Specificity of knowledge intensive entrepreneurship in central and - - PowerPoint PPT Presentation

Specificity of knowledge intensive entrepreneurship in central and eastern Europe

• Prof. Slavo Radosevic

Triple Helix Webinar 1 July 2015 @ 18:00 CET

Some of the CEE success stories ……

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… that still do not translate into technology based growth

• Growth is still driven by medium tech and ‘blue

collars’ skills and FDI

• Central European automotive cluster
• CE as ‘skilled workshop’ and part of the core

manufacturing cluster in the EU

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……as demonstrated by export structure…

What Estonia exports?

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Or what Czech R exports….

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In CEE... non-R&D innovators dominate

6 Source: Arundel, A., C. Bordoy and M. Kanerva (2008), ‘Neglected innovators: how do innovative firms that do not perform R&D innovate? Results of an analysis of the Innobarometer 2007 survey No. 215’, INNO-Metrics Thematic Paper

but ….. Fast growing investments in R&D due to EU Structural Funds RDI push

Changes in shares of GERD/GDP in percentage points of GDP 2002-2012

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• 0.4
• 0.2

0.2 0.4 0.6 0.8 1 1.2 1.4 1.6 Estonia Slovenia Czech Republic EU_CEE Poland Hungary Slovakia Latvia Lithuania Bulgaria Romania Croatia

Changes in shares of GERD/GDP in percentage points of GDP 2012-02

Despite successes stories …..the dominance of replicative / imitative entrepreneurship

• Entrepreneurs in CEECs have fairly low employment growth

ambitions:

• They expect to employ approximately one employee in a 5-year time

horizon of start-up operation, compared to the sample average of 2.5 employees (GEM) > (0.64 jobs/ROM – 1.9 jobs/LV) low growth ambitions

• Access to markets govern entrepreneurial aspirations of firms in the
• CEE. A limited access to foreign markets represents much bigger
• bstacle for technology upgrading of entrepreneurial science-based

technology firms.

• Science-based technology firms and niche technology firms are largely
• riented towards the domestic market but are able to respond very

quickly on buyers’ requests in terms of performance and quality. In

• rder to access export market these firms would need more supportive

institutional policy framework

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Turnover from innovation as percentage of total turnover

• Similar innovation dynamics but ...

within different mode of innovation 2004 2006 EU 10 New 12.5 12.4 EU15 Old 12.5 13.5

Relationship between embodied investments and labour productivity in European countries ... Innovation at behind the frontier is about acquisition of machinery

Bulgaria Estonia Croatia Cyprus Poland Romania Lithuania Lithuania Malta Turkey Hungary Portugal Slovenia Czech R Greece Ireland Luxembourg Belgium Netherlands Denmark y = -0.0084x + 1.1105 R² = 0.5608 0.15 0.35 0.55 0.75 0.95 1.15 1.35 0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0 90.0 100.0 GDP in PPS per person employed relative to US = 100, 2006 Share of expenditures for acqusition of machinery, equipment and software in total innovation expenditures, 2006

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Three types of firms in CEE based on success factors: networkers, NTBFs, and organisation capabilities

• riented

Networker New technology based firms Customer oriented

• rganisational

capabilities Links with scientific organisations 0.754 0.313

• 0.071

EU Framework programs and other EU support 0.749 0.086 0.095 Government support 0.681 0.239 0.172 Alliances/partnerships with other firms 0.639

• 0.108

0.185 Links with previous employer 0.489 0.139

• 0.179

Uniqueness of product/ technology/knowledge 0.062 0.813 0.076 Patents and licences 0.400 0.716 0.028 People and training 0.245 0.410 0.369 Knowledge of customers needs

• 0.023

0.230 0.663 Management 0.396 0.014 0.603 Capability to offer expected services/products with low cost 0.014

• 0.146

0.601 Quality

• 0.115

0.376 0.576 Extraction Method: Principal Component Analysis. Rotation Method: Varimax with Kaiser Normalization.

Factors discriminating between more and less successful innovators in CEE

• Understanding of user needs and user

involvement

• Understanding of market

Less important

• Successful R&D collaborations
• Successful innovation collaborations
• Source: Slavo Radosevic and Esin Yoruk (2012) SAPPHO Revisited: Factors
• f Innovation Success in Knowledge-Intensive Enterprises in Central and

Eastern Europe

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The importance of coupling as well as relative independence of markets, technology and networks in the formation of new firms. (Based on sample of 60 KIES in four CEECs in software and machine tools)

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Factor analysis for ‘Importance of factors for the formation of company’.

Market and financial

• pportunities

Technical knowledge Network experience Knowledge of the market 0.791

• 0.146
• 0.100

Availability of finance 0.688 0.026 0.323 Opportunities from a public procurement initiative 0.718 0.328

• 0.004

Technical/engineering knowledge in the field

• 0.112

0.465 0.528 Design knowledge 0.019 0.734 0.164 Software knowledge 0.111 0.839

• 0.121

Work experience in the field

• 0.040
• 0.022

0.865 Networks built during the previous career 0.354 0.028 0.609

Note: KMO measure of sampling adequacy=0.61; Bartlett's test of sphericity significant at 0.002 level; Cumulative % of variance explained is 61.38%.

Internal know how and clients are the most important source of innovation Importance of sources of knowledge for developing new products/processes (% of firms expressing the sources of knowledge as ‘important’ and ‘very important’)

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SW MT All firms 1. Innovativeness via value chain and networks

Clients

73.3 50 61.7

Suppliers

20 30 25

Competitors

23.3 20 21.7

Trade, fairs, conferences and exhibitions

26.7 20 23.3 1. Innovativeness via external R&D

Government or public research institutes

6.7 6.7 6.7

Universities or other higher education institutes

10 6.7 8.3

External commercial labs/R&D firms

13.3 6.7 10

Scientific journals/trade/technical publications including patent disclosures

23.3 10 16.7 1. Innovativeness via in-house R&D

In-house know-how (R&D unit in your firm)

83.3 63.3 73.3

Autonomous or corporate driven entrepreneurship exploiting existing knowledge based on previous experience and recognising market opportunities and

• riented towards developing new/distinctive products;
• 90% of SW firms are independent start-ups, 60% of MT firms are

corporate-spin-outs

• Work experience in the activity field is highly important for almost 90%
• f the firms. 47% of the firms value networks built in the previous

career as very important.

• 50% of the firms have introduced more than 10 new

products/processes/services onto the market during the last three

• years. No differences between the two sectors.

50% of the firms have more than 50% share of 'innovative sales' during the last three years

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Other key features of CEE knowledge intensive entrepreneurship ……..

• Risk taking is constrained by weak demand and

markets, technology risks, and skills shortages as well as by regulatory impediments.

• Corruption is present but unevenly.
• Financial constraints are not the major obstacles.

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……..A combination of individual start-ups as well as corporate spin-

• uts whose establishment and growth are closely interdependent

with a variety of networks or network related factors

• CEE firms are spinoffs who have inherited specific knowledge from parent

firms (similar to Klepper and Sleeper (2005) and Klepper (2009)).

• They are either organizational spinoffs (MT) or new start-ups (SW) but whose

founders brought accumulated work experience and network capital built during their previous career.

• This autonomous or corporate driven entrepreneurship is geared towards

exploiting existing knowledge based on previous experience and recognising new market opportunities.

• New KIEs are repositioning themselves in terms of markets or products, but

not in terms of technology.

• In that respect, CEE entrepreneurship is of a cumulative and evolutionary

rather than disruptive nature

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Institutional barriers in setting up and operating a company are present but far less than would be expected.

• The range of regulatory barriers for setting up and operating a

company are assessed as not important by more than 60% of the companies while corruption and discriminatory treatment of companies as barriers are quite divided between companies.

• Institutional barriers still exist but they are weaker than expected and

seem to be more firm - rather than sector or country - specific.

• The major barriers are related to demand and market constraints,

technology risks and skills shortages, i.e. barriers are more developmental than institutional.

• Finance is much less a problem in firm formation but is more present

in firm growth. The finance factor is one of the major barriers for growth of 20-40% of firms

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Innovation is commercially quite relevant for CEE KIEs

• Around 50% of the firms have more than 50% share of 'innovative

sales' during the last three years which is significantly above the EU average of 9.9% of turnover from new or significantly improved products new to the market in 2008 (calculated based on Eurostat).

• SW and MT firms are specialized suppliers firms, which largely

innovate based on their in-house knowledge (own R&D) and value chains.

• For only 10% of firms, external R&D is a very important source of

innovation for product development.

• For 90% of firms, clients are a very or moderately important source for

product development.

• All this points to innovativeness which is embodied in a firm’s ‘know-

how’ and shared with value chain partners,

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A majority of the CEE KIEs are not new technology based firms that grow based on commercialisation of proprietary technology

• Instead, these firms are competing on all competitive factors (novelty,

quality, customization and costs) by serving both domestic and export markets.

• Their innovativeness is much more embodied in their overall

entrepreneurship orientation and cannot be reduced to new ‘gadget’, i.e. artefacts or disembodied knowledge (patents).

• The basis of their entrepreneurship is in accumulation of firm-specific

know-how and in understanding of clients needs.

• In order to sustain these wide competitive advantages, KIEs

(especially SW firms) rely on in-house knowledge and alliances.

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Networks are very important in entrepreneurial strategies

• f firms but they are not yet improving risk taking

ambition

• Formal collaboration agreements are important in terms of both

production and technological capabilities for 40% of firms. However, much important are informal networks especially with clients, competitors, in developing new products and in recruiting skilled labour.

• Networks are quite positively important in establishing company

(networks inherited from previous employment), in new product development or innovativeness (VC partners and market networks), in exploring new ideas or proactiveness (VC partners and market networks), and partly in sustaining competitive advantages (alliances in SW).

• But these networks are not improving risk taking ambition and do not

generate potential economies of scale and scope through labour pool

• r joint specialized services. This may be partly due to the small size
• f the CEE markets and the lack of inter-country support networks.

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KIE in CEECs compared with the global model: a stylised picture based on case studies

New technology based firm CEE knowledge based firm Mode of growth Generic expansion Productivity based expansion Strategic

• bjective

Commercializing results of IPR Diversifying to exploit

• rganisational capabilities

Model role ‘Gazelle’ Knowledge broker/Specialized supplier Structural feature Trendsetter Trend spotter Market

• rientation

Global market Domestic market Key competitive advantage New world frontier technology

• r product

Customer oriented

• rganisational capabilities

Threshold barrier IPO From domestic brand builder and networker to established exporter

Source: Radosevic S. and R. Wooodward (2008) A comparative overview of case studies of knowledge based firms from Central and East European countries, mimeo

A strong mismatch between the assumption of policy about KIEs and their true nature.

• In reality these firms are actually well established

corporate spinoffs, not start-ups.

• They do not undertake large amounts of in-house R&D,
• do not have IPR
• derive their competitive advantage from the knowledge of

users or customers,

• many are not growth oriented
• See for evidence Brown and Masson, 2014; see Radosevic et al (2010; 2011)

in the context of eastern Europe.

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How to understand the role of KIEs? KIEs vs. innovation eco-system

• It is not KIEs or large firms per se that are driving innovation but an

innovation ecosystem > large firms interacting with small technology based firms

• The majority of KIEs are not a direct and independent source of

growth, but rather an indirect source of new knowledge, employment and value added.

• High growth firms are not necessarily high tech firms and the capacity
• f policy or a state modernization project to target such firms is

expected to be quite low.

• KIEs require a sophisticated market (users) for the new technologies
• KIEs may not be high growth firms themselves but act as knowledge

suppliers to other firms i.e. as specialised suppliers.

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Conclusion:

• KIEs in CEE are not powerful driver of growth but

they are increasingly important actor in newly emerging innovation eco-system

• Their future growth will depend on:

– How demand will improve and on links with customers – Links with large firms – Technology demand through public innovation procurement – Links with other actors in innovation eco-system (universities, PROs)

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Background papers

• S. Radosevic and E. Yoruk Entrepreneurial Orientation of Knowledge-based

Enterprises in Central and East Europe In Dynamics of Knowledge-Intensive

• Entrepreneurship. Business strategy and public policy. Routledge, 2015 Edited

by F.Malerba, Y. Caloghirou, M. McKelvey and S. Radosevic

• Radosevic Slavo and Esin Yoruk, ‘Entrepreneurial propensity of innovation

systems: theory, methodology and evidence’, Research Policy, 42 (2013) 1015– 1038

• Radosevic, S. ‘Science-Industry Links in CEE and CIS: Conventional Policy

Wisdom Facing Reality’, Science and Public Policy, June 2011, Vol. 38, No. 5: p365-378

• Radosevic, S., M. Savic and R. Woodword (2010) Knowledge based

entrepreneurship in central and eastern Europe: results of a firm level based survey, In Malerba, F. (ed) Knowledge-Intensive Entrepreneurship and Innovation Systems, Routledge, p.198-218

• Radosevic S. and I. Wade (2014) Modernization through large S&T projects:

Assessing Russia’s Drive for Innovation-Led Development via Skolkovo Innovation Centre, UCL SSEES Working Paper

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