ABSTRACT

The objective of this paper is to analyze the contribution of FDIs to Innovation and

Industrialization in the BRICS countries. Most of the BRICS countries are developing countries,

except Russia and hence attract a lot of Foreign Direct Investments but a huge percentage of

these FDIs contribute to development of the economy and not to research and development

which actually could in turn contribute to the growth of the developing nations. This paper tries

to throw light on the policies in the BRICS nations to attract FDIs and to use them for Research

and development and Innovation in the nations.

INTRODUCTION

Scholars and policy makers alike remain fascinated by the development experiences of a group

of emerging economies – Brazil, Russia, India, China and South Africa – often referred to as the

BRICS. These economies have a sizeable impact on the global economy. In terms of combined

GDP they are already larger than USA and the European Union. Whereas BRICS only accounted

for less than 4 per cent of world exports during the early 1980s, by 2010 their combined share

reached 13 per cent of world exports. They are regional economic leaders and they are attracting

substantial amounts of foreign direct investment. This makes them interesting and important as

global decision-makers.

Foreign Direct Investment is an important facet of the globalization process. In the mid 2000s,

FDI stock corresponds to approximately 20% of world GDP. In 1982 FDI flows amounted US$

58 billion and in 2007 about US$ 2 trillion. These flows are not homogeneously distributed

around the nations and important changes have been observed in the last 20 years. Up to the

early 1990s, approximately 95% of FDI originated in the developed world (USA, western

Europe and Japan) and were directed to the same region (around 85% of total In the last few such

situation radically changed: in 200, 68.7% of FDI flows went to developing countries and

approximately 16% of world FDI originated in these countries.

There have been other important new trends regarding FDI in the last 20 years. First, rates of

FDI growth since the early 1980s have been more than twice the rate of world investment (using

GFCF as a proxy of investment) which signals the increasing importance of Transnational

Corporations in the world economy. Second, a significant share of such FDI is via mergers and

acquisitions (US$ 112 billion in 1990 and US$ 1,031 billion in 2007), showing that a large part

of new FDI does not generate new production capacity but rather is linked to a process of capital

concentration and is part and parcel of a financial dominated accumulation regime.

The share of BRICS countries in the total inflow of the current world FDI increased to 11% in

2011. The import of FDI in BRICS countries was 2.2 trillion dollars in 2011 (it was increased

5.3 times during the past eleven years). At the same time the import of FDI in Russia was

increased by 14.2 times, in India – by 12.3 times. Special attention is paid to the expansion of

scientific researches and the development connected with nanotechnologies. The number of

Russian researchers in the field of nanotechnologies grew by 1,4 times during the period of

2008-2011, the internal costs of carrying out researches of the organizations connected with

nanotechnologies, increased by 2.4 times. In Russia scientific researches and development in

2011 was carried out by 374.8 thousand researchers in 3682 organizations.

Scientific researches and development in 2011 in China was made by 511175 scientists (1.4

times more, than in Russia) from 5941 scientific institutions (1.6 times more, than in Russia).

The biggest share of scientific researchers in China was developed in the field of the electronic

and communication equipment (53.2%), medicine, pharmacology (18.3%) and the medical

equipment (12.5% of researchers). As to the R&D's expenses, Russia is considerably lags behind

China and India.

OBJECTIVES

The objectives of this paper are as follows:

1. To analyze how FDIs contribute in upgrading technology

2. To study if there are policies that support FDIs contribution to Innovation and Research

and Development.

FDI ASSISTED TECHNOLOGICAL CATCH UP

Technological progress and its diffusion were important for the First Industrial Revolution in

Britain in the 18th century. It was also vital for the (second revolution) industrialization of

Continental Europe and the USA in the 19th century, and for the (third revolution)

industrialization of Japan and the East Asian NIEs in the 20th century. In each case catch up

resulted from lagging countries accessing technology developed in leading nations, adapting it

effectively to local circumstances, and subsequently relying more on indigenous innovation.

Technology has become more important as ever, in the current modular and flexible production

systems that has come to characterize the world economy. Indeed the world is experiencing a

new industrial revolution, lead by networked production, mass customization and new

technologies, such as 3-D printing.

Multinational Enterprises (MNEs) can diffuse technologies to developing countries in three

ways: (i) by directly transferring technology to affiliate or joint ventures (JV); (ii) through

spillover effects , and/or (iii) through doing R&D within a developing country.

The much faster industrialization of China, as compared to that of Europe or the USA, reflects in

part the “stage skipping” phenomenon, made possible by the country benefitting from the much

more rapid diffusion of technologies by foreign firms and domestic efforts for acquisition of

technology. The catch up country does not have to go through every stage of technological

development. It can immediately jump from relatively backward levels of technology to

relatively advanced levels. In some technological fields, Chinese industrialization involved

“leapfrogging”, jumping directly from the imitation of mature technologies to innovation at the

global frontier.

For industrially lagging countries the rise of global production sharing has radically changed the

range of industrial policy instruments available– and has increased the importance of

complementarities between foreign sources of technology and domestic absorption capabilities.

This is because successful industrial development now requires countries to be competitive not

in the complete production of some good, but in the production only of a component (‘trade in

tasks’) wherein they need exceptional capabilities. Integrating a country’s producers into global

value chains may imply that the traditional focus of industrial policy on ‘lumpy, complex

industry’ may not be appropriate anymore FDI and MNEs can perhaps better be seen as a two

edged sword in industrialization. The two-edged sword applies to both the technology transfer

and global value chain integrating roles of FDI and MNEs. As far as FDI as a vehicle for

technology transfer is concerned, it is difficult to establish empirically whether and how

important FDI is. It is econometrically difficult to identify the separate impact of FDI on host

country economic performance, including productivity of firms. Among others, this is due to

high correlations between FDI inflows and trade openness, to endogeneity (and reverse

causality) problems, and to ‘omitted’ variables associated with unobserved country

heterogeneity. Whether or not outward FDI by multinational enterprises is a source of

technology transfer to developing countries is a question that has resulted in a an large empirical

literature. Generally researchers’ strategy have been to test whether the presence of a MNE in a

developing country or region has increased the productivity of local firms or has had an impact

on factor markets.

There exist in principle two productivity influences – one is a direct productivity influence

through for instance joint ventures (JVs), where the partner firm in a developing country directly

benefits from the technological and managerial know-how of its foreign partner. A second

influence is due to externalities whereby domestic firms’ performance and productivity are

affected – either positively or negatively - by the presence of the foreign firm or JV.

FDI in BRICS and NATIONAL POLICIES

FDI has presented a strong tendency of increase in BRICS countries in the 2000s,

boosted by national favorable policies toward FDI. Over such period China had the

highest inflows among all BRICS members. At the peak of its FDI inflows

China, recorded about US$60 billion. This occurred in 2000 and again in 2008.

Over the entire period Brazil was the second highest FDI recipient. This country also

displayed less volatility in inflows than China. Its lowest FDI inflows were in 2003 at

about US$ 10 billion. Russia, on the other hand, shown robust growth in the second

half of the decade. Russia started from a low base of about US$3 billion prior to a

peak of about US$52 billion in 2007. South Africa is at the bottom of the list of BRIC

countries with less than US$10 billion between 1998 and 2007. A breakdown of

average FDI inflows again confirms that Brazil has displayed the least FDI inflows

fluctuations.

In the mid 1990s, deep structural change in the Brazilian economy propelled a FDI

boom – the third in its history. The central government played a key role for

attracting FDI, basically through the approval of constitutional amendments that

terminated public monopoly in sectors such as telecommunications and oil and gas

and removed earlier distinction between Brazilian firms of national and of

international capital. This recent FDI by TNCs in Brazil mostly targeted the services

sector, particularly the privatized infrastructure sector (telecommunications and

electricity). Also it concentrated in operations of mergers and acquisitions of local

firms. The share of TNC subsidiaries on overall sales of the 18 most important

production chains jumped from 36% in 1996 to 52% in 2000. In the last years

(2007, 2008), FDI flow was strongly directed to the primary sector - oil and

natural gas extraction and, specially, metallic minerals extraction.

In Russia, the expansion of international TNCs to the country is encouraged by

its government which pursues a policy aimed at providing favourable investment

climate and development of investment infrastructure. In order to attract FDI in

Russia, the government implements a set of specific measures, as the Foreign

Investment Advisory Council (FIAC), which main objective is to create attractive

investment climate in Russia, and the federal Law "On Investment Activities in the

Form of Capital Investments in the RF”, to provides guaranties of equal rights,

protection of interests and property to all investors regardless of their ownership. As

a consequence of these incentives, in the recent

years TNCs have been rapidly increasing their presence in the Russian economy –

the FDI flow went from US$ to US$ 93 billion in 2001 to US$ 881 billion in

2008. However, many Russian economists believe that liberalisation of external

economic activity was implemented without taking into account domestic

economic realities. Foreign TNCs are generally not ready for large-scale investments

in modernisation of major Russian production facilities whose equipment is mostly

obsolete.

In India, since the decade of nineties 1990s the policymakers have viewed the FDI

inflows to be a major source of scare capital, which is capable of contributing to

capital formation, output and employment and providing access to technology,

managerial skills and markets. Consequently, FDI has became an important form

of external financing for India. After stagnating for a few years at around US $ 2.5

billion, FDI inflows rose again to a level of about $ 4.3 billion in 2003, reached

nearly US $ 17 billion in 2006-07 and and $ 35.3 billion in 2008-09. These include a

large number of cases of foreign firms acquiring wholly Indian ones. Policymakers in

India have made a shift away from the focus on merely attracting a higher quantity of

FDI to targeting a higher quality of FDI (UNCTAD, 2005). From the mid nineties

onwards policymakers in India even targeted to attract FDI for activities such as

research and development (R&D), design, technical support centre, education and

training, etc. FDI in sectors designated as high technology is receiving preferential

treatment in terms of access to infrastructure, tax incentives and subsidies. The

latest policy of FDI promotion practices, as in Brazil, the principle of no

discrimination against foreign firms.

China is a dominant player amongst the BRICS group in terms of its FDI outflows.

In China, on the early stage of reform and opening-up, due to policy restrictions, joint

venture and cooperation ventures were the main forms of foreign investment in

China. But with improvement of China’s investment environment, an increasing

number of foreign investments have taken the form of solely foreign-funded

enterprises. After the middle of 1990’s, manufacturing TNCs began to invest in

capital-intensive or technology-intensive areas, and start to emphasize the strategically

position of subsidiary companies in China in the global business integration. However,

much of China’s exports in high-technology fields still represent shipments of final-

stage assembly of electronic products based on components that are produced in

developed countries.

The South African economy is nowadays highly favourable to foreign investors,

though few national documents currently contain specific references to FDI. At the

international level, the country has committed to the majority of international

and/or multilateral agreements relevant to ensure the protection of foreign direct

investors and of their intellectual property. Generally, no discrimination is applied

against foreign investors except in the banking sector. Besides its favourable TNC

context, the country also offers a wide range of incentives to both domestic and foreign

direct investors. Nevertheless, South Africa is still a small FDI recipient, and this inflow

appears to be volatile – all the African continent only absorbed 0.7% of world FDI

outflows, most from developed countries. Sectorally, FDI has been concentrated in the

primary sector, notably mining. The country is particularly attractive in this regard,

given the large stocks of mineral resources and the variety of mineral resources on its

territory.

R&D AND THE ROLE OF TRANSNATIONAL CORPORATIONS

In general, all the studies recognize the influence of TNCs on their economies and the

efforts made by their governments in recent decades to stimulate FDI flows. But

conclude

that, although some exceptions, the contribution to innovation’s development has been

very limited.

Brazilian’s innovation survey (PINTEC) sectoral analysis revealed that, with few

exceptions, R&D/net sales ratio of large local firms (with more than 500 employees)

tends to be higher than the proportion of large TNC subsidiaries; and also that R&D

expenditures over total innovation expenditures of locally – owned large firms are

bigger than those of TNC subsidiaries. The authors conclude that the innovative

performance of large domestic enterprises is stronger than the subsidiaries. Comparing

the performance of 150 TNCs in Brazilian’s affiliates and in the rest of the world

(including parent companies), it is also possible to observe that average technological

efforts (R&D/sales) in Brazil was 0.7%, while in the world it was 5.0% in 2005.

This data suggests the technolgical performance of subsidiaries are comparatively

still low. Besides its limited performance, R&D activities of TNCs in Brazil are very

concentrated: almost half (48.6%) of large subsidiaries’ R&D is performed by firms of

the auto industry alone.

In Russia, nowadays the creation of R&D organisations with TNC participation,

except in very few cases, does not bring to the country any outstanding results in

development and promotion of advanced technologies or products. Foreign-owned

companies are considered even less innovative than Russian ones. However, a relevant

level of innovation activity has been shown by companies jointly owned by Russian

and foreign capital, which have been twice as innovative as other types of companies.

The main aspect of local expenditures which does affect TNCs' innovation activities

in Russia is low salaries of highly skilled professionals. Despite the fact that in 2001-

2007 salaries of R&D personnel across all R&D sectors have increased, they still remain

extremely low – which makes conducting research and development in Russia attractive.

Foreign firms also reveal a lower R&D intensity compared to domestic firms in India.

The post-liberalisation period has been characterized by the establishment of centers

working exclusively on the objective of global R&D. This trend has spread to the fields

of software engineering, chip design bio-informatics and agro-biotechnology. Recently,

there has been a significant increase in the number of FDI projects through US

companies for design, R&D and technical support activities for the development of

global products. Indian’s subsidiaries do not focus on technology absorption. Their

focus is largely on the customisation of their parents’ technology for the local market.

Analysis of the patterns of collaborations and patent ownership indicates that TNCs are

establishing a highly unequal division of labour with the national S&T system of India.

TNCs are using the foreign affiliates for the products under development for global

markets. TNCs are actively using the instrument of ownership of intellectual property

rights to prevent the spillovers from being captured by the domestic entrepreneurs. So

far there have been very few spinoffs from the foreign R&D centres. In general MNCs

use collaboration for later-stage work to avoid possible infringements. Further,

major software firms such as Infosys, Wipro, TCS are under contractual obligations to

transfer the ownership of intellectual property created in the host organization.

At present, China has become an important R&D base for TNCs, specially due to

growing pool of skilled engineers and technicians, to facilitate the reduction of

research expenditure and Chinese government’s pressure. In spite of enhancement of

this process, the share of China is small compared to TNCs global R&D investment.

Although supportive R&D was still the mainstream of foreign R&D activities in

China, many TNCs have transferred their innovative R&D facilities to China. Wholly

owned affiliates are the main ownership mode of Foreign R&D centers. Foreign

R&D organizations established by transnational firms are highly concentrated in

the information and communication technology (ICT) industries (including

software, telecommunication, semiconductors and other IT products) but equipment

and components, biotechnology and drugs as well as automotive industries also

attract a significant amount of this investment. Beijing and Shanghai are the

preferred locations, but more recently Guangdong, Jiangsu and Tianjin have appeared

on the map of foreign R&D investors.

In South Africa, 48% of subsidiaries of foreign firms performing R&D reported

collaborating with other local firms. Healthcare and aerospace deserve attention in this

topic - aerospace has been developed through large defense budget acquisitions in

South Africa and a long history of telemetry. R&D is concentrated in two main

South African provinces: Gauteng, which incorporates Johannesburg and adjacent

Pretoria, has province with 14%.

IMPACT OF INNOVATION POLICIES ON FDIS

During the pre-globalization phase the obligations and restrictions placed by

the governments in respect of access to market, local content and exports

played an important role in persuading the foreign investors to contribute to the

processes of innovation making, technological transformation and structural

change in late industrializing countries. Although to a lesser extent the importance

of this factor is also confirmed by the experience of BRICS countries, the

achievements of Indian success in pharmaceuticals and Chinese success in

telecommunications and electronics shows that governments of these countries still

required a policy space to advance the processes of technological accumulation at

home.

Innovation making for the process of technological upgrading is still contingent

on active efforts being made for technological accumulation by domestic firms

and improving the national systems of innovation through the enhancement of

investment in human resource development, strengthening of the linkages of

national level S&T institutions with domestic firms, protection of the innovation

making processes by maintaining the openings in the institution of intellectual

property rights (IPRs) for indigenous innovation and home market protection.

However, today the policy regimes in developing countries are certainly

characterized by the mixes that offer more advantage to the multinational

enterprises (MNEs) as compared to the domestic firms. Analysis shows that the

balance of advantages being offered has varied and is not the same in all the

emerging economies. Achievements and limitations of the technological upgrading

process are now much more dependent on the degree of discipline shown by the

domestic enterprises and the success of a country in the implementation and

coordination of policies of creation of national S&T capacity, development of

effective demand for indigenous innovation and home market protection.

Studies reported in this book on the experience of upgrading of the systems

of innovation in the BRICS countries during the last two to three decades also confirm

that the channel of foreign direct investment (FDI) was not a major international

source of knowledge and technology transfer for at least the sectors that have

ultimately proved to be somewhat dynamic in respect of innovation making and

allowed their own domestic firms to compete with TNCs in a successful manner in the

developed countries markets. Analysis shows that the main burden of competence

building had to be largely borne by the national level S&T institutions. There is

also confirmation that the catching up process had to be also carried out

mostly through the investment of domestic enterprises. Achievements and

limitations of the catching up process depended on the degree of success of a country

in the coordinated implementation of policies of creation of national S&T capacity,

development of effective demand for indigenous innovation and home market

protection. Investigations into the experience of BRICS countries also point out that

the governments had to make their domestic enterprises to submit to a policy of

conditional access to foreign sources of knowledge and technology and to bring

the required discipline to recipient firms for the development of national

absorptive capacity.

However, studies also confirm that there is now a greater influence of the

third generation policy regime of FDI promotion in the BRICS countries. This policy

regime allows a very different set of policy mixes that give total freedom to foreign

investors to establish their operations in the domestic space. Foreign investors are

allowed to use the national economic and technological space without being

subjected to any kind of restrictions and obligations. While the balance of

advantages being offered to the TNCs is certainly not the same in all the countries,

definitely the new policy mixes offer greater access to national knowledge base

and markets. Today in many countries foreign subsidiaries receive almost the same

treatment as what the domestic enterprises got in earlier times from the policymakers.

Arguably, it has been suggested that changes in the system of governance of the global

economy may have influenced the policies of FDI promotion in this new direction.

Earlier catching-up paths are believed to be no more open to the countries on

account of the new regime of trade and development as enshrined in the rules of

the World Trade Organization (WTO). In many sectors consequently the efforts of

domestic enterprises for the building of national capabilities have also not been seen as

much critical by the governments over the last one decade.

Policymakers have chosen to encourage domestic firms and the S&T organizations

to actively participate in the global production and innovation networks (GPINs).

Focus has been on encouraging domestic firms and S&T organizations to

establish close linkages with foreign firms that choose host locations for the

reason of seeking the supply of cheap talent and advanced skills. Recently as

factor seeking investments originating from the TNCs of US and Europe have

moved into knowledge intensive activities in a big way, this tendency has been

consciously allowed to grow in the emerging economies through the new policy

mixes of FDI promotion and supportive innovation policy measures. Even the

policies promoting outward FDI from the BRICS countries also aim to tap the

possibilities that can arise from the outward FDI in respect of the reverse flows from

the host economies to foreign subsidiaries.

Studies reported in this book also cover the results arising out of the policies

promoting outward FDI in the BRICS group of countries. While only a small amount

of outward FDI is being undertaken with the aim to tap the possibilities that arise from

the outward FDI due to the reverse flows from the host economies to TNCs, it

seems that the multinationals of BRICS countries have not been able to realize the

impact of reverse flows from the host locations through even these investments.

Since the implications from investing abroad by TNCs of the BRICS countries

are embedded in firms’ strategies as well as in policies of states that have

problems in their systems of innovations at both corporate and national level,

the gains and liabilities being accumulated in host economies must be kept in view.

Experience of the BRICS countries is yet to confirm the emergence of too

many spinoffs from the factor seeking investments of those TNCs from Europe and

United States. It appears that finance required for the new start ups and spin offs is

still not available in most of the BRICS countries. Private equity (PE) and venture

capital (VC) firms are not interested to support the processes of innovation making

by such firms. Even in the case of outward foreign direct investment (OFDI), the

reverse flows from the countries of Europe and United States to the economies of

BRICS group have not been possible because the emerging economies’

multinationals are apparently still resource short and overstretched and in very

few cases their existing established strategies allowed them to tap into the national

systems of host locations for the benefit of innovation making and technological

capability building at home. Most tie ups and investments are directed towards the

objectives of taking over of the production facilities and establishing the

marketing and distribution networks. Processes of competition faced by TNCs

arising out of the BRICS countries are capable of overstretching and draining

them of resources. Consequently there are also now many examples of takeover of

these new BRICS TNCs by TNCs originating from developed countries.

Although the implications of this experience are slowly making an impact on

the options of policy makers of BRICS countries, but it is also apparent that they are

not yet ready to move to the policy regime in which the innovation policy would be

utilized in a non-neutral manner and positively discriminate the measures of

innovation policy in favour of indigenous innovation. It seems that the logic of

achievement of higher growth rates is still driving the national states of these

countries to practice more of the same pathways of greater integration with the

emerging global economy. There is an uncertainty in respect of the path that they

should take to grow in the near future. There is a lack of clarity regarding the costs

and benefits of taking to the new pathways for growth. Consequently competition in

respect of both, inward as well as outward FDI is still rising in the case of BRICS

countries. Most of them measure now the level of success in competition by the

amount of FDI their respective governments are able to attract in respect of

knowledge intensive activities. In most of the BRICS countries governments are

now in competition to attract FDI for activities such as research and development

(R&D), design, development and testing, technical support centre, education

and training, etc. FDI in sectors designated as high technology is receiving

preferential treatment in terms of access to infrastructure, tax incentives and subsidies

in these countries. Governments have become liberal in their approach with regards

to encouraging FDI in the sectors connected with information technology,

software development, biotechnology, pharmaceuticals and so on.

The thrust of new policy mixes includes the introduction of measures providing for

a) stronger protection of intellectual property, preferential access to infrastructure,

both technological & physical, through the formation of special economic zones

(SEZs), b) supply of cheaper R&D services from publicly funded S&T institutions, c)

availability of cheaper talent for scientific and engineering work, d) development of

educational institutions that are capable of offering well trained professionals who are

fully familiar with international management and accounting practices, e) easy

access to domestic market, f) elimination of export and technology transfer

obligations, g) removal of controls over monopolies and restrictive business practices,

h) dilution of environmental controls and so on.

Being aware that TNCs can offer new production facilities, managerial practices

and also technology transfer to host countries, it is necessary that in the new

context policymakers have to formulate the policy mixes of FDI promotion and

innovation policy measures to succeed in the process of building national

capabilities. After the experience of the global financial crisis certainly there is

again even a renewal of interest in dealing with the implications of financial

liberalization for the domestic economies in both developed and developing

countries. In the emerging economies policymakers are engaged in rethinking the

policies that were responsible for the transmission of the impacts of global crisis

into their economies. In this context the role of private equity and venture capital is

also required to be reconstituted if we are keeping in view the specific

experiences of transmission of the impacts through the instruments of finance on

innovation in the emerging economies. Solutions to the problem of how the

governments must constitute the mix of policies of FDI promotion and innovation

policy measures need to be evolved keeping in view that the systems of innovation

can have varying mitigation and transformational capacities due to the existence

of their systemic connections with the pathways of growth chosen during the period of

last two decades.

Since the new measures under implementation also belong to the sphere of

innovation policy, in the recent period scholars of innovation have also become

quite active to study the impact of the policy changes for FDI promotion on the

national systems of innovation. In the field of innovation studies, focus is back on the

study of contribution of foreign direct investment (FDI) to the processes of

technological change and innovation making. Policy challenges that developing

countries face in respect of monitoring and evaluation of the impact of

interventions being put in place by governments to deal with the interplay

between innovation policy and FDI promotion have recently come under

investigation suggest that the challenge of present times requires a different

approach than policies focused on the ‘quantity’ of FDI inflows, a shift from a

mindset that prioritizes attraction of greenfield investments towards one where the

focus is on ‘subsidiary development’ and a focus on changes in the policy mix and

in the approach to performance measurement.

To the contrary studies reported in this volume show that domestic enterprises

and efforts of national level S&T institutions seem to matter more in the sectors that

have proven to be dynamic in terms of innovation making. Experience of the

implementation of the third generation policies of FDI promotion and innovation

making is clear that the pathways of growth constituted during the period of

liberalization were by themselves certainly insufficient for the introduction of major

innovations. By shaping the institutions and incentives in the same direction for

market and non-market actors the narrowly defined pathways of growth were

instrumental in not allowing their processes of competence building and innovation

making to go beyond the activities of outsourcing of services and manufactures and

exports to regulated markets in select product segments. Demand side signals for

the activities of innovation of both non-market and market actors were not helpful

for the efforts to be undertaken for the benefit of indigenous innovation.

In the situation the NSI of BRICS countries have been shown to be getting harnessed

less for major innovation of indigenous kind and far more by S&T asset seeking and

outsourcing markets related FDI for minor innovations. It is apparent that policy

coordination would need to appropriately focus on the management of the

interplay of global push and domestic pull factors. Policymakers need to keep in

mind that foreign capital is collectively in better position to forge a new international

division of labour in which FDI is their most important instrument for the

incorporation of domestic private capital and publicly funded S&T infrastructure. It

cannot be ruled out that in the absence of suitable policy coordination

domestically developed expertise may get used far more for the development of

global networks of production and innovation for the benefit of world market.

Alliance building and interactions of domestic and foreign firms need regular

monitoring with the aim of not only undertaking programmes and policies to take

benefit of the possible realization of spillover, linkage, competition and

demonstration effects but also to prevent and minimize the liabilities and

distortions being experienced by the systems of innovation in the presence of greater

FDI.

CONCLUSION

The development of innovative process is connected with improvement of quality of

scientific researches in the leading branches of knowledge, broad introduction of

innovations in the production, with the improvement of the quality of student’s training.

The main directions of the development of innovative processes in BRICS countries are:

The further development of science and technology.

The expansion of scientific researches and development.

The introduction of innovations in the production.

The improvement of the quality of education in the Universities.

The development of the patent business.

The improvement of the quality of the published results – the increase of the number of

links to them in the international editions.

In terms of the onus of directing FDI and guiding domestic firms and national

level S&T structures to leverage the local factors for the development of appropriate

kind of relationships the government must bear the responsibility of formulating the

relevant elements of policy coordination in respect of technology transition

management and development of systems of innovation. Policy coordination is

required in respect of especially those policies that shape the management of the

dynamics of emerging networks, the nature of specialization, the development

and implementation of appropriate technologies, and the development of long or

short term relationships of domestic firms and national level S&T organizations. As

far as the area of innovation policy is concerned, policy coordination would need to

target especially the areas of policy interventions capable of providing

opportunities to the national level S&T organizations, the young start ups and

the domestic firms to harness the spillovers, competition and demonstration

effects at home itself for the benefit of indigenous innovation. It is clear that the

fundamental political arrangements which structure a country's domestic institutions

and international linkages in the policy regime under implementation are what

ultimately determine a country's propensity to undertake indigenous innovation.

FDI cannot play the role of network organizer with the aim of benefiting the

processes of competence building and innovations needed by the local productive

structures. Policy coordination should be taking care of the changes to be made with

regard to the direction and promotion of foreign direct investment. Policy space

exists in abundance in respect of the determination of policies of investment,

competition, procurement, demand articulation, R&D subsidies and standards

making. The government has to determine the goals of development of national

system of innovation. The host government must take responsibility, put the

politics in command and undertake the policy coordination. In order to meet the

challenge of development of the pathways of growth for undertaking inclusive

development the government can get the relevant domestic actors to initiate and

develop innovation making programmes for the benefit of self-reliant development.

Since the pathways of growth accompanying the new policy of FDI promotion have to

bear a significant part of the responsibility for the institutions and capabilities of NSI to

evolve in a myopic way during the period of liberalization, foreign subsidiary

development cannot be the aim of the third generation policies of FDI promotion and

innovation making. Specific aims of the government of any latecomer country in respect

of the policy coordination have to flow from the developmental needs of the people and

the upgrading requirements arising out of the need to alleviate the constraints facing the

national system of innovation with regard to the management of technology transitions.

REFERENCES

1. 2013 Global R&D Funding Forecast: Asia Drives Growth in 2013 Global R&D // R&D Magazine. – 2012. – 18 December.

2. Towards A New Generation of Investment Policies / World Investment Report// UNCTAD. – 2012.

3. Baskaran A. and Muchie. M, “The Impact of the National Innovation Systems on the Flow and Benefits of Foreign Direct Investment to National Economies”, IJTLID.

4. Festel G. (2008), “Investing in Indian R&D: new money pouring into research & development in India makes the country an attractive place for innovation”. http://www.entrepreneur.com/tradejournals/article/print/174818821.html

5. Mugabe J. (2005), “Foreign Direct Investment, R&D, and Technology Transfer in Africa: An overview of policies and practices”http://www.unctad.org/sections/meetings/docs/narula_en.pdf