TEXT 1 TRANSITION REPORT 2014 tr.ebrd.com Innovation in Transition Produced by the Office of the...

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TEXTTEXT

TRANSITIONREPORT2014

tr.ebrd.com

Innovationin TransitionProduced by the Office of the Chief Economist,

EBRD.© European Bank for Reconstruction and Development

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Productivity catch-up in transition region largely complete – how to achieve further productivity gains?

Source: EBRD Transition Report 2013, Penn World Tables 8.0.

Gro

wth

199

3-2

01

0G

row

th 1

99

3-2

01

0

3

INNOVATION: Adopt, Adapt, Advance

Innovation = improving productivity within firms

Innovation goes well beyond R&D in high-tech sectors

Products and production processes new to the firm

Firms need to Adopt, Adapt and Advance towards technological frontier

4 4

BEEPS V: Around 16,000 firms in 30 countries and similar

surveys in Jordan and Israel

Taking the pulse on firm innovation

5

• FIRST BEEPS ROUND TO INCLUDE A DETAILED MODULE ON INNOVATION AND MANAGEMENT/ORGANISATION PRACTICES

• RESPONDENTS ASKED IF THEIR FIRM INTRODUCED NEW OR SIGNIFICANTLY IMPROVED PRODUCTS, PROCESSES, ORGANISATIONAL ARRANGEMENTS OR MARKETING METHODS IN THE PAST THREE YEARS

• EXTENSIVE “CLEANING” NEEDED TO DISTINGUISH GENUINE INNOVATION FROM NON-INNOVATION, AND TO APPLY THE RIGHT CLASSIFICATION

BEEPS V: Special Focus on innovation

6

Descriptions of innovations analysed to achieve consistency

Product innovation, reclassified as:

7

Zooming in on a firm in transition

1. THE MANY FACES OF INNOVATION: FOCUS ON TECHNOLOGY ADOPTION

2. INNOVATION AS A DRIVER OF IMPROVEMENTS IN FIRM PRODUCTIVITY

3. WHAT DRIVES INNOVATION?

4. FUNDING INNOVATION

5. POLICIES FOR INNOVATION

8

Innovation in Croatia: New products

Atlantic Multipower part of Atlantic GroupState-of-the-art production facility in Nova Gradiska

Multipower is one of the leading European producers of sports food and supplements

New services: protein and protein and carbohydrate bars

Selling through own sales and marketing representatives in Germany, UK, Italy and Spain and own distribution in SEE region

9

Innovation in Croatia: New production processes

ABS Sisak - part of Danieli Group steel-making division ABS Italy

New production processes: Innovative technology aimed at improving the environmental footprint of the steel works and minimising the production of scrap (Green Steel)Transfer of knowledge from ABS R&D centre in Metz to ABS Sisak responsible for engineering and launching of new productsSelling through Danieli Group and directly to the clients in Central Europe

Sisak steel mill restructuring and modernisation programme

10

Innovation in Croatia: New services

Data Centre in Jastrebarsko, CroatiaGreenfield investment in data storage company

Highest industry standards: first Tier 3 carrier-neutral data centre in Croatia

New services: data centre, business continuity and disaster recovery

Clients – energy and postal services corporates, banks and other financial institutions.

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Firms in the transition region focus on technology adoption, rather than bringing new products to the international market

Source: BEEPS V

Gro

wth

199

3-2

01

0%

of f

irms

with

a n

ew p

rodu

ct

0

2

4

6

8

10

12

14

New to international market New to country, local market, or firm

12







13

Transition region

Productivity

Share

of

firm

s

Transition region

Productivity

Share

of

firm

s

Israel

Transition region

Productivity

Share

of

firm

s

Israel?

In each country firms can innovate to improve their productivity

14

Croatia

Productivity

Share

of

firm

s

Israel?

Productivity in Croatia relatively high, but further improvements needed

15

High pay-off to all types of innovation in all sectors…

Source: : BEEPS V, MENA ES

Gro

wth

199

3-2

01

0Im

pact

on

labo

ur p

rodu

ctivi

ty

0

20

40

60

80

100

120

High- and medium-high-tech

manufacturing

Medium-low-techmanufacturing

Low-techmanufacturing

Less knowledge-intensive services

Product innovation Process innovation Marketing/organisational innovation

Higher-tech sectors Medium-low-tech sectors Low-tech sectors0

5

10

15

20

25

30

0

50

100

150

200

250

Percentage of firms engaged in product innovationImpact of product innovation on productivity

Perce

nta

ge o

f firm

s that in

novate

Perc

enta

ge incr

ease

in labour

pro

duct

iv-

ity

16

Higher-tech sectors Medium-low-tech sectors Low-tech sectors0

5

10

15

20

25

30

0

50

100

150

200

250

Percentage of firms engaged in product innovationImpact of product innovation on productivity

Perce

nta

ge o

f firm

s that in

novate

Perc

enta

ge incr

ease

in labour

pro

duct

iv-

ity

…and highest in low-tech industries…

17

In less advanced countries the quality of management is key

Source: BEEPS V, MENA ES

Gro

wth

199

3-2

01

0In

crea

se in

pro

ducti

vity

, %

Management needs to be improved before new processes can yield substantial productivity gains

Incr

ease

in p

rodu

ctivi

ty, %

18







19

What determines innovation?

INTERNAL FACTORS

FIRM CHARACTERISTICS (AGE, SIZE, OWNERSHIP)

FIRM CHOICES (TO EXPORT, TO HIRE SKILLED PERSONNEL)

EXTERNAL FACTORS

BUSINESS ENVIRONMENT

FIRM CHOICES ARE SHAPED BY EXTERNAL FACTORS

HOW DIFFICULT IS IT TO EXPORT, TO FIND SKILLED WORKERS?

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Innovative firms are more sensitive to the business environment

20

In particular: corruption, skills and access to finance

Gre

ate

r con

str

ain

t fo

r in

novato

rs

0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8 2.00.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

1.600396

1.40026 1.387476

1.249513

1.19863

1.191489

0.98896820.9762211

0.86676020.811749

0.81241910.7884232

0.78327970.6812459

TransitionRegion

Greater constraint for non-innovators

21

Gre

ate

r con

str

ain

t fo

r in

novato

rs

0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8 2.00.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

0.95

1.02

1.07

1.36

1.14

1.10

0.86

1.01

0.690.57

0.52

1.09

0.70

Central Europe and

the Baltic States

Greater constraint for non-innovators

In Central Europe/Baltics, main obstacles for innovators are tax administration, finance and electricity…

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…while in Croatia it is the informal sector that creates biggest problems for innovators

22

Gre

ate

r con

str

ain

t fo

r in

novato

rs

Greater constraint for non-innovators0 0.5 1 1.5 2 2.5 3

0

0.5

1

1.5

2

2.5

3

0.7858224

0.343701

0.731751

0.8966564

2.507527

0.3263611

1.359764

0.9857591

1.949191

Licenses/permits

1.5448631.588306

Labour regulations

1.254419

Croatia

23







24

Can banks help firms to innovate?

NO

• Intangible and firm-specific assets cannot be used as collateral

• Firms are hesitant to disclose sensitive information on innovative activity

• Banks are technologically conservative

YES

• Banks specialise in building lending relationships with clients

• Innovation is more than just R&D

• In some countries, bank credit may be the only source of external finance

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Yes, if they relieve credit constraints

Local banking market

• There is regional variation in inter-bank competition and the presence of foreign banks…

Local credit

constraints

• …which determines whether firms have access to credit or not.

Firm innovatio

n

• Firms with access to credit introduce new products and processes to their markets.

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Banks positively affect firms’ ability to innovate

Product innovation Process innovation0%

5%

10%

15%

20%

No credit demand Unfulfilled credit demandFulfilled credit demand

Perc

enta

ge o

f fi

rms

that

innovate

Product innovation Process innovation0%

5%

10%

15%

20%

No credit demand Unfulfilled credit demandFulfilled credit demand

Perc

enta

ge o

f fi

rms

that

innovate

27







28

Embrace economic openness

Help firms export, enter global value chains through quality certifications, streamlined export procedures and VAT refunds

• Armenia - Cisco, Microsoft partnerships, special events. ICT companies now get 44% of revenues from exports

• Slovak Republic - special incentives for foreign firms, including SMEs, to come to less developed regions

• Estonia – focus on international cooperation, foreign R&D investment grew by 15 per cent a year

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Lower barriers to entry of firms

WTO-related liberalisation of services in Ukraine led to improved firm productivity, largely through entry and exit

Hig

her

pro

du

ctiv

ity

Source: : Calculations based on Derzhkomstat data.

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Focus on horizontal policies where governance weak

Innovation policies tend to focus on a few high-tech sectors…

Sources: EBRD Innovation Policy Questionnaire

% of countries viewing sector as priority…

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