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Innovation Policy in Candidate Countries: the challenges


Innovation as a policy issue best embedded in Hungary, Turkey and Baltic states (Estonia) ... Revise award criteria for pre-competitive research funding to increase ... – PowerPoint PPT presentation

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Title: Innovation Policy in Candidate Countries: the challenges

Innovation Policy in Candidate Countries the
  • INNOREGIO International Conference
  • On Dissemination of Innovation
  • Thessaloniki, 16 17 May 2002

Presentation by Alasdair Reid ADE S.A.,
Belgium /
Studies funded by the European Commission, DG
Enterprise, Innovation Policy Division
Why a study on innovation policy in candidate
countries ?
  • EU acquis on innovation
  • Green Paper (1995), Action Plan (1996),
    Communication (2000) Innovation in a knowledge
    driven economy
  • but low visibility in negotiation procedure - no
    specific chapter, etc.
  • Objective examine and analyse the current
    framework conditions for selected innovation

Priority issues of the study
  • Innovation policy framework
  • Major actors.
  • Policy developments.
  • Data on innovation performance.
  • Legal and administrative environment.
  • Fostering human resources for innovation
  • Teaching and training for innovation.
  • Awareness and use of innovation management tools.
  • Business innovation support measures
  • Research-industry co-operation.
  • Support for technology based start ups.
  • Business networks.

Two separate studies
  • First study (May 2000 to July 2001) covered
    Cyprus, Czech Republic, Estonia, Hungary, Poland
    and Slovenia (CC6)
  • Carried out by ADE in co-operation with School of
    Slavonic and East European Studies (UK), MERIT
    (NL) and national experts
  • Second study (October 2001 to December 2002)
    covering Bulgaria, Latvia, Lithuania, Malta,
    Romania, Slovakia and Turkey (CC7)
  • Carried out by ADE in co-operation with SSEES
    (UK), Logotech (Gr) and national experts.

Six key questions
  • How did the transition process influenced the
    potential for business innovation ?
  • Where do the candidate countries stand in terms
    of innovation performance ?
  • Is there a legal and institutional environment
    conducive to stimulating innovative activity?
  • Who is responsible for innovation policy matters?
  • Is there an innovation policy in each country ?
  • What types of initiatives have been taken in
    specific areas of innovation policy

How has the transition process influencedbusiness
innovation key conclusions
  • Economic growth cannot be sustained by the same
    factors (reorientation of markets, low-cost base
    for FDI serving EU markets, etc.) as during the
  • new mechanisms for supporting innovation and
    industrial upgrading will be needed if
    productivity growth is to be sustained.
  • New firm creation is brisk and more often due to
    highly educated people but has not created a
    group of smaller more innovative firms.
  • Barriers to growth in part due to inadequacy of
    financial system but more attention need to be
    paid to underlying incentives for entrepreneurs
    by CC6 governments
  • Restructuring of the enterprise sector has been
    led in majority of CC6 by FDI. Led to situation
    of dual economy...
  • Attraction of (high-tech) FDI remains a key
    priority - but EU State Aid rules will limit
    future support - need to switch attention to
    fostering spill-over and linkages (technology,
    know-how) to local economy.

How has the transition process influencedbusiness
innovation macro-economic trends
  • Most countries benefited from high growth rates
    from about 1995 onwards
  • Yet by 2000, the CC6 remain at the lower end of
    EU rankings in terms of income per capita.
  • Commission forecasts suggest growth 1-2 above EU
    for 2000-02
  • maintaining high rates essential for EU cohesion
    will require pro-growth policies.

How has the transition process influencedbusiness
innovation productivity
  • Strong fluctuations in rates of productivity
    growth - driven by defensive restructuring
  • Rate of growth has slowed suggesting that initial
    sources of growth and productivity are exhausted
  • Innovation and technological change must
    complement cost cutting and layoffs if growth is
    to be sustained.

How has the transition process influencedbusiness
innovation trade liberalisation
  • Trade/GDP figures indicate major differences
    amongst CC6 Estonia and Slovenia are most
    integrated in world economy
  • Shift over time from export of labour intensive
    industrial products toward increased share of
    skill, capital and technology intensive products.
  • But largely driven by FDI.

How has the transition process influencedbusiness
innovation foreign direct investment
  • FDI/GDP rates comparable to to high income EU
  • FDI has brought capital but also access to
    technology, business processes, etc.
  • Result is a large difference in productivity
    profitability between foreign domestic owned
    firms in CC5
  • Trends suggest gap is increasing and leading to
    dual economy.

Where the do the CC6 stand in terms of innovation
  • Bias of education systems to vocational training
    led to low creativity and flexibility plus
    skills-mismatch for new economy
  • Low levels of public expenditure on RD and low
    levels of commercialisation (knowledge
  • Potential for catching up based on new
    technologies is severely restricted by weak
    demand for RD by business sector
  • Lower number of innovative small firms in CC6 -
    and weakness in (venture) capital markets is key
    barrier to growth.

Six Applicant Countries innovation scoreboard
A legal environment conducive to innovation ?
  • International appraisals underline progress but
    little attention to innovation impact of legal
    reform process
  • State aid policy incompatible aids (for FDI)
    and low incentive effect of RD schemes (e.g.
  • Administrative simplification gaining political
    priority - number of initiatives - new private
    entrants key to profitability and innovation
  • Corporate taxation only Hungary has tax benefit
    for business RD - debate in several countries
    over merits
  • IPR compared to EU, still low priority - few
    identified schemes to support business in
    patenting, etc.

Institutional framework for innovation policy
  • Majority of governments attribute innovation to
    economics ministry
  • Hungary, Romania and Malta - Ministry of
    Education/Research Poland and Turkey - State
    Committees for Research
  • however, no clear remit for co-ordination -
    implementation of policy left to line
  • Innovation/technology agencies exist in only a
    minority (Estonia, Turkey)
  • re-organisation of agencies and intermediary
    structures ongoing
  • concern about effectiveness of delivery (low
    level of take-up of industrial RD support) and
    sustainability of BICs, etc.
  • Advisory bodies play weak role and dominated by
  • But Growth of innovation constituency during
    second half of nineties - largely through
    external funding (IRC, BICs,...).

Institutional framework Estonia
Science Research Council
Estonian Government
Executive level
Technology and Innovation Council
Science Competence Council
Ministry of Economic Affairs
Planning managing policy
Academy of Sciences
Ministry of Education
Technology Innovation Division
Implementing agencies
Estonian Business Development
Foundation Enterprise Estonia
Technology Agency ESTAG
Estonian Science Foundation
Other agencies Investment, Export, etc
Estonian Patents Board
  • Financial support for innovation support
  • science technology parks
  • centres of competence.

Types of support
Tigers Leap Foundation new technologies to
schools raising awareness.
Programmes for raising awareness, spin-offs and
innovation management
Project funding of RD in firms research
Grants for Science Projects
Patents , IPR issues
Innovation policies in the candidate countries
fact or fiction?
  • Only 2-3 innovation policy documents
  • Ambitious goals "national innovation system
  • Policy documents reflect EU goals (Baltic
  • Innovation as a policy issue best embedded in
    Hungary, Turkey and Baltic states (Estonia)
  • But lengthy time lags to adopt policy framework
  • Significant gap between policy aims and funding
    available low to non-existent
  • Bulgaria, Czech Rep., Cyprus, Malta, Slovakia
    lack structured and coherent debate on innovation
    as a distinct policy objective.

Innovation policies in the candidate countries
fact or fiction? (II)
  • Hungary leads the field in terms of longevity and
    range of instruments policy focus on FDI
  • Estonia - strong emphasis on innovation and
    ambitious programmes foreseen other Baltic
    states playing catch-up
  • Poland and Slovenia were precursors but policy
    declarations not followed by implementation
  • Czech and Slovak Republics - traditional focus on
    science and research - some recent effort to
    create linkages
  • Romania particularly Turkey have policy
    framework but suffer from lack of macro-economic
  • Bulgaria lags behind with limited debate on
    high-tech parks
  • Cyprus Malta - few ad hoc initiatives and
    little policy awareness issue of lack of own
    knowledge base.

Innovation policies in the candidate countries
fact or fiction? (III)
  • Higher recognition of importance of innovation
    not matched by integrated policy framework
  • Policy design driven by concepts and not analysis
    (lack of data and studies, weak policy fora,
    evaluation, etc.).
  • Gap between policy declarations and
    implementation (Euros, co-ordination across line
    ministries, etc.)
  • Low awareness of firm needs when designing
    schemes and innovation/technology infrastructure
  • (reflected in limited use of RD loan schemes).

Issues Innovation Management Tools
  • Use of IMT not yet widespread
  • Only reliable indicator is ISO certification -
    Czech Rep, Hungary, Slovenia ahead - average
    growth in CC6 higher than in EU
  • Strong statistical link between trade-openness
    and rate of penetration of international quality
    standards (used as proxy for IMT awareness).
  • IMT have not been the focus of significant policy
  • first funding programmes planned for 2002

Key conclusions (I)
  • Growing recognition of importance of innovation
  • end of transition and recipes for change
  • need to switch from defensive to offensive
  • debate on role of RD vs dissemination of
  • But, considerable problems remain with framework
    conditions which constrain innovation activities
  • limited access to finance small capital
  • unfinished privatisation restructuring
  • continued uncertainty of legal environment for
  • changes to state aid policy in line with EU

Key conclusions (II)
  • Paradox of highly educated human resources vs
    skills mismatches
  • high share of population with specialised
    vocational skills
  • limited practical experience for managing change
    (low IMT awareness)
  • low priority to training and policy incentives.
  • Uneven progress to an information
    economydifferent indicators place different
    countries in lead
  • infrastructure improvements not matched by
    e-business developments (cost factors).
  • CC5 economies have relatively high share of
    industry (in terms of employment, etc.) compared
    to EU15
  • greater emphasis on transferring knowledge needed
    if industry is to remain competitive.

Key conclusions (III)
  • Limited pool of small innovative firms...
  • Small and large domestic firms still struggling
    to sell and restructure rather than innovate
  • High rates of new firm creation but problems in
    sustaining growth (investment)
  • Markedly higher productivity and profitability of
    foreign owned firms
  • Linkages to and attraction of FDI remain a key
    policy aim (but conflict with EU state aid
  • FDI seen as a vector for technological and
    organisational change.

  • Challenge 1 Promote a culture open to
    innovation and creativity
  • Options for the candidate countries
  • Undertake a review of teaching of creativity and
    innovation in education systems(2003) amend
    teaching practices and materials (2004-5)
  • Develop programmes to diffuse IMTs in
  • Identify exemplars of innovation in enterprises -
    promote through innovation awards (annually)
  • Foster business led forums on innovation and
  • Options for the Commission
  • Promote a special innovation award for CC firms.

  • Challenge 2 Place innovation at the core of
    further legal and regulatory reforms
  • Options for the candidate countries
  • Include impact on innovation as a criteria when
    drafting new legislation draw on EU best
  • Investigate importance of law governing IPR and
    cost/administrative aspects of IPR protection
  • Appraise in line with EU state aid rules, the
    possibility of introducing tax incentives for RD
    and hiring personnel.
  • Options for the Commission
  • Ensure that CC have early access to initiatives
    aimed at diffusing good practice on regulatory
    aspects of innovation.

  • Challenge 3 Increase the number of (small)
    innovative firms
  • Options for the candidate countries
  • Strengthen seed capital/start-up funds, linked to
    viable intermediaries research structures
  • Consider possibility for guarantee funds, etc. as
    means of increasing incentive to undertake risky
  • Develop funding measures for knowledge carriers
    or mentoring schemes in firms.
  • Options for the Commission
  • Consider a specific initiative in favour of
    high-tech start-ups in CC.

  • Challenge 4 Strengthen diffusion of knowledge
    in the economy
  • Options for the candidate countries
  • Revise award criteria for pre-competitive
    research funding to increase importance of
    industrial exploitation
  • Adapt performance criteria for industrial
    research organisations to ensure pro-active
    approach to smaller firms
  • Provide funding for collaborative projects
    involving groups of smaller firms with research
  • Options for the Commission
  • Support preparatory actions to assist
    manufacturers in the CC6 to prepare for 6th RTD
    Framework programme.

  • Challenge 5 Establish a policy-making process
    conducive to innovation policy
  • Options for the candidate countries
  • Organise CC-CIS (2002-2003)
  • Establish innovation policy units - design,
    co-ordinate and evaluate initiatives for
  • Support for business led forums on innovation
  • Undertake technology foresight (by 2004).
  • Options for the Commission
  • Part-funding/TA for a CC-CIS task-force
  • Pre-accession funding for pilot actions arising
    from RIS/RITTS type initiatives.

For further information copies of study
  • Innovation Help-desk
  • DG Enterprise, European Commission
  • Email
  • http//