Increasing innovation capacities of companies Taking the Challenge – promotion of innovation in IT sector SMEs Riga, April 20, 2007 Valdis Avotins, Knowlege and Innovation System Department

Rapidly changing environment (2) Real GDP (PPP): Projections (Using Average Growth Rates) Trillions of 1995 international $ IndiaChinaBrazil CanadaFranceGermany ItalyJapanMexico Russian FederationUnited KingdomUnited States India China United States Japan Germany United Kingdom France Italy Canada Mexico Russian Federation Brazil Source: WBI

Knowledge, transfer, absorbtion, innovation Policy: What ? Why ? How ? Who ?

Need analysis Supply analysis Awareness campaign SWOT and Synthesis Gaps and market failures identified RIS Latvia – a step by step approach stage 1 meetings of RIS and NIP SCs and National Economy Council stage 0stage 2 Detailed elaboration of the work program Definition of measures and prior pilot actions Validation Presentation & discussion of analyses results; Gaps identified consensus building 01/200212/200303/ /2004

Share of innovative firms, %, ,5% innovative firms gave 42,3% of total turnover in 2004 Only 4,7% product innovative Only 3,5% high-tech in manufacturing Source: CSB

Weaknesses and challenges Research and industries develop isolated Research policies doesn’t include industry’s needs Economical growth has not increased R&D demand Small public R&D budget doesn’t reflect Government priorities Lack of entrepreneurial spirit and innovation culture Still dependence on low-tech, low productive and low cost industries

Assimmmetry of information (308 firms intervied) RIS Latvia, 2003

Lack of technological competitiveness

Don’t know that they don’t know Know that they don’t know but don’t know what they don’t know Know but not always what and how High knowledge and absorption capacity Source: RIS Latvia, WB methodology, 2004 Level of knowledge of needed changes:what and how Enterprises by their technological capability

The NIS consists of several components aiming to foster the economic success of the firms and thus to increase the quality of life The continuation of the RIS Latvia The project of Regional Innovation Strategy (RIS Latvia) has became the milestone for developing the NIS, NDP and Regional Innovation Strategies Monitoring and efficiency Social and Human Capital - Universities - S&T training and education Absorptive Capacity - ”Follower” firms; Intermediate and end consumers and professional users - Market for goods and services Research Capacity - Universities; government, laboratories - Basic scientific research Knowledge Users Knowledge Creators Public Sector Private Sector Technology and Innovation Performance - “Creative” firms - Applied R&D and product/ process development

NIS concept contribution National Development Plan

New products and technologies Risk capital scheme Shared laboratories Training, consultancies Strand III support Business incubators Pre-Seed TTOs & LiOs Competency Centres Risk Capital Qualified personnel New product scheme Innovation- System Created Monitoring System PPP Concept Foresight Operational Programme Inno-Culture Skills Centre Techo-consultancies TI – VCF scheme Need analysis Riga NIP Business Angel networks EU networks

Systemic innovation; the value chain Source: Inno Group, 2007

Competitive companies R&D performance in business sector shows positive pace Intramural R&D in business sector by research type, EUR mill. Source: Central Statistics Bureau, 2006.

Generation of new concepts Product development Redefinition of prod. processes Redefinition of sales processes Management (Knowledge and technology) Market demand Market Universities, R&D institutes, Private consultants, etc Innovation management in companies

Planned aid budget – 8,4 MEUR Received applications – 88, required grants 10,8 MEUR Rejected projects – 43, total grants ~5,1 MEUR Signed contracts – 45, total grants 5,7 MEUR Changes in contracts (in paid out grants) – 31% Support for Development of New Products and Technologies (2004 – 2006) Conclusions: SMEs weak in formulation their technological needs SMEs first look to grant, not to business goals and market demand SMEs lack of innovation culture SMEs need focused training and specialised consultancies Consultants lack deep specialisation Aid programs need better focus to market failures

Developing an Innovation and Enterprise Culture Promotion of entrepreneurship –The specific strategy and mechanism for creating awareness about enterprise, and creating an environment whereby entrepreneurial activity is nurtured, supported and developed –Creation of conducive environment –Awareness building campaign –Entrepreneurship education –Promotion of new innovative companies Promoption of intrapreneurship – creating innovation culture in firms –Provide training in Creativity; –Promote a training culture in companies; –Empower employees to take an active role in the development of enterprises; –Provide an environment for creating and developing new ideas; –Prepare managers to support the ideas developed by employees; –Define creativity as part of work; –Involve employees in decision making process; –Establish relevant system of innovation motivation and „bonuses”; –Allow risk as part of daily work; –Increased investment in R&D; –Evaluation of the effectiveness of work results

Thank you for attention!