Europe and Central Asia Region, World Bank Post-Transition Technology Absorption – What Can ECA Learn from Germany? Itzhak Goldberg, Europe and Central Asia Region, World Bank Knowledge Economy Forum, Berlin, May 5, 2010

What is an innovative SME – Inventing or Absorbing? Absorption = incremental = new-to-country but not new-to-world Absorption ►►► key to Japan, China and India R&D = pre-requisite for Absorption, not only for innovation Restructuring – post-transition technology absorption ►►► discontinued production line, upgrading lines (see below) Itzhak Goldberg, Europe and Central Asia Region, World Bank

Post-crisis Growth – Whence? In ECA, capital is scarce and labor costly, relative to Asia; no cost-based competitiveness ►►► Need technology absorption to help export-oriented diversification. Technology Absorption Channels in SMEs: (i) Participate in world R&D and support firms getting into global markets (ii) Encourage spin offs and R&D collaboration (portability, researchers’ IPRs) Itzhak Goldberg, Europe and Central Asia Region, World Bank

Itzhak Goldberg, Europe and Central Asia Region, World Bank Enterprise Perceptions: Investment Climate in Germany, Poland and Czech R. Subset of Enterprise Survey 2005, including 1260 firms with less than 250 employees Poland East Germany West Germany Czech Rep. Spain South Korea 906 354 718 316 550 536 Firms claiming major obstacle in… [%] Country Factor Poland East Germany West Germany Czech Rep. Tax rates 59.0 35.8 26.6 60.7 Regulatory uncertainty 43.1 8.5 5.0 21.4 Cost of financing 45.8 29.8 13.2 18.4 Macroeconomic instability 39.9 21.9 11.6 Tax administration 38.3 30.1 20.1 52.9 Access to financing 35.3 28.6 10.3 18.8 Functioning of judiciary 6.2 .6 25.2 Source: WB Enterprise Surveys Itzhak Goldberg, Europe and Central Asia Region, World Bank

% of firms that have undertaken the initiative within country Technology Absorption – Enterprise Surveys Indicators – Germany, Poland and Czech R. Initiatives of company over the last 36 months [%] % of firms that have undertaken the initiative within country Poland East Germany West Germany Czech Rep. Added new product 34.7 11.0 18.2 18.0 Upgraded existing product 49.0 29.1 49.3 29.7 Discontinued product line 11.5 5.4 14.6 9.8 Obtained ISO 12.4 8.2 3.3 9.5 Source: WB Enterprise Surveys Itzhak Goldberg, Europe and Central Asia Region, World Bank

Do we know how to support absorption rather than innovation? In principle, we know why/how to subsidize innovation. But… Why subsidize technology absorption? Matching grants: OK for licensing, export promotion, consultancy. But… Most absorption is via new machinery and equipment – do we subsidize capital assets? or the R&D / skills needed to properly adapt technology and workforce to new tech? Itzhak Goldberg, Europe and Central Asia Region, World Bank

Public Support for Innovation – and what can ECA learn from Germany? Matching Grants for R&D in enterprises and support for Venture Capital (VC) -- successful in the US (SBIR, ...), Finland (TEKES, …), Israel (OCS/Yozma) And today we will hear from High-Tech Gründerfonds in Germany whether this model is working Grants State support for VC mixed results in Poland, successful in Croatia successful but miniscule in Russia (Bortnik) problematic in Russia (RVK – no pipeline) problematic in Croatia (VC no pipeline) problematic in Poland (only large) Itzhak Goldberg, Europe and Central Asia Region, World Bank

What can ECA learn from Germany – Questions to Panelists How did the investment climate in East Germany change post-unification? How do you support new firm creation in E. Germany? Do you manage to attract W. German firms to set up operations and/or R&D. And if not why not? What is your innovation strategy e.g. did you improve cooperation between research and industry Innovation Assistant Program to promote in-house firm R&D? What financial instruments do you use: loans or grants? Do you believe that loans encourage risk-taking in innovation? Itzhak Goldberg, Europe and Central Asia Region, World Bank