Technological Forecasting & Social Change 78 (2011) 1147–1157
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Technological Forecasting & Social Change
Managing technological and social uncertainties of innovation: Theevolution of Brazilian energy and agriculture
Jeremy Hall a,⁎, Stelvia Matos a,1, Bruno Silvestre a,2, Michael Martin b,3
a Beedie School of Business, Simon Fraser University, 8888 University Drive, Burnaby, BC, Canada V5A 1S6b 2 Spruce Close, Exeter EX4 9JU, United Kingdom
a r t i c l e i n f o
⁎ Corresponding author at: Faculty of Business Adm5891; fax: +1 778 782 4920.
Article history:Received 15 April 2010Received in revised form 21 January 2011Accepted 9 February 2011Available online 21 March 2011
This paper explores how technological, commercial and social uncertainties shaped thedevelopment of Brazilian biofuels. Technological innovation allowed the country to emerge as aglobal leader, but Brazil continues to struggle with major social uncertainties due to povertyand environmental concerns common in many emerging economies. Contemporaryapproaches to development within the innovation literature focus primarily on overcomingtechnological and commercial uncertainties, but only peripherally explore social uncertainties.To fill this void, we draw on Martin and Hall's framework for managing innovativeuncertainties, which is based on Kuhn and Popper's approaches to the evolution andmethodology of science, and extend it with Aldrich and Fiol's concept of cognitive versus socio-political legitimacy. Based on qualitative data collected in Brazil, we outline the evolution ofautomotive fuel ethanol and flex-fuel technology, the development of Brazilian soybeanproduction, and castor for socially inclusive biodiesel production. We show how innovationsolved some technological and commercial uncertainties and generated new opportunities, butalso created additional social uncertainties that are now being addressed. Through this process,Brazil has acquired capabilities in alternative energy technologies and more sustainableagriculture, becoming an exemplar for other emerging economies. We conclude withimplications for policy and industry.
Keywords:Technological commercial and socialuncertaintiesInnovationBrazilian energy agriculture and biofuels
1. Introduction
This paper analyzes the interactions between technological, commercial and social uncertainties in the biofuels industry ofBrazil, one of four BRIC countries (along with Russia, India and China) expected to play a dominant role in the global economy inthe next forty years [1]. Through technological innovation over the last 40 years, Brazil has emerged as a leading biofuels producerand distributor.
Two dominant and related perspectives analyzing such technological accumulation are the global value chain and latecomerdiscourses. The former suggests that participation in global value chains can promote economic development through ‘upgrading’firms' capacities to innovate, and thus increase their value-adding activities [2]. The underlying phenomenon is learning throughfor example exporting, foreign direct investment and spillovers [3–7]. Giuliani et al. [8] suggest that such perspectives are aneffective alternative to improving productivity by ‘squeezing’ wages and profits, a common approach in developing countries.
inistration, Simon Fraser University, 8888 University Drive, Burnaby, B.C. Canada V5A 1S6. Tel.: +1 778 782
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The latecomer perspective describes how innovation capabilities are built and lead to technological and commercial success.Originally proposed byGerschenkron [9] to describe the catch-up of European economies in the 19th century, it has since been usedto explain for example howAsian countries overcome their capability gap, and the nature of capability accumulation leading to thetransition from technology follower to creation [10]. Most recently, the latecomer approach has been used by Figueiredo [11] todescribe capability accumulation in the Brazilian forestry industry, and byMathews and Goldztein [12] in Argentinean biofuels, thelatter concluding that “Argentina and other countries in Latin America have everything to gain from promoting biofuels as the first of aseries of renewable energy industries, each of which could grow to become a strong export industry, and nothing to lose” (p 336).
While both perspectives allude to overcoming technological and commercial uncertainties through learning, they onlyperipherally explore social uncertainties, particularly unintended and detrimental consequences of technological development.Consistent with Nelson and Winter [13], we suggest that this is an important oversight, as technical change leads to humanprogress, but it also generates new problems that must be later dealt with in some way or another, and this is a particularly acuteproblem in emerging economies.
To address this gap in the literature, we apply Martin and Hall and Martin's framework for managing innovative uncertainties[14–16]. We selected this framework because, unlike the latecomer and global value chain discourse, its theoretical foundation isbased on innovative uncertainty [17]. Drawing on Kuhn and Popper's approaches to the evolution and methodology of science, Halland Martin suggest that a technology can be conceptualized as a scientific experiment, or series of conjectures, which must beovercome before it is a successful innovation. They categorize four innovative uncertainties — Technological, Commercial,Organizational and Social (henceforth TCOS framework). Under situations of low complexity and ambiguity, Popper's conjecture–refutation approach [18] is appropriate, whereas complex and ambiguous situations, common in social uncertainties, call for Popper'spiece-meal social engineering approach.We however extend the TCOS framework by exploring legitimization processes [19,20] thatshape heuristics and selection environments, which in turn create new problems that must be addressed [13], and apply it as acomplement to the latecomer and global value chain discourse to deepen our understanding of unintended social uncertainties.
Our research is drawn from qualitative data collected in Brazil, a nation covering 8,456,510 km2 with 190 million people [21].Agriculture and agribusiness play major roles in Brazil's growing economy, accounting for 25% of its GDP in 2007.4 Theindustrialization of Brazilian agriculture since the 1960s through ‘Green Revolution’ techniques vastly improved agriculturaloutput and exports by applying modern chemical and mechanization technologies [22]. Although one of the world's largestproducers of a variety of crops, less than half of Brazil's arable land is currently under cultivation (excluding protected areas suchas rainforests), and when coupled with climatic advantages and long growing seasons, provides the country with considerableRicardian comparative advantages, making it potentially the ‘world's farm’ [23].
Although a technological and commercial success, Brazilian large-scale agricultural expansion has been criticized for majorenvironmental impacts, and exacerbating the inequitable distribution of wealth [24]. Since the 1980s, the Brazilian Governmenthas been under pressure from for example the Landless Rural Workers' Movement (MST), Latin America's largest protest group, toreform agriculture from highly concentrated ownership [25]. Such concerns over inequality have been termed ‘social exclusion’,the denial of equal access to opportunities of certain groups of society [26], the reduction of which became a major policy ofBrazilian President Luiz Inácio ‘Lula’ da Silva [27].
In contrast to petroleum based fuels, biofuels are produced from renewable sources with lower greenhouse gas emissions, andthus potentially more sustainable [28,29]. The dominant biofuel in Brazil, sugarcane ethanol, was originally subsidized and used bycars that could only run on one fuel, thus hindering diffusion. The introduction of flex fuel technology resolved this problem andgenerated greater efficiencies, and there are no longer subsidies. However, biofuels have been criticized for creating the so-called‘food for fuel crisis’, where demand for biofuels may increase food prices, or may exacerbate social exclusion [22], and the industryis now under pressure to increase social inclusion and improve sugarcane worker conditions.
Another promising biofuel is biodiesel, particularly from soybeans. The Brazilian Agriculture Research Corporation (EMBRAPA)developed soybeans for tropical climates, allowing the country to go from producing none to the world's second largest producer.More recently, modern agricultural technologies such as transgenics have improved productivity and reduced chemical usage, butthere have been concerns over concentrated production at the expense of poor farmers and expansion into protected areas. Inresponse, the Government has been encouraging refiners and distributors to source from poor farmers that have previously beenexcluded from participating in the biofuels sector, and specifically promoting castor biodiesel, which is more suitable forsubsistence farmers. However, there remain major problems with these wider participatory schemes, especially with poorilliterate farmers that lack basic business knowledge and have become distrustful of industry and Government [30].
In the next section,we provide an overview of the literature on innovation, uncertainty and the TCOS framework.We then discussourmethodology and our cases, followed by a discussion of how technological and commercial uncertainties were overcome, but alsocreated social uncertainties that are now being addressed. We conclude with implications for policy and management.
2. Literature review of uncertainty and innovation dynamics
Schumpeter [31,32] provided the seminal definition of innovation as the commercialization of invention. He observed thatinnovation could be based on new scientific breakthroughs, although more commonly it was from re-combinations of existingtechnologies. Innovation is thus a knowledge quest and creation process, requiring the reduction of uncertainty [33,34]. Knight
4 17.9% agriculture and agribusiness and 7.2% livestock. See www.cepea.esalq.usp.br/pib. Assessed Dec. 27, 2009.
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distinguishes between true risk,where key interacting variable and outcome probabilities are known, uncertainty,where variablesare known but not probabilities, and what has since been termed Knightian uncertainty [17] or ambiguity5 [35], where variablesand probabilities are unknown. Knight's distinction thus recognizes that there are varying degrees of imperfect information. Simonhas argued that when there are high degrees of imperfect information (e.g. ambiguity), managers are limited in what they know(bounded rationality), and thus should seek satisfactory rather than attempt to find optimal solutions to their problems [36].
Within the innovation literature, the degree of uncertainty has been conceptualized as being incremental in that it builds onexisting competencies and ways of doing business, versus radical, i.e. competency destroying innovation that requires differentknowledge currently possessed by the firm [37,38], and is thus more uncertain. Such a distinction draws on Schumpeter's conceptof creative destruction and Kuhn's concept of the scientific paradigm [39], both of which have enjoyed widespread applicationwithin the innovation literature, such as Dosi's technology paradigm shift [40] and Freeman and Perez' techno-economic paradigm[41]. Such approaches have been applied to latecomer firms, where technological capabilities are built along existing technologicaltrajectories (technological catch-up) or by creating a new technological path [10,11]. Firms tend to resist new paradigms due to“dynamic conservatism”, the tendency to try to remain the same [42], or because they have established routines that reinforce oldways of doing things [13].
External issues may play a role in the transition towards new paradigms, and more generally when and how an innovation isaccepted and diffused [20]. For example, Afuah argues that the key to innovative success is tominimize competency destruction oninnovation value-added chain members such as customers, suppliers and complementary innovators [43]. Nelson and Wintersuggest that firms respond to changes in their “selection environment”, external factors that influence which products orprocesses a firm chooses to develop, which could include for example pressure from consumers, regulators and non-governmentalorganizations concerned about environmental and/or social issues [13]. Such an approach draws parallel with Hick's [44] conceptof induced innovation, where a relative change in the factors of production can spur innovation, but differs as it builds onbehavioral attributes of the firm to provide a more realistic description of technology development and its interactions betweenthe firm and its environment [45].
A related stream of research has suggested that the acceptance of an innovation is dependent upon its level of legitimacy, whichAldrich and Fiol define in two dimensions: “cognitive legitimacy”, the knowledge about the new activity and what is needed tosucceed in an industry; and “socio-political legitimacy”, the value placed on an activity by cultural norms and political influences[19]. Socio-political legitimization is thus the process by which key stakeholders accept a new venture, given their existing norms.Such norms, often based upon non-economic criteria, are emphasized by Schumpeter [31]: “a fact is never exclusively or purelyeconomic; other – and often more important – aspects always exist” (p 3), while Drucker has suggested that in the future the keychallenge for the corporation will be demonstrating its social legitimacy [46]. An innovation thus establishes its legitimacy as itstechnical performance and social acceptance co-evolves and expands, thus reducing uncertainty. For cognitive legitimacy,performance improvements and expansion of applications allow the technology to supplant existing technologies, sometimescreate novel products or re-combinations of exiting technologies, while at the socio-economic level its legitimacy is accepted bymore stakeholders and in more markets.
3. Theoretical framework
An underlying themewithin the innovation literature is the recognition of novelty, and thus idiosyncrasy. Similarly, in additionto different degrees of uncertainty, we also suggest that there are different types of uncertainties, which in turn require differentheuristics. Freeman [47] categorizes innovation uncertainty as falling into technical, market and political/economic uncertainty,whereas Hall and Martin define four dimensions of uncertainty that must be overcome before an idea or invention qualifies as aninnovation [16]:
• Technological Uncertainty: the concept must be feasible technologically, based upon corporate scientific and technologicalcompetencies.
• Commercial Uncertainty: it must be commercially viable, where it can compete successfully in the marketplace.• Organizational Uncertainty: it should be congruent with the firm's overall strategy and capabilities, complementary assets and itsability to protect intellectual property.
• Social Uncertainty: the societal impact on or from diverse secondary stakeholders must be recognized and accommodated.
Fig. 1 summarizes the theoretical foundation of the TCOS framework. Kuhnian paradigmatic issues drawn from the innovationliterature illustrate how TCOS uncertainties are influenced by the technological paradigm. The innovation discourse hastraditionally focused on how firms overcome technological and commercial uncertainties, and more recently organizationaluncertainties. For example, Henderson and Clark recognize the difficulties of introducing new technological knowledge (eitherarchitectural, component or both) on incumbent firms [38]. Abernathy and Clark emphasize the importance of new marketknowledge; i.e. just because a new technology meets technological performance criteria, does not mean that it will be able tocompete against other options [37]. For organizational uncertainties, Teece et al. argue that even if a new product or process is
5 To avoid confusion, we follow Matos and Hall [35] who refer to Knightian uncertainty as ambiguity.
6 Popper proposed this approach in response to authoritarian dictatorial policies pursued under Nazism and Stalinist communism, leading to human rightsabuses during World War II and the Cold War, but he and others looked at broader societal applications.
Paradigmatic issuesKuhn, 1962 [39]
Creative destruction (Schumpeter, 1942) [32]Changes in selection environments; breaking organizational routines & heuristics (Nelson and Winter, 1982) [13]Competency-enhancing vs. destroying innovation (Abernathy and Clark, 1985[37]; Henderson and Clark, 1990 [38])Impact on innovation value-added chain members (Afuah, 1998) [43]
Impact/Influence
TCOS UncertaintiesHall and Martin, 2005 [16]
Technological Commercial Organizational Social
Risk CharacteristicsKnight; 1921 [17]; Simon,
1959 [36]identified; probabilities estimated
More variables (complexity); somenot easily identified (ambiguous)
Type of LegitimacyAldrich and Fiol, 1994 [19]
Cognitive Socio-political
HeuristicsPopper, 1945 [18]; 1959 [51]
Conjecture – refutation Piece-meal social engineering
••
•
•
Variables & interactions can be
Fig. 1. The TCOS Framework.
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technologically and commercially viable, the innovator will not appropriate the benefits of the innovation unless they possessintellectual property protection and complementary assets [48].
According to Hall and Martin, the innovation discourse has placed less emphasis on social uncertainties, yet this is emerging asa key issue in many areas. Freeman distinguishes between primary stakeholders, those that that have a direct impact on the firm,versus secondary stakeholders, those that are not directly involved with the firm but may indirectly influence the firm via primarystakeholders [49]. Secondary stakeholder dynamics from for example local communities, environmental, safety and social activistsand groups opposed to globalization, what Hung calls the ‘social institutions’ play a prominent role in industrial evolution [50].Hall and Martin however argue that the heuristics for understanding social uncertainties (which correspond to socio-politicallegitimacy) differs from the other three (which correspond to cognitive legitimacy), as there are more secondary stakeholders tobe accommodated (and thus more complex). These stakeholders may be ambiguous, making it difficult to identify which areimportant. They suggest two heuristics for dealing with the differences among the four uncertainties:
• For managing cognitive legitimacy uncertainties (technological, commercial and organizational), Popper's conjecture–refutation (ortrial and error-elimination learning) evolutionary epistemology of science [51] is an appropriate heuristic, where key variablesand their interactions can be identified, and outcome probabilities can be estimated. The potential innovation is thus analogousto a scientific theory, the difference being that refutation is based upon performance superiority criteria rather than falsificationcriteria [14], where technology supersedes old technology due to better technological and commercial performance.
• For managing socio-political legitimacy uncertainties (social), Popper's ‘piecemeal social engineering’ approach [18]6 isappropriate due to a greater degree of complexity and ambiguity, given that wide-ranging political and social implicationsmay be apparent, and it is difficult or infeasible to identify key variables, their interactions and outcome probabilities.
As discussed above, unanticipated outcomes are likely to be the result of the firm's innovative activities [13]. The establishmentof cognitive and socio-political legitimacy thus requires Popper's ‘learning-by-refutation’ approach to be embedded in his ‘socialengineering’ approach. As we will show below, social uncertainties have emerged as a major challenge for industrial innovation inBrazil, yet they are also stimulating new rounds of innovation.
In addition to viewing each TCOS uncertainty as a hurdle to be overcome as suggested by Hall and Martin, we also suggest thatsocial uncertainties may also provide socio-political legitimacy, thus granting technology developersmeans to overcome cognitivelegitimacy hurdles, a major problem for emerging economies. As we alluded to above and will explore below, in Brazil selectionenvironments have shifted over the years from primarily technological and commercial concerns towards social inclusion policies,and during this difficult process, the biofuel industry emerged as a world leader.
While we acknowledge the importance of organizational uncertainty, its focus is on the firm, whereas the unit of analysis of ourpaper is the technology. Thus, we henceforth will focus on technological, commercial and particularly social uncertainties.
4. Methodology
The study presented here emerged from an ongoing research program on innovation and social issues in various national andindustrial settings conducted by the authors over the last 10 years. We chose Brazil because it is a large emerging economy driven
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by a number of world-class industries, especially agriculture and energy [23]. However, the country also has major problems withpoverty and social issues, and is now attempting to use innovation as a means of reducing these social ailments while improvingindustrial performance [22].
We apply case study methodology to understand the dynamics present in a particular setting [52,53], more specifically, howinnovative uncertainties in the energy and agriculture industries in Brazil evolved, solved problems and created new opportunitiesand additional challenges. The cases presented here, automotive fuel ethanol, soybean production and castor biodiesel, provideconcrete illustrations of the challenges of TCOS innovative uncertainties. We selected these technologies for theoretical not forstatistical reasons, as they fill different innovative uncertainties categories and interactions not examined in previous studies andprovide examples of polar cases [52]. For example, fuel ethanol and soybeans production are similar in terms of cognitivelegitimacy but created socio-political uncertainties while biodiesel from castor faces commercial uncertainties but has potentialhigh social legitimacy.
To ensure construct validity, we used multiple sources of data (triangulation), establishing a chain of evidence, and we askedkey informants to review the drafts of the cases [53]. Our data was drawn from academic, policy and technical documents, semi-structured interviews with supply chain members and other stakeholders conducted in the last 10 years. Interviews wereconducted in-person in a number of Brazilian cities7 and supplemental interviews were also conducted with UN officials inBrasilia, New York and Rome.
We interviewed a variety of primary and secondary stakeholders in an attempt to provide insights from different perspectives.Interviewees were identified from our desk research and then through the snowball technique, where participants suggestadditional people for the study [54] (see Appendix A for a list of interview subjects). Interview questions were developed throughliterature reviews and used to open the discussion. For example, we asked about key challenges in their sector prompting fortechnological, commercial, organization and social uncertainties, without limiting the interviewee's scope for raising relevantissues.
We also conducted four focus groups that explored in-depth issues identified in nine individual interviews with farmers andother stakeholders. These focus groups were organized with the assistance of local presidents of biofuel co-ops. Data saturation[52] in the form of repetition of common issues emerged within this phase of the research.
Given the controversial nature of the research, there was a risk that research participants might express viewpoints that theythink the interviewer wants to hear or is politically appropriate [55]. To reduce this risk, we informed interview subjects that wewould keep their names and participation confidential, that we would not use information that could place the interviewee in anyform of jeopardy [56], and that we would check our data against observed behavior and the perspectives of other stakeholders.
Data analysis and collection interacted during the research process. After every interview, the research teammet to discuss thekey issues raised by the interviewee, and recorded the key insights. We then identified common categories that involved differenttypes of innovation challenges and unintended social consequences. From there we conducted cross-case analysis looking fordifferences and similarities in how these issues were solved and what other problems were created. Our cases pointed out gaps inthe global value chain and latecomer theories, which we suggest that these could be filled using an uncertainty analysis thatexplores interactions among technological and social uncertainties such as TCOS, which we modified in light of our findings. Ouranalysis ended with the identification of the broader implications of this research and key contributions to the innovationliterature on emerging economies.
5. Case studies
5.1. The Development of automotive fuel ethanol technologies
Ethanol is a renewable energy source that can be distilled from a variety of crops. In the 1970s, the Brazilian Governmentinitiated the ProAlcool Program to produce automotive fuel ethanol from sugarcane, a response to the oil crises in the1970s, and tosave failing sugarcane producers after major modernization investments followed a collapse in sugar prices [57]. The ProAlcoolProgram involved a wide range of stakeholders, but not the national oil company Petroleo Brasileiro SA (Petrobras). According to asenior Petrobras manager, at that time ethanol was believed to be commercially unviable, and would result in unfair competitiondue to heavy subsidies supporting the ProAlcool Program. Up until 1985, the Brazilian Government provided US$7 billion inincentives for ethanol production, leading to a 26% reduction in fuel costs for ethanol car users, increased ethanol processefficiencies and increases in large-scale sugarcane production [57]. By 1985, over 90% of new cars produced in Brazil were poweredby ethanol [58].
EMBRAPA played a major role in improving sugarcane cultivation, an efficient ethanol crop. For example, a hectare of Braziliansugarcane produces an average of 7000 l of ethanol, whereas a hectare of US corn produces 3800 l and 5400 l per hectare frombeets in the European Union [59]. Brazil is currently the second largest producer and largest exporter of fuel ethanol, and operatesa widely available distribution network servicing the world's largest fleet of ‘flex fuel’ cars powered by any mix of ethanol andgasoline [60].
7 On site interviews were conducted in Brasilia, Campina Grande, Foz do Iguassu, Joao Pessoa, Petrolina, Manaus, Porto Alegre, Recife, Rio de Janeiro, Camposdos Goytacazes, Macaé, Rio das Ostras, Salvador and Sao Paulo. A phone interview was conducted with Greenpeace International.
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Flex fuel technologywas crucial for the Brazilian ethanol market.8 Previous technology could only use ethanol, and a crisis in itssupply during the 1980s placed these vehicles at a cost disadvantage. The Brazilian subsidiary of Robert Bosch Ltd. realized thatvehicles capable of running on gasoline and ethanol would improve commercial viability, and drew on their US subsidiary's fueldetection software patented since 1988 to develop a prototype flex vehicle in 1992. Bosch presented the technology to Braziliancar manufacturers, which analyzes fuel composition using a sensor. However, the sensor was expensive, creating considerablecommercial uncertainty. In 2000, the Brazilian subsidiary of Italian-based components manufacturer Magneti Marelli was able toeliminate the sensor by developing electronic injection software, thus reducing costs. Volkswagen partneredwithMagneti Marelli,resulting in the first commercial flex vehicle, the Gol Total Flex 1.6, in 2003, followed by similar models from General Motors andFord. By 2010, 79% of all cars produced in Brazil were flex fuel vehicles [61].
Although flex fuel technology was able to establish technological and commercial legitimacy, there is also pressure to improveenvironmental impacts such as fuel efficiency and emissions. In response, the latest generations of Brazilian flex cars have onboardsystems to measure fuel consumption and CO2 emissions, allowing auto producers to meet the Ministry of Environment'semission control standards. While environmental benefits of sugarcane ethanol remain contentious, it is renewable and moststudies suggest that it is better than petroleum, although concentrated ethanol production has major local environmental impacts[62]. Most of Brazil's ethanol production is 2000 km from the Amazon [63], although indirectly it has caused the relocation of forexample cattle ranching towards the Amazon when pastureland is converted for sugarcane.
An emerging issue concerns accusations that concentrated ethanol production has become commercially viable at the expenseof poorly paid migrant workers, and for failing to provide opportunities for small farmers [64]. Most harvesting is manual, creatingstrong demand for temporary, low-skilled labor and poor working conditions [22]. The media and activist groups have beenpressuring the Government, large sugarcane producers and Petrobras, the country's largest fuel distributor, to improve workerconditions. Petrobras CEO Gabrielli de Azevedo has countered that fuel produced from substandard labor practices does not makeit into their supply chain [65], while sugarcane producers are now engaged in social responsibility programs and investing inworker health and education programs. Brazilian policy-makers interviewed in our research recognized these detrimental effectson employment andmigration that exacerbate social exclusion, but the industry is still criticized by the international and nationalmedia.
5.2. The development of Brazilian soybeans
Whereas sugarcane ethanol became established as a viable alternative for gasoline, the biodiesel sector is still emerging, andthe Brazilian Government has been actively trying to avoid problems of social exclusion that have occurred in ethanol and otheragricultural modernization initiatives.
One of the most promising biodiesel contenders are soybeans, an exogenous crop normally sensitive to light intensity anddaylight length and thus originally unsuitable for Brazil's climate. EMPRAPA was able to adapt soybeans to Brazilian climateconditions and lower production costs, allowing the country to become the world's second largest producer after the US in30 years. A number of domestic and international factors contributed towards this growth. International demand increased in the1960s and 1970s due to increased demand for prepared foods and animal feed, while Government reform policies in the 1990sstabilized the economy and reduced trade barriers, improving the economic environment for agriculture. Foreign multinationalssuch as Monsanto emerged and collaborated with EMPRAPA to develop more cost-effective crop varieties, including transgenicsresistant to Monsanto's Round-up Ready herbicide, which are particularly effective in large scale production [24].
The introduction of transgenics was very controversial: between 2000 and 2005, there were major congressional debates overagricultural biotechnology legislation. At that time Brazil was one of the last major producers of non-transgenic soybeans, andBrazilian Government ministries had different policies. For example, according to Government officials, the Ministries ofAgriculture and Science & Technology recognized biotechnology as a key pillar in their innovation strategies, and believed it couldmake the industry more competitive internationally. Officials with the Ministries of Environment and Agrarian Development (aministry dedicated to the concerns of small-scale and subsistence farmers), opposed transgenic technology, claiming that therewere uncertainties over environmental and biodiversity impacts, the effect on human health, farmers' rights and the impact onsubsistence farmers. Officials fromNGOs such as Greenpeace and the Brazilian-based Institute for Consumer Defense (an advocacygroup for consumer rights) argued that Monsanto was pressuring the Brazilian Government to adopt their technology, whichwould result in concentrated farming at the expense of subsistence farmers. The Government approved planting transgenicsoybeans in 2005, and Monsanto's varieties have since been widely adopted, especially soybeans.
The transgenics controversy was only part of wider concerns over agricultural modernization since the 1960s and its impact onsubsistence farmers. For example, Green Revolution technologies pioneered by Nobel Laureate Norman Borlaug providedaffordable food for the world's poor by using mechanized and chemical-intensive techniques [66], and led to technological andcommercial successes like soybeans and sugarcane. However, there was a belief among Brazilian policy makers that it was a causeof social exclusion and favelization. Government concern over this phenomenon was demonstrated by the creation of newministries in the early 2000s to deal explicitly with social exclusion: the Ministry of Social Development & Fight against Hunger,and the above-mentioned Ministry of Agrarian Development. EMBRAPA's traditional mandate of promoting commercially viable
8 For a detailed history of flex fuel development, see E. C. Teixeira, O desenvolvimento da tecnologia Flex-fuel no Brasil, Instituto DNA, 2005.
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agricultural products through R&D was also modified by the Government to include capability development for subsistencefarmers. There was a concern that increased demand in biofuels will continue this trend, as had been the case for ethanol, andthere have been explicit attempts to avoid this pattern of social exclusion in the production of biodiesel (especially from castor).Social uncertainties have thus emerged as an important driver in Brazilian biofuels.
5.3. Biodiesel from castor
In response to social uncertainties in ethanol and soybeans, the Government established the National Program of Productionand Use of Biodiesel (henceforth the Biodiesel Program) in 2004. Key players included EMBRAPA, Petrobras, various Governmentministries, agencies and regulators. The Biodiesel Program included goals of stimulating the biodiesel market, technology research,and promoting regional development and social inclusion in poor regions. Explicit mandates included a minimum of 5% biodieselin the national diesel supply by 2013 [67]. Funding for technology development was provided for universities and institutions suchas EMBRAPA.
In contrast to prior energy and agricultural policies, the Biodiesel Program included an explicit policy to encourage small farmerparticipation through the ‘Social Fuel Stamp’, a tax rebate scheme available to firms sourcing biodiesel from poor regions. Toreceive the tax rebate, biodiesel refiners and fuel distributors must purchase under contract part of its feedstock from smallfarmers and provide themwith technical assistance. The tax exemptions range from R$.07 (~US$.03) to R$.218 (~US$0.1) per liter,depending on the feedstock and the region in which it is sourced, about 4% to 12% of the retail price of diesel in Brazil in 2009. Toqualify for the highest tax exemption, firms must purchase biodiesel from castor, palm or other crops identified as suitable forsmall-scale farming and produced by subsistence farmers in the North, Northeast or semi-arid regions of the country. By 2008,approximately 100,000 small-scale farming families have participated in the Biodiesel Program [68].
Castor has been identified as an ideal crop, as it grows in marginal land and mechanized production is currently unavailable[69]. EMBRAPA have been developing varieties that will improve output, reduce toxicity levels and lower environmental impacts,thus potentially providing opportunities for small-scale farmers in poor regions. However, there remain commercial uncertainties.For example, many refiners and distributors stated that poor farmers were unable to produce what had been negotiated, or fail tohonor contracts and sell the seeds to other buyers, typically as a one-off, short-term transaction at higher prices [22]. Castor oil isvalued for other industrial purposes, albeit at smaller volumes needed for biodiesel, and its production costs are currently higherthan other oils [69]. Farmers that qualify for the Social Fuel Stamp scheme are often illiterate and lack basic business education, andoften fail to understand the benefits of long-term contracts over short-term transactions. Industry executives and EMBRAPAofficials also stated that many farmers often did not follow the technical advice as required by the Social Fuel Stamp scheme. Castorplants grow in many environments including empty lots and landfills, and farmers unfamiliar with this crop thus assumed thatspecialized techniques promoted by EMBRAPA were unnecessary. However, productivity and quality is low without appropriatecrop management [70].
Biodiesel refinery managers further claimed that technical assistance, logistical and transactional costs required to managecontracts with thousands of geographically dispersed small farmerswere likely to be higher than the Social Fuel Stamp tax rebates.Without contract enforcement, there was no assurance that the cost of technical assistance provided to farmers could be recovered(what Hall and Martin would regard as organizational uncertainty [16]). Our interviews with senior representatives from biofuelcooperatives and focus groups conducted with subsistence farmers countered that the refiners failed to provide useful advice, andthat this was a continuation of Green Revolution techniques where subsistence farmers are exploited by industry, as was the casewith ethanol and soybeans. Such concerns led a senior manager of Petrobras and the president of a chemical company that refinescastor oil to conclude that the biodiesel social programs will fail, and that large-scale production using soybeans will becomedominant, regardless of Social Fuel Stamp tax incentives. Unlike castor, soybeans have already been proven as a cost efficient cropin Brazil with an established supply chain, yet one with higher environmental and social impacts.
6. Discussion
The cases above illustrate the interactions between technological innovation and unintended social and environmentalconsequences that shaped industrial development in Brazilian biofuels, contributing towards energy self-sufficiency and aleadership role in alternative fuels. In this section, we use the TCOS framework to summarize the innovative uncertainties facingthese technologies (Table 1) and analyze the interactions among technological, commercial and social uncertainties.
Induced by Government policy, Brazilian ethanol initially emerged in response to an energy crisis and collapse in sugar pricesdue to modernization and overproduction. Through Government subsidization and collaboration with other members of theinnovation value-added chain (e.g. auto producers and fuel distributors), technological and commercial uncertainties wereovercome, resulting in 90% of Brazil's fleet powered by ethanol by 1985. However, the selection environment changed with anincrease in ethanol prices and a decrease in gasoline. Under such circumstances, the country could have given up ethanol poweredvehicles, as was the case for Argentina, which operated a similar ethanol program [12]. The alternative was to develop flex fueltechnology, which provided greater commercial viability by allowing consumers to select the cheapest fuel at any given time. Thistechnology thus established cognitive legitimacy, leading to widespread adoption. More recently, social uncertainties concerningpoor working conditions and concentrated chemical-intensive agriculture at the expense of subsistence farmers has challenged itssocio-political legitimacy. The industry has responded by improving wages and working conditions, but these increased costs arealso shifting the industry towards greater mechanization and social exclusion. The Brazilian Government has responded by
Table 1TCOS Framework analysis of the case studies.
Technological uncertainties Commercial uncertainties Social uncertainties
Fuel Ethanol andFlex Technology
Built on established sugar-caneproduction capabilities
ProAlcool program subsidies Poor sugar-cane working conditions
R&D (e.g. EMBRAPA) Production efficiencies via marketdemand/economies of scale
Learning via global value chain(e.g. Green Revolution techniques, transgenics)
Establishment of distributioninfrastructure
Expansion into protected areas
Concentrated farming leading toexclusion of subsistence farmers
Cognitive legitimacy established Socio-political legitimacy challenged
Castor biodiesel Initial phases of R&D (EMBRAPA, Petrobras) Small scale, lack of mechanizedtechnologies
Improved environmental impacts
Less knowledge available from global value chain(i.e. limited latecomer opportunities)
High transaction costs, nodistribution infrastructure
Use of marginal lands
Lack of trust between supplychain members
Opportunities for subsistence farmers
Chemical industry competition Seen as panacea for social inclusionunder Lula administration
Cognitive legitimacy emerging Cognitive legitimacy lacking Socio-political legitimacy established
1154 J. Hall et al. / Technological Forecasting & Social Change 78 (2011) 1147–1157
introducing social inclusion policies for emerging biodiesel technologies and encouraging crops suitable for small-scale andsubsistence farming.
In contrast to ethanol, biodiesel is a relatively simple alternative to petroleum-based diesel, as it does not require enginemodifications. Technological breakthroughs in soybean breeding and production allowed Brazil to become one of the mostcommercially viable producers with an efficient distribution infrastructure, establishing cognitive legitimacy for it to become thedominant biodiesel crop. However, social uncertainties over chemical intensive, large-scale production, deforestation and impactson social exclusion provided socio-political legitimacy for other crops such as castor, which can be grown in marginal areas and bysubsistence farmers. On the other hand, there are currently major uncertainties over commercial viability, increased transactioncosts, poor distribution infrastructure and trust between refiners and subsistence farmers.
Consistent with Hung and Chu [71], a key challenge for policy-makers and sophisticated players like Petrobras is how to shapethe development of such emerging technology into a new industry. According to Silvestre and Dalcol [72], in the past Petrobraswas able to overcome major technological and commercial hurdles to become a global leader in deep and ultra-deep oilfieldproduction. However, these past heuristics were primarily focused on overcoming technological and commercial uncertainties,following Popper's conjecture–refutation epistemology. The social uncertainties are however being driven by a rich mix ofregulatory, policy and secondary stakeholders such as environmental groups and social activists, making the situation morecomplex. A piecemeal social engineering approach is thus more applicable, yet this would involve acquiring new heuristics forthese companies.
Our first two cases involved collaborations between sophisticated national organizations such as EMBRAPA, the Brazilian-based divisions of international auto manufactures, and multinationals such as Bosch, Magneti Marelli and Monsanto. Consistentwith the global value chain literature, such collaborations allowed Brazil to access and acquire world class knowledge and theaccumulation of innovation capabilities to overcome technological and commercial uncertainties. However, while they were ableto establish cognitive legitimacy, the difficult challenge of establishing socio-political legitimacy appears to be left up to thedomestic organizations, which we suggest is a key issue for emerging economies, yet not addressed by the global value chain orlatecomer literature. For example, Mathews and Goldztein's application of latecomer theory used to analyze the Argentineanbiofuels industry claimed there was “nothing to lose”, which was counter to Tomai and Upman's [73] Argentinean study thatconcurs with recent NGO claims that the country's soy biodiesel production is indeed having significant adverse social andenvironmental impacts (as was the case for our research). Ignoring the interactions between technological and social uncertaintiescan at best provide only part of the story behind economic development.
When compared to soy, cognitive legitimacy for castor biodiesel was lacking, due in part to the early phases of R&D, a lack ofdistribution infrastructure and difficulties inmanaging relationships between sophisticated organizations and subsistence farmersthat are often illiterate and distrustful of industry and Government. However, castor provides strong socio-political legitimacy dueto potential environmental benefits and greater social inclusiveness. We thus extend the TCOS framework by suggesting that inaddition to ‘hurdles’ that must be overcome, social uncertainties can act as a ‘leverage’ by providing socio-political legitimacy, thusjustifying investments to reduce technological and commercial uncertainties. This ‘lever’ argument is perhaps a particularly salient
1155J. Hall et al. / Technological Forecasting & Social Change 78 (2011) 1147–1157
issue for emerging economies, where social uncertainties play a relatively larger role when compared to more advancedeconomies.
Local organizations such as co-ops appear to be a useful mechanism that can bridge the gap between industry and subsistencefarmers, and indeed large buyers such as Petrobras have been encouraging this option. Most co-ops possess adequate managerialand technical capabilities, and can thus act as a mechanism in the diffusion of technical and basic business knowledge. We thussuggest that a useful complement to the global value chain and latecomer discourse is to focus on how local organizations engageand diffuse knowledge with poor farmers.
While castor may possess socio-political legitimacy, there are still strong economizing pressures to reduce transaction costsfrom widely dispersed suppliers. Such pressures would favor sourcing soybeans from large-scale farmers, but this would come atthe expense of social programs and increased environmental impacts, much like ethanol. Given that EMBRAPA and Petrobraspossess technical competencies, and the latter has significant influence over the supply chain, they are perhaps the key playersthat canmake the social inclusion policies work. However, they need to realize that their current competencies and heuristics thatallowed them to overcome technological and commercial uncertainties provide little insights on how they might deal with socialuncertainties. Indeed, most of the innovation discourse has primarily focused on overcoming technological and commercialuncertainties, yet from an industry perspective (particularly in emerging economies), social uncertainties are often equallyimportant. For example, perhaps the most influential technology development model is Clark and Wheelwright ‘DevelopmentFunnel’ [74], which calls for integrating technical and market knowledge at the early phases of technology development, the timewhen managers have the greatest leeway in determining the impact of its outcome. We similarly suggest that knowledge aboutlikely social uncertainties also needs to be considered at early phases of technology development, such as the degree by which thetechnology is socially acceptable (e.g. transgenics), has unintended consequences on secondary stakeholders (such as dislocationof subsistence farmers) and/or whether it will provide benefits to society (improved environmental performance, socialinclusiveness, etc.).
Note however that social uncertainties require different heuristics, specifically piece-meal social engineering approaches. Halland Martin suggest that concepts such as ‘muddling through’ [75]; ‘satisficing’ [36] and ‘strategy as an emergent process’ [76]provide direction for appropriate heuristics. A more specific tool for social uncertainties worthy of further research is ‘analogicalreasoning’ the ability to transfer useful wisdom from a broad range of previous similar settings, followed by incremental searchesfor improvements [77]. Such approaches acknowledge complexity, ambiguity and willingness to compromise to find satisfactorysolutions for social uncertainties, rather than data-intensive deductive approaches that are commonly used for technological andcommercial uncertainties that are dependent on knowing variables and the ability to estimate probabilities. Developing skills inthis area would provide a powerful complement to capabilities in managing other aspects of technology development, and allowpromising initiatives to live up to their potential. The establishment of socio-political legitimacy at early phases of developmentcould also provide time for reducing technological and commercial uncertainties.
7. Conclusions
The mainstream innovation discourse has primarily explored innovation dynamics from a technological and commercialperspective, yet in emerging economies social uncertainties are often equally important, but their resolution requires differentmanagerial approaches. We contribute to the literature by focusing on the interactions among technological, commercial andsocial uncertainties in this setting. More specifically, we used the TCOS framework of innovative uncertainties to consider howtechnological development may lead to unintended social and environmental consequences of technology development in anemerging economy, and suggested that overcoming such social uncertainties requires different heuristics than those used intechnological and commercial uncertainties. This fills an important gap in the innovation discourse previously applied to emergingeconomies dominated by the global value chain and latecomer literature, which has only alluded to unintended socialconsequences but has not theoretically explored such social uncertainties. We also extended the TCOS framework by suggestingthat in addition to ‘hurdles’ that must be overcome, social uncertainties can act as ‘leverage’ by providing socio-political legitimacyfor technologies that currently may not have adequate cognitive legitimacy, thus providing justification for investments that mayreduce technological and commercial uncertainties in the future.
The emerging economy of Brazil was able to develop capabilities and surpass most countries in biofuel technologies. Today theindustry is being shaped by pressing social issues, and in response policy makers and industry are exploring new ways by whichthey can be resolved, which in turn will likely create another series of problems what will eventually be addressed. During thisprocess, the Brazilian biofuel industry responded and evolved to become globally competitive, and today they are well positionedto emerge as a leading center for more socially and environmentally sustainable energy technologies.
Acknowledgments
The Social Sciences and Humanities Council of Canada (SSHRC), the Genomics, Environment, Economics Ethics Law and Society(GE3LS) program of Genome Canada and the Brazilian National Counsel for Technological and Scientific Development (CNPq)supplied funding for this research. We would also like to acknowledge those that agreed to participate in our field studies, twoanonymous reviewers and the Special Issue editors for their useful comments and insights.
1156 J. Hall et al. / Technological Forecasting & Social Change 78 (2011) 1147–1157
Appendix A
Interviews (Number of Subjects)
Primary stakeholders• Fuel distributors (senior and middle managers) 8• Ethanol refineries and sugarcane plantations* (senior managers) 4• Biodiesel feedstock producers (large scale farmers) 3• Biodiesel co-ops (presidents) 3• Biodiesel refiners (CEOs or senior managers) 9• Transgenic seed developers (senior and middle managers) 7• Subsistence and small farmers (individual interviews) 32• Subsistence farmers (4 focus groups) 48Secondary stakeholders• Brazilian Government officials (senior officials) 20• SEBRAE: Brazilian Service of Support for Micro and Small Enterprises (senior managers) 10• EMBRAPA: Brazilian Agricultural Research Corp. (senior scientists and managers) 19• Industry trade association officials 4• CTNBio — National Technical Commission for Biosafety 2• United Nations (UN) officials: Food & Agricultural Organization (FAO), UN Environmental Program, UN Division for Sustainable Development,Economic Commission for Latin America & Caribbean, UN Development Program
7
• NGOs: Greenpeace Brazil, Greenpeace International**, Sierra Club, Brazilian Institute for Consumer Defense, Project Tamar, Rede-Petro Bacia deCampos, Rede-Petro MG, National Institute of Petroleum (IBP), National Organization of the Petroleum Industry (ONIP), Industry Federation of Rio deJaneiro (FIRJAN), Polo Sindical da Borborema (translates as Borborema Farmers Union), Esperanca and Lagoa Seca divisions
12
• Community representatives 3• Academics 28• Total (including farmer focus groups) 219
* Sugarcane producers interviewed for this study also refined ethanol (as is the case for most Brazilian sugarcane producers).** Telephone interview.
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Dr Jeremy Hall is an Associate Professor at the Faculty of Business Administration, Simon Fraser University, Canada. He holds a PhD from SPRU: Science &Technology Policy Research, University of Sussex (UK). His research interests include the social impacts of innovation & entrepreneurship, sustainable supplychains and sustainable development innovation. He is also the Editor-in-Chief for the Journal of Engineering and Technology Management.
Dr Stelvia Matos is a Research Associate at the Centre for Policy Research on Science & Technology (CPROST), and Adjunct Professor, Faculty of BusinessAdministration, Simon Fraser University, Canada. She received her PhD from the Department of Civil Engineering, University of Sao Paulo, Brazil. Her researchinterests include environmental life-cycle assessment, Brazilian industrial & sustainable development policies, and sustainable development innovation.
Dr Bruno Silvestre is an Adjunct Professor and Research Associate at the Faculty of Business Administration, Simon Fraser University, Canada, and a BusinessDevelopment Executive at ELETROBRAS. He received his PhD from the Department of Industrial Engineering, Pontifical Catholic University of Rio de Janeiro, Brazil.His research interests include technology & innovation management, entrepreneurship & small business management, business strategy, and policy analysis.
Dr Michael Martin is a retired Professor of Technology Management, Faculty of Management, Dalhousie University, Canada. He received a PhD in solid statephysics from Sheffield University, UK. His original academic background was in physics, mathematics & electronics, and more recently his research interests havefocused on managing innovation in technology-based firms. He resides in Exeter, UK.
