If we want ‘Made in brazil’ semiconductors, we have to talk about protectionism.

I just read a brief article by Victor Grimblatt, a senior expert on the semiconductors industry worldwide and specially in Latin America. You may find it on LinkedIn Pulse under the title “Do we need another Microelectronics Design House in Latin America?”. In His article, Mr. Grimblatt raises some problems for the development of Design Houses — DH — in the region: for the semiconductors industry, Latin America is like a desert. Local industries would not demand semiconductor design or locally developed chips. For him,

“we need to create an ecosystem around the electronic industry so existing design houses can find customers. On the other hand we need to create more electronics industries that provide final products (including chips) to the consumers. Finally we need to approach the local industry and show them how the technology (hardware and software) can help them to make better and more competitive products.”

Semiconductor industry is a topic of interest for me for the last 10 years, first as a young undergrad student willing to work with electronics, then as a Master’s degree candidate in which I contributed with the development of an integrated Random Number Generator for a local communication electronics company and now as a Professor in University of Brasilia and co-founder of DFchip, a Brazilian design house. During this time, I’ve heard many times this receipt of creating an ecosystem for the semiconductor industry and everything would work.

Brazilian Government also heard that a lot and in 2005 started the IC-Brazil Program, an initiative for developing semiconductor industry in Brazil. The program is based on three actions: the opening and public funding of design houses, the creation of training centers to increase specialized work force offering and the establishment of a semiconductors foundry in Brazil. 10 years have passed, we have now 22 design houses, 2 training centers, 1 foundry still not fully operational and hundreds of millions of taxpayers money invested on this program and a question still echoes, “Why do semiconductor industry does not develop in Brazil?”

A possible answer for this question became more clear for me after dealing with business people more directly. For the development of a business, its not only a matter of having the right positive incentives, but also of not having the wrong negative incentives. IC-Brazil definitely creates some positive incentives by drastically reducing the operation costs of Brazilian DHs, it definitely helps creating a critic mass of specialized engineers, but it does not create a real positive incentive for the national industry to demand local developed microelectronics even though Brazilian Government provides fiscal advantages for companies who do that. And why not?

The real problem is that Brazil closes itself to the rest of the world. We have a ridiculously complicated fiscal system of laws and a lot of space for Government interference on business affairs and it justifies doing so to protect Brazilian companies and people’s jobs. Right or wrong, this protective policy have two undesired consequences.

First, it protects Brazilian companies from external competition, but it also protects Brazilian companies from the consumer demands for better products. By artificially inflating prices of imported goods, Brazilian Government halts the productivity gains competition generates. If some imported good becomes more competitive, it is easier and cheaper for Brazilian industries to claim for more protective policies than to develop new products and new processes and become more competitive themselfs. The logical and observable consequence, Brazilian industry does not develop new technologies in the same rate advanced economies do even though we have a huge market potential for it. Of course this is only possible where the Government respond to such claims and this is definitely the case for Brazil.

Second, it poses a big difficulty on the players who want to innovate. To increase productivity by innovation, a company may incorporate some already developed innovation or it may develop it by itself. The first option enables a company to rapidly reach the state of art of some market and the second to maintain development and productivity gains over time. Protective policies held by the Brazilian Government also ‘protect’ Brazilian entrepreneurs from incorporating state of art technologies.

For this, if we really want to see ‘Made in Brazil’ microchips in peoples smartphones, cars, televisions and so on in the future, we need to develop the electronics ecosystem by the implementation of a serious long-term national debureaucratization policy.

I hope for the next 10 years to be a more productive time.

Text originally published on LinkedIn, follow me there.
Photo: Wafer detail, by Tambako the Jaguar on Flickr.