1. INNOVATION AND PSD ISSUES IN THE EUROPE AND CENTRAL ASIA REGION Alfred Watkins (37277) Lead PSD Specialist ECSPF

2. CHALLENGE Convert knowledge to wealth  Generally speaking, ECA countries have well educated populations, even at the tertiary education level, but lack the organizational and industrial capacity to utilize this resource

3. Competitiveness Challenges Commercialize R&D – convert knowledge into wealth Upgrade technology to enhance economic competitiveness and productivity in non-high tech sectors  Potential danger: generation of high tech enclaves with few beneficial spillovers to rest of economy

4. Competitiveness Challenges Lead To Policy Dilemmas R&D vs. Technology Upgrading High tech vs. Traditional Sectors SMEs vs. Large enterprises Scientists and Engineers vs. Everything Else Numerical Targets vs. Structural Reforms

5. R&D Vs. Technology Upgrading R&D Design & Engineering Acquisition Use

6. R&D Vs. Technology Upgrading Policy makers emphasize R&D and ignore other layers of the technology pyramid ….  but most firms in candidate countries and FSU do not perform R&D, finance R&D, or use R&D conducted elsewhere  their technology is obsolete and low productivity reduces their competitiveness

7. Technology Upgrading Capability To upgrade technology, firms need to be aware of their technological challenges and options and able to implement the needed solutions  Do local enterprises have the managerial, technical and organizational capacity to find, modify, absorb and utilize innovations?  If not, can public and private policies help to remove these deficiencies?

8. In what group are local firms?

9. To generate prosperity, should economic policy focus on high tech or traditional sectors?

11. Isolated SMEs vs. Clusters Dynamic SMEs must be embedded in regional, national or global value chains with dynamic clients, customers and suppliers  links to large and small, local and foreign firms generate dynamic firms  Otherwise, SMEs are in a survival mode  Living dead, subsistence firms rather than engines for growth and competitiveness

12. Scientists Vs. Other Things: Porter and Stern Rankings TotalS&E Innov. PolicyClusterLinkage Czech 26362629 Hung2834253825 Russ303523042 Ukr3221562835 Pol3632503736 Latv4137514347 Bulg5027646773

13. Scientists vs. other things Most transition countries rank relatively high on scientists and engineers and relatively low on the other variables  Problem is relative inability to utilize knowledge – deficit of social and organizational capital; not human capital  Czech and Hungary rank highest among transition countries and are notable exceptions to this generalization

14. Numerical Targets vs. Structural Reform In competitive economies, government, R&D/education, and enterprise sectors work to reinforce each other  the triple helix Transition economies have a triple silos

15. Research Institutes Large TNC Start- ups SME Large Domestic Foreign Technology Sources Research Institutes Knowledge Linkage Transfer and Development Organizations CUSTOMERS Domestic Export INDUSTRY OTHER KNOWLEDGE SOURCES INSTITUTIONAL CONTEXT Policy Incentive System, Financial and Funding System, Legal Framework, Organizational Structures The Industrial Technology Development System: A Schematic Framework

16. Slowly Changing Historical Legacy Networking, trusting communication links vs. KGB Locational proximity vs. Stalinist planning based on separation, control, and isolation Old supply chains disappeared with Comecon – how to insert into global supply chains States as laboratories of democracy (Brandeis) vs. penchant for central authority

17. Issues for Future Research Role of FDI, spillovers, and technology upgrading Skill development centers – Penang as cooperative model? Krasnoyarsk? How to find high value added, high wage, high skill niches in global division of labor Clusters, links to demanding customers, creation of suppliers with quality control and technical skills How to upgrade skill intensity of local enterprises

18. Russia S&T Project -- Issues Expensive foreign patenting Isolation from global markets Sale of prototypes Lack of finance Limited commercialization structures Don ’ t know how to proceed and how to learn from international lessons of experience

19. Potential World Bank Project Matching grant programs – (i) cost of foreign patenting; (ii) joint R&D/contract research programs; (iii) SBIR; (iv) partnership visits; (v) others Pilot technology commercialization centers – (i) technology audits; (ii) TTOs; (iii) incubators; (iv) marketing; (v) commercialization strategy; (vi) coaching and training