Nurturing spillover from the Industrial Partnership between Sweden and Brazil
– a case study of the Gripen project
The study explores how policies can nurture social value creation in both Sweden and Brazil from one of Sweden’s largest high-tech export deals, the industrial partnership with Brazil.
Both Brazil and Sweden have made bilateral cooperation in areas of technology and innovation a top priority. It has been formalized in a series of agreements and made explicit in signing a bilateral Strategic Partnership Agreement in 2009. In October 2014, the Brazilian Federal Government decided to buy 36 Gripen aircraft from Saab in Sweden’s largest export deal ever.
In this context, and as a part of Sweden’s New Export Strategy, the Swedish Ministry of Enterprise and Innovation gave the Swedish Agency for Growth Policy Analysis an assignment in March 2016 to analyse the opportunities, limitations, and potential effects of technology and knowledge diffusion in transboundary business and industrial projects.
This is, to our knowledge, the first time that anyone has taken a more comprehensive view on the commercial contract with the ambition to describe its implications for a larger strategic partnership between Sweden and Brazil.
The Gripen project is in this case particularly instructive because it illustrates the possibility for large binational industrial projects to leverage increased collaboration in a changing world context, thereby creating spillover effects, not only inside the project and aeronautics, but also in extended parts of both economies.
The strategic partnership and the Gripen contract have already initiated joint activities, and many more are planned and envisioned. Both countries have also expressed high expectations of future joint industrial collaborations both in aeronautics and in other industrial sectors.
It is in this broader context that the present study has been pursued. Two questions studied are: 1) What are possible spillover effects coming out of the Gripen project, and 2) What type of policy interventions will be needed to support the development of different spillover effects to both countries? The larger question for the study is how and in what ways the Gripen project may act as source for leverage for broader strategic co-operation between Sweden and Brazil.
Realized and potential spillover effects
This type of advanced high-tech product distinguishes themselves by being surrounded by a cloud of technology that is available to external users who are ready to exploit its commercial potential. The following are some of the initial empirical findings from this study:
- We describe new forms of spillover channels that are a result of Saab’s new business approach in developing and producing Gripen with Brazil and other international suppliers.
- A large part of the business model is the offset deal through technology transfer that will help the buyer in developing the capability to develop a fighter aircraft.
- Spillover increasingly takes place in a global supply chain and consequently must be measured and assessed in this new international setting.
- Spillover, or at least the beginning of spillovers, are part of the Saab business model in terms of the offset deal of technology transfer, and thus building up the customer industrial base.
- One of the most important potential spillovers is the transfer of perspectives on how to develop and to innovate a complex high-tech product between countries and across large geographic and institutional borders.
In addition the following spillover effects were assessed.
- Tier 1 suppliers in Brazil benefit the most and can also drive spillovers from the Gripen deal.
- Tier 2 suppliers in Brazil are not likely to drive significant spillovers in the short or medium-term.
- For Embraer, the potential direct spillover from the Gripen deal are not expected to be high from a technological perspective, but it is assumed to be significant for after sales service as well for future joint marketing and sales.
- We identified several possible technology-related and extended spillovers envisioned by Saab and other players. These include technological spillovers in software, transport, manufacturing, and forestry to mention a few. For these spillovers to emerge general conditions for innovation in Brazil has to improve considerably.
- Interviews and hearings in Brazil also pointed to the potential for extended spillover in softer, non-technological areas such governance (policy execution), knowledge creation (education and open innovation), and business exchange (new business models).
Three conclusions emerge from the analysis. First, the new spillover model by Saab means that Sweden and Brazil can take advantage of each other’s knowledge and industrial bases to a much greater extent than before – this is particularly true for aeronautics where a good match between Sweden and Brazil exists. Second, while the Gripen project holds vast opportunities and will be a boost for aeronautics, it also has potential to generate spillover effects in other parts of the economy. Third, the co-creation narrative regarding future and potential spillovers is critical for the development of the partnership.
It is argued that the new spillover situation that a high-tech project such as Gripen deal with Brazil and similar industrial projects is creating new policy challenges where innovative governance models and alternative policy instruments are needed to reach high spillover leverage, beyond the 2.6-fold social return on public investment that was originally estimated in Sweden by Eliasson (2010). Some spillovers will happen automatically, while some have to be nurtured to get off the ground.
Areas where policy makes a difference
The Gripen project and the industrial partnership raise several specific considerations regarding the vertical and horizontal coordination of policies as well as the selection and development of policy instruments.
- Much more spillover can be achieved with better triple-helix arrangements for maximizing spillover exploitation in aeronautics and other sectors, both in Brazil and Sweden.
- It will require finding the right policy mix. It implies a better alignment between a large high-tech export deal, such as the Gripen project, and the R&I systems in both countries. Both governments have yet to recognise that.
- Developing joint innovation systems, involving other sectors than aeronautics, should have high potential. Scientific operations and small R&D programmes already exist to some degree. What is lacking are strategic arenas, with critical mass in terms of personnel and infrastructure, in common areas identified by both countries as having large spillover potential outside the contract.
- It is important to get new players outside the contract into the Gripen narrative. Because no specific funding exists as of now for establishing long-term innovation activities, it is important that private investors become aware of and take part in leveraging the technology and knowledge disseminated from the Gripen project.
How should the policy sequencing of these and other different suggestions be organised? A top priority must be to think creatively about how to secure domestic funding in both countries for future bilateral collaboration in a few areas, starting with aeronautics. But given public funding constraints, one also, and in parallel, has to encourage new private investors to explore and identify profitable innovations from the cloud. Thus, policy focus and expansion must go hand in hand.
We would also strongly emphasise that governments in both countries must agree, already now, on a joint vision and narrative on how to use Gripen and the spillover cloud to foster future joint industrial cooperation. Otherwise the Gripen project will remain nothing more than a very large export deal and a major possibility “to sell more aircraft” as was expressed in hearings and interviews in both countries.