Innovation – a path to economic growth

INNOVATION is seen as one of the main driving forces of economic growth and prosperity. Innovations, not only in terms of technologies, but also in marketing, service delivery, management, design and other factors, increase firms’ competitiveness and provide a much better chance to succeed in global markets. More innovation is also viewed as a way to more quickly heal the crisis-hit global economy. Even though the Slovak government says that it shares these tenets, its support for innovation has thus far been mostly in the form of lofty declarations with only a few tangible initiatives. Some observers hope that new faces in the government might bring some real changes in this field as well.

Carmaker Kia encourages new ideas from staff.Carmaker Kia encourages new ideas from staff. (Source: SITA)

INNOVATION is seen as one of the main driving forces of economic growth and prosperity. Innovations, not only in terms of technologies, but also in marketing, service delivery, management, design and other factors, increase firms’ competitiveness and provide a much better chance to succeed in global markets. More innovation is also viewed as a way to more quickly heal the crisis-hit global economy. Even though the Slovak government says that it shares these tenets, its support for innovation has thus far been mostly in the form of lofty declarations with only a few tangible initiatives. Some observers hope that new faces in the government might bring some real changes in this field as well.

“Innovations are globally regarded as one of the possibilities to accelerate transit from the post-crisis economy to a stronger and permanently sustainable economy,” Jozef Velebný from the department of industry and innovations at the Economy Ministry told The Slovak Spectator. “Even though this is not a solution for all the problems in the world, innovations provide a basis for new sectors, companies and work positions. Innovations are necessary to increase competitiveness, diversify economic activities and move towards activities with a higher added value.”

Martin Bruncko, who was appointed as the government’s plenipotentiary for a knowledge-based economy on February 2, agreed – saying that in the long run Slovakia’s economy and living standards can continue to grow only if the country focuses on innovation and transforming the economy from one based on manufacturing of products developed elsewhere into an economy that generates world-class products and services based on Slovak ideas and inventions.

Near the bottom in the EU

The actual position of Slovakia in terms of fostering innovation stands in stark contrast to the government’s statements about where the country would like to see itself.

In the Innovation Union Scoreboard 2010, an annual report comparing the innovation performance of all 27 European Union countries released on February 1, Slovakia placed 23rd, lagging behind all its neighbouring countries. Slovakia also slipped by two rankings from its 21st position in the scoreboard released for 2009.

The 2010 scoreboard put Slovakia in last position among the ‘Moderate Innovators’ group and the country recorded innovation performance only slightly above the 50 percent average registered across the entire EU.

The report stated that Slovakia’s relative strengths were in indicators in the category of human resources and outputs but noted relative weaknesses in the categories of: open, excellent and attractive research systems; finance and support; firm investments; linkages and entrepreneurship; intellectual assets; and innovators.

Significant improvement was reported in the categories of: public-private co-publications; community trademarks; and community designs. A significant decline in performance was noted for the categories of non-EU doctorate students and non-R&D innovation expenditure. Slovakia’s improved performance in human resources, linkages and entrepreneurship, and intellectual assets was above average but in other categories it was below average, according to the report.

There are multiple reasons for Slovakia’s low ranking but the factors that were mentioned most often are a lack of adequate financial support, insufficient forms of cooperation between academia and business, and the state’s failure to develop a clear innovation strategy.

“Slovakia is lagging behind our neighbours in promoting and supporting education, research, development, and innovations,” Bruncko told The Slovak Spectator. “Instead of aiding scientists and innovators, our byzantine laws and burdensome administrative procedures hinder their progress at every step. Compared with our neighbours, Slovakia also does very little to aid in the active flow of ideas between academia and the world of business.”

Bruncko pointed out that there are some very talented scientists in Slovakia working on cutting-edge research in fields such as cancer research or new materials but they face too many obstacles.

“They succeed because they can build on what used to be a strong education system and a great respect for science that once attracted the best minds of this country to academia, and they succeed in spite of our current policies, not because of them,” Bruncko stated, adding that even when the scientists succeed in the laboratory they need to fight another uphill battle when they want to properly patent their ideas, and then struggle to find the funds needed to implement their ideas.

Velebný noted that expenditures by both the public sector and the private sector for research and development are very low in Slovakia.

“The average expenditure for R&D by EU member countries makes up 1.82 percent of GDP,” Velebný told The Slovak Spectator. “In Slovakia it is only 0.48 percent and public funds account for 55 percent of all the expenditures on science and research.”

Velebný said the government sees several factors as lying behind Slovakia’s weak research position: a lack of tangible targets and large companies not investing enough in research; ineffective support from the public sector; low motivation of research workers; poor interconnections between academia and business; and others.

In evaluating Slovakia’s mediocre position on the scoreboard, Miroslav Balog from the Slovak Innovation and Energy Agency (SIEA), an organisation established by the Ministry of Economy, stated that there is insufficient cooperation between individual stakeholders. He thinks it is necessary to develop a pro-innovation infrastructure and focus it on the needs of industry and not only on basic research. He added that another challenge is to attract and use venture capital, which he said stands behind the success of many innovative companies in the US, but is not standard practice in Slovakia.

Andrej Klimant, the manager of international activities at the National Agency for Development of Small and Medium Enterprises (NADSME) told The Slovak Spectator that he believes Slovakia’s basic problem is that its economy is currently based primarily on production for foreign investors that combine cheap domestic labour with imported technologies.

Marián Marek from the IT Association of Slovakia (ITAS) agreed with that assessment and added that Slovakia’s ranking is in line with the structure of its GDP, which is dominated by manufacturing and industrial production.

“Global players develop new products and technologies mostly in their home countries,” Marek told The Slovak Spectator. “One should realise that research, development and innovations are usually the most valuable assets of these companies and these are concentrated into relative narrow teams and that creation of their ecosystems often takes years. Thus, their transfer somewhere else is very demanding and is usually very gradual, in contrast to the construction of a new assembly plant.”

Marek also stated that historical developments have had an impact on Slovakia’s standing in research and development.

“Almost nothing has survived from the strong companies which had developed research bases during the previous regime,” Marek said. “Only the academic field has actually remained, but without real demand from the domestic commercial sector it is doomed to vegetate. It is pleasing that there are already some examples of successful Slovak companies which have established themselves in the world market by their own efforts. These can also gradually wrap up within themselves the related research and development. I have in mind, for example, Eset from the IT sector.”

Milan Cagala, the president of Slovakia’s Federation of Mechanical Engineering, said that the state has failed to develop a system and a clear strategy in terms of innovation: what we want to accomplish, how we will do it, and how much money we will allocate for this.

“The example of the recent decision of the cabinet to re-allocate funds earmarked for Slovak science and research to highway construction is very unfortunate,” Cagala said. “On the one hand the cabinet supports science, research and development, i.e. a knowledge-based economy, in its four-year programme but on the other hand it is taking money directly from these sectors. This has no logic. The importance of highway construction is beyond doubt, but sources for that should be sought elsewhere because cutting the already small amount of money which researchers and scientists receive is a step not far removed from the direct liquidation of Slovak brains.”

Cagala admitted that due to the economic crisis mechanical engineering companies were more focused just on survival, production, than on making innovations in areas where capacities were missing or needed improvement. But he added that the state has promised more support for innovation than it has delivered, noting that the government has merely declared major backing for a knowledge-based economy including more innovation while one of the very few tangible initiatives is the awards made under the Innovate Act.

ITAS agreed that support from the state has been minimal but Marko of ITAS added that “on the other hand, I am personally not a supporter of very active initiatives by the government in terms of specific projects”. He noted, however, that there are only a few global firms with commercial development centres based in Slovakia which could develop new technologies or design new products and suggested that “the state should help create an interesting investment environment for development and innovation centres of global players.”

What makes a country innovative?

“A country is innovative only when individual participants in the market under competition are successful and achieve this also due to innovations,” Balog told The Slovak Spectator. “It is important that there are as many innovative players as possible and that conditions are created that foster their growth.”

Innovation increases the competitiveness of companies and gives them a better chance to succeed in increasingly global markets.

“Innovations are an important growth determinant,” Balog said. “In developed countries, for example in Austria, Sweden, Finland, the UK and the US, investment into nonmaterial assets and growth of multi-factorial productivity is responsible for two-thirds to three-quarters of the labour productivity growth between 1995 and 2006.”

Balog pointed out that innovation was a significant factor in the economic growth of Singapore and Taiwan.

“In our conditions, universities and the Slovak Academy of Sciences should be more open to cooperation with companies,” Balog added. “Institutional parameters should be set in a way so that they catalyse such cooperation.”

SIEA actively supports innovation and is implementing several programmes financed from EU Structural Funds, Balog said, adding that those who are interested can submit applications until June 2011 for support of projects in industrial research and experimental development, adding that this includes companies which entrust product research and development to their suppliers.

Balog stated that innovation requires more than just basic scientific research.

“More and more in the world the need to support bridging the gap between research, development and demonstration is being spoken about,” he said. “Thus, it is necessary to also focus support on parts of the innovation process other than only basic research. A certain advance was made in Slovakia during the time of the crisis when the Slovak government made a step towards more intensive support for applied research. But the most important thing with regards to any kind of support is to not hamper natural evolutionary processes in the economy.”

NADSME is also actively supporting more innovation, administering an EU project called Boosting the Innovation of Small and Medium-sized Enterprises in Slovakia (BISMES).

“This project originated as a response by NADSME and the portal to a specific call from the European Commission for members of the Enterprise Europe Network,” Klimant said.

BISMES started in June 2010 and Klimant regards it as very satisfactory thus far as the interest of SMEs, as well as other relevant players, in developing and participating in the support programme is very high.

Better times on the horizon?

Slovakia’s Economy Ministry has prepared 13 basic measures in its draft Innovation Policies 2011-2013 document to foster more innovation activities in the business sphere. The main aim of the document is to increase competitiveness by developing support mechanisms for innovation structures, innovative business-making, and partnerships and cooperation between academia and business. The document is currently undergoing inter-departmental review.

The ministry focused on three priorities which it considers of key importance for economic growth: high quality infrastructure and an effective system for development of innovations; quality human resources; and effective tools for innovations.

At this time Velebný did not wish to specify the individual measures as they might change during the review and approval process.

Velebný added that accomplishing the goals will require close cooperation between several ministries as well as acquiring the necessary funding. He estimated that €96 million will be needed between 2011 and 2013 and that €90.55 million could come from EU Structural Funds (including co-financing from the state budget), with the remainder coming from public funds. Since the plenipotentiary for a knowledge-based economy, tasked with securing this cooperation, was appointed only on February 2 the Slovak cabinet will act on these proposals later than originally planned.

“We expect implementation of the measures during the second half of 2011,” Velebný said, adding that the Economy Ministry will hold negotiations with the Finance Ministry and the Ministry of Education, Science, Research and Sports to seek the necessary funds.

Bruncko said he supports these initiatives by the Economy Ministry and believes they can help improve business innovation in Slovakia. But he added some caveats.

“However, in order for these activities to have a truly meaningful impact, they should be a part of a larger strategy that integrates the initiatives of, among others, the Ministry of Economy, the Ministry of Education, the Academy of Sciences, the Ministry of Finance, and other ministries and state agencies that can influence education, research and development, and entrepreneurship in Slovakia,” Bruncko emphasised to The Slovak Spectator.

“For that reason, I have asked the Economy Ministry to postpone its initiative for a couple more months so that I can help them coordinate their initiatives with the other relevant actors.”

Some of the additional steps which Bruncko believes are necessary are the building of a national system of technology transfer between academia and the business world, going beyond industrial clusters to true science and technology parks that integrate industry and research activities, improving the access of entrepreneurs to sources of funding, and reducing and where possible reversing Slovakia’s brain drain.

“In addition, we also need to significantly increase public funding for education, R&D and innovations, and dramatically reduce the administrative burden for firms and for scientists who are actually trying to apply for such funds, particularly EU funds,” Bruncko emphasised.

To read an interview with Andrej Klimant about the BISMES project, see article SMEs must innovate to succeed

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