Innovation creates growth DM Copyright © Tekes Evaluation Framework and Impact Assessment in Tekes AEA Evaluation 2006 Conference, Portland, Oregon November 1, 2006 Jari Hyvärinen, Tekes, Helsinki, Finland

Renewing business structures Affluence Regional vitality Employment Environment and health Security and safety Social well-being InvestmentsResultsDirect effectsImpact on national economy and society DM Copyright © Tekes Innovation is a profitable investment for the future R&D investments Competence New knowledge New business models Networking Innovations: products and services, methods and processes, organisational innovations Start-ups, new business areas and services Growth and globalisation of companies Productivity

Finland – Small Open Economy and Strategic Choices of R&D Investment DM Copyright © Tekes R&D expenditures in Finland are less than 1 % of world’s R&D expenditures. In Finland; we have to make well-planned strategic choices in which sectors and segments we want to be world leaders in R&D.

InvestmentsResultsDirect effectsImpact on national economy and society DM Copyright © Tekes Understanding about importance and effects of R&D expenditures is increased in Finland R&D investments

Input additionality DM Copyright © Tekes Input additionality means that the company invests more in R&D than it would otherwise do without public funding. Public R&D funding Input aditionality Company´s original R&D investment Company´s original R&D investment Public R&D funding

R&D investments in some OECD countries Sources: OECD, Main Science and Technology Indicators and Statistics Finland Percentage of GDP DM 36109, and Copyright © Tekes Est. Israel Sweden FINLAND Japan Iceland South Korea USA Denmark Germany Austria OECD France Singapore Canada Great Britain Norway China

Venture capital investments Average Source: OECD, Science, Technology and Industry Scoreboard 2005 DM 36104, and Copyright © Tekes Percent of GDP Expansion phaseEarly phase

How much one euro of public R&D funding increases company’s own R&D investments? DM Copyright © Tekes It is important to evaluate the impact of public funding on private R&D investments. According to research results, one euro of public R&D funding increses private R&D investments by euros. In other words, the overall additionality of public R&D funding is 1,40-1,93 euros. 1 euro adds 0,93 euro (Commission staff working document, European Competitiveness Report 2004) (Finland, Germany) 1 euro adds 0,62-0,86 euro Ali-Yrkkö 2004 (Finland) 1 euro adds 0,40 euro Streicher et al (Austria) 1 euro adds 0,70 euro Guelle & van Pottelsberghe 2003 (OECD-countries) 1 euro adds 0,41 euro Lach 2000 (Israel) 1 euro of tax alleviation adds 0,01-0,02 euro Poot et al 2005 (Netherlands)

Share of Tekes funding for corporate R&D by size of company DM and Copyright © Tekes Share of funding, % Tekes funding concentrates strongly to R&D in small companies. The funding covers one third of R&D in companies with less than 50 employees, but only three per cent of R&D in companies with more than 500 employees. Sources: Statistics Finland and Tekes Size of company by number of employees

InvestmentsResultsDirect effectsImpact on national economy and society DM Copyright © Tekes Results of R&D inputs can be found as new knowledge, networks and innovations Competence New knowledge New business models Networking Innovations: products and services, methods and processes, organisational innovations

DM Copyright © Tekes Behavioural additionality R&D project Scale Risk Time Quality Capabilities Innovation management Collaboration Networking Parnerships Project management Competences Innovation management Technology Business competence Human capital Strategic choices Behavioural additionality Company R&D investments Behavioural additionality

Results of public R&D funding (behavioural additionality) As result of public support schemes, additionalities in scope increase as well as willingness to create new collaborations and to engage in riskier projects. Scale and acceleration additionalities are substantial particularly in start-up firms. Falk R (Austria) As a result of public R&D funding, the duration of the project has increased. Public R&D funding also has a positive impact on permanent cooperation network. Löhlein & Fier 2005 (Germany) Public R&D funding has a positive impact on the risk level, scope and technological level of the project as well as on cooperation and commercialisation prospects. Shipp 2004 (USA) DM Copyright © Tekes

SMEs participating in innovation cooperation % DM 58774, 36054, and Copyright © Tekes Source: European Innovation Scoreboard 2004

DM and Copyright © Tekes Impact of innovation activities on cooperation between companies Percent Number of employees Source: Statistics Finland Total All companies Innovating companies

Networking in corporate R&D projects funded by Tekes Share of networked projects, % Almost all projects funded by Tekes in large companies and more than two thirds of all R&D projects were networked in The figures include corporate R&D projects, but not smaller feasibility studies. DM 58774, , and Copyright © Tekes Subcontracting from research institutes Large company subcontracting from SMEs Part of technology programme International cooperation

Project evaluation after three years DM and Copyright © Tekes % Commercial exploitation has not yet happened Commercial exploitation failed Commercial success was poor Commercial success was very good, good or average Small and medium-sized companies Survey in spring 2005 about projects ended in 2002

Project evaluation after three years DM and Copyright © Tekes % Commercial exploitation has not yet happened Commercial exploitation failed Commercial success was poor Commercial success was very good, good or average Large companies Survey in spring 2005 about projects ended in 2002

InvestmentsResultsDirect effectsImpact on national economy and society DM Copyright © Tekes Knowledge, networking and innovations promote firm growth and success Start-ups, new business areas and services Growth and globalisation of companies Productivity

Output additionality ResultsDirect effects Public R&D funding Publications Patents Prototypes Business plans New products, processes and services Turnover Value added Personnel Productivity Export DM Copyright © Tekes Company R&D investments Output additionality

Results of completed projects DM Copyright © Tekes ,0381,8921, , , , ,092 1,109 2, , Completed projects Academic theses Publications Patent applications by research organisations Patent applications by companies New or improved products New or improved services New production processes 2,464

Direct effects of public R&D funding (output additionality) DM Copyright © Tekes When new to market product innovations are considered, central government support leads to an direct increase of 2.7 percentage points in innovative sales in addition to the 0.7 percentage point due to the indirect effect through R&D. The total effect of central government support on the share of new to market innovative sales amounts to 3.3 percent. Mohnen & Garcia 2006 (Austria) Both in Germany and in Finland public funding exerts a positive influence on the funded companies’ propensity to patent. European Competitiveness Report 2004 Participants in publicly sponsored R&D consortia exhibit a higher propensity to patent than firms in non-sponsored networks. Czarnitzki & Fier 2003 (Germany)

Patents in Europe and in the United States DM 36052, and Copyright © Tekes Sources: Eurostat, USPTO and the European Patent Office (Est.). Patents and applications for patents per million inhabitants in 2004 In EU year 2002 and in the USA year Applications for patents in Europe Patents in the US

Impact of R&D on productivity High productive plants create new plants and employment more effortless than low productivity plants. Maliranta (1998) New plants are more energetic to use new technology and their productivity growth is more rapid than in old plants. Maliranta (1997) Because of the breakthrough of telecommunication industry, the Finnish manufacturing is among the leaders at the international productivity comparisons. Pohjola (2003) In years , productivity growth in Finland has been 2.5 percentage units and the influence of ICT has been 1.1 percentage units. Jalava et al. (2004) Characteristics of information and communication equipment raise labour productivity (mobility, wireless and wire communications, processing and data recording. Maliranta et al. (2004) DM Copyright © Tekes

Lähde: Tekes client questioning 2005 Impact of Tekes funded projects – How firms’ products have distinguished grom the competitors’ products DM Copyright © Tekes % Before After Product development projects - SMEs

Lähde: Tekesin asiakaskysely 2005 DM Copyright © Tekes % Before After Research projects – large firms Impact of Tekes funded projects – How firms’ technology has distinguished from the competitors’ technology

Renewing business structures Affluence Regional vitality Employment Environment and health Security and safety Social well-being InvestmentsResultsDirect effectsImpact on national economy and society DM Copyright © Tekes Goal of Innovation Activity is Growth of Economy and Well-being

New economic growth model – sources of economic growth DM and Copyright © Tekes Labour Research Education Technology Capital Know-How Knowledge Innovation Productivity growth Economic growth Increase in exports Improvement in employment Regional development Better well-being Sources of growth – education, reseach and technology

Correlation between innovation and GDP per capita DM and Copyright © Tekes Source: European Innovation Scoreboard 2005 GDP per capita 2003, EU 25 = 100 Summary Innovation Index

GDP and the Well-being Index GDP per capita in 1999, (corrected for purchasing power) in US dollars Sources: Robert Prescott-Allen (2001): The Wellbeing of Nations: A Country-by-Country Index of Quality of Life and the Environment; Human Development Report The United Nations Development Program. FINLAND Luxembourg USA Denmark Germany Norway Sweden Iceland Austria Switzerland Canada WI=Well-being Index DM and Copyright © Tekes

Sources: WEF: Global Competitiveness Report ; WEF, Yale and Columbia universities: 2005 Environmental Sustainability Index Environmental quality and growth competitiveness DM and Copyright © Tekes Portugal Austria France Denmark Finland Germany Iceland Ireland Japan Netherlands Estonia Norway Sweden Switzerland Great Britain USA ESI index (2005) Growth Competitiveness Ranking (2004) ESI = Environmental Sustainability Index

Impact of Tekes funding on economy and society DM Copyright © Tekes Lähde: Tekes client questionnaire 2005 Intermediate positive effect No effect Significant positive effect %

Thank you! Jari Hyvärinen Impact Analysis Senior Adviser, Economist, PhD Tekes DM Copyright © Tekes Innovation is a profitable investment for the future