Government Policies and Sources of Latecomer Firms' Capability Building: A Learning Story from Brazil

Abstract

Although much has been written about the implications of the structural reforms of the 1990s for industrial progress in developing countries, especially in Latin America, less attention has been given to the role of meso and micro factors in sector and firm-level technological capability building. Most existing studies are based on aggregate analyses that argue either for or against such reforms. Seeking to offer an alternative perspective on this debate, this paper examines sources of firms' technological capability accumulation in the light of changes in government policies. It draws on first-hand empirical evidence from 75 organizations in Northern Brazil. The evidence suggests that policies and factors at the meso and micro level do matter in understanding the learning strategies underlying firms' capability-building processes. The latter do not take place in a vacuum or just on the back of sound, market-oriented macroeconomic policies. A combination of different kinds of government policies, foreign competition and firm-level learning efforts has been proving essential for firms to develop innovative capability. However, the move into more advanced capability levels in the sampled firms will not just involve a “discontinuity” in their existing learning strategies; it will also entail a redesign of the related government policies.