ARE GOVERNMENT INCENTIVES DRIVING AND INTENSIFYING THE FIRMS INNOVATION CAPABILITIES IN MEXICO?

METHODOLOGY

This study has used documented information, such as assessment reports, scientific publications, and secondary information, to apply qualitative methods to identify if the innovation stimulus programme implemented by CONACyT has impacted enterprise innovation capacities, according to the Oslo Manual indicators. Additional statistical Government sources were applied, such as the economic census and special productivity reports which completed the secondary information.

As a final point to complement this research, interviews were carried out on selected public research centres that collaborate actively with enterprises in the PEI programme. The interviews identify in which public research centres contribute on collaboration and qualitatively collaborate on technology transfer with enterprises.

RESEARCH FOCUS

In Mexico, the Science and Technology National Council, CONACyT (Spanish Acronym), is a key public stakeholder to accomplish national goals regarding Science, Research, Technological Development and Innovation (SRTD&I). Government Ministries within CONACyT design public funds and incentives to reach the National Strategic Plans.

There are broad public schemes for SRTD&I that reach different purposes and objectives. One of CONACyT funding programmes concentrates on a firm ́s innovation stimulus, which is called PEI (Special Innovation Programme, Spanish acronym). The programme has been supported since 2009, and is designed to build-up a firm’s innovation capacities. The main purpose of this scheme comprises increasing firms innovation investment through technology development projects mainly connected with Research Centres or Universities. Additionally, PEI funding is one of the highest public subsidies or financial incentive assigned for a project among other incentives. Table 1 exhibits how the PEI programme has been receiving the highest funding from government comparing to other grants. Only data available was reported, since information varies in format and content each year. Other funds were not reported because their funding was much less.

The PEI programme has three modes and only applied for private organizations as project proponents. The main aims prevailing during 2009 to 2015 show four purposes, namely:

a) Increase enterprise competitiveness and innovation investment.

b) Increase value added from national industry.
c) Encourage collaboration between enterprise and academia. d) Promote innovation culture.

The first PEI mode is oriented for projects based on collaboration from research centres (RCs), and Higher Education Institutions (HEIs). This type of stimulus is called PROINNOVA and there is no restriction regarding enterprise size, because projects must be accomplished only with a RC and or a HIE collaboration; the second type is INNOVAPYME which concentrates in technology innovation for Micro, Small and Medium Enterprise (MSME) projects which could be accomplish with or without collaboration. The third mode is designed only for large enterprises as a proponent and is named INNOVATEC. INNOVATC and INNOVAPYME projects could or could not be executed in collaboration with academia. Though collaboration provides an advantage, companies could be granted higher wages rates according with total project cost and PEI type.

PEI economic support varies according to mode, for instance a project can be subsidize by up to 50% of the enterprise project expenses, and could pay up to 75% for one or two collaborating entities such as a RC and or HEI. Furthermore, on average a project can receive more than one million USD dollars.

The core of PEI concentrates mainly as a collaboration incentive and increasing firm’s innovation investment, because public funds allocated for each enterprise and a percentage of funds go indirectly to the RC and the HEI if collaboration exits. However, data is not available to know the value added for firms that were granted with this stimulus. Besides from external assessments, is not possible to specify accurately qualitative or quantitative the degree of impact and performance on the national innovation system. For this reason, supplementary data and information was applied for this study.

The first aim of this article is to present a general outlook of enterprise innovation activities and participation in the innovation system. The second purpose is to determine how PEI’s has evolved, ever since PEI became the major governmental scheme in terms of the amount of funds and projects. A third intention is to find which industrial sector is playing a major role in innovation activities, and the forth aim is determine how the industrial sector has grown and its productivity.

Table 1 Leading government funds to foster SRTD&I capabilities
[table] Government Grant Incentive Name,Amount of Million US Dollars,Period,% Variation with Respect to PEI
FORDECYT,$74.92,2009-2012,89.7%
FOMIX,$497.98,2007-2012,31.5%
SENER,$500.31,2009-2012,31.2%
PEI,$726.91,2009-2013,
Other Innovation Funds,$84.54,2010-2013,88.4%
[/table]

Due to the lack of government incentive outcomes and impact indicators, this study makes use of secondary information to complement data. Reports and statistics from the National Institute of Geography and Informatics (INEGI Spanish acronym) support this study.

The economic censuses of 2004, 2009, and 2014, and the productivity activity for the three main sectors, primary, secondary, and tertiary, were taken from INEGI’s Information. To determine innovation activities, a special study called ESIDET was used to determine innovation activity in enterprises during 2010-2011. From the economic census and productivity factors, it was possible to determine industrial activity and performance. The ESIDET report specifies and reports OCDE innovation activity indicators. ESIDET shows firms innovation activities, and this study is the only one available in the nation, which measures the degree of impact of R&DI from enterprises. Additional information, such as CONACyT’s self-assessment reports, and the external evaluation of government incentives apply for this research.

A related study helped to identify how public research centres have advanced on knowledge commercialization. Five interviews were carried out with RC directors; the purpose was mainly to identify barriers and opportunities when collaborating with industry. RC organizations purpose differs; some RC’s advocate basic science, others are more connected with technology development and collaboration with the productive sector, and collaboration is mainly supported by PEI funds, because the PEI pays real engineering project hours in contrast with some other type of Ministries – CONACyT funds.

FINDINGS AND INTERPRETATION

In Mexico, the Federal Official Diary specifies enterprise classification; the last modification published in 2009 defines the stratification of micro enterprises that involves ten employees, for small and medium classification depends on a factor that contains the number of workers, sector, and amount of income. In accordance with that classification, and taking into account the last economic survey, Mexico shows the following firm composition; micro enterprises comprise 95%, small firms are 3.6%, medium enterprises account for 0.799%, and large firms represent only 0.18%. The rate of growth according to a firm’s stratification was positive and around 0.9% and 0.1% only for micro and small enterprises respectively between 2009 and 2013. Medium and large firm grow indices decrease between 0.1% and 0.9% correspondingly during the same period.

The classification of firms corresponding to the industrial sector can be divided into four large sectors as follow: sector 11 comprises agriculture, animal feeding and exploitation, forest, fishing and animal exploitation; sector 21 includes mining; sector 22 involves generation, transmission and distribution of electric energy, water and natural distribution; and sector 31-33 accounts for manufacturing industries. The rest of the sectors correspond to the tertiary sector (all services) and the building industry was included together in this analysis.

Among those sectors, the major activity as a function of number of economic units corresponds to the tertiary sector within construction that represents 88%, follow by manufacturing industry with 12%, subsequent by sector 11 with 0.5%, sector 21 with 0.07%, and sector 22 with 0.06%. The rate of growth of economic units between 2003 and 2013 is less than 1% for sector 11, 22 and 21, and for the manufacturing industry was approximately 2.23%, being the leading sector with highest rate of growth.

The manufacturing industry has an important rate of growth and income that have a key impact on the general industry in Mexico. Even though tertiary industry accounts for 88% of the economic units, this sector represents only 43% of total revenue, and manufacturing 32%. It cannot compare with the amount of revenue from the manufacturing subsector and tertiary subsector income, which are significantly inferior. For this reason, a further analysis on the manufacture industry was done to understand its composition and influence, as can be seen in Exhibit 2. This shows the highest percentage of the five foremost manufacturing subsectors, and how the impact of revenue drastically changes position versus economic units. As can be seen, the food industry maintains in the three foremost subsectors, either for number of economic units and percentage of revenue, because the food industry has a wider composition of different firm sizes. This does not happened with the manufacture of transport equipment and petroleum and coal products, where the size of the enterprise corresponds to large firms, which represent only 0.18% of the total economic units.

Exhibit 2 Contribution of the five foremost manufacturing subsectors according to the major percentage of number of economic units and revenue in 2013
[table] Subsector,Percentage of Economic Units,Subsector,Percentage of Revenue
Food industry,35.3%,Manufacture of transport equipment,16.91%
Manufacturing of metallic products,14.1%,Manufacture of petroleum and coal products,16.14%
Manufacturing of nonmetallic minerals products,6.4%,Food industry,15.56%
“Manufacturing of furniture, mattresses and blinds”,6.2%,Chemical industry,14.55%
Manufacturing of garments,6.2%,Industry of basic metallic,6.49%
[/table]

An additional indicator used for this study is the total productivity factor. This indicator, obtained by the value of production, was used to recognize which manufacture subsector provided the greater value through 2005-2011. Data was build and constructed by INEGI using diverse data sets, and in accordance with the recommendations of the productivity manual, OCDE provisions, and EU KLEMS experience.

Exhibit 3 shows the five foremost subsectors in manufacturing, that show positive indices among others that display negative indexes through those years. As can be seen, the manufacture of transportation equipment has the highest average index, as well as, the major percentage of revenue. The classification of manufacture of transport equipment corresponded mainly to the automotive industry and suppliers that have an active participation in foreign markets.

Exhibit 3
Average productivity factors of the five foremost manufacturing subsectors (2005-2011)

[table] Manufacture Subsector,Average Productivity Indicator
Drinks and Tobacco,0.04
Machine and equipment,0.12
“Computer, communication, measurement and other equipment, electronic components and accessories”,0.11
Transportation equipment,0.89
Metallic products,-0.10
[/table]

Exhibit 4 Firm’s motives to carry out innovation activities Percentage of enterprises by sector


(1) includes product, services, and methodologies (2) developing new products and processes without any collaboration
Source: ESIDET 2010-2011, www.inegi.org.mx

With this classification, we can confirm that the manufacture industry is fundamental for economic development and growth in Mexico with the five foremost subsectors that drive growth displayed in exhibit 2.

The indicators for innovation activities where complemented by the ESIDET study which presents a section of OCDE indicators. Results were grouped and presented in exhibits 4, 5 and 6. Exhibit 4 describes the motive of enterprises to carry out innovation activities, and it can be demonstrated that 60% of the manufacture industry have a major interest in accomplishing innovation activities in contrast with other sectors.

The main reason for firms to undertake innovation activities are presented in Exhibit 5. This shows that the manufacture industry, as well as, the tertiary sector, accomplished percentages greater than 40%. However, manufacture firms think more about the importance of flexibility in production (47.92%) and expanding the range of products and company services (44.23%), while tertiary firms look to comply with regulation and standards (57.74%) and improved quality of products and services (57.33%).

Furthermore, exhibit 6 illustrates the percentage of enterprises that manifest difficulties to impede innovation activities. In this table the highest percentage that firms reported are over 40%.

Exhibit 5 Main innovation purpose that firms accomplish by industrial sector

Source: ESIDET 2010-2011, www.inegi.org.mx

Exhibit 6 Percentage of enterprises that reveal type of difficulties that inhibit innovation activities

Source: ESIDET 2010-2011, www.inegi.org.mx

Indeed, the manufacture firms care about all difficulties, though the major percentage concentrate on the high cost of innovation (43.25%), and the lack of funding (43.88%), while the service sector responses concentrated on obstacles of current policy (58.02%), and rigidity of organizational structure (60.14%). Even though the responses differ, it can be viewed that problems have external and internal contexts. External drawbacks refer to the system.

The PEI performance evaluation studies come from public entities such as the National Council of Evaluation of Development Politics, CONEVAL, while other reports come from public or private entities. It was reported that the PEI programme has been intensely evaluated to determine performance and impact. Results from those evaluations pointed out the following issues: there is no real definition of what involves technology development; there are not indicators that can be directly attributable to programme results; consequently impact cannot possibly be identify, there is no impact information or indicators discernible to know whether or not companies have generated innovation, or how such firms granted with PEI had built innovation capacities. Some other significant problems reported were: lack of project results information, and redefined criteria and evaluation methodologies for project selection. Recommendations include potential target firms that can potentially developed innovations, but have not been incorporated as a target for this programme.

Through the PEI, CONACyT have decreased 3,373 companies during 2009 to 2014; from the same period, the number of enterprises supported by the programme has risen, with an average increased rate of 9.02% each year. Regarding the total amount of funding, it is shown an average increase rate of 21.5% each year, starting from around $109 million dollars in 2009 to about $260 million dollars in 2014. Exhibit 7 shows the number of projects approved in each programme from 2009-2014. It can be seen that the PROINNOVA funding mode prevails collaboration with RCs and HEIs, and the exhibit shows that collaboration have quadrupled with an average number of project per year of 253.

Besides, INNOVATEC shows that large enterprise project numbers have decreased with an average number of projects per year of 173, while small enterprises have an increased rate with an average number of projects of 203 per year.

The PEI programme has national coverage from 32 states there are eight top Mexican States that receive greater public resources. The quantity of funds and number of companies participating varies from programme modes and years, so the sponsorship amount varies from $2 million to $6 million dollars for such top states. Such subsidies have gone mainly to Nuevo Leon, Coahuila, Jalisco, Estado de Mexico, Distrito Federal, Guanajuato, Queretaro and Baja California. That is quite rational, since those States have a leading concentration of industries. Additionally, during the same period, it is shown that the PROINNOVA mode have received half of the funding with 51% of resources, 26% INNOVATEC, and 24% accounts for INNOVAPYME. PEIs have supported all type of enterprise collaboration to RCs and HEIs. This indirectly increases R&D capacities. Additionally, it was observed that sectors that have been benefited from PEIs through enterprises, have obtained more than two incentives were the automotive industry, oil and gas, information technologies sector and pharmaceutical industry.

Public RC interviews showed few centres are advocated for PEIs collaboration in 80% from whole R&D activities. Additionally, few PEI projects have ended in a technology commercialization scheme with companies, since PRCs have differences on intellectual property policies for such collaboration projects. Outcomes from the RCs in terms of technology commercialization are presented in exhibit 8:

CONCLUSION

It can be concluded that the manufacture sector is the leading sector with above 2% of increase in rate of growth of economic units with an important contribution in revenues. The transport equipment subsector has the highest productivity index and revenue rates when comparing all sectors, including the leading sector in the PEI participation programme.

It has been demonstrated that the manufacture and tertiary sectors achieve a wide range of activities in innovation. Nevertheless, is

not possible to determine how innovation capacities are building up in terms of system, and how it will affect macroeconomic performance because the majority of sectors have negative productivity average rates. Although productivity indices are not directly linked to innovation stimuli, they can help to view productivity as a whole in macro economic performance.

Exhibit 7 Number of firms projects approved by the PEI programme in three modes

Exhibit 8 Interview results from Public Research Centres
[table] VARIABLES,OUTCOMES
Institutional development for industry – academia collaboration,”Collaboration with industry depends on organisation foundation objectives. Research institutions advocated to solve technological problems are more active on R&D and collaboration projects with productive and public sector. Specifically on PEI, which is the only incentive that allows funding to wage engineering hours for RC? For those centers, R&DI projects rise to 60%-90% of their main activities.”
Patent activity,”Determined by project negotiation, project purposes and intellectual property policies for each centre.. IP could be 50%-50%, or 80% (for RC), 20% (enterprise), or 100% for enterprise contracts projects.
Patent applications varied according to RC, and the rank of patent application varied from two and up to ten each year.”
Technology commercialization,”Modest activity 1-2 licenses, unique opportunities.”
[/table]

It can be concluded that PEIs have pushed firms to increase innovation investment, since the number of projects reflect an increase on firm’s participation and investing. Viewing national innovation system as a whole, project results could not envisage performance and impact in economic terms, how firms developi innovation capacities, or how these capacities would add value. Collaboration has definitely increased because PROIINOVA, which is designed for foreseeing collaboration, have reached more than 400 projects compared with the other two PEI modes.

In case of RCs, it is envisage that they will become a strong technology development partner for enterprises, due to the fact that they have S&DT capacities, taking into account that major firms, specially small and medium firms have not been able to gain resources to maintain their own R&D infrastructure. Short advances in terms of technology commercialization were also deduced from interviews.

PEI’s from 2009 to 2014 had not measured or showed an indicator directly associated with economic growth and impact. Additionally, it is not possible to identify value added from national industry. Neither has determined how the programme has promoted and embeded the innovation culture. Little change from the PEI programme has been done even though external assessments denote important points such as to identify firms with innovation potential, who innovate or conduct R&TDI activities.

Finally, in terms of policy in the innovation system, it can be inferred that the PEI programme has not really evolved in its objectives and external recommendation, since it has not been possible to outline even a competitive economy.

POLICY IMPLICATION

Very few changes have done in PEI’s design, however, policy makers could enforce and specifically measure stakeholder’s articulation and integration. Interaction could not certainly ensure efficiency and performance, or specific impact, since the whole system is disaggregated, pulling in all directions and goals. Besides, it is important to design programme indicators that help to understand if government funds are really introducing a change or bringing tangible benefits.

FURTHER RESEARCH

It is quite a challenge to understand and determine a firm’s innovation needs and capacities and how government incentives impact on the whole system. A particular study could be carried out by industrial subsectors using specific methodologies that enable recognition and measurement of tangible innovation capacitates inside an organization. Other research studies could focus specifically on how the PEI incentives have supported innovation directly, and measure the degree of value added for their own sector. Finally some additional studies on technology and knowledge management could be carried out.

ACKNOWLEDGEMENT

A special thanks to the Instituto Politécnico Nacional for funding research project number 2014012 to carry out the interviews.

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AUTHORS

ANGELICA NUÑEZ MERCHAND is a Chemical Engineer in the School of Chemical Engineering and Extractive Industries (ESIQIE), the National Polytechnic Institute (IPN), México. Has an MSc in Chemical Process Engineering from University College London, UK, and an MSc in Science and Technology Commercialization from CIMAV, Mexico, in collaboration with IC of The University of Texas and International Training Course on Small Business Development Training and Entrepreneurship in New Delhi, India. Since 2002, she is a full-time Professor at ESIQIE, teaching chemical design process, optimization, and other chemical engineering subjects of the Bachelor of Chemical Engineering Program. She developed several academic chief positions at ESIQIE, including Coordinator of the Entrepreneurial Program, advising business plans and theses on chemical engineering. Most recent experience was as Chief of Adoption and Technology Assimilation, Technological Transfer Office, at IPN during September 2010 to February 2013. Has work experience in industry on process engineering, sales representative for engineering plastic in automotive sector, and business chief for the distribution of plastic materials and chemicals. Interested in entrepreneurial and innovation activity research with a focus on Mexico, and in the Triple Helix model, government incentives policies and offices of technology transfer.

MARIA DEL PILAR MONTSERRAT PEREZ HERNANDEZ is an Economist in the School of Economics, the National Polytechnic Institute, (IPN) México. Has a PhD in Economics and Management of Innovation and Technological Policy, Universidad Autónoma de Madrid, Spain; an MSc in Economics Management of Technological Change at The Universidad Autónoma Metropolitana, México; and a Diploma of Technological Innovation Policy and Management, Centre for the Research in Economics, Management and Social Sciences at the National Polytechnic Institute, México. Since 2000, has been a full-time Professor/Researcher at the Centre for the Research in Economics, Management, and Social Sciences at IPN. Was Chief of Technological Transfer Office at IPN, Mexico, from June 2010 to February 2013, and has a strong professional career as a consultant. Research interests in intermediate organizations and their role to foster innovation activity in developing countries, indicators of innovation, science and technological activity, incubators of technology-based business, entrepreneurial and innovative activity, technological management of public research centers and SMEs, enterprise-university linkages, and financing of research and development activities in Mexico.

MA GUADALUPE CALDERON MARTINEZ has a PhD in Economics and Management of Innovation and Technology Policy from the Universidad Complutense de Madrid. Author of six articles published in journals indexed, and four disclosure articles, two books, and two book chapters, bibliographical reviews and thirteen full papers published in proceedings of international conferences. Has conducted research at the Centro para el Desarrollo Tecnológico Industrial (CDTI), del Ministerio de Economía y Competitividad of the Spanish Government with the support of the Fundación Universidad Autónoma de Madrid. She had a postdoctoral visit at the Institute of Economy at Universidad de Barcelona in the Group of cities and innovation research. Professor-researcher holder B in Universidad Autónoma Metropolitana. Participates as a teacher and faculty member of tutors in the postgraduate course in administration, UNAM, and member of the CONACYT registry of accredited assessors (RCEA), and national system of researchers (SNI) level I. Areas of research: innovation systems, technology transfer, and knowledge management.