3rd presentation of the CentraLab Mid-Term Conference held in Budapest on 2 October 2012.

1. DR. ANNAMÁRIA INZELT
Challenges for Central
European Innovation Policy –
Framing Innovation Activities
CentraLab Mid-Term Conference
October 2, 2012
Member of
Financial Budapest - Hungary
Research Corp.
H-1023 Budapest,
Felhévízi út 24.
www.penzugykutato.hu/en/node/3
25

2. Problems in CEECs
• Economic crises, lack of stability
 Creative destruction is crucial - restructuring
 Slow progress toward innovative economy and society
 R&D programs have low relevancy to business
community
 Hardly innovative business can create low demand for
new knowledge
 International (cross-border) collaboration in open
innovation (foreign business partners, penetration of FDI, participation in
innovative business networks)
 EU / ERA: slowly converges of under-performing
countries upwards to the stronger regions (to break ‚newer‟
and ‚older‟ MSs into each other‟s networks)

3. Innovation Policy may lead to...
- Funding - Employs
without intelligent tools
evaluation - Create
- Picking innovation
winners friendly
instead of environment
facilitating - Support
- Past-oriented collaboration
- Future oriented

4. Outline of the Lecture
I. Challenges for innovation policy
in Europe
II. Opening up the innovation system
III. Innovation policy
IV. Demand-side innovation policies
V. Concluding remarks

5. I. Challenges for European Innovation Policy
 How may Europe get back on the path of
growth?
 How can Europe be again a continent of
starting up companies and emerging
regions?
 How can Europe tackle major societal
challenges?

6. Innovate – to get Europe back on
the path to growth
 Research and innovations
are essential to cope with
Grand challenges increasing environmental,
 Climate change ecological or social
 Energy security problems
 Transformation needs in
 Health innovation policy making
 Ageing population and governance of
 Sustainable mobility innovation
 High-quality of governance
demands intelligence
policy-making tools
Innovation Union
Policies developed in the past are no longer ideal
Dr. Annamária Inzelt: Challenges for ....

7. EU countries by their innovation
performances
Innovation leaders
Innovation followers
Moderate innovators
Innovation
leaders: performing
Modest innovators well above the EU-27
average. All perform
well in business R&D
expenditures and other
firm-related innovation
indicators.
They created good
linkages between science
base & business;
They are good in
commercializing their
technological knowledge.
Source: Author‟s compilation based on
Innovation Union Scoreboard, 2011.

8. II. Opening up the Innovation System
From closed to open innovation
Knowledge required for innovating becoming more
organisationally dispersed  innovation
increasingly co-produced with partners (suppliers,
users, universities etc.)
Literature characterises variously (Powell et al., Chesborough, von Hippel):
◦ open innovation
◦ networked innovation
◦ distributed innovation
◦ interactive innovation
◦ democratic innovation
Firms need good links with external knowledge sources
+
ability to exploit these promptly & effectively

9. Open innovation...
 „…is a paradigm that assumes that firms can and
should use external ideas as well as internal ideas, and
internal and external paths to market, as the firms look
to advance their technology.” (Chesbrough, 2003, p. xxiv)
 „systematically encouraging and exploring a wide
range of internal and external sources for innovation
opportunities, consciously integrating that exploration
with firm capabilities and resources, and broadly
exploiting those opportunities through multiple
channels” (J. West, 2006, p. 2.)

10. Knowledge triangle in the IS
Education and
research system
Professional
education and
training
Education Higher education
and research
Industrial system
Education and
Multinational companies research system
Networks, clusters
Large companies Transfer Higher education
Mature SMEs & and research
New, technology based
Brokerag
firms e Public sector
Research research
Innovation

11. U-I Collaboration in EU Countries
Public-private co-publications per million population (2010, normalized data)
1.00 CH=1,00
0.90
0.80
0.70
0.60
0.50
0.40
0.30
0.20
0.10
0.00
LU
CY
LV
SE
BE
EE
ES
GR
SK
HU
EU
NL
AT
SI
RO
BG
FR
IT
LT
FI
IE
CZ
DK
DE
UK
PT
PL
MT
Innovatio Innovation followers Moderate innovators Modest
n leaders innovators
Source: EU Innovation Scoreboard, 2010.

12. III. Innovation Policy...
... is actions by public organizations that
influence innovation processes (development
and diffusion of innovations). “Influence” means
to improve these processes in some
respect (by trying to solve or mitigate problems related to
innovation processes). (Borras & Lundvall, 2008)
Dr. Annamária Inzelt: Challenges for ....

13. Shift in Innovation Policy
Traditional – implicit innovation policy
Industrial Policy that covers innovation related instruments
Changes in the environment:
Triumph of high technologies (1970s)
broad spectrum of technology policy measures
Technology race emerged
Explicit Innovation Policy – Policies for Industry (mid 1980s)
Demand-side innovation in policy statements (EC, Japan, Finland and UK)
Demand-side Innovation Policy (2000s)
Rationales for public research and innovation policy:
1) Catalyst, 2) Promoter, 3) Regulators
Country and country group specific policies are crucial for ....
Dr. Annamária Inzelt: Challenges

14. EU policy highlights
Innovation Union 2020 Horizon 2020 (replacing FPs)
- What needs to be done on New European funding
EU level programme for R & I
- MSs have to draw up and Demand-side policies and
implement its own instruments
innovation strategy (based on 3C (concentration, cohesion and
own assets, strengths and weaknesses) cooperation)
Integrate innovation
Additional EU funds for sponsoring
strategies into National RDI: structural fund; regional fund;
Reform Program cohesion fund
- Smart specialization
Platform FPs are small fractions
of EU 27 RDI spending
Proposals: They are
Single European Patent orienting, stimulating
EU initiatives

15. Policy highlights by levels
EU level National level Regional
level
Spreading excellence more Centres of Smart
widely  increase partici- Excellence specialization
pation from convergence region
– stairway of excellence (cohesion
fund)
- Support researchers to spend • Returnee programs Example:
time for working outside EU Flemish
• Attract foreigners /
to return EU top talents
regions
- Draw top talent into the • Keep own
convergence regions researchers
- Upgrade infrastructure and National research
equipment infrastructure programs
Dr. Annamária Inzelt: Challenges for ....

16. The instruments for research and
innovation policy
 Direct tools  Institutional funding
◦ Financial incentives  Surrounding conditions
(RDI programs, RDI tax credits, risk
capital, innovation voucher for SMEs) ◦ Public finance of education
◦ Other infrastructure and and training
technology transfer mechanism ◦ Public policy
(Information and consultancy for (Competition policy, de/regulation,
SMEs, demonstration / technology public stimulation of private demand)
Demand centers, cooperation, network, people)
-side ◦ Innovation related regulations • Regulatory instruments
Public procurement
innova- (laws and binding
◦ Systemic policies regulations)
tion Lead market initiative, support to user-
policy centered innovation  Standards &
◦ Awareness raising, campaigns, Standardisation process
tools labelling

17. IV. Demand-side Innovation Policies
Demand-side innovation policy is
understood as „a set of public measures
◦ to increase demand for innovations,
◦ to improve conditions for the uptake
of innovations, or
◦ to improve the articulation of demand
in order to spur innovations and allow
their diffusion”
(Edler, 2007)
Dr. Annamária Inzelt: Challenges for ....

18. Predecessors of Demand-side
innovation Policies
In the literature:
The role of demand has been a constant topic since Marshall (19th century):
supply of new technologies is triggered by demand and economic value
Schumpeterian dichotomy:
‚technology-push‟ & ‚demand-pull‟
In the practice:
They were part of the old style industrial policy to
support specific industries
◦ Large mission-oriented technology procurement policies
◦ Public procurement to support innovations

19. DsI policy tool 1: Public procurement
 Public procurement of innovative goods and services relies on
inducing innovation by specifying levels of performance or
functionality that are not achievable with „off-the-shelf‟ solutions and
hence require an innovation to meet the demand. (Erawatch Report, 2011.)
- innovation-friendly public procurement: public sector organisations buy ready-
made innovative products
- public technology procurement: governments request specific technologies or
services for the delivery of public services
 Pre-Commercial procurement is an approach for procuring R&D
services which enables public procurers to:
◦ share the risks and benefits of designing, prototyping and testing a limited
volume of new products and services with the suppliers, without State aid;
◦ create the optimum conditions for wide commercialization and take-up of R&D
results through standardization and/or publication.
◦ pool the efforts of several procurers. (EC, 2007.)
Catalytic procurement government is the ‚ice-breaker‟ – mobilise private
demand

20. DsI policy tool 2: Regulation
 Regulation refers to the implementation
of rules by public authorities and
governmental bodies to influence the
behaviour of private actors in the
economy. (OECD, 2010.)
◦ Use of regulations (PP sectors collaborate
new regulations that is formed to encourage
a certain innovative behaviour)
Dr. Annamária Inzelt: Challenges for ....

21. DSI policy tool 3: Standards
• Standards are documents based on various
degrees of consensus (industry-wide,
national, regional or international) which lay
out rules, practices, metrics or conventions
used in technology, trade and society at
large. (OECD, 2010.)
◦ Standardisation – voluntary cooperation among
industry- consumers-public authorities for the
development of technical specifications based on
consensus
Dr. Annamária Inzelt: Challenges for ....

22. Additional DsI policy tools
 Supporting private demand
◦ Tax incentives
◦ Awereness raising campaigns, labelling (bridge
the information gap consumers of innovation have about
security and quality of novelty)
 Systemic policies
◦ Lead market initiatives (where the diffusion process
of an internationally successful innovation first too off)
◦ Support to user-centred innovation (innovation
driven by end- or intermediate users)

23. Famous success stories...
... where regulation, standards and / or public
procurement played a critical role in spurring
innovations are: (Source: Inno-Policy Trendchart 26 October, 2011)
- The Internet
- The GSM for mobile telephony,
- Aircraft jet enginees
Timely
- High-speed rail technology standardization
- Eco-innovation development
Dr. Annamária Inzelt: Challenges for ....

24. Avoid premature standardization:
electric cars
The GEM
neighbourhood
electric vehicle
Thomas Edison and an electric car
in 1913.
Smart ED
The Renault Fluence charging from a
Z.E. electric car Level 2 station
within the Better
Place network
Source: Wikipedia

25. Trends in demand-side innovation
policies
1. Pioneered such 2. Relevant and some
instruments, highly experimentation
relevant Austria, Ireland, Spain,
Germany, Finland, Italy, Iceland, Poland,
Denmark, Belgium, Malta, Czech Republic
Sweden Countries experimenting
Countries are moving with new measures while
towards a strategic highly debating DsI policy
integrated approach of DsI
policy
3. Limited relevancy, scattered actions
France, Luxembourg, Hungary, Greece, Lithuania, Bulgaria, Romania,
Slovenia, Cyprus, Slovakia, Estonia, Latvia, Switzerland, Lichtenstein
OECD 2011 Countries devote limited attention to DsI policy

26. Broad overview on the use of demand-side
innovation policies
Type of policy tool FI ES AT NO DE NL SW DK FR
Fostering public procurement of
X X X X X X X X X
innovation 9
User-driven innov. 7 X X X X X X X
Awareness raising campaigns, labels
X X X X X X
6
Pre-commercial public procurement
X X X X X
5
Lead market type of initiatives
X X X X X
5
Regulation as a tool for innovation
X X X X
policy 4
Tax incentives to foster innov.
X
demand 1
Total 7 6 3 2 4 6 4 5 4 3
Author‟s compilation based on OECD, 2011, p. 30 and Erawatch report, 2011, p. 20.

27. Good practices of demand-side policy
interventions
 Green energy law in Austria
◦ This law and its support measures target suppliers of
green, renewable energy to increase its share in total
energy supply. The measures support the marketability of
the technology. Management is by a dedicated
organization.
 Public procurement measure Finland
◦ „Innovations in public procurement‟ promotes
innovations in public contracts aiming the renewal of
services and activities. Long term commitment, ability
and resources to implement, willingness and strategic
commitment for large-scale activities are needed to
achieve at least regional impact. Second stage funding for
RDI activities are also offered.
Source: Erawatch Report, 2011.

28. V. Concluding remarks
Demand-side policies should complement
rather than substitute supply-side measures
If demand factors for innovation are included into
the policy mix they can
◦ Induce modernisation of the economy & public services
◦ Accelerate the catching up process of less-developed
states and regions
◦ Improve innovation and growth
Innovation policy mix should be composed of
both supply-side measures as well as demand-
side instruments (Inno Policy Trendchart 2011)

29. Concluding remarks cont.
 Government has important role to encourage
innovation activities
 More stability in financial sources and their
regulation can improve their efficiency
◦ However refinement of new policy tools are
always very important
◦ Refinement has to base on evaluation instead of
short-term budgetary view
 Development in financial environment can
attract more private sources in RDI activities

30. Concluding remarks cont.
 Competitive system has many advantages
◦ Moving from picking winners to facilitating innovations
 Government can facilitate business RDI activities
but cannot replace them
 More innovative business can create better demand
for R&D at universities and RPOs
 Refined transfer system among the sectors,
between actors in the same sector are crucial not
only national but across borders
Hungarian proverb: Clever people can learn from the mistakes by others

31. Thank you for your kind
attention!
www.penzugykutato.hu/iku
www.penzugykutato.hu/en/iku
Email: annamaria.inzelt@uni-corvinus.hu
inzelt.annamaria@penzugykutato.hu
Dr. Annamária Inzelt: Challenges for ....