Technological and Productive Density in Sectoral Innovation Systems: The Case of the Brazilian Aeronautics Industry

Abstract

This article discusses whether a globally competitive high-tech firm is sustainable without being associated with a sufficiently dense sectoral innovation system. It focuses on Embraer and hence on the Brazilian aeronautics industry. Despite not benefiting from a highly subsidized process for technological and financial modernization, Embraer has become the world's third-ranking producer of commercial jets thanks to institutional innovations, especially in producing and managing contracts with suppliers and risk-sharing partners. The conclusion drawn is that the competitiveness of the Brazilian aircraft industry depends on the continuing supply of technology in international markets. Technological restrictions imposed for geopolitical reasons, or even for market constraints, could fatally undermine the strategy adopted by the company. © Universidad Alberto Hurtado, Facultad de Economía y Negocios.

Full text

Technological and Productive Density in Sectoral Innovation Systems: The
Case of the Brazilian Aeronautics Industry
Marcio da Silveira Luz
1
, Sergio Luiz Monteiro Salles-Filho
2
Abstract
This article discusses whether a globally competitive high-tech rm is sustainable without being associated with a
sufciently dense sectoral innovation system. It focuses on Embraer and hence on the Brazilian aeronautics industry.
Despite not beneting from a highly subsidized process for technological and nancial modernization, Embraer has
become the world’s third-ranking producer of commercial jets thanks to institutional innovations, especially in producing
and managing contracts with suppliers and risk-sharing partners. The conclusion drawn is that the competitiveness of
the Brazilian aircraft industry depends on the continuing supply of technology in international markets. Technological
restrictions imposed for geopolitical reasons, or even for market constraints, could fatally undermine the strategy
adopted by the company.
Keywords: Aeronautics industry; innovation systems; industrial organization; technological change.
Journal of Technology
Management & Innovation
1
Researcher, Aerospace Science and Technology Department, DCTA ñ Brazilian Air Force Command. Division of Innovation Management-
DGI, Department of Aerospace Sciences and Technology - DCTA, Brazilian Air Force Command, Av. dos Astronautas 1947, Bairro Martim
CererÍ, S„o JosÈ dos Campos, SP - 12 227-000 - phone 55 19 3947 6634 Email: msluzsjc@gmail.com
2
Professor, Department of Scientic and Technological Policy ñ University of Campinas ñ UNICAMP, Departmente of Science and
Technology Policy, Institute of Geosciences. University of Campinas, POBox 6152, Campinas, SP -13 083-970 - phone 55 19 3521 4555
Email: monteirosalles@gmail.com
ISSN: 0718-2724. (http://www.jotmi.org)
Journal of Technology Management & Innovation © Universidad Alberto Hurtado, Facultad de Economía y Negocios
Received September 19, 2011/ Accepted November 15, 2011 J. Technol. Manag Innov. 2011, Volume 6, Issue 4

J. Technol. Manag. Innov. 2011, Volume 6, Issue 4
ISSN: 0718-2724. (http://www.jotmi.org)
Journal of Technology Management & Innovation © Universidad Alberto Hurtado, Facultad de Economía y Negocios
61
Introduction
Brazil’s industrial matrix is sophisticated from the
productive standpoint, but it emphasizes production more
than value creation and appropriation. Production chains
are strongly asymmetric with value chains, hence the
scant value added. Sectoral innovation systems are mostly
incomplete, lacking the points of greatest creativity, which
are precisely those that add most value. Thus, national
industrial policy has not yet left behind a manufacturing
vision to adopt a value creation and appropriation one.
Most of policymakers continue to focus on the idea that
what matters is the “shop oor”, regardless of how much
value is added in production.
As a reection of this structure, sectoral production and
innovation systems are still decient with regard to value
creation and appropriation. Among few exceptions, as in
the case of the aeronautics industry, Brazil has strongly
increased its share of the world market, with Embraer
achieving third place in 2007 behind the giants Boeing and
EADS, but ahead of Bombardier, its closest competitor.
In this sense, Embraer is a unique phenomenon in Brazil:
aircraft manufacturing is the only high-tech industry of all
the globally competitive sectors in Brazil today.
A closer analysis of the sectoral innovation system (SIS)
in Brazil’s aeronautics industry, however, highlights a
combination not seen anywhere else, between a strong
company, Embraer, and a relatively weak production chain
(small suppliers), partnering with a group of research
institutions whose importance to the system varies
greatly (Dagnino, 1993; Bernardes, 2000; Marques &
Oliveira, 2009).
In this sense Embraer can be considered an exception
in the global aeronautics industry and in the recent
trajectory of the Brazilian manufacturing sector. Three
main competencies explain Embraer’s recent success:
outstanding capabilities in engineering design; excellence
in assembly and systems integration; and contractual
innovation, buying the required technology wherever it
can be found.
The main purpose of this work is to present and discuss the
formation of the Brazilian aircraft industry in light of the
SIS concept, seeking conceptual and empirical elements
that can help explain the company’s recent success and
predict possible future trajectories. In other words, in
addition to describing and qualifying the Brazilian AISIS it
also sets out to discuss the sustainability of the industry’s
recent trajectory, analyzing in particular the extent to
which a complex sectoral system such as the aeronautics
industry can maintain global competitiveness while buying
mission-critical technology in the marketplace, without
major internal R&D efforts, and making relatively little
use of typical government support, such as public-sector
procurement, military orders, R&D subsidies etc.
Thus the article addresses two key issues, one theoretical
and the other factual. The theoretical issue relates to
understanding and analyzing the sustainability of SIS in
their territorial specicities.
The article has four sections besides this introduction.
The next section presents and discusses the theoretical
framework used to dene sectoral production and
innovation systems, pinpointing the most useful
conceptual elements for an analysis of the characteristics
and prospects of the Brazilian AISIS. The following section
analyzes the main characteristics of the global aeronautics
industry, emphasizing the Brazilian AISIS, its history,
development, current makeup, value chain, investment in
R&D, and technological leadership by Embraer. Lastly, the
article presents conclusions indicating that technological
density needs to be developed for long-term sustainability
and that productive density should be a consequence of
strategic decisions to expand the local knowledge base,
local R&D, and local innovation.
Sectoral Innovation Systems
Subjects or Participants
The innovation systems approach is particularly appropriate
to explain the innovation process as a collective game in
which various different and complementary components
must interact so that new products and services can be
created. In the case of the aeronautics industry, the idea
of a dynamic combination of different actors to produce
innovations is highly relevant, given the industry’s productive,
scientic, technological and organizational complexity.
Sectoral innovation systems (SIS) in the aeronautics
industry can also be characterized as complex adaptive
systems, in accordance with Hobday (1998), who notes
that in some cases a project is begun without even

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prior knowledge of all the technology required to solve
the problems involved, and this technology has to be
developed during the course of the project.
Innovation systems can be understood as the structure
and dynamics that enable the innovations of a given
country, region or industry to be understood. With regard
to coverage, innovation systems are usually classied
as national, regional, local or sectoral (OECD, 1997).
Particularization of the concept for the sectoral level
was thoroughly developed by Malerba and collaborators
(Malerba, 2002; 2004; Malerba & Mani, 2009).
The sectoral innovation system model synthesizes and
denes the core elements of innovation, their behavior,
limits and interactions. It promotes a better understanding
of the specic learning and innovation processes in
any given sector. Thus it is a simultaneously simple and
effective approach that facilitates the comprehension of
complex aspects of innovation dynamics by enabling their
components to be distinguished and analyzed in terms of
their interrelationships, so that development policies can
be formulated and implemented. Moreover, the model
is appropriate for computer simulations to facilitate
the comprehension of inputs, outputs and outcomes
(Malerba, 2004).
Malerba (2002) detailed the concept of sectoral
systems by breaking it down into seven basic elements:
products; agents; knowledge and learning processes;
basic technologies, inputs, demand, linkages and
complementarities; interaction mechanisms between
rms and non-rms; variation and selection processes;
and institutions.
In analyzing the ways in which these elements of
the system interrelate, Malerba (2002) argues that
sectoral co-evolution is a process of interaction among
technology, industrial structure and institution, basing
this view on Nelson (1994) and Metcalfe (1998). He adds
that it involves links between demand, knowledge base,
learning processes and organization (rms and non-rms).
By focusing on knowledge base and learning processes
instead of industrial structure we can better understand
the dynamics of knowledge, competencies and sectoral
competitiveness with regard to market structure.
In the case of the global aeronautics industry, although it
typically has a creative accumulation regime (largely owing
to strongly path-dependent technology accumulation),
aircraft manufacturers’ ability to command the sectoral
system of production and innovation is a matter of mutual
dependency rather than hierarchy. Of course, giant rms
such as Boeing and EADS have signicant power of
induction over technology and innovation in the sectoral
system, but even they have to deal with other giant
rms that supply aircraft parts and aeronautical systems.
Thus there is a kind of balance between integrators and
suppliers, determined by the greater or lesser power of
induction wielded by the rms involved and by a close
relationship between users and producers of technology
(Lundvall, 1992; Bernardes, 2000).
The systems approach is useful when studying innovation
organization and dynamics in countries, regions and
sectors, precisely because it shows the composition and
above all the interrelations between components (both
the components and their interrelations are variable).
Nelson (1990) shows that the most successful innovation
systems are the best interrelated and coordinated, not
necessarily the most complete. This is especially valid for
sectoral innovation systems (see Malerba, 2002).
On the other hand, it must be acknowledged that certain
types of industrial organization display similarities in
their various innovation systems. Even in these systems,
however, there may be organizational and institutional
innovations (in contract management, for example) that
change the structure in place so as to compensate for
its deciencies and ll any gaps in technical and scientic
competencies using innovative managerial solutions. This
is the point discussed below: production and technology
densities may be more or less necessary to enhance a
sector’s global competitiveness, but what seems to
be most important is the ability to build relationships,
alongside the existence of ows of product and process
technology offerings, which are decisive for success in a
complex high-tech industry (Hobday et al., 2005).
The next section discusses the characteristics of
aeronautics industry innovation systems on a global scale,
particularly in terms of constitution and competition,
with special emphasis on the Brazilian case.

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The Aeronautics Industry Sectoral System
This section presents a brief overview of the global
aeronautics industry, followed by a more detailed outline
of the prole and evolution of the Brazilian industry,
highlighting its constitution, institutional composition,
investment and characteristics according to the concepts
relating to sectoral innovation systems discussed above.
The global aeronautics industry
The global aeronautics industry is highly concentrated
at present. Formation of the Boeing and Lockheed-
Martin conglomerates in the U.S., EADS, BAer and
ATR in the European Union, and Bombardier in Canada
resulted from major mergers and acquisitions designed to
strengthen this strategically important sector nancially
and technologically. Governments openly contributed to
the merger and acquisition (M&A) process via funding in
most cases. The companies involved were mostly set up by
aviation pioneers, growing stronger during world war two
and the cold war, especially thanks to the boom in defense
procurements following the emergence of the military-
industrial complex in the U.S. These contracts drove
the development of technology frequently embodied in
civilian applications.
According to OECD (1997) and Santos (2009), the overall
characteristics and competitive dynamics of the aerospace
industry make it one of the most important sectors in the
productive structure of the advanced economies.
Thus the pattern of competition in this industry revolves
around the continuous introduction of technological
innovations and the conditions for nancing innovation,
which takes place continuously but gradually. Despite
what has been said, the introduction of technological
innovations even when incremental leads to the
emergence of a new “dominant project” and a rupture
of the prevalent technological paradigm. This new
project soon becomes mandatory, and competing rms
are obliged to adopt it or be forced out of the market.
Cumulativeness and path dependence are strongly present
in the sector (Dosi, 1988). As a result, the aerospace
industry is characterized by a high level of technological
dynamism, which contributes to permanent changes in its
conguration (Ferreira, 2009).
The next subsection outlines the constitution of this
system in Brazil, associating the historical elements of its
formation with the sectoral system concepts discussed in
the introductory section of this article.
The Brazilian Aeronautics Industry Sectoral
Innovation System (AISIS)
The modern Brazilian aeronautics industry started
with the Bandeirante plane which made its maiden
ight on October 22, 1968. To produce it Embraer
was incorporated on August 19, 1969, with the federal
government owning 51% and the rest belonging to private
investors. (Silva, 1998; Bertazzo, 2008).
In 1971, Embraer began making the Italian light attack
jet and trainer Aermacchi MB 326, renamed Xavante,
under license. In the late 1960s the agriculture ministry
commissioned the Ipanema for agricultural use, mainly
crop dusting. This aircraft made its maiden ight in 1970
and went into production in 1972 (1,000 units have
now been produced). The Tucano (BEM-312), a military
turboprop for pilot training, rst ew in 1981. This plane
and its light attack version, the Super Tucano (EMB-314),
are both best-sellers (Silva, 1998; Bernardes, 2000; Forjaz,
2005; Bertazzo, 2008).
Embraer steadily acquired more competencies. After the
Bandeirantes it launched the Xingu, a pressurized twin
turboprop with the same wing and engine design but with
a completely new fuselage. It then produced the Brasília
(EMB-120), a high-performance twin turboprop commuter
airliner for 30 passengers widely used by regional airlines
in the U.S. and Europe, which acquired it in the 1980s and
1990s (Bernardes, 2000; Forjaz, 2005; Silva, 1998).
In 1982 Embraer began a partnership with Italian rms
to design and build the AMX ground attack aircraft,
a “simplied” version of the Panavia Tornado. This
enabled Embraer to achieve a technological leap forward
(Bernardes, 2000; Forjaz, 2005; Silva, 1998).
In late 1980s Embraer was hit by a dire nancial crisis
that shook the world and had especially severe effects for
Brazil (the foreign debt crisis of 1982). By the beginning
of the 1990s government decided to privatize the rm
but was determined to transfer majority ownership to

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64
Brazilians. In 1992 Ozires Silva was invited to return as
CEO and head the privatization process. Embraer was put
up for auction in 1994 (Forjaz, 2005). The new controlling
shareholders were pension funds with 40%, Bozzano,
Simonsen with 20%, and a group of investors with a total
of 20% comprising Dassault, EADS, Snecma and Thales
Group. The Brazilian government, represented by the air
force ministry, today a military command subordinated
to the defense ministry, kept a golden share (Bernardes,
2000; Forjaz, 2005; Silva, 1998).
An extensive corporate restructuring program was
implemented following privatization. The next step was
the launch of the ERJ-145 family of commercial jetliners
for up to 50 passengers. This has been a success, selling
1,000 aircraft by 2006. Fresh investment was then made
to produce the Embraer 170/195 line of aircraft with
between 70 and 120 seats, originally classied as E-Jets.
These too have sold well. Embraer also markets Legacy
and Phenom executive jets and is steadily growing its
share of this market.
In 2006, to counterbalance the centrifugal force of
other initiatives and strengthen its position not just in
the industry but also in the entire Brazilian S&T sector,
Embraer partnered with the City of São José dos Campos
and the São Paulo State Government to create a local
technology complex (TechPark of São José dos Campos)
as a key part of the strategic development plan for the
metropolitan area and as a component of the state
system of technology complexes (Sao Paulo Systems
of Technological Parks). The technological prole of
the complex enables it to meet demand mainly from
the business platforms established in the city and the
surrounding areas, as well as facilitating the creation of
new opportunities. It is also worth noting that Embraer
is installing a light structure lab in the complex (Parque
Tecnológico, 2009; Simões, 2009).
The regulatory agencies set up as part of the privatization
movement include ANAC (Agência Nacional de Aviação
Civil), created in 2005 to regulate civil aviation and award
airworthiness certication, which used to be DCTA’s
responsibility. DCTA’s IFI now focuses on metrology and
exclusively military certication (Anac, 2010).
To make its increasingly complex aircraft feasible, Embraer
currently coordinates a network of strategic partners.
These partners are the foundation of Embraer’s value
chain (as indeed in the case of all civilian aircraft makers
today) and each of them in turn has its own network of
suppliers (Quadros et al., 2009). As well as partners,
Embraer also has direct suppliers from whom it sources
lower value added goods and services.
In the beginning, Embraer was forced to deal with a
large number of suppliers and bear most of the costs
of development itself. These are non-recurring costs,
typically requiring the sale of some 400 aircraft to cover
the investment (Lima et al., 2005). Thus, the aircraft maker
needs considerable credibility to persuade suppliers to
become risk-sharing partners. Nowadays, modularization
prevails and system and subsystem integration tasks are
distributed to their respective tiers so as to enable more
effective partnering and risk sharing. This is the solution
Embraer has been pursuing. Table 1 shows the evolution
of number of risk-sharing partners in the three main
recent Embraer’s aircraft projects.
Aircraft family
Engine
type
Maiden
flight
No. of
seats
No. of
suppliers
No. of
risk-sharing
partners
EMB 120 Brasília
Turboprop
1991
30
500
–
ERJ 135/145
Turbofan
1997
37-50
350
4
ERJ 170/190/195
Turbofan
2002
70-90-108
22
11
Table 1. Evolution of Risk Partnerships in Embraer’s Projects / Sources: Quadros et al. 2009; Embraer 2008.

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65
The process of deverticalization with partnering
undertaken by Embraer thus involves integrators of
systems and subsystems. In other words, in any given
project Embraer develops and coordinates a network of
partners and suppliers who orbit around it; engages in
and encourages others to engage in strategic outsourcing
and the development of capabilities; and promotes the
sharing of capabilities between partners. In this sense
Embraer tends to transform its partners into centrally
strategic rms like itself, with a network of collaborative
relationships around each one and all these networks
sharing competencies (Hitt et al., 2003). Table 2 shows
the evolution of the risk-sharing model in three different
phases and aircraft projects.
FAMILIES
1980s
1990s
2000s
500 suppliers
4 partners & 350 suppliers
16 partners & 22 suppliers
EMB 120 Brasília
RJ 135/145
EMB 170/195
All manufacturing by
Embraer
Risk-sharing partnerships
Installation of risk-sharing partners
in Brazil
Verticalization of production
chain
Subcontracting of processes
Increase in process subcontracting
Non-electronics design
Design & electronics
information
Electronic mock-up & process
simulation
Line assembly
Line assembly
Dock assembly
Old manufacturing
management concepts: low
productivity
New production concepts with improved quality & productivity:
5S, Lean, Kaizen, Cell, Robust Process
Conventional production
processes
Start of automation in
fabrication of parts
Automation in fabrication & final
assembly
Table 2. Evolution of Embraer’s Partnering Process/ Source: Embraer (2008)
In the ERJ 170/195 program, besides growing and
deepening its partnerships Embraer also grew and
diversied the participation of local suppliers, especially
in engineering services and industrial processes. However,
with few exceptions Embraer’s network of partnerships
in production and innovation remained internationalized,
and the company showed no propensity to bring these
activities to Brazil (Quadros et al., 2009). Indeed, Embraer
is a high-tech company that has invested very little in R&D
compared with any competitor. The company typically
presents itself to the market as a “creative follower”
with strong design capabilities and excellent transactional
competencies both in contracting with partners and
in selling aircraft. Its option to build relationships with
partners rather than suppliers contributes to the
outsourcing of engineering and R&D.

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Investment in R&D by the main actors is a central aspect
of any innovation system. Thus the ow of investment
determines the main technological trajectories and
pipelines in the system (Park & Park, 2003). Embraer
evidently got the make-or-buy decision right under the
prevailing world and domestic economic, technological
and contractual conditions.
Thus the key strategic decision was to outsource the most
specic and least available components of an aircraft,
such as fuselage, wing, propulsion, avionics and interior
systems, among others. Embraer’s central skill, which
enables it to ll gaps from technology available elsewhere,
is producing and managing contracts with its risk-taker
suppliers. In fact, what is involved here is designing a
foundation for the make-or-buy decision (Prahalad &
Hamel, 1990; Hamel & Prahalad, 1995). Differently of the
two archetypes of strategies discussed by Lee & Lieberman
(2007), Embraer’s strategy ts in a sort of middle term
between asset acquisition and internal development.
Embraer leveraged its core competencies as a specialized
buyer. This involved various risks and costs, but also
opportunities. For example, by developing partners as
a way of reducing transaction costs (Williamson, 1985)
Embraer also transferred to partners the responsibility
for dealing with a great many suppliers. This in turn
meant that its partners began producing ever-larger
subsystems and physical sections (Quadros et al., 2009).
As a result, Embraer became more dependent on these
partners and vulnerable to opportunistic behavior. This
risk rst materialized in an episode involving the wing of
the E190/195, Embraer’s agship product family. The wing
was originally outsourced to Kawasaki, which on winning a
contract to supply the fuselage for the Boeing 787 and not
feeling able to fulll both contracts apparently preferred to
break with the Brazilian company in order to concentrate
on the contract with Boeing (Reuters, 2008).
Buying from a supplier or developing and producing
internally becomes a permanent decision matrix: a large
part of the technology can be outsourced only when
trust between the parties is strong and even so requires a
minimum of internal technical competence. The important
issues that cannot be overlooked in this case are the
specicity of the product, process or services in question
and the non-economic factors involved, i.e. factors
relating to military strategy. These bring transaction costs
and the role of local and national innovation systems back
to the center of the analysis regarding the evolution of the
Brazilian aeronautics industry.
To deal with Embraer’s investment in R&D and technological
protagonism, Figure 1 compares investment in R&D
by the Brazilian aeronautics industry with and without
Embraer. That helps measure the density of the sectoral
innovation system (Central Bank of Brazil, 2009; Ministry
of Science and Technology, 2009; Embraer, 2010). By
excluding Embraer, it can at once be seen that government
investment in R&D directly or with the participation of
other companies in the aeronautics chain is negligible.
Embraer is responsible for almost all local R&D.
Figure 1 – Brazilian Aerospace R&D Investments.

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67
Profile
Two-Aisle Long Range Jets
Single-Aisle Regional Jets
Boeing
EADS
Bombardier
Embraer
Revenues
61 US bi
65 US bi
(Airbus 25 US bi)
18 US bi
7 US bi
Employees
162.200
(Airbus 56.000)
66.000
23.500
R&D
2 US bi
2 US bi
200 US mi
118 US mi
Patents
(USPTO)
2829
154
568
5
Table 3 - Some Comparative Figures about Embraer Métier relative to 2007 and 2008/ Source: the authors, using data from:
Quadros, 2009; Embraer, 2008; Industry Center, 2009
Embraer’s R&D investment went mainly into installation
of the Light Structure Lab in the São José dos Campos
TechPark. The laboratory started operating in late 2010.
It is important to note that to date Embraer has not
beneted from any output from this new R&D unit.
Embr aer’s patenting activity began only in 20 06. Up to now
it can display much smaller records that its competitors.
In spite of the fact that it is widely understood that patent
applications plus R&D investments are not the sole
indicators of a company’s R&D performance. However,
they are proxies that cannot be ignored in comparative
analysis. While Embraer can be seen to have changed its
R&D strategy in recent years, stepping up investment in
this area and seeking to develop proprietary technology,
it will be possible only in the medium to long term to
say whether this strategy will be sustained and indeed
expanded. For now it is merely a trend.
Embraer is thus an exception in such a technologically
dynamic and economically globalized sector. Thus we
have a paradox: a weak system with a strong company.
The question that naturally arises is how a rm in a typical
high-tech sector can be globally competitive without these
structural conditions, which in principle would appear to
be a sine qua non (Fundação Museu de Tecnologia de São
Paulo, 2009; Bernardes, 2000, Forjaz, 2005; Silva, 1998;
Goldstein, 2002, 2008; Goldstein & Godinho, 2010).
The Brazilian AISIS and the constituent
elements of a sectoral innovation system
Returning to the elements that characterize a sectoral
system, the Brazilian AISIS is analyzed below according to
the seven points expounded by Malerba (2002).
As noted above, the Brazilian AISIS depends heavily on
specialized technology suppliers and contractual forms of
development with these suppliers that are not trivial. In
this sense, the system is strongly dependent on market
relations, both upstream and downstream.
The elements that characterize and support the analysis
of sectoral systems, according to Malerba (2002) are:
products; agents – rms and non-rms; knowledge and
learning processes; basic technologies, demand, links and
complementarities (centripetal movement); interaction
among rms and non-rms; variation and selection
processes; and surrounding institutions.
The main product of the Brazilian AISIS is evidently the
aircraft produced by a company that designs, makes and
sells aircraft worldwide. This is the core element of the
AISIS, without which it perhaps could not be said that
Brazil has an aeronautics sectoral system at all. In other
sectors, by contrast, especially consumer goods, local
existence of the sectoral system would not be negated

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68
by the absence of local production of the main product.
Well-known cases include Nike and Apple, for example
(Dedrick et al. 2009). There may come a time when
aircraft production is entirely outsourced, but this is not
foreseeable in the industry’s current global trajectory.
As for the presence of rms and non-rms, as noted
above the AISIS has supplier rms in Brazil and abroad,
with the latter predominating as far as the value chain
is concerned. The local rms are small, and supply
components and parts of low relative value. As for non-
rm agents, such as educational and research institutions,
several are present in Brazil but the only ones that are
genuinely an active and direct part of the AISIS are
the institutions that train aeronautical engineers and
other professionals, and the airworthiness certication
institution. Research institutions exist but are not fully
integrated and contribute very little to the AISIS.
The knowledge base and learning processes have three
drivers: the training of engineers; Embraer’s design and
integration competencies; and aeronautics certication
competencies. This triangle is sufcient to constitute
a system of high technological complexity. The fourth
component found in the sectoral systems of all other
countries with an aeronautics industry is R&D, practically
non-existent in the Brazilian case.
Interaction mechanisms between rms and non-rms
in the Brazilian AISIS have a history dating from the
creation of ITA and CTA. Embraer was in many ways
an offspring of these organizations, as was the entire
Brazilian aeronautics industry. In contrast with the U.S.,
European and Canadian model, however, in the Brazilian
case these mechanisms are limited to the training of
human resources and airworthiness certication. Military
and government orders are important to other systems
but it was practically absent in the recent evolution of the
Brazilian AISIS.
With regard to institutions in the sense dened by Malerba
(2002), such as norms, routines, regulation etc., the
Brazilian AISIS has few signicant locally constructed links.
This may be the aspect that shows this sectoral system as
one of those with the strongest institutional references.
Quality and safety certication is an element that serves
as a reference for any aeronautics rm anywhere in
the world. The Brazilian AISIS was wise to include this
component as a key competency from the word go.
Thus innovative combinations of internal and external
competencies are one of the reasons for the success of
this sectoral innovation system. The critical point now
is prospective, i.e. to what extent this combination is
sustainable in the long term and how far it will be necessary
to increase local density in production and technology to
assure the system’s competitiveness.
International experience and known trajectories show that
the path to increased density is inevitable. It is impossible
to say how far density must be increased, but two facts
already noted in this article suggest this direction is not
just desirable but necessary: (1) the fact that the supply of
technology in this sector is not regulated only by market
factors and that extra-market factors, especially those of
a strategic military nature, are permanent and inuence
access to critical technologies; (2) the fact that even in
market conditions and with full access to technology,
competition among rms tends to increase, leading
once again to asymmetries in the supply of and access to
critical technologies, now no longer for reasons of state
but for market reasons. Thus the future of rms that do
not produce or own knowledge and technology tends to
be less sustainable than that of rms that do.
Thus what the Brazilian AISIS most lacks is more intense
efforts to create and appropriate technology, not least
in order to continue accessing and acquiring technology
in the marketplace. Bargaining power would thereby
be enhanced and fragility reduced in a context where
not only competition will intensify (with China, Japan
and Russia all entering the lists), but also geopolitical
movement is extremely sensitive. From this perspective,
the concept of sectoral innovation systems should be
reinforced by that of local systems. A sectoral system
is not decoupled from a territory however globalized it
may be, as stressed by several authors (Saxenian, 1994;
Malerba, 2003; Cassiolato & Lastres, 2005; Quadros et
al., 2000; Montoro & Mignon, 2009; Marques & Oliveira,
2009; Santos, 2009).

J. Technol. Manag. Innov. 2011, Volume 6, Issue 4
ISSN: 0718-2724. (http://www.jotmi.org)
Journal of Technology Management & Innovation © Universidad Alberto Hurtado, Facultad de Economía y Negocios
69
Conclusion
Embraer’s success shows that it is possible to create a
globally competitive high-tech company without signicant
in-house R&D and without substantially internalizing the
value chain inside the company’s home country. This is
due to its core competencies, particularly innovating in
contractual relationships with major technology suppliers,
and strong design engineering capabilities. To this must be
added a third competency that is no less important: the
capacity to sell aircraft. However, the fragility of this model
resides in the fact that its long-term competitiveness
depends on external factors, especially continuity of the
supply of high-density technologies with a highly specic
content. In other words, it depends strongly on factors
that Embraer cannot control.
The durability of partnerships such as those entered into
by Embraer depends on its ability to attract and retain
partners, and this ability in turn varies according to the
potential gains as well as the restrictions on global trade
in critical or sensitive technologies. The economic crisis
has triggered a return to nationalism and restrictions in
markets for prime contractors, owing to tougher rules
on access to critical technology. This affects not just
suppliers but also (indeed far more) the market for civilian
aircraft. Moreover, the geopolitical environment is key to
the long-term sustainability of the value chain governance
model adopted by Embraer. Changes in this environment
are frequent and unpredictable.
The absence of installed technological density and the
main economic agents in the aeronautical value chain
represents a far from negligible weakness for both Embraer
and Brazil. Embraer will survive only if it constructs a new
type of competency that enables it to participate directly
in negotiations on next-generation aircraft and aeronautics
technologies. This means going beyond aircraft design,
assembly and marketing skills, as well as innovations in
contracting out and governance, to create competencies
in research and development, which in turn entails
technological densication. Productive density is only an
important condition when it comes with technological and
knowledge density. In this perspective, and considering
the specicities of the aeronautics sector, the extent on
which the density of the local productive chain matters
for the industry’s competitiveness should depend on a
preliminary strategy of expanding local capabilities and
the local supply of knowledge and technology.
About author
Marcio da Silveira Luz: Researcher, Aerospace Science
and Technology Department, DCTA – Brazilian Air
Force Command. Background in Mechanical Engineering;
Master in Aeronautical Engineering and DSc in Energy
Sciences. Full Researcher at the Aerospace Science and
Technology Department of the Brazilian Air Force,
DCTA. Presently is Technical Adviser at the Division
of Innovation Management, DGI, at the DCTA and
professor of Innovation Management at the Department
of Economics and Business Administration of the
University of Taubaté, Unitau. Areas of interest: Planning
and management of science, technology and innovation,
rocketry and missiles.
Sergio Luiz Monteiro Salles-Filho: Professor, Department
of Scientic and Technological Policy – University of
Campinas – UNICAMP. Background in Agronomic
Engineering; Master in Energy Applied to Agriculture and
PhD in Economics. Full Professor at the Department of
Scie nce an d Techn ol og y Poli cy of t he G eo sc ie nc es In st itut e
of the University of Campinas, Unicamp. Formerly Head
of Planning of the National Agency for Innovation, FINEP.
Presently is Director of the School of Applied Sciences
at Unicamp. Founded, in 1995, the Study Group on the
Organization of Research and Innovation - GEOPI. Areas
of interest: economics, planning and management of
science, technology and innovation.
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