OBG talks to Raúl Gallegos, President and CEO, General Electric México

Interview: Raúl Gallegos

How can private investment in research and development (R&D) be increased?

RAUL GALLEGOS: The first thing to do is educate private companies to understand that investments in research and innovation are long-term strategies and not always profitable in the short run. As investments in R&D often lack immediate return, companies in Mexico have historically leaned towards investing in process-efficiency improvements rather than in actual R&D. Mexicans have thus become very good at optimising industrial processes, and for that reason some local factories rank amongst the most productive in the world. Automotive is a good example of this.

However, we should not consider this as innovation per se. Innovation should be measured as the number of patents registered by a country. Two sectors that are currently receiving significant investments in innovation are aerospace and software, and there is a belief that recently passed energy reforms will create room for innovation in that sector. However, it is yet to be determined whether oil and gas operators will develop research activities in Mexico or simply import technologies developed in other countries.

Is the budget rise for science and technology from 0.4% to 1% of GDP by 2018 enough?

GALLEGOS: There is a strong correlation between economic progress and the percentage of GDP dedicated to innovation and technology. Countries like South Korea, Germany and the US invest more than 3% of GDP in research and innovation. There is no such thing as enough when referring to investments in these areas, but 1% of GDP is very encouraging, especially if the government plans to achieve it in four years.

What challenges do private firms face, and are intellectual property protections sufficient?

GALLEGOS: I do not see this as a challenge, but as an opportunity. What I think should be Mexico’s first step is the National Council for Science and Technology (Consejo Nacional de Ciencia y Tecnología, CONACYT) and other public institutions should prioritise funding projects that work towards innovative output. It has been a common practice to grant scholarships or fund projects that have weak potential. We should follow the Californian venture capital model in which creative yet risky programmes are constantly funded. This method gives rise to real innovation, as can be seen from the actual number of patents that are registered every year under such programmes. Mexico’s intellectual property framework is complex, but no more than in other countries that are considered innovative. In fact, I would say these regulations can be seen as strong enough to make Mexico an attractive destination for companies to base their research and innovation divisions here.

Does cooperation between universities and the private sector need to be increased?

GALLEGOS: Cooperation must not be limited to universities and private firms. The government should also play a significant role in the innovative process. Both private and public universities need to work with CONACYT to create purely innovation-related programmes that generate the interest of the private sector.

The truth is that Mexico has never had a culture of entrepreneurship, which is closely related to research and innovation. This is mainly due to the lack of fiscal and financial incentives offered by the government, as well as insufficient programmes offered by universities and private companies. Changing this is the responsibility of all three parties – government, universities and companies – with measures such as educating people in the culture of entrepreneurship, even in public institutions, and having more universities acting as business incubators and private firms granting more scholarships. Having said this, and even though there is still a long road ahead for Mexico to be considered an innovative country, the fact that we have moved up 16 places to rank number 63 in the “Global Innovative Index 2013” means that we are heading in the right direction.