1. Thursday, March 26, 2009
Connect Globally for an Innovation Economy
26 March 2009 By Thomas Nastas
The speed with which the economic crisis spread across the globe, devastating so many
economies, surprised many. The catalyst for the crisis can be laid at the feet of creditors, but
its rapid contagion from one country to another can be explained by the globalization of
supply chains.
Business is entering its third stage of evolution -- what IBM chairman Sam Palmisano calls
the quot;globally integrated enterprise.quot; The first stage was the 19th-century's quot;international
model,quot; when corporations established sales offices in foreign countries with minimal
economic impact on host countries.
When I worked at Ford Motor Company in the 1970s, it grew by replicating itself with small
versions of quot;me too'squot; in foreign countries, each with their own management, manufacturing,
logistics, purchasing, human resources and supply chain operations and staff. This second
stage is being replaced by globally integrated enterprises executing their strategies, operations
and investments where work is best done in the world. Instead of separate, self-contained
supply chains for each market, third-stage enterprises have a global footprint with a single
supply chain.
Global supply chains mean new opportunities flowing to countries and enterprises with the
right skills and a focus on expertise, openness and cost. Globalization of the supply chain
enables small and medium-size enterprises, or SMEs, to learn from their customers,
accelerating skill transfer and knowledge creation for them to leverage domestic success into
opportunities to sell globally. It enables multinationals to capitalize on local resources and
talent. But it has another outcome: It locks producers, customers, financiers, investors and
citizens together in ways unimaginable 25 years ago, such that a falloff of demand in
Melbourne has a ripple effect on economies from Mumbai to Miami to Moscow.
It's natural for Russia to look for ways to break international supply links and to boost
domestic production and content. While import substitution has positive elements to it, this
actually runs counter to the diversification goals that President Dmitry Medvedev and Prime
Minister Vladimir Putin have set for the country. Innovation and knowledge creation thrive
best when parties collaborate and cooperate to share development costs and risk. While it is
counterintuitive to seek more international integration now, that is exactly what is needed to
make diversification a reality for Russia.
The key objective for Rosnano and the Russian Venture Company is to build a knowledge-
based economy. The goals of these two companies are complementary: Rosnano invests in
domestic innovation and the Russian Venture Company finances Russian technology venture
funds, while they both encourage global investors to be become active on the Russian
technology market. While such a goal is worthwhile for the long term, it is too ambitious in
the current economic environment.

2. Opinion, Moscow Times: Connect Globally for an Innovation Economy 26 March 2009
Author: Thomas D. Nastas Page 2
The priority of U.S. and European venture capital investors now is to conserve cash in their
funds and portfolio companies. Yet investee companies of venture investors continue to seek
international opportunities. Multinationals are investing close to home, as evidenced by
Intel's $7 billion commitment to upgrade manufacturing facilities in Arizona, Oregon and
New Mexico for its next generation, high-performance 32-nanometer chip, which is code-
named quot;Westmere.quot; They and others remain open for collaborative partnerships with
researchers and developers from around the world.
Hewlett-Packard researchers, for example, are building what they call quot;a central nervous
system for the Earth,quot; with nanosensors and IT technologies to gather, transmit and monitor
data on a global scale from networks of intelligent nanofabrics that absorb and recover from
attacks. Hewlett-Packard seeks partners to share in the development costs, and this need is an
opportunity where Rosnano can carve out its niche by financing a domestic supplier of
nanotech components without requiring Hewlett-Packard or others to invest in Russia.
IBM announced the quot;Smart Planetquot; initiative to develop intelligent networks for
infrastructure and smart roads and buildings. Like Hewlett-Packard, Smart Planet requires
hundreds of partners with nanotechnology components and systems for execution. But unlike
Hewlett-Packard, IBM required a cadre of local partners to quot;localizequot; solutions for their
country and ensure a common platform so the system talks clearly to all users.
The Russian Venture Company can speed up Russia's integration into the global supply chain,
too. The action needed from the Russian Venture Company is to link their funds and investee
companies with technology SMEs that don't know how to enter Russia or where to start.
Helping foreign SMEs access Russia creates opportunities for new supply chain transactions
and SME formation.
Some groups have a specific technology focus like Research in Motion's Blackberry fund,
Silicon Valley venture capital Kleiner Perkins with their iPhone fund and Google with the
Android Developer Challenge. Each invests in and seeks new applications from SME
developers that increase the usability, functionality and appeal of smart phones. In just 15
months, these three groups have received more than 5,000 business plans and invested more
than $50 million into 30 SMEs and developers.
Such results demonstrate the value potential that a technology platform has to catalyze new
innovation, ideas and thinking to make money. They generate new SME creation and more
entrepreneurship. In 2007, for example, Stanford associate professor of music Ge Wang
didn't own an iPhone. Today, he is an entrepreneur and co-founder of Smule, whose Ocarina
application, which costs less than $1, is one of the best-selling iPhone applications in the
United States and in 10 other countries.
“The product made hundreds of thousands of dollars in its first month,” Wang said. “You
don't need to be a big development company [to sell in the iPhone space]. It doesn't take a lot
of time to try ideas on this thing. Ocarina was built in just two weeks.” Smule currently
employs seven full-time and seven part-time employees, up from zero when the company did
not exist two years ago.
Working with Blackberry, iPhone and Google catalyzes developer and scientific attention to
new business creation in Russia, and this advances the Kremlin's chief modernization goal of
economic diversification. It gets the Russian Venture Company, its investee funds and their
companies to collaborate with these investors and demonstrate the potential by working with
Russian developers and attract international investment funds into Russia.

3. Opinion, Moscow Times: Connect Globally for an Innovation Economy 26 March 2009
Author: Thomas D. Nastas Page 3
A golden rule of innovation is that the most powerful ideas frequently come from the most
unexpected places. Working collaboratively from different parts of the world as integral parts
of a global supply chain reduces risk and investment for all -- a win for everybody in the
current economic environment.
Thomas Nastas, founder of Innovative Ventures Inc., is member of the board of directors of
Sotsgorbank and the Independent Directors Association in Moscow.