The Brazilian model.

      This report was published in the Economist.com at Nov,18th 2010 and was written by Schumpeter, this is a summary, the title is above.

      Brazil needs to be more innovative to fulfil its promise of being the ¨country of the future¨.
      Stand on the observation deck in Embraer`s final-assembly hangar in São José dos Campos and you can see the case for globalisation laid out below you. Five finished aircraft bear the insignia of airlines from across the world.
      Embraer turned itself around by spotting a market niche in medium-sized jets and by inventing new business models. It pioneered ¨reverse outsourcing¨,doing work of design and assembly itself and contracting out the making of parts to rich-world companies such as General Eletric.
      Embraer is a prime exhibit in a debate that is convulsing Brazilian business, about the country`s capacity to innovate. Brazil`s economy is expected to grow more than 7% this year. The country boast some of the World`s largest companies: Vale is the biggest producer of iron ore, AB Inbev is the biggest brewer and Marcopolo is a big producer of bus.
      But throw  the world ¨innovation¨ and businessmen become more philosophical. Brazil spends a paltry 1.1% of its GDP on R&D compared with 1.4% in China and 3.3% in Japan. Last year Brazil fell 18 places in Insead`s annual innovation index, from 50th to 68th. Worse still, its ratio of basic-product to manufactured-product exports was the highest since 1978. These figures confront Brazilians with a troubling question. Can their country become an innovator in its own right, or is its recent growth is little more than a by-product of China`s appetite for commodities?
     Optimists have more than just Embraer on their side. Natura Cosméticos is emerging as a giant by dint of clever marketing. Natura is also a master of what might be dubbed ¨lean innovation¨. About 40% of its revenues come from products introduced in the past two years. But the company has only 150 R&D staff compared with L`Oréal`s 2,800. Its trick is to form partnership with universities.
    Some of Brazil`s commodity giants have also managed to add brain to muscle. Petrobras is a leader in deep-sea oil production. Most Brazilian cars can run on a mixture of ethanol and petrol, thanks in part to the flex-fuel engine, developed in the country.
  Yet Brazil suffers from two blocks to growth: red tape and gaping inequality.Brazil comes 152nd in the World Bank`s ¨Doing Business¨ rankings for the ease of paying taxes(it took the hyphotetical medium-sized company 2,600 hours a year to comply with the tax code) and 128nd on the ease of starting a business.
   Brazilian companies are also doing far less than their rivals in India and China to master the art o producing goods for the masses. Clever ideas and products aimed at the poor abound in the country. But most of these innovators are foreign. Brazil`s own champions are applying much less ingenuity to producing goods for the local market than for the global one.