Riga , April 20 , 200 7 V aldis Avotins , Knowlege and Innovation System Department

1. Increasing innovation capacities of companiesTaking the Challenge – promotion of innovation in IT sector SMEs Riga, April20, 2007 Valdis Avotins, Knowlege and Innovation System Department

2. Trillions of 1995 Real GDP (PPP): Projections 2004-2015 (Using 1991-2003 Average Growth Rates) international $ 16 India China Brazil Canada France Germany China Italy Japan Mexico 14 Russian Federation United Kingdom United States United States 12 10 India France Russian 8 Federation United Kingdom Brazil Italy Mexico Germany 6 Japan Canada 4 2 0 2003 2005 2007 2009 2011 2013 2015 Rapidly changing environment (2) Source: WBI

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

4. Needanalysis Awareness campaign Gaps and market failures identified SWOT andSynthesis Supplyanalysis RIS Latvia – a step by step approach 12/2004 01/2002 12/2003 03/2003 stage 0 stage 1 stage 2 Definitionofmeasuresand priorpilotactions Validation Presentation& discussionof analysesresults;Gaps identified consensusbuilding Detailedelaborationof theworkprogram meetings of RIS and NIP SCs and National Economy Council

5. Share of innovative firms, %, 2002-2004 17,5% innovative firms gave 42,3% of total turnover in 2004 Only 4,7% product innovative Only 3,5% high-tech in manufacturing Source: CSB

6. 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

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

8. Lack of technological competitiveness

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

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

11. National Development Plan 2007-2013 NIS concept contribution

12. Operational Programme 2007-2013 Strand III support Competency Centres PPP Concept TTOs & LiOs Pre-Seed Foresight 2004-2006 Business incubators New products and technologies Riga NIP Inno-Culture Innovation-System Created Risk capital scheme Skills Centre Risk Capital Shared laboratories Qualified personnel Monitoring System Training, consultancies Business Angel networks Need analysis Techo-consultancies EU networks New product scheme TI – VCF scheme

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

14. 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.

15. Generation ofnew concepts Productdevelopment Redefinition ofsales processes Redefinition ofprod. processes Market demand Market Management (Knowledge and technology) Universities, R&D institutes, Private consultants, etc Innovation management in companies

16. Support for Development of New Products and Technologies(2004 – 2006) 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% • 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

17. 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

18. Thank you for attention!