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Knowledge Economy Forum 2008: Innovative Small And Medium Enterprises Are Key To Europe & Central Asian Growth

Available in: Italiano
The World Bank

Europe and Central Asia Region

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News Release No.  2008/ECA

 

 Contacts: University – Silvia Mangialardo
s.mangialardo@univpm.it
World Bank: Massimiliano Paolucci,  39-06/77710204
mpaolucci@worldbank.org

 

ANCONA, Italy, June 17, 2008—Small and medium sized companies are catalysts for progress all over the world and are considered the principal generators of new jobs, innovation, and economic activity.  However, in many Eastern Europe and Central Asian countries, the growth and sustainability of emerging market innovative small and medium sized companies is often constrained by a shortage of both debt and equity financing, often coupled with laws and regulations that restrain rather than foster entrepreneurship and innovation.

 

The goal of the Knowledge Economy Forum2008 is to explore issues such as these to aid the countries in Eastern Europe and Central Asia in their transition to becoming increasingly knowledge-based.  Co-hosted by the World Bank and the Universitá Politecnica delle Marche, the theme of this year’s Forum in Ancona, Italy, on June 17th - 19th, is Technology Absorption by Innovative Small and Medium Enterprises, and aims to build on themes discussed during previous events, while exploring new dimensions related in particular to the role of government in supporting small and medium sized companies (SMEs). 

 

The Forum is coming to Italy, and particularly to Le Marche Region and Ancona, to study the success of local clusters of companies where many SME suppliers collaborate to produce world class products, including furniture, household appliances, and apparel.  This year’s Forum will examine the importance of public-private sector cooperation for the growth of the innovative SME sector, discuss how governments in Eastern Europe and Central Asian countries can learn from this experience, and devise and implement stronger policies to support SMEs.  Many SME representatives will be participating in the Forum to share their experiences.

 

“We are eager to provide this exchange of experiences among Eastern Europe and Central Asian countries,” said Ted Ahlers, Director of Strategy & Operations, World Bank, “on issues related to the role of knowledge and networks, competition policy, the private sector role in technology transfer, innovation, and productivity growth.  The Forum provides an occasion for both exchanges among the private sector, public sector, and research community, and for exchanges between the new EU member states and other countries of the region.  It is this unique type of interaction thatleads to new product development, process and service innovation, and aids governments to learn what it takes to facilitate such cooperation.”

 

The Forum will also explore how human capital development at the high end and the workshop are critical to innovate, to commercialize, and to bring to market quality goods – the forum will study comparative experiences of major firms in Germany and innovative companies in Italy, as well as examine the cross-regional experiences of Brazil.  Also important for SMEs, but challenging, is strengthening the linkages between higher education institutions and Research Centers with their own industries, and nurturing such relationships through partnerships, often intermediated by technology transfer institutions.  The Forum will look at the strict quality standards accepted internationally that SMEs must comply with to integrate into the multinational companies’ global supply networks.

 

Following up on last year’s Forum in Cambridge, the Ancona Forum will continue to study the important role of regional authorities in facilitating the entry of new firms and providing a supportive environment for knowledge and ideas to flow often in a process of ‘pollination’ by ‘serial entrepreneurs’ and dynamic and entrepreneurial professors.  Italy offers examples of such collaboration in different regional clusters which have provided impetus to specialized, world class, industries.

 

In addition, the Forum will look at how globalization is and will continue to be a very powerful force, with China and India rapidly climbing the ‘value ladder’, and competition likely to increase at the frontier.  

 

“Countries now face the ‘Red Queen Paradox’,” said Fernando Montes-Negret, Private/Financial Sector Director, World Bank, “where they simply must run faster to stay in the same place – that is innovate and increase productivity in order to maintain the existing standards of living in the advanced OECD economies.  This is why the Forum starts with a session on ‘Globalization and Technology Absorption’.”

 

Globalization and Technology Absorption in Europe & Central Asia

 

Building on this topic is the new World Bank report, Globalization and Technology Absorption in Europe and Central Asia: The Role of Trade, FDI and Cross-Border Knowledge Flows, launched at the Forum, which says that the capacity of countries in Eastern Europe and the former Soviet Union to absorb knowledge and new technologies is key to speeding up industrial development and increase productivity and economic growth.  The best ways to achieve this, says the report, are by increasing trade flows, encouraging foreign direct investment (FDI), facilitating research and development (R&D) and investing in the labor force.

 

The report points to the Aghion model, which says that it is not enough to invest more in R&D here and there to get the economy to grow faster, in fact a systemic approach is essential, in which more competition and entry of new firms, more investment in higher education, more flexible labor and financial markets with better access to finance, higher turnover of firms, and better government policies are put in place.

 

According to the report, policies that encourage domestic firms to export, and also invite foreign firms to invest locally, can increase competitive pressure and innovation at the firm level and increase knowledge absorption as a result.  Based on firm level surveys conducted by the World Bank and data from US and European patent offices, the study finds that foreign firms appear to be making a significant contribution to ECA-region inventive activity.  These firms’ local R&D operations, and their sponsorship of local inventors, generate a large fraction of the total patents emerging from ECA countries.

 

“Openness to foreign trade and investment is critical to technology absorption and diffusion within the region,” explains Itzhak Goldberg, World Bank co-author of the report.  “This builds not only competitive pressure, but also increases exposure to global best practices in technology and management techniques.  Our report also finds that increased FDI flows in turn increase the absorption of technology.  Science and innovation policy in the region should encourage Europe and Central Asian countries to promote international collaboration, and should support a greater role for the private sector in knowledge generation.” 

 

The report emphasizes that there is a need to continue to reform from the socialist-era science and technology architecture to a system modeled on global best practices that is more internationally integrated and market driven.  Patents from the Region, for example, tend to make fewer citations to the global state-of-the-art and are in turn cited less frequently than those from other parts of the world, indicating that local research and development communities are isolated from international technological trends. 

 

Similarly, while inventors in Russia, Hungary, Poland, Slovenia, the Czech Republic, Bulgaria, and Ukraine collectively obtained more US patents in 2006 than those in China and India, growth in US patents granted to inventors from China and India has surged ahead in recent years.

 

On the trade and FDI front, while the new EU member countries and Southeast Europe are attractive FDI destinations, countries such as Belarus, Macedonia, and Uzbekistan attract very little or no FDI.  Also, barriers to trading with the Region as a whole are three times greater than those for countries such as Indonesia and the US.

 

To overcome these hurdles, the report suggests that the Region needs to focus on reducing entry barriers, reforming regulations connected with business services, intensifying international R&D collaboration and investment, facilitating trade (e.g. customs procedures, addressing governance problems for transportation services), and reducing barriers to trade. 

 

For the many Commonwealth of Independent State countries and Southeast Europe countries that lag even further behind, reforms need to focus on restructuring enterprises, easing the entry and exit of firms, improving access to credit, and accelerating domestic reforms.

 




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