Utilization of knowledge for economic growth in the Czech

Republic

Karel KlusacekTechnology Centre AS CR

klusacek@tc.cas.cz

Knowledge Economy Forum VInnovation and Technology Absorption for Growth

Prague, March 28 – 30, 2006

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Basic remarks

• This presentation brings some examples of main features of recently completed analysis titled „Barriers to the growth of competitiveness of the Czech Republic“ with a special regard to the sector of innovative SMEs

• Presented results are a part of a complex analysis ordered by the Czech Government in 2004-2005 through Ministry of Regional Development, Ministry of Industry and Trade and Ministry of Education

• The results are being used for formulation of a national strategy of the growth of competitiveness of the Czech Republic and for structuring and formulation of new Operational Programs (EU Structural Funds 2007-2013) focused on the support of innovation and development of „a knowledge-based economy“

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Structure of this presentation

• Survey (interviews) conducted in Czech innovation SMEs

• Main barriers to innovation and technology absorption – sector of SMEs

• There is something to build on ...• Utilization of results - strategic policy documents

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Survey in innovative SMEs - interviews

Top managers of 140 SMEs* responsible for R&D and innovation strategy were interviewed to identify particular barriers hampering companies in being more competitive

Nine blocks of questions:1. Target markets, trade and marketing2. Human resources3. Financing4. Innovation activities5. Intellectual property rights6. Cooperation with research institutes and universities7. Science and technology parks, incubators8. Cause of obstacles in innovation activities 9. Possibilities of public support to innovation

* Detailed interviews were performed in 40 SMEs

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Interviewed companies – the prevailing field of activity

Field of activity Number of SMEs

Information and communication technology 21Electrical engineering and electronics 18Materials and nanotechnology 14Machines and equipment 14Power engineering and mineral resources 11Pharmacology 11Chemical products and processes 11Building industry and urbanism 11Environment 11Biotechnology 11Agriculture and food industry 7Transport 4Total 140

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Main barriers identified in the SMEs survey

Internal problems of companies

16%

Financing of innovations

37%

Human resources

13%

Market problems (difficult

penetration)10%

Business environment (legislation,

taxes)24%

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The opinion of the SMEs’ managers

The most important measures that should be taken by the government to support innovation in SMEs

• Targeted tax relieves for innovative SMEs - depreciation of investments in R&D, extended deduction of expenses on R&D and innovation (83%)

• Systemic measures motivating mutual cooperation of SMEs and academia (65%)

• Establishing new programs supporting R&D and innovation in SMEs and the cooperation between SMEs and research and educational institutions (63%)

• Improved infrastructure for technology transfer and business incubation(55%)

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There is something to build on ...

Some examples:• Legislation (tax relieves)• Specific programs for SMEs• Infrastructure for business incubation and

technology transfer• Foreign direct investments......

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Tax relieves for Research and Develoment

• Czech Government approved (2005) tax relieves available for spending by business on R&D

• Businesses can deduct up to 100 % current spending on R&D when they compute their taxable profits

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Specific programs for SMEs

• Mostly programs operated by the Ministry of Industry and Trade (MIT) through the implementation agency CzechInvest

• MIT distributed about 4.2 bln CZK in 2005• About 3,000 SMEs supported• The biggest program of the MIT is the

Operational Program Industry and Enterprise with more than 3.6 bln CZK allocated to projects of SMEs in 2005

Source: Ministry of Industry and Trade, CzechInvest

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Science Parks and Incubators

existingexisting and expanding – support

from the Program PROSPERITA new projects – support from the

Program PROSPERITA

Source: CzechInvest

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Czech Innovation Relay Centre

• Main business - technology transfer, commercialization of knowledge, IPR services

• Consortium of three organisations covering Czech regions with a dynamic sector of innovative SMEs and strong research base

• Member of an international network of 71 IRCs in 33 (mostly European) countries

for success stories visit http://irc.cordis.lu

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Foreign Direct Investment

Source: Czech National Bank

FDI in the Czech Republic (US$ bln)

0,87

2,56

1,3

3,72

6,32

4,995,64

8,48

2,58

4,46

1,430,65

0

2

4

6

8

10

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

cumulated value: US$ 43 blnGDP PPP: US$ 187.5 bln in 2004

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Foreign Direct Investment• Intensive promotion of the inward FDI since the 2nd half of the 90’s

direct subsidies, land and infrastructure preparation, tax allowances

large political support• Positive: capital, know-how, managerial quality, market ...

consequently ... wealth creation, jobs creation, development of supply chains

• Questionable: using of local R&D capacities, development of own research capacity in the Czech Republic, investment into human resources

Good example: Skoda Volkswagen – Czech research capacities anounced to develop (1,500 researchers), project of own regional university

• Issue to be solved:• Minimal threshold for state support (100 M CZK) is too high for

smaller companies (> SMEs)• Consequently „if you are neither SME or big investor there is no

support for your projects“

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Utilization of results

• Formulation of the Economic Growth Strategy of the Czech Republic - section Research, Development and Innovation (completed and approved by the Government of the Czech Republic in November 2005), http://www.hospodarskastrategie.org

• Results used (at least) by three Ministries - Ministry of Industry and Trade, Ministry of Regional Development, Ministry of Education for preparation of new Operational Programs (EU Structural Funds) for 2007-2013 (underway)

• Operational programs– focus on research, development, innovation, SMEs and related human resources - distribution of 160 bln CZK over a period of 7 years

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Thank you for your attention