�0Total 105 100,0

120

13

13

10

Construction

Textiles

Food,� beverages and tobacco

General Services

Chemical and petrochemical

Telecommunications

Plastics and rubber

Electric

Technology and computer

Health Sector

N/A

Paper and pulp

Furniture

Machinery

Retail

Transportation

Mining

Cosmetics and hygiene

Electronics

Wholesalers and export

Public Services

Steel Industry and Metallurgy

Financial Market

Automotive

8

7

6

5

5

4

4

4

3

3

3

3

2

2

2

2

2

1

1

1

1

Graph 3.59 – Frequencies for the business sectors

120 121

The sample of SMEs was mostly comprised of companies based on medium value-added business sectors. That is,� activities which are directly involved in cutting-edge technology development. For instance,� the four most representative sectors were Construction (12,�4%),� Textiles (12,�4%),� Food,� beverages and tobacco (9,�5%) and General Services (7,�6%),� whereas Technology and Computer (3,�8%) and Electronics (1,�9%) were poorly represented (see Table 3.62). It was also considered significant that heavy industry sectors such as Steel Industry and Metallurgy (1%),� Mining (1,�9%),� and Paper and Pulp (2,�9%) did not reach expressive numbers.

The high concentration on the construction sector indicates the ways to which the existing policies can be used to boost linkages,� such as the policies related to Tourism,� Public Investments,� etc.

3.4.1.5 Business Linkages

Central Question (originated from the primary questionnaire from Unctad):DOES YOUR COMPANY HAVE BUSINESS LINKAGES WITH TNCs?

50 48%

55 52%

Have business linkagesDo not have business linkages

Graph 3.60 – Business linkages with TNCs

According to Graph 3.60,� 55 SMEs actually fit the profile of having business linkages with a TNC company out of the 105 surveyed. As a result,� the following questions were specifically directed to the 55 SME sample with historical profile of business linkage with TNCs.

At this point,� the analyses continue only with the 55 companies that have stated history of business linkage with TNCs.

122

3.4.2 Business Linkage Experience

3.4.2.1 Business Linkage Formation

Central Question (originated from the primary questionnaire from Unctad):HOW HAVE YOU ENTERED INTO THIS BUSINESS PARTNERSHIP?

3 5%

5295%

Answered Not answered

Graph 3.61 – Business linkage formation

Contacted by TNC

Actively contacted TNC

Took part in a bid

Trade Fair

Exclusive Vendor

Trade Chamber

SEBRAE

0 10 20 30 40 50 60

45,�1

2

49

19,�6

9,�8

2

2


Graph 3.62 – Percentage of respondents – Type of business linkage formation

122 123

TABLE 3.63 Counts and Percentage of Responses – Type of Business Linkage Formation

Variables Counts Percentage of Responses

Contacted by TNC 25 37,�9

Actively contacted TNC 23 34,�8

Took part in a bid for the supply contract 10 15,�2

Trade Fair 5 7,�6

Exclusive vendor 1 1,�5

Trade chamber 1 1,�5

Sebrae 1 1,�5

Total �� 100,0

Nearly half of the 52 companies which actually answered this question (see Graph 3.64) were directly contacted by a TNC to initiate some type of business linkage. Moreover,� a similar percentage of the companies (45,�1%),� actively contacted the TNC partner in order to reach a business deal. Therefore,� it can be said that the direct contact prevail in relation to the other type of business link formation alternatives (see Table 3.63).

A conclusion is clear on this issue. In Brazil,� most of the business linkages start with the initiative from the TNC or the SME. The presence of intermediate agencies to promote linkages is not a reality,� according to the surveyed SME representatives.

3.4.2.2 Business Agreement

Central Question (originated from the primary questionnaire from Unctad):WHAT KIND OF FORMAL CONTRACT / BUSINESS ARRANGEMENT HAVE YOU AGREED ON WITH THE TNC?

1 2%

54 98%

AnsweredNot answered

Graph 3.63 – Business agreement

124

LT Formal

ST Formal

MT Formal

Informal

40,�7

5,�6

33,�3

27,�8


0 5 10 15 20 25 30 35 40 45

LT Formal – Long-term formal contractST Formal – Short-term formal contractMT Formal – Mid-term formal contractInformal – Informal agreement

Graph 3.64 – Percentage of respondents – Type of business agreement

TABLE 3.64Counts and Percentage of Responses – Type of Business Agreement

Variables Counts Percentage of ResponsesLong-term formal contract 22 37,�9Short-term formal contract 18 31,�0Mid-term formal contract 15 25,�9Informal agreement 3 5,�2Total 5� 100,0

As shown in Table 3.64,� in relation to the business agreements reached by 54 SMEs,� the Long-term formal contract (37,�9%) surpassed the Short-term formal contract (31%),� Mid-term formal contract (25,�9%) and the Informal agreement (5,�2%). However,� the Short-term formal contract was also significantly quoted in second place and this could indicate a certain polarization on the type of contracts between SMEs and TNCs in Brazil.

The surveyed SMEs have shown,� in their majority,� long-term formal contract with the TNC. This fact creates an important and positive environment to expand business linkages.

124 125

3.4.2.3 Benefits Regarding Business Partner

Central Question (originated from the primary questionnaire from Unctad):FOR YOUR COMPANY,� WHAT ARE THE BENEFITS YOUR TNC PARTNER OFFERS?


Access new markets

Leverage the production scale

Increase productivity

Decrease vulnerability

Increase solvency

Increase access to financing

Increase credibility in the market

Increase capital availability

Improve product features

0 10 20 30 40 50 60 70 80

70,�9

54,�5

40

32,�7

16,�4

10,�9

10,�9

9,�1

7,�3

Percentage related to 55 respondents

Graph 3.65 – Percentage of respondents – Benefits regarding business partner

TABLE 3.65Counts and Percentage of Responses – Benefits Regarding Business Partners

Variables Counts Percentage of Responses

Access new markets 39 28,�1Leverage the production scale 30 21,�6Increase productivity 22 15,�8Decrease vulnerability in the face of economical crises 18 12,�9Increase solvency 9 6,�5Increase access to financing 6 4,�3Increase credibility in the market 6 4,�3Increase capital availability 5 3,�6Improve product quality and technology 4 2,�9Total 139 100,0

According to Table 3.65,� the most perceived benefits offered by a TNC in a business linkage are access to new markets (28,�1%),� leverage of the production scale (21,�6%) and increase of productivity (15,�8%). These alternatives are mostly related to company growth and process optimization. Alternatively,� the least mentioned item refers to technology and product quality development (2,�9%). The latter was cited only by 7,�3% of the respondents whereas the top three by at least 40% (see Graph 3.65).

It is clear that the main motivation to SMEs to be part of the TNC`s productive chains is scale. New markets mean higher selling volumes and the actions to leverage production scale is also part of the volume dimension.

12�

3.4.2.4 Type of Production or Activity

Central Question (originated from the primary questionnaire from Unctad):PLEASE DESCRIBE WHICH TYPE OF SERVICE OR PRODUCT YOU PROVIDE TO YOUR TNC PARTNER.

Services

Capital goods

Raw material

Non-durable goods

Machinery goods

50,�9

16,�4

23,�6

21,�8


0 10 20 30 40 50 60

5,�5

Graph 3.66 – Percentage of respondents – Type of production

TABLE 3.66 Counts and Percentage of Responses – Type of production

Variables Counts Percentage of ResponsesService 28 43,�1Capital goods 13 20,�0Raw material 12 18,�5Non-durable goods 9 13,�8Machinery goods 3 4,�6Total �5 100,0

The service activity represented by far the most representative percentage of the SMEs sample (50,�9%),� followed by capital goods production (23,�6%),� raw material (21,�8%),� non-durable goods (16,�4%) and machinery goods manufacturing (5,�5%).

The fact that the service activity comes first on the variety of supply itens to the TNCs from the SMEs comply with the answers given by the TNCs,� and reinforce the line of action toward the improvement of linkage through service supply.

12� 12�

3.4.3 Features of Supplier / Business Partner Development

3.4.3.1 Training Experience

Central Question (originated from the primary questionnaire from Unctad):BASED ON YOUR ExPERIENCE,� PLEASE DESCRIBE HOW THE TNC TRAINS/ DEVELOPS BUSINESS PARTNERS AS YOU.

5 9%

1 2%

49 89%

Have training programsDo not have training programs Not answered

Graph 3.67 – Training experience

Support on contractual deals

R & D Support

H.R. Training

Management transferring

Process transferring

Financial capacity enhancement

65,�3


0 10 20 30 40 50 60 70

44,�9

36,�7

20,�4

20,�4

12,�2

H.R. Training – Human Resources Training

Graph 3.68 – Percentage of respondents – Training experience

12�

TABLE 3.67 Counts and Percentage of Responses – Trainment Experience

Variables Count Percentage of ResponsesSupport for the accomplishment of the business deal objectives

32 32,�7

R&D support 22 22,�4Human resources training 18 18,�4Management techniques transferring 10 10,�2Production techniques transferring 10 10,�2Financial capacity enhancement 6 6,�1Total 9� 100,0

For the 49 companies that have received support for business development,� the assistance offered by TNC was mostly related to the measurement and support for accomplishment of the business deal objectives (32,�7%) (see Table 3.67). According to Graph 3.68,� it was the only alternative cited by over half of the respondents (65,�3%). Surprisingly,� the sum of pointed options in the multiple choice questionnaire for management techniques transferring (10,�2%),� production techniques transferring (10,�2%) and financial capacity enhancement (6,�1%) is not enough to overpass the number one alternative.

According to the SMEs,� TNCs have trained them to achieve what has been contracted. This action can be considered as a defense action from the TNC side,� since ruptures on the contract can have reasons on technical issues that may lead to disruptions on the production chain.

3.4.3.2 Financial Support

Central Question (originated from the primary questionnaire from Unctad):HAS YOUR COMPANY RECEIVED DIRECT OR INDIRECT FINANCIAL SUPPORT FROM THE TNC AS PART OF YOUR BUSINESS DEAL?

6 11%

49 89%

Received financial supportDid not receive financial support

Graph 3.69 – Financial support

12� 129

Indirect Financial Support

Direct Financial Support

50


0 10 20 30 40 50 60

50

Indirect Financial Support – Favorable price policy,� costs sharing,� better payment conditions and favorable interest policy.Direct Financial Support – Direct investment.

Graph 3.70 – Percentage of respondents – Type of financial support

TABLE 3.68 Counts and Percentage of Responses – Financial Support

Variables Counts Percentage of ResponsesIndirect Financial Support 3 50,�0Direct Financial Support 3 50,�0Total � 100,0

Definitely,� the financial support is not employed by TNC to help directly or indirectly their SME partner in Brazil. As shown in Graph 3.69,� only 6 SMEs companies received support. Moreover,� the indirect and the direct financial support were equally mentioned by this reduced set of the total sample (see Table 3.68).

3.4.3.3 Training Programmes

Central Question (originated from the primary questionnaire from Unctad):HAS YOUR COMPANY RECEIVED TRAINING/ MENTORING/ COACHING PROGRAMMES FROM TNC PARTNER?

130

24%

2545%

2951%

Have training programsDo not have training programsNot answered

Graph 3.71 – Training programmes

Quality control training

Technical workshops

Performance feedback

Managerial workshops

Internal training offered by TNC

Management training

Export standards training

Opportunities in the TNC programs

Basic education programs

55,�2


0 10 20 30 40 50 60

51,�7

44,�8

41,�4

37,�9

20,�7

17,�2

10,�3

3,�4

Graph 3.72 – Percentage of respondents – Training programmes

TABLE 3.69Counts and Percentage of Responses – Training Programmes

Variables CountsPercentage of

Responses

Quality control training 16 19,�5Technical workshops 15 18,�3Performance feedback and suggestions of improvement 13 15,�9Managerial workshops 12 14,�6Internal training offered by employees of the TNC 11 13,�4Management training 6 7,�3Training about the export quality standards 5 6,�1Offering insertions in the internal training of the TNC 3 3,�7Basic education training programs for the employees of the SMEs 1 1,�2Total �2 100,0

130 131

Once again,� not all of the SME companies received training,� mentoring or coaching programmes by TNC partner. To be more precise,� only 29 out of the 55 actually did receive some type of training/mentoring/coaching programmes (see Graph 3.72). Accordingly,� the technical control of the quality of the product (19,�5%) and technical workshops (18,�3%) were the most cited. Moreover,� there is also concern on the performance achieved by the SMEs,� which is addressed thoroughly by giving feedback and suggestions of improvements (15,�9%). On the other hand,� according to Table 3.69,� management training (7,�3%) and training about export standards (6,�1%) were scarcely mentioned.

Once again,� it is clear that the TNCs are concerned about the level of potential disruptions on the productive line,� and,� moreover,� with the quality of the product they dispose on the market. Once the supplier has high quality control,� a positive effect can be expected on the partner`s product.

3.4.3.4 Training Programmes Impact

Central Question (originated from the primary questionnaire from Unctad):WHICH IMPACTS HAVE THESE PROGRAMMES/ MEASURES HAD ON YOUR COMPANY?

2 4%

25 45%

29 51%

Had considerable impact Did not have any considerable impact Not answered

Graph 3.73 – Trainment impact

132

Product Quality

HR capabilities

Management skills

Production process quality

Productivity

Cost reduction


0 10 20 30 40 50 60 70 80 90 100

89,�7

69

65,�5

58,�6

44,�8

37,�9

Graph 3.74 – Percentage of respondents – Training programs impact

TABLE 3.70 Counts and Percentage of Responses – Training Programmes Impact

Variables Counts Percentage of ResponsesImprovement in the product quality 26 24,�5Improvement of the Human Resources capabilities 20 18,�9Improvement in the management skills 19 17,�9Improvement in the production process quality 17 16,�0Increase of the productivity 13 12,�3Cost reduction 11 10,�4Total 10� 100,0

As long as training,� coaching or mentoring programmes are mainly directed to tackling product quality issues,� it is expected to note that nearly 90% of the 29 respondents perceive considerable impact on the quality of their product (see Figure 3.76). On the other hand,� it was also considered significant that increase of productivity (44,�8%) and reduction of costs (37,�9%) were the only two items mentioned by less than a half of the respondents.

3.4.3.5 Technological Support

Central Question (originated from the primary questionnaire from Unctad):HAS YOUR COMPANY RECEIVED SUPPORT FROM YOUR TNC PARTNER IN TERMS OF TECHNOLOGY UPGRADE AND PRODUCTION CAPABILITIES?

132 133

12% 7

13%

4785%

Have techonology supportDo not have techology supportNot answered

Graph 3.75 – Technological support

Company development

Product improvement

71,�4%

28,�6%

Graph 3.76 – Percentage of respondents – Benefits of the technological support

TABLE 3.71 Counts and Percentage of Responses – Benefits of the technological support

Variables Counts Percentage of ResponsesCompany development 5 71,�4%Product improvement 2 28,�6%Total � 100,0

Only 7 out of 55 surveyed SMEs actually received support from their TNC partner in terms of technology upgrade and production capabilities (see Graph 3.75). In addition,� 5 out of those 7 companies considered that there was development of the company,� where only SMEs mentioned that there was a certain product improvement (see Table 3.71) due to this productive and technological support.

134

3.4.4 Limitations with Linkages

3.4.4.1 Barriers Related to Business Environmental Limitations

Central Question (originated from the primary questionnaire from Unctad):PLEASE INDICATE WHICH BARRIERS COULD PREVENT YOUR COMPANY FROM ExPANDING YOUR LINKAGE DEAL WITH THE TNCs.

1935%

3665%

Mentioned limitationsDid not mention limitations

Graph 3.77 – Barriers related to business environmental limitations

Laws,� regulations

Infrastructure

Deficient public assistance

Socio-economic context

Political climate

63,�9

25

30,�6

30,�6


0 10 20 30 40 50 60 70

13,�9

Graph 3.78 – Percentage of respondents – Type of barriers related to business environmental limitations

134 135

TABLE 3.72 – Counts and Percentage of Responses – Type of Barriers Related to Business Environmental Limitations

Barriers Counts Percentage of ResponsesLaws,� regulations 23 39,�0Infrastructure 11 18,�6Deficient public assistance 11 18,�6Socio-economic context 9 15,�3Political climate 5 8,�5Total 59 100,0

A total of 36 respondents considered that there were limitations related to the business environment which may eventually prevent their companies from expanding business linkages with the TNCs. Firstly,� 23 out of the 36 respondents argued that laws and regulations are the most considerable hampering issues (see Table 3.72). Secondly,� infrastructure and deficient public assistance were equally mentioned in second place by 30,�6% of the 36 respondents (see Graph 3.78). At last,� the socio-economic context and the political climate received minor citation rates and ranked in the last positions in Table 3.72.

Similarly to the TNC survey,� the respondents from the SME also pointed out the laws and regulations as the major limitations to continue or consolidate their business relationships to TNCs. This is a clear sign of the ways decision makers should follow to promote linkages in Brazil.

3.4.4.2 Barriers Related to Internal Limitations


27

49%

28 51%

Mentioned limitations Did not mention limitations

Graph 3.79 – Barriers related to internal limitations

13�

Management capability

Access to financing

Price

Technology level

Production capacity

Services levels

Quality

Contract requirements


41,�4

0 5 10 15 20 25 30 35 40 45

41,�4

31

27,�6

24,�1

24,�1

13,�8

6,�9

Graph 3.80 – Percentage of respondents – Type of barriers related to internal limitations

TABLE 3.73 Counts and Percentage of Responses – Internal SMEs Barriers for Business Linkage Formation

Barriers Counts Percentage of ResponsesManagement capabilities 12 19,�7Access to financing 12 19,�7Price 9 14,�8Technology level 8 13,�1Production capacity 7 11,�5Services levels 7 11,�5Quality 4 6,�6Contract requirements 2 3,�3Total �1 100,0

Among the cited SMEs limitations that could prevent SMEs from expanding business linkages with TNCs partners,� management capabilities and the access to financing were mentioned by 41,�4% of the 28 respondents who answered this question (see Graphs 3.79 and 3.80). The production capacity,� service levels and the quality of the product received similar ratings and ranked in the last positions in Table 3.73.

The surveyed SMEs clear recognize their limitations to improve business relationships with the TNCs as been managerial and financial. This is another clear sign of the needs and,� consequent,� actions that should be taken from the policy makers to improve linkages in Brazil.

13� 13�

3.4.5 Institutional Support to Local Business Linkages

3.4.5.1 Local Promotion Agencies

Central Question (originated from the primary questionnaire from Unctad):HAS YOUR COMPANY RECEIVED ANY SUPPORT FROM LOCAL PROMOTION AGENCIES TO ASSIST YOU WITH LINKAGES?

24%

916%

4480%

Received support Did not receive support Not answered

Graph 3.81 – Local promotion agencies

Financial support

Support for seeking business partners

Training

Consulting

Management support

Help with business linkages problems


0 10 20 30 40 50 60

55,�6

44,�4

33,�3

33,�3

11,�1

11,�1

Graph 3.82 – Percentage of respondents – Type of local promotion agencies support

13�

TABLE 3.74Counts and Percentage of Responses – Local Promotion Agencies Type of Support

Support Counts Percentage of Responses

Financial support 5 29,�4Support for seeking business partners 4 23,�5Training 3 17,�6Consulting 3 17,�6Management support 1 5,�9Offer of employees to work jointly with your company in order to sort out business linkage problems

1 5,�9

Total 1� 100,0

Local promotion agencies have offered support to only 9 out of the 55 surveyed companies. In addition,� according to Table 3.74,� that assistance is mostly directed to provide financial aid (29,�4%),� instead of offering management (5,�9%) or business linkage support (5,�9%).

13� 139

3.5 SME Survey Results – Business Linkages Programme – In-Depth Analysis

3.5.1 Analysis Based on Nature of Business


Central Question (originated from the primary questionnaire from Unctad):DO YOUR COMPANY HAVE BUSINESS LINKAGES WITH TNCs?

TABLE 3.75 Nature of Business vs. Business Linkage

Business Linkages

Do you have Business Linkage? Total

Yes No

Nature of Business


% 12,�7% 6,�0% 9,�5%

Automotive,� Transportation e Mechanics

Count 2 4 6% 3,�6% 8,�0% 5,�7%


Count 1 2 3% 1,�8% 4,�0% 2,�9%


Count 12 5 17

% 21,�8% 10,�0% 16,�2%


Count 12 3 15

% 21,�8% 6,�0% 14,�3%

Construction,� Public Services,� General Services

Count 15 12 27% 27,�3% 24,�0% 25,�7%

Pharmaceuticals,� TextilesCount 3 12 15

% 5,�5% 24,�0% 14,�3%


% 5,�5% 10,�0% 7,�6%

N/ACount 0 4 4

% ,�0% 8,�0% 3,�8%

TotalCount 55 50 105

% 100,0% 100,0% 100,0%

140

Food/Bev/Tobacco

Auto/Transp/Mechanic

Metal/Steel/Mining

Tech/Comp/Tele/Elect Rubber/Plast/

Chem/Petro

Cons/PB/GN Services

Pharma/Textiles


N/A

0 4 8 12 16

Do have

Do not have

7

3

4

12

12

15

12

12

3

3

5

4

Graph 3.83 – Nature of business vs. Business linkage

According to Table 3.75 and Graph 3.83,� the four most numerous set of business sectors are Technology,� Computers,� Telecommunications and Electric; Rubber,� Plastic,� Chemical,� Petrochemical,� Paper and Pulp; Construction,� Public and General Services and Pharmaceuticals,� Textiles. However,� only the latter have more companies that do not have business linkages (see Graph 3.83 for further details).

3.5.1.2 Trainment Experience

Central Question (originated from the primary questionnaire from Unctad):BASED ON YOUR ExPERIENCE,� PLEASE DESCRIBE HOW THE TNC TRAINS / DEVELOPS BUSINESS PARTNERS AS YOU.

5

3

140 141

TABLE 3.76 Nature of Business vs. Trainment Experience

Trainment ExperienceTrainment Experience

TotalYes N/a No

Nature of Business


Count 5 0 2 7

% 10,�2% ,�0% 40,�0% 12,�7%


Count 2 0 0 2

% 4,�1% ,�0% ,�0% 3,�6%


Count 1 0 0 1

% 2,�0% ,�0% ,�0% 1,�8%


Count 11 0 1 12

% 22,�4% ,�0% 20,�0% 21,�8%


Count 11 0 1 12

% 22,�4% ,�0% 20,�0% 21,�8%


Count 13 1 1 15% 26,�5% 100,�0% 20,�0% 27,�3%

Pharmaceuticals,� TextilesCount 3 0 0 3

% 6,�1% ,�0% ,�0% 5,�5%Retail,� Export and Furniture

Count 3 0 0 3% 6,�1% ,�0% ,�0% 5,�5%


% 100,0% 100,0% 100,0% 100,0%

142

Food/Bev/Tobacco

Auto/Trans/Mechanics

Metal/Steel/Mining

Tech/Comp/Tele/Elect Rub/

Rubber/Plast/Chem/Petro

Cons/PB/GN Services

Pharma/Textiles


0 2 6 10 12

YES

N/A

5

2

2

11

11

13

3

3 NO

144 8

Graph 3.84 – Nature of business vs. trainment experience

According to Graph 3.84,� only Construction,� Public and General Services; Rubber,� Plastics,� Chemical,� Petrochemical,� Paper and Pulp; Technology,� Computers,� Telecommunications,� Electric and Foods,� Beverage,� Tobacco sectors have companies which never had any trainment experience offered by a TNC. Furthermore,� Table 3.76 showed that all of the eight business sectors studied have at least one company which has already had trainment opportunities with a TNC.



142 143

TABLE 3.77 Nature of Business vs. Financial Support

Financial SupportFinancial Support

TotalYes No

Nature of Business


% ,�0% 14,�3% 12,�7%Automotive,� Transportation e Mechanics

Count 0 2 2% ,�0% 4,�1% 3,�6%


Count 0 1 1% ,�0% 2,�0% 1,�8%


Count 0 12 12

% ,�0% 24,�5% 21,�8%


Count 2 10 12% 33,�3% 20,�4% 21,�8%


Count 2 13 15

% 33,�3% 26,�5% 27,�3%

Pharmaceuticals,� TextilesCount 1 2 3

% 16,�7% 4,�1% 5,�5%


% 16,�7% 4,�1% 5,�5%

TotalCount � 49 55

% 100,0% 100,0% 100,0%

0 2 6 10 12 144 8

Food/Bev/Tobacco


Metal/Steel/Mining

Tech/Comp/Tele/Elect

Rubber/Plast/Chem/Petro Paper and Pulp

Cons/PB/GN Services

Pharma/Textiles


YES

7

NO

2

2

2

12

2

2

10

13

Graph 3.85 – Nature of business vs. financial support

144

First and foremost,� it is needless to say that the vast majority of companies have not yet received any kind of financial support from a TNC (see Table 3.77). Secondly,� the six companies which has already been helped financially are concentrated in four business sectors,� namely,� Rubber,� Plastics,� Chemical,� Petrochemical,� Paper,� Pulp; Construction,� Public and General Services; Pharmaceuticals and Textiles; Retail,� Export,� Furniture. Lastly,� the most helped business sector is Construction,� Public,� General Services with a total of 13 respondents (see Graph 3.85),� followed by Technology,� Computers,� Telecommunications,� Electric in second place with 12 respondents and,� in third place,� by the Rubber,� Plastics,� Chemical,� Petrochemical,� Paper,� Pulp sectors which reached 10 respondents.


Central Question (originated from the primary questionnaire from Unctad):HAS YOUR COMPANY RECEIVED TRAINING / MENTORING / COACHING PROGRAMMES FROM TNC PARTNER?

TABLE 3.78 Nature of Business vs. Training / Mentoring / Coaching Programmes

Training ProgrammesTraining Programmes

TotalYes N/a No

Nature of Business


% 6,�9% ,�0% 20,�0% 12,�7%Automotive,� Transportation and Mechanics

Count 0 0 2 2% ,�0% ,�0% 8,�0% 3,�6%


Count 1 0 0 1% 3,�4% ,�0% ,�0% 1,�8%


Count 6 0 6 12

% 20,�7% ,�0% 24,�0% 21,�8%


Count 8 0 4 12

% 27,�6% ,�0% 16,�0% 21,�8%


Count 9 1 5 15% 31,�0% 100,�0% 20,�0% 27,�3%


% 3,�4% ,�0% 8,�0% 5,�5%


% 6,�9% ,�0% 4,�0% 5,�5%


% 100,0% 100,0% 100,0% 100,0%

144 145

Food/Bev/Tobacco


Metal/Steel/Mining



Cons/PB/GN Services

Pharma/Textiles


0 2 6 10

TRUE

NO

4 8

N/A

2

5

2

6

6

8

4

9

5

2

2

Graph 3.86 – Nature of business vs. training/mentoring/coaching programmes

14�

TABLE 3.79 Counts for Nature of Business vs. Training/Mentoring/Coaching Programmes

Categorie

Qua

lity

con

tro

l tra

inin

g

Exp

ort

Sta

nd

ard

Tra

inin

g

man

agem

ent

trai

nin

g

Perf

orm

ance

fee

db

ack

Off

erin

g in

sert

ion

s in

th

e in

tern

al t

rain

ing

of

the

TNC

Inte

rnal

tra

inin

g

off

ered

by

TNC

Bas

ic e

duc

atio

n

pro

gra

ms

man

ager

ial w

ork

sho

ps

Tech

nic

al w

ork

sho

ps

Ro

w t

ota

l


7 2 3 4 2 3 0 7 7 35


4 2 2 2 1 1 1 1 4 18


3 0 0 5 0 4 0 3 3 18

Foods,� Beverages and Tobacco 1 0 0 0 0 2 0 1 1 5

Retail,� Export and Furniture 1 1 1 1 0 0 0 0 0 4


0 0 0 0 0 0 0 0 0 0

Metallurgy,� Steel Industry and Mining 0 0 0 0 0 1 0 0 0 1

Pharmaceuticals,� Cosmetics and Textiles 0 0 0 1 0 0 0 0 0 1

Total 1� 5 � 13 3 11 1 12 15 �2

According to Table 3.78 and Graph 3.86,� the only two sectors comprised of more numerous companies which have not taken part in any kind of training / mentoring / coaching programmes offered by a TNC are Food,� Beverages and Tobacco and Pharmaceuticals and Textiles. That is,� in these sectors,� the companies which actually have received this kind of support are outnumbered by those which have not. On the other hand,� Graph 3.86 shows that the Construction,� Public and General sectors reached the greater number of respondents having taken part in a trainment program,� a total of 9 to be more precise. In Table 3.79,� these respondents have marked mostly performance feedback (5 counts) and internal training offered by TNC (4 counts). Rubber,� Plastics,� Chemical,� Petrochemical,� Paper and Pulp sectors figured in second placed with eight respondents who have already taken part in a trainment program.

14� 14�


Central Question (originated from the primary questionnaire from Unctad):WHICH IMPACTS HAVE THESE PROGRAMMES/ MEASURES HAD ON YOUR COMPANY?

TABLE 3.80Counts for Nature of Business vs. Training Programs Impact

Categories

Pro

duc

tivi

ty

Incr

ease

Imp

rove

men

t in

th

e p

rod

uct

qua

lity

Imp

rove

men

t in

th

e p

rod

ucti

on

pro

cess

q

ualit

y

Co

st r

educ

tio

n

Imp

rove

men

t o

f th

e H

uman

Res

our

ces

ca

pab

iliti

es

Imp

rove

men

t in

th

e m

anag

emen

t sk

ills

Ro

w T

ota

l

Construction,� Public Services and General Services 6 8 4 3 6 5 32


3 8 6 4 5 6 32

Technology,� Computers,� Telecom and Electric 2 5 4 2 6 5 24

Foods,� Beverages and Tobacco 1 2 1 1 1 1 7

Retail,� Export and Furniture 1 2 1 0 0 1 5

Automotive,� Transportation and Mechanics 0 0 0 0 0 0 0

Metallurgy,� Steel Industry and Mining 0 0 0 0 1 0 1

Pharmaceuticals,� Cosmetics and Textiles 0 1 1 1 1 1 5

Total 13 2� 1� 11 20 19 10�

According to Table 3.80,� the Construction,� Public and General Service sectors have been benefited mostly from the training programs received in areas such as product quality (8 counts),� productivity (6 counts) and human resources capabilities. Besides improvements in the product quality,� the Rubber,� Plastics,� Chemical,� Petrochemical,� Paper and Pulp sectors have considerably had improvements in areas such as management skills and process quality (6 counts each).

14�

3.4.1.� Technological Support


TABLE 3.81Nature of Business vs. Technological Support

Technological SupportTechnological Support

TotalYes N/a No

Nature of Business


Count 1 0 6 7% 14,�3% ,�0% 12,�8% 12,�7%


Count 0 0 2 2% ,�0% ,�0% 4,�3% 3,�6%


Count 0 0 1 1% ,�0% ,�0% 2,�1% 1,�8%


Count 2 0 10 12% 28,�6% ,�0% 21,�3% 21,�8%


Count 3 1 8 12

% 42,�9% 100,�0% 17,�0% 21,�8%


Count 0 0 15 15% ,�0% ,�0% 31,�9% 27,�3%


% ,�0% ,�0% 6,�4% 5,�5%


% 14,�3% ,�0% 4,�3% 5,�5%


% 100,0% 100,0% 100,0% 100,0%

14� 149

Food/Bev/Tobacco


Metal/Steel/Mining



Cons/PB/GN Services

Pharma/Textiles


YES

NO

N/A

6

10

3

8

15

3

0 2 6 10 12 144 8 16

Graph 3.87 – Nature of business vs. technological support

According to Table 3.81,� a total of 47 out of the 55 surveyed companies have not yet received any kind of technological support. Specifically,� the Construction,� Public and General Services was the most significant set of sectors which have not benefited from a TNC technological support accounting for 31,�9% of the companies in the same situation. On the other hand,� as shown in Graph 3.87,� the Rubber,� Plastic,� Chemical,� Petrochemical,� Paper and Pulp sectors,� had 3 respondents receiving such technological assistance,� accounting for expressive 42,�9% of the total of eight benefited respondents.



150

TABLE 3.82 Counts for Nature of Business vs. Business Environmental Limitations

Categories

Law

s/

Reg

ulat

ion

s

Infr

astr

uctu

re

Polit

ical

clim

ate

Soci

o-e

con

om

ic

con

text

Def

icie

nt

pub

lic

assi

stan

ce

Ro

w t

ota

l



Rubber,� Plastics,� Chemical,� Petrochemical,� Paper and Pulp 4 2 1 2 3 12

Foods,� Beverages and Tobacco 2 1 1 2 2 8Automotive,� Transportation and Mechanics 2 1 1 1 0 5Pharmaceuticals,� Cosmetics and Textiles 2 2 0 0 2 6Retail,� Export and Furniture 1 1 0 0 1 3Metallurgy,� Steel Industry and Mining 0 0 0 0 0 0Total 23 11 5 9 11 59

As shown in Table 3.82,� all of the eight set of the surveyed sectors mentioned the Law and Regulations as the most significant environmental business limitations. Although the deficient public assistance ranked in second place,� two sectors did not mention it as source of environmental limitations,� namely,� Automotive,� Transportation and Mechanics and Metallurgy,� Steel Industry and Mining. In third place,� the Infrastructure context was not mentioned only by the Metallurgy,� Steel and Mechanics sectors which has,� surprisingly,� marked none of the other options.



150 151

TABLE 3.83 Counts for Nature of Business vs. Internal SMEs Limitations

Categories

Tech

no

log

ical

leve

l

Pro

duc

tio

n c

apac

ity

Qua

lity

man

agem

ent

ca

pac

ity

Cre

dit

acc

ess

Serv

ice

leve

l

Pric

e

Eth

ics

con

trac

t h

on

ori

ng

Ro

w t

ota

l


3 3 2 5 3 1 1 1 19


2 1 1 2 3 2 2 0 13


Pharmaceuticals,� Cosmetics and Textiles 1 1 0 1 2 0 0 0 5



0 1 1 1 0 1 2 0 6

Metallurgy,� Steel Industry and Mining 0 0 0 0 0 0 0 0 0


0 1 0 1 1 3 3 1 10

Total � � 4 12 12 � 9 2 �1

Once again,� the Metallurgy,� Steel Industry and Mining sectors did not mention any limitation regarding its internal capability of management. On the other hand,� according to Table 3.83,� the Technology,� Computers,� Telecommunications and Electric companies were those which have more cited the management capacity as source of limitation that could prevent them from expanding their linkages with the TNCs. Furthermore,� the access to credit was ranked in second place and mainly mentioned by the Construction,� Public and General Services and,� once again,� by the Technology,� Computers,� Telecommunications and Electric sectors.


Central Question (originated from the primary questionnaire from Unctad):HAS YOUR COMPANY RECEIVE ANY SUPPORT FROM LOCAL PROMOTION AGENCIES TO ASSIST WITH LINKAGES?

152

TABLE 3.84 Nature of Business vs. Local Agencies Support

Local Promotion AgenciesLocal Agencies Support

TotalYes N/a No

Nature of Business


% 22,�2% ,�0% 11,�4% 12,�7%


Count 0 0 2 2

% ,�0% ,�0% 4,�5% 3,�6%


Count 0 0 1 1

% ,�0% ,�0% 2,�3% 1,�8%


Count 1 1 10 12

% 11,�1% 50,�0% 22,�7% 21,�8%


Count 1 0 11 12

% 11,�1% ,�0% 25,�0% 21,�8%


Count 5 1 9 15

% 55,�6% 50,�0% 20,�5% 27,�3%


% ,�0% ,�0% 6,�8% 5,�5%


% ,�0% ,�0% 6,�8% 5,�5%


% 100,0% 100,0% 100,0% 100,0%

152 153

Food/Bev/Tobacco


Metal/Steel/Mining


Rub/Plast/Chem/Petro

Cons/PB/GN Services

Pharma/Textiles

Retail/Export/Furnit

YES

NO

0 2 6 10 124 8

N/A

5

10

11

2

2

5

9

3

3

Graph 3.88 – Nature of business vs. local agencies support

According to Table 3.84,� the existence of the support of Local Promotion Agencies to the development of business linkages between TNC and SMEs companies was only confirmed by 9 out of the 55 companies. In addition,� the Construction,� Public and General Services sectors were those which benefited the most. On the other hand,� the Rubber,� Plastics,� Chemical,� Petrochemical,� Paper and Pulp sectors along with the Technology,� Computers,� Telecommunications and Electric companies were the least favored.

154

3.5.2 Analysis Based on Region


Central Question (originated from the primary questionnaire from Unctad):DOES YOUR COMPANY HAVE BUSINESS LINKAGES WITH TNCs?

TABLE 3.85 – Region vs. Business Linkage

Business Linkages

Do you have Business Linkages

with TNCs? Total

Yes No

Brazilian Regions

Northeastern RegionCount 44 40 84

% 80,�0% 80,�0% 80,�0%

Southeastern,� Southern and Federal District

Count 11 10 21

% 20,�0% 20,�0% 20,�0%

TotalCount 55 50 105

% 100,0% 100,0% 100,0%

Northeasterm Region

S/SE/FD

YES

NO

0 10 20 30 40 50

41

40

11

10

Graph 3.89 – Brazilian regions vs. business linkage

According to Graph 3.89 and Table 3.85,� the companies from the Northeastern Region and from the group comprised of the Southern,� Southeastern Regions and the Federal District,� reached proportionally equal ratings concerning the existence of business linkages with TNCs. As a whole,� the companies which do not have that kind of business deal are outnumbered by those that actually have.

154 155

3.5.2.2 Trainment Experience

Central Question (originated from the primary questionnaire from Unctad):BASED ON YOUR ExPERIENCE,� PLEASE DESCRIBE HOW THE TNC TRAINS / DEVELOPS BUSINESS PARTNERS AS YOU.

TABLE 3.86 Counts for Brazilian Regions vs. Trainment Experience

Categories Northeastern Southern/Southeastern/ Federal District

Row Total

Support for the accomplishment of the business deal objectives

27 5 32

R&D support 16 6 22Human resources training 15 3 18Management techniques transferring 8 2 10Production techniques transferring 7 3 10Financial capacity enhancement 5 1 6Total �� 20 9�

According to Table 3.86,� most of the training experience received by companies of the Northeastern Region of Brazil,� are directed to the support for the accomplishment of the business deal objectives. Furthermore,� the R&D support and Human Resources Training also play a pivotal role in the trainment activities in that Region. Similarly,� the Southern,� Southeastern Regions and the Federal District have mainly received assistance in the R&D area,� in first place,� and for the accomplishment of the business deal objectives in second place.



TABLE 3.87 Region vs. Financial Support

Financial SupportFinancial Support

TotalYes No

Brazilian Regions

Northeastern RegionCount 4 40 44% 66,�7% 81,�6% 80,�0%

Southern/Southeastern/Fed. District Count 2 9 11% 33,�3% 18,�4% 20,�0%

TotalCount � 49 55% 100,0% 100,0% 100,0%

15�

Northeasterm Region

S/SE/FD

YES

NO

0 10

40

9

20 30 40 50

Graph 3.90 – Brazilian region vs. financial support

According to Table 3.87,� only 6 out of the 55 companies received financial support from their TNC partner. Furthermore,� the Northeastern Region accounted for 66,�7% of that number. On the other hand,� the percentage of the Northeastern Region raised to 81,�6% regarding the total of companies which have not yet been helped financially. That is,� the companies from the Northeastern Region have proportionally received less financial support than the companies from the Southern,� Southeastern Regions and the Federal District.


Central Question (originated from the primary questionnaire from Unctad):HAS YOUR COMPANY RECEIVED TRAINING / MENTORING / COACHING PROGRAMMES FROM TNC PARTNER?

TABLE 3.88 Region vs. Training Programmes

Training ProgrammesTraining Programmes

TotalYes N/A No

Brazilian Regions

Northeastern RegionCount 24 1 19 44

% 82,�8% 100,�0% 76,�0% 80,�0%Southern/Southeastern/Fed. District

Count 5 0 6 11% 17,�2% ,�0% 24,�0% 20,�0%


% 100,0% 100,0% 100,0% 100,0%

15� 15�

Northeasterm Region

S/SE/FDYES

NO

0 10 20 30

24

19

5

6 N/A

Graph 3.91 – Brazilian region vs. training programmes

TABLE 3.89Counts for Brazilian Regions vs. Trainment Programmes


Row Total

Quality control training 13 3 16Performance feedback 12 1 13Technical workshops 12 3 15Internal training offered by TNC 11 0 11Managerial workshops 10 2 12Export standard training 4 1 5Management training 4 2 6Offering insertions in the internal training of the TNC

3 0 3

Basic education programmes 0 1 1Total �9 13 �2

According to Table 3.88 and Graph 3.91,� companies from the Northeastern Region have relatively taken more part in trainment programmes than those from the Southern,� Southeastern Regions and the Federal District. In spite of that fact,� they have similarly cited the quality control training and technical workshops as the most common features in a training program offered by a TNC.


Central Question (originated from the primary questionnaire from Unctad):WHICH IMPACTS HAVE THESE PROGRAMMES / MEASURES HAD ON YOUR COMPANY?

15�15�

TABLE 3.90 Counts for Brazilian Regions vs. Training Programmes Impact


Row Total

Improvement in the product quality 22 4 26

Improvement of the Human Resources capabilities 16 4 20

Improvement in the management skills 16 3 19Improvement in the production process quality 14 3 17

Productivity increase 11 2 13

Cost reduction 10 1 11

Total �9 1� 10�

As shown in Table 3.90,� the most notable training benefits achieved by SMEs from both set of Regions are the improvement in the product quality,� of the Human Resources capabilities and in the management skills. It was also considered significant that the productivity increase and cost reductions figured only at the bottom of the Table 3.90.

3.5.2.� Technological Support


TABLE 3.91 Region vs. Technological Support

Technological SupportTechnological Support

TotalYes N/A No

Brazilian Regions


% 71,�4% 100,�0% 80,�9% 80,�0%

Southern/Southeastern/Fed. District

Count 2 0 9 11

% 28,�6% ,�0% 19,�1% 20,�0%


% 100,0% 100,0% 100,0% 100,0%

15�15� 159

Northeasterm Region

S/SE/FDYES

NO

0 10 20 30

N/A

38

9

40

Graph 3.92 – Brazilian region vs. technological support

The companies from the Northeastern Region and from the group comprised of the Southern,� Southeastern Regions and the Federal District,� have mainly not received any kind of technological support from their TNC partners. Once again,� the percentage of the Northeastern Region raised to 80,�9% regarding the total of companies which have not yet been helped financially. That is,� the companies from the Northeastern Region have proportionally received less technological support than the companies from the Southern,� Southeastern Regions and the Federal District.



TABLE 3.92 Counts for Brazilian Regions vs. Business Environmental Limitations

Categories NortheasternSouthern/Southeastern/

Federal District Row Total

Laws/regulations 15 8 23Deficient public assistance 10 1 11Infrastructure 9 2 11Socio-economic context 6 3 9Political climate 3 2 5Total 43 1� 59

1�0

According to Table 3.92,� Laws and Regulations once again figured as the most considerable barriers that could prevent SMEs from both set of Regions from expanding their linkage deal with the TNCs. Surprisingly,� the socio-economic context proved to have a bigger impact on the Southern,� Southeastern and Federal District companies total counts,� whereas it only ranked in fourth in the amount of the Northeastern Region counts.



TABLE 3.93 Counts for Brazilian Regions vs. Internal SMEs Limitations


Row Total

Credit access 9 3 12Management capacity 7 5 12Technological level 6 2 8Production capacity 6 1 7Service level 5 2 7Price 5 4 9Quality 2 2 4Ethics contract honoring 1 1 2Total 41 20 �1

According to Table 3.93,� the access to credit was ranked in first place for the Northeastern companies followed by the management capacity and the technological level. On the other hand,� for the Southern,� Southeastern and Federal District SMEs,� the management capacity was the most significant internal capability barrier that could prevent them from expanding their business linkages with the TNCs. In addition,� price and access to credit were ranked respectively in second and third place.

1�0 1�1


Central Question (originated from the primary questionnaire from Unctad):HAS YOUR COMPANY RECEIVED ANY SUPPORT FROM LOCAL PROMOTION AGENCIES TO ASSIST WITH LINKAGES?

TABLE 3.94 Region vs. Local Agencies Support

Local Promotion AgenciesLocal Agencies Support

TotalYes N/A No

Brazilian Regions


% 88,�9% 100,�0% 77,�3% 80,�0%

Southern/Southeastern/Fed. District

Count 1 0 10 11

% 11,�1% ,�0% 22,�7% 20,�0%


% 100,0% 100,0% 100,0% 100,0%

Northeasterm Region

S/SE/FDYES

NO

0 10 20 30

N/A

40

34

10

8

Graph 3.93 – Brazilian region vs. local agencies support

According to Table 3.94 and Graph 3.93,� the Northeastern Region and the Southern,� Southeastern Regions and Federal District,� achieved similar ratings for the existence or not of Local Promotion Agencies assistance with business linkages. A total of 44 out of the 55 companies have not been helped.

1�21�2

3.5.3 A Summarized Analysis Resulting from The Macro-Economics, FDIs, TNCs and SMEs – Recommendations Based on the First Three Chapters

Based on the main issues discussed in chapter 1 (macroeconomic analysis),� chapter 2 (Foreign Direct Investment Profile in Brazil),� and chapter 3 (Surveys of TNCs and SMEs in Brazil),� some general recommendations are:

In 2006,� Brazil faced for the first time in many decades a trend where FDIs were lower in monetary volume than the investments of Brazilian companies in external markets.

Recommendation based on this fact: linkage promotion should give emphasis in the involvement of major Brazilian companies,� mainly those with high investments in external markets.

Some sectors in Brazil are experiencing significant growth and,� as a consequence,� some productive chains have shown important evolutions,� such as: agricultural businesses,� methalurgy,� tourism,� petrochemical,� retail,� distribution,� food and textiles.

Recommendation based on this fact: linkage promotion should considered these sectors to develop relationships between TNCs and SMEs. The service sector in Brazil is here pointed as the most promising sector to incentive linkage promotions.

FDIs in Brazil have shown characteristics of reinforcing existing industries in the country,� increases in productive capacity,� partnerships with Brazilian companies,� and shiftings in industrial plants from developed countries to Brazil.

Recommendation based on this fact: linkage promotion in Brazil should consider the fact that companies investing in the country already have experiences with productive chains and insertion of SMEs in their original countries’s industrial plants. Therefore,� it is expected that the same standards be maintained by the Brazilian SME partners. There is no corporate time to lose in training from the basics.

TNCs in Brazil do expect more than quality and price from all partners. Partners should be prepared for a highly integrated process of insertion on the TNCs productive chains.

Recommendation based on this fact: SMEs in Brazil should receive special capacitation on technology integration,� managerial development,� and capacity improvements. This is not occurring with the necessary intensity from the public sector.

SMEs have a high expectancy of being inserted in the TNCs productive chains mostly related to scale and price. On the other hand,� TNCs have high expectancies on the insertion of SMEs in their productive chains through scale,� managerial development,� high skill labor,� and technology integration.

Recommendation based on this fact: development agencies should capacitate SMEs to reduce the expectance gap between them and and TNCs. And this is not occurring in Brazil with the necessary intensity as it should.

The level of public assistance to SMEs and TNCs and their business linkage development is not sufficient to what they need. Both SMEs and TNCs have shown a significant absence of public support to develop the expected values from both SMEs and TNCs to make the business linkages operational.

Recommendation based on this fact: public agencies must consider the value elements of both TNCs and SMEs to create a proper business linkage dimension.

1�21�2

Report on Existing Public Policies in Brazil as Potential Sources to Linkage Development

Chapter 4

PHASE III: Report on Public Structure in Brazil to Support SMEs

1�4

4.1 Introduction

Public policies in Brazil directly or indirectly involving Transnational Corporations (TNCs) and Small and Medium Enterprises (SMEs) are scarce and not purposely conceived to be or to become potential sources for linkage promotions. In other words,� the existing public policies are mostly created to very different purposes,� somehow away from the inner features of any policies that could be connected to linkage promotions. And to use these policies so they can become sources of linkage promotion is a matter of seen them with a biased point of view,� and,� somehow,� force them to accommodate the expected potentialities. Nevertheless,� what exists is what is available to be used. Therefore,� studying these public policies and trying to rank them to become linkage sources are the only alternatives.

Based on these assumptions,� this report exhibits the summary of the most important public policies in Brazil,� mainly at the federal level. At this point,� it is important to emphasize the federal characteristic of the surveyed public policies. In Brazil,� at the State Level,� the policies are not available in a format that can be easily accessed and manipulated. Internet sources are rare,� and,� due to the number of states (actually 26 states and one federal district),� any standardization of nature and scope of the state policies would be difficult. Moreover,� in contact with some officials from a sample of approximately five states,� it has been detected that the most important existing state policies are somewhat subgroups of the main federal policies. Therefore,� studying the most prominent federal policies means also investigating the nature of the existing state programs.

Once the most important surveyed public policies have been gathered,� several analyses are conducted to achieve a certain rank that will guide the decision makers in their challenges to create TNC/SME linkages in Brazil. The analyses are to provide to experts the most important sources of promotion agencies,� economic field representation,� regional concentrations,� intrinsic characteristics of each policy that may help the linkage promotion process; all together associated to a sensitivity analysis of each policy to whether or not it can be a source of linkage promotion.

As stressed by Altenburg in the report “Overview on international good practices in the promotion of business linkages”,� prepared for UNCTAD’s Department of Investment,� Technology and Enterprise Development,� “there is a broad consensus among governments and private sector representatives from developing countries that specific institutions and industrial policies need to be set up to cope with the requirements of global integration”. Based on this assumption,� this report tries to answer the question of whether or not the Brazilian public institutions have created a set of public policies that can be used as sources of linkage promotions,� based on the real requirements to global integration.

1�4 1�5

4.2 Scope of the Report

The scope of this report can be summarized into the following issues:

What are the main governmental measures to support SMEs.

What are the main policies,� national linkage promotion programs and their impacts on local supplier developments.

Overall approach adopted by government.

Existence of linkage promotion agencies.

What exactly do they do to create linkages (matchmaking,� databases,� trade fairs…).

Performance benchmarks and evaluation of the work they do – impact assessment.

Are there measures which specifically address cooperation between TNCs and local suppliers (i.e. encouraging linkages,� benefits for support measures,� specific conditions governing the selection of local suppliers)?

If yes,� what are their results? What are main constraints in their implementation?

If yes,� what is their effectiveness?

Does their mandate include the facilitation of sustainable linkages between TNCs and SMEs? How this is being implemented,� what are main success factors and main obstacles in implementation?

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4.3 Methodology

This report is part of a study that aims at mapping the current status of activities related to business linkages in Brazil. This mapping process will help identifying critical factors in creating and strengthening the linkages between TNCs and SMEs in the country.

As per its Terms of Reference,� this specific report carries an overview of the existing strategies,� policies and practices that could be the sources of TNC-SME linkage promotion in Brazil. To fulfill the main objectives of the study,� information is collected on existing policies,� programs and practices that deal with TNC and SME developments and assistances in the country. Public sources are researched,� mainly at the Federal Level,� so that the study can contribute to guide decision makers in continuing with their challenges to adapt such policies so they can become potential sources of linkage promotion.

The objectives can not be achieved without a profound analysis of the programs that weight more heavily in promoting business linkages that include local Small and Medium Enterprises. Based on this assumption,� a survey of the existing programs related to such linkages has been made and the data currently available that indicate each program’s performance are exhibited.

The methodology used to build this report starts with:

Interviews with public,� semi-public and non-governmental organizations.

Secondary data have been collected in Senai (Serviço Nacional da Indústria),� SENAC (Serviço Nacional do Comércio) e Sebrae (Serviço Brasileiro de Apoio à Pequena e Micro Empresa),� Banking Agencies,� Ministries,� and other related agencies,� to identify overall approach adopted by government to support measures.

Interviews and a broad institutional search seek to raise what institutions,� if any,� are promoting and monitoring CR recommendations. Once raised the main list of institutions,� questions are put to study their effectiveness,� and whether or not their mandate include the facilitation of sustainable linkages between TNCs and SMEs.

Then,� frames of all surveyed policies are exhibited in a standard format which will allow a clear and comparative overview of the nature and performance of each one of these policies. After that,� a series of analyses are conducted to investigate the contributions of each policy in becoming potential sources of linkage promotion.This report exhibits all the steps listed above according to the following format:

A strategic analysis of the surveyed public policies in Brazil.

Joint analysis between policies and the related responsible agency.

A summarized table that indicates the most significant policies to become sources of linkage promotion.

A conclusion on the main steps to expand the potential of such public policies to linkage promotion.

Individual frames of each policy containing: policy name,� segment,� enterprise aim,� region of policy scope,� agency,� type of program,� objective,� description,� performance measure,� and internet site.

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Technical Observation: this report adopts the BNDES classification for micro,� small,� medium and large enterprises (Ranked according to gross operating revenues) such as:

micro enterprise – gross annual operating revenues (or annualized) up to US$528,�983.91 (five hundred and twenty eight thousand,� nine hundred and eighty three dollars and ninety one cents);

small enterprise – gross annual operating revenues (or annualized) greater than US$528,�983.91 (five hundred and twenty eight thousand,� nine hundred and eight three dollars and ninety one cents) and lower or equal to US$4,�628,�609.21 (four million,� six hundred and twenty eight thousand,� six hundred and nine dollars,� twenty one cents);

medium enterprise – gross annual operating revenues (or annualized) greater than US$4,�628,�609.21 (four million,� six hundred and twenty eight thousand,� six hundred and nine dollars,� twenty one cents) and lower or equal to US$26,�449,�195.5 (twenty six million,� four hundred and forty nine thousand,� one hundred and ninety five dollars,� fifty cents);

large enterprise – gross annual operating revenues (or annualized) over US$26,�449,�195.5 (twenty six million,� four hundred and forty nine thousand,� one hundred and ninety five dollars,� fifty cents).

P.S.: Date of quotation – 01/2007.Source: Central Bank of Brazil.

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4.4 List of Codes Used in the Technical Analyses

Table 4.1,� following,� exhibits the codes used in the technical analyses so that a standardized format could be reached to investigate the characteristics of the surveyed public policies in Brazil.

TABLE 4.1List of Codes Representing the Features of the Surveyed Public Policies

Feature Code Feature Code

Nature Specific NatureDevelopment Agency 1 Technology 1Development Program 2 General 2Sectoral Workshops 3 Human Resources 3Funds to Finance Development 4 Managerial Development 4Tax and Invest. Incentives 5 Production Development 5

Product Development 6Corporate Target Export Development 7SME 1 Equipment and Machinery Finance 8TNC 2 Research and Development 9Both 3 Business Finance 10

Business Development 11

Spatial Scope Main Sponsor (monetary source)National 1 Federal Government 1Regional 2 State Government 2

Both 3Promotion Agency 4Other 5

Sectoral Group (economic field)Chemical,� Pers. Care,� Cosmetics 1Tourism 2Agribusiness 3Textiles,� Leather and Shoes 4Timber and Furniture 5Construction 6Automotive 7Mining and Metallurgy 8Biotechnology and Pharmaceutical 9Computer and Info Technology 10Electronics 11Aerospace and Transport 12General 13

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4.4.1 The Sensitivity Analysis

A sensitivity index has been created to rank the policies analyzed in this report. This sensitivity index carries some logics on its constitution and these logics are here exhibited.

First of all,� the sensitivity index varies from 1 to 5. Any policy classified with the number 1 on the sensitivity index is considered a policy with low potential do be an important source of linkage promotion. Similarly,� any policy with a number 5 classification is considered as a high potential in terms of linkage promotion source.

Secondly,� the sensitivity index has some logics in its building,� and the most important variables are listed as follows. The final rank of the policy represented by the sensitivity index is a combination of variables. And this combination is the key element to reach the classification. Therefore,� some variables may have a weight in a certain combination and this weight may not be the same in other combinations. That is why the combination is considered the key element to reach the sensitivity index,� instead of a certain variable individually.

Following,� the most important combination are exhibited:

Combination of variables that result in a number 5 sensitivity index

Combination 1: Involvement of more than one ministeries,� spatial scope national,� nature of development agency or development program,� specific nature of managerial development,� corporate target of SME

Combination 2: Involvement of a specific promotion agency,� spatial scope regional (mainly the Northeastern and Northern regions),� nature agency or development program,� specific nature of managerial development,� corporate target of SME

Combination 3: Involvement of a specific promotion agency,� spatial scope regional (mainly the Northeastern and Northern regions),� nature agency or development program,� specific nature of production development,� corporate target of SME

These combinations would give a number 5 to the sensivity index of the specific policy. The abscense of a certain variable in the combination would result in sensitivity indeces lower than 5,� untila the policy that would carry the sensivity index number 1 which is considered with very low potential to be a source of linkage promotion.IV

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4.5 Strategic Analysis of Surveyed Policies in Brazil

A total of 67 policies were surveyed to be the source of this current set of analysis. And this session of the report shows the most important strategic issues originated by the investigation of the features of each policy.

According Graph 4.1,� following,� most of the surveyed policies shows two characteristics in nature: first,� approximately 38% of them are sectoral workshops and 32% are funds to finance corporate development.

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Sectoral Workshops a

Funds to Finance Dev

Development Program

Tax and Investiment I

Development Agency

Graph 4.1 – Percentage distribution of the nature feature of the public policies in Brazil

This feature points to two issues. First,� most of the surveyed policies have the short nature in time and,� second,� the other group is characterized by monetary aid which is always a question of debate. In terms of potential sources for linkage promotion,� there is no doubt that policies related to development programs and development agencies are more effective than those characterized by simple monetary aids.

It is important here to mention again the Altenburg’s report,� where the author specifically states that “From this perspective incentives aimed at encouraging investors are moreFrom this perspective incentives aimed at encouraging investors are more appropriate than compulsory measures,� and horizontal policies are better than highly selective instruments that benefit particular enterprises or sub-sectors”.

When the specific nature of the exiting public policies is analyzed,� one issue comes clearly up which is the business finance and the managerial development characteristics of the programs (see Graph 4.2).

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ent

Equipament and Machine

Production Development

Research and Development

Human Resources

Product Development

Business Development

Technology

Managerial Development

Business Finance

Graph 4.2 – Specific nature of the surveyed public policies in Brazil

According to Graph 4.2,� most of the policies tend to finance the entire business,� followed by the managerial development characteristic.Therefore,� it seems that the surveyed public policies in Brazil have a tendency to dedicate efforts not to develop specific areas of the firms,� such as product development,� human resources,� or equipment and machinery,� but to incentive the firm as a whole.

This assumption is also confirmed by Graph 4.3,� following,� when the surveyed policies are analyzed under the scope of the sectoral fields. The general group comes first,� much ahead of the second and third places,� involving tourism and aerospace / transport related policies.

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Timber and Funiture

Construction

Automotive

Computer and TI

Electronics

Chemical, Presonal Care

Mining and Metallurg

Textiles, Leather an

Agribusiness

General

Tourism

Aerospace, Transport

Biotechnology, Pharm

Graph 4.3 – Sectoral Analysis of the Surveyed Policies in Brazil

Considering the so called four levels of increasing policy interventions depicted by Altenburg,� such as:

Increasing level of policy intervention

Minimalist approach

Focus on business-friendly investment

climate,� level playing field

Horizontal+ non-selective

policies to compensate for market failures in

information,� R&D

Selective+ selective sector-specific and cluster

policies

Restrictive approach

+ “hard” requirements:

market reservation,� equity and

technology sharing,� local content

Encouraging policy approach

Levels of increasing policy intervention

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The minimalist approach focuses on the basic foundations of the investment climate such as guaranteeing property rights,� facilitating contract enforcement and bringing down administrative barriers to entry for investors. Domestic markets should be open to FDI,� and equal treatment for foreign and national investors should be assured. It is expected that linkages increase over time as capabilities of local entrepreneurs and workforce rise in an organic process of skill acquisition that does not necessarily require specific policy support.

The encouragement approach with a focus on horizontal policies is slightly more interventionist,� conceding the case for compensations for market-failures. For example,� SMEs may require specific support as they usually face many difficulties in accessing information and technology,� with negative consequences not only for this group of firms,� but also for the country’s production system in general. According to this approach,� however,� policy interventions should be non-selective,� e.g. offering credit guarantees or training and R&D funds without differentiating among firms,� regions,� or activities. Horizontal policies may also encourage TNC-SME linkage building. For example,� subsidized credits to bridge the time lag between product delivery and payment by the customer (factoring) may be helpful for small-scale contractors who often face problems of delayed or unfavourable terms of payment.

Many industrialists advocate a more proactive encouragement approach that builds on selective policies. This includes support for specific activities or groups of firms (“picking winners”) which are considered to be of strategic importance. Such strategic importance is mostly attributed to industries that are expected to create advantages in terms of innovation rents and technological spillover effects (e.g. biotechnology or ICT) and promising clusters of firms. The idea is to invest in these emerging activities or clusters to enhance nascent industrial profiles in order to reap early mover advantages. Selective policies may,� however,� also be applied to achieve certain socio-political goals,� e.g. to promote affirmative action. This is the case in South Africa and Malaysia.

While the previous approaches build on incentives to encourage investors to behave in a certain manner,� the restrictive approach applies “hard” policy instruments such as market reservation for certain companies (e.g. SMEs,� or nationally owned,� or owned by certain ethnic groups) as well as requirements imposed on foreign investors with the aim of establishing a minimum national equity,� certain local content,� technology sharing agreements,� or compulsory export targets (so-called Trade-related Investment Measures,� TRIMs).

There is no doubt that the current status of the public policies in Brazil are in the minimalist approach focuses on the basic foundations of the investment climate,� where linkages increase over time as capabilities of local entrepreneurs and workforce rise in an organic process of skill acquisition are still missing.

Other interesting features of the surveyed policies in Brazil are related to the Spatial Scope,� Corporate Target,� and Mains Sponsor features. These three aspects are exhibited in Graphs 4.4,� 4.5 and 4.6 following.

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National Regional

Graph 4.4 – Spatial scope of the surveyed public policies in Brazil

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Both SME TNC

Graph 4.5 – Corporate target of the surveyed public policies in Brazil

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Federal Government BothPromotion Agency

Graph 4.6 – Main sponsor of the surveyed public policies in Brazil

Analyzing the three features presented,� some conclusions can be made,� such as:

Most of the public policies have a national scope,� what is somehow expected due to their federal level connection,� but any steps to be taken must consider that regional adaptations must be made.

There is a predominance of public policies that target both TNCs and SMEs. A great number of policies related only to SME or only to TNC does not exist. So,� linkage promotions to SMEs will find restrictions on the corporate targets of the existing policies.

The main sponsor is naturally the Federal Government. However,� there is an interesting representation of the Promotion Agencies as sponsors of the policies. This is a positive characteristic,� since BNDES,� Banco do Nordeste,� Banco do Brasil and Caixa Econômica Federal are promotion agencies that carry in their managerial dimension the spirit of private banks.

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Finally,� Table 4.2,� following,� shows the performance measures adopted by each of the 67 surveyed policies.

TABLE 4.2Performance Measures of the Surveyed Public Policies in Brazil

Frequency PercentValid

PercentCumulative

Percent

Valid

NA 43 48,3 64,2 64,2

Monetary value 9 10,1 13,4 77,6

Job and income creation and % of GNP 6 6,7 9,0 86,6

Job and income creation 3 3,4 4,5 91,0

Monetary volume 3 3,4 4,5 95,5

% of GNP 2 2,2 3,0 98,5

Capacity and export rates 1 1,1 1,5 100,0

Total �� 5,3 100,0

One fact comes to place in a very clear sense,� once Table 4.2 is analyzed,� which is the high frequency of policies that do not have a performance measure that could be depicted from the surveys. And this represents a considerable flaw when there is a need to investigate the efficiency of the policy so it can become a potential source of linkage promotions. In this matter,� mentioning again the Altenburg´s report,� “[…] governments still have many options for strengthening business linkages. On the one hand,� they may adopt policies that are fully in line with market forces,� e.g. encouraging linkage building through incentives or strengthening the absorptive capacity of local business partners”. Once the performance measures are not direct,� not clear and,� most of all,� do not exist,� it becomes difficult to evaluate the efficiencies of such policies in linkage promotions.

A final strategic analysis is conducted regarding the “Sensitivity to Linkage Development Scale” created by the authors to depict the potential of all the policies to linkage promotion. Graph 4.7,� following,� exhibits the scales given to the policies.

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4 3 5 1 2

Scale 1 to 5,� where the number 5 represents very high potential to linkage promotion.

Graph 4.7 – Sensitivity to linkage promotion from the surveyed policies in Brazil

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Despite all the weaknesses of the surveyed public policies to directly guide linkage promotion programs,� in general,� they show high potentials,� as indicated by the high frequencies of number 4 and 5 on the chart,� to adaptations. The most important issues considered to position the policies with the numbers 4 and 5 were:

They are originated from agencies that have the core of SMEs promotions such as Sebrae and Banco do Nordeste.Some have already been created connected to regional development,� mainly at the Northeastern and Northern regions.Others have the essence of SME business managerial development,� which could be primordial to business linkages.And some are contemplated involving high interaction between TNCs and SMEs,� which could be an advanced step toward linkage promotions.

After providing this strategic analysis of the surveyed public policies,� the next session presents an in-depth analysis of the policies associated with the agencies,� and provides more insights toward linkage development.

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4.6 Joint Analysis Between Policies and Related Agency

This session presents a joint analysis between the surveyed public policies and their related promotion agency. The session is composed of tables that exhibit the name or short description of the policy,� per promotion agency,� followed by the codes to: nature,� specific nature,� corporate target,� spatial scope,� and the rank on the 1 to 5 scale for the so called sensitivity to linkage promotion.

4.6.1 Policies Related to Several Ministries

The analysis starts with the policies related to the “Federal Branch”,� involving several ministries. According to Table 4.3,� following,� all the policies have a nature of “Development Program”,� as well as national scopes and all present a rank 4 to the sensitivity to linkage promotion.

TABLE 4.3 Public Policies Respective to the Federal Branch – Several Ministries

Policy NatureSpecif.Nature

Corp. Target

Spatial Scope

Sensitive to Linkage

Incentives to computer and automation policyIncentives to research at SMEsIncentives to industrial modernization

222

195

313

111

444

First of all,� the development program nature,� together with the national spatial scope,� is naturally accepted since the promotion does not involve only one agency,� but a group of ministries. Therefore,� it is expected certain impartiality and broad scope of the surveyed policies. Secondly,� there is not standardization on the specific nature of the policies exactly due to the diversity of ministries that participate of the programs. Finally,� the rank 4 on the sensitivity to linkage promotion reasons exactly on the broad involvement of more than on ministry,� which characterizes the policies as multi facet program.

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4.�.1.1 Policies Related to the ministry of Industry and Commerce

Table 4.4,� following,� exhibits the surveyed policies related to the Ministry of Industry and Commerce. By far,� this ministry is the most representative promotion agency in number of policies (18 in total). As it can observed on Table 4.4,� 95% of the policies have a national spatial scope,� and 63% fit in the “Phorum” category (it can be interpreted as sectoral workshops),� which is very specific to the economic sectors and also with a significant limitation on the effectiveness in linkage promotion.

TABLE 4.4 Public Policies Respective to the Ministry of Industry and Commerce


Corp. Target

Spatial Scope


Arranjo Produtivo Local (Local Productive Arrays)Competitivity Phorum – Capital GoodsCompetitivity Phorum – ElectronicsCompetitivity Phorum – ConstructionCompetitivity Phorum – Leather and ShoesCompetitivity Phorum – PharmaceuticalsCompetitivity Phorum – Pers. Care and CosmeticsCompetitivity Phorum – Aerospace IndustryCompetitivity Phorum – AgrochemicalCompetitivity Phorum – Timber and FurnitureCompetitivity Phorum – Mining and MetallurgyCompetitivity Phorum – TextilesCompetitivity Phorum – AutomotiveImport tax IncentiveIndustrialized products tax incentiveBasic productive chain tax programInformation telecenters projectTax incentives to machine and equipm. production

233333333333355535

484444444444455518

133332222323333313

111111111111111211

522332211313344353

Among the 12 workshops,� five have reached a rank number 3 on the sensitivity scale due to the specific sector,� such as,� Construction,� Leather and Shoes,� Timber and Furniture,� Textiles,� and Automotive,� because of the higher presence of SMEs on the productive chains. The others are related to sectors where the involvement of SMEs is not representative.

No matter the high concentration of workshops,� some programs and policies can be seen as very important sources for linkage promotion,� such as: Local Productive Arrays Program,� the Information Telecenters Project,� followed by the Industrialized Products Tax Program and the Import Tax Incentive Policy.

Among all of them,� one program should be emphasized,� first because of the SME corporate scope and second because of the development program nature,� which is the Local Productive Arrays Program,� ranking with a number 5 on the sensitivity scale to linkage promotion. Reinforcing the importance of this program comes its specific nature,� which is characterized for having the “managerial development” core,� that contributes to significantly enhance the very objective of been a source of linkage promotion.

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4.�.1.2 Policies Related to the ministry of Technology and Sciences

Contrarily to what was expected,� and surprisingly emerging as a very important promotion agency,� comes the Ministry of Technology and Sciences. According to Table 4.5,� the presence of approximately 69% of all the policies been related to sectoral funds,� incorporating the specific nature of Business Finance,� represents an important monetary source to several sectors where SMEs are involved,� such as: Agribusiness,� Biotechnology,� Mining,� Information Technology,� and Telecommunications.

Moreover,� some programs are very important because they contain the regional development characteristic,� such as: Sectoral Fund to the Amazon Region,� and also the Aerospace Program,� because of the high regional concentration of such an industry in Brazil.

A last program that also has an important potential to linkage promotion is the National Program to Support Firm Incubators which is directed related to the development of SMEs.

TABLE 4.5 Public Policies Respective to the Ministry of Techonology and Sciences

Policy Nature Specif.Nature

Corp. Target

Spatial Scope


Sectoral Fund – Air TransportSectoral Fund – AgribusinessSectoral Fund – BiotechnologySectoral Fund – Amazon RegionSectoral Fund – InfrastructureSectoral Fund – Water StudiesSectoral Fund – EnergySectoral Fund – AerospaceSectoral Fund – MiningSectoral Fund – Information TechnologySectoral Fund – TelecommunicationsIncentives to information technology investmentsProgram to suport corporate researchTechnological capacity development to industriesNational Program to support firm incubatorsSoftEx 2000

3333333333354224

1010101010101010101010191111

2333322233333313

1112111111111111

1444433144443344

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4.�.1.3 Policies Related to the ministry of Labor

The Ministry of Labor has just one program among the 67 policies surveyed. However,� this is a very important program,� which has received the number 5 on the sensitivity scale. It is a program that leads to income and job generation that,� without any doubt,� is extremely important on any typo of process to linkage promotion.

TABLE 4.6 Public Policies Respective to the Ministry of Labor


Corp. Target

Spatial Scope


Income and Job Generation Program – PROGER

4 3 3 1 5

It is a nation policy,� with a corporate scope of SME and TNC development,� and been characterized by funds to finance the development of the Brazilian industries.

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4.�.1.4 Policies Related to the ministry of National Integration

The only policy related to that Ministry is a Fund to Regional Development (Table 4.7) that is not much related to specific corporate development and,� as the name indicates,� is directed to macro development of the regions involved by the policy.

TABLE 4.7Public Policies Respective to the Ministry of National Integration


Corp. Target

Spatial Scope


Funds to Regional Development 4 11 3 1 3

4.�.1.5 Policies Related to the ministry of Tourism

The Ministry of Tourism has also shown policy developments that could be an interesting source for linkage promotion,� as it can observed on Table 4.8,� following. Three nationwide policies related to funds to finance development are presented,� all of them having the SME/TNC as corporate targets.

TABLE 4.8 Public Policies Respective to the Ministry of Tourism


Corp. Target

Spatial Scope


National Tourism ProgramCaixa Econômica Federal Tourism ProgramGiro-Caixa Tourism Program

444

111010

333

111

444

These policies are important,� therefore they have been given a number 4 on the sensitivity scale,� due to their ripple effects on the economy,� reaching different layers of the society,� achieving several objectives such as: job creation,� income boosting,� SME insertion,� and other important dimensions where TNC/SME linkages gravitate. Finally,� as far as the Northeastern and Northern Regions of Brazil are concerned,� tourism represents a fundamental sector to be investigated towards linkage promotion.

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4.6.2 Policies Related to the Public Banking System

Tables 4.9,� 4.10,� 4.11,� and 4.12,� following,� exhibit the most important public policies related to public banking system in Brazil,� represented by Banco do Brasil,� Banco da Amazônia,� Banco do Nordeste and Banco Nacional de Desenvolvimento Econômico e Social (BNDES).

TABLE 4.9 Public Policies Respective to Banco do Brasil


Corp. Target

Spatial Scope


Constitutional Fund to Central-West Region Development

4 10 3 2 4

TABLE 4.10 Public Policies Respective to Banco da Amazônia


Corp. Target

Spatial Scope


Constitutional Fund to North Region Development

Sciences and Technology Fund

4

4

10

10

3

3

2

2

4

4

TABLE 4.11 Public Policies Respective to Banco do Nordeste


Corp. Target

Spatial Scope


Constitucional Fund to Northeast Region Development

Protur – Regional Tourism Investment Program

BNB Giro to Tourism Investment

4

4

4

10

10

10

3

3

3

2

2

2

4

4

4

TABLE 4.12 Public Policies Respective to BNDES


Corp. Target

Spatial Scope


BNDES TrucksProcaminhoneiroModermaqProfarma – PharmaceuticalsProsoft – Software Industry FundsFunds to Technological Development

444444

888441

313333

111111

444444

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Based on the analysis of each policy,� the most important considerations about the four banks,� considering that the Banco da Amazônia and Banco do Nordeste where the only two regional banks included due to their close relationships with the Northeastern and Northern Regions,� are:

Banco do Brasil: The Constitutional Fund to Central-West Region Development could serve as an example to other funds to the Northern and Northeastern Regions.

Banco da Amazônia: The Constitutional Fund to the North Region Development can be used as the main monetary source to promote linkages. The Science and Technology Fund is an example of specific fund related to the nature of the industries on the Northern Region,� mainly the ones at the Zona Franca de Manaus.

Banco do Nordeste: Similarly to the Banco da Amazônia,� the Constitutional Fund to the Northern Region Development should be the main monetary source to promote linkages,� associated to other programs (i.e.,� the two programs related to tourism,� as the Protur and BNB Giro).

BNDES: The National Bank for Economic and Social Development (BNDES) is here indicated as the most important partner in the banking system in Brazil for the Projeto Vínculos. As shown on Table 4.12,� the six survey policies give a clear idea about the variety of policies and,� consequently,� the potential for linkage promotion of such policies. The group of programs varies from vehicle and machinery financial funds to software and pharmaceutical business development. The national scope,� associated to the features of the projects when it comes to specific natures,� show that BNDES has an important autonomy to direct funds to research and development,� simple monetary aids,� complex project finance programs,� etc. Based on all these characteristics,� BNDES is here pointed as one of the main partners to Projeto Vínculos in Brazil.

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4.6.3 Policies Related to Sebrae and Senai

In Brazil,� two promotion agencies have shown very high potentials to linkage promotion: Sebrae and Senai. Between the two,� Sebrae has exhibited the highest potential,� and,� together with BNDES,� is here indicated as the other partner to the Projeto Vínculos in Brazil (Tables 4.13 and 4.14).

TABLE 4.13 Public Policies Respective to Sebrae


Corp. Target

Spatial Scope


Sebraetec Sebrae Program to Firm Incubators Sebrae Program to Arranjos Produtivos Locais (Local Productive Arrays) Entrepreneurialship Program (Empreender) Information and Business Telecenters Colective Management Orientation Program FINIMP – Import Fund

4 2 2 2 2 2 4

1

11 4

11 1 4

10

1 1 1 1 1 1 1

1

1 1 1 1 1

1

5 5 5 4 5 3 4

TABLE 4.14 Public Policies Respective to Senai


Corp. Target

Spatial Scope


Senai Program to Design Inovation

Competitiveness Increase to Medium Industry in NE

2 2

4 4

1 1

1 2

4 4

The Sebrae policies are all directed to the development of SMEs in a national scope. This characteristic is already a very high indicator of linkage promotion sources. A second characteristic is the presence of policies with specific natures that can generate power to linkage promotion,� such as Firm Incubators,� Arranjos Produtivos Locais (Local Productive Arrays),� Entrepreneurialship Programs,� and Sebraetec. Among the seven investigated Sebrae policies,� only one has been given a number 3 in the sensitivity scale. All the others have shown 4 and 5 ranks,� and this fact has put Sebrae as one of the two main partners to the Projeto Vínculos in Brazil.

When it comes to Senai,� one policy has exhibited high potential to linkage promotion that is the Competitiveness Increase to Medium Industry in NE (Northeastern Region) Program.

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4.6.4 Policies Related to Regional Development Agencies

Tables 4.15 and 4.16,� following,� show the policies to the regional development agencies for the Northern and Northeastern Regions. What is here called policy is really the agency itself. Currently,� these two agencies are subjected to congressional decision to restart their operations that have been paralyzed for approximately seven years.

TABLE 4.15 Public Policies Respective to Notheastern Development Agency – Sudene


Corp. Target

Spatial Scope


Northeastern Development Agency 1 11 3 2 4

TABLE 4.16 Public Policies Respective to Northern Development Agency – Sudan


Corp. Target

Spatial Scope


Northern Development Agency 1 11 3 2 4

Once these two agencies start their operations again,� they can be very important as physical and administrative places to linkage promotion,� since they carry the most important characteristics,� such as Regional Scope,� High Sensitivity to Linkage Promotion,� Development Agency and a Specific Scope of Business Development.

The following session exhibits an analysis of the most important policies to linkage promotion. The session is characterized by grouping the different policies based on three parameters: sensitivity to linkage promotion,� specific nature and sectoral group.

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4.7 Table of Most Important Policies – as Linkage Source

4.7.1 Analysis of the Number 5 Ranking Policies on the Sensitivity Scale

Table 4.17 shows all the policies ranking number 5 on the sensitivity scale,� which represent approximately 15% of the 67 surveyed public policies in Brazil. When it comes to corporate targets,� 70% are directed to SMEs.

TABLE 4.17 Policies with Number 5 on the Sensitivity Scale to Linkage Promotion

Policy Sensitive to Linkage

Corp. Target

Spec. Nat.

Sect. Group

Sebrae Program to Firm Incubators 5 1 11 13Arranjos Productiovs Locais (Productive Arrays) 5 1 4 13Entrepreneurialship Program (Proj. Empreender) 5 1 11 13

Sebrae Program to Arranjos Produtivos Locais (Local Productive Arrays)

5 1 4 13

Competitiveness Increase to Medium Ind. in NE 5 1 4 13Information Telecenters Project 5 1 1 13Sebraetec 5 1 1 13Northeastern Development Agency 5 3 11 13Northern Development Agency 5 3 11 13Income and Job Generation Program – PROGER 5 3 3 13

All the ten policies have fit in the “General” category of the sectoral group,� indicating a broad characteristic,� i.e.,� not created to a specific sector,� and,� therefore,� suitable to a wider adaptation to different sectors and regions.

Again,� quoting the Altenburg’s report,� the author clearly states on the second phrase of the following paragraph the importance of general policies,� such as:

“Linkage policies aim at different achievements. While most of them try to bring TNCs and local SMEs together with a view to encourage technological learning,� others primarily pursue social objectives such as improving labour and environmental standards or empowering disadvantaged producer groups. Some restrictive policies are still in place, although the general trend is towards ´encouraging` policies, both of the ´horizontal` and ´selective` kind.”

To reinforce the analysis of the most important policies,� Graph 4.8,� following,� exhibits a radar-type of graph that links the sectoral group and the specific nature characteristics of each policy,� and indicates the tendencies of spread and concentration of the 10 policies ranked with a number 5 sensitivity scale.

1��

0

24

68

10

12

14

Local Productive Arrays

Brazilian Entrepreneurship Program

Information Telecenters Project

Income and Job Generation Program

Sebraetec

Sebrae Program to Firm Incubators

Sebrae Program to Local ProductiveArrays

Competitiveness Increase to theMedium Industry in NE

Northeastern Development Agency

Northern Development Agency

Sectoral Group Specific Nature

Graph 4.8 – Radar graph to sectoral groups and specific nature of the 10 policies

Considering a range from 0 to 14,� each policy has received a par of codes: specific nature and sectoral group. Figure 4.8 clearly shows the following:

All ten policies have shown a code 13 to the “sectoral group”,� meaning that the ten policies have a general characteristic that facilitates the adaptation to linkage promotion.

The two policies “Northern and Northeastern Development Agencies” are linked to the “Business Development” specific nature that directs them to be used as institutional places to linkage promotion. A similar analysis can be made to the “Sebrae Program to Firm Incubators” policy,� that is general in nature and is directed to business development.

There is an important concentration of policies related to the “Managerial Development” specific nature that indicate an important source to linkage promotion when it comes to capacitate SMEs to be inserted in the TNCs productive chains.

1�� 1�9

Going further on the analysis,� Graph 4.9 shows a graph that relates the nature and the specific nature characteristics of the ten policies.

0

2

4

6

8

10

12Local Productive Arrays

Brazilian Entrepreneurship Program

Information Telecenters Project

Income and Job GenerationProgram

Sebraetec

Sebrae Program to Firm Incubators

Sebrae Program to Local Productive Arrays

Competitiveness Increase to theMedium Industry in NE

Northeastern DevelopmentAgency

Northern DevelopmentAgency

Nature Specific Nature

Graph 4.9 – Radar graph to nature and specific nature of the 10 policies

Again,� some remarks appear as significant on the potential sources of linkage promotion,� such as:

Approximately half of the ten policies fit on the “development program” nature,� which shows a fertile ground to linkage promotion.Development programs associated to managerial development form a good combination to business linkage promotion between SMEs and TNCs. In this matter,� it is important to quote again the Altenburg’s report that states

“TNCs usually select a relatively small number of business partners among the best local companies. One policy challenge is therefore to try to spread the benefits of technology transfer to other locals firms,� including those which are not integrated in supply chains with TNCs. Some governments and business associations have launched business circles to further voluntary transfer of know-how. These circle work with leading TNC subsidiaries with the aim of jointly providing information on certain generic aspects of industrial organization,� such as human resources management,� quality management,� or logistics.”

190

4.7.2 Analysis of the Number 4 Ranking Policies on the Sensitivity Scale

Table 4.18,� following,� shows all the 34 policies that have ranked number 4 on the sensitivity scale. These policies have been considered with high potential to become sources of linkage promotion,� but the difference between them and the list presented before (those ranking number 5) is that they do need much more attention to direct specific adaptation to be used as linkage sources. For example,� the National Program to Support Firm Incubators is surely a high potential policy to become source of linkage promotion,� however the program is restricted to business development with specific rules,� and most of them do not contemplate the very building of linkages with TNCs.

The other characteristics of these policies is that approximately 60% of all the policies are related to providing funds to business development,� and around 50% of these specific policies are related to sectoral funds,� which reduces the scope of action of the policy when it comes to be used as a source of linkage promotion in a general sense.

TABLE 4.18 Policies with Number 4 on the Sensitivity Scale to Linkage Promotion

PolicySensitive to

LinkageCorp. Target

Spec. Nat.

Sect. Group

National Program to Support Firm Incubators 4 1 11 13Sectoral Fund – Mining 4 1 10 8Sectoral Fund – Telecommunications 4 1 10 13FINIMP – Import Fund 4 1 10 13Incentives to Research at SMEs 4 1 9 13Procaminhoneiro 4 1 8 12Senai Program to Design Inovation 4 1 6 13Information and Business Telecenters 4 1 1 13National Tourism Program 4 3 11 2Sectoral Fund – Agribusiness 4 3 10 3Sectoral Fund – Biotechnology 4 3 10 9Sectoral Fund – Amazon Region 4 3 10 13Sectoral Fund – Infrastructure 4 3 10 13Sectoral Fund – Information Technology 4 3 10 13Caixa Econômica Federal Tourism Program 4 3 10 2Giro-Caixa Tourism Program 4 3 10 2Constitutional Fund to Central-West Region Development

4 3 10 13

Constitutional Fund to North Region Developement 4 3 10 13Sciences and Technology Fund 4 3 10 13Constitucional Fund to Northeast Region Development 4 3 10 13Protur – Regional Tourism Investment Program 4 3 10 2BNB Giro to Tourism Investment 4 3 10 2BNDES Trucks 4 3 8 12Modemaq 4 3 8 13Incentives to Industrial Modernization 4 3 5 13Import Tax Incentive 4 3 5 13Industrialized Products Tax Incentive 4 3 5 13Prosoft – Software Industry Funds 4 3 4 13Incentives to Computer and Automation Policy 4 3 1 10Incentives to Information Technology Investments 4 3 1 13SoftEx 2000 4 3 1 13Funds to Technological Development 4 3 1 13

190 191

4.8 In-Depth Analysis

4.8.1 Analysis over Nature and Specific Nature Crosstabulation

TABLE 4.19Nature vs. Specific Nature

SPECIFIC NATURE

Total

Tech

no

log

y

Hu

man

R

eso

urc

es

Man

ager

ial

Dev

elo

pm

ent

Pro

du

ctio

n

Dev

elo

pm

ent

Pro

du

ct

Dev

elo

pm

ent

Equ

ipm

ent

and

M

ach

iner

y Fi

nan

ce

Res

earc

h a

nd

D

evel

op

men

t

Bu

sin

ess

Fin

ance

Bu

sin

ess

Dev

elo

pm

ent

Nat

ure

Dev

elop

men

t A

genc

y

Count 0 0 0 0 0 0 0 0 2 2

% within

Specific Nature

,�0% ,�0% ,�0% ,�0% ,�0% ,�0% ,�0% ,�0% 28,�6% 3,�0%

Dev

elop

men

t Pr

ogra

m

Count 3 0 6 1 1 0 1 0 3 15

% within

Specific Nature

37,�5% ,�0% 31,�6% 25,�0% 100,�0% ,�0% 50,�0% ,�0% 42,�9% 22,�4%

Sect

oral

W

orks

hop

s an

d Fo

runs

Count 1 0 11 0 0 1 0 11 0 24

% within

Specific Nature

12,�5% ,�0% 57,�9% ,�0% ,�0% 20,�0% ,�0% 55,�0% ,�0% 35,�8%

Fund

s to

Fi

nanc

e D

evel

opm

ent

Count 3 1 2 0 0 3 1 9 2 21

% within

Specific Nature

37,�5% 100,�0% 10,�5% ,�0% ,�0% 60,�0% 50,�0% 45,�0% 28,�6% 31,�3%

Tax

and

Inve

stm

ent

Ince

ntiv

es

Count 1 0 0 3 0 1 0 0 0 5

% within

Specific Nature

12,�5% ,�0% ,�0% 75,�0% ,�0% 20,�0% ,�0% ,�0% ,�0% 7,�5%

Total Count � 1 19 4 1 5 2 20 � ��

% within

Specific Nature

100,0% 100,0% 100,0% 100,0% 100,0% 100,0% 100,0% 100,0% 100,0% 100,0%

192

The largest part of the surveyed policies shows two characteristics in nature: they concentrate on Sectoral Worshops and Foruns and Funds to Finance Development.

According to Table 4.19,� the Sectoral Workshops and Foruns concentrate the focus on the Managerial Development along with Business Finance. Business Finance continues to be the main objective of the polices with a Funds to Finance Development nature,� followed by Technology and Equipment and Machinery Finance. On the other hand,� the Development programs concentrate mainly on Managerial Development followed by Technology and Business Development. In addition,� policies focused on Tax and Investment Incentives mainly concentrate on the Production Development area along with Technology and Equipment and Machinery Finance. Policies with a Development Agency specific nature were the least cited,� figuring exclusively on the Business Development area. When we take a closer look over the specific nature,� Business Finance and Managerial Development are the main features of all policies.

192 193

4.8.2 A Summarized Analysis Resulting from the Policy Report – Recommendations

Based on the policy discussion of this chapter,� some recommendations are made to improve the linkage development environment in Brazil. These recommendations are purely based on secondary data,� resulted from the policy sources,� in association to the survey of TNCs and SMEs.

Policies in Brazil are not designed to become sources of linkage promotion. Most of them are programs to incentive development and funding of companies,� but these incentives are not fit to linkage promotion.

Recommendation based on this remark: an immediate review of the most important policies should be conducted to change their format towards linkage promotion basis.

From all the policies analyzed,� and as related to development promoting agencies,� the policies from Sebrae have pointed to that agency as a key partner to Projetos Vinculos in Brazil.

Recommendation based on this remark: a clear and formalized partnership with Sebrae should be developed to create an importante political ground to linkage promotion in Brazil.

The revival of development promotion agencies as Sudene and Sudam should be followed by Projeto Vinculos Managers,� so that these agencies can become strategic partners in the Northeastern and Northern regions.

Recommendation based on this remark: Projeto Vínculos Managers should closely follow the approval schedule to Sudene and Sudam in the executive and legislative bodies in Brazil.

The new Brazilian package to infrastructure investments,� called PAC (Programa de Aceleração do Crescimento),� should be deeply understood by Projeto Vínculos Managers to capture potential economic sectors that will be favored. For example: civil construction,� sanitary projects,� roads,� ports,� energy,� urbanization,� and others.

Recommendation based on this remark: Projeto Vínculos Managers should bring PAC to their decision-making processes to select TNCs and SMEs to linkage promotion.

Political attraction should be promoted within the actions of Projeto Vínculos to create a proper environment to current policies structure.

Recommendation based on this remark: Projeto Vínculos Managers should gather more information on how operational the most important policies,� here emphasized,� are and direct their actions to potentialize linkage promotion attractiveness,� such as: job creation,� income increases,� regional development,� poverty alleviation,� social improvements,� and others.

194

Some policies in Brazil,� mainly those with high potential to regional adaptation,� should be less directed to providing financial aid and more focused on SMEs managerial capacitation and development.

Recommendation based on this remark: there is a high concentration of financial aid policies. Projeto Vinculos should point to potential changes in these policies,� so that they could become strategic sources of linkage promotion.

The macro economic analysis,� associated to the FDI report,� has shown that there is a significant gap between the corporate movements and the existing policy features in Brazil. The current policies do no reflect the dynamics of macro economic trends and the FDI specificities.

Recommendation based on this remark: Projeto Vínculos Managers should be aware of this gap and direct their action plans toward policy changes to accommodate part of the results of macro economic and FDI trends. For example,� policies should accommodate changes in new tax structures,� interest rates reductions,� vertical integration of manufacturing industries,� new political arrangements,� expansion of agricultural frontiers,� higher value aggregation in primary industries,� and others.

194 195

4.9 Conclusion

In general,� some important conclusions can be drawn from the survey of the most important policies in Brazil,� so that they can be considered as sources of linkage promotion,� such as:

The two most important agencies to promote linkage when considering their experience in policy making are Sebrae and BNDES.The following policies have been selected as the primarily potential sources to linkage promotion:

Sebrae Program to Firm IncubatorsEntrepreneurialship Program (Projeto Empreender)Sebrae Program to Arranjos Produtivos Locais (Local Productive Arrays)

Some policies have shown significant potentials to linkage promotion,� even though getting a number 4 on the sensitivity scale,� which are:

National Program to Support Firm IncubatorsIncentives to Research at SMEsConstitutional Fund to North Region DevelopementConstitucional Fund to Northeast Region DevelopmentIncentives to Industrial ModernizationFunds to Technological Development

A series of meetings and deeper analyses should follow these recommendations in order to investigate the real potentials of each of the policies to be redirected to linkage promotions according to the standardized parameters of the Unctad’s Methodology of Linkage Promotion.

19�

4.10 Recommendations

40. FORM TO EVALUATE POLICIES AND SUPPORTING MEASURESPolicy Sebrae Program to Firm Incubator (Programa Sebrae de Incubadoras de Empresas)Segment Not availableSize of enterprise Micro and small enterprisesRegion Not availableAgency SebraeType of program Development (non-financial)

Objective

The Sebrae Program of Enterprise Incubator has as mission to stimulate the usage of enterprise incubators in order to create,� develop and consolidate competitive enterprises,� that will contribute to strengthen of the Brazilian technology and the social-economic development.

Description Not availablePerformance Not availableInternet www.sebrae.com.br

COmPANY INCUBATOR

A Company Incubator is a mechanism aimed at encouraging the creation and development of micro and small companies (industry,� service,� technology,� light production). The Incubator offers them technical and managerial support as well as complementary entrepreneurial formation. It also facilitates,� streamlines and speeds the technological innovation process in micro and small businesses.

Sebrae data indicate that micro,� small and medium-size companies are roughly 98% of all existing Brazilian companies,� employ 60% of the economically active population,� and generate 42% of industrial income,� contributing with 21% of Brazil’s Gross Domestic Product-GDP. (Sebrae supports micro,� small and medium-size businesses).

Statistics from U.S. and European incubators point to a mortality rate among incubator-bred companies down to 20%,� as compared to companies not originated in an incubator.

Brazilian estimates reveal that micro and small companies coming out of incubators enjoy levels comparable to those in Europe and the USA. On the other hand,� Sebrae has detected an 80% mortality in their first year of operation for companies created outside an incubator.

Sebrae has detected management problems as the chief hurdle among several reasons responsible for such mortality rate.

SIMPI (São Paulo State Micro & Small Business Union) mentions other major red-tape hurdles,� which include complex demanding legislation,� leading to high tax,� production and trading bureaucratic difficulties. Moreover,� competition is tough for micro and small businessmen striving to go up against major companies in oligopoly markets. These major players outright dictate timeframe deadlines and pay conditions in product acquisition and in input supply.

http://www.sebrae.com.br

19� 19�

Furthermore,� high interest rates levied on loans & financing surpass those granted to large companies. The same treatment applies to collateral,� which a micro and small borrower usually is not able to put up. That cuts him off from credit access. Topping off such dire-straights situation,� accessing product-innovation and production-process technologies is also hard.

Company incubators can especially contribute to solving two of these difficulties,� namely:

- business managerial capability,� and- incorporating technology into company products and processes.

Incubators can also minimize harmful effects of the aforementioned problems. They certainly maximize the use of human,� financial and material resources available to incubator-begotten micro and small companies,� thus contributing to their survival.

There are basically three types of company incubators: for technology-based firms,� for those in the traditional sectors of the economy,� and for both of these company types.

a) Incubators for Technology-based Companies: This type of incubator is earmarked for companies whose products,� processes or services are based on applied surveys,� in which technology has a high value-adding input.

b) Incubators for Companies in the Traditional Sectors of the Economy: This incubator houses companies linked to traditional economic sectors. Their technology is rather well known and they add value to their products,� processes or services by increasing their existing technological level. These firms must be committed to absorbing or developing new technologies.

c) Incubators for mixed Companies:Mixed incubators are home to both of these aforementioned types.

In addition to these three types,� incubators also support cultural,� handcraft,� cooperative,� agribusiness and other types of companies.

mODALITIES

Pre-incubationTime for the entrepreneur to finalize his/her idea,� using all Incubator services to define the undertaking,� carry out technical,� economic and financial feasibility studies,� draw up the necessary prototype / process,� all of this leading up to actual business start-up.

IncubationAt this stage,� the undertaking (resident and associate companies) is de facto participating in the incubation process.

Graduated CompanyUndertaking has reached enough development to leave the incubator and enter the marketplace.

Associate CompanyArm’s length-type,� in which incubation takes place at a distance.

19�

SUPPORT TO THE INCUBATOR mOVEmENT

Sebrae’s missionEncourage incubator use,� so as to create,� develop and consolidate competitive companies,� able to contribute to the strengthening of Brazilian technology and to national social-economic development.

In Brazil,� there are over 1,�100 companies installed in approximately 150 incubators. Their overwhelming majority are technology-based businesses (Empresas de Base Tecnológica – EBTs),� linked to universities or to technology institutes.

Other Links:AnprotecRede Incubar (network)

SEBRAE’S COmPANY INCUBATOR PROGRAm

In the incubators,� micro and small companies are aided and assisted through consulting on management,� technology,� products & services trading,� accounting,�

marketing,� legal assistance,� funding,� production engineering,� copyright & intellectual property,� among other issues.

Thus assisted,� companies are then able to compete in the marketplace,� becoming potential generators of jobs and income. American and European statistics point to a 20% mortality among incubator-bred companies,� as compared to 70% in firms,� which did not go through an incubator.

41. FORm TO EVALUATE POLICIES AND SUPPORTING mEASURES

Policy Sebrae Program to Local Productive Arrays (Arranjos Produtivos Locais)Segment Non-definedSize of enterprise Mainly micro,� small and medium enterprisesRegion The whole countryAgency Federal Government; SebraeType of program Development (non-financial)

Description

Productive arrangements are clusters of enterprises located within a territory; their production is specialized and they maintain articulation,� interaction,� cooperation and learning linkages among themselves and with other local players such as the government,� business associations and credit,� teaching and research institutions.

ObjectivePromote the Development of local productive arrangements,� thus enhancing the competitiveness and internationalization of enterprises,� mainly the micro,� small and medium size ones found in local productive arrangements.

Performance Data not available

Internet www.mdic.gov.br; www.sebrae.com.br


19� 199

APLs IN WHICH SEBRAE IS ACTIVE Sebrae’s objective regarding Local Productive Arrangements (Arranjos Produtivos Locais - APLs) is to promote competitiveness and sustainability of micro and small businesses,� encouraging local development processes. In order to strengthen the APL model,� Sebrae encourages participation of NGOs,� labor unions,� cooperatives,� and business associations in the inter-company articulation process in a region.

The main APL activities contemplate a wide range of areas,� such as clothing & garments,� furniture,� tourism,� handcraft,� sheep & goat raising,� fruit culture,� footwear,� apiculture,� manioc,� oil & gas,� I.T. (information technology),� gypsum & marble,� fishing,� ceramics,� sugarcane-based rum,� milk & dairy byproducts,� organic products,� babaçu fruit & oil,� flowers,� and phytotherapic products,� among others.

HOW SEBRAE SELECTS AND DEVELOPS APLs The methodology proposed to identify,� develop and strengthen APLs is flexible,� open-ended and adaptable. It seeks to accommodate the multiplicity and complexity of local realities. This method takes into account a tri-dimensional APL competitive analysis,� conducive to formulating strategies and to defining actions. These three dimensions are Business,� Structural and Systemic.

APL selection and development includes five components and one initial mobilizing action.

Draw up Development Plan

Management,� development and evaluation

Prel

imin

ary

stag

eG

ame

pre

par

atio

nG

ame

Pilot Project

APL identification & selection

Strengthening the APL dynamics

Environmental knowledge

APL IDENTIFICATION

This component seeks to supply information subsidizing decision-making on where to act. In order to participate in the Program,� the arrangements must meet the following criteria:

1. A minimum of twenty enterprises linked to one common specialized production.

2. At least one hundred persons working in these enterprises.

3. The final APL product must have a minimum of homogeneity. The arrangement must be capable of effectively contributing to increase exports or to competitively substitute imports,� must have market potential,� and be able to generate jobs and income.

200

STRENGTHENING THE APL DYNAmICS

A smoothly-coordinated set of articulation,� awareness and mobilization actions strives to trigger a process to involve and bring closer together all the local actors. It also seeks to build relationship policies and to level off the conceptual playing field,� as regards Sebrae’s APL actions. Such actions can be clustered into three major dimensions,� namely:

a) governance,� b) territorial identity,� and c) interaction & cooperation.

KNOWLEDGE OF THE COmPETITIVE ENVIRONmENT

This component has to do with gathering data and information conducive to APL Competitiveness Diagnosis.

INITIAL mOBILIzATION (PILOT PROJECT)

The pilot-project stage mobilizes wider APL development,� to be carried out at different times. It establishes a set of short-term actions to consolidate partnerships with companies and other local players. In addition to training and consulting,� the Pilot Project will also contemplate actions and events with immediate impact. Some examples: providing Customer Satisfaction Indicators,� measuring productivity of micro and small companies,� promoting negotiations with potential domestic and foreign buyers,� promoting technical visits,� organizing missions to prospect markets and technologies.

PLAN ELABORATION

Development plans aim at defining the chief strategic elements and actions flowing from the interaction among APL actors,� striving to ensure ever-greater and sharper sustainable competitiveness among those companies participating in the arrangement.

mANAGEmENT, DEVELOPmENT AND EVALUATION

This component refers to execution of actions called for in the Development Plan,� as well as evaluation of results reached.

200 201


PolicyCompetitiveness Increase to Medium Industry in NE (Aumento da Competitividade da Média Indústria do Nordeste)

Segment Not availableSize of enterprise Small enterprisesRegion North-eastAgency Senai; Sebrae; GTZType of program Development (non-financial)

ObjectiveInsert small size enterprises products in the national and international scenarios

Description

With the support of the Federal Government of Germany and executed in cooperation by Senai,� Sebrae and GTZ,� the project is involved with small size firms in the north-east region,� with the objective of inserting their products in the national and international scenarios. Between 2002 and 2004,� the project has concentrated efforts in the productive arrangements of construction,� leather and shoes,� lacticínio and clothing.

Performance Not available

Internet www.sebrae.com.br

4�. FORm TO EVALUATE POLICIES AND SUPPORTING mEASURESPolicy Entrepreneurialship Project (Projeto Empreender)Segment Not availableSize of enterprise Not availableRegion Not availableAgency SebraeType of program Development (non-financial)

Objective

In a partnership with Sebrae,� CACB has implemented the Entrepreneurialship Project. The objective is to support Commercial and Industrial associations,� by promoting segmental nodules and the valorization of the associative aspect.

Description Not available




202

ENTREPRENEURSHIP PROJECT

In 1991 the lack of a minimum qualification & enabling system for small Brazilian businessmen led CACB to enter a partnership with Sebrae,� implementing “Projeto Empreender” (Entrepreneurial Project). This project supports Commercial and Business Associations,� organizing core sector nuclei and valuing the associative dimension.

A core sector nucleus gathers companies from the same segment and places them in direct contact with yet other companies,� all jointly searching for common solutions,� which would,� otherwise,� evade a lone-rider businessman.

Actions developed in a core sector nucleus strengthen companies and sharpen their competitiveness. This Entrepreneurial Project has already been implemented in all Brazilian states and in the Nation’s Capital,� altogether covering over 800 municipalities (approximately 40,�000 companies participate).

Recent surveys show that Brazil is one of the countries with the largest number of entrepreneurs. Indeed,� one in every eight Brazilians already has or is about to have his/her own business. However,� such entrepreneurship needs a good enabling & qualification system Many become businessmen or businesswomen without the slightest managerial formation. This obviously maximizes the failure odds. Indeed,� often one intends to go into business trekking the most costly path,� which is that of making mistakes.

Aware of this troublesome reality,� CACB has been investing in transformation-conducive studies,� projects and methodologies,� capable of bringing about changes in entrepreneurial behavior and action.

Within this framework of supporting Commercial and Business Associations,� CACB has successfully identified and implemented in the Southern Brazilian state of Santa Catarina,� since 1991,� this Entrepreneurial Project (Projeto Empreender). Given its innovative and agglutinating features,� capable of catalyzing a wide-raging in-depth social and economic transformation in Brazil,� a partnership was sought with Sebrae,� an institution which supports micro and small businesses. The partnership promptly extended the project nationwide.

Commercial and Business Associations are the linchpin springboards from which the Project methodology organizes core sector nuclei,� valuing the associative dimension.


PolicyInformation Telecenters Project (Projeto Telecentros de Informação e Negócios)

Segment Not availableSize of enterprise Not availableRegion Not availableAgency SebraeType of program Development (non-financial)

ObjectiveThe Information Telecenters Project intends to eliminate the distance between business people and the digital world.


202 203

44. FORm TO EVALUATE POLICIES AND SUPPORTING mEASURESPolicy Sebraetec (Sebraetec)Segment Non-definedSize of enterprise Micro and small enterprisesRegion Non-definedAgency Sebrae – Brazilian Agency for the Support of Micro and Small EnterprisesType of program Financing (financial)

Objective

Its objective is to promote the improvement and innovation processes and products of micro and small enterprises,� prioritizing those that belong to local productive settings by means of technology consulting services provided by its entities and aiming to incorporate technical progress and increase the competitiveness of small businesses.

Description

It is a mechanism coordinated by Sebrae to allow micro and small enterprises and entrepreneurs to access existing knowledge through consulting and thus enhance the technological level of the enterprise. It can support up to 70% of the costs of a project,� with the remainder under the responsibility of the supported enterprise,� according to the criteria set out in the Program’s Operational procedures and Regulations.

Performance Data not availableInternet www.sebrae.com.br

DataIn 2004,� it supported 34 thousand micro and small enterprises,� on average,� and these enterprises participated in 3.123 projects and will receive R$22.370 million from Sebrae.


PolicyNortheastern Development Agency (Agência de Desenvolvimento do Nordeste)

Segment Non-definedSize of enterprise Small,� medium and large enterprises

RegionNortheastern Brazilian States,� the North of Minas Gerais and the counties in the Jequitinhonha valley (MG) and those in the North of Espírito Santo

Agency Federal GovernmentType of program Fiscal incentives (financial)

ObjectiveEncourage new investments to increase production and the productivity of enterprises in the Northeast.Attract enterprises from other regions to the Northeast.

Description

Adene,� which runs FDNE,� currently uses fiscal incentives as its most powerful tool to Develop the Northeast. The Special Incentives Coordination seeks to offer its contribution towards the general Objectives defined by the Agency by keeping in mind that all Adene activities must contribute according their specificity

Performance Data not availableInternet www.sudene.gov.br


http://www.sudene.gov.br

204


PolicyNorthern Development Agency (Agência de Desenvolvimento da Amazônia – ADA)

Segment Not availableSize of enterprise Not available

RegionAmazon (states of Acre,� Amapá,� Amazonas,� Mato Grosso,� Pará,� Rondônia,� Roraima,� Tocantins and part of Maranhão)

Agency Ministry of National IntegrationType of program Financing (financial)

ObjectivePromote and plan structured actions to build the sustainable development of Amazon,� and it’s competitive integration in the national and international contexts,� aiming the social and economic emancipation of Amazon.

Description

ADA has as financial instruments the Amazon Development Fund (FDA); a reserved amount from the General Budget of the Union; the research of alternative sources of resources trough agreements and contracts with national and international institutions.


Internet www.ada.gov.br

5�. FORm TO EVALUATE POLICIES AND SUPPORTING mEASURES

PolicyIncome and Job Generation Program – PROGER (Programa de Geração de Emprego e Renda – PROGER)

Segment Not availableSize of enterprise Not availableRegion Not availableAgency Ministry of EmploymentType of program Financing (financial)Objective Generate and maintain income and employment

Description

A group of special lines of credit oriented to whom wants to create or invest in it’s own business. Besides being an instrument aimed to generate and maintain employments,� PROGER is part of the social security program.At the program,� the enterpeuner has available with no costs a structures prepared to recrute,� select and develop the employees requested by it’s business,� being able,� also,� to receive information in order to create a business plan.

Performance Not availableInternet www.mte.gov.br

http://www.ada.gov.br

http://www.mte.gov.br

204 205

4.11 Individual Frames of Each Policy

This session exhibits frames of all surveyed policies in a standard format presenting the policies according to the sectoral groups analyzed.

4.11.1 Chemical, Personal Care, Cosmetics (1)


PolicyCompetitiveness Forum – Personal Hygiene,� Perfume and Cosmetics (Fórum de Competitividade – Higiene Pessoal, Perfumaria e Cosméticos)

Segment Personal Hygiene,� Perfume and Cosmetics Sectors

Size of enterprise

Non-defined

Region Non-definedAgency MDIC – Ministry of Development,� Industry and Foreign Trade

Type of program

Development (non-financial)

Objective

Increase the industrial competitiveness of the productive chain of the Brazilian personal hygiene,� perfume and cosmetics sectors in the world market through actions to generate employment,� jobs and income,� the development and lessening of regional production concentration,� the increase in exports,� the competitive replacement of imports and the technological capacitation of enterprises.

Description

It aims to integrate the Productive Sector,� made up by business and workers’ representatives,� and the Government as a whole,� seeking a consensus on the opportunities,� challenges and the solution of bottlenecks of each of the selected Productive Chains,� besides defining the goals and actions dedicated to implementing a new industrial policy to develop production. Each one of the Forums will diagnose the determinants of each Productive Chain so as to identify up to what point the enterprises prepare or implement action strategies related to the different competitiveness factors,� besides checking if they have correctly perceived the essential factors that condition their competitive success.


Internet E-mail: [email protected]

mailto:[email protected]

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Data

macro goals (up to 2010):Production: reaching US$8,�2 bi => 12% average annual growth Job and income creation: 650 thou,� professionally qualifiedExports: US$600 million,� at an average annual growth rate of 18%Imports substitution: goal not defined yetTrade surplus: US$150 million (2005),� US$300 million (2008) and US$450 million (2010),� if imports remain at current levels

Investment: US$1,�2 bi => increasing and modernizing installed capacitySocial Inclusion: creating the jobs mentioned above

Instrumental goals:Productivity, Quality, Innovation and marketing: Increase productivity => Revenues growing 2,�5 times,� jobs growing by about 30%,� with an average increase in income and qualification

main Indicators (2003):Share of GDP: about 0,�5%People employed: 2,�4 million=>2,�3% of the EAP (2002)Exports: US$202 millionImports: US$116 millionTrade account balance: US$86 million and US$39 in 2002 (against US$- 24,�8 in 2001)Revenues: US$3,�2 bi = 7,�6% of the total for the Brazilian chemical industry => 14 large enterprises account for 73% of the total

2004Revenues: US$3,�5 biExports: US$261 millionImports: data not availableProduction goals revised => 12% growth in Reais and not in US dollars; revision due to demands from the sector. The amount is equivalent to about US$4,�5 to 5 billionInvestment goal revised to US$500 million in 2008,� according to projects already programmed.

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4.11.2 Tourism (2)


Policy National Tourism Program (Programa de Turismo)Segment TourismSize of enterprise Enterprises of any sizeRegion National or multinationalAgency Ministry of TourismType of program Financing (financial)

ObjectiveSupport businesses of the tourism segment in the locals that presents potential for the activity,� contributing to the development of the segment in the country.



Internet www.bb.com.br

3. FORm TO EVALUATE POLICIES AND SUPPORTING mEASURESPolicy Giro-CAIxA Tourism Program (Giro-CAIXA Instantâneo para o Turismo)Segment Not availableSize of enterprise Enterprises with annual revenue up to R$35 millionRegion Not availableAgency Caixa Econômica FederalType of program Financing (financial)Objective Not availableDescription Rotation credit with floating limitsPerformance Not availableInternet www.caixa.gov.br/


PolicyProtur. Regional Tourism Investment Program (Protur – Programa de TurismoPrograma de Turismo Regional – Investimentos)

Segment TourismSize of enterprise Enterprises of any size

RegionAlagoas,� Bahia,� Ceará,� Maranhão,� Paraíba,� Pernambuco,� Piauí,� Rio Grande do Norte,� Sergipe,� the north of Minas Gerais and north of Espírito do Santo

Agency Tourism Ministry

Type of program Financing (financial)

ObjectiveFinancial support to the creation,� enlargement,� modernization and reform of businesses in the tourism segment

Description Not availablePerformance Not availableInternet www.turismo.gov.br

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Policy BNB Giro to Tourism Investment (BNB – Giro para o Turismo – Receb�veis)Giro para o Turismo – Receb�veis)

Segment Tourism

Size of enterprise Enterprises of any size

RegionAlagoas,� Bahia,� Ceará,� Maranhão,� Paraíba,� Pernambuco,� Piauí,� Rio Grande do Norte,� Sergipe,� north of Minas Gerais and north of Espírito Santo

Agency Ministry of Tourism


Objective Not available



Internet www.turismo.gov.br

�. FORm TO EVALUATE POLICIES AND SUPPORTING mEASURES

PolicyCaixa Econômica Federal Tourism Program (Capital de Giro – Desconto de Títulos para o Turismo)

Segment TourismSize of enterprise Companies with a annual revenue up to R$5 millionRegion Not availableAgency Tourism Ministry Type of program Financing (financial)Objective Loan intended to anticipate the enterprise’s floating capitalDescription Not availablePerformance Not availableInternet www.caixa.gov.br/

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4.11.3 Agribusiness (3)


Policy Sectoral Fund – Agribusiness (Fundo Setorial Agronegócio)

Segment Agribusiness Industry

Size of enterprise Non-defined

RegionProviding at least 30% of the resources for projects that will be implemented in the North,� Northeast and Midwest regions.

AgencyFinance for Studies and Projects – Finep and National Council of Scientific and Technological Development – CNPq.


Objective

Encourage the scientific and technological capacitation in the fields of agronomy,� veterinary,� biotechnology,� agricultural economy and sociology,� promote the technological updating of the agribusiness industry by introducing new varieties to reduce sickness in the herd and increase competitiveness in the sector; encourage more investment in the field of tropical agricultural biotechnology and new technologies.

Description

The funds meet the demands of diversified areas,� but are similar in their operations: pegged to revenues,� pluriannuality,� shared management,� diversified sources and integrated programs. It is managed through several social segments (government,� academia and the private sector) to set up long term strategies,� define priorities and monitor the actions performed.Origin of the Resources: 17,�5% of CIDE,� whose resources stem from a 10% surcharge on funds transferred abroad to pay for technical support,� royalties,� specialized technical or professional services.


Internetwww.mct.gov.brwww.finep.gov.br

http://www.mct.gov.br

http://www.finep.gov.br

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PolicyCompetitiveness Forum – Agrochemicals Industry (Fórum de Competitividade – Indústria Agroqu�mica)

Segment Agrochemicals IndustrySize of enterprise Non-definedRegion Non-definedAgency MDIC – Ministry of Development,� Industry and Foreign TradeType of program Development (non-financial)

Objective

Increase the industrial competitiveness of the productive chain of the Brazilian Agrochemicals Industry in the world market through actions to generate employment,� jobs and income,� the development and lessening of regional production concentration,� the increase in exports,� the competitive replacement of imports and the technological capacitation of enterprises.

Description




Data

macro goals (up to 200�)Production: goal not defined yetJob and income creation: goal not defined yetExports: goal not defined yetSubstitution of imports: substituting the TA deficit by at least 50%,� mainly by increasing exports => from US$850 to US$400 millionTrade surplus: goal not defined yetInvestment: goal not defined yetSocial Inclusion: goal not defined yet

Data

main indicators (2002/2003):Share of GDP: data not availablePeople employed: 9.150Exports: US$250 and US$350 millionImports: US$1,�1 bi and US$1,�3 biTrade account balance: US$850 millionRevenues: US$2 bi and US$2,�3 biInvestments: US$100 million up to 2008Share of agribusiness in total exports: 41,�2%

2004Production: US$2,�13 biExports: US$380 millionImports: US$1,�4 billionRevenues: US$2,�5 billion


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4.11.4 Textiles, Leather and Shoes (4)


Policy Competitiveness Forum – Leather and Shoes (Fórum de Competitividade – Couro e Calçados)

Segment Leather and Shoes sectorSize of enterprise Non-defined

Region Non-definedAgency MDIC – Ministry of Development,� Industry and Foreign Trade

Type of program Development (non-financial)

Objective

Increase the industrial competitiveness of the productive chain of the Brazilian leather and shoes sector in the world market through actions to generate employment,� jobs and income,� the development and lessening of regional production concentration,� the increase in exports,� the competitive replacement of imports and the technological capacitation of enterprises.

Description




Data

macro goals (up to 200�):Production: reach US$15,�5 bi => Average annual growth at 6,�7%Job and income creation: 60.000 more,� all qualified.Exports: reach US$4,�7 bi with value-added and average annual growth at 9,�34%.Imports: 2,�11% growth per yearTrade account: reduce the deficit of the components industry by about 31% per year.Investment: reach US$2,�06 billion => grow 14,�93% per year.

Instrumental goals (200�):Productivity, Quality, Innovation and marketingIncrease productivity => grow at an average annual rate of 3,�67%. Production ofLeather: increase by 21,�5% => 40 million leather (34 million finished leather)Shoes: increase by 30% => 690 mi pairs/year (4,�5% average annual growth)Change the profile of leather exports => add value (26% annual growth for finished leather exports)Guarantee the production of technologically upgraded machine and equipmentGuarantee an increasing demand for machine and equipment

main indicators:Share of GDP: 0,�4%People employed: 347 thouTrade account balance: US$2,�5 biExports: US$2,�8 biInvestments: US$342 million

2003Job creation: 21.686 (an 18,�36%* increase)Imports: US$233 million (a 4,�9%* decrease)Trade account balance: US$2.570 million (a 9,�4%* increase)Exports: US$2.803 million (an 8%* increase)Production: US$13.466 millionInvestment: 315 million* Over 2002


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PolicyCompetitiveness Forum – Textiles and Clothing (Fórum de Competitividade – Têxtil e Confecções)

Segment Textile and Clothing sectorsSize of enterprise Non-definedRegion Non-definedAgency MDIC – Ministry of Development,� Industry and Foreign TradeType of program Development (non-financial)

Objective

Increase the industrial competitiveness of the productive chain of the Brazilian textiles and clothing sectors in the world market through actions to generate employment,� jobs and income,� the development and lessening of regional production concentration,� the increase in exports,� the competitive replacement of imports and the technological capacitation of enterprises.

Description




Data

macro goals (2000- 2011):Job and Income Creation:

Increase the number of jobs by 160 thou,� in industry and 160 thou in agriculture between 1999 and 2011Increase exports to US$4,�3 bi (in 2008),� which means totaling 1% of world textile exports (a number reached between 1983 and 1984)

Exports (2011): US$5,�5 billionImports (2011): US$1,�8 billionTrade account (2011): US$3,�7 billionInvestment (2002-2011): US$12,�5 billion

Instrumental goals:Productivity,� Quality,� Innovation and Marketing

•

•

2003Job creation (Jan.-Nov.): 18.000Exports (2003): US$1,�656 bi. Compared to 2002,� there was a 50% increase in the exports of textile fibers; 54% in yarns/filaments; 39% in cloth; 45% in sewing thread; 24% in clothing; and 37% in other products. The total increase reached about US$470 million (approximately 40% compared to the previous year).Imports (2003): US$1,�062 bi => about 3% compared to 2002TA Balance(2003): US$595 million => a record for the sector (a deficit between 1995 and 2000 and a surplus of US$63 million and US$151 million in 2001 and 2002,� respectively)


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Data

investment in modernizing and expanding production capacity throughout the chain,� for a total amount of US$12,�6 biincrease the cotton crop area from 600 thousand hectares to 1,�2 million hectares while using environment-friendly techniques increase total physical production by about 34% up to 2011,� which will have a major impact on tax generationincrease labor productivity by about 30% in the textiles,� fibers and clothing segments

Production (estimate: 4.087 thou tons (- 1,�5%)Investments (estimate): US$1,�0 biw Material: implementing the ABRAPA System of Bar Code (2003/04 harvest)A Study of technological prospects Foreign Trade: the software “Learning How to Export Clothing”2004:Goals:Investments: US$1,�0 billionExports: US$1,�8 million (FOB)Production: 4.251 thou tons (? 4%)Job Creation: 27.000

Main Indicators:Share of GDP (2002): 1,�04% (was up at 2,�6% in 1990)People employed (2002): 733 thouTrade account balance (2003): US$595 million (deficit between 1995 and 2000)Exports (2003): US$1,�66 biEx-tariff: Imports (FOB-2002): US$3,�6 million compared to US$8,�1 million(2003) => Associated investments: US$9,�9 million in 2002 and US$17,�6 million in 2003Total investments in the chain (the last 8 years): US$7 bi*Revenues: US$22,�0 biSelf-sufficiency in cotton production (2002)

Job Creation: the goal for 2003 (27.000) was not reached due to the year’s economic activity.Exports: the goal for 2003 (US$1,�5bi) was surpassed,� a result of the export efforts made by the sector Trade account balance: the goal for 2003 (US$354 million) was surpassed,� and the end-of-the-year balanced reached US$595 million.

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Data

Investment in modernizing and expanding production capacity throughout the chain,� for a total amount of US$12,�6 bi

Increase the cotton crop area from 600 thousand hectares to 1,�2 million hectares while using environment-friendly techniques

Increase total physical production by about 34% up to 2011,� which will have a major impact on tax generation

Increase labor productivity by about 30% in the textiles,� fibers and clothing segments

main Indicators:Share of GDP (2002): 1,�04% (was up at 2,�6% in 1990)People employed (2002): 733 thouTrade account balance (2003): US$595 million (deficit between 1995 and 2000)Exports (2003): US$1,�66 biEx-tariff: Imports (FOB-2002): US$3,�6 million compared to US$8,�1 million(2003) => Associated investments: US$9,�9 million in 2002 and US$17,�6 million in 2003Total investments in the chain (the last 8 years): US$7 bi*Revenues: US$22,�0 biSelf-sufficiency in cotton production (2002)

Production (estimate: 4.087 thou tons (- 1,�5%)Investments (estimate): US$1,�0 bimaterial: implementing the Abrapa System of Bar Code (2003/04 harvest)A Study of technological prospects Foreign Trade: the software “Learning How to Export Clothing”2004:Goals:Investments: US$1,�0 billionExports: US$1,�8 million (FOB)Production: 4.251 thou tons (? 4%)Job creation: 27.000

Job creation: the goal for 2003 (27.000) was not reached due to the year’s economic activity.Exports: the goal for 2003 (US$1,�5 bi) was surpassed,� a result of the export efforts made by the sector Trade account balance: the goal for 2003 (US$354 million) was surpassed,� and the end-of-the-year balanced reached US$595 million.

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4.11.5 Timber and Furniture (5)


PolicyCompetitiveness Forum – Wood and Furniture (Fórum de Competitividade – Madeira e Móveis)

Segment Wood and furniture sectors

Size of enterprise

Non-defined

Region Non-defined

Agency MDIC – Ministry of Development,� Industry and Foreign Trade

Type of program

Development (non-financial)

Objective

Increase the industrial competitiveness of the productive chain of the Brazilian wood and furniture sectors in the world market through actions to generate employment,� jobs and income,� the development and lessening of regional production concentration,� the increase in exports,� the competitive replacement of imports and the technological capacitation of enterprises.

Description




Data

macro goals (up to 2004)Furniture production: increase total production by 12% (domestic market + exports)Job and income creation: 164.123 new direct and indirect jobsExports: increase by 14,�41%Imports: goal not defined yetInvestment: US$1.094 millionForest area: increase to 300 thou hectares/year to overcome the current deficit of 200 thou hectares/year

Instrumental goals:Productivity, Quality, Innovation and marketing

Increase the export base of furniture to 450 exporting enterprisesModernize and expand the mechanical wood processing industry,� by investing a forecasted US$4 million in 2003 and 2004Increase installed capacity of the recycled wood industry from 4,�3 million (cubic meters) in 2003 to 5,�5 million (cubic meters)Investments of about US$3,�6 billion throughout the productive chain (2001- 2004),� with US$879,�4 million in 2004

Data

main indicatorsShare of GDP: 0,�72%People employed (2002): 900 thou – for each R$1 million invested,� 37 direct jobs and 38 indirect one are createdTrade account balance: US$2.641Revenues: data not availableInvestments(2003): US$980 millionProductivity: data not available

2003Exports: forecast fulfilled at US$2.641 millionFurniture = US$650 millionWood-based products = US$1.991 millionExporting enterprises Jan.-June = 409


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4.11.6 Construction (6)


Policy Competitiveness Forum – Civil Construction (Fórum de Competitividade – Construção Civil)

Segment Civil construction


Region Non-defined



Objective

Increase the industrial competitiveness of the productive chain of the Brazilian civil construction sector in the world market through actions to generate employment,� jobs and income,� the development and lessening of regional production concentration,� the increase in exports,� the competitive replacement of imports and the technological capacitation of enterprises.

Description




Data

Macro goals:Production: data not availableJob and income creation:

Maintaining 3,�6 million direct jobs and creating 1.1 million new ones per year (direct,� indirect and induced)Increase exports of building material,� specifically ceramics,� marble and granite,� and define goals for engineering services (non quantified)Reduce imports,� mainly in the electrical materials segment

Investment: data not availableSocial inclusion: reduce by 50% the housing deficit for the urban population whose total monthly family wage amounts to up to 5 times the Minimum Wage (by 2008)

Instrumental goals:

Productivity, Quality, Innovation and Marketing: Offer 1,�5 million new houses

Reduce the housing deficit by 1/3Increase to 90% the average conformance of building materials to technical norms Increase productivity by 3% per year (average) in civil,� residential,� heavy and commercial construction

Data

Main Indicators:Share of GDP (2002): 8%People employed (2001): 3.923.700Trade account balance (2003): US$535 millionRevenues: data not availableInvestments: data not availableHousing deficit (1999): 5,�2 million

2002Job creation: 1.462.545(Aug/02) => goal not reachedImports: 47,�6% decrease in imports in the electrical materials segmentTrade account balance: the surplus was 119% higher than in 2001,� despite the total traded being 16,�37% lower. Such numbers were due to the good performance of the ceramics,� marble and granite sectors. Housing financing => the goal was not achieved Ex-Tariff (Res. nº 26/2001): Import tax reduced to 4% for 4 types of equipment to modernize the sector A Quality Management System for Architecture and Engineering Design Enterprises was set up (SiQProjetos)Furnas laboratory begins to operate => a regional reference for testing and evaluating building systems Finished updating NB1 (technical guidelines for designing and building concrete structures),� with financial support from MDICPBQP-Habitação changed to PBQP-H,� incorporating urban sanitation and infrastructure; all the states in the Federation have either joined in or will do so in future


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4.11.7 Automotive (7)


PolicyCompetitiveness Forum – Automotive Industry (Fórum de Competitividade – Setor Automotivo)

Segment Automotive industry


Region Non-defined



Objective

Increase the industrial competitiveness of the productive chain of the Brazilian automotive industry in the world market through actions to generate employment,� jobs and income,� the development and lessening of regional production concentration,� the increase in exports,� the competitive replacement of imports and the technological capacitation of enterprises.

Description




Data

macro goals:Not defined yetInstrumental goals:Productivity,� Quality,� Innovation and Marketing: Not defined yet

Data

main Indicators (2003):Share of GDP: 1,�9% Employees: about 280 thou (preliminary)Production: 1,�828 million vehiclesExports: US$10,�1 biImports: US$5,�4 bi Trade account balance: US$4,�7 biRevenues: US$12,�4 bi for the auto parts sectorInvestments: US$500 mi for the auto parts sectorFree capacity: 36% for the auto parts sector and 44% for the automakers

2004 - Estimates (not available for the automakers)Production: 1,�99 million vehiclesExports: the auto parts sector - US$5,�3 biImports: the auto parts sector - US$5,�4 bi Trade account balance: the auto parts sector – US$700 miRevenues: the auto parts sector: US$14,�2 biInvestments: the auto parts sector: US$600 mi


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4.11.8 Mining and Metallurgy (8)


Policy Sectorial Fund – Mining (Fundo Setorial de Mineração)

Segment Mineral Sector

Size of enterprise Micro,� small and medium enterprises

Region Non-defined

AgencyFinance for Studies and Projects – FINEP – and National Council of Scientific and Technological Development – CNPq


Objective

Development and disseminating technology,� scientific research,� innovation,� human resources capacitation and development for the mineral sector,� mainly for micro,� small and medium enterprises and encouraging technical-scientific research to support mineral exploration.

Description

The funds meet the demands of diversified areas,� but are similar in their operations: pegged to revenues,� pluriannuality,� shared management,� diversified sources and integrated programs. It is managed through several social segments (government,� academia and the private sector) to set up long term strategies,� define priorities and monitor the actions performed.Origin of the Resources: 2% of the financial compensation for exploring mineral resources (Cefem),� paid by the enterprises of the mineral sector that hold mining rights.





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Policy Competitiveness Forum – Steelmaking (Fórum de Competitividade – Siderurgia)

Segment Steelmaking industry


Region Non-defined



Objective

Increase the industrial competitiveness of the productive chain of the Brazilian steelmaking industry in the world market through actions to generate employment,� jobs and income,� the development and lessening of regional production concentration,� the increase in exports,� the competitive replacement of imports and the technological capacitation of enterprises.

Description




Data

macro goals (up to 2010)Production: 50 million tons (fulfilling at least 95% of domestic needs)Exports: 20 million tonsInvestment: US$10 biSocial Inclusion: the use of steel for low-cost housing – implementing Social Iso

Data

main indicators (2003):Share of GDP(2): 1,�38%People employed: 66.900 direct jobsProduction: 31,�2 MtonsInst. capacity: 34 Mtons exports: US$3,�9 bi (13 Mtons)Imports: US$0,�5 bi (0,�55 Mtons)Trade account balance: US$3,�4 biRevenues: R$34 biDomestic sales: 15,�4 MtonsIndirect exports: US$2,�3 biInvestments: US$1 biProductivity: 460 t/h/yearApparent use: 15,�4 Mtons

Comparison: 2002/2003Production: +5,�1%Installed capacity: +4,�6%Exports (US$ billion): +34,�5%Exports (mtons): +11,�1%Indirect exp. (US$ billion): +28,�0%Imports (US$ billion): nilImports (mtons): -18,�2%TA balance(US$ billion): +41,�7%Revenues (R$ billion): +28,�8%Domestic sales (mtons): -2,�5%Apparent use (mtons): -6,�7%

2004Production: 32,�4 MtonsDomestic sales: 16,�4 MtonsExports: 12,�7 MtonsExports: US$3,�5 biImports: 0,�8 MtonsImports: US$0,�6 biApparent use: 17,�2 MtonsRevenues: R$38,�6 billion


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4.11.9 Biotechnology and Pharmaceutical (9)


PolicyCompetitiveness Forum – Pharmaceuticals (Fórum de Competitividade – Farmacêutico)

Segment Pharmaceuticals industry


Region Non-defined



Objective

Increase the industrial competitiveness of the productive chain of the Brazilian pharmaceuticals sector in the world market through actions to generate employment,� jobs and income,� the development and lessening of regional production concentration,� the increase in exports,� the competitive replacement of imports and the technological capacitation of enterprises.

Description




Data

macro goals:Production: goal not defined yetJob and income creation: goal not defined yetIncrease in drug exports: US$200 million/year => US$600 million/yearImports of drugs, vaccines and blood by-products: US$1,�5 bi (2003) => US$400 millionTrade account throughout the chain: reducing the deficit to US$1 billion (drugs and pharmaceuticals).Investment (up to 2005): US$800 million.Social inclusion: goal defined by GT1Instrumental goals: Productivity, Quality, Innovation andmarketing: Not defined yet

Data

main indicators (2002/2003):Exports: US$385 million (2003)Imports: US$2.385 million (2003)Trade account balance: -US$1.959 millionTrade deficit: US$2 bi => 32% of all chemical deficitRevenues: US$5,�5 billion (2003)


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1�. FORm TO EVALUATE POLICIES AND SUPPORTING mEASURESPolicy Profarma (Profarma)Segment Pharmaceutical IndustrySize Non-definedRegion Non-definedAgency BNDES – National Bank for Economic and Social DevelopmentType of program Financing (financial)

Objective

Contribute to the development of the pharmaceutical productive chain – chemical intermediates and vegetable oils,� health ingredients and drugs for human consumption,� as well as correlated activities within the pharmaceutical chain – so as to:

encourage an increase in the production of drugs and other ingredients in Brazil; improve the quality standards of the drugs produced,� aligning them to the demands of the domestic regulatory agency,� Agência Nacional de Vigilância Sanitária (ANVISA),� collaborating for the improvement of the health and quality of life of the Brazilian population;reduce the trade deficit of this productive chain; encourage R&D,� development and innovation activities in Brazil,� with the perspective of using resources from its biodiversity and creating the necessary conditions to obtain new molecules; andstrengthen the position of domestic enterprises in economic,� financial,� commercial and technological terms.

Description

A BNDES 500 million reais line of credit is available to this program for the production of drugs and other ingredients,� encouraging research and also the incorporation,� merging and acquisition of enterprises. It finances investments by enterprises headquartered in Brazil,� as well as investments towards restructuring the pharmaceutical industry,� through its sub-programs: investments associated to production; investments in R&D and in strengthening domestically controlled enterprises.


Internet www.bndes.gov.br

http://www.bndes.gov.br

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4.11.10 Computer And Info Technology (10)


PolicyIncentive to Computer and Automation (Incentivo ao setor de Informática e Automação)

Segment Informatics and Automation

Size of enterprise Not available

Region Not available

Agency Federal government

Type of program Fiscal incentives (financial)Objective Not available

DescriptionThe benefits estimated on the informatics law were extended until the year 2019. The tax reform predicted the extension,� for ten more years,� for both the Zona Franca de Manaus and the segment benefits.

Performance Not availableInternet www.brasil.gov.br/


Policy Sectoral Fund – Biotechnology (Fundo Setorial de Biotecnologia)

Segment Biotechnology Sector





Objective

Promote the education and capacitation of human resources; strengthen the domestic research and supporting services infra-structure; expand the knowledge base in the field; encourage the setting up of biotechnology based enterprises and technology transfer to consolidated enterprises; hold prospecting and monitoring studies on advances in knowledge in the sector.

Description

The funds meet the demands of diversified areas,� but are similar in their operations: pegged to revenues,� pluriannuality,� shared management,� diversified sources and integrated programs. It is managed through several social segments (government,� academia and the private sector) to set up long term strategies,� define priorities and monitor the actions performed.Origin of the Resources: 7,�5% of CIDE,� whose resources stem from a 10% surcharge on funds transferred abroad to pay for technical support,� royalties,� specialized technical or professional services.





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4.11.11 Electronics (11)


PolicyCompetitiveness Fórum – Electronics Complex (Fórum de Competitividade – Complexo Eletrônico)

Segment Electronics complex

Size of enterprise Non-definedRegion Non-definedAgency MDIC – Ministry of Development,� Industry and Foreign Trade


Objective

Increase the industrial competitiveness of the productive chain of the Brazilian Electronics complex in the world market through actions to generate employment,� jobs and income,� the development and lessening of regional production concentration,� the increase in exports,� the competitive replacement of imports and the technological capacitation of enterprises.

Description




Data

macro goals: not defined yetInstrumental goals:Productivity, Quality, Innovation and marketing: not defined yet

main Indicators (2003):Share of GDP: 1% (2002 – estimate)People employed: 246,�7 mil (2003 – preview)Trade account balance: - US$5,�2 biExports: US$4,�7 biImports: US$9,�9 biRevenues: R$63,�9 bi- IT: R$16,�7 bi- Telecommunications: R$8,�7 bi- Electro-electronics: R$9,�9 biInvestments: R$1,�9 biInstalled capacity used: 71%


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4.11.12 Aerospace and Transport (12)


Policy Modercarga / Procaminhoneiro (Modercarga)Segment Transport SectorSize Micro,� small and medium enterprisesRegion Non-definedAgency BNDES – National Bank for Economic and Social DevelopmentType of program Financing (financial)

ObjectiveRenewing the truck fleet,� estimated to stand at 1,�8 million trucks whose average age is 18 years (according to Anfavea,� between 13 and 15 years); increased productivity in the transportation sector.

Description

Financing available for trucks,� tractor-trailers,� trailers,� semi-trailers,� chassis and bodies,� new and used up to seven years old. BNDES index of participation in financing will reach up to 70% of the value of the asset at issue. Out of the program’s total budget,� R$600 million will be earmarked for financing used trucks.



GoalsThe forecast for 2004 is that BNDES earmark two billion Reais to finance the purchase of truck to modernize the domestic fleet,� thus benefiting independent truckers and micro,� small and medium transportation enterprises.

PS

In 2004,� the program Modecarga was replaced by the program BNDES Caminhões. In 2006,� the program BNDES Caminhões was,� again,� replaced by the program Procaminhoneiro. All the three programs have the sameAll the three programs have the same objectives.


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PolicyCompetitiveness Forum – Aerospace Industry (Fórum de Competitividade – Indústria Aeroespacial)

Segment Aerospace Industry


Region Non-defined



Objective

Increase the industrial competitiveness of the productive chain of the Brazilian aerospace industry in the world market through actions to generate employment,� jobs and income,� the development and lessening of regional production concentration,� the increase in exports,� the competitive replacement of imports and the technological capacitation of enterprises.

Description




Data

main indicators:Exports: US$2.050,�0 million Imports: US$590,�9 million

macro goals:Production: goal not defined yetJob and income creation: goal not defined yetExports: increase by US$1,�0 BiImports: goal not defined yetTrade account: goal not defined yetInvestment (up to 200�): US$350 millionSocial inclusion: goal not defined yetInstrumental goals: Productivity, Quality, Innovation and marketing: not defined yet


22�


Policy Sectoral Fund – Aeronautical (Fundo Setorial Aeronáutico)Segment Aeronautical IndustrySize of enterprise Non-defined




Objective

Encourage investments in R&D in the sector to guarantee its competitiveness in both the domestic and the foreign markets,� seeking scientific and technological capacitation in the field of aeronautical,� electronic and mechanical engineering,� promote the dissemination of new technologies,� technologically update Brazilian industry and attract more international investments to the sector.

Description

The funds meet the demands of diversified areas,� but are similar in their operations: pegged to revenues,� pluriannuality,� shared management,� diversified sources and integrated programs. It is managed through several social segments (government,� academia and the private sector) to set up long term strategies,� define priorities and monitor the actions performed.Origin of the Resources: 7,�5% of CIDE,� whose resources stem from a 10% surcharge on funds transferred abroad to pay for technical support,� royalties,� specialized technical or professional services as per Law n. 10.168,� of 29/Dec./2000.



24. FORm TO EVALUATE POLICIES AND SUPPORTING mEASURESPolicy Sectorial Fund – Aerospace (Fundo Setorial Espacial)Segment Aerospace Technology IndustrySize of enterprise Non-definedRegion Non-defined



Objective

Encourage scientific research and technological development connected to applying aerospace technology to generating products and services in the fields of communications,� remote sensors,� weather forecasting,� agriculture,� oceanography and navigation.

Description

The funds meet the demands of diversified areas,� but are similar in their operations: pegged to revenues,� pluriannuality,� shared management,� diversified sources and integrated programs. It is managed through several social segments (government,� academia and the private sector) to set up long term strategies,� define priorities and monitor the actions performed.Origin of the Resources: 25% of the revenues from the use of orbiting positions; 25% of the revenues accrued to the Government from launches; 25% of the revenues accrued to the Government from the commercialization of data and images obtained by tracking,� telemeasures and rocket and satellite control; and the total amount of the revenues accrued to the Brazilian Space Agency – AEB – from licensing and authorizations.







22� 22�

4.11.13 General (13)


PolicyCompetitiveness Fórum – Capital Assets (Fórum de Competitividade – Bens de Capital)

Segment Capital Assets


Region Non-defined



Objective

Increase the industrial competitiveness of the productive chain of the Brazilian capital assets sector in the world market through actions to generate employment,� jobs and income,� the development and lessening of regional production concentration,� the increase in exports,� the competitive replacement of imports and the technological capacitation of enterprises.

Description




Data

macro goals: not defined yetInstrumental goals:Productivity, Quality, Innovation and marketing: not defined yet

main Indicators (2003):Share of GDP (Value added): 2,�3 %People employed: 183.254 direct jobsBrazilian exports: US$4,�9 billionBrazilian imports: US$5,�8 billionTrade account balance: US$-0,�9 billionNominal revenues: R$34,�8 billionInvestments made: US$4.232 millionInstalled capacity used (%):77,�9 %Apparent use: US$15,�8 billion


22�


PolicyImport Duties Reduction on Machines and Equipment not Produced Locally or in the Mercosul Region (Redução de Imposto de Importação sobre Máquinas e Equipamentos sem Produção Nacional ou na Região do Mercosul)

Segment Industrial and service enterprises Size Non-definedRegion Non-defined

AgencyGeneral-Coordination of the Metallurgical and Capital Goods Industry – SDP/MDIC (Ministry of Development,� Industry and Foreign Trade)

Type of program Fiscal incentives (financial)

Objective

Reduce to 2% the percentage of duties on importation made by industrial and services enterprises in the acquisition of capital goods (marked as .BK. at TEC) and on IT and Telecommunications goods (marked as .BIT. at TEC) that are not produced locally.

Description

One of the objectives of the Brazilian government’s industrial policy is to encourage investments in capital goods destined to expand and restructure its industrial park,� as well as improve the country’s services infrastructure,� due to its unquestionable effects as to increasing exports,� competitively taking the place of imports,� enhancing job creation,� increasing the domestic supply of goods and the tax revenue.

Performance Data not availableInternet www.mdic.gov.br

2�. FORm TO EVALUATE POLICIES AND SUPPORTING mEASURESPolicy Basic Productive Process – PPB (Processo Produtivo Básico – PPB)Segment IT and Automation Goods SectorSize of enterprise Non-definedRegion Manaus Duty-Free Zone and all regions of the countryAgency MDIC (Ministry of Development,� Industry and Foreign Trade)Type of program Fiscal Incentives (financial)

ObjectiveIt has taken the place of the previous concept of nationalization index to define local value added and it is considered to be the yardstick through which enterprises are measured to gain incentives.

Description

This program is indispensable to the production of goods in the Manaus Duty-Free Zone and IT and Automation goods in the other regions of the country with the support of the fiscal incentives defined by Lei. It has become effectively used as an industrial policy tool as the use of locally made components and parts or those that could potentially be made locally became compulsory.


Internet [email protected]

http://www.mdic.gov.br


22� 229


PolicyConstitutional Fund to Northeast Region Development (Fundo Constitucional de Financiamento do Nordeste – FNE)

SegmentIndustrial,� agribusiness,� tourism,� infrastructure,� commercial and services sectors

SizePreferably projects from mini and small rural producers and from micro and small enterprises

Region

The States of Alagoas,� Bahia,� Ceará,� Maranhão,� Paraíba,� Pernambuco,� Piauí,� Rio Grande do Norte and Sergipe,� plus the counties in Minas Gerais and Espírito Santo included in the area of the extinct Superintendência de Desenvolvimento do Nordeste (Sudene)

Agency BNB – Banco do Nordeste


ObjectiveTo contribute to the economic and social development of the Northeast by executing financing programs for the productive sectors,� according to the regional development plan.

DescriptionIts resources are for financing investments – that is,� they are preferably invested in the long term – and are used for working capital or financing when these complement the increase in the regional productive capacity.


Internet www.banconordeste.gov.br

Goals FNE budget for 2004 is estimated at R$4.506.587 thou.

DataIn 2004,� R$3 billion were invested,� on average,� to support businesspeople and entrepreneurs who invested in the Northeast Region.

29. FORm TO EVALUATE POLICIES AND SUPPORTING mEASURESPolicy Sectoral Fund – Water Resources (Fundo Setorial de Recursos H�dricos)Segment Water Resources EnterprisesSize of enterprise Non-defined


AgencyFinance for Studies and Projects – FINEP – and National Council of Scientific and Technological Development – CNPq.


Objective

Development of human resources and products,� processes and equipment to enhance water resources usage by means of actions in the field of water resources management,� water conservation in an urban environment,� sustainability in Brazilian environments and the integrated and efficient use of water.

Description

The funds meet the demands of diversified areas,� but are similar in their operations: pegged to revenues,� pluriannuality,� shared management,� diversified sources and integrated programs. It is managed through several social segments (government,� academia and the private sector) to set up long term strategies,� define priorities and monitor the actions performed.Origin of the Resources: 4% of the financial compensation currently received by power generating enterprises (equivalent to 6% of the value of electricity production and generation).



http://www.banconordeste.gov.br



230

30. FORm TO EVALUATE POLICIES AND SUPPORTING mEASURESPolicy Sectoral Fund – Energy (Fundo Setorial de Energia)Segment Energy Sector Size of enterprise Non-defined




Objective

Encourage research and innovation seeking to find new alternatives to generate energy at lower costs and better quality; to develop and enhance the competitiveness of domestic industrial technology,� increasing international exchanges in the R&D area of the sector; to develop human resources in the area and encourage domestic technological capacity.

Description

The funds meet the demands of diversified areas,� but are similar in their operations: pegged to revenues,� pluriannuality,� shared management,� diversified sources and integrated programs. It is managed through several social segments (government,� academia and the private sector) to set up long term strategies,� define priorities and monitor the actions performed.Origin of the Resources: between 0,�75% and 1% of the net revenues of the enterprises that generate,� transmit and distribute electric energy.



31. FORm TO EVALUATE POLICIES AND SUPPORTING mEASURESPolicy Imports Tax Incentives – I.I. (Imposto sobre Importação – I.I.)Segment Non-definedSize Non-definedRegion Non-definedAgency MDIC (Ministry of Development,� Industry and Foreign Trade)Type of program Fiscal incentives (financial)

Description

Exemption from I.I. when imported goods (including capital goods) for domestic consumption arrive at the Manaus Duty-Free Zone – ZFM. Exemption from I.I. for imported merchandise listed in Interministerial Regulation nº 300,� published December 20,� 1996,� and whose final destination is Western Amazon. An 88% reduction in the I.I. on raw materials,� intermediate products,� foreign secondary and packaging material used to produce industrialized products within ZFM,� when said materials leave ZFM for any other area of the country,� as long as the manufacturer’s project has been approved by the Suframa Administrative Council and fits the Basic Productive Process – PPB (a minimum set of stages that characterize industrialization).Reduced I.I. for the manufacture of IT products; the reduction is linked to a coefficient that is proportional to the participation of domestic labor and parts/raw materials.Reduced I.I. for the manufacture of motor vehicles,� with 5% added to the coefficient of reduction mentioned in the previous item.


Internet www.mdic.gov.br




230 231


PolicyIndustrialized Products Tax Incentive – IPI (Imposto sobre Produtos Industrializados – IPI)

Segment Non-definedSize Non-definedRegion Non-definedAgency MDIC (Ministry of Development,� Industry and Foreign Trade)Type of program Fiscal incentives (financial)

Description

IPI exemption for products manufactured in the ZFM.IPI exemption for imported goods (including capital goods) used within the ZFM.IPI exemption for foreign goods used in Western Amazon,� as long as it is listed in Interministerial regulation n. 300/96.IPI exemption for domestic goods brought into ZFM and other areas of Western Amazon.IPI exemption for products manufactured using regionally produced agricultural and extracted vegetable products,� for all areas within Western Amazon.IPI credit calculated as if it had been due,� every time the products mentioned in the item above are used as raw material,� intermediate products or packaging material in manufacture anywhere within the National Territory,� in the manufacture of products subject to such taxes.


Internet www.mdic.gov.br


PolicyIncentives to Information Technology Investments (Incentivos para Investimentos em P&D no Setor de Tecnologias da Informação)

Segment Information TechnologySize Non-definedRegion Non-definedAgency Ministry of Science and Technology – MCTType of program Fiscal incentives (financial)

DescriptionManufacturers (from any part of the country) of IT goods listed in the Annex of Decree n. 3.801/2001 can request these incentives,� no matter the origin of their capital.

Objective

According to Law n. 10.176/01,� regulated by Decrees n. 3.800/2001,� 3.801/2001 and 4.401/2002 and updated by Law n. 10.664/03,� IT enterprises that invest a minimum percentage of their gross revenues in R&D activities and fulfill the rules of the Basic Productive Process – PPB can request the fiscal benefit to reduce the Tax on Industrialized Products (IPI) on the sales of IT goods.


Internetwww.mct.gov.br/sepinE-mail: [email protected]


http://www.mct.gov.br/sepin


232

34. FORm TO EVALUATE POLICIES AND SUPPORTING mEASURESPolicy Modermaq (Modermaq)Segment Domestic IndustrySize of enterprise Small and medium enterprisesRegion Non-definedAgency BNDES – National Bank for Economic and Social DevelopmentType of program Financing (financial)

ObjectiveIts objective is to finance the purchase of new machines and equipment,� made in Brazil,� registered BNDES,� so as to modernize the domestic industry and drive the capital goods sector.

Description

Encourage industrial modernization by financing up to 90% of the goods in purchases of machines and equipment,� mainly for small and medium enterprises. Items that can be financed: New machines and equipment made in Brazil,� registered with BNDES,� but excluding the systems,� industrial sets and equipment associated to large projects. Large projects are those whose financing amounts to over R$10 million.




PolicyProgram to Support Research in Enterprises – PAPPE (Programa de Apoio à Pesquisa em Empresas – PAPPE)

Segment Technology based enterprisesSize of enterprise Non-definedRegion Non-defined

AgencyFINEP and the Foundations to Support Research (FAPs) headquartered in the States of the country


Objective

Finance R&D activities in search of innovative products and processes in the stages that precede their commercialization processes. This research is done by researches acting directly or in cooperation with technology based enterprises.

Description

FINEP brings resources from FNDCT,� through the Sectorial Funds – non-refundable resources – and bestows them on research activities developed by technology based enterprises for a period of up to two years,� supporting researchers with up to R$50.000,�00 (fifty thousand reais) for Stage I (up to six months) and up to R$150.000,�00 (one hundred and fifty thousand reais) for Stage II (up to eighteen months). These amounts are highest that FINEP can invest in each project. The total amount invested in each project can be raised depending on how much the FAPs can invest,� too,� on the nature of the project as well as the regional needs identified.


Internetwww.integracao.gov.br/Fundoswww.basa.com.br

Data Invested (up to January,� 2005) = R$54.198.233,�50To be invested (January,� 2005) = R$25.801.826,�50


http://www.integracao.gov.br/Fundos

http://www.basa.com.br

232 233


PolicySociety to Promote the Excellence of Brazilian Software Program -SoftEx 2000 (Programa Sociedade para Promoção da Excelência do Software Brasileiro – SoftEx 2000)

Segment Software SectorSize Non-definedRegion Non-definedAgency Ministry of Science and TechnologyType of program Development (non-financial)

Objectives

Place Brazil among the 5 biggest software producers and exporters in the world; achieve international standards of quality and productivity in software; continuously improve the managerial,� marketing and technical capacitation of Brazilian software enterprises; consolidate Brazil’s image as a software producer and exporter (domestically and internationally); create the conditions to offer funds to leverage business towards the production and export of software,� from sources similar to those found in the USA and Europe; reduce Brazilian costs in software production and exports.

Description

The SoftEx Society works from pluriannual Strategic Models as it seeks to establish lasting commitments with partners and agents in search of excellence in results. Its basic strategy is based on bringing universities,� the government and the Brazilian software sector together to create a favorable environment for the development of this sector in all areas of the country.


Internet http://www.mct.gov.br/prog/informatica/SoftEx.htm

Goals Preset goals are not available.

Data 2002

102 new enterprises were incubated and 46 were graduated. Line of credit Prosoft / SoftEx through BNDES was renewed,� making a further R$30 million available for new business plans. The same negotiation managed to increase the amount of credit from R$4,�5 million to R$6 million and the limit for participating in this mechanism from R$60 million to R$100 million.2002 – 8 contracts were signed,� which resulted in an investment of R$17,�8 million. From 1999 to 2002,� R$50,�44 million were invested in 24 enterprises.2002 – 34 thousand professionals from the associated enterprises dedicated 40 thousand hours to short and medium-term training in the areas of business planning,� software technology,� quality,� entrepreneurial management and marketing & sales.1999 – The SoftEx Program was chosen by the UN (UNDP) as one of the 30 most important mobilizing programs in the world.

Data 2003

SoftEx Agents intensified actions towards capacity-building in enterprises and in professionals in this field. Over 100 training courses were offered 2003,� and they dealt with technical and managerial aspects,� with an average of 15 new courses per month.

http://www.mct.gov.br/prog/informatica/softex.htm

234

3�. FORm TO EVALUATE POLICIES AND SUPPORTING mEASURESPolicy Prosoft – Software Industry Funds (Prosoft)Segment Domestic Software Industry and Associated ServicesSize of enterprise Non-definedRegion Throughout the countryAgency BNDES – National Bank for Economic and Social DevelopmentType of program Financing (financial)

Objective

Contribute towards the development of the domestic software industry and its associated industries,� so as to:

significantly enhance the participation of domestic enterprises in the domestic market; promote the growth of their exports; strengthen the R&D and Innovation processes in the software sector; promote the growth and internationalization of domestic software and associated services enterprises; promote the dissemination and growing use of domestic software by all enterprises headquartered in Brazil and abroad;encourage improvements in quality and the certification of the products and processes associated to software.

Description

The Program to develop the Domestic Software Industry and Associated Services offers 100 million Reais from BNDES towards the production,� commercialization and export of software. Investments and business plans of enterprises headquartered in Brazil can be financed.



DataUp to May,� 2004,� 80 million reais had already been invested or were in the final stages of analysis.


PolicyTechnological Capacity Development to Industries – PACTI (Programa de Apoio à Capacitação Tecnológica da Indústria – PACTI)

Segment Not availableSize of enterprise Not availableRegion Not availableAgency Ministry of Science and TechnologyType of program Development (non-financial)

ObjectiveSupport,� guide and articulate measures intended to raise the technological capacity of the industry,� aiming to increase the competitiveness of the goods and services produced in the country.



Internet http://www.mct.gov.br/prog/pacti/Default.htm


http://www.mct.gov.br/prog/pacti/Default.htm

234 235


PolicyNorthern Development Agency (Agência de Desenvolvimento da Amazônia – ADA)

Segment Not availableSize of enterprise Not available

RegionAmazon (states of Acre,� Amapá,� Amazonas,� Mato Grosso,� Pará,� Rondônia,� Roraima,� Tocantins and part of Maranhão)

Agency Ministry of National IntegrationType of program Financing (financial)

ObjectivePromote and plan structured actions to build the sustainable development of Amazon,� and it’s competitive integration in the national and international contexts,� aiming the social and economic emancipation of Amazon.

Description

ADA has as financial instruments the Amazon Development Fund (FDA); a reserved amount from the General Budget of the Union; the research of alternative sources of resources trough agreements and contracts with national and international institutions.

Performance Not availableInternet www.ada.gov.br


PolicySebrae Program to Firm Incubator (Programa Sebrae de Incubadoras de Empresas)

Segment Not availableSize of enterprise Micro and small enterprisesRegion Not availableAgency SebraeType of program Development (non-financial)

Objective

Sebrae Program to Firm Incubator has as mission to stimulate the usage of enterprise incubators in order to create,� develop and consolidate competitive enterprises,� that will contribute to strengthen of the Brazilian technology and the social-economic development.


41. FORm TO EVALUATE POLICIES AND SUPPORTING mEASURESPolicy Sebrae Program to Local Productive Arrays (Arranjos Produtivos Locais)Segment Non-definedSize of enterprise Mainly micro,� small and medium enterprisesRegion The whole countryAgency Federal Government; SebraeType of program Development (non-financial)

Description

Productive arrangements are clusters of enterprises located within a territory; their production is specialized and they maintain articulation,� interaction,� cooperation and learning linkages among themselves and with other local players such as the government,� business associations and credit,� teaching and research institutions.

ObjectivePromote the Development of local productive arrangements,� thus enhancing the competitiveness and internationalization of enterprises,� mainly the micro,� small and medium size ones found in local productive arrangements.


Internet www.mdic.gov.br; www.sebrae.com.br

http://www.ada.gov.br




23�


PolicyCompetitiveness Increase to Medium Industry in NE (Aumento da Competitividade da Média Indústria do Nordeste)

Segment Not availableSize of enterprise Small enterprisesRegion North-eastAgency Senai; Sebrae; GTZ


ObjectiveInsert small size enterprises products in the national and international scenarios

Description

With the support of the Federal Government of Germany and executed in cooperation by Senai,� Sebrae and GTZ,� the project is involved with small size firms in the north-east region,� with the objective of inserting their products in the national and international scenarios. Between 2002 and 2004,� the project has concentrated efforts in the productive arrangements of construction,� leather and shoes,� lacticínio and clothing.

Performance Not availableInternet www.sebrae.com.br


PolicyInformation Telecenters Project – TIN (Projeto Telecentros de Informação e Negócios – TIN)

Segment Private Enterprises,� Public Institutions,� NGOs and society as a wholeSize of enterprise Micro and small enterprisesRegion Non-definedAgency Industrial Technology Agency (STI) – MDICType of program Development (non-financial)

Objective

Insert micro and small size enterprises in the Information Society by means of access to new information technologies and communications (TIC). Furthermore,� it creates business and work that induce growth in production,� job and income creation. The proposed model in this project expands the traditional telecenter concept and seeks the so-called digital literacy of businesspeople in micro and small size enterprises,� besides teaching the use of applications and web browsers.

Description

It is an environment that offers classroom and distance-learning courses and training,� information,� services and business opportunities towards developing the competitiveness of micro and small size enterprises and encouraging the creation of new businesses. It is a tool to unite businesspeople,� public and private sector institutions,� NGOs and society as a whole.

Performance Data not availableInternet www.telecentros.Development.gov.br


http://www.telecentros.desenvolvimento.gov.br

23� 23�

44. FORM TO EVALUATE POLICIES AND SUPPORTING MEASURESPolicy Sebraetec (Sebraetec)Segment Non-definedSize of enterprise Micro and small enterprisesRegion Non-definedAgency Sebrae – Brazilian Agency for the Support of Micro and Small EnterprisesType of program Financing (financial)

Objective

Its objective is to promote the improvement and innovation processes and products of micro and small enterprises,� prioritizing those that belong to local productive settings by means of technology consulting services provided by its entities and aiming to incorporate technical progress and increase the competitiveness of small businesses.

Description

It is a mechanism coordinated by Sebrae to allow micro and small enterprises and entrepreneurs to access existing knowledge through consulting and thus enhance the technological level of the enterprise. It can support up to 70% of the costs of a project,� with the remainder under the responsibility of the supported enterprise,� according to the criteria set out in the Program’s Operational procedures and Regulations.



DataIn 2004,� it supported 34 thousand micro and small enterprises,� on average,� and these enterprises participated in 3.123 projects and will receive R$22.370 million from Sebrae.


PolicyNortheastern Development Agency (Agência de Desenvolvimento do Nordeste)

Segment Non-definedSize of enterprise Small,� medium and large enterprises

RegionNortheastern Brazilian States,� the North of Minas Gerais and the counties in the Jequitinhonha valley (MG) and those in the North of Espírito Santo

Agency Federal GovernmentType of program Fiscal incentives (financial)

ObjectiveEncourage new investments to increase production and the productivity of enterprises in the Northeast.Attract enterprises from other regions to the Northeast.

Description

Adene,� which runs FDNE,� currently uses fiscal incentives as its most powerful tool to Develop the Northeast. The Special Incentives Coordination seeks to offer its contribution towards the general Objectives defined by the Agency by keeping in mind that all Adene activities must contribute according their specificity.

Performance Data not availableInternet www.sudene.gov.br


http://www.sudene.gov.br

23�


PolicyNational Program to Support Firms Incubators – PNI (Programa Nacional de Apoio a Incubadoras de Empresas – PNI)

Segment Not available

Size of enterprise Not available

Region Not available

Agency Ministry of Science and Technology


ObjectiveTo gather,� articulate,� raise and divulge institutional and financial efforts to support firms incubators.

Description Not availablePerformance Not available

Internet http://www.mct.gov.br/prog/empresa/pni/Default.htm

4�. FORm TO EVALUATE POLICIES AND SUPPORTING mEASURESPolicy Entrepreneurialship Project (Projeto Empreender)Segment Not availableSize of enterprise Not availableRegion Not availableAgency SebraeType of program Development (non-financial)

Objective

In a partnership with Sebrae,� CACB has implemented the Entrepreneurialship Project. The objective is to support Commercial and Industrial associations,� by promoting segmental nodules and the valorization of the associative aspect.




http://www.mct.gov.br/prog/empresa/pni/Default.htm


23� 239


PolicySectorial Fund – Telecommunications,� FUNTTEL (Fundo Setorial para o Desenvolvimento Tecnológico das Telecomunicações – FUNTTEL)

Segment Telecommunications

Size of enterprise Small and medium technology based enterprises

Region Non-defined

AgencyCommunications Ministry; Finance for Studies and Projects – FINEP – and National Council of Scientific and Technological Development – CNPq


Objective

This Fund is managed by the Communications Ministry. Its objective is to seek technological innovation in telecommunications,� access to capital for small and medium technology based enterprises in the telecommunications sector,� human resources capacitation in technology and research applied to telecommunications.

Description

The funds meet the demands of diversified areas,� but are similar in their operations: pegged to revenues,� pluriannuality,� shared management,� diversified sources and integrated programs. It is managed through several social segments (government,� academia and the private sector) to set up long term strategies,� define priorities and monitor the actions performed.Origin of the Resources: 0,�5% of the net revenues of telecommunications service enterprises and a fee of 1% of the gross revenue from participative events held through the telephone lines,� besides an initial equity of R$100 million from FISTEL.



49.FORm TO EVALUATE POLICIES AND SUPPORTING mEASURESPolicy FINIMP – Import Fund (Financiamento à Importação – FINIMP)Segment Not availableSize of enterprise Enterprises of any sizeRegion Not availableAgency Banco do BrasilType of program Financing (financial)Objective Not available

DescriptionTools that facilitate imports of goods and services,� mainly the ones with no national similar,� and that are aimed to the instalation,� enlargement and modernization of industrial instalations.

Performance Not availableInternet www.bb.com.br



240


PolicyIncentives to Research at SMEs – PAPPE (Programa de Apoio à Pesquisa em Empresas – PAPPE)

Segment Not availableSize of enterprise Not availableRegion Not availableAgency Federal governmentType of program Development (non-financial)Objective Not available

DescriptionTrough this program and the Program of technological creation,� Criatec,� the government will support the creation of small enterprises of technological base.


Internet www.brasil.gov.br/

51.FORm TO EVALUATE POLICIES AND SUPPORTING mEASURES

PolicySenai Program to Design Innovation (Programa Senai de Inovação do Design)

SegmentWood,� furniture,� footwear,� leather materials,� graphic arts,� textiles,� electro-electronics,� jewelry,� paper and cellulose,� automation and informatics,� package,� plastic,� ceramics and chemistry

Size of enterprise Not availableRegion Not availableAgency SenaiType of program Development (non-financial)Objective Mobilize and build awareness to the importance of design

Description

The design management may compose an important instrument to raise goods competitiveness. The Senai Program of Design Innovation works in 16 Brazilian states,� through 26 Centers of Design Support (NAD),� and in 13 industrial segments: wood,� furniture,� footwear,� leather materials,� graphic arts,� textiles,� electro-electronics,� jewelry,� paper and cellulose,� automation and informatics,� package,� plastic,� ceramics and chemistry.

Performance Not availableInternet [email protected]


PolicyInformation Telecenters Project (Projeto Telecentros de Informação e Negócios)

Segment Not availableSize of enterprise Not availableRegion Not availableAgency SebraeType of program Development (non-financial)

ObjectiveThe project Information and Telecommunication Centers and Business intends to eliminate the distance between business people and the digital world.




240 241

53. FORm TO EVALUATE POLICIES AND SUPPORTING mEASURESPolicy Sectorial Fund – Amazon Region (Fundo Setorial da Amazônia)Segment Information technology sectorSize of enterprise Non-definedRegion Manaus Duty-free Zone



ObjectiveEncourage R&D activities in the Amazon Region according to the project designed by Brazilian IT enterprises established in the Manaus Duty-Free Zone.

Description

The funds meet the demands of diversified areas,� but are similar in their operations: pegged to revenues,� pluriannuality,� shared management,� diversified sources and integrated programs. It is managed through several social segments (government,� academia and the private sector) to set up long term strategies,� define priorities and monitor the actions performed.Origin of the Resources: A minimum of 0,�5% of the gross revenues of the enterprises that produce IT goods and services in the Manaus Duty-Free Zone.



54. FORm TO EVALUATE POLICIES AND SUPPORTING mEASURESPolicy Sectorial Fund – Infrastructure (Fundo Setorial de Infra–Estrutura)Segment Non-definedSize of enterprise Non-defined




ObjectiveModernize and enhance the infra-structure and support services in research carried out by Brazilian state-owned higher education institutions and research.

Description

The funds meet the demands of diversified areas,� but are similar in their operations: pegged to revenues,� pluriannuality,� shared management,� diversified sources and integrated programs. It is managed through several social segments (government,� academia and the private sector) to set up long term strategies,� define priorities and monitor the actions performed.Origin of the Resources: 20% of the resources earmarked for each Fund to Support Scientific and Technological Development.







242


PolicySectorial Fund - Information Technology (Fundo Setorial para a Tecnologia da Informação)

Segment Information Technology SectorSize of enterprise Non-definedRegion Non-defined



ObjectiveEncourage strategic IT research and development projects by Brazilian enterprises in the IT sector.

Description

The funds meet the demands of diversified areas,� but are similar in their operations: pegged to revenues,� pluriannuality,� shared management,� diversified sources and integrated programs. It is managed through several social segments (government,� academia and the private sector) to set up long term strategies,� define priorities and monitor the actions performed.Origin of the Resources: A minimum of 0,�5% of the gross revenues of the enterprises that develop or produce IT and automation goods and services that receive fiscal incentives through the Information Technology Law.




PolicyConstitutional Fund to Central-West Region Development – FCO (Fundo Constitucional de Financiamento do Centro-Oeste – FCO)

SegmentActivities in the mineral,� industrial,� agribusiness,� tourism,� infrastructure,� commercial and services sectors

Size Micro,� small,� medium and large enterprises

Region Distrito Federal and the States of Goiás,� Mato Grosso and Mato Grosso do Sul

Agency Financing: Banco do Brasil


ObjectiveTo contribute to the economic and social development of the Midwest region by offering directed loans to productive activities. The FCO’s area of activity encompasses Distrito Federal and the States of Goiás,� Mato Grosso and Mato Grosso do Sul

Description

The Federal Constitution approved in 1988 set aside 3% of the taxes on revenues taxes and other revenues levied on industrialized products to be invested in financing the productive sectors of the North,� Northeast and Midwest Regions. The FCO is administered by the Ministry of National Integration,� by Banco do Brasil and by the Council of the Midwest (Condel/FCO). The fund offers credit at attractive interest rates that vary according to the size of the loanee,� and range from 8,�75% to 14% per year,� for operations in the industrial,� agribusiness,� tourism,� infrastructure,� commercial and services sectors. These interest rates are cut by 15% as a timely payment bonus,� as long as the debt installment is paid by its due date.These loans are made to micro,� small,� medium and large enterprises that work in the mineral,� industrial,� agribusiness,� tourism,� infrastructure,� commercial and services sectors the loans can run for up to 12 years,� including up to 3 years’ grace period. Individuals or companies should look up a Banco do Brasil branch agency,� the FCO financial agent.


Internetwww.integracao.gov.br/fundoswww.basa.com.br

Goals Investment forecast for 2004 = R$1.403,�6 million

DataThe amount of the resources invested in this period of time (R$1.579,�1 million) represents 112,�5% of the amount forecast for 2004



http://www.integracao.gov.br/fundos


242 243


PolicyIncome and Job Generation Program – PROGER (Programa de Geração de Emprego e Renda – PROGER)

Segment Not availableSize of enterprise Not availableRegion Not availableAgency Ministry of EmploymentType of program Financing (financial)Objective Generate and maintain income and employment

Description

A group of special lines of credit oriented to whom wants to create or invest in it’s own business. Besides being an instrument aimed to generate and maintain employments,� PROGER is part of the social security program.At the program,� the enterpeuner has available with no costs a structures prepared to recrute,� select and develop the employees requested by it’s business,� being able,� also,� to receive information in order to create a business plan.

Performance Not availableInternet www.mte.gov.br

http://www.mte.gov.br

244244

5�. FORm TO EVALUATE SUPPORT POLICIES AND mEASURES

PolicyConstitutional Fund to North Region Development – FNO (Fundo Constitucional de Financiamento do Norte – FNO)

SegmentMineral,� industrial,� agro-industrial,� tourism,� infrastructure,� commercial and service sectors

Size Micro,� small,� medium and large companiesRegion States of Acre,� Amapá,� Amazonas,� Pará,� Rondônia,� Roraima and TocantinsOrgan Financing from: Banco da Amazônia S.A. Type of Program Financing (financial)

Objective

a) In the Regional Economy1) Increase gross regional added value.2) Increase tax and fee revenue.3) Increase job and employment opportunities for local labor as well as salaries and wages.4) Reduce the rural exodus by encouraging the local population to remain in non-urban areas.5) Introduce technologies capable of overcoming regional economic backwardness. 6) Contribute to the increase of exportable surpluses. 7) Internalize income through verticalization of raw material production,� by stimulating regional agro-industries and industries. 8) Minimize the region’s internal inequalities,� via fostering the formation of new economic poles in the hinterlands.9) Improve internal supply of basic products.10) Promote the self-sustainability of regional economic undertakings. 11) Encourage the economic use of the regional flora.

b) To The Beneficiaries1) Make it possible to increase the producer’s real income,� by adding a profit rate. 2) Improve life quality of rural producers,� industrial businessmen,� their families and employees. 3) Create working opportunities for relatives of mini and small producers.

c) To the Consumers

1) Contribute to maximize consumer income,� as an outcome of reducing the relative prices of agricultural and industrial products. 2) Improve the overall food-related social welfare of the population.

d) To the Environment1) Make available mechanisms to recover degraded or near-degraded areas,� through the adoption of appropriate technologies.2) Promote an economically and ecologically sustainable regional development. 3) Rein in the advance of haphazard deforesting.

e) To Banco da Amazônia S. A.1) Strengthen this institution and promote its consolidation as an economic agent fostering the Amazonian region’s socio-economic development.

244244 245

5�. FORm TO EVALUATE SUPPORT POLICIES AND mEASURES

Description

The 1988 Brazilian Constitution has earmarked 3% of taxes on income and earnings of any nature and levied on industrialized products to be used in programs to finance the productive sectors in Brazil’s Northern,� Northeastern and Midwestern regions. FNO (Northern Brazil Constitutional Financing Fund) covers the Northern Brazilian states of Acre,� Amapá,� Amazonas,� Pará,� Rondônia,� Roraima and Tocantins. It offers credit at variable interest rates (8.75% to 14% a year,� depending on the borrower’s size). For industrial,� agro-industrial,� tourism,� infrastructure,� commercial and service operations,� these interest rates enjoy a 15% reduction,� as a default bonus,� provided that the debt installment is paid no later than on its due date. FNO funds finance micro,� small,� medium and large companies carrying out activities in the mineral,� industrial,� agro-industrial,� tourism,� infrastructure,� commercial and service areas. Loans can be as long as twelve years,� including a three-year grace period. Individuals or corporations interested in such financing can contact a Banco da Amazônia S.A. (Basa) branch office. Basa is FNO’s financial agent.


Internetwww.integracao.gov.br/Fundoswww.basa.com.br

GoalsFNO’s fiscal goals – 2003 fiscal year = R$780.3 million Brazilian reaisFunds distribution goals = R$600.57 million

Data

A verification of FNO’s 2003 funds-management fiscal goals reveals a 41.5% surplus over the existing estimate,� as shown in Table 1 herein.Fund distribution in Brazil’s Northern region surpassed by 79% its initial estimate. The estimate had been of a R$600.57 million distribution and,� in fact,� R$1,�075.1 billion have actually been distributed (see Table 2 herein).

TABLE 1 FNO FISCAL GOALS – YEAR OF 2003 (R$ MILLION)

I. Credit refund in 2003

Contracts AmortizationPrice-level Restat. of Available Funds

Estimate(1)

Actual(2)

Change %(2/1)

248,�1199,448,7

506,�9421,185,8

104,�3111,276,2

II. Resources obtained via STN 532,�2 597,�2 12,�2

TOTAL (I+II) 780,�3 1.104,�1 41,�5 Source: BASA – GERIN/GECON.

http://www.integracao.gov.br/Fundos


24�24�

TABLE 2Distribution of FNO Resources per Federation Unit (R$ million)

STATE ESTImATE (1) ACTUAL (2) % (2/1)Acre 60,�05 39,�8 66,�3Amapá 60,�05 3,�9 6,�5Amazonas 90,�09 94,�8 105,�2Pará 150,�17 536,�1 357,�0Rondônia 90,�08 153,�3 170,�2Roraima 60,�05 13,�8 23,�0Tocantins 90,�08 233,�4 259,�1Total �00,5� 1.0�5,1 1�9,0

Source: BASA – GERIN/GERAC.

24�24�

References

24�24�

MDIC – Ministério do Desenvolvimento da Indústria e Comércio Exterior. www.mdic.gov.br.

MCT – Ministério da Ciência e Tecnologia. www.mct.gov.br.

BNDES – Banco Nacional de Desenvolvimento Econômico e Social. www.bndes.gov.br.

BB – Banco do Brasil. www.bb.com.br.

BNB – Banco do Nordeste. www.bnb.gov.br.

Banco da Amazônia S.A. www.bancoamazonia.com.br.

FINEP – Financiadora de Estudos e Projetos. www.finep.gov.br.

Sebrae – Serviço Brasileiro de Apoio às Micro e Pequenas Empresas. www.sebrae.com.br.

Instrumentos de Apoio ao Setor Produtivo. www.mdic.gov.br.

WORLD BANK. Legal,� Administrative and Political Barriers to Investments in Brazil. Brasília,� 2001. V.1. p. 113.

WORLD BANK. Legal,� Administrative and Political Barriers to Investments in Brazil. Brasília,� 2001. v.2,� p. 272.

CENTRAL BANK OF BRAZIL. Foreign Capital Census. 1995 Base Year. Brasília,� 1998. p. 106.

CENTRAL BANK OF BRAZIL. Foreign Capital Census. 2000 Base Year. Brasília,� 2001.

CENTRAL BANK OF BRAZIL. Media Notes: Foreign Sector. Several issues. Brasília.

BUCKLEY,� P.; CASSON,� M. The future of the multinational enterprise. London: MacMillan,� 1976.

BUCKLEY,� P. The optimal timing of a foreign direct investment. Economic Journal,� v. 91,� Mar. 1981.

BUCKLEY,� P. J.; GHAURI,� P. N. The internationalization of the firm: a reader. 1991.

CAMPOS,� N. F.; KINOSHITA,� Y. Why does FDI go where it goes? New evidence from the transition economies. IMF Institute,� Nov. 2003 (IMF Working Paper).

CAVES,� R. E. International corporations: the industrial economics of foreign investment. Economica,� v. 38,� Feb. 1971.

DUNNING,� J. Multinational enterprise and the global economy. Wokinghan: Addison-Wesley,� 1993.

DUNNING,� J. Determinants of foreign direct investment: globalization induced changes and the role of FDI policies. Annual Bank Conference on Development Economics,� 2002.

GARIBALDI,� P. et al. What moves capital to transition economies. IMF Staff Papers,� International Monetary Found,� v. 48,� Special Issue,� 2001.

GONÇALVES,� R. Globalization and de-nationalization. São Paulo: Paz e Terra,� 1999.

HOLLAND,� D. et alli. The determinants and impact of FDI in central and eastern Europe: a comparison of survey and econometric evidence. Transnational Corporations,� v. 9,� n. 3,� Dec. 2000.

HYMER,� Stephen. Multinational companies: Internationalization of capital. Rio de Janeiro: Graal,� 1983. 122p.

KINDLEBERGER,� C. P. American business abroad: six lectures on direct investment. New Heaven: Yale University Press,� 1969.




http://www.bb.com.br

http://www.bnb.gov.br

http://www.bancoamazonia.com.br




24�24� 249

NUNNENKAMP,� P,� SPATZ,� J. Determinants of FDI in developing countries: has globalization changed the rules of the game? Transnational Corporations,� v. 11,� n. 2,� Aug. 2002.

LACERDA,� Antônio Corrêa de; LEITE NETO,� Fernando Ribeiro. Direct Portuguese Investment in Brazil. Sector Characterization. In: Espacial SOBEET n.º23,� São Paulo,� 2002.

LACERDA,� A. C. de. Impact of globalization in the Brazilian economy. São Paulo: Contexto,� 1998.

LACERDA,� A. De-nationalization: myths,� risks and challenges. São Paulo: Contexto,� 2000.

LACERDA,� A. Globalization and foreign investment in Brazil. São Paulo: Saraiva,� 2004.

OHLIN,� B. Interregional and international trade. Barcelona: Oikos Publishers,� 1971. (1933 original).

SOBEET (Brazilian Society for Studies of Transnational Companies and Economic Globalization). SOBEET Letter,� São Paulo,� several issues.

UNITED NATIONS CONFERENCE ON TRADE AND DEVELOPMENT

(UNCTAD). World Investment Report 2005 – Transnational Corporations and the Internationalization of R&D. United Nations Press,� 2005. 514 p.

VERNON,� R. International investment and international trade in the product cycle. Quarterly Journal of Economics,� v. 80,� 1966.

250

Complementary Analyses for Linkage Partners SelectionHow Transnational Companies are going collaborative in Brazil: a study about the development of local suppliers

Appendix

250 251

Considering the dimension of today’s business setting,� a close evaluation of corporate strategies will unequivocally show an expansion in decision-making to a level of commercial relations that go beyond the boundaries of the corporation itself. Within this dimension,� supply chains have been challenged by their ability to adapt and evolve to meet new market conditions.The objective of this Appendix is to show additional data on how multinational corporations in Brazil are adapting to new configurations in the marketplace by adopting policies of collaboration with their main suppliers. To demonstrate this,� the activities of several surveyed corporations are examined in two levels: international practices in relationships with local suppliers and specific international practices in the development of national supply chains. Analyses of the main results clearly indicate ways to improve the process of adopting such collaborative models by multinational companies,� both Brazilian and foreign.

Sample Group for the StudyThe survey questionnaire was designed to include the main elements of modern collaborative management. The distribution of the questionnaires was determined through the use of sources that had ranked the major companies operating in Brazil in 2003 by sales. A total of 149 professionals in supply chain management and logistics participated in the survey. 48.8% of the corporations responding to the survey generate annual sales in excess of US$500 million (Graph 1).

Of these companies,� over half are organizations with annual sales in excess of US$1billion. In addition,� 60 per cent of the participating companies with sales under US$500 million had yearly sales in the 100 to 500 million dollar range. In short,� by Brazilian sales standards,� this survey incorporates a significant sample of the top one thousand companies in Brazil.

35

30

25

20

15

10

5

0

13,�6

5,�6

32,�0

24,�0 24,�8

Perc

enta

ge

Under50 million

51 to 100million

101 to 500million

501 m to1 billion

Above1 billion

Sales in US$

Graph 1 – Sales of the responding companies

The industries in the survey were defined so as to include the major sectors of production in Brazilian industry. There were responses from all 19 sectors surveyed,� making possible a comprehensive analysis of supply-chains over the most significant part of Brazilian national production (Graph 1). 86.2%,� the great majority of the firms analyzed,� relies principally on the domestic market. Only 13.8% of the sample are primarily involved with export (Graph 2). So,� for most of the companies responding to the survey,� relationships with suppliers,� in general,� are based on meeting internal market needs.

252

Chemical & PetrochemicalSteelmaking & Metallurgy

Food,� Beverages &TobaccoAutomotive

ConstructionVarious Services

TelecommunicationPaper and Pulp

Transportation & HaulingElectroelectronics

MiningPharmaceutics & Hygiene

MechanicsRetail

Plastic and RubberTechnology & Computers

Wholesale & Foreign TradePublic Services

Clothing and Textiles

0 2 4 6 8 10 12

1

22

333

33

44

55

77

999

1111

% of Respondents by Industry

Graph 2 – Participation by industrial sector

Foreign 14%

Domestic 86%

Primary market

Graph 3 – Primary markets

Most of the respondents hold positions at one of the following three functional levels:

Strategic level: responsible for formulating policies and guidelines for the supply chain. Tactical level: responsible for managing the implementation of supply chain policies and guidelines. Operational level: responsible for implementing and executing tasks / routines associated with supply chain management.

82% of the respondents work at the tactical and strategic level (Graph 4). It can be assumed that respondents at these levels have greater access to the information requested in the questionnaire and thus a greater capacity to provide and to analyze such information.

252 253

Operational level18%

Strategic level40%

Tactical level42%

Graph 4 – Supply chain stages

254

Methodology of Analysis

As described in the introduction,� the research presented here refers only to questions related to multinationals,� or,� in other words,� subsidiaries of foreign companies operating in Brazil or Brazilian-owned subsidiaries operating abroad. Therefore,� of the original sample containing 149 respondents,� only 67 companies fit the profile of active multinational. In relative terms,� this type of company accounts for approximately 44% of the total sample of 149 respondents. The analyses outlined in this article were conducted among this group. It is also worth mentioning that this subgroup fits right on the top layer of the annual sales,� which is above US$1 billion.

The test of two-Sample t-Test for Equal Means is used at a certain point in this work. This test is of fundamental importance if,� by definition,� two averages derived from distinct samples are statistically different. In other words,� an eventual difference in the averages is not simply the result of random sampling of this fixed group. Also used is a specific type of figure,� the radar diagram. In this graph,� each category has its own axis of value,� drawn from the central point,� as shown in Graph 5,� following. The line in the interior of the circle connects all the values obtained for each category.

Administrative Practices in the Supply Chain

Graph 5 – Radar diagram for the 20 categories analyzed

A radar diagram compares the aggregate values of a sequence of data,� enabling a reasonable comparative analysis. The internal scale refers to the value attributed to each category by a respondent,� for example. The smallest value is represented in the center of the graphic,� increasing gradually towards the edge of the circle,� on a scale of 1 to 10.

Among the objectives initially outlined,� special attention will be given in the next section to the preferences in the structuring of the supply chain internationally and to the policies governing interactions between multinationals and local suppliers (developmental perspective).

254 255

International Practices in Relationships with Local Suppliers

In this section,� the practices of selection and development investigated are largely based on modern collaborative concepts. To be more specific,� there are various questions related to the creation of policies for the development of local suppliers,� the inclusion of local suppliers in supply chains,� and the creation of partnerships,� as much with local academic centres as with government. To sum up,� it is expected to evaluate whether companies are more likely to develop a local supplier-base than import partnerships based in their country of origin. A further question relates to what extent involvement with local and governmental academic centers is perceived as important in forging a supply chain. The scale of measurement adopted evaluates each of these relationship policies in the following terms: strategic importance,� emphasis given in the company,� willingness of the company to change or implement collaborative practices. By constrasting the values given to these policies by the respondents,� one can make important comparative analyses. And by doing so form an accurate picture of the current state of the performance and management of competitive strategies in global markets that relate to the suppliers in the countries in which they operate. The possibilities of comparision are significantly increased when contrasting the relative values assigned to individual perception (strategic importance),� corporate perception (emphasis given in the company) and to the proactivity (willingness to change or practice) of the companies under investigation in relation to the themes proposed in this part of the study. What follows are tables that present the averages obtained for each question. The responses are on a scale from 1 to 10,� with 1 being the lowest value and 10 the highest. Specifically,� Table 1. deals with strategic importance.

TABLE 1Strategic Importance of Collaborative Practices

Code Strategic importance of collaborative practices Num.* Aver.

1 Contracting suppliers who already have a history of experience in supply 67 8.58

2 Creating policies favoring development of local suppliers 66 7.68

3 Forming partnerships with local academic institutions 64 6.00

4Adopting a collaborative model with suppliers only after establishing the company in the area

63 5.86

5Using academic centres or the government sector as sources of information

65 5.43

6Conducting a selection and contracting process different from that in the country of origin

62 5.16

7Promoting agreements with the government in order to develop regional suppliers

64 5.05

8 Contracting suppliers from company’s country of origin 63 4.79

9Limiting activities involving main competencies of the company to the headquarters located in the country of origin

61 4.72

Scale: 1. Little importance 10. Very important* Num.: number of respondents to the specific item.

25�

The first point to be noted,� the average obtained for Code 8 points to a surprising result: firms place low strategic importance on contracting suppliers from their countries of origin. From this can be said that there is a tendency to first consider local suppliers,� for obvious motives: transportation costs and a good fit with the domestic market,� among other reasons. By the same reasoning,� the average of 7.68 obtained for Code 2 shows that creating policies for developing local suppliers is seen as strategically important. Thus the conclusion can be drawn that,� for the companies studied,� at least strategically speaking,� the development of a pool of local suppliers is the best option. At the same time,� the practice strategically considered the most important is Code 1,� the preference for contracting suppliers with experience. To sum up,� on one hand there is the high strategic importance placed on development of local suppliers; on the other,� suppliers with experience are preferred. Apparently there is a paradox. As expected,� the majority of suppliers in developing countries like Brazil do not yet possess certification conforming to international standards. Moreover,� they may not have access to the technology or modernized production techniques that guarantee meeting the required standards of experience. The solution would be assistance of an academic nature from state organizations so as to consolidate operational assistance for the establishment of a supply chain.

Unfortunately,� this does not occur in practice as much as it should. Table 2 shows that the studied multinationals place low emphasis on this type of assistance as shown by Codes 2.5 e 2.7. The problem is chronic. While the previous table shows that major strategic importance is given to forming partnerships with academic institutions and using them as a source of information,� on the other hand,� Table 2 shows that emphasis given to this practice is low. Exacerbating the problem is the attitude revealed by the fact that “Promote agreements with the government in order to develop regional suppliers” (3.89) received the lowest ranking among current practices.

TABLE 2Emphasis Placed on Collaborative Practices

Code Emphasis placed by firms on collaborative practices Num. Aver.

2.1 Contracting suppliers who already have a history of experience in supply 67 7.81

2.2 Creating policies favoring development of regional suppliers 65 6.75

2.3Adopting a collaborative model with suppliers only after establishing the company in the area

63 5.25

2.4Conducting a selection and contracting process different from those done in the home country

62 4.82

2.5 Forming partnerships with local academic institutions 64 4.81

2.6Limiting activities involving those main competencies of the company to the headquarters located in the home country

61 4.49

2.7 Using academic centres or government sector as sources of information 64 4.41

2.8 Contracting suppliers from company’s country of origin 63 4.35

2.9Promoting agreements with the government in order to develop regional suppliers

64 3.89

Companies appear to promote the development of regional suppliers through their own efforts. Once again,� the creation of such developmental policies received a high average. To what extent are firms prepared to overcome the absence of state and academic institutions in developing a supplier base? This issue could be hindering the spread of practices for supplier development in developing countries like Brazil.

25� 25�

Companies do not place much confidence in government and demonstrate this by their reluctance to promote accords with governments,� as seen again in the low relative average (4.16) (see Table 3).

In logistics terms,� the preferred solution is to adopt collaborative models with suppliers only after the company has set up in the region. This policy received the third highest average in Table 2. Moreover,� companies were willing to form partnerships with local academic centers,� another collaborative option,� as Table 1.3 shows.

TABLE 3 Disposition of a Company to Practice / Change Collaborative Policies

Code Disposition of a company to practice / change to collaborative policies Num. Aver.

3.1Contracting suppliers who already have a history of experience as suppliers

67 7.25

3.2 Creating policies favoring development of regional suppliers 65 7.00

3.3 Forming partnerships with local academic institutions 64 5.553.4 Using academic centres or government sector as sources of information 64 5.52

3.5Adopting a collaborative model with suppliers only after establishing the company in the area

63 5.32

3.6Conducting a selection and contracting process different from those done in the home country

62 4.63

3.7Limiting activities involving those main competencies of the company to the headquarters located in the country of origin

61 4.49

3.8 Contracting suppliers from company’s country of origin 63 4.46

3.9Promoting agreements with the government in order to develop regional suppliers

64 4.16

In general,� there is a correspondence between the values given to strategic importance and those indicating emphasis and willingness to change/practice. It can be said,� therefore,� that there is a correspondence in the attitude of the respondents regarding the nine alternatives. Such correlation can be observed more effectively in the diagram below,� which shows the three items,� strategic importance,� emphasis,� and willingness to change/practice separately (Graphs 6,� 7,� 8). The pattern of the lines of contour in the radar diagrams are similar,� varying only in value assigned.

Graph 6 – International practices in relationships with local suppliers – strategic importance

25�

Graph 7 – International practices withlocal suppliers – emphasis given by company

Graph 8 – International practices of relationships with suppliers – disposition to change/practice

In addition,� a statistical analysis of the values can be extrapolated by measuring quantitatively the magnitude of difference between the mean values by way of a t-test of two means. Table 4 shows the results of such tests.

Cells marked with an asterisk (*) show statistically different averages at 5% significance level when comparing the strategic importance to the company with the emphasis the company actually assigns. That means that there is a significant gap between what the company values and what it actually puts into practice. Accordingly,� these items have been differentiated in the column “the firm’s disposition to practice / change according to the following classification”.

Symbol + = High disposition to practice / change Symbol # = Moderate disposition to practice / change Symbol & = Low disposition to practice / change

25� 259

TABLE 4

Comparison of Collaborative Practices Measured

Code Comparison of Collaborative Practices Strategic Importance

Emphasis placed by

firm

Firm’s disposition to practice/

change

1Contracting suppliers who already have a history of experience as suppliers

8.58* 7.81* 7.25+

2Creating policies for development of regional suppliers

7.68* 6.75* 7+

3Forming partnerships with local academic institutions

6.00* 4.81* 5.55#

4Using academic centres or government sector as sources of information

5.43* 4.41* 5.52#

5Adopting a collaborative model with suppliers only after establishing the company in the area

5.86 5.25 5.32

6Conducting a selection and contracting process different from that done in the country of origin

5.16 4.82 4.63

7Limiting activities involving company’s main competencies

4.72 4.49 4.49

8Contracting suppliers from company’s country of origin

4.79* 4.35* 4.46&

9Promoting agreements with the government in order to develop regional suppliers

5.05* 3.89* 4.16&

* Significant difference between averages at 5% significance level + High disposition to practice / change # Moderate disposition to practice / change & Low disposition to practice / change

This ranking of the willingess of the company to change/practice,� shown by the differences between the averages considered as significant,� is very useful in interpreting the tabulated values. In other words,� a statistical difference of averages between that which the company considers important and that which is actual practice indicates the company’s attitude,� whether these averages show reduction,� increase,� or maintainance of this difference.

The first issue to note is that the respondents show a marked tendency to continue to practice both Code 1,� “Working with suppliers who already have a history of experience as suppliers”,� and Code 2,� “Creating policies favoring development of regional suppliers”. It can be assumed that such practices will continue or get better,� as companies place higher strategic importance and emphasis on them,� when compared to the other practices in the sample.

Practices for which companies showed only a moderate disposition to change / to practice are: Code 3,� “Forming partnerships with local academic institutions”,� and Code 4,� “Using academic centres or public sector as sources of information”. A growing propensity to practice these can be observed,� assuming that the low values obtained for the placement of emphasis by the companies surveyed explain why they have not yet been implemented.

2�0

Finally,� it is important to note the passivity in seeking alternatives such as those offered by Code 8,� “Contracting suppliers from company’s country of origin”,� and Code 9,� “Promotion of Accords for the Development of Local Suppliers with the Government”. Such lack of motivation is also evident in the low values calculated for the averages of strategic importance and emphasis given to these items. In other words,� the respondents neither practice nor have much interest in policies along these lines.

Following this initial analysis of the subsidiaries of foreign firms operating in Brazil or Brazilian firms with operations abroad,� the next step was an examination of specific collaborative practices: investment in the transformation or modernization of a supply chain,� the question of autonomy of the subsidiary in the selection of suppliers,� and a period of implementation for a collaborative program with suppliers. The last is extremely important for understanding whether collaboration is the appropriate technique for the potential development of a pool of suppliers. It is this item that the next section “Specific Practices in the Development of National Supply Chains” first examines.

2�0 2�1

Specific Practices in the Development of National Supply Chains

Implementation Stage of a Collaborative Program with Suppliers

The adoption of a collaborative model can be fundamental in creating a supply chain that efficiently meets the final requirements of the client. Note that the emphasis given to the strategy of adopting a collaborative model with suppliers after establishing the firm in the area (see Table 2; Code 2.3) received the third highest value among the sample averages (5.25). Yet,� in terms of willingness to practice,� companies placed the option “Creating policies favoring development of regional suppliers” (see Table 3,� Code 3.2) in second place,� with an average of 7.00. This would indicate that companies adopt a strategy of developing a pool of national suppliers after setting up in a region.

Also notable is the intrinsic relationship between the positive responses mentioned above and the number of firms (37% of the sample) currently considering implementing a collaborative program with their suppliers,� as illustrated in Graph 9,� below.

3%

35%

37%

25% The company is considering The company has establishedThe company has no plansOthers

Graph 9 – Adoption of a colloborative system

A very significant proof that the value of collaborative models is that a similar percentage,� 35% of the companies,� already has collaborative programs within their supply chains. All told,� only 30% of firms has no such strategic plans. The most significant statistic,� however,� refers to the group of firms that is considering implementing such a program. This (37%) forms the largest segment of the sample and is indicative of a future trend in growth of collaborative practices within the large supply chains studied.

This transition group could be considered proof of recent findings that,� in the current context of increased competition requiring closer relations in the supply chain,� it is not strategically effective to maintain only transactional relationships with the supply chain. On the other hand,� this requires greater flexibility on the part of the subsidiaries in terms of operations and decision-making,� in order that collaborative policies can be effectively implemented.

In addition,� managerial autonomy for subsidiaries in choosing suppliers is fundamental for increasing the company’s adaptability to new market relationships. For example,� technical operational standards and quality requirements of the head office can prove to be inadequate in the transition period when national companies are gearing up for production (potential suppliers). This demonstrates the need for strategic independence,� as further discussed in the next section.

2�2

The Subsidiary’s Autonomy in Supplier Selection

The necessity for operational differentiation is highlighted by the average ranking of the following item; the sample group operating internationally placed “Conducting a selection and contracting process different from that conducted in the home country” in sixth place in terms of strategic importance with an average score of 5.16 (see Table 1,� Code 6). As proof of this tendency,� the sample group ranked their readiness to adopt such a practice only in sixth position when compared to the other alternatives,� with an average value of 4.63 (see Table 3,� Code 3.6). The practices of the firms studied corroborate the tendency to set up productive units in foreign countries with the view to establishing flexible norms and standards for supply. The partial or complete autonomy of a subsidiary,� due to its proximity to the suppliers themselves (in the case when they are domestic) is essential; regional differences are better understood and absorbed by the management system of the supply chain,� be it already established or only planned.

Confirming the above conclusions,� data show that only one quarter (25%) of the subsidiaries of foreign companies working in Brazil or Brazilian companies with units abroad conduct their supplier selection based on criteria exclusively formulated by the head office (see Graph 10). In contrast,� 31% of respondents claim that the process is conducted by autonomous subsidiaries. 42% of the sample practice a policy of partial autonomy. In short,� the great majority (74%) of subsidiaries possesses at least a certain degree of autonomy in choosing their supply network. Obviously,� there should be an ideal balance between head office and subsidiaries in order to maximize the potential for success in decision-making.

42%

26%

32%

No,� the subsidiary is autonomousYes,� all decisions taken by the head officeYes,� but the subsidiary has some degree of autonomy

Graph 10 – Autonomy of subsidiaries in supplier selection

The last issue to be analyzed relates to investments made in modernization or transformation of the supply chain. So the final focus of this study is on identifying policies which maintain the collective gains achieved in the supply chain,� at least in the medium-term timeframe.

2�2 2�3

Investments in Transformation or modernization of Supply Chains

82% of respondents are making investments in modernization of the supply chain. These tend to be medium-scale investments (35%) (Table 5). Only 6% have no plans for investing and 11% of the sample is considering investing in the short/medium term.

TABLE 5Level of Investment in the Transformation or Modernization of Supply Chains

Level of Investiment in the Transformation or modernization of Supply Chains

Number respondents

% Valid% % of valid

groups

Yes

Large scale investing 12 17.9 19.0

82.5Medium scale investing 22 32.8 34.9

Small scale investing 18 26.9 28.6

NoBut is considering investing in the short/medium term time frame

7 10.4 11.117.4

No 4 6.0 6.3

Total 63 94.0 100.0 100

No information 4 6.0 Total 67 100.0

Investment in the supply chain serves to reduce operational costs and augment value in the supply process. As shown in Graph 11,� 42% of respondents aim to optimize the supply chain,� yet 33% actually implement this policy. The others in the sample group include those companies that intend to iniciate an optimization process (18%) and those that are not concerned with the issue (6%) (Graph 11).

In general,� subsidiaries are likely to invest in supply chains in order to improve them. Confirmation of this tendency is obtained by looking at those companies who do not invest in the supply chain; in the previous two analyses,� these companies account for only 6% of the sample.

33%

43%

6%

18%

Aim toNo plansAre consideringAlready practice

Graph 11 – Optimization of relationships with suppliers

2�4

Subsequent to the analysis of the three distinct interfaces of supply chain management,� the following conclusions can be made: (i) the strategy adopted is the development of a pool of national suppliers,� once established in the region; (ii) the current practices in the firms studied are likely to favor establishing standards of supply; (iii) in general,� subsidiaries tend to invest in optimization of the supply chain. To conclude,� the following section combines the conclusions of the analyses presented thus far in the two principal sections of this study: international practices in relationships with national suppliers and specific practices in the development of national supply chains.

2�4 2�5

Conclusion

The results of the present research are surprising in the clarity with which the respondents ranked the various policies of collaborative relations with suppliers. Specialists and authors associated with supply chain management confirm that the emphasis on strategic administration of supply chains has changed; what was previously considered merely a tactical exercise has become a recognized strategic function that determines the success or failure of the company. The relationship with suppliers is considered fundamental to the optimization of the supply funtion in the production process.

69 multinational firms operating in Brazil were analysed for the purpose of determining the strategic importance of supplier relationships in an examination of how a collaborative international environment is created. The results demonstrate critical questions for the creation,� structuring and development/maintenance of collaborative relations with suppliers. The primary conclusions are summarized in the following Table. Table 6 highlights the current trend toward optimization of the large supply chains in Brazil. Despite the continued presence of certain purely transnational relationships,� there is undeniable evidence of a movement toward modernization by means of the adoption of collaborative techniques or practices among the large supply chains studied.

TABLE 6How transnational companies are going collaborative in Brazil?

International practices in relationships with national suppliers

(i) The strategy adopted is to develop a pool of suppliers subsequent to establishing the company in the region.

(ii) The creation of policies for developing local suppliers is considered to be very important strategically.

(iii) The preference is for selection of suppliers with experience.

(iv) Promoting accords with government for the development of regional suppliers has the least emphasis in practical application.

Specific international practices in the development of national supply chains

i) Companies rate contracts with suppliers from their respective countries of origin as having low strategic importance.

(ii) Current practices among the companies investigated corroborate the tendency to set up productive units in foreign countries with flexible norms and standards in supply.

(iii) There is a general tendency for subsidiaries to invest in optimization of the supply chain.

Strengthening academic institutions will also help the process of upgrading networks of national suppliers. Together with the government sector,� such institutions can be very useful in providing information and technological support for the creation and maintenance of supply chains. In fact,� the low level of importance assigned to this type of support by the firms studied would indicate the lack of effective channels of communication between the private and academic sectors in Brazil. This is yet another point that must be addressed in order to increase the attractiveness of the Brazilian market for foreign international companies. In other words,� tax incentives alone are not enough.

Finally,� multinationals must also act to create such a structure in the countries in which they are active. Partnerships with the government sector and with institutions that train executives,� as well as the creation of programs to develop supply networks,� seem to be the most viable solutions. With such in place,� collaborative models will have a greater chance of success in developing countries like Brazil.

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