Consolidating technological capabilities in mature Brazilian automotive subsidiaries: from local creativity to global institutionalization… and beyond?

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In a previous GERPISA paper (Dias and Salerno, 2004) we have proposed that Brazil was emerging as a peripheral product development center, with multinational companies descentralizing some selected R,D&E activities towards their Brazilian subsidiaries. Since then, Brazilian subsidiaries have launched some successful local developed products and technologies, such as the flex fuel engine, the Locker device to front transversal transmissions, and other localized solutions in system/component level. This trajectory has led to a process of recognition of local competences by the headquarters, and a consequent formalization of local R&D activities, an increase in the number of engineers in product development activities and the diffusion and adoption of structured product development methodologies, some of them transferred from the headquarters (Dias et al, 2010), thus consolidating the position of Brazil as a secondary R,D&E pole. At the same time, an examination of the Brazilian automotive industry technological path will show that new products and technologies have in many cases been the result of individual or local informal groups initiatives, with individual creativity being the most important trigger to local product innovation. Brazilian engineers have learned how to innovate and develop local products without being tightly controlled by the headquarters. Sometimes a local product or technology would be developed from the concept to the first prototypes without a formalized process under headquarters direct control. A good example is the case of the only patent generated by a Brazilian engineering in Fiat, concerning a technology created to improve the performance of ethanol engine cold start system. The concept of the technology was developed in a completely not formalized way – an informal team was created, based on personal relationship, and engineers worked outside their regular work time in order to create the concept until the building of the first prototypes. Another example is the case of VW Fox, a smaller derivative from the New Polo platform, which was proposed by the Brazilian unit and at first was not approved by the headquarters. Only after a 2-year negotiation its development was allowed; within this time, the Brazilian engineering had to work on its concept and first virtual prototypes and cost definitions in an almost independent way (Dias and Salerno, 2004).
At this point one could ask if a stronger formalization controlled by the headquarters would not difficult local innovation, given the subordinated nature of a subsidiary unit – especially when located in an emergent country. Indeed, the literature about organization for innovation uses to stress that a certain degree of organizational “looseness” is necessary in order to promote innovation, particularly in the early stages of the innovation process (among others, Hansen and Birkinshaw, 2007; McCosh et al, 1998; Tidd et al, 1997). This literature also considers that in order to innovate it is useful to keep an entrepreneurship oriented internal environment. On the other hand, lack of formal incentives, such as financial resources, may kill a new idea in the first steps of the innovation process.
Given this picture, the aim of this paper is to describe and analyze the process of formalization of innovation activities in a Brazilian subsidiary of a European autopart company. This subsidiary is considered a “mature” unit, since it was set up in Brazil in the 1970s, and presents a trajectory of local innovation – from tropicalization to local product/technology development – which is very typical of the industry. The paper deepens, in a way, the discussion we have proposed in a paper presented in the last GERPISA conference (Dias et al, 2010), and introduces the question of what is changing to the local R,D&E organizational structure as well as to the engineers’ work, focusing on which are the benefits and risks of a stronger formalization of R,D&E activities, particularly in the new concept development phase – how to institutionalize the idea generation step without giving up creativity and individual or group initiative.