nowEurope

Central Europe is full of long-haired academics who love to tinker in their university laboratories and workshops. Most of these guys wouldn’t know a business opportunity if it hit them on the head. Technology transfer is a public sector buzzword for funding projects to extract those ideas from the laboratory and develop real world businesses. The catch is that we don’t see too many examples yet.

The last dozen nowEurope posts have contributed to my understanding of Central Europe’s innovation dilemma, but I am not yet persuaded that technology transfer is not just wishful thinking. I found it useful to summarize where we stand in order to highlight what we still need to know.

Why does innovation matter?

Innovation has economic value when newly-discovered ideas, processes or molecules are used to build businesses and markets. An innovative business has the opportunity grow quickly, and to lock in its advantage by controlling intellectual property or its first-mover advantage. Local innovators create jobs, as well as other spin-off businesses, and they contribute to government tax coffers.

As I posted recently, research by the Economist Intelligence Unit (EIU) found that most of the Central Europe’s innovation is imported by multinationals which can just as easily pack up and play elsewhere (and frequently do).

What I’ve seen is that the Multis actually teach their Central European managers to avoid risk. Most big decisions take place in London, New York or elsewhere. The head office usually keeps its CEE affiliates on a tight budgetary leash. Several multinationals conduct R&D in the region, but the management and clients are foreign and the locals are seen as cheap talent. However that won’t be the case for much longer.

As wages rise, CEE is a less attractive place for the Multis. Many will remain, but they will move their R&D labs to cheaper locations.

How is local innovation developing?

CEE does have a handful of homegrown innovators but they are few. Usually these stories involve a group of talented, single-minded individuals, good timing and luck. I’ve known a few: Gabor Bojar (Graphisoft), Marton Szoke (IndexTools - just sold to Yahoo!) and Roman Stanek (Netbeans, Systinet). I could offer more examples, but this could hardly be called a trend.

Many talented people see their best hope in moving to Western Europe or the United States. I know many who have done exactly that. I know few who have come back and made their fortune in Hungary. Guenther Krumpak has spotted a few exceptions in Austria that might be useful model elsewhere.

Local governments pay lip service to innovation, but according to Balazs Barta, their efforts don’t seem to amount to much. I would certainly like to hear from somebody who has a different view on this.

The region’s private sector still isn’t ready to take on the mantel of innovation. Small business in CEE is weak, underdeveloped and underfunded. In Hungary, up to 25% of all economy activity passes through the cold hands of the State. Local Big Enterprise still suffers from a public-sector hangover.

How is local innovation funded?

Central Europe is awash with foreign capital but this rarely goes toward risky, innovative ventures. The local business cultures are low trust and risk adverse. VCs favor bigger deals, management buy-outs and real estate. Innovative little projects like Gozdi might find support in Silicon Valley, but in Central Europe they have next to no chance of getting funded.

EU money is pouring into the region but most of it goes towards Multis, academic institutions and local governments. Most SMEs have no idea how to apply. Few have the experience or resources to take part in sprawling, multinational consortia with fuzzy goals. Public funding is bureaucratic and incestuous. Publicly funded projects are often counter-productive to the goals of an entrepreneurial small business struggling to succeed in real markets.

Having said all that, I have to confess that I am strongly biased toward the public sector. This might sound ironic, given that nowEurope is partially funded by an EU grant. What I hope to do with this blog is through light on the subject, highlight what is working and rally together key people in Central Europe who can be part of catalyzing real innovation.

What can we do?

It’s easy enough to spot where innovation doesn’t work. What I’m looking for is examples where government, academia and the private sector do manage to work together to bring new businesses from the laboratory. Bernhard Schmid offered two such examples recently: Austrian Research Centers (ARC) and the Center for Virtual Reality and Visualization Research (VRVis). The ARC works with 27 ‘industrial partners’ including Siemens, Motorola, Audi, TDK and Texas Instruments.

Here are some further questions to stimulate your posts and comments:

• Are there further examples of successful TT initiatives in CENTROPE?
• What successful products or businesses have been developed as a result of TT initiatives?
• How is the EU Framework Programme progressing and are more SMEs taking part?
• Are there examples of successful local government initiatives to encourage innovation?
• What other factors in CENTROPE might be favorable to innovation?