The London School of Economics and Political Science Computer Bargaining in México and Brazil 1970-1990: Dynamic Interplay of Industry and Politics Steven R Beck A thesis submitted to the Department of Government of the London School of Economics for the Degree of Doctor of Philosophy. London, February 2012. DECLARATION I certify that the thesis I have presented for examination for the PhD degree of the London School of Economics and Political Science is solely my own work other than where I have clearly indicated that it is the work of others (in which case the extent of any work carried out Jointly by me and any other person is clearly identified in it). The copyright of this thesis rests with the author. Quotation from it is permitted, provided that full acknowledgement is made. This thesis may not be reproduced without the prior written consent of the author. I warrant that this authorization does not, to the best of my belief, infringe the rights of any third party. 2 ABSTRACT Theories of host country – TNC bargaining seek to explain dependency shifts based on positional assets and relative capabilities. This analysis of the efforts of México and Brazil to promote and direct the development of a national computer industry from 1977 to 1990 reveals a bargaining landscape that is more dynamic than the traditional bargaining model anticipates. This thesis explains the variable nature of bargaining gains and losses by analysing the on-going, complex interplay of political, industry and market forces. Despite industry characteristics that favoured foreign capital, both México and Brazil achieved bargaining gains in the computer industry. Brazilian state actors enticed national finance and industrial groups to invest in the industry, prompted the development of indigenous technological capacity, and limited the market influence of computer transnationals for more than a decade. With more limited policy ambition, support and duration, México had initial success prompting TNC minority Joint ventures in microcomputers and extracting concessions from the TNCs for exports. In both cases, however, bargaining gains were not secure; shifts in dependency were not progressive and one-directional. In fact, the study exposes a reverse trend toward greater dependency on foreign capital in both countries. For this reason one may not employ either case to support the obsolescing bargain in high technology industries. This thesis highlights three factors neglected by the traditional bargaining construct: the dynamism of the global computer industry which opened and closed 3 windows of opportunity to re-strike the bargain, and presented enormous challenges for the states to adapt policy to the rapidly evolving industry realities; host country situational factors and the states’ ability to forge and maintain coalitions of support for the policy; and the importance of firm level strategy and capability to explain the enduring success of a few national players amidst the commercial failure of so many others. 4 ACKNOWLEDGEMENTS When I embarked on the fieldwork for this thesis, little had been published on the Mexican and Brazilian experience with the international computer industry. It was clear that my research in both countries would depend on the generosity and patience of a great many very busy people in industry, government and the academy. I must therefore first acknowledge my debt to all those I interviewed. In México, I am especially grateful for José Warman and Ricardo Zermeño – the two who were in the proverbial eye of the storm in the 1980s. They not only gave generously of their time; they trusted me enough to speak openly about issues of political sensitivity and – at times – personal frustration. In Brazil, I would like to specially recognise Vivian Morgan-Mendez who lent her network and influence to open doors for me in industry, finance and government. Her generosity accelerated my work there. Naturally, I am indebted to my supervisor, Professor George Philip. He gave important direction and guidance in the early stages of this proJect; his insights into the Mexican politics that constrained the policy choices I studied were especially helpful. He provided decisive encouragement to complete and submit the thesis following an extraordinary hiatus, expressing confidence in the work I had done. I am truly grateful for his patience and support. Doug and Marilyn Stewart extended friendship and hospitality in México City, treating us as part of their family during our six months there. I am grateful for their friendship, encouragement and formative influence on our lives to this day. I have been blessed with extraordinary parents who encouraged my intellectual curiosity and analytical tenacity, modelled integrity, industry and civic 5 engagement, and gave me the freedom and the confidence to follow my own insights, wherever they led. Their deep influence on me is evident in this work in so many ways. I want to acknowledge our three daughters, Susanna, Lindsay and Amy. They have inspired and encouraged me in the home stretch and continually remind me what is truly significant. Finally, I would like to thank my wife Dot, to whom I dedicate this thesis. She has been my faithful, loving companion for more than 27 years; that alone is enough to warrant the dedication and more! Yet she personally invested in this proJect from the beginning, and shared the many adventures, ups and downs of the year in México and Brazil. She has encouraged and enabled me to devote time and energy to finally complete the thesis. I am grateful for the steadfast love and grace she has shown me throughout. 6 TABLE OF CONTENTS Page List of Tables and Figures 8 Preface 11 1 Introduction 17 THE CASE OF BRAZIL 59 2 Introducing the Case of Brazil: General Political and 60 Economic Context 3 Evolution of Brazil’s Informatics Policy 76 4 The Policy and its Impact 130 5 Afterword: Summary of DeveloPments Since 1990 164 THE CASE OF MÉXICO 181 6 IntroducinG the Case of México: General Political and 182 Economic Context 7 Evolution of México’s ComPuter Policy 198 8 Impact of the Policy 240 9 Afterword: Summary of DeveloPments Since 1990 269 10 Summary and Conclusions 280 Appendix A: References 327 Appendix B: List of Focus Interviews 340 Appendix C: Interview Guide 344 7 LIST OF TABLES AND FIGURES Page ChaPter 2 Introducing the Case of Brazil Table 2.1 The Brazilian Economy: Selected Indicators 71 ChaPter 3 Evolution of Brazil’s Informatics Policy Table 3.1 ProJects Submitted to CAPRE 92 Table 3.2 Authorized Minicomputer Manufacturers, 1977 93 Table 3.3 1984 Supermini Technology License Agreements 102 Figure 3.1 The Learning Curve Effect: The Market Pays 124 Table 3.4 Prices in US Dollars (1987): PC-XT and PC-AT 125 Table 3.5 The Contraband ‘Top Ten’ 126 Table 3.6 Contraband vs. Market Price 126 ChaPter 4 The Policy and Its Impact Table 4.1 Implementation of the Market Reserve, 1977 & 1984 133 Table 4.2 1986 Computer Market Size (US$ Millions) 135 Table 4.3 Evolution of Data Processing Equipment Sales 135 Table 4.4 Sales of Minis and Micros 136 Table 4.5 Growth of Installed Base by Class, 1977 to 1984 136 Table 4.6 Market Segments’ Shares of Installed Base, 1987 137 Table 4.7 Market Segments’ Shares of Annual Sales (%) 137 Table 4.8 Selected Performance Indicators of Brazilian Informatics 141 Firms Table 4.9 Employment in the Brazilian Data Processing Industry 144 Table 4.10 Graduate Level Employment by Activity 144 Table 4.11 Evolution of Data Processing Equipment Sales 145 Table 4.12 Principle National Informatics Groups, 1987 146 Table 4.13 Manufacturers of Computers and Peripherals 147 Table 4.14 Industry Concentration (Brazilian Companies) 148 Table 4.15 Performance of Selected National Companies 148 Table 4.16 Imports 1981 to 1986 150 Table 4.17 External Trade in Informatics 150 Table 4.18 Imports-to-Sales % 151 8 LIST OF TABLES AND FIGURES (Continued) Page ChaPter 4 (Continued) Table 4.19 The Microelectronics Industry, 1986 153 ChaPter 5 Afterword: Summary of DeveloPments in the Brazilian Case Since 1990 Table 5.1 Import Tariffs Adopted May 1992 166 ChaPter 6 IntroducinG the Case of México Figure 6.1 Changes in the Economic Cabinet 192 ChaPter 7 Evolution of México’s ComPuter Policy Table 7.1 Courses Offered by Equipment Manufacturers 204 Table 7.2 Admissions to Computer-Related Courses of Study 206 Table 7.3 Local Integration Requirements 224 Table 7.4 Export-Import Ratio Requirements 224 Table 7.5 Research & Development Expenditure Requirements 224 Table 7.6 Comparison of IBM Proposals 233 ChaPter 8 Impact of the Policy Table 8.1 1986 Computer Market Size ($ Millions) 242 Table 8.2 Market Growth (Units and Revenues) 242 Table 8.3 Total Revenues of Major Computer Manufacturers 243 Table 8.4 Share of Installed Base (December 1986) 244 Table 8.5 Microcomputers: Share of Installed Base 245 Table 8.6 Annual Market Sales of Microcomputers 1986 246 Table 8.7 Share of Microcomputer Market 246 Table 8.8 Firms Registered as Computer Manufacturers 254 Table 8.9 Origins of Capital 255 Table 8.10 Foreign Trade in Computers 1981-1989 256 Table 8.11 Employment in the Mexican Computer Industry 261 ChaPter 9 Afterward: Summary of DeveloPments in the Mexican Case Since 1990 Figure 9.1 Computer Hardware Production in México: 1989-1997 273 Figure 9.2 México’s Trade in Computer Hardware: 1989-1996 276 9 LIST OF TABLES AND FIGURES (Continued) Page ChaPter 10 Summary and Conclusions Table 10.1 Summary Comparison of Cases 281 10 PREFACE Every doctoral student’s experience must be common in many ways and doubtless unique in some. While the particulars of my own experience are not relevant per se to the academic merits of this thesis, some aspects of my academic journey to this point require explanation.