Innovations: from idea to implementation 9786012476415

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Innovations: from idea to implementation AL-FARABI KAZAKH NATIONAL UNIVERSITY

Galym Mutanov


Almaty «Kazakh University» 2012


Galym Mutanov


UDK 004:001.895 M 88

Recommended for publishing by the Scientic Council of the Business & Economics School and the Editorial-Publishing Board at Al-Farabi Kazakh National University

Reviewers: Academician of the National Academy of Sciences, doctor of technical sciences, professor, head of the board of the Scientic-Technical Holding «Parasat» N.S. Bekturganov Doctor of economics, professor, director of «Innovation Economy» M.Z. Kazhyken

G.M. Mutanov. Innovations: from idea to implementation. – Almaty: Kazakh M 88 University, 2012. – . 212. ISBN 978-601-247-641-5 The book is devoted to the problems of creation and development of innovations in the present-day economy. Based on the generalization of extensive theoretical material and best foreign experience the author presents an integrated vision of the innovation process in the context of its life cycles: from idea generation to its commercial implementation as a new product or service. The book is intended for specialists, scientists and experts in economics, innovations and technologies as well as for post-graduates and master course students interested in the problems of innovation development.

UDK 004:001.895 ISBN 978-601-247-641-5

© Mutanov G.M., 2012 © KazNU named al-Farabi, 2012

Innovations: from idea to implementation Content INTRODUCTION .......................................................................................5 CHAPTER 1 SPECIFIC FEATURES of INNOVATION GENERATION and DEVELOPMENT 1.1 Innovations: denitions and types ....................................................9 1.2 The role of innovations in economic development .................................19 1.3 National Innovation System ....................................................................24 CHAPTER 2 INNOVATION LIFE CYCLE 2.1 Mechanisms of innovation development ..........................................36 2.2 Idea generation ........................................................................................42 2.3 Fundamental research and R & D ...........................................................51 2.3.1 Fundamental research ....................................................................52 2.3.2 Applied research .............................................................................57 2.3.3 Research & Development ..............................................................59 2.3.4 Pilot production ..............................................................................62 2.3.5 Commercial development and commercialization ........................63 2.4 New approaches to the development of innovative products .................70 CHAPTER 3 BASIC ELEMENTS OF INNOVATION INFRASTRUCTURE 3.1 University ...............................................................................................77 3.2 Business incubator ................................................................................91 3.3 Technology parks ..................................................................................99 3.4 Center for technology transfer ............................................................101 3.5 Center for technology commercialization .........................................103 3.6 Venture funds and business angels ....................................................106 3.7 High technology zones .........................................................................111



Galym Mutanov CHAPTER 4 National Innovation Systems: International Experience

4.1 The European Union ................................................................................122 4.2 Germany...................................................................................................129 4.3 France.......................................................................................................132 4.4 Great Britain.............................................................................................140 4.5 Finland ....................................................................................................146 4.6 USA..........................................................................................................151 4.7 China ......................................................................................................162 4.8 South Korea ...........................................................................................167 4.9 Japan .......................................................................................................174 CHAPTER 5 CHALLENGES AND HORIZONS FOR INNOVATION DEVELOPMENT IN THE REPUBLIC OF KAZAKHSTAN 5.1 Present-day status of innovation development in Kazakhstan ...............187 5.2 Prospects of innovation development in Kazakhstan ..............................202 CONCLUSION ........................................................................................210

Innovations: from idea to implementation


In the  century the word «innovation» has become synonymous with «progress»; this means that success will belong to those that are most responsive to change. Nursultan Nazarbayev



nnovation is not only a passport to economic growth and security for any country in today’s world, it is also the basis for the development of a knowledge economy, which can bring multibillion revenues. Modern countries must demonstrate their economic and political viability, which is why today they are restructuring their national economies with a view to harness their intellectual potential and transform it into innovation. Commercialization of innovation has become a kind of new religion for many countries, corporations and individuals. This process is multifaceted and resource-intensive, since it is linked to a set of rather complex phenomena, such as the ingenuity of a people, its research prociency and its capacity for transforming research into commercial product. Although today many researchers are looking at the problem of generation of ideas and their transformation into innovations, with numerous publications devoted to the subject, only a few leading countries have succeeded in building a knowledge economy.


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To form a holistic view of the development of innovation processes and advance recommendations for their efcient application in our country, this book seeks to systematize available scientic data on innovation processes and examine instances of successful experience. Today we know that innovation development has its own proper lifecycle, composed of certain stages. Leading countries have not only learned to adapt to the rigid conditions of global competition, they have also evolved a unied national innovation system that contributes to the continual innovative renewal of their economy. The rst chapter of this book deals with the concept of innovation – its denitions and interpretations in a variety of sources. This many-faceted phenomenon is variously dened by researches as a process, an investment into original ideas [???], or a result in the form of a new product, service or technology. It would be useful, therefore, to advance a clearer interpretation of the term innovation and to systematize the categories used in this area of knowledge. The second chapter uses a theoretical and methodological approach to examine the complete lifecycle of an innovation process – from original idea to nal product – in order to identify qualitative economic changes brought about by innovation. . The example of the most developed countries demonstrates that the level of innovation activity is correlated directly to the state of national innovation infrastructure, which includes universities, business incubators, technological parks, high-tech zones, and venture funds. Thus, the third chapter examines the role played by these institutions in innovation development. The fourth chapter describes the experience accumulated in building national innovation systems in such countries as Germany, France, UK, Finland, USA, China, South Korea and Japan. An analysis of the progress made by these countries offers fruitful ideas for building a national innovation model for Kazakhstan. Innovation-related activity has always been and will remain one

Innovations: from idea to implementation


of the major paths toward the diversication of Kazakhstan’s economy, because it will transform a nation that relies on a raw material economy into one engaged in high-tech resource conservation and knowledge-intensive production. In his annual Address to the Nation, the President of the Republic of Kazakhstan N.A. Nazarbayev has repeatedly emphasized the importance of industrial innovation projects for the development of new sectors of the economy, which translates into major social benets and jobs creation. The head of the state has tasked the Government with streamlining the innovation process by way of an increased involvement of business and commercial ventures in national research and development projects, as outlined in the Business-and-Science-2020 roadmap. Ongoing implementation of the Industrial Innovation Strategy has already pioneered several innovation clusters in the Republic of Kazakhstan. Innovation infrastructure is developing in the regions, and many businesses have strengthened their innovationrelated activity. Despite the positive results of a number of initiatives, and numerous available studies and materials on innovation development, no qualitative innovation breakthrough has yet been observed in Kazakhstan. This is due to a number of organizational, legislative and economic reasons: e.g. a weak link between research activities and producer market needs, the absence of the commercialization phase to help transform applied research into manufacturing application, weak incentives for innovators, lack of venture nancing, etc. The head of state, Mr. N.A. Nazarbayev, has repeatedly emphasized the importance of human resources to the development of innovation projects. To this end, «rst of all, we will need to train innovators – those who are passionately interested in innovation and are capable of creative thinking. We must pool them, look for them high and low. Personnel training, advanced vocational training and nurturing their creativity will be our main tasks, apart from innovation per se.»


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It is important for today’s Kazakhstan to proceed from ‘good intentions’ to real work. Foreign analysis reports used in this book are especially valuable, because they explain why Kazakhstan has fallen behind in innovation development and offer recommendations for remedial actions. This book can be of interest to specialists, experts and other readers involved with the problems of innovation. In addition, it can be used as a learning tool by students and young scientists studying the basics of innovation management.

Innovations: from idea to implementation



SPECIFIC FEATURES of INNOVATION GENERATION and DEVELOPMENT 1.1 Innovations: denitions and types A specic feature of the modern world economy is the innovation vector of its development. Understanding the very important role of innovations in the social and economic development of society, more and more countries are developing and implementing innovation-oriented economic policies. Under conditions of rapidly changing market demands at the microeconomic level, enterprises and organizations are trying to increase competitiveness and efciency through better innovation performance. This is why the scientic community shows great interest in the phenomenon of «innovation» and other related phenomena. In spite of the fact that the subject of «innovations» has been thoroughly studied, scholars have not come to an agreement about a denition of the term «innovation». For many years, scientists and engineers have been discussing the essence of the term «innovation». The absence of a unied scienticmethodological approach hampers development of efcient innovation policy. The term innovation rst appeared in the XIX century and was applied to changes in culture. This meaning of the term is still used in ethnography. In V. Dahl’s dictionary, the word «innovation» also has a cultural meaning: «introduction of novelties, new customs and traditions» [1].


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At the beginning of the XX century, the term «innovation» came to be used in the science of economics. In 1909, Werner Zombart, in his article «A Capitalist Entrepreneur», justied the notion of «the entrepreneur» as an innovator. Describing the careers of some of the pioneers of early capitalism, in particular, Siemens, Werner Zombart concluded that «the main function of an entrepreneur is to bring to the market technical innovations in order to get prot, and it urges him not to enjoy getting something new but to distribute it as far as he can» [2]. However, as an economic category, the notion of «innovation» was rst used by an Austrian social scientist J. Schumpeter, the author of «The Theory of Economic Development», published in 1934 [3]. As innovations he meant the «realization of new combinations», namely: x Application of new techniques, technological processes or trade methods. x Creation of new products. x Use of new raw materials. x Use of new methods of organization and support of production. x Creation of new markets. J. Schumpeter also suggested a more general concept of innovative entrepreneurship. He paid attention to the fact that the entrepreneur invents new combinations of production factors, which are the sources of the entrepreneur’s prot. In the late 1930s, he introduced the classication of innovations: basic innovations and consequences of innovations, which was an important step in the development of innovation theory [4]. Since then, many denitions of the notion «innovation» have been given. On the whole, two main approaches to the notion of «innovation» can be identied: 1) Process (reproductive) approach. Innovations are considered as a process of the realization of an idea and its transformation into a nished product (foreign researchers B. Twiss, D. Tiss, T. Iord, V.N. Lapin, S.Yu. Glazyev, V.G. Medynsky) or as separate stages of the process – implementation, commercialization, and application (B. Santo, J. Schumpeter, K. Friman, H. Hartmann, S.V. Valdaytsev). In terms of this approach, innovation is dened as «change» (F. Valenta), or as a set of steps (F. Nikson).

Innovations: from idea to implementation


2) Objective approach. Innovations are presented as a nal result or an implemented project (foreign economists S. Mendel, D. Ennis, F. Jansen, A.N. Folomyev, E.A. Geiger, L.M. Hochberg, V.N. Arkhangelsky, E.A, Utkin). Besides denitions formulated by individual scientists, there were attempts to give collective denitions, in particular, denitions of unied international standards. In the early 1990s, in order to provide scientic support to the innovation development of a united Europe, the experts of the Organization of Economic Cooperation and Development developed the «Oslo Manual» («Proposed Guidelines for Collecting and Interpreting Technological Innovation Data: Oslo Manual») [5]. It is a working methodological document prepared by the OECD in cooperation with EuroStat, containing explanations of the main terms in the sphere of innovations and recommendations on innovation statistics, which many countries use as international statistical standards. According to the Oslo Manual, innovation is «a nal result of innovation activity implemented as a new or improved technological process used in practice or in a new approach to social services» [5]. However, the Oslo Manual was developed on the basis of analysis and in order to evaluate trends in the development of post-industrial society, and to study innovation processes in the market economies of the developed countries. Its recommendations can be used only to compare different countries, to study international experience but not to make managerial decisions in other, completely different, economic and social conditions. According to one of the latest formulations, innovations are a form of competitive advantage contained not only in knowledge, know-how, and technologies but also in: – New products, technological decisions, production processes; – New expert services; – New designs, images, brands; – New business models, distributor and partner’s networks; – New models in labor organization and management; – New methods of providing services by the public sector [6]. Of the variety of approaches and denitions, the following formulation gives the most precise and full denition of the term: innovation


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is an implemented novelty providing qualitative changes in processes, production and services, and having the following properties: – It may be a result of any type of purposeful activity (both scientic and practical) or of unintended origin; – It may be created in any sphere of human activity and in any form; – It must be practically applicable; – It may cause both positive and negative socio-economic effects on society; – It may have no commercial value. As an economic category, innovation has a number of functions that reect its essence. The science of economics species the three functions of this category [7]: • productive; • investing; • stimulating. The productive function of innovation means that the innovation as a product may bring income to its owner and, thus, trigger an extended productive process. The investing function of innovation is realized when the income from realization (sale) of the innovation on the market is used for nancing investments. The prospect of making a prot from the use or sale of innovation is the essence of the third function of innovation as it stimulates the entrepreneur to go on and on with the innovation process. However, the innovation process requires fulllment of other work related to the process, such as marketing research, and management of nancial and human resources, which shows the complex effect of the stimulating function of innovation. The classication of innovations is of vital scientic and practical importance. It shows the whole variety of innovations and their properties, and, hence, helps to disclose the essence of the phenomenon «innovation». The efciency of the management of innovation activities, both at the national and at the micro-level, greatly depends on the quality and method of classifying innovations, as there are different ways and means of managing innovations. The purpose of classication is to divide innovations into groups with

Innovations: from idea to implementation


similar properties. The system of classifying parameters includes the purpose (the purpose of innovation), the form (form of innovation) and the structure (the structure of innovation). According to purpose, innovations can be classied as [7]: – crisis (aimed at elimination of current problems in the economic process at the expense of innovations); – development (aimed at achieving greater competitiveness in the future). According to form, innovations can be classied as: – product (innovations as material products); – process (innovations aimed at implementation of certain actions in the form of rules, technologies, operations, outlines, etc.). According to structure, innovations can be classied as: – production-commercial (for example, new goods, technologies, commercial methods, organization of production process, production structure, etc.); – socio-economic (new organization of labor, ability to achieve lower production cost and higher prot, etc.); – nancial (a new nancial product, operation, etc.); – managerial (a new managerial structure, new methods of taking managerial decisions, forms of control, etc.) . According to the degree of novelty and innovation potential, innovations can be identied as absolute (radical), combinatorial and modifying (improving) innovations. This type of classication, taking into account the scale, novelty and intensity of the changes caused by an innovation, most fully describes its quantitative and qualitative characteristics, which helps to assess the economic consequences of its implementation and to make the necessary managerial decisions. Absolute innovations are novelties that have absolutely new or known, but considerably improved in productivity or price, properties. In other words, these innovations are principally new goods, processes or services fundamentally different from evolutionary improvements in already existing goods, processes or services. As a rule, absolute innovations are not numerous and imply appearance of a new consumer and/or new market. Combinatorial innovations are innovations that appear as a result


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of combining radical innovations in a new way, i.e. goods, processes or services with new functions obtained as a result of a new combination of known elements and properties. Modifying innovations are novelties improving initial properties, functions or parameters of goods, processes or services. It is technical implementation of absolute and combinatorial novelties that is why they are also called incremental innovations. This type of innovation implies not general but individual modernization of characteristics of goods, processes or services. From the managerial point of view it is interesting to consider subdivision of innovations into autonomous and system innovations [8]. Their differences in many respects determine the choice of organizational structure of an enterprise or a design group. The main advantage of autonomous innovations is that they can be created independent of other innovations, i.e. implementation of such innovations does not depend on or, vice versa, does not require implementation of other innovations. System innovations, and most known innovations refer to this group, can be implemented only in combination with, or on the basis of other innovations in parallel or adjoining products. Innovations aimed at savings are, as a rule, system innovations. The most appropriate model to be used to develop and implement autonomous innovations is the widespread virtual model of organization that, as a rule, implies the presence of a consortium of enterprises narrowly-specialized, legally independent, but closely related to each other . Unlike autonomous innovations, system innovations require a higher level of centralization in management, and that is why they are more rapidly and more efciently implemented in the framework of a vertically integrated company. There are two hypotheses that explain the origin of innovations. According to the hypothesis of the «technological push» developed by G. Mensh, the main source of innovations is internal laws of production. According to the hypothesis of the «demand challenge» advocated by K. Freeman, the main source of innovations is demand, as the demand for innovations and, hence, their implementation, largely depends on the preferences of the society. Sometimes many decades pass until the de-

Innovations: from idea to implementation


mand for some developments or inventions arises [9]. However, in real life it is difcult to name only one reason that caused the appearance of an innovation. The development of innovations depends on a variety of factors that enable new knowledge to turn into a nished product demanded by a society (Figure 1.1). The presence and high level of development of the factors illustrated in gure 1.1 create a favorable environment for innovations.

Development of an innovation product

High-technology industry

Technology National vision Strategy Political obligations Physical infrastructure / R&D financing / Financing and banks / Legal system

Fundamental sciences Education & highly-qualied specialists Regional planning Business Venture capital Project management Social support

Figure 1.1 – Development of an innovation product

All these factors can be conventionally subdivided into four major groups: economic factors, technological factors, business factors and human resources. Economic factors include the following components: – Competition;


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– Striving for higher prot; – Patent protection of inventions; – Public policy, and other factors. Competition creates stimuli for innovations; it acts as a powerful tool that disciplines all market participants and urges them to create a competitive advantage through implementation of new technologies, a new type of organization, discovery of a new type of goods, new sources of raw materials, etc. [10]. Striving for higher prot by raising the level of income and/or reducing expenditures also promotes implementation of innovations. What is more, the companies that are the rst to implement an efcient innovation get innovation superprot [11]. The other important factor determining the intensity of innovation development is the patent system designated to solve the problem of protection of intellectual property. The patent gives the inventor the property right for the fruits of his labor. Innovation activities are impossible without protection of the objects of intellectual property; therefore their intensity directly depends on the level of development and efciency of the patent system. Technological development also determines the level of innovation activities since technologies act as instruments for creation and application of new knowledge and developments [12]. Business provides commercialization and implementation of novelties, i.e. converts newly obtained knowledge into innovations and promotes their diffusion [13]. A key factor in any innovation environment is human resources. The innovation activity of an organization depends to a high degree on the qualications and motivation of its staff, hence, the human resources of the enterprise determine the innovation potential. And it should be noted that specialists for the labor market are trained by a country’s educational system, which creates its human resources base [14]. In scientic literature devoted to the problems of economic development, there are a variety of different terms serving as explanatory notes for innovatics – the science of innovation. Today, innovatics is at the early stage of its development. Its reference tools are not yet well-developed, and its terms are interpreted differently. However, in order to create inno-

Innovations: from idea to implementation


vation systems, to develop national and regional strategies and plans, as well as to monitor innovation processes, it is necessary to have practical recommendations with unambiguous interpretations of their terms. Therefore we suggest the following formulations of the most important and most frequently-used terms, based on an analysis of a large number of their interpretations in scientic literature, and on the essence of the denition of the term «innovation»: Innovation activity is an activity encompassing creation, development, distribution and use of innovations, i.e. a series of steps aimed at the creation of conditions for the realization of the innovation process (author’s denition). Innovation process is the process of the gradual transformation of an idea into an innovation, passing through the stages of fundamental and applied research, development, marketing, production and sales [15]. Innovation products are modernized or new products obtained as a result of the innovation process (author’s denition). Innovation enterprise (organization) is an enterprise (organization) carrying out innovation activities, developing, producng and realizing competitive products demanded by the market. It has the following set of characteristics: – It sells innovation products; – It shoulders a large share of the expenditures on innovations, including costs of scientic research and development; – It uses objects of intellectual property for strengthening the competitive advantages of output production [15]. Innovation potential is available resources intended for the achievement of innovative purposes (realization of innovation strategy, programs, projects) and the organizational structures and technologies (mechanisms) of innovative activity, i.e. a set of: • Products at different stages of development, implementation or production expansion; • Availability of nancial, technological, scientic and human resources to create, produce and modernize production; • Skills to organize development, production and sales of better goods than those produced by competitors. The main types of innovation potentials are:


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• Functional (scientic-technical, production, marketing, etc.); • Resource (material-technical, nancial, human, informational, technological, organizational-structural); • System (mission, values, experience, organizational structure, competence of administration); • Project-organizational (availability of organizational structures, concentration of R&D in the frameworks of programs and projects). Innovation activity of an enterprise is the degree of its participation in innovation activity (author’s denition). It is measured in terms of the availability and state of the following factors [16]: • Quality of innovative competitive strategy; • Level of mobilization of innovative potential; • Volume & share of investments in innovations; • Share of innovation components in output products, the management system and other spheres of the enterprise’s operation; • Return on implemented innovations. Innovation system is a set of organizations and institutions that together and separately make their contributions to the production, storage, distribution and use of knowledge in order to get new products, technologies and services to meet the demands of individuals and society [17]. Innovation infrastructure is a group of organizations able to carry out innovation activity, to provide favorable conditions for the innovation process that can include «technological parks, business-incubators, consulting and engineering companies, innovation and venture funds, scientic centers and other specialized organizations» [18]. Innovation economy is a type of economy based on a ow of innovations, continuous technological modernization, production and export of high-technology products with very high added-cost and technologies themselves, where the prot is mainly created by the intellect of innovators and scientists, the information sphere, and not material production or capital concentration [15]. The innovation economy is characterized by the following basic principles, parameters and indicators: – High index of economic freedom;

Innovations: from idea to implementation


– High level of development of education and science; – High and competitive quality of life; – High quality of human resources in the broad sense of the word; – High percentage of innovation enterprises (over 60-80%) and innovation products; – Substitution of capital; – Competition and high demand for innovations; – Redundancy of innovations and, as a consequence, support of efciency of some innovations at the expense of competition; – Initiation of new markets, principle of market diversity [19]. Undoubtedly, from theoretical and scientic-practical points of view, it is very important to form a clear and comprehensive understanding of the essence of the term «innovation» and its derivatives in a scientic and social environment. The denitions of terms and their explanations must comprise a qualitative scientic-methodological foundation, a universal «language» that will enable scientists and specialists to freely discuss the problems in a science devoted to the innovation development of the economy. 1.2 The role of innovations in economic development An innovation is a novelty put into place containing some qualitative changes. In turn, economic development is a chain of changes in the economy caused by the demands of technological and social progress. Hence, innovations are the driving engine of an economy providing its progressive evolution. However, improvements in the economic system make it more competitive, which in a certain sense enables us to consider competitiveness as a function of innovations K=f (I) [20]. Since competitiveness of the system means its ability to achieve and to hold a vantage point in the conditions of a rapidly changing environment, and innovations help to make changes in the system meeting market demands, it is possible to state that competitiveness is impossible without innovations. Hence, the innovativeness of the system is the basis for its competitiveness [21].The interrelation between innovations and economic development has been the subject of studies of many genera-


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tions of foreign economists. There are many theories proving the rstpriority role of innovations in economic development (Glazyev, Dynkin, Fetisov, Yakovets, Isterli, Schumpeter and others). In particular, Schumpeter supposed that innovation activity (activity aimed at implementation of innovations) «is the main reason for periodical «rises» revolutionizing the economic organism» [10]. Moreover, a higher level of economic development provides a higher level of innovation activity, as wide application of innovations gives rise not only to economic growth but also to further progress in science and technology. In other words, innovations give birth to other innovations. A considerable acceleration in the development and implementation of innovations in the modern economy can be achieved at the expense of high volumes of investments in the innovation infrastructure, and wider use of information & telecommunication technologies in the processes of innovation transfer. According to Schumpeter, the innovation process has its institutional and nancial mechanism, which «breaks» the mechanism of market equilibrium transferring it into a new state. Implementation of novelties has always played an important role in production development. It should be noted that the scientic literature does not give clear denitions of such terms as economic growth and economic development that show the differences between them. The concept of economic growth is most frequently identied with the increase in GDP as a whole and GDP per capita. GDP growth is a quantitative indicator not reecting sources and, hence, the quality of economic growth. In other words, economic growth and GDP growth are not equivalent to economic development. GDP growth may be observed in an economy that does not develop but, on the contrary, degrades. As an example, we can consider the situation often observed in Materials Economies where the growth in mining or prices produces growth in the GDP, but also economic degradation: the Dutch disease – an increase in ination and unemployment, a higher differentiation in incomes per industries and regions as well as among different layers of the population, a sharp fall in effective demand, etc. Economic development also implies progressive structural shifts in the economy expressed in qualitative economic growth, higher living standards, changes in the inter-branch balance and other factors.

Innovations: from idea to implementation


However, there may be different reasons for GDP growth. For example, in the transformational economy, the increase in domestic product is based on the use of free resources left after a deep recession in production. This type of economic growth was called the «recovery growth». The stage of «recovery growth» uses resources created earlier. A typical feature of «recovery growth» is a high rate of development at the initial stage. However, the growth has a damping character, and is only maintained by available production capacity and preliminarily trained human resources. Therefore economic growth may be caused by different factors: innovative and traditional. When production grows at the expense of innovation factors, it is possible to speak about qualitative economic growth and economic development. Here again we must emphasize the importance of innovations as a source of economic development, as innovations provide the growth in production not at the expense of an increase in expenditures, but due to the increase in their return. Innovation activity is based on scientic-technical progress, a higher level of education and qualication of specialists, improvements in management of production, human and material resources and other factors. In other words, a set of factors that helps to bring production and the process of its use to a higher qualitative level. Innovations can be implemented even during the phase of an economic depression. For example, Mensh, the author of the hypothesis of «depression as a trigger» [22], supposed that it is the phase of depression that gives rise to stimuli for the development and implementation of innovations. According to J. Schumpeter, basic technological innovations are created in the phase of depression [23]. As for growth in potential output, it may also be provided at the expense of attraction of additional resources of previously used quality (i.e. extensive economic growth). In this new approach, qualitative economic growth means growth in the potential output at the expense of innovations. Quality of economic growth and qualitative growth are not synonyms. The quality of economic growth is determined by the structure of its factors: innovative and traditional. The source of high-quality growth is prevalence of innovations in the structure of its factors. According to

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E. Denison’s calculations, today, the contribution of the innovation factor in the economic growth of developed countries is about 2/3 [24]. The increase in the share of innovations in the structure of factors of economic growth and the growth of potential output characterize a transition to qualitative economic growth. The innovation factor of economic growth contains personal, material-technological and information elements. The personal factor is better work force quality, namely, a higher level of culture and qualication, better health, use of more advanced technologies in human resources management aimed at more efcient use of their creative potential. The material-technological factor can be dened as an increase in the quality of xed capital and usable materials, modernization of production technology, organization of goods distribution, etc. The information factor can be dened using B. Gates’s words «creation of an electronic nervous system» piercing all production and business processes, and the organization of a «paperless ofce» [25]. A modern theory of innovation economic development is based on the Kondratiev theory of long waves (Figure 1.2). Steam engine







Electrical Engineering chemistry

petrochemicals automobiles

information technology


1. Kondratiev 1800

2. Kondratiev 1850

3. Kondratiev 1900

4. Kondratiev 1950

5. Kondratiev 1990

P: prosperity R: recession D: depression E: improve emen

Figure 1.2 – Long waves of economic development according to the Kondratiev theory

Innovations: from idea to implementation


Having analyzed statistical economic data of such countries as the USA, Germany, Great Britain and France for the period from the end of the XVIII century to the 1920s, N. Kondratiev came to the conclusion that economic development followed cyclical laws. He empirically established the presence of long and short waves of capitalist production. In particular, in the framework of the studied period he identied three long cycles lasting for about 50 years. N. Kondratiev saw that cycles were caused by the necessity for the renewal of xed capital, as the potential of economic development based on old technologies was exausted, and they had to be replaced by the new ones. Using his model, Kondratiev predicted the Great Depresion in the USA in 1929-1933. According to the Kondratiev theory, the cycles get shorter and shorter. That is caused by acceleration of the rates of scientic-technical progress. Taking into account this tendency, Kondratiev predicted the development of the world economy up to 2010 and predicted the end of the fth cycle in 2011-2013. The correctness of his theory has been conrmed by practice, and we may become live witnesses of the economic crisis exactly calculated by Kondratiev. Further contribution to the development of this theory was made by S. Glasyev, who developed the concept of technological modes [26]. He introduced into the scientic dictionary the term «technological modes», which means a set of technologies used at a certain level of development of productive forces. Under the impact of scientic-technical progress out-of-date modes are replaced by more advanced ones [27]. A technological mode (TM) is a completed production cycle including the stage of production from mining of raw materials to consumption of nished products. The TM nucleus consists of advanced sectors characterized by maximum capital gain. Technological innovations that led to the creation of such sectors are dened as key factors. S. Glazyev’s technological modes coincide with J. Schumpeter’s innovation waves. The three theories give the same conclusions obtained by studying different aspects of the same phenomenon, which do not contradict each other. Based on these theories we can state that now, the world economy is undergoing the period of the appearance of the sixth technological mode in the depths of the fth one. It will come in force

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when the previous technological mode exhausts its resources and its ability to produce a rising prot rate [28]. The changes in technological modes are accompanied by economic crises. They are caused by sharpening contradictions between the existing technological practices and the new ones, under conditions when the society is not ready for changes. Therefore, in order to maximally facilitate the transition from the out-of-date TM to the new one, it is necessary to develop in advance the sectors that will become the leading ones in the next TM. Among the key branches of emerging TMs there are alternative power generation, cell technologies, nanotechnologies, and methods of genetic engineering [26]. In the conditions of a free market with very high intensity of competition, enterprises have to improve the quality of their production in order not to go bankrupt. It is the competition that is the driving force of innovations due to which modern technologies are implemented, new products are made and production efciency rises. To become competitive entrepreneurs have to use an innovative approach, i.e. to search for and to implement innovations [28]. The experience of developed countries shows that radical transformations in productive forces in the era of scientic-technical progress, rapid change of waves and, hence, new combinations of production factors, as well as widespread implementation of innovations have become typical features of modern economic life. The increasing role of innovations is, rstly, caused by the nature of market relations and, secondly, by the necessity of deep transformations in the economy in order to achieve a trajectory of sustainable growth. 1.3 National Innovation System According to the modern theories of economic development veried by the world practice, innovation is a driving force of economic progress. As economic development is now associated with the development of innovations and an efcient economy is dened as an innovative economy, it is necessary to create the most favorable conditions possible for widespread implementation of innovations. In order to create a favorable environment for innovations, it is neces-

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sary to create an efcient national innovation system (NIS), that is a system of institutions jointly and individually contributing to reproduction, storage, distribution and use of knowledge aimed at ensuring sustainable social and economic development [29]. As an efcient institutional system, NIS enabled the progressive countries to achieve outstanding breakthroughs and to maintain economic competitiveness at the highest possible level. In the West, the concept of National Innovation Systems was developed almost simultaneously by a large group of authors in the 1980s. The leaders of this idea were K. Freeman (editor’s question for the author – is he the same as C. Freeman, below?), Sussex University, Centre for Science Policy (Great Britain), B. Lundvall, University of Uppsala (Sweden), R. Nelson, Columbia University (USA). They used practically the same methodological principles, i.e.: – J. Schumpeter’s ideas on competition, based on scientic developments and innovations, and the main factors of economic dynamics; – Importance of knowledge in economic development; – Maturity of legal, market and other institutions directly affects the content, intensity and structure of innovation activities [30]. However, this term rst appeared in C. Freeman’s paper «Technology, Politics, and Economic Efciency» [31]. Emphasizing the importance of the corresponding innovation institutions, he considered NIS as a network of public and private institutional authorities, whose activities and interactions serve as a basis for innovation implementation and diffusion. According to C. Freeman, institutional innovations in production, such as the «just-in-time» system, close horizontal cooperation among enterprises’ various departments, and competitive engineering, became «cornerstones» of the national innovation system in Japan. Similar to Ford’s and Taylor’s systems, the intensive in-company vertical cooperation between production and research departments, became key NIS elements in the USA [32]. The main advantage of C. Freeman’s approach is the special importance he attributed to the structural and institutional characteristics of innovation systems, the economic and social environment as well as specic national features, in terms of their inuence on NIS development. The NIS ideology is widespread in the developed world. However, so

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far, there is neither a common denition of NIS nor a unied methodology of NIS development. A Russian scientist V.V. Novokhatsky made efforts to collect the most recognized denitions of the term «national innovation system», that have been suggested since the 1980’s by Russian and overseas authors, and consolidated them in the table given below [17]. Table 1.1 Different denitions of the term «Innovation system» Denition of the term «Innovation system»


A national innovation system is «...a network of public and private institutions whose activities and interaction contribute to development, import and penetration of new technologies» [32].

C. Freeman. Technology, Policy and Economic Performance. London, Pinter Publishers, 1987. Pp. 1-5

A national innovation system is «…a set of different institutions jointly and individually contributing to development and diffusion of new technologies, forming the basis that governments can use to develop and implement policies affecting the innovation process. It is a system of interrelated institutions, designated to create, store and transfer knowledge, skills and artifacts dening new technologies» [33].

S. Metcalf. «The Economic Foundations of Technology Policy: Equilibrium and Evolutionary Perspectives». P. Stoneman ed. Handbook of the Economics of Innovation and Technological Changes. Oxford (UK)/Cambridge (US): Blackwell Publishers, 1995

«National A national innovation system is «… a set of N. Ivanova. interrelated institutions (structures), engaged Innovation Systems». / / in production and commercial sale of scientic Economic Matters. 2001. knowledge and technology within national borders. No7. – p. 61 At the same time, NIS is a set of legal, nancial and social institutions supporting innovation processes and having strong national roots, traditions, political and cultural features» [30]. ««Let us dene the Russian innovation system as a federal-regional economic system consisting of a set of economic entities interacting during production, diffusion and application of new, cost-effective knowledge» [34].

V. Ivanov. «Methodological Aspects of the Formation of a National (public) Innovation Systems» / / Economic Strategies. 2002. No 6. – p. 99

Innovations: from idea to implementation


«… scientic-innovation system is a crowning procedural state of integrity of a set (network) of academic, higher educational, research, development, technology, innovation, information and other research institutions, research departments within large corporations, as well as public administrative structures, which is supported by their functioning in a regime aimed at achieving coordinated objectives of strategic development» [35].

E. Egorov, N. Beketov. The Regional ScienticInnovation System: Structure, Functions, Future Prospects. – Moscow: Academia, 2002. – p. 13

«A national Innovation System is a set of enterprises and organizations of different forms of property from the scientic-technical sector to production structures and infrastructure components, offering a full innovation cycle at all stages» [36].

V. Fredlyanov. «Industrial Development as the Basis for the National Innovation System» / / Innovations. 2003. Nos. 2-3. – p. 9

«A national innovation system is a system of relations among the elements of the national economic complex, providing economic development and better quality of life on the basis of innovations and exchange of activities related to generation, distribution and practical use of innovations» [37].

V.Vasin, L.Mindeli. «The Signicance of Intellectual Property Mechanisms in the Formation and Functioning of a National Innovation System» / / Innovations. 2003. Nos. 2-3. – p. 17

A National Innovation System is «... a set of governmental, private and public organizations and mechanisms of their interaction serving as a framework for the creation, storage and diffusion of new knowledge and technologies» [38].

O. Golichenko. «The National Innovation System in Russia and the Main Directions in its Development» / / Innovations. 2003. No. 6. – p. 32

The above denitions were used to formulate the following denition for the term National Innovation System: NIS is a set of entities and institutions within one country that jointly and individually contribute to reproduction, storage, diffusion and use of knowledge in order to continuously produce innovations to meet the needs of individuals and society and to ensure sustainable social and economic development.

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28 Strategic result Production of strategic innovations Strategic scientific developments

Tax proceeds


innovation policy

Administrative methods: - normative-legal support, - determination of priority directions

Economic methods: - budget financing, - beneficial crediting, - tax and customs stimulation

Subsystem of generation of scientific knowledge Research organizations

Education and training system


Scientific development Innovation infrastructure Realized innovation project Subsystem producing innovation products Small enterprises


medium enterprises

large enterprises

movement of strategic innovations Organizational interaction Movement of financial flows

Like any system, NIS consists of a number of basic elements, including: 1) Government innovation policy; 2) Regulatory and legal framework on innovation development and stimulation; 3) Innovation infrastructure; 4) System for knowledge generation and diffusion; 5) Innovative enterprises including large research and industrial corporations and high-tech industrial complexes; 6) Higher education and vocational institutions including institutions for training personnel in management in the innovation environment; 7) Market environment favorable for implementation of innovations;

Innovations: from idea to implementation


8) Marketing and nancial system for innovation development and promotion. Apart from the elements mentioned above it is essential to consider social, political, cultural and international factors directly affecting the dynamics and nature of the innovation system development within the national borders. The above-listed set of elements is necessary and sufcient for NIS development, but removal of any element will break the innovation process making the entire system disfunctional. All the elements have equal ranking in the process of NIS formation and development. The elements of the innovation environment do not exist separately, but are closely and functionally interrelated. Strategic NIS management is fullled by changing external parameters determined by macroeconomic policy, while the mechanisms for their achievement are set up legislatively. An important place in the functioning of the NIS is occupied by scientic-technical information subsystems and information support of innovation activities based on data communication technologies (DCT), creation of an electronic environment for business and public activities, and use of the Internet [39]. A key player in the NIS process is the government that sets rules for NIS operation and provides a required resource base including nancial support. Government support to setting up and development of hightechnology enterprises comes frompublic investments in venture capital funds, tax incentives, accelerated depreciation, direct budgeting and credits [40]. NIS is organized individually for each country and determined by socio-economic relations. However, each particular case may adapt individual approaches and tools proven effective in other countries. The best innovation management practice in developed and developing countries is indicative of the key trends in the process of NIS formation and development: – NIS is ultimately aimed at dynamic national development by stimulating innovation activity across all economic entities in the country; – The most signicant factors that determine high NIS efciency include: a mature and operational NIS system, a driving, solvent demand for high technology products; the presence of mediation institutions be-


Galym Mutanov

tween producers and R&D consumers; as well as consistent national innovation policy; – Governmental intervention is one of the key factors that can increase competitiveness in the country and develop an efcient NIS. State policy aimed at innovative development must be primarily oriented toward creation of a favorable environment for innovation activities (including the regional level), and serve as a link between academic science and industry; – Innovative national development should not necessarily be based on its own scientic, technical and innovation base; at the initial NIS stage it is possible to acquire, copy and «assimilate» foreign developments (examples of China and Japan); – The institutional structures forming the basis for the NIS in the developed countries have several organizational and management levels. In particular, NIS in Belgium, Austria, and Switzerland has three levels, in the UK and Germany – four levels, while in Australia and Norway – six levels. National Innovation Systems in the developed countries differ from each other by their priorities and the role of the state, primarily by focusing on special national priorities: for example, Finland – on economic diversication, France – on setting up a network of small-scale technological rms, U.S. – on support of economic restructuring [41]. Today’s world practice has a signicant number of various indicators to be used to evaluate the level and potential of innovation development. The most common methodology is that of the World Bank («Knowledge for Development» program, K4D), WEF (a scientic and technical potential index) and indicators annually published by the National Science Foundation and the European Commission. Despite the fact that their methods have some limitations, in general, they help to evaluate NIS efciency by a number of parameters. To get more objective results in the assessment of innovation efciency, it is reasonable to use several alternative approaches. The following indicators are the most efcient among a wide range of indicators of NIS efciency: 1) Indicators of achieved level of scientic and technological development: the average age of scientic equipment (in years), the percentage of functioning innovative enterprises in industry; the level of innovation

Innovations: from idea to implementation


activity by sectors (the ratio of costs for innovation to the volume of current and capital expenditures by the branch’s enterprises), the percentage of advanced manufacturing technologies (AMT) used for less than three years in the total number of AMT (%); 2) Qualitative indicators of the development of market institutions and legislation (e.g. the bureaucracy level, the number of small business enterprises in the innovation sector, etc.); 3) Educational level of the labor force: the average age of researchers with an academic degree (years), receptivity to innovations by company personnel; 4) Financial indicators: expenditure on research and development (as a % of GDP), innovation costs as a percentage of total industrial production (%), the efciency of expenditures on innovations; 5) Indicators for knowledge transfer and use: innovative products as a percentage of industrial production (%), the number of patent applications for inventions per 10 thousand residents, the ratio of the number of patent applications made by national applicants to that of foreign applicants; the national share in the international technology trade (%); the dependence of innovation activities on import (the ratio of expenditures on acquisition of imported technologies to expenditures on innovations in the industry); 6) Quantitative and qualitative indicators of economic growth (life expectancy, GDP per capita, ecological indicators, etc.), competitiveness of the national economy [42]. Local and foreign researchers suggest different strategic approaches to the development of an efcient domestic NIS model, for example, the use of world best practices for the development of a national innovation system. In this particular case, it means adaptation of the most appropriate NIS models used in the developing and developed countries to the local environment. In addition, other strategies should also be considered: integration into the global innovation network; initiation of an innovative nation-wide super-project competitive in world markets; creation of a cluster for innovative technologies providing gradual formation of a competitive innovation sector. The conceptual framework that can be used to develop an efcient NIS in any country is the use of its own R&D potential combined with foreign technologies and investments [43].


Galym Mutanov

Despite the fact that the state plays a very important role in the creation of an efcient NIS, and covers practically all stages of the innovation process, it should be kept in mind that attempts to impose excessive regulation usually result in inefcient programs initiated jointly with business, which in general reduces the industrial sector’s interest in innovation activities. Many governments use different channels to support innovations. Such an approach reduces the risks of «government failure» caused by inefcient operation of some institutions, and in the future, increases support to the most efcient ones.

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Bibliography 1. . . Dynkyn, . . Dagayev (editors). On the threshold of the knowledge economy (world practice of scientic-innovation development). ., Institute of World Economy and International Relations of the Russian Academy of Sciences, 2004. 2. P. Khimanen, M. Kastels. The information society and the welfare state: the Finnish model. ., Logos, 2002. 3. J. A. Schumpeter. Theory of economic development. ., Progress, 1982. 455 p. 4. L. N. Nekhorosheva. Innovation systems of the modern economy / L. N. Nekhorosheva, N. I. Bogdan. Minsk, BGEU, 2003. 5.,3746,en_2649_34451_33847553_1_1_1 _1,00. html – Proposed Guidelines for Collecting and Interpreting Technological Innovation Data: Oslo Manual. 6. The nal report of INNO PRAXIS company «Recommendations for development and the plan of implementation of recommendations for development of the National Innovation System of the Republic of Kazakhstan» dated September 7, 2009. 7. I. T. Balabanov. Innovation management. Saint-Petersburg, Piter, 2001, 304 p. 8. H. Chesbrough, D. Teece. When virtual is virtuous? Organizing for innovation // On managing high-tech industries: translated from English. ., Alpina Business Books, 2007, 256 p. (Harvard Business Review Series). 9. . A. Dagayev. Transfer of technologies from the public sector to the industries as an instrument of the state innovation policy // Problems of theory and practice of management, 1999, 5, P. 65-70. 10. G. A. Lakhtin, L. E. Mindeli. Difculties on the path to innovations // Herald of the Russian Academy of Sciences, 1998, 4, P. 306-313. 11. A. D. Korchaghin. Patent logistics / . . Korchaghin, V. Y. Dzhermakyan, Y. G. Smirnov. ., Rospatent, 2001. 12. D. A. Rubvalter. Poles of competiveness for science. http:// science/2006-10-11/13_polusa.html. 13. V. V. Ivanov. Methodological aspects of formation of the national (state) innovation systems // Economic strategies, 2002, No. 6, P. 95-99. 14. G. M. Mutanov. Training the personnel for innovation economy of Kazakhstan / G. M. Mutanov, N. N. Linok, O. D. Gavrilenko // Training the personnel for innovation activities: current condition and prospects: materials of international scientic-practical seminar, September 27-28, 2007 / Ministry of Education of the Republic of Belarus, National Technical University of the Republic of Belarus. Minsk, 2007, P. 167-169. 15. 16.


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17. V. V. Novokhatsky. Dening and classifying innovation systems // Innovations, 2004, No. 9 (76), P. 30-39. 18. S. Kupeshova. Theory and practice of the innovation process in the transition economy of the Republic of Kazakhstan. Thesis of the candidate of economic science, 08.00.01, Almaty, 2002, 130 p. 19. Y. A. Korchaghin. Modern economy of Russia. Rostov-on-Don, Phoenix, 2008, P. 403. 20. G. Mutanov. Economic-mathematical methods and models. 2nd edition, Almaty, Kazakh University, 2011, 402 p. 21. G. Mutanov. East-Kazakhstan State Technical University named after D. Serikbayev: Laying the foundation of innovation economy / G. Mutanov // Modern education, 2010, No. 2. Innovations as the vector of partnership: special supplement of the «Modern Education» journal, P.17-18. 22. K. Prokshin. Open for technical reasons // Kommersant, «Outsourcing» supplement, L> 41, March 10, 2005. 23. Faire gagner le Sud: un challenge d»equipe. // Mediterannee, 11/04/2002. 24. L»Atlas geopolitique & culturel du Petit Robert des noms propres // P., Dictionnaires Le Robert, 1999. Jeunes chercheurs et entreprises partenaires pour innover. Guide des Aides Nationales. // Ministere de la Recherche, 2000. 25. 26. http:// 27. V. N. Zhigalova. Roles of innovations in the modern concept of economic development // Management of social and economic systems, 2007, No. 1. 28. G. M. Mutanov. On formation of the efcient scientic-innovation system of Kazakhstan / G. M. Mutanov // Herald of the National Engineering Academy of the Republic of Kazakhstan, 2010, No. 3, P. 21-27. 29. N. Ivanova. National innovation systems // Economic problems, 2001, No. 7, P. 59-70. 30. C. Freeman. Technology, Policy and Economic Performance. London, Pinter Publishers, 1987, P. 1-5. 31. C. Freeman. The Economics of Hope. Essays in Technical Change, Economic Growth and the Environment. Pinter Pub., London and New York. 1992, p.227 32. S. Metcalf. The Economic Foundations of Technology Policy: Equilibrium and Evolutionary Perspectives. P. Stoneman ed. Handbook of the Economics of Innovation and Technological Changes. Oxford (UK)/Cambridge (US): Blackwell Publishers, 1995. 33. V. Ivanov. Methodological aspects of formation of the national (state) innovation systems // Economic strategies, 2002, No.6, P. 99. 34. E. Yegorov, N. Beketov. Scientic-innovation system of the region: structure, functions, development prospects. ., Academia, 2002, P. 13.

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35. V. Fridlyanov. Industry development as a basis of the national innovation system // Innovations, 2003, No. 2-3, P. 9. 36. V. Vassin, L. Mindeli. Role of the intellectual property mechanism in forming and functioning of the national innovation system // Innovations, 2003, No. 2-3, P. 17 37. O. Golichenko. National innovation system of Russia and main directions of its development // Innovations, 2003, No. 6, P. 32 38. G. M. Mutanov. Development of the information system of innovation project assessment / G. M. Mutanov, Z. D. Mamykova, G. Z. Abdykerova // Herald of East-Kazakhstan State Technical University named after D. Serikbayev, 2009, No. 4, P. 150-154: picture – bibliography: 3 names. 39. G. Mutanov. Innovativeness as the main priority of development / G. Mutanov // For knowledge, 2009, No. 8, May 28, P. 1: photo. 40. V. V. Ivanov (Russia), N. I. Ivanova (Russia), J. Roseboom (Netherlands), H. Haisbers (Netherlands) National innovation systems of Russia and EU. ., Center of Studies of Science Development Problems of the Russian Academy of Sciences, 2006, 280 p. 41. h t t p : / / m o r v e s t i . r u / a r c h i v e T D R / e l e m e n t . p h p ? I B L O C K _ ID=66&SECTION_ ID=1389&ELEMENT_ID=4112 42. G. M. Mutanov. Education. Science. Innovations / G. M. Mautkanov (editor), 2nd edition. Ust-Kamenogorsk: East-Kazakhstan State Technical University, 2010, 226 p.: illustrations, photo.

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INNOVATION LIFE CYCLE 2.1 Mechanisms of innovation development Years of research carried out by leading economists including N.D. Kondratiev, I.E. Varga and J. Schumpeter has proven that the process causing generation and development of innovations has cycles. It is also well established that each individual innovation itself undergoes certain life cycles. A life cycle of innovation is a set of interrelated processes and stages of creation of a new item and covers a period from idea generation to removal from production of the innovative product manufactured on the basis of this idea. The mechanisms identied in innovation life cycle (ILC) theory are of great practical importance as they help to understand how the innovation base for «long-term economic growth and competitive higher-order advantages» is formed [1], and how focused and efcient management of individual phases within the innovation process can be organized. To date, the stages of the innovation process have been studied with different degrees of detailed elaboration. In particular, the stage of product development has been studied quite thoroughly, while the early innovation phase, the so-called «dummy front,» has not been sufciently studied. This situation does not reect the enormous signicance of this phase, as at this stage it is decided which innovation projects will be

Innovations: from idea to implementation


implemented and thus it has a direct impact on innovation efciency in general. Besides, the early phases of the innovation process, particularly in the case of original innovations – original from both market and technological points of view – are considered by many researchers as useless. Thus they question the very possibility of interaction among various elements of the innovation infrastructure and the state at the initial stages of the idea development and generation of innovation. There are many models of innovation life cycle. One of the approaches described in the scientic literature identies the following elements (see Figure 2.1) [1]: 1) Marketing research of market demand; 2) Generation and ltration of ideas; 3) Technical and economic expertise of ideas; 4) Research in the eld of innovation development; 5) R&D work; 6) Pilot marketing; 7) Preparatory works for production of innovation at the manufacturing plant; 8) Production and sales; 9) Use of products;

10) Recycling of products.


Sales. Distribution and stimulation of sales. Service. Price. Stages Introduction Growth Maturity Expenditures

Commercial production

Organizational preparation for production

Technological preparation for production

Tests in market conditions

Engineering preparation for production

R&D Development works

Product development Preparation for production


ime Life cycle of product on the market Used reserves

Marketing research Idea generation and filtration

Producer’s expenditures, income, profit


Production Main production

Auxiliary production

Company’s general functions

Full network of producer’s expenditures

Figure 2.1 – Phases of the innovation life cycle

Use of products Consumer’s spendings Quality Reliability

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Stages 4 through 7 are dened as pre-production stages and are considered as a set of scientic and technical preparatory works. The main parameters characterizing the stages of the innovation life cycle are shown in Table 2.1 [1]. Table 2.1 The boundaries of the stages of the innovation life cycle Stage

Beginning of the stage

Market research

Conclusion of the contract for marketing research Idea generation and Collection and registration ltration of project proposals Technical and Organization of project economic expertise of evaluation boards projects Research


Pilot marketing Preparations for production at the manufacturing plant Production and sale

Approval of specication requirements for research works Approval of R&D specication requirements

End of the stage Submission of report on the results of the research Final selection of projects – competitors Submission of reports on project expertise, selection of the most successful project Approval of completion of research works A set of design documentation corrected by the results of prototype tests Analysis of the report on pilot marketing Start of full-scale production

Beginning of preparation for pilot batch production Making decision on fullscale production and commercial sale of products Sale of the rst full-scale Supply of the last sample innovation sample to the consumer


Buying of the rst innovation sample by a consumer

Removal from production of the last innovation sample


Writing-off of the rst innovation sample

Completion of works on utilization of the last innovation removed from production

Innovations: from idea to implementation


According to the classical model, the innovation life cycle consists of four major stages. The rst stage (stage I) is that of fundamental research aimed at studying the deepest general laws and mechanisms governing the development of nature, society and thought, or the laws and mechanisms generating and controlling the ows of energy, matter and information. Further, the formulated fundamental idea is used in applied research. The successful completion of applied research leads to creation of novelties, which after implementation become valuable innovations embodied in the form of new technologies, products or services. Thus, the more intensive the fundamental and applied research, the greater the output of innovations. Therefore it is important to concentrate a considerable fraction of resources on fundamental research, giving rise to new knowledge as a background for innovative products. The fundamental research is carried out in scientic and academic institutions as well as specialized industrial laboratories. They mainly obtain nancing from the state budget on a non-refundable basis [2]. The second stage of the innovation life cycle is applied research (AR) (stage II). Applied research is carried out in research institutions and nanced both by the budget (state science development programs or on a competitive basis), and at the expense of clients. This stage is focused on adaptation of applied research to the needs of society, and in particular to formulation of principles of creation of nished goods meeting market demands. It is often impossible to predict the outcome of applied research while a deadlock result is highly probable. Therefore investments in innovations are risky and are called riskinvestments, and companies that invest in such studies and projects are called venture companies. The third stage is Research and Development (R&D and Development and Technological works (D&T) (stage III). R&D is aimed at concrete implementation of scientic principles, i.e., their localization in denite geometric forms through solution of the problems of spatial and temporal selectivity of phenomena and processes being made use of. D&T is a set of techniques and decisions that determine the order and conditions for product manufacturing, using tools and materials for implementation of principles, phenomena, laws and tendencies [3].


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R&D and D&T are carried out in specialized laboratories and pilot production workshops, and in research divisions of large enterprises. The sources of funding are similar to the sources in the second stage plus the company’s own funds. At the end of the third stage, large investments are needed for creation or expansion of production capacities, staff training, marketing and advertising. At this stage investments are still risky, as it is not clear whether the market will accept the new product. The fourth stage (stage IV) is the stage of commercialization of innovations; it implies mass production, promotion and sale of the innovative product on the market. This stage is followed by the stages of the product life cycle. The nal stage of the innovation life cycle includes four market stages of the innovative product: introduction, development, maturity and decline, directly affected by the commercial market [4]. Introduction. This phase starts from introduction of the new product to the market; it includes launching production, sales growth and gradual economic growth. The company must make efforts to persuade the consumer to try the new product. Marketing strategy at this stage must be aimed at informing and persuading consumers, thus opening new markets. At this stage it is very important to predict prices and production volumes for the new product. Development. If an innovation meets market demands, its sales increase considerably, it rapidly covers production costs and the new product starts generating prot. At this stage advertising support of the new product is expensive, as the competition increases; with the increase in demand the prices remain stable or slightly decrease. Prots are growing. To extend this stage to the maximum possible duration the enterprise must adopt the following strategy: – Improve the quality of innovation; – Penetrate into new market segments; – Use new distribution channels; – Use advertising focused on buying; – Timely reduction of price. Maturity. This stage is normally the longest one and represents a sequence of steps: slowdown in growth – stability – reduction in demand.

Innovations: from idea to implementation


At the maturity stage the ght for the market share is very severe, and «defensive» tendencies become prevalent in the company’s strategy. It is possible to extend this period of the life cycle though modication of: 1) Markets, when the company tries to attract new consumers by: – development of new market segments; – additional efforts in product promotion; – changes in positioning focused on the most attractive market segments; 2) Products, when a company tries to attract new consumers who previously preferred competitors’ products, which is achieved by improving the quality and exterior design of the product; 3) Marketing activities, when the company stimulates sales by xing lower prices through a more efcient advertising campaign, conclusion of preferential deals with sellers, issuing of discount coupons, and conversion to cheaper distribution channels [5]. Decline. This stage is characterized by the decrease in the volume of sales and lower efciency. The obsolescence of the product is inevitable when a new product able to replace the old one appears on the market; the demand falls, resulting in a drop in sales and nancial performance. In the specic business environment when the product passes from one stage of the life cycle to the next, i.e., when it grows obsolete, its economic performance worsens, so it becomes necessary to either modernize or replace it. Innovation cycles may have different lengths depending on specic features of scientic research, R&D and other factors. Complex R&D works are ultimately aimed at creation of optimal options for certain innovative design solutions and their subsystems, at efcient production, as well as optimal operation and use of innovations. For example, in Finland and in the United States each innovationgenerating stage fullls its own task: the task of stage I is to search for a business angel; at stage II a venture investor is found; at stage III a group of portfolio investors starts working; and, nally, at stage IV a strategic investor appears in the project. At the starting phase of the project funding by a business angel gives condence in its feasibility; at the stage of portfolio investment the product is a novelty; at the stage of venture investment the product becomes recognizable and enjoys certain popularity; whereas at the stage of strategic investment it is already a mass product used by many people.

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2.2 Idea generation Early phases of the innovation process go practically unmentioned in contemporary publications. The few empirical investigations in this eld only partially clarify the picture of the process and the organizational structure of early phases. The parameters of early innovative phases have been, in particular, studied by R. Cooper. In the study of this process such authors as A. Khurana and S. Rosenthal [16] have detected a number of other factors contributing to the development of promising management of the «dummy front» (development of the concept of product strategy, identication and assessment of opportunities, generation of ideas, identication of the new product, product planning, verication of market demands, marketing and management) [6]. An alternative approach is based on the standpoint of the enterprise, which requires formation of a unied approach among the participants in the innovation process. In the framework of this approach P. Cohen and colleagues proposed a «development of new concepts» model, suggesting a sequence of ve elements: identication of opportunities, their analysis, idea generation, idea selection, and conceptual and technological development. The last element serves as a link with the well-structured model termed «development of new products and processes» (Figure 2.2). The strategy of the enterprise, competitive factors, in-company competence and technology maturity are considered as factors inuencing these elements. The management system and the in-company culture are considered to be the driving forces in this process. Finally, E. Lichtentaler in studying the process of decision-making on radical technological innovations in large companies came to the conclusion that such decisions to a large extent depended on the innovation culture, senior management functions, communication and technological facilities, involvement of mid-management in the evaluation process, systematic study of the need for innovation and technology as well as linkage of decisions with the process of resource allocation [6]. It should be emphasized, however, that the studies declaratively devoted to the earliest phases of the innovation process, in fact focus on incremental innovations (termed «improving innovations» in the traditional approach). For example, only a few sources consider management

Innovations: from idea to implementation


of radical (basic) innovations, which have absolutely different organizational requirements, or this type of management is viewed primarily from the technological point of view.

Information on the enterprise’s strategy and resources

Need in innovation

Generation and collection of ideas

Evaluation, selection and choice of ideas

Project build-up

Market information

Figure 2.2 – Early phases of the innovation process

The need for differentiated study of the early phases of incremental and radical innovations is based on the fact that the phenomena are quite different in their nature and objectives. Thus, while radical innovations, particularly their approval, require a unique strategy and structure, the introduction of a new product and approval of incremental innovations are carried out through more traditional strategic and structural measures. There are other arguments in favor of separate study of these two innovative tendencies. Focusing on management of incremental innovations is also explained by the fact that truly radical innovations are extremely rare or never implemented at many enterprises, as they involve a more lengthy R&D cycle. The study below focuses on the early phase of the radical innovation process, as at this stage the fundamental difference between radical and incremental innovation is most clearly pronounced. The term «radical innovation» may be dened from two different stances: from the client’s point of view it means a signicant increase in prot, but from the company’s vantage point it entails a signicant change in its competence. It is a well-known fact that the starting point for any innovation is an idea. It is the idea that arises in the human mind, materializes and turns


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into innovation, creating added value and driving economic processes forward. It may sound rather trivial, but no idea – no innovation. Meanwhile, the process of idea generation develops spontaneously, is hardly assessed and is vulnerable to objective and subjective factors. Traditionally any scientic investigation starts with the review of the current state of the corresponding knowledge sector, search for similar ideas, inventions, techniques, solutions to the problem, their comparative analysis and statement of novelty of the proposed idea and its advantages over the existing counterparts. Unfortunately, most scientic studies treat this process formally. However, apart from the subjective factors indicating general decline in quality, there are objective factors that make the brainstorming process difcult. It is worth noting that since the mid XX century the increased volume of information has hindered perception of information by an individual. For instance, the overall sum of knowledge changed quite slowly at the beginning of our historic development, by 1900 it doubled in volume every 50 years; by 1950 the doubling was already recorded every decade; by 1970 every 5 years; and since 1990 it has occurred annually [6]. The following three major factors determine formation of large data ows: • Extremely rapid growth in the number of documents, reports, theses, dissertations, etc., presenting the results of research and R&D activities; • Constantly increasing number of periodicals on various areas of human activity; • Emergence of various data sets (meteorological, geological, physical, medical, economic, etc.) recorded on magnetic tape or electronic carriers. As a result, we reached an information crisis characterized by everincreasing contradictions between the limited human abilities to percept and process information and the existing powerful ows and databases of stored information and redundant information, hampering perception of relevant data as well as creating economic, political and social barriers to the process of information dissemination [6]. Practice proves that not every idea is embodied in a successful commercial product. For example, Japanese companies manage to implement

Innovations: from idea to implementation


relatively few new ideas through to mass production at a high market sales level. According to a social survey, efcient companies managed to bring 33% of personal ideas to the stage of technical development; 47% to the stage of commercial development and sales forecasting; and 56% have been fully approved and materialized in samples produced in mass production and have reached the market. The overall percentage of ideas fully implemented in mass production and consumption reached 8.7%. One new product out of four is welcomed by consumers and actively sold on the market, therefore one successful innovation comes out of 18 freshly generated ideas. Obviously, the initial stage of the innovation process suggests a mechanism helping to create suitable conditions for generating, seeking and identifying potentially effective ideas as well as stimulation of the starting stage of innovative entrepreneurship. To date, marketing of ideas is the mechanism enabling their purposeful development to meet innovation needs. High scientic and technical levels, potential of attraction of private capital to project nancing and the export potential of the nal product are deemed to be the most signicant criteria for idea selection. The marketing approach to idea generation is based on the competitive market laws. In fact, competition can be viewed as a method of generation of new knowledge and diffusion of ideas. All parties taking part in the competition get new knowledge: manufacturers discover new needs, consumers discover new means to meet those needs, and all economic agents get new knowledge about themselves, including their abilities to create or satisfy somebody’s needs. Although ideas are placed at the beginning of the technological innovation chain, in fact they can appear at any stage. This implies a conclusion important for understanding of innovation activities, namely that any articial restriction of competition reduces the amount of knowledge and hence the number of ideas available to society [4]. The generators of innovative ideas are usually scientists, inventors, artists as well as representatives of the education sector, businessmen, and political, social and religious leaders. They are the rst to feel and understand the need for change and suggest ways of introducing innovations in any sphere of human activity. Sometimes those ideas are fantastic, unfeasible or false, giving zero-effect; these are called pseudo-innovations. However


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it is impossible to introduce innovations in the absence of a broad and diverse set of innovative ideas. Quite often innovative ideas are supported and forced upon society by different social forces – by the communities of scientists and inventors, or by public or political movements. The second circle of actors includes innovators (entrepreneurs, investors, politicians, cultural gures) who themselves implement selected innovative ideas, allocate necessary resources, take innovative risks and obtain, in case of success, the result (for example, an innovative superprot, i.e., quasi-rent). A lack of innovators leaves an idea as a beautiful dream or «a cloud in trousers.» The bigger the innovation is, the more resources it requires for its development and distribution, the greater the number of participants it involves in its implementation, and the greater the risk and heavier the losses are, if the project fails. However, the market competition for innovation super-prot encourages stakeholders craving the success of implementation of innovations despite all risks [5]. At the stage of idea-generation it is necessary to have state legal regulations that can support strategically important technological and economic innovations, regulate patent activities, create favorable conditions for the initial stages of innovative entrepreneurship, and protect the interests of scientists-inventors. No less important is the state support of innovative ideas in the eld of non-market economy, and above all in defense, health care, education, culture and state-legal spheres. In this context, state ofcials can be considered innovators, as well as entrepreneurs and investors. If the government machine is conservative and reluctant to support and even more – impedes innovations and pursues anti-innovation policy, then the country is condemned to lag behind the global pace of transformation. The quality of marketing research can be signicantly improved through compulsory patent search by using on-line access to major local and foreign patent databases. Today over 80% of information on new technical solutions is taken by experts from patent descriptions. The information on new solutions appears in patents 3-4 years earlier than in scientic and technical journals, and 5-10 years earlier than in monographs and textbooks. Therefore it will be very useful to nd an analogue of the currently developed scientic idea, and can help to improve its competitiveness including competitiveness on the international market.

Innovations: from idea to implementation


The most successful marketing technologies enable their users to organize the iteration process of idea-generation. taking into account all market demands. These technologies include Internet marketing, exhibition activities, virtual trading and outsourcing [4]. Internet Marketing. This form of marketing has unique characteristics markedly different from those of traditional marketing tools. Its main feature is its hypermedia nature, characterized by high efciency in information representation and processing, which considerably enhances marketing possibilities in facilitating communication between businesses and consumers. In contrast to the passive marketing model that is «oriented downward» based on the traditional mass media, the Internet makes it possible to establish cooperation between suppliers and clients, such that the latter take the active position. In this case clients themselves may act as suppliers, particularly suppliers of information on their needs. The Internet and other information technologies enable their users to: – Choose the most promising options and to eliminate identied errors; – Develop the efcient communication between all company subdivisions; – Organize working groups that can exchange information while remaining in different parts of the world as well as exchange data on the state of the market, customers and unique properties of the product between all levels of the company; – Accelerate the development of new products. Exhibitions. Exhibitions/fairs are an efcient means of advertising; they create possibilities to demonstrate enterprise production locally and in other regions, to a wide range of specialists and visitors, as well as to make contacts with potential partners. Apart from advertising, exhibitions host a broad range of business events, making it possible (subject to high-quality management) to organize an efcient system for collecting qualitative and quantitative data on potential consumers: conferences, degustations and inter-branch competitions, master classes, presentations of member rms, scientic workshops to inform participants and guests on market trends, the latest achievements in science and technology.


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However, there are serious shortcomings in the organization of exhibition activities: very few domestic exhibition complexes can compete with western European exhibition halls in their size, area, technical equipment and functionality, not to mention the level of service. However the most important problems are: – Failure of organizers of such events to provide an appropriate level of representation and interest in business structures; – Formal approach to carrying out of round tables and conferences; – Forcing research institutions and universities to participate in economic forums. Therefore, it is more advantageous to organize or participate in foreign exhibitions. To date, despite the increasing demand for exhibitions, trade shows, conventions and conferences, the domestic market for such services remains at a very low level. To modernize exhibition activities and to create professionally equipped exhibition centers it is necessary to take the following measures: • Create information systems supporting exhibitions and fairs in regions; • Organize a system for training specialists in organization of innovation and scientic-technological exhibitions; • Develop relations with foreign and domestic exhibition companies, governmental agencies and international organizations in order to attract participants, arrange joint exhibitions, share exhibition space; • Create a exible system of discounts and privileges for businesses and organizations involved in the design and manufacture of innovative products and services. As a whole, exhibitions and fairs as a method of idea-marketing can solve such problems as identication of users and distribution channels, introduction of corrections in the pricing mechanism, explanation of the unique properties of products, etc. Virtual trade site is a place where deals are made b etween sellers and buyers and where nancial and trade transactions take place. The Internet allows buying/selling in real time, and due to the Internet trade sites can involve companies from different parts of the globe. The development of commercial Internet trade sites will provide a more efcient and free ow of information, goods, payments and other services such as B2B (business-to-business) [4].

Innovations: from idea to implementation


A trade site becomes successful and efcient if it attracts a large number of buyers and sellers. If the trade site proposes its goods poorly, buyers will not be interested in this site, and vice versa. It is very important for the site to have high quality and informative content. In other words, it must contain information that is necessary and sufcient to take a decision on a purchase or sale, as well as industrial news, analysis, expert opinions and detailed commodity specications, etc. The main features of trade site operations are transparency, safety of Internet operations, alliances with other platforms and sites, and high technological level of their participants [5]. Analysts note frequent use of outsourcing by large companies at different stages of the innovation process; and the most fruitful stage for outsourcing is the rst link of the innovation chain, generation of new ideas. To achieve maximum returns companies must cast «an innovation net» as far and deep as possible. The selection of promising projects, which ultimately determines the company’s overall vision of its market prospects, is an obvious prerogative of its top management. The development of innovations can be passed to outsourcing, however in this case the answer to the question of whether to use this mechanism or to cope without subcontracting is not as obvious as in the case of idea-generating. Some corporations, for example, Johnson & Johnson, quite successfully use outsourcing at the stage of development. However, if a large company fails to nd an efcient external developer of new products that can signicantly accelerate its development up to «market condition,» it is not reasonable to stick to the in-company R&D. This instrument requires a high level of development of the innovation infrastructure in the region as well as a well-developed national innovation system. The most common methods of idea generation are surveys, brainstorming, as well as search for any ideas that are not criticized during the search period. With regard to generation of ideas, the example of Samsung (South Korea) is quite illustrative. The company follows the principle that information is a vitally important and irreplaceable primary material. Therefore the company set up two groups for information services:


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– The information acquisition and transmission system (IATS) (15 employees) collects strategic information («Text» and «Consultant» channels); – «STOI» (17 employees) collects on-line information. The objectives of the rst, IATS, group are to collect information on the economic situation in the country and abroad, South Korea’s exports, competitors, assessment of political risk in various countries, research on special requests from departments, and distribution of obtained information among employees, including newsletters, statistical publications and market surveys. The second group («STOI») collects current data on markets and competitors from numerous representative ofces, by getting daily reports on the most important events. Based on this data the group makes consolidated analytical reports exclusively for the top management of the company, which are destroyed after reading. A specic feature of new industrialized Asian/Pacic countries is constant search for and collection of scientic and technical information throughout the world. This refers not only to South Korea, but especially to Japan. In particular, as far back as in 1957 the Japanese Government founded the Japanese Information Centre for Science and Technology. Every year its specialists analyze 11,000 journals (including 7,000 foreign journals) and 15,000 technical reports based on which they write 500,000 summaries and distribute them across the country to interested organizations and agencies. In addition, corporations themselves spend on average 1.5% of their turnover on spying [7]. The marketing of the idea must include formulation of several different objects of commercialization, i.e., specic R&D applications. This stage is followed by a separate preliminary market research for each selected object for commercialization. To assess market prospects of the proposed product (technology) it is necessary to search for existing products and technologies solving the same problems and meeting the same buyers’ needs. Based on the results of this stage, the objects of commercialization having the greatest market potential are chosen for industrial realization. However, this is not the end of the marketing phase. It will be necessary to return to it some time later as large-scale R&D requires a considerable

Innovations: from idea to implementation


amount of time, and producers are unable to assess the future state of the market with sufciently high accuracy. To reduce the risk of losses on investments in research, it is necessary to carry out iterative marketing with a time lag typical of the dynamics of this industry (from 0.5 to 1.5 years). It should be noted that this stage of marketing must be done by highly qualied specialists with good knowledge of the main ideas of the developed scientic concept, as well as modern methods and techniques of marketing research and tools for processing and interpretation of obtained results. The problem of professional education must be considered from the position of the customer and, rst of all, industry. Today, industry needs a new generation of engineers who are able to combine high technological culture and discipline with critical thinking and creative boldness –inventors and innovators. Today’s specialists must have market thinking and international outlook in their eld. Working on the project the developer must keep in mind that he must produce not just an outstanding product but a product that will be easily sold competing with the best products at the international level. Today, engineers must be able to work in the coordinates «time is money» in close contact with marketers and planners, and be able to speak their language. It is not by chance that the list of qualication requirements for engineers in most developed countries includes the ability to take technical decisions on the inventive level, the ability to nd the right information and to self-educate [9]. 2.3 Fundamental research and R & D The life cycle of innovation starts with fundamental and applied research aimed at creation of innovations and ends with the necessity to replace it by a new and more efcient counterpart (Figure 2.3). In this life cycle, the period that starts with fundamental and applied research and ends with production of innovation prototypes and their transfer to industrial development is called the innovation cycle. It is impossible to overestimate the importance of the innovation cycle as it gives birth to and forms novelties. Therefore, to ensure an innovation boom in the economy, it is rst of all necessary to pay special attention to this stage of the innovation life cycle.

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2.3.1 Fundamental research The world community gives the highest priority to research of universal signicance determining the prospects of civilization, its sustainable and safe development. A widespread use of multidisciplinary approaches forms a methodological basis of science. Humans have always tried to understand the laws of the universe, the nature of matter and their own nature; therefore, all that we call fundamental science has existed from the dawn of time, or at least every nation has had its thinkers who studied such problems. In ancient times, people imagined the world as a unity of four elements: earth, water, air and re. Later, they learned chemical elements, discovered the electron and the proton. Nowadays, science studies elementary particles and close relationship between their properties and the structure of the Universe. Only by understanding the relationship between the laws of the Universe and the laws of elementary particles will we be able to gain more knowledge about the surrounding world. The matter we see and feel makes up only 4% of the entire Universe. The remaining 96% consists of so-called «dark energy» and «dark matter», which remains elusive to study. Fundamental research can expand the boundaries of our knowledge and assist in solving the practical problems humanity is facing. The country creating favorable conditions for innovative thinking deserves to be in the «highest league,» formulating the most perceptive routes for the development of civilization and concentrating their resources to this end. To understand the importance of fundamental science and the motivations of scientists we will cite Aristotle, who 2,500 years ago started his «Metaphysics» with the following words: «All men by nature are curious.» This was followed by the development of applied science and by the implementation of obtained results in practice, i.e., in economy. It is important to pay attention to the period of time between the generation of a new idea and its realization in practice, which sometimes can span a hundred years or more [8]!

Innovations: from idea to implementation


Innovation activity implemen- growth tation

Creation of innovation

Stage I




volume of sales

stage stage II III investments

fund. applied reresearch search Budget financing


Point of investment reimbursement

Time 4

investment lag

Risk investments

Project commercialization Stage IV Investments in production Investment flows Innovation life cycle

Figure 2.3 – Stages of innovation life cycle

Not long ago the scientic community celebrated the 150th anniversary of the publication of Darwin’s major work «The Origin of Species,» whereas today we witness achievements in nanobiology fueling a powerful industry affecting all aspects of life. The whole path of humankind’s development is marked by such examples of implementation of fundamental science. In physics, we have the example of Faraday’s discovery of electromagnetism, in chemistry Mendeleev’s periodic table of elements, in quantum mechanics the works of Planck, and so on. As we see, the interaction between innovation and science is not something new. Fundamental science opens new areas of knowledge and acts as a generator of ideas, thus playing a pivotal role in innovative processes. It is a well-known fact, however, that only 5% of all fundamental research eventually results in a a positive outcome. Fundamental research (FR) is experimental or theoretical work aimed at obtaining new knowledge on the basic laws of the structure, functioning and development of human beings, society and the environment. The objective of all fundamental research is to discover new connections between phenomena, to study the laws


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of nature and social development in order to nd their practical application. Fundamental research as a whole is subdivided into theoretical and pilot research. The results of theoretical works are scientic discoveries, verication of new concepts and ideas, and development of new theories. Pilot research, on the other hand, is aimed at development of new principles of generation of ideas and technologies. The result of pilot fundamental research is justication and pilot test of new methods to be used to satisfy people’s needs. It has already been mentioned that pilot fundamental research is carried out only by highly qualied specialists in academic institutions and universities, as well as in large scientic and technical industrial organizations. According to the logistics of development of the innovation process, innovations start with the generation of an idea for a new product, and ideas, as a rule, are born in fundamental research. Fundamental research is funded from the state budget or in the framework of government programs and grants [9]. The results of such research are new hypotheses, theories, methods, etc. Fundamental investigations may give recommendations on carrying out applied research for identication of opportunities of practical use of scientic results, scientic publications, etc. In general, fundamental research must cover a wide range of problems; however, it must comply with the basic scientic priorities of the country. As fundamental research generates many initial ideas that may turn into major innovative projects, it is necessary to be very careful in the choice of elds of fundamental research. In order to identify the needs in different elds of knowledge it is important to study the institutional context. The demand for knowledge triggers an increase in the volume of fundamental research considered to be the most protable by entrepreneurs. Thus, in order to encourage private and public investment in the development of knowledge that has reached a socially recognized prot margin, it is necessary to combine the market demand for knowledge with the subjective way of thinking of economic agents. It is

Innovations: from idea to implementation


the institutional system that must determine the direction to be followed in order to acquire knowledge and skills, and this direction must become a governing factor for the long-term development of society. The more fundamental the science is, the more far-sighted it is, though it is not necessarily aimed at creation of a specic commercial product. Its results are not always predictable, however such investigations have triggered all major revolutionary changes in production. Fundamental research is important for the development of science itself. Applied research without the support of fundamental science may turn into mere rationalization. Therefore, applied research is mainly dictated by the market, whereas fundamental research works for the future and must be supported by the state, at least at the level of basic funding. For example, as far back as the 1950s, the United States realized the role of science in the development of its economy and strengthening its leading position in the world. At the end of the last century, the USA adopted an extensive set of laws and introduced unprecedented measures for the development of this sector. All social layers in US society including industrialists and legislators understood that the funding of fundamental research was a direct responsibility of the government. The amount invested in research by industry was twice as much as the federal budget, but was primarily nancing applied research and development. For example, in 2008 the share of industry in nancing fundamental research in the United States amounted to 5.4% only, while the share of the federal budget was 62% (the rest was covered by university funds) [8]. The importance that the US government and US society as a whole attach to the development of science is demonstrated not only by the volume of federal expenditures, but also by a complicated multi-stage procedure of approval of the federal R&D budget. In the framework of each budget cycle, the draft project of budget expenditures by item and among over a dozen of federal agencies providing nancing of the budget items is analyzed and revised


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at least three times with the direct participation of the scientic community and the largest scientic societies. These societies are strongly supported by media and their own lobbyists in Congress. The development and approval of the R&D budget is one of the most important and responsible legislative processes, the results and possible consequences of which inevitably cause a strong resonance nationwide and abroad. Thus, the foundation of innovation development is formed by modern science, which although increasingly transforming into a large independent business, remains an important object of state administration, playing a high-priority role in the national economy and requiring highly specialized institutions and specic methods of organization and management [3]. The importance of organizational aspects in research efciency is noted in numerous studies, according to which science efciency is proportional to the logarithm of nancing but directly proportional to the quality of science organization. Science, like any other creative area, is an extremely delicate system based on the traditions of schools formed over decades. It is half the battle to bring together talented people and provide them with funding, and it is also necessary to create a specic scientic aura or culture. An important role is played not only by the succession of scientic schools formed over many decades and incorporation of higher education with R&D institutes, but also by the academic mobility of researchers, as training abroad is a natural event in a researcher’s professional biography. For example, Mendeleyev was sent for two years to Germany to prepare for the professor’s degree. Darwin, after graduating from Cambridge University, went on a 5-year round-the-world voyage, and his observations became a prerequisite for his theory of evolution. It is worth noting that currently 150,000 Chinese scientists study, take training courses and work in the United States. Many of them go back with a wealth of experience to continue research at home, where they receive good conditions for continuation of research and innovation [10].

Innovations: from idea to implementation


Louis Pasteur said, «Science is a worshiped image of the Fatherland, therefore, the leading position in the world will be always occupied by the nation that will surpass the other nations in thought and mental work». Taking into account the crucial role that science and innovation play in the formation of the model of post-industrial development («knowledge society») in the XXI century, it is possible to conclude that only countries with the highest scientic and technical potential will retain world-power status in the globalized world. Almost all leading countries have a thoroughly developed R&D strategy supported by allocation of considerable nancial resources. Four major centers of scientic progress are becoming more visible in the emerging multi-polar world; these are the USA (35% of global R&D expenditure by purchasing power parity), the European Union (24%) and Japan and China (about 12% each) [11]. 2.3.2 Applied research Applied R&D is the stage of the innovation life cycle following the phase of fundamental research. Applied research is expected to answer the following question: is it feasible to produce a new product with characteristics most closely meeting the needs of consumers? The specicity of R&D determines the composition of stages and scope of work to be done. The results of applied research include: decision on the necessity of carrying out R&D based on the results of fundamental research, solution of specic scientic problems on production of new products, designtechnical materials, recommendations, techniques, instructions, etc. Applied R&D is carried out in several stages [12]: 1) Preparation of specication requirements for R&D; 2) Identication of the main research directions; 3) Experimental and theoretical research; 4) Evaluation and systematization of research results. A tentative list of R&D activities according to stages is presented in Table 2.2.

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Table 2.2 R&D stages and types of work R&D stage Development of requirements specication (RS) for R&D

Types of work Scientic planning

Studying patent documentation. Taking into account clients’ requirements. Analysis of the results of fundamental and pilot research. Choice of direction

research Collection and study of scientic and technical information. Compilation of an analytical review. Patent investigations. Formulation of possible ways of solving the tasks set in the RS and their comparative evaluation. Choice and justication of research areas and ways of solving problems. Comparison of expected performance indicators for a new product after implementation of R&D results with the existing performance indicators for analogue products. Evaluation of tentative economic efciency of new products. Development of a general methodology for carrying out research works. Making an intermediate report.

Theoretical and experi- Development of working hypotheses, construction of mental research models of the studied object, justication of assumptions. Identication of the necessity of carrying out experiments to conrm certain conclusions of theoretical studies or to get specic parameters needed for calculations. Development of the methodology of experimental studies, preparation of models (prototypes, experimental samples) and testing equipment. Carrying out experiments, processing obtained data. Comparison of experimental and theoretical results. Making corrections in the theoretical models. Conducting additional experiments if necessary. Carrying out feasibility studies. Writing an intermediate report.

Innovations: from idea to implementation Generalization and evaluation of the results of investigations


Generalization of the results of the previous stages. Assessment of the completeness of problem solution. Development of recommendations for further research and R&D. Development of the draft requirements specication for R&D. Writing the nal report. Acceptance of the R&D by commission.

The results obtained in applied R&D must not only have scientic and technical value, but also give an economic and social effect. The scientic importance of the applied R&D is represented in accumulation of new scientic knowledge; scientic-technological value is the possibility of use of R&D results in further research and production of new products. The economic R&D effect is expressed as either income or losses incurred by its use. The social effect is observed when R&D results embedded in new technology or products give higher labor productivity, better living conditions and other benets [13].

2.3.3 Research & Development Research and development (R&D) is a process of creation of new products, materials, techniques or technologies based on the results of applied research including such types of work as development of technical documentation (drawings, technical specications, etc.), manufacturing and testing of pilot samples, draft and engineering design, development of a technical system or an engineering object, development of technological processes, embodiments of new products, proprietary name of the product, labeling, packaging and trademark. Table 2.3 shows a preliminary list of works according to the R&D stages [12]: 1) Development of Technical Design Specication (TDS) for R&D; 2) Technical proposal; 3) Draft design; 4) Engineering design; 5) Development of detailed design documentation for production and tests of the pilot sample;

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6) Preliminary tests of the pilot sample; 7) State (departmental) tests of the pilot sample; 8) Introduction of corrections in the documentation based on the test results. 9) A preliminary list of works by R&D stages is shown in Table 2.3

Table 2.3 Preliminary list of works by R&D stages R&D stage

Tasks and description of works

Technical proposal (is the basis for correction of TDS and fulllment of draft design)

Determination of additional or updated requirements to the product, its performance and quality specications not specied in the TDS: – Analysis of R&D results; – Analysis of prognosis results; – Study of scientic-technical information; – Preliminary calculations and correction of TDS requirements.

Draft design (creates the basis for engineering design)

Development of basic engineering decisions: – Fulllment of works at the stage of Technical proposal if this stage has not been carried out; – Choice of the element base of the development; – Choice of principal engineering decisions; – Development of structutal conguration and functional chart of the innovation; – Choice of principal structural components; – Metrological expertise of the project; – Development and test of prototype models.

Engineering design

Final choice of engineering decisions for the whole product and its components: – Development of principal electrical, kinematic, hydrolic and other diagrams; – Correction of the main parameters of the innovative product;

Innovations: from idea to implementation


– Design arrangement of the innovative product and presentation of the data for its placement at the object; – Development of TS (technical specication) projects for delivery and manufacture of the innovative product; – Full-scale tests of prototype models of the main elements of the innovative product. Development of engineering design documentation for pilot-line production and testing

Preparation of a set of engineering documents: – Development of a full set of engineering documentation; – Coordination of the set with the customer and manufacturer of serial products. – Cheching of unication and standardization of engineering documentation; – Manufacturing of a prototype model at the pilot plant; – Adaptation and full adjustment of the prototype model.

Preliminary tests

Verication of the correspondence of the prototype model to the TDA requirements and determination of its readiness for state (departmental) tests: – Bench-tests; – Preliminary tests at the object; – Reliability tests.

State (departmental) tests

Assessment of correspondence to the TDS requirements and possibility of organization of serial production.

Introduction of corrections in the documentation based on the test results

Introduction of the required corrections and specications in the documentation. Assignment of letter «O1» to the documentation. Transfer of the documentation to the manufacturing plant.

The results of R&D works are scientic-technical developments including systematic works based on the existing knowledge obtained as a result of research and/or work experience and aimed at creation of new materials, products, processes, devices, services, systems or techniques. These works may be also aimed at a considerable improvement of exist-

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ing objects. The nal product of such works, in case of their successful implementation, is an operating model or a technical prototype. It is the verication of the feasibility of the idea, and conrmation of its correctness. This stage is time- and labor-consuming and requires high nancial expenditures. Therefore, research and development works requiring much higher expenditures than the previous stages are usually funded by private businesses. To support such works, it is reasonable to use soft lending vehicles and concessional taxation. The second vital component of this stage of the innovation life cycle is the availability of a large number of design bureaus, design institutes, experimental areas and industrial laboratories. As a matter of fact, this is a whole cluster of institutions, and consequently specialists, working in the eld of designing and engineering. R&D plays a decisive role in the innovation process as it is the stage that transforms the results of previous stages into a nal product. It is very important that at this stage a set of detailed technical documentation required for the organization of serial production. This stage of the innovative process is very complicated as it involves interaction of different elds of knowledge: mathematics, natural sciences, economics, management and industrial engineering. The nal goal of R&D work is to ensure effectiveness and competitiveness of the new innovative product on the market [12].

2.3.4 Pilot production An innovative product developed at the stages of the working model and technological prototype cannot be launched on the market as its production cost is too high, not all safety factors are taken into account in the design, and what is even more important, the products are not able to retain their claimed operating characteristics during an acceptable service life period. These problems are to be solved at the stage of prototype samples that are manufactured to demonstrate that the product complies with the requirements of the operating characteristics; additionally, in the production of prototypes problems of manufacturing and quality management are identied and solved. A pre-serial prototype is usually handmade and is a sample maximally resembling the innovative product of

Innovations: from idea to implementation


mass production, the only difference being production volume. In fact, it is a full-scale, completely operable model designed to determine the demand and requirements for production of this innovative product. It is also used to obtain the information on functioning and reliability of the model prior to launching of (small-batch) full-scale production.

2.3.5 Commercial development and commercialization Commercialization of innovative products presumes their transformation into a real source of income. However, an analysis of the worldwide experience of innovative businesses shows the following results: The period from the appearance of a new idea to the science-based commercial production lasts from 3 to 5 years; Only one in ten innovative products enters the market; Only 10-30% of new science-based businesses survive the rst 2-3 years; Only 6% of R&D projects result in marketable end product, and 4 of 5 new high-tech small businesses nalize their activities in shutdown; Only ve developments in a hundred turn into a competitive product. Therefore, it is important to create mechanisms that can «hook» and implement these 5% of developments [13]. It is obvious that the very mechanism of transformation of innovative products into real income presumes such quality of cooperation in the system «science – innovative product – money» as will allow aligning of all stages of innovative project development including aligning intermediate R&D results with market demands. In the conditions of market competition, the production geared to the interests and expectations of consumers forms the basis of commercial success of an innovative product capable of raising the competitive position of the company and yielding or increasing prot. At the present time the development of the market economy is characterized by the following factors: Increasing diversity of goods and services markets; Reduction in the goods life cycle; Higher level of competition. All these processes force businesses to continuously innovate or im-


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prove existing goods and predetermine the development of new engineering solutions. Enterprises are forced to increase the differentiation of output products. Manufacturing of products aimed at special groups of consumers presumes development and production of goods in small batches. In such a context the role of marketing and an efcient sales system that enables enterprises to maintain close links with end users and to promptly identify their new requirements for goods and services becomes increasingly important [14]. Commercialization of R&D results is a gradual process covering the whole chain – from idea generation to the launch of science-intensive production and promotion of new goods on the market. In principle, at each stage of this process there is a possibility of starting up new businesses or involving existing external companies in rendering service support for the purposes of successful commercialization of new technology or new scientic developments. At the stage of research works (where the idea is fuzzy), the role of elements of infrastructure support may be fullled by commercialization divisions and technology transfer centers, whereas nancial support may be attracted through R&D competitions. At the stage of R&D and organization of industrial production (sample – pilot series – modied series) the role of infrastructure support may be played by technology transfer centers, business incubators, innovative technological centers and technology parks. At this stage nancial support can be provided by targeted innovation programs, guarantees or state funding of interest rates on commercial loans, bank loans, private nancing and seed venture capital trusts. The following mechanisms can be used to speed up commercialization of innovative products [4]: • Creation of databases (data collection and processing, development of communication policy in the company); • Stimulation of business activity (determination of the level of project requirements, assessment of project reliability, assessment of terms and conditions of the contract, price policy, audit); • Creation of new companies (assessment and selection of the strategy of market penetration); • Functional-cost analysis (studying the previous experience of meth-

Innovations: from idea to implementation


od application, creation of a marketing department in the company, attraction of external specialists to marketing research, search for sources of nancing). There are the following forms of R&D commercialization: fulllment of R&D on the order of industrial enterprises or companies, sale of the license and concession of patent rights, formation of small high-tech innovative enterprises and companies. At the stage of applied R&D in the life cycle of innovation, it is especially important to create an effective management and nancing mechanism with attraction of venture capital, business incubators and insurance companies. The rst step in this direction is to create such attractive conditions for private businesses that they will be eager to start nancing applied research in cooperation with state organizations. If a business is interested in the possibility of placing orders with high-tech scientic groups having access to necessary resources, it expects state permission to participate in projects aimed at creation of corporative research divisions and technological clusters. In such areas innovative companies and large corporations alike want access to premises and scientic equipment at relatively low cost. The company, having invested in the foundation of a scientic center and assumed related risk in conjunction with the state, will have to support its activities, therefore both small businesses and start-ups will nd their place in the cluster without any special state support. In technologically developed countries the initial stages of new product manufacturing (technological modernization, numerous tests as well as commercial distribution of pilot batches) are fullled by start-up companies. These companies, as a rule, have limited resources and pursue their business activity on the basis of innovation products not yet presented on the market or just launched on it. The development of start-up companies has the following stages (Figure 2.4). In the scientic literature can be found a brief classication of startup companies that includes the following ve stages: the seed stage, the launch stage, the growth stage, the expansion stage and the «withdrawal» stage. At the moment when pilot batches are sold, the production starts to expand and turns into serial manufacturing. Small businesses that have

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achieved the level of commercial development are usually sold to major industrial investors. This situation is benecial for both parties as the risks at this stage are minimal and the price for such companies usually starts at tens of millions of US dollars. Seedlings (market)

System Financing stage 1

Stages 2 – 4 Sprouts

Seeds (ideas)

Development of small and medium-sized innovative businesses Innovation technology with

Entrepreneurial team promising potential on the market

Stage 5

System strengthening

Figure 2.4 – Stages of development of start-up companies

Depending on the phase of the product life cycle (technology) the following types of organizations are used [15, 16]: – Firms-explerents; – Firms-patients; – Firms-violents; – Firms-commutants. Firms-explerents (pioneering companies) are specialized in creation of new or radical transformations in existing market segments. These companies start their work at the initial stages of production and deal with market promotion of innovative products. It is necessary to note that when an attractive new product is created, and the delay in its distribution may lead to the appearance of copies and analogues, such a company faces the problem of the volume of output. To solve this problem it forms an alliance with a large company as it is not able to produce a sufcient amount of successful new goods independently. Alliance with a major company (even on terms of acquisition and submission) allows the start-

Innovations: from idea to implementation


up to access more favorable conditions and even to preserve some degree of autonomy. Firms-patients work in a narrow market segment and satisfy the demands formed under the inuence of fashion, advertising and other factors. These companies act at the stage of production growth. The requirements for the quality and output volumes in such companies are determined by the aim of market capture. At this stage it is necessary to take decisions on whether it is rational to continue or to stop development, to sell or to buy licenses, and many other issues. The possibility of making erroneous decisions leading to crisis is very high. For this reason such companies often include an innovation manager whose role is to protect the company from such risks. Firms-violents work in the eld of standard large business and are classied as organizations with a «forceful» strategy. These companies possess large capital and are characterized by a high level of technological development. Such companies deal with large-scale and mass production for a broad range of consumers with medium quality requirements and satised with a medium price level. These companies make decisions on the terms of launching (including decisions on license acquisition) and stopping of industrial production, as well as on investments, expansion of production, and replacement of machines and equipment. Firms-commutants work in medium and small business oriented at national investors and act, as a rule, at the stage of reduction in output volumes. These companies also have to reach decisions on timely start of production as well as on the level of technological effectiveness of the articles they produce, including the practicability of introduction of changes into these articles according to the requirements of specic users. Innovation managers of such companies must understand specic features of consumers of their goods, remain aware of current market conditions, and be able to effectively predict possible crises. In world practice, in order to stimulate commercialization of innovative products the following state measures are used [17]:  State support of science-intensive technologies through bringing relevant expenditures to 1.8% of the GDP as a threshold value;  Activation of sectoral innovation funds;  Modernization of the regulatory basis of venture nancing system for innovation projects;


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 Stimulation of small innovative businesses through creation of favorable conditions;  Financial support of patent and inventive activities, state support for protection of intellectual property rights in the country and abroad;  Involvement of the objects of intellectual property in economic business activity, inventory and protection from unauthorized use;  Development of infrastructure providing commercialization of innovative products; Development of information infrastructure, support of research institutions in gaining access to information networks and databases. In addition, indirect state incentives for commercialization of innovative products are widely used. Such incentives include tax credits, «tax vacations,» reduction of taxes proportional to increase in expenditures on innovation products, tax relief, etc. [18]. An important aspect of commercialization of innovative products is economic use of objects of intellectual property, the cost of which is very high and may reach hundreds of millions of dollars. The fraction of intellectual property can be as much as half of the total capital of industrial enterprises and companies, and depreciation of intangible assets serves as a stable nancial source for reproduction on an up-to-date technical basis. Some countries have developed and adopted various schemes of commercialization of intellectual property – from transfer to private companies of rights for all developments created at the expense of state funds, to reservation of some property rights by the state and active support of commercialization of scientic results [17]. The most perfect regulatory system supporting commercialization of innovative products was introduced in the USA as far back as the 1980s. Adoption of the Stevenson–Wilder Act and the Bayh–Dole Act, the act on technology transfer and a number of other acts created optimal conditions for transfer of scientic and technological achievements from universities and state laboratories to manufacturers. All these measures alongside tax incentives for innovative products and an efcient system for protection of patent and proprietary rights enabled the USA to obtain a unique longterm experience of commercialization of university «embryonic» technology developed at the expense of budgetary nancing. Regulatory support for the expansion of commercialization mecha-

Innovations: from idea to implementation


nisms was also introduced in Japan. In 1998 the country adopted its Act on the Promotion of Technology Transfer from universities to manufacturers, followed in 1999 by the Act on Special Measures for Industrial Revitalization that allowed contractors to acquire the rights for intellectual property created in the course of realization of innovative projects. The Act on Strengthening of Industrial Potential adopted in 2000 destroyed barriers for participation of lecturers and researchers from national and state universities in the capital of private companies. The same Act facilitated transfer of funds from the private sector to national and state universities. An analysis of patent statistics shows that Japan is not only the owner of the greatest number of patents (compared to other OECD countries), this country is also quite reputably represented in so-called «hot spheres» of technological progress, i.e., in those elds of patents that are in high demand on the market immediately upon registration. In solving the problems of commercialization, economically developed countries establish special organizational structures acting as intermediaries between sellers and buyers of new technological developments, playing the role of technological brokers. This practice is particularly widespread in the UK and Germany. An absolute leader among the EU countries is the UK, where most universities have divisions for technology transfer. In addition to regulatory structure, the developed countries apply various incentives for commercialization of innovation products. For example, the EU has implemented programs for co-nancing of research contracts, subsidizing services on technology commercialization, granting initial capital for start-up companies, etc. Besides nancial incentives, the method of «provision of services instead of money» is widely used, i.e., the government provides companies with such services as personnel training, promotion in obtaining patents, support in production certication, and allocation of premises in business incubators, industrial parks, etc. Summarizing the above facts we can make a conclusion that commercialization of innovative products implies multi-component support on the part of the state: nancial, consulting, informational and other types of support. The state not only takes part in nancing high-risk projects, it also supports the links between science and industry by nancing cooperative R&D at competitive stages. This cooperation is benecial both

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for research institutions and for businesses. An essential incentive in such programs is the transfer of rights for intellectual property created at the expense of budgetary means to manufacturers for consequent commercialization. Thus, efcient commercialization of an innovative product is only feasible in a country having an integral and comprehensive innovation system where the participation of the state in innovative activities plays the key role.

2.4 New approaches to the development of innovative products The above models of the life cycle of innovative products refer to the classical linear concept of innovation process based on the availability of the requisite knowledge obtained in fundamental research. In the framework of the linear concept all stages of the life cycle of the innovative product are in cause-and-effect relationship (Figure 2.5). Linear diagram of the innovation process Research activity

Fundamental research

Scientific idea

Applied research


Innovation activity

Feasibility study

Initial serial production

Innovative developments


Final product

 Results of R&D activity:  Object of intellectual property;  Economically efficient, socially and ecologically sound product;  Commercializable products in demand with consumers.

Figure 2.5 – Linear model of the innovation process

Innovations: from idea to implementation


As a result, the stages succeed each other in strict order: fundamental research yields theories and discoveries that are processed in applied research with subsequent testing in the course of development, and that are then sold on the market as industrial innovative products and put into operation. Each stage must yield a result without which the next stage is impossible, so the process may develop only in one direction. A specic feature of this concept is emphasis on the special role of fundamental research determining all subsequent stages. However, current practice shows that the linear concept of the innovation process fails to describe all types of real innovation processes. Moreover, a number of prominent studies, in particular that of Freeman, state that this concept is more an exception than a rule, more suitable for high-tech industries. It is possible to summarize critical remarks (Kline and Rosenberg in 1986, Lundval 1992, Schoenstock 1994, Jord and Tees 1990) concerning key suggestions for the linear model as follows [19]: Innovative products may appear at any time in any eld of human activity, therefore it is not always necessary to create special conditions. Innovation cannot be considered only as a process of creating new scientic knowledge. On the contrary, innovation implies acquisition and distribution of new knowledge, its combination with the other knowledge, development of new products or technological processes, branding and advertising, and even copying and adaptation of existing innovative products. Scientic research does not always lead to creation of an innovative product, and vice versa, innovations do not always need new knowledge. For instance, the innovation product may emerge either in the production process or as a result of demand, in the course of application of existing knowledge in other elds or by other methods. Innovation products are characterized by ambiguity and a high degree of indeniteness. A specic feature of the mechanism of innovation product development is a complex feedback system that may cause the process to change its direction by 360 degrees, i.e., in the framework of the innovation process any of its stages may become both cause and effect, result and consequence, and thus be a precondition of creation of an innovative product.


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Today, the term «innovation» has become much more complicated, acquiring deeper content. Now it is not only a means of accelerated development, but also a philosophy of general technical evolution, as well as economic policy both at micro and state levels. Changes in economic processes have changed the innovation process, which is why the classical linear model is not able to effectively describe different types of processes leading to creation of an innovative product. This is caused by the appearance of several worlwide social and economic tendencies: Emergence of numerous new channels for distribution of innovative ideas, transfer and diffusion of technology; Intensive activity of transnational companies and application of the mechanism of direct foreign investments for transfer or interchange of innovations; Application of new institutional and managerial structures in the innovation process, such as outsourcing, international syndicates, industrial alliances, etc [19]. Another important event affecting the innovation process was a breakthrough in technological integration, the process of selection and adaptation of technologies used by companies for the development of their products, processes and services [20]. It is this integration that ensures successful and efcient creation of innovative products. The process of technological integration is used at the very early R&D stages. It determines the plan of action in design, development and production, as well as ensuring further interaction between research, production and promotion of products. In the framework of the process of technological integration teams of integrators are created. These teams are tasked with developing a general concept of the new generation of products and technologies. In order to analyze the project, these people must apprehend its general perspectives. They work in close cooperation with the developers, assisting them in improvement of the product so it will meet the requirements of customers, and its production process will be quick and efcient (Figure 2. 6).

Innovations: from idea to implementation 1. Research divisions within the company and external teams create a lot of technical ideas.

research research research research research

2. Team of integrators studies these ideas, makes a choice and improves the chosen solution using a wellequipped experimental technial base

▶▶ integration ▶▶ ▶


3. The same team works in cooperation with developers on creation of a newgeneration product or process. development development development development

▶ ▶ Solutions ▶ Products ▶ Processes ▶

Fig. 2.6 – A new R&D model

Widespread technological integration has changed the nature of competition: today, the competitive advantage belongs to those companies that more efciently choose the required technologies from a large set of suggested variants. The processes of technological integration are very important for raising competitiveness. What are the peculiarities of non-linear models of the innovation process? From the point of view of stages, the non-linear models of innovation processes are a combination of linear models of the «technological push» with the «challenge of demand». In such models much attention is paid to the interrelation between market demands and technological potentialities. However, the non-linear models have some principal differences from linear ones. According to the non-linear models [21]: – An innovative idea may arise at any stage of the innovation cycle, at any subject of innovation activity; – The key role in the innovation process belongs to the links between the economic subjects, and not to the subjects themselves, and therefore the efciency of the mechanisms regulating these links is very important; – Institutional conditions of innovation and research works become especially important. Whereas the regulation of linear innovation processes required, rst of all, support of individual subjects of the innovation process, the regula-


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tion of non-linear innovation processes must be based on greater attention to the links among the subjects. An important feature of these non-linear innovation-process models is representation of any process of innovation development as a complex of works, the structure and succession of which are not exactly known beforehand. These models are based on the assumption that separate stages of innovation development may be fullled several times. In addition, there is a possibility of recurrence of the whole process to the preceding stages. The basic models in this class are Kline and Rosenberg’s nonlinear vector model and Gomory’s non-linear cyclic model, which have a lot in common [22]. According to Kline and Rosenberg’s non-linear vector model, the innovation process has a «central line» including a sequence of the main stages proceeding straight from the idea to its implementation and commercialization. At the same time, these stages are interconnected not only by direct links but also by indirect ones, which makes it possible to correct any intermediate results of this process. This means that R&D, due to its adaptability and problem-orientation, can be carried out at any stage of the innovation product development, while the function of the source or generator of pioneering ideas is fullled by the marketing divisions of the company. In order to achieve the required result the stages of the innovation process may be repeated several times. Today, Gomory’s non-linear cyclic model «is considered to be the most comprehensive and adaptable to the real features of innovation processes.» It is practically identical to Kline and Rosenberg’s non-linear vector model, but it also takes into account the presence of a close linkage between boundary stages of related innovation developments.

Innovations: from idea to implementation


Bibliography 1. G.I. Gumerova, E.Sh. Shaimiyeva. To the problem of technology life-cycle concept// Innovations. – No.8(118). – 2008. – p. 71-74. 2. G.M. Mutanov. Development of information system for innovative projects assessment / G.M. Mutanov, Zh. D. Mamykova, G.Zh. Abdykerova // Vestnik of Serikbayev EKSTU. – 2009. – No.4. – p. 150-154: g. – Ref.: 3. 3. Innovation in science / L.V. Kozhitov, S.G.Yemelyanov, V.A. Dyomin [et al.]; South-Western State University – Kursk, 2010. – 627 p. 4. Z.A.Temerdashev, S.V. Ratner, N.Ye. Ivanova, L.A. Voronina. Concept of iterative marketing in realization of full innovation cycle // Innovations. – No.8(118). – 2008. – p. 91-93. 5. Peter R. Dixon. Marketing management: trans. from. Engl. – .: Publishing house «BINOM», 1998. – 560 p., p. 241. 6. G.A. Krayukhin, L.V. Shaibakova. Regularities and trends of innovation processes: Lecture on « Innovation processes management». – St.-Ptsb.: SPbGIEA, 1995. 7. Science in Japan in Japan 8. 9. 0%9D%D0%94%D0%90%D0%9C%D0%95%D0%9D%D0%A2%D0%90%D0% 9B%D0%AC%D0%9D%D0%AB%D0%95 10. I.V. Melikhov «Golden section» of nanotechnological science // Vestnik of RAS. 11. Science and technology: Public attitudes and understanding // Science and engineering indicators 2006/Nat. science board. – Vol. 1. – P. 7-1 – 7-43. 12. GOST 15.101-80 13. G.A. Krayukhin, L.F. Shaybakova. Innovations, innovation processes and methods of their regulation: Essence and content. Lectures on «Management of innovation processes». St. Petersburg. StPGIEA, 1995. 14. 14. O.P. Korabeinikiv, A.A. Triphilova, I.A. Korshunov. The role of innovations in the process of forming enterprise’s strategy // World economy and international relations. -2001. No.4, p. 32-44. 15. 16. 17. S.K. Bishimbayeva. Models of successful commercialization of the objects of intellectual property in economically developed countries // Proceedings of abstracts and reports of the speakers of innovation congress. – Karaganda.JSC Arko, 2010, 408p. 18. M.V. Myasnikovich. Scientic bases of innovation activity. Minsk. PJSC «Right and economy», 2003. – 279 p.


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19. 20. M. Yansity, D. West. Transformation of research into a rst-class product. Management of high-technology business. Trans. from Eng.-M. Alpine Business Books, 2007, 256 p. (series «Classics of Harvard Business Review»). 21. 22. I.G. Dezhina, B.G. Saltykov. Mechanisms stimulating R&D commercialization. M. IEPP, 2004, 152p.

Innovations: from idea to implementation



BASIC ELEMENTS OF INNOVATION INFRASTRUCTURE World practice manifests many examples of an efcient organization of infrastructure supporting innovation activities. States do not act as observers of the independent development of such elements but enact policy stimulating commercialization and transfer of science-intensive developments and technologies. Leadership in creation of the most favorable conditions (taxation, inow of investments, etc.) for the development of innovation business passes from one country to another. At rst, this position belonged to the USA, then to Japan and Germany, now it is held by Finland, India and China. A successful innovation activity cannot develop without economicterritorial associations (technology parks, business-incubators, regional innovation funds, venture companies) that provide full-scale infrastructure support of all life cycles of innovation.

3.1 University In the conditions of the knowledge economy neither state nor business can play a dominating role as they cannot create new knowledge independently. Today, all over the world up to 90% of scientists are concentrated in universities, and they determine the development of present-day science. Hence, in the conditions of formation of modern economy, universities play


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an important role in the process of knowledge generation and distribution as well as in training specialists for the innovation economy. In the Middle Ages a group of people united by a common purpose was called universitas from the Latin words unum (one) and vertere (turn), which can be translated as «turned in one direction.» In a wider sense of the word it can mean something united together, an association – and indeed, the universe in its entirety can be imagined as something united together. The Latin Universum gave the root to the English «universe.» The word was also used in a more narrow sense. For example, in the early Middle Ages some schools were called studium meaning «diligence, endeavor.» This is the origin of the word «student» – a diligent, careful, assiduous scholar. The rst such study-groups appeared in Italy in the Renaissance, when the country became the European center of ne arts. The students and teachers in such schools formed associations called universitas magistrorum et sckolarium. The group was united by the common aim: studying. The name «universitas» gradually moved from groups of students to schools, which at the beginning of the XIII century were called «universities.» In 1215 the Prague University was founded; in 1289 the university in Monpelie was opened. The rst university in Britain, Cambridge University, was founded in 1209 and some time later Oxford University opened its doors. Moscow University was founded in 1755 by Lomonosov’s initiative, but earlier, in 1724, the so-called Academic University was opened in St. Petersburg. In the universities there were groups of students studying one science, for example law. Such groups were called collegiums and students were called colleagues (from the Latin word ligare – to connect and the prex «co» – together). Thus, the words collegium and colleagues mean «connected together.» The students also studied general sciences, which were called universalies (universalies means common). This gave the origin to the word «universal.» In the modern Russian language colleagues are a group of people having the same profession, not necessarily scientic, and a collegium is a group of people forming an administrative or a consulting unit. The structure called in ancient times «collegium» is now called a faculty. The origin of the word comes from the Latin word «facultas» meaning «ability, capability» [1].

Innovations: from idea to implementation


An important feature of modern universities is the combination of theoretical studies with research and development work. R&D works are carried out in university research laboratories and design divisions operating in close cooperation with each other. The products of research laboratories are new knowledge, whereas the products of design divisions are business-plans and projects for new productions, and the knowledge of research laboratories is used for commercialization. This niche can also be occupied by independent R&D organizations and design bureaus, but an important condition is their close connection with universities. The problems of organization of experimental production can be solved by technological parks and industrialized zones. The new role of universities in the conditions of innovation economy gave rise to changes in their organizational structure, which was reorganized according to the structure of industrial enterprises. Rapid development saw innovation (business) universities, the important link in the innovation economy, becoming increasingly important and inuential. For example, the annual budget of Texas University is 3 billion US dollars, and that of Stanford University is 1 billion USD. The annual budget of Oxford University is 1 billion US dollars, whereas the incomes of the small science-intensive enterprises surrounding it go up to 4 billion USD. Over the last ten years China has opened over 50 national university scientic parks with about 2,500 enterprises based on new high technologies, with the income from export of their products amounting to about 1 billion US dollars. An important competitive advantage of the best American univesities is the organization of the academic process including a system of elective disciplines, a system of academic credits, a exible combination of lectures and seminars and some other factors. All these forms are recommended by the conditions of the Boulogne process. The experience in America shows that all of these forms and, rst of all, elective courses are very efcient for training specialists in the quickly changing demands of the market economy. One of the requirements of the Boulogne process is implementation of the three-level system of training of highly-qualied specialists (bachelors, masters and PhDs). It is impossible to use this system, that has proved its high efciency, without implementation of elective programs


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and higher level of mobility of students and teachers inside the university and between universities. It is important to understand that subdivision into three stages is not a formality – in the USA and Canada students’ teaching at each level fullls its predetermined tasks. Harvard University [2] is one of the oldest and most prestiguous US universities. In the annual university rating published by different agencies it is always one of the three leading universities. Harvard has a high percentage of professors having constant contracts (over 900 professors), this group consisting of the most respected scientists having much merit in science and academia. The other professors and other members of the teaching staff work on a contract basis, usually for a period of 1, 3 or 5 years. The educational process in Harvard University is organized according to the traditions of the best American research universities. The teachers themselves decide how to organize lessons with students. The educational process does not have a strict subdivision into lectures and seminars (with rare exceptions). During the lesson, as a rule lasting for 3 academic hours, the teacher practices different forms of teaching – his presentations, students’ reports, business games, free discussions of a topic, and answering questions. The nal grades for the course are also based on the criteria chosen by the teacher, however they usually include points for the written exam, for the written essay on a given topic (semester work), oral presentation on a given topic, participation in discussions during classes, and attendance. In order to get a Bachelor’s diploma the student must acquire the required sum of points (so called credit hours). These are made up of 70% from the obligatory list of disciplines and 30% from elective disciplines. It should be noted that the elective disciplines may be absolutely different from the chosen specialty. An important role in nancing of university programs, both academic and scientic, is played by so-called endowments, i.e., donations from organizations and individuals for the purposes of university development. In 2007 the market cost of endowments controlled by the university (registered as non-prot funds) was 34.9 billion dollars. The main difference between the research and ordinary university is that the research university [3] provides the integration of education,

Innovations: from idea to implementation


science and practice, and trains not only theoretical specialists but also graduates able to solve applied problems. As the university interacts with the enterprises in the region where it is located, the preparation of its graduates to a greater extent meets the requirements of regional companies/employers than does the preparation of graduates from ordinary educational establishments. The research university consists of research centers. Such a center is an interdisciplinary organization operating on constant or temporary basis, the main task of which is to do scientic research at the expense of the university or by the order of public authorities, private companies or other external organizations. The research centers are created or liquidated by the university under the inuence of external factors, but to some extent they remain independent from the university. Therefore they are very exible, which in the unstable, quickly changing scientic-technical environment enables the university to be at the height of scientic-technical progress. The research university also has a scientic department, an Industrial Liaison Ofce, business-incubators, technology parks and innovationtechnological centers. The task of the scientic department is to control university scientic contacts, to search for projects, to work with documentation, to provide participation in international educational projects, and to manage nancial resources allocated for the realization of projects. The objectives of the Industrial Liaison Ofce (ILO), as one of the most important structures of the research university, include organization of training seminars for the university researchers, checking the patentablity of their developments, patenting (including patenting abroad), protection of intellectual property rights, decision-making on applications for patent registration, search for potential licensees and initiation of contacts with them, including contacts on the conditions of condentiality, and legal services (drafting of licensing agreements, judicial protection of rights). Such elements of the innovation infrastructure as business incubators, technology parks, and innovation and technology centers are designed to promote commercialization of university developments. As a rule, their functions include evaluation of the market potential of the development;


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supply of resources (premises, specialized equipment) on preferential terms and conditions; attraction of partners (manufacturing and nancial companies, public authorities) to the process of project implementation; contacts with foreign partners; and assistance in high-tech product marketing and advisory services. In addition, the research university may participate with capital venture rms acting as the university’s partners in the innovation process, as well as in the organization of various promotional projects. For instance, Chalmers University (Gothenburg, Sweden) is a partner in the project «Connect West,» a platform for meetings between investors and young technology companies [4]. Thus, the research university is a symbiosis of a university and a research institute, and has the following advantages as compared with other institutions of higher education: – More opportunities for interdisciplinary research; – More qualied teaching staff due to collaboration with the university laboratories; – Practical experience of the university graduates raises their price on the labor market, which facilitates technology transfer to a larger number of rms; – More useful contacts in business and public administration as a result of creation of a network of university graduates; – Possibility to use students as a somewhat qualied and cheap labor force [5]. The elements of the innovation system include so-called «network organizers.» As knowledge is the main asset of the innovation system, and the research university is its major generator, it often acts as a network organizer and gives impetus to the whole system by its scientic developments. The network organizer is particularly inuential within the area of its location, mainly due to low transport and communication costs, the necessity to transfer implicit knowledge (i.e., knowledge that cannot be formalized and transferred otherwise than by learning), and awareness local needs and cultural features of the region. In the West, the network organizer of the regional innovation system is a research university in cooperation with large regional companies. The university contributes to the innovation process in the following ways [3]:

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Cambridge University

Oxford University


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Moscow State University

Harvard University

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Massachuses Institute of Technology

Chalmers University


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Stanford University

Chicago University

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1. Publication of research results in scientic journals and participation in conferences. This method of knowledge dissemination contributes to inter-regional and international scientic cooperation, and encourages research carried out by R&D departments of the companies. It should be noted that according to R. Lowe’s investigations, the transfer of developments in developed countries such as the United States is a bilateral process, i.e., ideas initiated in companies are further developed in universities. 2. Training of graduates and research personnel for companies. Through taking part in practical research the students gain implicit knowledge that gives them advantages in nding a job in specialized companies. In addition, the graduates transfer technologies in contacts with the other employees of the company. As it was noted above, the process of technology transfer from University to company is a bilateral process. Knowledge is transferred by migration of scientists between the University and companies, which helps to gain knowledge without paying money for the intellectual property rights, and to further develop technologies considered unpromising in the previous workplace. 3. Carrying out of R&D ordered by the company. This method works well only when high-tech corporations play a dominating role in the regional innovation system. The contract-based cooperation is becoming more and more popular due to the progress of nano-, bio- and information technologies, i.e., the research areas with fuzzy boundaries between fundamental and applied knowledge. Such a cooperation is feasible both on a bilateral basis and within a consortium including several companies. For example, in 1999 the Massachusetts Institute of Technology was simultaneously in alliance with such companies as DuPont, Ford Motor, Hewlett-Packard, Intel, and Motorola. As a form of cooperation, the consortium is used to undertaking large-scale, capital-intensive fundamental research, when the company cannot do it independently. In such a case, the member-rms identify the research areas, provide funding, and, if successful, get a gratuitous exclusive license. Quite often the participants use grants of state scientic funds, which may contradict the interests of the company, as the intellectual property rights will be partially assigned to the university, and the company will only get a non-exclusive license. Therefore, this method is applicable only in case of condential relation-


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ships between the university and the company, with the agreement of the university to publish the research results only after getting permission from the company. 4. Licensing. After obtaining a patent for development, the university transfers the ownership rights for it (fully or partially, i.e., in the form of an exclusive or a non-exclusive license) to the company ready to implement the innovation. As a license is a partial contract, i.e., an agreement the terms and conditions of which cannot be fully identied and veried, the negotiations on getting a license are very difcult, for it is necessary to eliminate the possibility of opportunistic behavior by the partners. For example, having received the information on a development in the framework of the condential agreement, the company has a possibility to apply for the patent independently, especially in those elds of application (countries) not covered by the university patent. The company may start «inventing around,» i.e., inventing its own innovations based on the university’s innovation, and it will be very difcult to prove the interrelation between these two innovations. The role of a guarantee against the opportunistic behavior of the company may be played by the implicit knowledge, as the companies will not be able to introduce innovations without the authors’ know-how, consultation, and training. 5. Creation of high-tech companies. This form of technology transfer directly promotes creation of new jobs and added cost. Thus, according to the 1997 Bank of Boston study, four thousand high-tech companies of the Massachusetts Institute of Technology employed 1.1 million people and had a total volume of sales of 232 billion US dollars. An economy consisting only of those four thousand companies would occupy 24th place in the world [2]. As a rule, such a company is set up by one or several employees (graduates) based on the development made in the university. The rate of creation of such companies depends on the attitude of their potential founders to the value of free entrepreneurship. The separation of the company is, in fact, a legal action needed for a more rapid and efcient technology commercialization: motivation of scientists, fundraising, sale of the company, and placement of securities on the market. Depending on the industry sector and objectives of the owners, the company is set up either to bring the innovation to a state suitable for transfer to a large company or a venture investor, or to introduce a nished product to

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the market. High-tech companies are created at the early stages of development in order to reduce the commercialization risk, as in practice the required amount of capital increases with each successive stage of idea development. There are two types of high-tech companies: 1) those created independently by the employees (graduates) without the university’s assistance, in which case all the risks are taken by the developers, entrepreneurs, and investors; and 2) those organized with direct participation of the university. Companies of this type are generally more successful, as bringing the idea to the nal technological stage would normally require a long-term (3-5 years) use of the university’s laboratory equipment. Moreover, the university can partly nance the company, as well as assist in getting grants from state research funds. However, in practice, it is impossible to achieve any useful cooperation between companies and universities based solely on the objects of material infrastructure. As innovation economy is rst of all a knowledge economy and hence, an economy of human communications where an important role is played by cultural factors. Unlike strictly structured works in private companies oriented on concrete targets, the research in universities has a seasonal character (summer holidays – the interval in the research work) and a lower level of specialization (researchers are simultaneously engaged in teaching and administrative activities), and is not united by a common objective (faculties, research centers, laboratories, and scientists are more independent). According to a British survey [3], business representatives identied the following typical obstacles to interaction with universities: gaps in project management, an aggressive approach to the intellectual property rights, greater interest of scientists in publication than in commercialization of their results, and unwillingness of universities to take risks. It is obvious that the main reason for misunderstanding is different targets of the cooperating parties. It is possible to eliminate or reduce the acuteness of the problem, in particular through the reorganization of the university management in technology transfer on the basis of one of three models: • Management from the external organization: the university plays the role of contractor;


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• Department-based management: departments and research centers are stimulated to independently search for cooperation with companies; or • Creation of a separate division, which makes it possible to use the «one window» principle for the cooperating parties (the most common model). The state acts as an important catalyst of the development of innovative cooperation, especially at the initial stage of creation of the regional innovation system. Through the adoption of special programs with partial funding, the state contributes to the creation of the innovative infrastructure, joint ventures, and joint research at the pre-competitive stage, assists in education/training/thesis writing provided the project is implemented at the enterprise, and exchange of personnel in order to get new knowledge. In order to work with corporate partners, universities create special mechanisms taking into account private interests of companies in their scientic plans. These mechanisms include special meetings and briefings for company representatives, visits of university professors and researchers to the company, round tables, etc. Corporation-partners can also get free consultations on the problems of interest. They are provided with reports on the progress of research and all university publications. These measures are important for the university to be able to plan the policy of cooperation with business and to maintain its interests in the research. Another efcient commercialization mechanism implemented in 1980 in many research universities in the United States, is the so-called Ofce of Technology Transfer. Its objective is to create efcient mechanisms for transfer of technologies born in university laboratories directly into business and social practice. Through the Ofce’s activities the university receives patents, and every inventor is awarded with 25% of all license payments given to the university as the patent owner. One of the Ofce functions is selling licenses for the use of university technologies. According to the national statistics, sale of licenses is the main source of revenue from the sale of technologies. The other important function is the search for external funding sources and assistance to inventors in organization of start-up technology enterprises. The ofce maintains close relations with the local nancial community, venture capital, and «business angels.»

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Thus, summarizing the above information, one can conclude that the research university is an important link in the innovation system. Some US universities (Stanford, Massachusetts, Chicago, Clark University) have the status of research university, which enables them to play a key role in the development of the national economy and to act as an impetus of scientic and technological progress at the national and global level. As world experience shows, one of the most important factors of performance efciency of innovation enterprises is being located close to the source of knowledge (Stanford, Harvard Universities, etc.) or near a major consumer of innovations (large corporations such as Ford, Siemens, etc.). Where there is favorable location the competitiveness of innovations increases due to reduction in costs at two levels: rst, cost of ideas and developments, and second, cost of distribution and sales. The experience of Silicon Valley and the «innovation belts» of the largest world universities conrm this conclusion. Deviations from this principle are marked by a sharp reduction in the attraction of investments.

3.2 Business incubator World practice shows that under the conditions of economic crisis a policy aimed at support and promotion of small-business development yields tangible results leading to balanced economic growth. Small-business incubators form part of the infrastructure supporting small enterprises and may act both independently and as part of the whole system of small-business development alongside such structures as technological parks, science parks, innovation, business centers, etc. Business incubators are used at the early stages of small-business development. The rst business incubator appeared in the USA in 1959. People who had lost their jobs set up their small businesses right in the premises remaining empty after the factory shutdown. The experience turned out to be successful. In 1985 as many as 70 business incubators were functioning in different countries of the world, in 1992 their number reached 470, and now it is as high as 1,100. One half of the existing incubators function in the USA. It is well known that the inuence of the small-business sector on economic development and the processes of economic stabilization is in-


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creasing. In the context of unemployment growth, small businesses play the role of the main source of jobs. However, in setting up a small business (SB) a potential entrepreneur faces a variety of problems. Let us consider only some of these: • Choice of an optimal legal organizational form for the enterprise and preparation of charter and registration documents; • Renting of ofce, warehouse and industrial premises; • Recruitment of personnel; • Search for sources of nancing; • Implementation of appropriate bookkeeping and tax accounts; • Legalization of land ownership, energy use, property relations and other issues; • Implementation of an optimal management system; • Relations with regulating bodies; • Opposition to corruption and organized crime. These problems are often interrelated and make each other worse. Having faced even a part of the above list of problems, which is far from being complete, most entrepreneurs lose the desire to carry on. Those who, despite these problems, decide to continue their activities, as a rule make a lot of mistakes when they start their business, and these mistakes lead to high expenditures and debts unjustiable at the initial stage. This explains a booming growth of interest in the creation of objects targeted at the development of new enterprises, i.e., technology and science parks, business incubators, etc. [6]. The business incubator is one of the basic elements of the innovation infrastructure system creating the most favorable conditions for the initial development of small innovation companies, implementing original scientic and technological ideas, by providing such companies (on a preferential basis or gratuitously) with a complex of material, technical, information, consulting and other services and resources. The business incubator may solve all major management and procedural problems related to start-up and development of the company using internal personnel resources or its network of external contacts. A complex of rounded up services is one of the basic conditions of this type of support, as integrity plays an important role in the initial development of small businesses. Thus, the entrepreneur is focused on one goal – to

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launch the production (service) and enter the market with the assistance of the business incubator team. Therefore, the task of business incubation is to set up and ensure sustainable development of small businesses within 1.5-3 years and their independent functioning further on. For successful prediction of further development of small businesses special algorithms are used. These algorithms help to calculate the main parameters of the model and to estimate the initial duration of the whole incubation project (Figure 3.1) [4]. Expertise and choice of new ideas

Collection of new isdeas in MC


Estimation of novelty and commercial importance

Expertise and choice of new ideas

choice of the varian


development of innovation project



Start-up SB financing


9 Development of SB strategy

Regime of SB experimental work

Material&technical basis

12 14

3 MC – managig company

8 Marketing of innovations

Estimation of possible realization

SB incubation

Development of SB business-plan



Limiting requirements

Training the MC staff members



Figure 3.1 – A conceptual network model of business incubation of the innovation enterprise

The ma in functions of business incubators are: • Provision of premises for renting and ofce services on a preferential basis; • Provision of consulting assistance on economic-regulatory and technological issues to small start-up businesses; • Provision of targeted methodical and educational support to small businesses; • Marketing research; • Development of business plans for nancial and economic activity, justication of investments and search for investors; • Analysis of nancial and economic activity of companies; • Creation of favorable conditions for inter-regional cooperation of small businesses; • Organization of seminars, contests, conferences, educational courses and other events on current methods of business training.


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Premises in the business incubator are provided on a competitive basis. To obtain such premises the subject of small business must take part in a tender bid, made available through mass media and the Internet. The main criteria for selection of winners are: • Correspondence of the eld of activity of the small business to the business incubator specialization; • The period of functioning of a small business since the moment of state registration till the date of application for the tender must be not more than one year; • Availability of a business plan justifying the expediency of the small business location in the business incubator. At the stage of application for premises in the business incubator the entrepreneur must be well aware that the criteria of selection were developed so as to avoid any bureaucratic obstacles. The infrastructure of the business incubator is organized in such away that the entrepreneur can get assistance in case of difculties including difculties at the stage of applying for location in the business incubator. Such assistance is rendered to the entrepreneur in many aspects, from consultations on correct lling in of the forms for the tender to co-development of the strategy of business activities. After independent expertise and correction of errors, the project is submitted for internal expertise. The criteria for competitive selection of innovation projects at the stage of internal expertise are:  The availability of the business idea (developments, know-how) or the basis for the development of the business project (personal competence of the author in a special technological eld demanded by the market);  Focus on the R&D and testing providing transfer of the results of applied research to manufacturers;  Compliance with the priorities of innovation industrial development;  Creation of breakthrough and system-forming technologies;  Protability and technical feasibility of the project;  Focusing on creation of a new science-intensive product with high added value;

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A project of technology park EcoGlobe in Dubai

Technology park sblanca in Morocco


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China and Russia jointly created technology park «Venturie vizines»

Kazakh industrial park Altai

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A model of Novosibirsk industrial park

Technopark In Ukraine



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Apple Corporation in the Silicon Valley (USA, California)

Apple Corporation in the Silicon Valley (USA, California)

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Availability of a potential customer; Patentability of the project and feasibility of its implementation; Safety and environmental friendliness of the project; Social importance of the project.

3.3 Technology parks The rst technology park was created in the USA in the early 1950s on the campus of Stanford University (California). This technology park gave rise to the famous Silicon Valley. Today, the USA has over 160 technology parks making up about 30% of the total number worldwide. In Europe the rst technology parks appeared in the early 1970s. In the 1980s university business teams appeared in Canada, Singapore, Australia, Brazil, India, Malaysia, and Japan. In many countries business incubators, technology parks and other structures supporting small businesses unite to form national associations and communities. Such unions stimulate entrepreneurship and promote creation of small innovation companies and cooperation of countries all over the world. According to leading foreign specialists in innovation activities, the term «technology park» means a structure including not only a business incubator with a number of servicing, consulting, leasing companies, etc., but also a center of innovation technologies as the second step of support of small innovation businesses. This is a new type of territorial integration of science, education and production in the form of association of research institutions, design departments, training organizations and industrial enterprises or their branches. The technology park is created in order to accelerate the development and introduction of scientic and technological achievements through concentration of highly qualied specialists and use of wellequipped industrial, experimental and information bases. Technology parks are an agglomeration of science-based companies grouped around a large university, institute or laboratory [7]. As world practice shows, positive results may be achieved when the technology park is set up within a research university situated in a regional high-tech economic center. In this case the very presence of such a re-


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search university leads to the economic growth of the region. All research universities fruitfully cooperate with industrial enterprises in high technologies, promote economic development of the region and support new companies, which commercialize the results of their research. An important feature in the activity of the research university is the fact that some graduates start working in the companies associated with the university, while others work at industrial enterprises in the region. This positively affects the social situation by reduction of «brain drain,» which happens when local graduates fail to nd a job and have to leave the region to nd jobs elsewhere [8]. The main idea of the technology park is commercialization of the scientic research of universities, academies and other research centers, the research products of which reach industrial and commercials enterprises through innovation procedures. Today, over 600 technology parks are functioning in the world. Most of them are concentrated in the USA, Europe, Japan and China, i.e., in the most important economically developed regions characterized by dynamic growth. The practical experience of foreign technology parks and innovation centers has shown that success of the innovation activity of small businesses depends on three factors:

Rational infrastructure;

High quality management;

Reasonable nancing scheme. Successful movement of the product towards the market must be facilitated by the infrastructure, i.e., a complex of interrelated and mutually complementary systems and relevant organizational elements necessary and sufcient for the efcient performance of the given forms of activity. Market orientation of such an infrastructure is determined by its ability to fulll all its functions under the conditions of modern market economy and possibility of prompt adaptation to dynamic changes. Taking into account the above, the infrastructure of the research and innovation activity of the technology park may be considered as a complex of eight interrelated systems [9]:

A system of information support of innovation activities that enables small businesses in the technology park to get access to databases and data banks under certain conditions;

A servicing system (consulting on various problems, publishing

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services, intermediate services in relations with potential partners, communities, trade chambers, etc.);

A system of expertise of innovation programs, projects, proposals and applications ensuring their highly professional and efcient independent assessment (scientic, nancial, economic, environmental, etc.);

A system of nancial and economic support of innovation activities using various sources including budget nancing and extra-budgetary funds;

A system of industrial and technological support of the development of new competitive products including leasing, if necessary;

A system of certication of science-intensive products and metrology, standardization and quality control services supporting small businesses developing and manufacturing science-intensive products;

A system of market promotion including marketing, advertising, exhibition, patent and license activities and protection of intellectual rights;

A system for training and retraining specialists for innovation activities including training of targeted managerial teams for realization of specic projects. Each of the above-listed systems must have mechanisms that enable it to implement its functions and corresponding organizational elements in the subdivisions of the technology park.

3.4 Center for technology transfer According to expert data, the total cost of technology developed in the world makes up about 60% of the world gross product, and growth rates of trade in technology are higher than those of goods sales. The volume of trade in technology in the 1990s constituted 50 billion US dollars, and in 2000 this volume reached 500 billion [10]. The term «transfer» (fr. «transfert» or lat. «transferre») means the movement of technology through an information channel from one individual or collective owner to another. The technology transfer is not only an important means of development of the innovation process and an instrument of technology commercialization, but also the instrument of technology «drain» [11]. There are various methods of technology transfer, including:

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– Investments in the form of knowledge, reputation, equipment, etc.; – Cession of rights, full (cession of patent rights) or partial (issuance of a license); – Sale or transfer of equipment and materials; – Information diffusion; Table 3.1 Main channels of interational technology transfer [12] International trade in products and services Direct foreign investments Market

Technology licensing Creation of joint ventures and organization of joint research projects/alliances Legal transboundary movement of specialists Technological imitation (copying) Reengineering


Use of open data of patent applications and analysis of other technical information Technological intelligence Pirating and recruitment of foreign specialists

– Engineering services; Movement of intellectual capital, the carriers of which are highly qualied specialists. When a new technology appears on the market, interest in its acquisition is based on the buyer’s desire to be a monopolist on a certain market and get excess prot. As the new technology gain higher positions on the market, it attracts the attention of medium businesses aimed at obtaining competitive advantage. At the stage of technology maturity, the prots from the realization of products, manufactured using the new technology, fall. At this stage, extensive technology transfer in the form of capture of other territorial markets occurs. In this period engineering services and direct investments in the form of know-how, transfer of equipment and specialists are in great demand. The most commonly applied forms of a «mature» technology transfer

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are agreements on the terms «construction – operation – transfer,» or else «turnkey,» when together with the equipment all technical and management information required for its operation is purchased. It should be noted that one of the indicators of a successfully developing economy is the prevalence of new science-intensive technologies in the form of patents in the structure of its imports – and in the structure of its exports, realization of the mature technology in the form of sales of engineering services. The opposite situation is indicative of a weak national innovation policy [13]. From the point of view of efciency of interaction of industrial companies and research institutions, the most appropriate form of cooperation is strategic alliances [14]. In spite of some organizational and nancial problems typical of this form of technology transfer, it remains the most widely spread method of technology transfer.

3.5 Center for technology commercialization Implementation of the products of research activity into the real sector of national economy is promoted by the Centers for Commercialization, one of the basic elements of the innovation system. The Centers for Commercialization are aimed at making prot from application of the results of research carried out in research institutions and companies. This prot may be obtained from any commercial agreements, including those on: a) Use of intellectual property rights (license contracts); b) Setting up of new companies using R&D technologies; c) Research contracts. In studying the experience of foreign countries in the eld of technology commercialization, it is necessary to interpret the term «Center for Commercialization» as: a structure providing a set of services for creation of start-up of new companies, legal protection of objects of intellectual property, licensing, technology transfer, technological audit and broker services. Such a center is the second step in support of small innovation businesses aimed at gaining nancial benets from the objects of intellectual property by licensing or setting up of new companies. As a rule, Centers for Commercialization are established near the sources of new knowledge (universities, institutions, laboratories) and in-


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dustrial enterprises (plants, factories, etc.). The main goal of the centers is to minimize the period required for implementation of new ideas into practice. For this purpose centers must have access to databases on all elds of scientic research and development. Connecting a technology developer and a company, the centers support both innovators and businesses. Innovators get support through technological brokerage and promotion of projects in the business sector based on starting up businesses and joint production. Business gets support in the form of technological audit of the company, determination of its technical and technological requirements, and selection of executors for R&D works ordered by companies. As for technology commercialization, the most interesting example is the experience of Israel. Like the majority of advanced countries, Israel is a leader in high technology and one of the reasons for its advance is the policy pursued by the government of the country. Today, Israel is the world leader in the eld of state investment in scientic research and development, with such investments amounting to over 4.6% of the country’s GDP, signicantly exceeding the level of investment of other leaders – Sweden with investments at a level of 3.7%, Finland at 3.5% and Japan at 3.2%. Supporting the hich-tech sector, the Israeli government plays the leading role in its development. To this end the governmental body Administration of the Principal Researcher was created and several programs were developed: Yozma which supported business capital at the initial stage, the Program of Technological Incubators and Program Magnet promoting cooperation of industry and research community, and organizations dealing with technology commercialization. The Israeli experience in distribution of revenues from innovation activities, where the nancial share of each participant of the innovation process is strictly determined, is also valuable [15]. Analyzing the results of commercialization centers functioning in all countries, it is possible to determine general criteria for their success. In particular, in the developed countries entire networks of institutions rendering support to research organizations and enterprises – an integral part of successful commercialization – have been formed. In Europe in the course of evolutionary development a great number of organizations supporting technology commercialization and development of new high-tech

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companies appeared. These organizations include Regional Agencies for Economic Development, Ofces of Technology Transfer, Business Incubators and Science Parks, Special Divisions on Commercialization at universities and research institutions, as well as a number of private companies and state agencies, including specialized funds of venture capital and funds supporting new high-tech companies. As world practice shows, the main condition of a successful model of research commercialization is state support and a common vision among all participants of innovation activities, starting with ministers, institutes of development and regional departments.

Investor Capital 50% – researcher 50% – university

Incubation 34% – researcher 16% – university 50% – incubator

Royalties 40% – researcher 20% – laboratory 40% – university

Figure 3.2 – Israeli experience of distribution of incomes from innovation activities

To promote innovation projects and create start-up companies, Centers for Commercialization have to attract venture capital. In this eld impressive success was achieved by the UK and Germany with such companies as IP Fund and Inno Group, which unite commercialization departments and venture funds. Commercialization departments fulll the following functions [15]: Carry out technological audit; Provide brokerage services to innovation companies; • Identify inventions, technology and business ideas having a commercial potential; • Control the process of commercialization of business ideas; • Help to nd optimal paths to the market: business projects in the frames of the research institution, spin-off company or sale of a license; • Find and promote business ideas in the eld of research services: technical consulting, analytical and expert services;


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• Search for appropriate partners: buyers of licenses and coordination of licensing agreements; • Carry out marketing research and organize events supporting potential projects; Determine and establish contacts with potential business partners. Thus, the departments of technology commercialization are to render systematic and professional assistance to researchers, university employers and the university itself in their relations with the business medium and with society at the regional, national and international levels.

3.6 Venture funds and business angels Venture nancing is a risky entrepreneurial activity aimed at nancing and application of new products which have not yet been used. This type of investment has high risk of achieving no prots on investments. Today, the main actors in the market of venture investments are venture funds and the so-called business angels. A venture fund is an investment company dealing exclusively with innovation companies and projects (start-ups). As a rule, venture funds invest in securities or enterprises with a high or relatively high level of risk in a hope of extremely high prots. Such investments are usually made in the newest scientic developments and high technologies. As a rule, 70-80% of projects do not yield returns but the income from the remaining 20-30% covers all losses. While venture funds usually prefer investments in projects with a medium level of risk (a typical investment makes 1-5 million US dollars per project), business angels mainly focus their attention on investments in companies at the earliest stages of their development (50,000 to 300,000 US dollars per project) and consequently, on investments with higher risks. Frequently, these companies are driven not only by a nancial interest, but also by «a desire to help a good fellow/project» [16]. There are many sources of venture capital, but as a rule (almost 75%) they use pension and other funds as well as donations. The amount of venture capital varies from several million to several hundred million US dollars. Venture funds may be divided into two types: open and closed funds, similar to joint-stock companies [17].

Innovations: from idea to implementation


A venture fund may function as a limited liability partnership. In this case, its founders and investors are partners with limited liability determined by the norms of interest protection. The general partner is responsible for the fund management or supervises the work of the manager. The limited liability partnership is not taxable. Another form of venture fund widely used in the last twenty years is supplied by large corporations (corporative nancial ventures). Large corporations use the following methods of venture nancing: Capital investment in set-up of small businesses, bringing the process of creation of new products up to the stage of experimental preproduction and marketing. In case of project success, the corporation organizes its own large-scale production. This type of investment is called «greenhouse economy of monopolies»; Creation of afliates: small venture companies wholly owned by the corporation; Shared participation in the capital of venture companies. A specic feature of a non-commercial venture fund is that its employees are specialists competent not in a specic eld of science, but in market demands and market perspectives. Naturally, professional training of such specialists must considerably differ from that of researchers. First of all, they must study the market. It is extremely important that the fund be a non-commercial institution. The fund must not take risks related to search and promotion of innovation products. This organization gains a part of prots from sales of intellectual property only if the product manufactured with the assistance of the fund turns into a marketable product. Such funds enable the researchers not to waste time and effort seeking investments and commercialization of their products. The practice of the USA shows that non-commercial venture funds for technology transfer functioning in a large university may bring income amounting to hundreds of millions dollars per year due royalties for science-intensive products brought to the market. Another essential link in the innovation infrastructure is represented by venture capital companies (VCC). These companies are mediators between investors and entrepreneurs of invested companies [16]. The VCC makes independent decisions on the choice of investee and participates in the activities of the board of the company; however, the

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nal decision on capital investment is made by a special committee representing the interests of investors. It is this committee that receives practically all VCC revenues while the company itself may get only its share.

financing of production


Direct investment fund

Industrial parks

Stock exchange



M an uf ac tu r

Ready high-tech product









fin an cin g







Venture funds


Financing Of growth and expansion stages


Financing of industrial park establishment

project at the stage of growth

Conduct coaching for entrepreneurs

Projects at seed and start up stages Small innovative businesses

Managerial team of the project

Financing of seed and start up stages

Fin anc ing of g row Pri vile th a Fin ge nd an ss exp cin ub go ans s idiz fe ion sta ing blis hm en t

Busines incubators

Corporate venture investors



Financing of start up

▶ project at the stage of growth


▶ industry technology ▶ ▶

Private investors


Departmental Industrial parks

Financing of seed and start up stages Grants

Association of business-angels

Fund for small businesses promotion in the field of science and technology


Innovation projects

▶ managerial team

▶ membership Municipal

Business - angels

Jury of the


sis naly ts a jec o r P

Application for grants



ject sa naly sis

Creation of facilities for basic training of managers

▶ Research institutes

Projects analysis


Figure 3.3 – Structure of the Regional Venture cluster

Most frequently, these investment institutions are founded as limited liability partnerships aimed at accumulation of nances from the abovementioned sources and granting credits to small innovation companies

Innovations: from idea to implementation


in exchange for a share or a block of shares in the authorized capital of the company. As a rule, the VCC does not strive for the controlling block of shares (which fundamentally distinguishes it from a strategic investor or a partner who initially strives to establish control of the investee). In purchasing shares, the VCC expects the management of the company to use the invested nancing as a means of rapid development. The VCC does not take any risk except for a nancial one. All other risks (technical, marketing, managerial, price risks, etc.) are borne by the investee and its management. The VCC is characterized by a high degree of capital concentration: it manages funds, on average, amounting to 70 million US dollars. Summarizing the experience of foreign countries we may conclude that a venture capital company is a commercial institution possessing some considerable capital. As a rule, it has a small but permanent staff of expert specialists and works in a narrow eld of science or technology (computer technology, development of new materials, purication technology, etc.). Such a company takes on a limited number (usually no more than ten) of projects simultaneously. Practical experience shows that one in three projects is successful and, in most cases, covers previous expenditures. In order to realize a project, a special innovation company is set up. This company directly interacts with the research laboratory. The main prot is gained by the company as a result of availability of exclusive access to scientic information through introduction of new products and technology having no analogues. The main requirements of the venture capital company in regard to the proposed project are demand for the new high-tech product and relatively low manufacturing costs [17]. The above examples show that success in the eld of innovations is determined by the division of functions. A university laboratory generates new knowledge, a non-commercial venture fund studies the market, a venture capital company bears nancial risks, a small innovation company demonstrates the possibility of protable manufacturing of small batches, and a large industrial company gets down to business only when the product has really captured the market and it is in mass demand [15]. The strategy of venture funds implies the creation of a diversied portfolio of investments in high-class technology developments:


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50% of investments are provided to companies undergoing early stages of development;

25% of investments are provided to companies at the stage of expansion;

25% of investments are intended for start-up companies. In terms of life cycle, preference is given to early-growth companies having just started (or being on the point of starting) selling their goods or services, actively investing in new developments, possessing xed assets and their own business structure, and set up with the aim of bringing a ready commercial product to the market. The funds also nd acceptable diversifying investments in:

Companies with low or zero level of sales at the stage of active investment in product development, characterized by a signicant degree of completeness sufcient for reliable check of principal technical and economic characteristics of the oncoming commercial product created on the basis of their start-up;

Companies with a positive level of accrued discounted cash ow produced in the course of business operations in compliance with the initial business-plan, that have proved the vitality and sustainability of their business model and strategy of development and that require investment in their further natural development and business expansion – the so-called expansion-stage companies. The strategy of the venture fund also includes: Monitoring and analysis of global trends in the development of hightech industry aimed at identication of promising sectors for investments where the emergence of new high-class large businesses is to be anticipated in the near future; Search for unique projects characterized by a global level of novelty and prospects of good investment performance; Realization of a complex of managerial and consulting measures aimed at maximization of the cost of the company/investee and assurance of high rates of development during the period of fund participation in the capital of the company [17]. A signicant share of the high technology business segment must be occupied by private innovation companies. However, as innovation business at the initial stages is «venture squared» and requires investment,

Innovations: from idea to implementation


the most important and still unsolved issue is that of investment in the innovation companies at seed and start-up stages. The following question arises: where to nd promising businesses at early stages of development, that are able to get over the «incubation abyss» or «death valley»? The most practical means of bridging the «abyss» or «valley» on the way to the market of venture investment may be either authors’ funds and grants or funds of private investors (business angels).

3.7 High technology zones One of the most efcient mechanisms of economy modernization aimed at increasing the share of high technology production and enhancing research intensity is the creation of high technology zones (HTZ). Alongside the term HTZ almost 20 other terms are used to dene different types of such zones: free trade zone, free industrial zone, free export inustrial zone, special economic zone, zone of foreign trade, duty free export industrial area, area of investment promotion, freedom of enterprise zone, etc. An indispensable condition for HTZ functioning is the participation of foreign capital. Due to such zones, revenues from the export of science-intensive production made about 700 billion US dollars in the USA, 530 billion in Germany and 400 billion in Japan. In 2005 in China the volume of exports and imports of new and high technology equaled 218.25 billion and 197.71 billion US dollars, respectively. In 2010 the Chinese economy, despite a decrease in rates of GDP growth, became the second largest economy in the world. Sales volumes on the market of offshore software development are estimated at the level of 120-180 billion US dollars and are shared by three countries: India at 50%, Israel at 30% and Ireland at 20% [10]. In Finland the sector of information technology engaging only 3-4% of the total labor force produces a third of the total export turnover and accounts for about 45% of GDP. The annual sales volume of the well-known Nokia is over 30 billion Euros, which exceeds the turnover of the Russian Gasprom. The government of Finland uses all possible incentives to attract private capital to participation in the technological revolution. Legislative and tax preferences are used as special measures encouraging companies to

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High technology area – Dubai silicon oasis

San Francisco and Silicon Valley

Innovations: from idea to implementation

An international park of innovation technology in Bangalore, India

Industrial area in Liaoning, China


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An international park of innovation technology in Bangalore, India

Taejon, South Korea

Innovations: from idea to implementation

The second zone of Kazansky IT park in Naberezhnye Chelny

High technology area Utzyn



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enter the innovation sector. Today, private funds nance almost two thirds of scientic and technological development projects. The same path has been chosen by the neighboring Russian Federation in creating technological innovation zones (Tomsk, Zelenograd, Skolkovo, etc.). The main aim of HTZs is creation of an environment favorable for innovation entrepreneurship, development of new technologies and products, and technology transfer in order to provide balanced economic development of the region, efcient attraction of investments, creation of companies using state-of-the-art technologies, increase in exports, implementation of high quality goods into the domestic market, and creation of new jobs. Taking into account the world experience, we may thus dene the term «high technology zone» as follows: a geographically limited economic area within the national economy with a special regime of economic and regulatory management allowing application of monetary, nancial and taxation schemes stimulating joint activities with the participation of external capital. As a rule, the high technology zone serves as an instrument of regional structural reconstruction and a catalyst of investment policy in the region. According to the main purposes of high technology zones, they must fulll the following tasks:

To ensure balanced economic development of the region creating favorable conditions for foreign investments;

To involve the science-intensive sector of small innovation entrepreneurship in international cooperation outpacing the development of export-oriented production;

To create a favorable environment for the development of innovation entrepreneurship and a system of complex support for small innovation businesses by forming a new infrastructure meeting the requirements of all stages of the innovation process – from fundamental research to the realization of the nal product – and to provide legal, informational, marketing and commercial support of the innovation project;

To create market-oriented scientic and industrial infrastructure ensuring integration of the potential of scientic-industrial and educational complexes;

To support partnership between the state and private sectors of the economy;

Innovations: from idea to implementation


To support the process of implementation of regional policy aimed at industrial reconstruction, production of competitive and import-substituting goods with high added value;

To create an efcient structure for the innovation process management oriented at the development of new science-intensive technology;

To provide technology transfer from university research divisions to the industrial sector (research commercialization);

To promote the improvement of the ecological situation in the region due to implementation of science-intensive technologies, etc.;

To develop innovative forms of the educational process by training new specialists in research universities. World “family” of free trade zones 1.According to economic specialization

Free trade zones

Industrial zones

Special technology development

Scientific-industrial zones

Trade-industrial zones

Innovation centers



Free entrepreneurship areas (Western Europe)

Technopolis Free custom zones

imported and import substitution

Zones of banking and insurance services

(China) Specific economic areas (China)

free ports

Export & import substitution



Recreational Exporting

Special-use areas (Brazil, Argentina)

Special economic areas (Russia)

1.According to size and method


Administrative-teritorial units

functional (restricted)

Industrial and science parks

Trade and complexes of warehouses

Financial centers

“Points” (enterprises)

Figure 3.4 – The international «family» free economic zones [18]


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High technology zones may successfully function only on limited territories as they require enormous investments in the infrastructure and observance of strict customs and institutional regulations. The main measures stimulating foreign capital ow to the high technology zone are [18]: Customs duty exemption for imported products; alleviation/ cancellation of taxes; Discounts in rental of areas and premises; Accelerated capital depreciation; Reduction in payments for resources; • Attractive terms for credit and insurance; • Favorable conditions for obtaining visas; • Up-to-date infrastructure (computer, communication, fax, telephone); • Availability of raw materials; • Availability of skilled labor force; • Favorable location taking into account external customers. What benets does the high technology zone give to the region? Creation of a high technology zone and granting privileges to domestic companies and foreign investors gives rise to the inux of national and foreign capital. New companies are set up, production of existing enterprises expands, new commodities are produced and new services are provided. As a rule, privileges are granted not only to industrial enterprises but also to construction, servicing and transportation companies, and nancial institutions. These measures lead to an increase in the supply of various goods and services. Wherever there is production and services, there are prots, earnings and deductions for social needs. In other words, the consumer demand of people and enterprises grows, salaries and wages of employees increase, pensions and deductions benets increase. Another interesting feature is that creation of high technology zones causes not only increase in employment in the industrial sector (as a result of production expansion and higher competitiveness) but also a gradual ow of capital and jobs into the service sector. This makes it possible to raise this sector to a new qualitative level, and not only to solve the problem of local unemployment but also, and quite feasibly, to attract the idle labor force of adjacent territories [18].

Innovations: from idea to implementation


Another important and essential element of the HTZ is creation of a world-level infrastructure of transportation, communications, energy supply, water supply, information and banking services. Such an infrastructure increases the exibility of industrial, commercial and business relations, allowing reduction of expenditures of companies, and consequently increasing prots. Not all companies may be granted the status of HTZ resident. This status must be conferred by the HTZ managing body based on the adopted criteria for priority activities after examination of business plans, investment projects and conclusion of a specic agreement stipulating all issues of relations between the HTZ administration and the object. Eventually, the HTZ task is to attract, accumulate and efciently use the capital on the chosen territory [18]. Based on the international experience, we come to the following conclusion that must be taken into account when creating an HTZ zone: 1. The HTZ zone is not a nal goal, it is an instrument for achieving more global goals. After their implementation the HTZ may be liquidated. The HTZ zone is a means of forming economic relations, and therefore the mechanism of its functioning must be based on knowledge and understanding of possibilities of transformation of concrete economic and socio-cultural structures of the country where the HTZ is created. This conclusion suggests that it is unreasonable to expect that the HTZ zone will live by the laws of the «pure market.» The HTZ zone institutes strict distribution and control of resources (land, legal and taxation privileges, infrastructure resources), directing investments to the required areas. Moreover, in the HTZ zone the rights of certain categories of entities are de facto restricted in favor of other entities. This restriction is justied by the rapid economic growth, temporality of these measures and the voluntary nature of participation in activities on the HTZ territory. 2. The HTZ zone requires creation of a specic managerial system including the authorized state bodies. As a rule, the governing bodies of the HTZ zone face very serious resistance both on the part of the economic system undergoing changes and investors seeking their own objectives and willing to evade control. Therefore, the administration of the zone must steer a middle course


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avoiding two extremities: restoration of the previous system different from other regions of the country only in the availability of privileges (which happened in practically all HTZs created on the territory of Russia since 1989), or transformation of the HTZ zone into an independent exterritorial entity, neglecting the interests of the country (which by 1990 had happened to the free trade zones in China). The basis of an efcient HTZ zone is creation of clear and attractive conditions for investors and guarantees of invariance of these conditions for a certain period. This may be achieved by the implementation of efcient mechanisms of self-regulation and self-development. Material preconditions for HTZ creation are: a favorable geographical location; availability of a large amount of free or inexpensive resources including land resources; and a developed infrastructure with unused reserves (or large nancial investments in its creation). In ve to seven years a qualitative leap occurs: the old material, managerial and nancial infrastructure is replaced by the most modern infrastructure. The area turns into a center of business activity. Further development of the HTZ zone inevitably extends to the whole region, inducing its industrial development. Newly created enterprises may expand to already-existing ones, modernizing and rehabilitating them. Enterprises in the region will be encouraged to obtain investor status through creation of new manufacturing companies using their own means, credit funds or attracted external investments. This opens wide possibilities for development of new types of products and technologies, using advanced scientic and technological achievements for solving important socio-economic problems. 5. The HTZ economic effect. The guarantees granted to the residents of the area are designed to entail the ow and concentration of capital at the rst stages of the area development. In turn, this capital will be invested in national and joint ventures established in the area and will be used for nancing of regional industrial enterprises [17].

Innovations: from idea to implementation


Bibliography 1. 2. G.B. Kochetkov, V.B. Supyan. American research universities: A sight from // USA-Canada. 2008. – No. 9. 3. K. Grasmik. Research university: Essence and role in the regional innovation system // International journal «problems of theory and practice of management». – 2005. – No. 1. 4. 5. Transformation of a technical university into an innovation university: Methodology and practice / prof. G.M. Mutanoiv (editor), RK Min. ducation&Science, D. Serikbayev EKSTU, Ust-Kamenogorsk, 2007. – 480 p., tables, Bibliography, 448-458 p. 6. V.V. Demenok. Modeling of business incubation of small innovation enterprises // Innovations. – 2008. – No.03 (113). 7. 8. G.M. Mutanov. University – technology park – a model of an innovation university / G.M. Mutanov, N.M. Temirbekov, O.V. Gavrilenko // Science and education are the leading factors of the strategy «Kazakhstan-2030», Proc. X Intern. Sci. Conf., 26-27 June, 2007 /RK Min. Edu. Sci., Karaganda branch RK AEN, Central-Kaz. branch MAI. Karaganda. Pub.House KarGTU, 2007, No.1. – 155-157 p. 9. 10. V.V. Asaul. Scientic basis of innovation development of the territory based on the example of creation of special economic zones. – St. Petersburg: Nauka, 2006. – 217 p. 11. 12. D. Mukanov. Industrial- innovation development of Kazakhstan: potential and mechanisms of realization. – Almaty: Print-S. – 2004. – 272 p. 13. Mission: intelligent economics: 50 years to D. Serikbayev EKSTU / G.M. Mutanov, M. Vedmedko // Kazakhstanskaya pravda. – 2008. – No.207. – 23 Sept. – 7 p., photographs. 14. G.M. Mutanov. International technology transfer: interaction of Kazakhstan and Belorussia / G.M. Mutanov, O.V. Gavrilenko, L.I. Shmygova //Training of specialists in the eld of innovation activity: current state and perspectives: Proc. Intern. Scient.-pract. seminar, 27-28 Sept., 2007 /Min. Education Republic of Belarus, Belorussian NTU, Minsk, 2007, 25-27 p, bibliogr.2. 15. G.M. Mutanov. Factors of innovation development: efcient interaction of education, science and industry / G.M. Mutanov // Kazakhstanskaya pravda, 2009. – No. 55-56. – 28 Febr. – p. 7: photograph. (intellectual nation – 2020). 16. 17. Innovations in science / L.V. Kozhitov, S.G. Emelyanov, V.A. Demin et al. South-Western univrsity. Kursk, 2010, 627 p. 18.

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NATIONAL INNOVATION SYSTEMS: INTERNATIONAL EXPERIENCE Competitiveness in the present-day economy to a great extent depends not only on individual scientic and technological achievements but also on organizational innovations. One of the most important places in current innovation policy is occupied by institutional transformations. Today, every country is trying to create its own innovation system based on the leading scientic theories in this eld, as well as on its existing traditions and historic experience. In each country, the National Innovation System (NIS) has its own specic features. Blind copying of innovation systems existing in other countries will not bring desired success. However, in order to develop and implement one’s own model, it is very important to study positive experiences and conditions in which NISes were created and developed, as well as to analyze their failures and erroneous decisions. The country that develops the most advanced NIS will be able to take the leading position on the world market. 4.1 The European Union It was in the mid-1940s when the rst NIS appeared in the European countries. At that time, it was necessary to activate innovation processes to restore post-war economies. As a result, Germany, Great Britain and France took their place among the leaders of the world economy, and by the end of the XX century achieved a post-industrial level of development [1].

Innovations: from idea to implementation


An efcient policy aimed at NIS development enabled some countries which had not had any important achievements in science-intensive production to strengthen their innovation potential and to speed up their economic development. An impressive example is Finland [2]. The economic integration in the region gave rise to the development of a new NIS, which had to survive the process of uniting in a supra-system. In March 2000, at the meeting of the European Council in Lisbon, a unied program of development of the knowledge infrastructure, and enactment of economic reforms and innovations was proposed. The aim of the program was to create the most competent and dynamic knowledge economy that would make the EU the economic leader [3]. Three priority directions for EU activities – educational, scientic-technical and innovative – were chosen. The program envisaged a set of measures stimulating innovation activity including an increase in the expenditures on R&D from 1.9% to 3.0% of GDP, creation of common research facilities, gaining of innovation advantages and creation of a favorable climate for the development of the innovation business. In 1984 a European business network of innovation activities was created. It was founded by the European Community and a group of entrepreneurs. Now it includes all innovation business centers in the EU countries; that is 200 organizations in Europe and foreign countries. It is one of the most important structural elements of the European innovation system. The main function of these centers is to support the innovation activities of entrepreneurs [4]. In 2003 the European Commission developed a «business road map», which was a plan for actions stimulating investments in R&D. It envisaged changes in priorities in EU innovation policy aimed at increasing state support to research and innovations and upgrading the innovation environment [5]. The policy of activation of inter-country cooperation gave rise to the rst European research networks. In particular, a European cluster of the newest technologies was formed. It unites the «Silicon Highlands» in Ireland, the «London Triangle», Paris and Northern Italy with branches in the countries of Northern Europe [6]. A number of nancial institutions were created in the EU: their task


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was to provide support to innovation activities in different businesses and research organizations as well as to promote cooperation between them. The European Union pays much attention to the governmental regulation of innovation processes through the mechanisms of public-private partnerships. A positive experience in this sphere is the creation of technological platforms [7]. «Technological platforms» is a term suggested by the European Commission to dene thematic directions in the framework of which EU priorities have been or will be formed. In the framework of such directions, it is supposed to allocate subsidies to research work directly related to their practical realization by small and middle-sized businesses and industry. A specic feature of technological platforms is that they are created as a result of production demands, as an order for scientic-technological work aimed at achieving goals and strategies for the sustainable development of modern society based on renewable resources. As a rule, technological platforms are created on the basis of shared investments by combining intellectual and nancial resources of the EU and large European industrial companies in order to stimulate scientic research demanded by modern industrial production. An important aspect of the development of scientic-innovation activity in the world is its monitoring. For example, according to the Lisbon strategy, Europe created the European Innovation Scoreboard (EIS) in the framework of which 20 indicators characterizing innovation processes in the EU countries were developed and systematized. The EIS represents the most informative database on the trends in EU innovation policy which enables political leaders of the EU countries to learn the strong and weak sides of their policy. So far 10 publications of the European Innovation Scoreboard have been issued. The latest one (2009) contains the data for 39 EU countries plus the USA, Japan, Canada, India, Brasilia, China, Russia and Ukraine. The pool of the abovelisted countries covers 95% of the innovation activity all over the world. The EIS annually determines the standards of innovation activities in the EU countries on the basis of statistical information from different sources, primarily on the basis of a survey of EU innovations. Innobarometer adds to the EIS results an analysis of some aspects of innovations by polling 3500 randomly chosen EU companies (table 4.1). The European Innovation Scoreboard gives a comparative estimation of innovation activities in the EU and other countries of the world.

Innovations: from idea to implementation


Figure 4.1. Total innovation indicators EU members in 2009 year (according to the European Innovation Scoreboard)

The EIS carries out analysis of innovations in services, reveals socioeconomic factors promoting innovations, determines efciency of innovations and describes innovations not the result of research and development work. Table 4.1 Basic indicators of the European Innovation Scoreboard No.



«Input indicators» – driving forces of innovations


The percentage of people with higher education in technical and natural sciences in the group aged 20-29 (the number per 1000 people of the corresponding age)


The percentage of people with a higher education in the group aged 25-64 (a percentage of the total population of the corresponding age)


The level of coverage by broadband internet, the number of users as a percentage of the total population


The percentage of people taking part in professional development programs (training) for the group aged 25-64 (a percentage of the total population of the corresponding age)

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126 1.5

The educational level of young people aged 20-24, the percentage of young people who, at least, have secondary education and additional professional education, in the total group aged 20-24


«Output indicators» – creation of new knowledge


The percentage of state allocations to R&D in the GDP, %


The percentage of expenditures on R&D in the GDP of the commercial sector, %


The percentage of expenditures on R&D in the high-technology and semihigh-technology sectors of industry in the total R&D expenditures in the manufacturing industry


The percentage of enterprises that got investments in innovations from noncommercial sources


«Input indicators» – innovations and entrepreneurship


The share of small and mid-sized enterprises that make innovations for their own needs as a the percentage of the total number of corresponding companies


The percentage of small and mid-sized enterprises that take part in joint innovation projects in industry, %


Expenditures on innovations as a share of trade volume, %


The share of venture capital designated for nancing of early stages of innovation performance as a percentage of GDP, %


Expenditures on information technologies as a share of GDP, %


The share of small and mid-sized enterprises that make non-technological innovations as a percentage of the total number of the corresponding companies


«Output indicators» – usage


Occupation in high-technology services (as a percentage of the total number of working people)


Export of innovation production as a share of total exports, %


The share of production new for the company but not for the market (% of total sales)

Innovations: from idea to implementation



The share of production new for the market (% of total sales)


Occupation in high-technology and «semi-high-technology» sectors of industry (as a percentage of the total number of working people)


«Output indicators» – intellectual property


The number of EU patents per 1,000,000 of population


The number of US patents per 1,000,000 of population


The number of patents of so-called «triad groups» per 1,000,000 of population


The number of new EU trade marks per 1,000,000 of population


The number of new EU useful models per 1,000,000 of population

The report presents the data on innovation performance for four rather stable groups of countries (including 39 countries of the world) over the last 5 years. The Scoreboard proved its efciency as a monitoring instrument. According to the 2007 data, by the level of innovation performance, the countries fall into the following groups: Leaders in innovations (9 countries in the order of decrease in innovations): Sweden, Denmark, Finland, Germany, Israel, Japan, Switzerland, Great Britain, USA. Adherents of innovations (8 countries): Austria, Belgium, Canada, France, Iceland, Ireland, Luxemburg, Netherlands. Moderate innovators (8 countries): Cyprus, Czech Republic, Estonia, Italy, Norway, Slovenia, Spain, Australia. Lagging innovators (12 countries): Bulgaria, Croatia, Greece, Hungary, Latvia, Lithuania, Poland, Malta, Portugal, Rumania, Slovakia, Turkey. However, in 2009 only Bulgaria, Rumania, Croatia, Latvia and Turkey remained in the lagging group (Figure 4.2). Czech Republic, Greece, Malta, Portugal, Hungary, Lithuania, Poland, Rumania, Italy, Norway and Spain moved to the group of moderate innovators. The adherents of innovations were Cyprus, Estonia, Iceland, Slovenia, Austria, Belgium, France, Ireland, Luxemburg and Netherlands. The leaders in innovations


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were Switzerland, Finland, Germany, Denmark, Sweden and Great Britain.

Color coding of groups of countries: green – leaders in innovations, yellow – adherents of innovations, orange – moderate innovators, blue – lagging innovators) Figure 4.2. – Indicators of innovation performance for different groups of countries in 2009 (European Innovation Scoreboard)

An analysis of indicators of the innovation performance of Russian enterprises showed that they were far behind economically developed countries [8]. No similar research has been done for Kazakhstan but as compared with Russia, innovation performance in Kazakhstan is at an even lower level. Therefore Kazakhstan must join the process and carry out monitoring of its scientic-innovation performance according to the criteria developed for the European Innovation Scoreboard. This will enable us to evaluate the level of innovation development of the country and to develop efcient mechanisms for strategic planning of scientic-innovation processes.

Innovations: from idea to implementation


In order to provide information support to the development of innovation activities, several freely-accessible information resources were created in the EU. The main resource is the CORDIS system [9] nanced in the framework of the innovation program of the European Commission. CORDIS provides access to the information on scientic research, developments and sources of their nancing, helps to nd a partner, to transfer technologies and to solve problems related to intellectual property. 4.2 Germany The innovation system in Germany has much in common with the innovation systems in other countries. The main tasks of its research and technology policy are: setup and organization of the research structure in Germany, creation of the legislative and nancial-political framework for carrying out fundamental, applied and industrial research, and creation and restructuring of institutions developing innovations. It should be noted that innovation and technology policy opens up possibilities for further development in such elds as economics, education, the environment (ecology), and transportation [10]. Since the 1960s, the German policy in the eld of technology has been oriented towards the US experience and development of large-scale technological programs. In order to develop such programs, so-called large research centers, which intensively cooperated with industry, were created. In the early 1970s, research work was reoriented towards the creation of the preconditions for export of technologically-intensive production. Due to public support of scientic-technical projects in industry, research was carried out more intensively and was concentrated on the development of key technologies such as microelectronics or complex transport systems. In the mid-1970s, under a Social Democratic government, scientic research was primarily directed towards the development of the social realm: ecology, healthcare and labor. In the early 1980s, efforts were aimed at the development of middle-scale industry. Thereupon, the role of research and innovation in the activities of small and medium-sized enterprises changed. They were often aimed not at the development of high-performance technologies but at wide and fast application of new or modernized production means, technologies, materials and software. If we take a look at the general picture of research development

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in the «old» Germany, we will undoubtedly see that the leading role was given to large-scale industry. The share of its nancing in Germany made up 2/3 of all expenditures on R&D. Up to the beginning of the 1990s, the leading role in policy on innovations and technologies belonged to the Federal Fund, however, now an important role in this eld is played by the Lands of the Federation, associations, semi-governmental and private organizations, funds (centers), and associations of research organizations in industry. A considerable number of functions was taken over by the European Union [11]. At the present time, the German government creates favorable conditions for funds, particularly by providing them incentives like tax credits. However, the main nancial source for scientic research is private business. For example, fundamental and applied research is done in research institutes united under the aegis of the Max Plank Society for Scientic Research (Figure 4.3). It includes about 80 research institutes and several special working groups in Germany and other European countries. The Max Plank Society is one of the leading and widely recognized research organizations in Germany in the eld of fundamental research. The main elds of Society activities include natural, social and pedagogical sciences. It cooperates with universities and educational structures, preserving its independent status. Business



The Fraunhofer Society



Fundamental research

National Research Center Universities Max Plank Society

Applied research

Manufacturing and processing of products

Pilot samples


Figure 4.3 – The German National Innovation System

Technical service

Innovations: from idea to implementation


The research of the National Research Center and the Fraunhofer Society is oriented towards the needs of the German economy and the demands of domestic and foreign markets. At the present time, 17,000 employees of the Fraunhofer Society work in 80 research organizations including 59 institutes in 40 cities in Germany as well as branches and branch ofces in the USA, countries in Europe and Asia. The Fraunhofer Society does research on demand of industrial enterprises, service companies and governmental institutions. For the customers from the «economic» sphere, the Society carries out research aimed at the development of «turnkey» products and technologies. The main goal of the Society is practical application of scientic and technical information [12]. A specically German structure is the so-called KEIM-process, in the framework of which a managerial body is created, charged with controlling technology transfer within a group of universities and institutes. KEIM developed a special program, the aim of which was to teach «technology transfer» to the teaching staff and students, i.e. to prepare scientists to work in business. The innovation legislation enables university professors to create companies in technology transfer. The most important incentive for technology transfer is the possibility of universities participating in the creation of innovation companies in cooperation with private capital at government expense. Germany, as well as other countries, widely practices creation of technology parks, technology incubators and their analogues. An example of such an analogue is a technology plant built on an area of 20,000 m2 in 1984. It includes 160 companies and employs over 3,000 highly qualied specialists. The technology park in Karlsruhe occupies 300,000 m2; it makes wide use of foreign capital. Undoubtedly, a progressive form of combining state and private capital for technology transfer is associations such as Cyberforum, which unites over 600 organizations – universities and companies. Stuttgart is undoubtedly a unique scientic-technological center in Germany. A special role in the technology transfer system is played by the fund and Steinbeis University. The main idea of technology transfer is to bring together universities and transfer centers. The role of the link is usually played by a university professor who heads the center. Some

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centers are headed by directors from industry. The network of Steinbeis University has a program for training scientic staff and managers [5]. In order to provide practical help to the representatives of small and medium-sized businesses, which play increasingly important roles not only in elds traditional for them such as mechanics and electrical engineering but also in chemistry, medicine, biotechnology and information processing, three out of the four patent information centers in the North Rhine-Westphalia region, the most populated and scientically developed industrial area, were integrated into a local network. The aim of the network was to facilitate access to pooled patent information resources, to provide more efcient patent information services, especially, efcient searching and printing out of documents found. 4.3 France At the present time, about 130,000 scientists in the full-time equivalent are employed in French science, of which over 70,000 (about 55%) work in the private sector. The share of personnel in the academic sector is about 28%, 16% of researchers work in state applied research laboratories and about 1% work in military laboratories. In 2010, France plans to increase its percentage of internal expenditures on R&D in the GDP from 2.2% to 3%, according to the recommendations of the European Union. The organizational structure of the state (public) sector is represented by a complex combination of different types of organizations –universities, higher schools, laboratories, funds and other structures. The overwhelming majority of employees of CNRS, the largest scientic center in France (26,550 researchers), work in laboratories jointly used by universities. It is interesting to note that scientic personnel in the public civil sector is distributed in the following way by branch of science: almost 30% are biologists, physicians and ecologists, 20% – in the humanities, 20% – engineers, about 10% – physicists and about 8% – chemists [14]. Innovation policy in France is primarily aimed at the creation of new jobs. The state carries out the following functions in the regulation of R&D development: Establishes framework conditions for the development of the innovation business;

Innovations: from idea to implementation


Develops the strategy of innovation economic development; Forecasts technological development and determines scientic-technical priorities; Supports development of the innovation infrastructure; Develops and implements measures on direct and indirect stimulation of the innovation sector; however, as a rule, these measures do not include direct nancing of product output; Participates in the development of the R&D sphere with a clear priority given to fundamental science [15]. In 2006, France started to reform its R&D sector. The purpose of the reform was to eliminate the gap between France and the USA and Japan. It included a set of organizational-administrative and economic-stimulus measures primarily directed at the stimulation of growth points, and French participation in international cooperation as a leading country. The reform consisted of three inseparable parts: better strategic targeting, increase in the role of the state in the regulation of the R&D sector; creation of favorable conditions for career growth of researchers and their integration into the European and world scientic community; and stimulation of development of research and innovations at enterprises. First and foremost, the reform was considered to be one of the main instruments of regional development, and was aimed at the creation of so-called poles of competitiveness or clusters, that is, large-scale scientic-production complexes – special zones combining activities of high-technology enterprises and research institutes in different economic spheres (Figure 4.4). The status of a pole gives its residents the right to tax breaks. The poles’ task is to create enterprises attractive for inculcating private initiative into R&D, competitive in terms of the international division of labor and, at the same time, to provide efcient solutions to regional and social problems. The High Council on Science and Technologies (HCST), consisting of world-renowned scientists, and having the status of a consultative council, was organized under the aegis of the President of the French Republic. At the same time, the Inter-Ministerial Committee for Scientic and Technological Research (CIRST) under the chairmanship of the prime minister was also given the right to make decisions in this sphere.

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Polethe competitiveness of the




CIRST,ANVAR, Commerce&Industry Chambers, technology parks

Technology centres, universities



Fundamental research

CNRS (National Center for Scientific Research) Applied research

Manufacturing and reprocessing of products

Pilot samples


Technical service

Figure 4.4 – The French National Innovation System

In the Ministry of Education, Higher School and Science the position of the minister-delegate on research was created. The minister heads the secretariat of the inter-ministerial committee, prepares materials and implements decisions of the committee in practice. He also supervises state nancial operators for research. Financing of science in France is provided through two channels: basic nancing – through the Ministry of Education, Higher School and Research and competitive nancing – through the newly organized Agency for Priority Research (ANR) and the Agency for Industrial Innovations (ALL). There is also the agency Oseo-Anvar, created to support innovation projects for small and medium-sized enterprises. In order to increase the competitiveness of French industry, the government recommended and implemented a strategy of industrial development based on so-called «competitiveness poles». The policy was accompanied by the development of communication infrastructure, for example, high-speed internet needed for efcient pole functioning.

Innovations: from idea to implementation


As a result of a three-stage tender, on 12 July, 2005 at a meeting of the Inter-Ministerial Committee on Infrastructure Development (CIADT), 67 projects were chosen; they received the status of «competitiveness poles». Six projects already are of international importance; they will be processed separately and they will receive major nancing. Of the six poles of international importance, two represent health care (virusology, infectious disease and cancer), one – aircraft construction, two – information technologies and one – nanotechnologies. In 2006, it was planned to create 3000 jobs for scientists, primarily, in six poles at the international level. According to the 2005 Law on the Budget, the competitiveness poles got grants, prot tax remissions (100% for the rst three years and 50% for the next two years) and remissions on deductions to the off-budget funds (50% for small and medium-sized enterprises and 25% for other structures). For the three-year period, 2005 – 2008, the government allocated 1.5 billion Euros for nancing and realization of this new industrial strategy. Scientic organizations and universities got much more leeway in the distribution of budget funds inside the institution within the framework of the four-year contracts between the state and universities, where the obligations of the parties must be strictly stipulated. In the framework of general nancing, on the site of the scientic project, the research institution itself determined the distribution of funds. Some administrative procedures were also simplied in order to enable scientists to spend more of their time on research work. For example, purchases for research and educational institutions were excluded from the Code of Law on State Purchases (markets). Therefore it is not necessary to organize tenders for each device, to advertise and take other actions. Along with providing much more independence to research organizations and individual researchers, the French law on research programs envisages more intensive work on the assessment of research and scientic projects. For this purpose, a special agency will be created [14]. In 2008, the French government summarized the results of the threeyear program of the development of competitiveness poles. The government made a decision to extend it for three years. The program was given the title «Pole 2.0». Just to carry out the program, the French government allocated 1.5 billion Euros over three years.


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That sum included not only tax credits for research and purchase of equipment with further remission of the debt after the three-year period, but also tax remissions for enterprises. The size of remissions was determined in the following way: 45% – for small and medium-sized enterprises with fewer than 250 employees taking part in the R&D of one of the poles with conrmed project status, 30% – for small and mediumsized enterprises with fewer than 250 employees not taking part in the R&D of one of the poles with conrmed project status, 30% – for enterprises providing technology transfer and enterprise-mediators (with the number of employees 250-2000) participating in the R&D of one of the poles with conrmed project status, 25% – for other enterprises. Therefore the state gave incentives not only to direct participants in the competitiveness poles but also to organizations providing technology transfer and organizations interacting with the poles. In order to conrm or to get the status of a «competitiveness pole», the participants of the consortium had to present a strategic «road map» with the description of its strategic development for 3-5 years, to substantiate required expenditures and sources of their coverage as well as efciency of their activity for the projected period. The participants who won a tender for status had to sign contracts with state representatives and the administrations of local governments. The projects work on three-levels: world level with international potential, national and regional levels. Seven clusters got the status of poles of international importance: they were Aerospace Valley (aeronautics), Finance Innovation (nance innovations; platform for European nancial information), Lyonbiopole (center for diagnostics and development of new vaccines), Medicen Paris Region (high technologies in health care and new medicines), Minalogic (center for micro- and nanotechnologies), Solutions Communicantes Securisees (software, microelectronics and multimedia), [email protected] Paris Region (onboard equipment, optics, electronics) [16]. The implementation of the French reform, with not a small amount of attention given to fundamental research, is oriented towards the development of the industrial research sector, where it was planned to create 50,000 jobs by 2010. The reform envisaged a set of scal benets for companies investing in scientic research. Individuals investing in innovation enterprises could deduct such sums from their taxes.

Innovations: from idea to implementation


The innovation cluster is a chain of innovations from the fundamental scientic idea to manufacturing and distribution of ready-made products. The cluster can be formed by uniting small and large industrial enterprises and industrial-technical centers of the area. The success of a geographical cluster to a large extent depends on the distance between companies (it should not be large), close cooperation with universities and personal relations. In France there are 71 clusters that are classied according to geographical and departmental principle (Figure 4.5). The task of clusters is to unite into one network, on the one hand, universities, research institutes, technology parks and small companies, which can suggest and produce innovations, and, on the other hand, large enterprises – consumers of innovations.

Figure 4.5 – A map of 71 French clusters [17]


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The coordinators of the process are technology transfer centers that provide information exchange, and, having gathered requests from enterprises according to scientic line of research, start to search for research laboratories or companies that can fulll the order. One of the elements of state support of scientic-technical progress is the creation of special technological zones – technology parks oriented towards manufacturing high technology products. The companies that get the right to work in the technology park must carry out research and implement new developments in high technology industries. They receive parcels of land and ofce space on favorable terms as well as various tax, nancial and administrative benets and other types of assistance [18]. It should be noted that this type of regional development is widely used abroad. An example of such a center is Sophia-Antipolis on the Cote d’-Azur in France: it is oriented toward the qualitative improvement of regional industry; specializing in information technologies and communications, it offers an opportunity to avoid negative variations in world demand. Sophia-Antipolic, like Silicon Valley, attracts the best specialists from France and other countries. Location in such areas saves considerable funds compared to location in megalopolises [19]. A high level of unemployment and movement of people to the southern regions of France makes the factor of personnel the key factor of development [20]. However, when rather many companies locate their production facilities in the region, a «snow ball» effect is observed. Both large and small companies note that an important factor that forced their relocation to one region or another was the location of partner-enterprises in the production chain. They call it the «nearest synergy» [19]. The authorities of the region and local municipalities determine key directions of the innovation development of the area and provide them infrastructural support. However, the development of education and science in the region is a special aspect of the regional innovation policy. The technology parks were created on the site of many university centers – the latter provide targeted support of specialists, project carriers and enterprises that provide jobs for qualied university graduates. For example, the Ministry of Science offers enterprises, students and their universities several types of partnership: Attraction of young technical specialists to

Innovations: from idea to implementation


project development for a period up to one year, foreshadowing a grant to the enterprise- organizer of the project; Long-term internship for students during which undergraduates get valuable experience, whereas the enterprise and the educational institution get nancial support; Job placement of young engineers for work in their academic major; the student carries out work on the subject important for the enterprise under the supervision of a qualied specialist; and other variants [21]. Such cooperative programs make the innovation sphere especially attractive for young people in choosing their profession. Enterprises strengthen their links with scientic centers. Researchers may implement their developments in practice, and the state gains due to higher economic efciency and creation of new jobs. Innovation policy in France is closely related to regions. The experts note that given the growth in the mobility of the population, nances, and enterprises, especially in the European Union, it is necessary to have not only advanced technologies and companies but also, and even more important, regions ready to accept the companies and to support their functioning. In the last decade, the developed countries experienced a «regional revolution», which caused transformation of the internal organization of the economy. A network model that projects production relations on a territory was created. These networks, tied to a place, include autonomous and, what is very important, interchangeable links – production complexes and enterprises. On a cooperative basis, they form a production cluster. Instead of strict specialization, such regions are exible and open to innovations. It is supposed that such regions will form the basis for the sustainable development and competitiveness of the country on the world market. What is more, the necessity of attracting human capital, the most valuable resource, leads to the creation of post-industrial zones – trade, entertainment-educational, recreation and others [22]. An example is the city of Montpelier, the center of the Herault department and region of Languedoc-Rusilion. For many years (and even centuries) Montpelier had been a provincial university center, a capital of wine-making, and an agricultural seaside area. The rst stages of the industrial revolution did not touch it. However, in the 1970s, the town showed surprising growth and development. Over the last 50 years, the

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population of the Montpelier agglomeration doubled and is now about 275,000. The local authorities placed a bet on advanced technologies and managed to integrate them into local conditions. The town was made more «liveable», the transportation network was modernized and new blocks of buildings were built. Finally, clever organization of projects attracting foreign partners and making use of local color bore the desired fruits. Now, over 800 enterprises work in the technology park Montpelier-LR; they have created about 17,000 jobs. Their specialization is pharmaceutical, chemistry, and information technologies (including IBM). On the base of the Medical School of the University, which was well-known as far back as the Middle Ages, the technology park «Euromedicine» was created. Other educational institutions invested in developments in agriculture and wine-making. A number of business-schools were opened, including business schools in international trade, which attract students from abroad. At the same time, the city tries to make use of the advantages of the entire region, as its own resources do not enable it to compete at the European level with such centers as, for example, Barcelona [23]. A similar situation can be observed in many other French cities and regions. 4.4 Great Britain The development of scientic-technical and innovation projects is one of the main priorities of the economic policy of the British government; according to its plans, the country must retain and strengthen its leading position in the development of advanced technologies. Over 9% of the scientic publications in the world are published in Great Britain; the citation index is more than 12%. Annually, 29% of companies launch new products, 19% implement new technological processes and 66% take part in innovation processes. The universities of the country produce 9.4% of the total number of graduates with Ph.Ds in the OECD countries. Great Britain is one of the three leaders in biological research, clinical medicine, ecology, humanitarian, social and economic sciences, and it also supports a high level of scientic research in applied mathematics. The main state document on innovation policy in Great Britain is the 10-year Strategy on Science and Innovations..

Innovations: from idea to implementation


The goals of the strategy are to support the science of the country at a world level, to make sure it corresponds to the demands of public and private investors, to stimulate cooperation between universities and business, to promote wider commercialization of advanced technologies, to foster development and modernization of the scientic and technological base. One the goals is to increase the percentage of investments into R&D from 1.9% to 2.5% of the GDP by 2014. It is planned to increase the percentage of state expenditures from 0.6% to 0.8% of the GDP, business expenditures – from 1.3% to 1.7% of the GDP. The most important condition of the competitiveness of the scientic sector is an increase of expenditures on the R&D base by 20%. British scientic & innovation policy is formed under the aegis of the Ministry of Commerce and Industry (department of science and technology), and interaction with consultative committees on scientic and innovation strategy of ministries, regional development agencies, the Confederation of British Industry and public organizations. The national scientic and innovation strategy is developed based on consultations with all concerned parties at national and regional levels. The process itself starts in the regions, at the level of which most contacts with business are established. It is evident that the efciency of this policy depends on the organization of coordination of interests of businesses, regional and central authorities. In January 2009, the British Statistical Service published the data on R&D expenditures for 2007 (these statistics are published in Britain a year later), which showed an 11% increase as compared with the previous year and comprised 16.1 billion pounds (1.1% of GDP). The expenditures on private sectoral R&D increased by 11% and comprised 13.7 billion pounds, whereas the expenditures on military R&D increased by 10% (2.4 billion pounds). The leading areas of R&D nancing are: Pharmaceutics (4.5 billion pounds, 28% of all expenditures in 2007); Aerospace (2.1 billion pounds, 13% of all expenditures); Telecommunications (1.6% billion pounds, 9.1% of all expenditures). In the private sector, the leading R&D positions are occupied by the manufacturing industry (chemical industry, production of transport facilities, aerospace industry, production of electrical equipment) which got 9.9


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billion pounds, and the service sector (3.6 billion pounds). In military R&D, the leading branches are the aerospace industry and machine building. The sources of R&D nancing are: Capital resources of businesses – 64%; Foreign sources – 23%; The British government – 7%; Other sources of British business – 6%. An important instrument of the stimulation of technological development in industry is government procurement. Direct and indirect results of R&D fullled by orders from governmental organizations are, as a rule, used by private companies for production of new products and services. Additional support to innovation processes is provided by the reduction in the number of state regulating functions, facilitation of the procedures of administrative control, tax remission for R&D, and implementation of innovations. According to the plan of the British Cabinet of Ministers, Great Britain must turn into a «magnet» for world innovation business by maximal simplication of the processes of carrying out of scientic research, and introduction of new technologies at enterprises. In order to determine priority directions for new technologies that will be in the highest demand in the middle-term and far future, the British government put forward the idea of the creation of Innovation and Growth Teams: 1. Aerospace Innovation and Growth Team – AelGT. 2. Electronics Innovation and Growth Team –EIGT. 3. Bioscience Innovation and Growth Team- BIGT. 4. Automotive Innovation and Growth Team – AIGT. 5. Chemicals Innovation and Growth Team – CIGT. 6. Materials Innovation and Growth Team – MIGT. 7. Environmental Innovation and Growth Team – EIGT. With the participation of the British Ministry of Business, Entrepreneurship & Reforms in State Regulation and Ministry of Environment, Food & Agriculture Development, the Environment Innovations Advisory Group (EIAG) was created. Its objective is to search for practical decisions eliminating deterrent factors in the development of environmental innovations.

Innovations: from idea to implementation


Almost all working teams are mechanisms for consultations of the government with the professional community, aimed at development of national policy in scientic-technical and innovation activities. Great Britain has established the Council on Technological Strategies, whose main task is stimulation of the development of innovation technologies most capable of accelerating economic growth and raising labor productivity in the country. In order to achieve the goal, the Council coordinates distribution of investments into development of new technologies and monitors their use. The Council also consults the government on the problems of elimination of barriers to the development of innovation and implementation of new technologies. To order its activities, the Council dened several priority applied and fundamental areas including: Environment protection including developments in the efcient use of natural resources, waste processing and pollution control; energy saving; water resources, their purication and use; an efcient plan for foodstuff delivery; Energy production and transportation. In energy production, a special emphasis is placed on accessible sources of environmentally sound energy; Healthcare. Emphasis is on retaining the British leading positions in biopharmaceutics, cell therapy and better diagnostics of diseases and genetic scanning; Transport; Creative elds including arts, architecture, advertising, the printing industry, computer games, trades, etc. Special attention is paid to support of small and medium-sized businesses; Most valuable services. That means services making a considerable contribution to the GDP, including nancial, professional and trade services as well as recreation and tourism; Environmental rehabilitation. Primary attention is paid to infrastructure and healthcare. As subdivisions, the following areas are most important: power efciency, ood protection, technologies extending the service life of materials. The Council on Technological Strategies is nanced by the British Government through the Ministry of Innovations, Higher and Vocational Education, regional development agencies and scientic-research coun-


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cils. In 2008-2011, 711 million pounds were allocated for the Council’s needs. In addition, during the same period, the Council got from the regional development agencies and research councils 180 and 120 million pounds, respectively. In order to support innovation activities in the country, the British government uses the mechanism of state purchases through the Council on Technological Strategies. Their annual volume of state purchases amounts to 175 billion dollars. The main scientic research in Britain is concentrated in universities. They have special councils consisting of scientists, representatives of business and industrial associations. In 1949, in order to gather information about concentration and nancing of innovation projects initiated in different research institutes, the National R&D Corporation was founded. It is the leading state research institution in Britain. There are over 200 successful research organizations in all elds of science in the country. Each of them has, at least, one scientic periodical. The results of scientic research are commercialized through the Association of Technology Parks uniting over 110 organizations (Figure 4.6). It is a private association of technology parks, and, if a company wants to use some of its results, it must become a member of the Association and pay a membership fee. The state does not take part in the process, as it involves only private capital, and the system is centralized. If we look back at the history of technology parks in Britain, we will see that the process has taken over 60 years. The rst technology parks were created as the individual initiatives of some universities. At rst, for the rst two years, they got only state nancing. In recent years it has become protable to develop innovations, and private business entered the niche, after which the state withdrew its participation in the system. Private business is successfully developing this endeavor, and its results meet the demands of government, business and society. The results of recent research have shown that technology parks are more successful if they are part of a larger innovation system. Technology parks must be connected with other participants of the innovation process through structures and stimuli, which are fed, on the one hand, by new knowledge and, on the other hand, by the demands of business (Figure 4.7).

Innovations: from idea to implementation

Figure 4.6 – The network of technology parks in Great


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146 Business


Industry Association of science parks National corporations, governance, institutions andlaboratory Universities



Fundamental research

Applied research

Manufacturing and reprocessing of products

Pilot samples

Productions Technical service

Figure 4.7 – The British National Innovation System

In this system new knowledge is created in universities, industrial and state research laboratories, research hospitals, research institutes and organizations. Business must provide entrepreneurial and technical skills, as well as knowledge of markets in order to use new ideas having a commercial potential. The ideas must be distributed on the market through professional associations, which form an open strategy of business management for the diffusion of innovations. In the long run, the process must be determined by the demands of customers. As technology parks are in the center of the process, they must provide proper conditions for such relations.

4.5 Finland Finland managed to enter the group of the world postindustrial leaders due to efcient construction of its national system. A few decades ago the country did not have either a developed industry or an advanced scientic base, and scientic research had never been the problem of rst priority. In two decades the Finnish economy was reoriented from natural

Innovations: from idea to implementation


resources to science-intensive production. A well-directed state policy, efcient interaction with businesses and long-term investments in science, innovations and education were the basic principles on which one of the most efcient national innovation models was based. The increase in investments in R&D in the late 1970s turned out to be the decisive factor promoting rapid change in the goals of Finish economy. Even during the recession in the early 1990s the nancing of science not decreased but continued to increase, though more slowly. Finland was the rst country that adopted the concept of national innovation system as the main element in the policy in science & technology. In practice it meant the increase in the number of enterprises that based their operations on innovations and know-how as well as strengthening of organizations involved in research. The Finnish model of innovation growth (Figure 4.8) is based on the trilateral cooperation: universities, state enterprises and private companies uniting their research resources. Business





Fundamental research


Sitra, Finnvera. FinproVenture capital funds Tekes

Academy Of Sciences, Universities Applied research

The Ministry,Sector research research

Manufacturing Pilot and reprosamples cessing of products

Productions Technical service

Figure 4.8 – Finish National Innovation System

In Finland, the policy in science, innovations and technologies is formed by the Council on Science and Technological Policy headed by

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the prime-minister (Figure 4.9). In particular, one of the main directions of the government policy is strengthening of interaction between science and society. Thereupon the government promotes higher state nancing of scientic research and developments, which in the period from 2002 to 2009 increased from 3.36% to 3.92% of the GDP [24]. The government supports science through direct budget allocations for universities, which make 25.87%, the other important source of nancing is Academy of Sciences – 15.9%. The major role in the Finish system of nancing innovations is played by the public funds supporting R&D. In June 2006 the Finish Council on Scientic and Technological Policy ordered to create ve strategic centers playing the most important role in the development of Finish society, business and industry, namely, power-generating industry and environment protection, metal production and machine-building industry, timber industry, healthcare, information & communications industry. Parliament Cabinet of Ministers Councils on R&D policy

Ministry of Education education

Finish Academy

Other ministries

Ministry of Commerce & Industry

National Fund Agency on Technologies& Innovations Tekes

Fund Sitra

Universities and State Research institutes Enterprises and private Research institutes

Figure 4.9 – Structure of Management of Research & Innovations Sector in Finland [25]

Innovations: from idea to implementation


In Finland, the policy in science, innovations and technologies is formed by the Council on Science and Technological Policy headed by the prime-minister (Figure 4.9). In particular, one of the main directions of the government policy is strengthening of interaction between science and society. Thereupon the government promotes higher state nancing of scientic research and developments, which in the period from 2002 to 2009 increased from 3.36% to 3.92% of the GDP [24]. The government supports science through direct budget allocations for universities, which make 25.87%, the other important source of nancing is Academy of Sciences – 15.9%. The major role in the Finish system of nancing innovations is played by the public funds supporting R&D. In June 2006 the Finish Council on Scientic and Technological Policy ordered to create ve strategic centers playing the most important role in the development of Finish society, business and industry, namely, power-generating industry and environment protection, metal production and machine-building industry, timber industry, healthcare, information & communications industry. The centers must provide coordination between distant domestic and foreign research resources. According to the government program, investments are focused in the strategic Science, Tecnology & Innovations Centers nanced by the Finish Academy of Sciences. Today, Finland is one of the generally recognized leaders in innovations. According to the volume of investments in research Finland is among the leading countries in the world. About 80% of funds are distributed by the Finish Ministry of Commerce and Industry and the Ministry of Education. The university science (most fundamental research and some part of applied research) is nanced through the Finish Academy of Science – central scientic-administrative organization controlled by the Ministry of Education. The Academy has the committee on science and six commissions: natural, medical, agricultural, technical, social and humanitarian sciences. In nancing of the Academy of Science the rst priority is given to the following directions: medicine, biological sciences and environment; culture & society; natural history and technology. In allocating funds the Academy supposes that nanced projects will promote not only development of Finish science but also strengthening of international cooperation.


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The academy annually gets, on average, applications for the volume of nancing of about 1.2 billion Euros. Positive decisions are usually made for the sum of about 250 million Euros. Most budget funds are allocated to universities [25]. One of the main goals of the Finish social policy is the guarantee of qualitative education accessible for everybody. Today the system of higher education in Finland includes 20 universities and 28 polytechnic schools (higher professional schools). The universities carry out scientic research, give basic and post-diploma education. Polytechnic schools are multi-discipline regional educational institutions and are mainly oriented on applied research. The directions of the innovation policy in Finland were dened based on the fact that to a high extent success depends on the high-quality postdiploma education and stimulation of scientic work. In Finland the rst institutions of the post-diploma education were opened in 1995. The main goal of the institutions is to improve the quality of preparation of researchers during their work at their dissertations and to expand possibilities of international cooperation. The Finish Academy of Sciences is not the only organization that nances science, there are some other organizations that take part in the process. Fund Sitra acts under the aegis of the parliament, it works with young innovation companies as a venture fund (and often as a fund of funds), it invests from 100,000 to 15 million Euros in exchange for 3010% of their stocks. The National Fund Agency on Technologies & Innovations Tekes acts as a sowing investor. It is subordinated to the Finish Ministry of Commerce & Industry and distributes most of budget funds allocated for applied research [25]. As a result, universities successfully carry out research work, give basic and post-diploma education. Polytechnic schools as multi-disciplined regional educational institutions are mainly oriented on applied research. When the concept of the national innovation system was accepted as the main element in the policy in science & technology, it enabled the government to strengthen other organizations dealing with research, which, in its turn, resulted in the increase in the number of enterprises, the work of which was based on innovations and know-how. The new arising innovation infrastructure enables Finland to solve one of most important

Innovations: from idea to implementation


problem of social policy – qualitative and accessible education, which, in turn, accelerates economic development of the country. An important aspect and one of the leading directions of the Finish scientic policy is internationalization of research & innovations. In the Finish innovation system including a variety of organizations, Science & Technology Parks (STP) and Business-Incubators (BICs) are moving forces of innovation development. Finish STPs have collected the world experience, and each STP is based on universities. They educate future researchers, generators of ideas able to create a successful innovation product. It gives an additional source of nancing and development for the university, and facilitates enrolment of new researchers, preservation of staff and higher professional skills for technology parks. In Finland about two thirds of technology parks belong to Technopolis. The company was founded by public and municipal authorities, and over 70% of Technopolis initially belonged to the state. The public capital was gradually substituted by the other capital, and now Technopolis is a private company that takes part in the IPO. It is important to note that if the state declares implementation of innovation into economy as its task, it fullls organization and bears expenditures of the rst stage. 4.6 USA Today, the USA is aimed at the leadership in all elds of scientic knowledge, strengthening links between fundamental sciences and national goals, development of efcient partnership between the state, industry and academic circles, training of super-qualied scientists and engineers for the USA in the XXI century. All the effort is taken on the background of ever rising level of scientic-technical knowledge of the citizens. Under the inuence of increasing international competition the USA radically changes the strategy of scientic-technical policy. In order to support the US leadership in the world science & technologies and to overcome the growing foreign competition both on the world and domestic technological markets, the USA expanded the boundaries of the technological doctrine “sharing responsibility” dening the role of the state and market in the Scientic-Technical Progress. Since the mid-1990s the state in equal fraction with the private capital (industry) has had to nance


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the development of advanced civil technologies meeting world standards, competitive on the domestic and world market with Japan and West European countries. One of the main priorities of the US policy was stimulation of scientific-technical progress. Achievements in fundamental research are ofcially recognized as the base for economic growth as according to the US estimations 1 dollar invested in R&D gives 9 dollars in the GDP increase [26]. The role of the US government is focused on support of perspective civil technologies of future generations containing scientic-technical potential of the country in the XXI century. It is a priority direction in the state scientic-technical policy on a par with large-scale military-technical programs. Clinton’s administration based its policy on the thesis that the state must help the market as “the market better works in the institutional environment forming the rules of free competition”. Recognizing the importance and often impossibility of substitution of the state support by the market, the two US political parties develop approaches aimed at getting wide public support of practical principles of allocation of state funds into R&D in the priority directions for national economy. Today we see that both political parties have come to the conclusion that only a large-scale political dialogue bringing together the executive and legislative wings of the government, the private sector and American universities will give real results. The United States came to the threshold of the third millenium at the height of its power. It is based on: – Stability and sustainability of American political system; – An efcient mechanism of economic growth, scientic-technical progress and well-developed system of social service; – Balanced military power; – Dominating position in the system of international institutions. The system was formed as a result of long-term evolution in the government management of the scientic-technical sphere. For example, the Ofce of Science and Technology Policy at the US President was formed from the science & technology department organized by the US President John Kennedy in 1961 to provide consultations and recommendations in response to the growing importance of space exploration. Today this structure studies a wide range of scientic & technical problems at the White House Ofce, serves as a source of scientic and technological

Innovations: from idea to implementation


analysis and judgment for the President with respect to major policies, plans, and programs of the Federal Government (Figure 4.10). It is also authorized to: President

National Council on Science & Technology

Director of the Office of Scientific & Technological Policy

President’s Consulting Council on Science & Technology

Director Assistant & Associate Director for Science

Director Assistant & Associate Director for Technologies

Director General for Science

Director General for Technologies

Associate Director for social sciences

Associate Director for Space & Aeronautics

Associate Director for Environment

Associate Director for Telecommunications & Information Technologies

Associate Director for Physical Sciences & Innovations

Associate Director for Technologies, Research & Developments

Associate Director for Education & Social Sciences

Associate Director for National Security & Emergencies

Head of the Department for Innovations Director General for Internal & National Security

Associate Director for National Security

Administrative staff Administration Budget planning Service office Computer service Security service

Associate Director for Internal Security

Executive staff

Lawyer’s Office Secretary’s office Budget analysis Communications

Figure 4.10 – National Innovation System of the United States

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– Advice the President and other departments of the White House on the inuence of science and technology on domestic and international affairs; – Lead an inter-agency effort to develop and implement efcient science and technology policies and budgets; – Work with the private sector to ensure Federal investments in science and technology, contribute to economic prosperity, environmental quality, and national security; – Build strong partnerships among Federal, State, and local governments, other countries, and the scientic community; – Evaluate the scale, quality, and effectiveness of the Federal effort in science and technology. These efforts promoted rapid development of close links among private enterprises, research centers and universities. Support of university science by rms and corporations over the last 20-25 years has increased at a higher rate than nancing from other sources. The most important source of scientic & technological knowledge and the major channel for direct government policy in innovations are federal laboratories and other state research institutions (Figure 4.11). Business



National institutes & laboratories



Fundamental research


Applied research

Manufacturing and reprocessing

Pilot Industry samples of products

Figure 4.11 – National Innovation System of the United States

Technical service

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They have a unique scientic equipment indispensable in investigations carried out by universities and private corporations as well as scientic-technical support of the government and retention of competitive positions of American industry on the world market. Today, over 700 federal laboratories work on the territory of the United States. Recently, in the conditions of budget cuts it has become necessary to reorganize laboratory structures for their better correspondence to the requirements of the organization of scientic-technological partnership. This process is a part of modernization of the whole national research infrastructure of the United States. The other, not less important, source of novelties in national economy is universities. The federal support of R&D in universities is an especially important factor as it is the universities that fulll most long-term strategic scientic & technological research, and their potential is attractive for private corporative laboratories and industrial enterprises, American students and students from other countries. The US universities play an important role in formation of national human capital in science & technologies. Universities were turned into national centers that provide superiority in specic elds of, important for the economy of the United States. However, they develop their own policy with respect to creation of scientic-technological partnerships with industry. Modern technologies and globalization made the qualication of workforce as a competitiveness factor more important. The US national economy needs wider range of qualications of specialists not only to be competitive on the world market but also to overcome a negative tendency to the reduction in their number in the next decades. It should be also noted that fulllment of state orders on the development of new techniques and technologies – R&D civil and military programs – is considered by the federal legislation as the most important economic function of the state. In the framework of this legislation the state provides private companies, their subcontractors and non-prot organizations with a wide range of preferences and advantages as compared with other corporations operating on the domestic market. Maintaining competition on the market, the state provides corporations-contractors, executors of R&D programs, aditional rights: free use of state industrial equipment and state scientic laboratories, experimental and research test


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benches; purchacing of raw and expendable materials at preferable prices from state agencies and funds; special tax preferences for prots of corporatioions; pre-term depreciation of capital assets; loans and advance payments on the security of orders; free rent of state real estates; permission to spend funds on their own R&D included in the total cost of military or civil R&D contract (10-12%); rebuilding of prodution and professional retraining in case of transfer to the new state scientic-technological or military-technological order or production of new military or civil products with payment of all expenditures related to the structural modication of production or relocation of enerprises or research centers to the other areas on the US territory; purchasing of raw materials, industrial equipment, devices and other instruments abroad if their level exceeds the corresponding level of US-made items; retraining of scientic and production staff in foreign companies, reseach centers and universities in the framework of fulllment of state R&D programs. All the above-listed expenditures are included in the total sum of the state order fullled by the company or university as “admissible by the law” or “agreed by the contract” [27]. As general directions of the state policy supporting enterprenership in the innovations sphere, the National Governors Association outlines the following items: – Accessibility of nancial investments; – Technical support; – Better regulation of bank securities; – Simplication of registration and licensing procedures; – Reforms in the schemes regulating enterprenership; – Creation of intellectual capital in state universities; – Formation of industrial clusters; – Creation of favorable tax environment; – Improvement of the training system for entrepreneurs; – Information support of enterpreners; – Public recognition of entrepreneurs’ achievements [28]. Today the circle of responsibilities of a number of federal agencies working with STP includes the problems of competitiveness of the US industry. One of the main agencies in the structure of US federal organizations directly dealing with the problems of industrial competitiveness

Innovations: from idea to implementation


and creation of the US innovation system, besides the US Competitiveness Council, is the Ofce of Technology Policy of the United States Department of Commerce. This body serves as a forum for the discussion of key problems in this eld at the national level. It works out proposals on the development of the corresponding state policy and legislation that will promote better climate for entrepreneurs and higher level of innovation performance. In particular, the Ofce considered and prepared recommendations on increasing demand in qualied specialists in information technologies; made a comprehensive evaluation of competitiveness of different US industries, which were used by the federal executive agencies and the US Congress as the base for development of the policy stimulating competitiveness in these industries. The Ofce prepared reports evaluating the level of competitiveness of a wide range of US industries: chemical industry, biotechnological industry, car manufacturing, steel production and environment protection. In evaluating the efciency of state policies in economic, normative-legal, commercial and other spheres aimed at stimulation of innovation performance and removal of barriers on the way of technological progress and commercialization of R&D results, the Ofce works in close cooperation with industry. In the 1990s the US industry developed policies in bank securities, indebtedness of enterprises, anti-trust regulation, nancing of development and commercialization of technologies, and inuence of these factors on the innovation process. One of the mechanisms used by the Ofce to form policies aimed at high competitiveness of an industry is the US Innovation Partnership Initiative. The program is focused on mobilization of all resources of the US industry, academic community, federal, state and local authorities to coordinate various, complimentary programs in innovation development. The Ofce carries out monitoring of scientic & technological policy of foreign countries in order to determine interests and positions of the US industry on the world scientic-technological market and ways to improve its competitiveness. The members of the US Competitiveness Council state that national policy focused at creation of favorable climate for innovations and entrepreneurship must support R&D nancing in private sector. State regula-


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tion must encourage and not hamper R&D in the US private sector. However, it is necessary to estimate costs of measures of state regulation and effects of its use. As an example of irrational policy we can consider the case when the Food & Drugs Administration used standards that highly increased the cost of clinical tests of medicines and medical equipment. American economists also evaluated as irrational the demand of the US Treasury Department, aimed at support of R&D in foreign countries, to refer some part of expenditures on R&D carried out in the USA to R&D expenditures abroad. Therefore, besides direct methods – investments from federal budget to science & technology – an important role must be played by indirect methods. A striking example of coordinated use of indirect funds for STP state regulation is development and implementation of the US Program of National Information Infrastructure and Internet Technologies. The development of the program was not based on traditional methods of pressing administration. The role of the state was not reduced to state nancing and creation of necessary organizational structures and procedures, on the contrary, almost all state bodies and agencies had and have a right to take part in the development of the program as well as in the improvement or modernization of some of its directions. In some states tax credits are also granted to encourage: – Investments of startup capital to associations of companies in order to maintain nancing of development of experimental product samples or processes by small-business enterprises; – Marketing and technical-economic research for new products or processes; – Development of business-plans aimed at creation and production of new products and services. In the context of improvement of the entrepreneurship climate the representatives of scientic-technical and business circles acknowledge the importance of writing-off of current expenditures on R&D and exclusion them from the total sum of taxed annual income of corporations as well as to carrying out of speeded-up depreciation of the main assets production facilities. The US experience shows that the economic development of regions

Innovations: from idea to implementation


depends on a complex system of interrelated factors, among which territorial location and highly-qualied personnel play an important though not the rst role. What is more, neither the infrastructure nor the availability of high-technology industries fully determines the economic growth of the region. An analysis shows that the highest level of dynamic development is observed in the regions where so-called industrial & innovation clusters were formed. Clusters are complexes of enterprises (industrial companies, research centers, research institutes), local authorities, trade unions and other structures formed on the base of territorial concentration of networks of specialized suppliers, main producers and consumers connected by a technological link. Such complexes act as an alternative to the sectoral (branch) approach. High competitiveness and stable economic growth are determined by the factors stimulating spreading of new technologies, and, rst of all, by the character and structure of interaction among science, education, nancing, state policy and industry. The most viable clusters of innovation performance are formed on the base of diversication of inter-sectoral links. A variety of different sources of technological knowledge and connections facilitates the process of combination of production factors and becomes a prerequisite for any innovation. Territorial innovation-industrial clusters are based on a stable system disseminating new knowledge, technologies and products – so-called technological network. They have common scientic base. The enterprises of the cluster have additional competitive advantages due to the possibility to carry out internal specialization and standardization, and minimize expenditures on the implementation of innovations. An important feature of clusters is the presence of exible small-business structures enabling them to form so-called innovation “growth points”. There are several reasons that make territorial innovation-industrial clusters very important for the development of business undertakings. First of all, they give companies possibility to have high degree of specialization. It enables entrepreneurs to create new companies servicing a concrete industrial niche. It should be noted that lower degree of vertical integration inside the cluster makes it easier for new companies to enter it. Cluster structures facilitate access to capital as geographical concentration of companies is very attractive for “angels of business” and venture


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capitalists, many of which made their carriers in the industries forming a part of the clusters. Close location of a large number of companies facilitates exchange of ideas and knowledge transfer from specialists of some rms of the cluster to the others starting their business. In 2001, in the report of the National Competitiveness Council of the United States the task of creation and strengthening of regional innovation clusters was included in the list of the most important national priorities. The report states, «In the epoch, when global movement of capital, technologies and talent makes national borders less important, the drivers of innovations, as never before, acquire local character» [29]. An important direction in state support at all levels is support to the development of venture enterprises. The efciency of venture business in the USA is conrmed by the examples of successful development of enterprises of the leading industries. Thus, most companies in computer hardware and technologies such as Hewlett Packard were once nanced by venture funds. In the USA the turnovers of enterprises getting support of venture capital grow faster than the turnovers of 500 largest (according to the list of Fortune) American industrial companies. The success of such rms is explained by the fact that they spent more money on R&D per one employee. The mechanism of venture nancing has the following scheme. A venture fund or a management company in the name of the fund acquires a share (or a holding of shares) of the venture enterprise at its minimal cost and introduces its representatives (as a rule, professional managers) in the administrative board of the enterprise. The managers take active part in the regulation of the innovation process and control of expenditures. This makes it possible to get a blocking package of the venture investor with unimpaired freedom of business initiative of the main owners of the enterprise. An analysis of the practice of venture investments in the USA has shown that though reimbursement of venture investments takes many years (venture investments in high-technology projects are, on average, reimburced in 5-7 years, which requires political and economic stability in the country) and is characterized by high risks, it gives higher prots per capital. Venture investments in the enterprises whose stocks are, as a rule, not registered on the Stock Exchange and do not take part in free

Innovations: from idea to implementation


circulation on the stock market are mainly used for carrying out R&D, increase in turnover capital, purchasing of new compnies or improvement of the balance structure so that investors could get prot when stocks of venture enterprises go to the stock market or when a share in the enterprise is sold. The most active participants of the venture business market are private investors and large nancial organizations forming venture funds and something like a management company, which in the name of investors makes investments into, as a rule, newly organized small-andmedium-sized enterprises oriented at new technologies. In case of nancing of strategically important high-technology and science-intensive projects the USA uses the schemes of partnership between the state and private investors particularly realized through creation of special venture funds. The funds are formed, on the one hand, on equal rights of both parties at the expense of equal funds, on the other hand, at the expense of banks, insurance companies, pension funds and other nancial institutions. A special attention must be paid to the overwhelming system of state support of small businesses in the USA coordinated by the government agency – Small Business Administration. Small businesses in the USA, especially, innovation small businesses act as one of the most important factors of dynamic development and stability of the American market model [30]. An efcient state participation in strengthening of competitive positions of the private sector of US industry promotes active use of a wide range of indirect means of NTS regulation for attraction of private investments into science and technology. Such indirect means include: Foreign trade policy. The aim of the foreign trade policy is to regulate and to stimulate export and direct foreign investments or to restrict access of American companies to foreign technologies and to limit foreign investments into national R&D. Regulation of current standards. It is a very efcient instrument to be used to stimulate private investments in innovations. Such regulations must be exible and take into account possible consequences, in particular, for the environment. Simplication of standards development. Stimulation of commercial-

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ly-tested standards (unlike administratively established) fosters the processes of innovation and market development. Legislation on Intellectual Property Protection. Patent and Author Rights policies are an integral part of federal technological policy used in creation of public-private partnerships. Federal contract system. High purchasing power of the state is a powerful tool for creation of new high-technology markets. In the framework of partnerships the state can act as a customer of scientic-technical products and services. Antimonopoly legislation and competitiveness policy. Globalization and other factors changed the nature of competitiveness. Politicians have to take into account not only price but also international competition and new competitive parameters. They may act as a pre-condition for creation of new technological partnerships. Analysis of scientic-technical policy and consensus in its formation. Taking into account public opinion at the stage of development of state scientic-technical policy is a very important characteristic of the system of the US state scientic-technological policy.

4.7 China The Chinese innovation system dates back to the mid 1980s when science reform was initiated as part of economic reform. By the end of the XX century China had created its National Innovation System for the unied Chinese economy. The task of the innovation system was to renovate the Chinese Academy of Sciences as a research institution and to increase the R&D share in the GDP (from 0.95% in 2001 to 1.42% in 2006) [31]. The Chinese National Innovation System was set upon a foundation formed by the Chinese Academy of Sciences, the Academy of Social Sciences, the Academy of Engineering Sciences, and the universities (see Figure 4.12). Starting a decade ago, the reorganization of the Academy of Sciences was intended to leave the 30 strongest academic institutions out of 129. The great length of the Chinese border from west to east and from north to south determines an uneven development of innovation indus-

Innovations: from idea to implementation


tries among provinces. The provinces and municipalities with provincial status on the east coast are more innovatively developed than the central and western parts of China. The institutional prole of the Chinese National Innovation System has experienced fundamental changes since the beginning of reform of scientic and technological systems in 1985. The business sector has turned into a dominant research stakeholder (over two-thirds of the R&D). Business



«Torch» program Economic and technological zones, science parks Ministries and provincial institutes/

industries National Academy of Science, laboratories, institutes, universities



Fundamental research

Applied research

Manufacturing and reprocessing of products

Pilot samples

Productions Technical service

Figure 4.12 – National innovation system in China

The national government actively supports and encourages foreign R&D. The Chinese strategic task is to absorb as many foreign technologies as possible. In addition, an important R&D element in China is reorientation of the system of public research on support of research universities. The Chinese scientic system is highly appreciated on the world scene. This is demonstrated by the number of Chinese publications with foreign coauthors, especially from the US and Japan. Chinese companies have been encouraged to develop «domestic innovations» including «joint innovations» with foreigners or even «improvement of foreign innovations.» In fact, the goal of Chinese companies, relying at the beginning of reforms of second-rate Western tech-


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nologies, was to jump over several technological steps and get an equal footing with the European and American technological leaders. The innovation-oriented development is based on the principles of transparency and studying the best world practices. Its main political objectives are: strengthening the Chinese potential in science, technology, and innovation, and strengthening the «all-absorbing capacity» of the country. To create better conditions for innovations and to develop the planning policy aimed at building an efcient research system it is necessary to create a new system of public administration and nancing, to adopt antitrust laws and efcient laws protecting intellectual property rights, and to develop a modern competitive managerial system and a special targeted policy. China has set new super-goals: to raise the percentage of expenditure on R&D to 2.5% of the GDP by 2020; to increase by as much as two times the contribution of science to economic development; and to reduce by as much as three times the dependence on imported technologies. Additionally, China must enter the group of the top ve countries in number of patents and references to scientic publications, and it must occupy the leading position in science and technology. One of the main objectives set at the last congress held by the governing party in China was the task to create China’s own innovation system. In this, China is not going to start from scratch. Over the past decades, the country has made considerable progress in the development of modern technologies. For example, according to UN data on industrial development, in 1985 in terms of export of high-tech production China was not even listed among the 25 world-leading countries, however in 1998 it already occupied 11th position. Since 2004 the export of such goods has exceeded China’s import volumes [32]. In 2006, the State Council issued the document «The Guidelines on Application of the State Medium- and Long-Term Programs on Scientic and Technological Development in 2006-2020.» In this document China formulated the goal of creation of a business environment that would promote the development of independent innovations by private companies. Over the past years, high-tech production has been growing especially rapidly, several times outpacing the average annual increase in the GDP. The export volumes of such products have been growing even

Innovations: from idea to implementation


faster. Today, over one half of the total volume of high-tech products is exported. The leading positions among high-tech products are occupied by electronics, telecommunications equipment, computers and ofce equipment. Lower positions are held by pharmaceuticals, medical equipment and the aerospace industry. Technological progress in China is only to a small extent dependent on national progress in science and technology as the Chinese economy has been enormously affected by foreign technologies. At the end of the 1980s a special ofce for the «assimilation of foreign technology» was opened in Beijing. The percentage of high technologies in production and export was directly proportional to the increasing volume of imported technologies. In the pre-1980 period, the high-tech products in China were produced by «screwdriver assembly» of components supplied from abroad. Foreign capital occupied the dominant position in production, export, and import of such products. Such a policy introduced many new jobs (which is especially important for densely populated China) and opened the gates to the world export market. This turned C  hina into the largest holder of gold reserves. China was far behind the developed countries in expenditures on fundamental research. However, in recent years the situation has been changing rapidly. The local authorities realized that borrowed technologies could not ensure stable growth in competitiveness, so it was necessary to invest in their own innovations. At long last, this decision has paid off. Today China is approaching the USA in its number of researchers. Of the world community of scientists, 14.7% work in China, 22.8% in the USA, 11.7% in Japan and 8.9% in Russia. The number of university graduates in the information technologies annually increases by 200,000 specialists, which is ve times faster than in the West [31]. The present-day state of the Chinese innovation system can be characterized as follows: high mobility of resources, huge investments, slow transformation of investments into the nal result, favorable conditions for foreign investment, insufciently developed management structure, lack of motivation, poor systematization, not fully optimized regional systems and lack of specialized human resources [33].


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In order to develop its innovation system China launched the state program «Torch» which provided close links among local enterprises, technology parks and universities. The universities act as nuclei of scientic and technological development, earning billions of dollars. Fifty national and about fty regional technology parks have been organized (Figure 4.13). They operate quite successfully, bringing billions of dollars in prots. In the past decade 2,500 high-tech enterprises were set up and about 4,000 types of science-intensive products were produced by these technology parks.

Figure 4.13 – The network of technology parks in China

Success of innovation policy can be assessed based on the ability of enterprises to implement and produce innovations. In terms of this approach, China is making great progress. China has a great number of large and successful companies using innovations. The small-sized technology rms also demonstrate a fast pace of development. Most of them were organized within technology parks and business incubators heavily invested in by the government. Even today, these small-scale companies still enjoy some form of public support. The development of the innovation economy is not a process involving only some sectors of the economy and science. It is a much more global process affecting such spheres as public administration, education, culture, and other structures.

Innovations: from idea to implementation


Based on the above-stated ideas, at the XVII Congress (in 2007) the Communist Party of China set the following objective: to build a «midclass society» by 2020 by a four-fold increase in the per capita GDP as compared with 2000. To achieve this goal, the government plans «to increase investments in innovations and to focus on breakthrough in key technologies.» In fact, the aim is to almost fully eliminate the dependence of China on imports of advanced technologies. To this end, Hu Tsingtao proposed to increase nancing of fundamental researches and to accelerate their implementation in production by creating chains uniting universities, research institutes and companies [34]. In October 2010, the Chinese government presented its 12th ve-year plan: China 2011– 2015. The Plan gives priority to the seven strategic industries destined to change the structure of Chinese economy. They are: – Environmentally friendly power generation; – A new generation of telecommunication equipment; – Biotechnology; – High-tech equipment; – New methods of power generation; – New materials; – Hybrid and electric cars. These are the sectors where the gap between China and the West must be eliminated in the shortest possible time [35]. It is well known that China does not set unattainable goals, and taking into account the current rate of its GDP growth, it is possible to conclude that these objectives are quite reasonable. The development of an economy able to produce innovations is a radical transformation of the social consciousness, shifting from passive assimilation of knowledge and skills towards entrepreneurship. 4.8 South Korea Korea is a country with very limited natural resources. Hard times brought about by the Korean War and Japanese colonization signicantly slowed down its pace of development in the XX century. Nevertheless, over the past four decades Korea has experienced rapid economic growth. From 1962 to 1994 the real GDP grew by an average of 7% per annum [49]. In 1997, the Asian nancial crisis affected the GDP growth rate in South Korea. However, this was a period that demonstrated intensive

Galym Mutanov


development of science and technology. South Korea occupied the leading position in the world in a number of technologies (rst place for the development of information-technical infrastructure for access to highspeed broadband Internet; eighth place for development of technological competitiveness of regional economic infrastructure) [36]. Such success was possible due to Korea’s strong National Innovation System where the decisive role is played by private companies and government-funded research institutions making a signicant contribution to the national economic development [36, 37, 38] (Figure 4.14). MINISTER The Ministry of planning and finance

National research and Technology Council (NSTC) Prime the Minister



Ministry of education and science

Ministry of knowledge and economy

Korean research council for fundamental research

Korean research council for industry and science

Other science-related ministries MOHW, MOE, MOST, MOAF etc.

Figure 4.14 – State scientic-technical system in South Korea

Today, science and technology in South Korea are considered in the context of the innovation system, which incorporates a variety of interrelated market subjects, united by a common network in a number of clusters (Figure 4.15). Under these conditions, in order to implement the research results it is necessary to have a large number of participants in technology transfer, venture capital, banking, managerial and consulting companies, and entrepreneurs. It should be noted that, as a rule, an innovation occurs in a specic area of research as a result of interaction between the market and innovation structures. In order to get practical

Innovations: from idea to implementation


results from the operation of the National Innovation System and innovation clusters, it is necessary to identify the objects of innovation activities, their position and mission in the system.

Industry Business


Korean Association of technology parks, business incubators Research Innovation clusters

institutions Universities



Fundamental research

Applied research

Manufacturing and reprocessing of products

Pilot samples

Productions Technical maintenance

Figure 4.15 – National Innovation System in South Korea [39]

The main elements of the innovation cluster in South Korea are knowledge, and nancial and human resources. The basic activities include creation of new knowledge, and its transfer and use on the market. To achieve this goal, all the stakeholders of the innovation process must interact on the market, sharing their knowledge and nancial and human resources. Today in South Korea many universities have stepped aside from their traditional function. Most of them are engaged in commercialization through intensive development of their innovation business. Many research institutes also try to penetrate into this area. These processes have stirred the interest of various nancial institutions and consulting companies, which have joined the process of R&D commercialization.


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As a result, South Korea is constantly increasing expenditures on science, and their share in the GDP. For example, in 2004, these expenditures amounted to 2.64% of the GDP, which was higher than in many developed countries. The share held by the public sector was 24.5% of the total volume. The expenditures of the private sector and foreign investments amounted to 75.1% and 0.4%, respectively. The share of external funds allocated to R&D in South Korea is quite small (0.4%), as compared with France (7.2%) and the UK (20.5%), spending approximately the same funds on R&D [40]. Nevertheless, the number of people engaged in scientic activities is constantly increasing. In past years this growth was mainly provided by the private sector. It resulted in growth in the number of patents, in which South Korea now occupies the leading positions in the world. The percentage of exports of high-tech production exceeds that of imports. The rst elements of the National Innovation System in South Korea appeared in the early 1960s. At that time the rst research institutes were founded. The 1970s-1980s were characterized by a signicant increase in the GDP: from 8 billion US dollars in 1960 up to 62 billion US dollars in 1980, and 253 billion US dollars in 1990. It was a time of intensive industrial development and growing interest in scientic research. Local research laboratories were organized. Universities started playing an important role in training highly qualied specialists [35]. However, after the 1980s, the growing research activities in industrial companies, research institutes, and universities forced many scientists and policy makers to pay attention to their low efciency. Thus, in 1982-1990, 207 million US dollars were allocated and spent for 2,400 research projects of which only 4.1% were successfully commercialized. At that time most critical comments referred to the duplication of research, poor project management and low performance efciency [41]. These problems were mainly caused by the lack of consensus on the institutional mission between the public authorities and the administration of the research institutes, overly strict government control and unstable government budgetary support. As the rst step to solving these problems, the government changed the system of research nancing. Financial support was provided not to researchers, as it had been before, but to specic projects competing on

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the research market. However, this approach also had disadvantages. Firstly, the number of fundamental research projects decreased at the expense of short-term practice-oriented projects. Secondly, preference was given to low-paid and part-time researchers; as project budgets were limited, it was unreasonable to use full-time qualied researchers – masters and doctors of science. As a result, since 2002 many research institutions have been employing part-time contractors, mainly students, making up to 50% of their staff, which has negatively affected results [40]. Another important factor was adoption of the Act on Creation, Functioning and Development of Research Institutions (January 1999), which were reformed according to the German and British management systems [38]. As a result, all research institutions fell under the control of the Prime Minister’s Ofce, which gave the institutions more freedom than had been the case under the strict control of ministries. The new management and control system organized ve scientic research councils, each of which acted as a supervising body monitoring the institutions [40]. Despite some positive aspects, this approach also had some drawbacks: rstly, in terms of management structure, the government had too much inuence on the scientic council; secondly, as a result of over-competitive systems the criteria for state nancing remained unclear; and, thirdly, the lack of independence of directors of research institutes affected individual scientists and their research work (low work satisfaction and high staff turnover). At the stage of creation and development of its National Innovation System South Korea managed to implement several national research programs. The rst program was launched in 1982 on the initiative of the Ministry of Science and Technology and was aimed at strengthening the country’s technological potential and competitiveness. The program made a considerable contribution to economic growth and improvement of the quality of life in the country. Korean incubators were initiated by the Korean Institute of Technology, with the rst appearing in 1991. The rst private incubator (Jungbu Industrial Consulting Inc.) was organized in 1993. The rst national incubator (Ansan Business Incubator) was opened at the same time. Most incubators were initiated by the government and, despite the economic crisis of 1997, contributed to the revival of regional economies and the


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development of the National Innovation System. Further, in order to develop regional industry and technologies and to revive regional economies, the Korean Association of Technology Parks was organized. Its task was to control the development of innovation processes. At that time the following programs were actualized: 1) programs of infrastructure development for start-up companies; 2) special programs for laboratory startup companies; 3) idea-development programs; and 4) prospective programs for the development of technology-based entrepreneurship [42]. In 1999, at the turn of the century, the program of development of scientic-technical competitiveness in the new elds was initiated. Over ten years about 3.5 billion US dollars was invested in the implementation of the program. The program included 23 projects in the new interdisciplinary areas. It used a new approach in management: each project manager was given full autonomy in management and was responsible for the development of the details of the research project [40]. Today, the national scientic program is focused on the transition to a science-intensive economy to enable South Korea to enter the inner circle of world leading economies. To achieve this goal the government emphasizes the need for efcient use of scientic and technological resources based on the principle of «selection and concentration.» The current national programs include the following directions: inter-disciplinary research, creative research initiatives, organization of national research laboratories, biotechnology, nanotechnology, space and aeronautics, etc. The scientic fund is the main sponsor of fundamental research. To encourage scientic research in universities, the government organized research groups that can carry out research in cooperation with regional research and engineering centers. These groups were given public research funding for nine years provided they passed evaluation of interim results every three years. Today nancing is received by 43 projects fullled by R&D centers, 57 projects fullled by engineering research centers and 54 projects fullled by regional research centers [40]. Scientic and technological development of a country is impossible without scientists and engineers. To solve these problems it is necessary to have highly qualied professionals, and to develop the creativity of young people. Therefore, the government decided to provide nancial support to universities prioritizing scientic research. Many of the largest

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universities in South Korea responded to the call and carried out considerable reforms for transformation into research universities. The Korean Institute of Advanced Science and Technology is a good example of a research-oriented university. Due to its transformation, the university was provided with preferential state funding, and hence was able to enroll the best students in the country. Rapid economic development in South-East Asia and the appearance of new dynamic countries such as China is forcing Korea to renovate its National Innovation System. South Korea makes every effort to play an active role in the development of science and technology at the world level. To achieve this goal, the Ministry of Science and Technology is developing a more balanced innovation system, encouraging cooperation and competitiveness within tripartite partnerships of industry, research and governmental agencies. Taking into account the new landmarks, the government plans to promote regional innovation clusters and, as a consequence, to facilitate a balanced economic development nationwide by moving public organizations and research institutes into the regions. It is expected that creation of regional clusters will raise the role of research institutions. In 2004, the Korean government identied 10 prospective industries: I) biotechnology, pharmaceuticals and organs; II) consumer electronics; III) intelligent design; IV) new-generation semiconductors; V) new-generation batteries; VI) digital TV and radio broadcasting; VII) new- generation mobile communication; VIII) intellectual home networks; IX) digital software products; and X) motor vehicles of the future [40]. An important aspect of further innovative transformation of South Korea is its basic action plan aimed at modernization of the management system of scientic-technological development envisaging such measures as management of research investments, raising public awareness of science and technology, development of human capital in science and technology, promotion of technology transfer and commercialization, and technology globalization. It is the guideline document for achieving the targets stated for 2025, and it acts as a complementary document to the ve-year plans for scientic, technological and innovation development. Its main strategic approach is to invest into science and technology based on the «selection and concentration» principle, through efcient use of

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creative thinking of scientists and engineers, connection of the National Innovation System with the global innovation system, deeper public understanding of science and technology development, and efcient application of the results of scientic research and technological development. In order to implement the plan there a «road map» was drawn up, describing targets, paths toward and timing of their achievement, as well as the expected results. The plan was further corrected, and in the new version higher status was given to science and technology, providing a national perspective for the Korean society and contributing to the development and competitiveness of the nation. The main concepts in the revised document are the development of the national science and technology innovation system, the choice of and concentration on the strategic objectives for scientic and technological development, strengthening of the engines of prospective progress, systematization of regional innovation capacities, creation of new jobs, and attraction of the public to the distribution of scientic and technological knowledge. The long-term vision of scientic and technological development for the year 2025 includes the following aspects: transfer of the leading role in the National Innovation System from the government to private companies; higher efciency of R&D investment; compliance of the national R&D system with international standards; and correspondence of new technologies to the challenges and results. To summarize, it should be noted that the South Korean National Innovation System has made a considerable contribution to the development of the nation. Though the system has some disadvantages, the government is making every effort to build a more efcient system.

4.9 Japan Japanese innovation system was formed as a natural result of historical processes. The beginning of the XX century was a difcult period for the country marked by the military operations in China and Korea followed by the Japan’s participation in World War II during which the tragic events took place – atomic bombing of Hiroshima and Nagasaki. Exhausted from wars and isolation, Japan opened up to the western world and enthusiastically adopted innovations in science and industry. Acting

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with maximum efciency, the Japanese tried to bring every aspect of life to perfection and strove for welfare, developing production of automobiles and computers, inventing new technologies, transforming social aspects of life. It was the basis for creation of the modern Japanese system of education and science generating new knowledge and technology. The Japanese economic miracle is a historical phenomenon of intensive development of economy which started in the mid-1950s and continued till 1973 (oil crisis). During that period the economy of the country grew by 10% annually. This rate was the highest among the developed capitalist countries of that time. It was explained by low taxes and intensive development of new technologies by Japanese researchers. Thanks to the discoveries and investigations of Japanese researchers the country very quickly became one of the most powerful players on the world market. To recover the scientic and technical sector of the country from devastating consequences of World War II, the government used the strategy of technology purchases. Had it decided to develop science and technology on its own, it would have spent enormous expenditures and, most importantly, it would have taken many years, seriously delaying the economic recovery. In the 30-year period, starting from 1949, Japan purchased 34,000 licenses and patents from many countries. They were creatively improved by the Japanese and quickly introduced into production. At rst, the owners of western rms did not see Japan as a potential competitor and therefore sold their patents and licenses for peanuts. As a result, the cost of creation of Japanese scientic-technical capacity was only 78 billion USD, and the researchers were able to do their part of job very quickly. The overall efciency of this strategy is estimated as 400%, and up to 1,800% in some industries. In the 1950s – 1960s the scientictechnical policy of the country was re-oriented toward selective development of basic industries and light industry. As a result, in the 1960s Japan formed a nationwide system supporting promising R&D and technologically intensive sectors. At the end of the 1960s the awakened western countries stopped scientic-technical feeding of their Japanese competitor, however, by that time Japan had already established its own R&D base [43]. In 1970 the Ministry of Foreign Trade and Industry, which was re-


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sponsible for orienting the economy toward occupation of the niches in the external markets and developing Japanese export potential, prepared a concept “The Main Directions of Trade and Industry Development in the 1970s”. It envisaged drastic shifts in the economy, moving the focus from the development of funding-intensive products to the R&D intensive. In 1972 the government headed by Prime-Minister Tanaka adopted the Plan of reconstruction of Japanese archipelago and prepared “The Main Course of Long-Term Policy in Science and Technology”, which was implemented within the framework of three medium-term programs. In 1986 the MFTI prepared the fourth 30-year program, until 2015, which included 17 priorities: 1) substances, materials and their processing (synthesis of new materials and manufacturing goods using such materials: high-temperature superconductors and semiconductors, structure and corrosionproof materials); 2) information, electronics, programming (creation of integrated information and communication networks, superconductors, indicators, robotics etc.); 3) biology (creation of memory devices using microorganisms, increasing efciency of photosynthesis etc.); 4) space; 5) oceanology; 6) geology; 7) agriculture, forestry, shery; 8) mineral and water resources; 9) energy; 10) production and manpower; 11) health and healthcare; 12) consumer services, education, culture; 13) transport; 14) communications; 15) urbanization and construction; 16) environment; 17) protection from natural disasters. Today, Japan is one of the world leaders in economy, science and technology. The Japanese science occupies top positions in new technologies. The country has learnt from the past experience and uses the majority of its discoveries and studies to improve the quality of life of people and to protect the environment. New automobile engines not polluting the environment are invented, robots and efcient medications making lives of disabled people easier are developed, energy resources and metals are used sparingly and are recycled. The current attitude of Japan to science and research can be called the path to the future. R&D expenditures make 3.15% of the GDP compared to 2.21%, on average, in the G7 countries; the absolute number of researchers in Japan is 675,330 (401,838 is the average in the G7), and there are 5,287 researchers per 1 million of population in Japan, while this number in the G7 countries is 3,411 [44].

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The results of scientic activity in Japan adequately correspond to the country’s scientic-technical potential. For example, Japan is an absolute leader in the number of patents registered by the Patent and Trademark Ofce of the United States, both in the total number (35,468 compared to 22,099 – the average in the G7 countries), and as a ratio to population (278 per 1 million of people and 146 per 1 million people, respectively) [44]. However, we must take into account the fact that this comparison does not indicate the quality of patents. It is well-known that a large percentage of patents for insignicant inventions belongs to Japan, while the number of patents for key inventions is relatively low [45]. As the website of the Association of Japanese Studies noted, the relatively low number of scientic and technical publications (470.74 compared to 612.98 per 1 million people) while the number of researchers in Japan is large is explained by the fact that the majority of them work in private companies and their task is to ensure commercial implementation of innovations, and not to write scientic works (most of them simply do not have time for that). Being the traditionally largest importer of technologies, Japan was forced to pay considerable sums as a royalty and license payments, which exceed the average indicator of the G7, both in absolute numbers, and as a ratio per 1 million of population (13.64 billion USD and 106.76 million USD compared to 8.99 billion and 95.28 million, accordingly). At the same time, Japan’s revenue from royalty and license payments exceeds expenses. The country surpasses most G7 countries in this respect: 15.70 billion USD and 122.86 million USD per 1 million people compared to 13.45 billion and 107.69 million, accordingly. This fact shows that Japan passed the stage of simple borrowing of technology and, having developed its own scientic-research base, became one of the largest exporters of technologies [44]. Conditions for the development of innovation activity are an important component of innovation capacity, and Japan occupies top places in the world in this respect. For example, the level of brain drain from the country is relatively low which in its turn is an evidence of quite favorable conditions for researchers. One of the main conditions of active innovation activity is intensity of competition between national companies, because competition forces


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the companies to conduct an active innovation policy. The more intense the competition between the companies in the country, the higher their incentives for innovations. Since the mid 1990s the cooperation between universities and private companies has been intensifying in Japan, which allows the companies to commercialize the innovations generated in universities. Such cooperation considerably expands opportunities of the companies in the sphere of innovations and promotes orienting the young scientists toward research representing practical interest. At the same time, Japan lags behind the other G7 countries in such an indicator as accessibility of venture capital (3.9 and 4.56 on seven-point scale, accordingly). It is explained by the fact that, unlike other G7 countries, where small and medium enterprises (SMEs) and venture rms play a key role in innovation process, large companies are the main actors in Japan. SMEs usually have a more moderate role of subcontractors. Also the specics of Japanese mentality slows down the development of venture business characterized by the fear of failure and responsibility, that is why venture business with its high level of risk is not very developed in Japan [44]. We should also note an extremely low level of inow of foreign direct investments into Japan. The same is true about Japanese export of technologies. The high effectiveness of innovation activity is rst of all demonstrated by such an indicator as the share of high-tech goods in the total volume of Japanese export. In Japan this share is 23.7%, which exceeds the average level of the G7 countries 19.67% [44]. Another noteworthy fact is a high share of new technologies being commercialized by the companies, a very important and complex stage of innovation process. It is well-known that the majority of innovations and inventions, including very promising ones from commercial viewpoint, are left at the stage of development. Ability of Japanese companies to introduce and commercialize new technologies is very high. R&D capacity of production can be assessed using such an indicator as the value chain. The value chain is an agreed set of the types of activities which create value for the enterprise, beginning from the initial sources of raw materials to the suppliers of this enterprise and nished

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goods delivered to the end user, including servicing [43]. In other words it is a process of creation of the value of the goods or services which increases in direct proportionality to the R&D capacity of the enterprise, i.e., the higher the value chain indicator, the higher the level of the production technology. In Japan this indicator is high and substantially exceeds the indicator of other G7 countries [44]. State policy in the area of science and technology in Japan is characterized by high exibility and accounts for the domestic and international situation. It is dened by the long term forecast and programs, medium term (ve years) plans, and laws related to certain promising areas. Development of the science-technology policy is mainly conducted by Ministry of Foreign Trade and Industry (MFTI), and fundamental research is the responsibility of Ministry of Education (universities) and Science and Technology Department (state R&D institutes). Implementation of science-technology policy is done by ministries and agencies which are granted the rights to nance R&D using the state budget within the limits of allocated funds and also provision of tax and other benets. Ministries and agencies have special departments dealing with the problems of science-technology development. These ministries and agencies do not have administrative authority over private enterprises and direct the science-technology development using the budget funds for contracts and provision of tax benets. The private sector is the main investor in R&D in Japan, the government nances only 18% of the total R&D expenditure. Japan is the second in the world in R&D expenditure. Modern Japan has scientic and technology capacity allowing it to carry out a universal technological policy. There are the following bodies administering scientic and technological development of the country: at the level of the Head of the State – the Emperor; at the level of the Parliament – the Commission devoted to certain problems; at the level of the Head of the Government – the Prime-Minister; at the level of a special Ministry – Science and Technology Department (develops and implements the programs of fundamental research); at the inter-departmental level – Ministry of Foreign Trade and Industry (develops long term scientic and technology programs); at the industry level – industry specic ministries and agencies (develop programs of incentives (tax and budget)


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of scientic-technology development of priority areas of economy and promising areas of science-technology capacity). Ministry of Foreign Trade and Industry has the main responsibility for carrying out the policy in the area of science. The Government approves the programs prepared for the main areas of this policy, or adopts laws. Science and Technology Department develops and implements programs of fundamental research. State administration of the policy is done by industry specic ministries. The implementation mechanism is thoroughly developed and its basis includes economic legislation (budget, taxation etc.), laws on industry regulation (permanent regulation, forced specialization in the infrastructure areas, safety standards etc., and temporary standards, e.g. temporary preferred regime for priority industries etc.); laws on the status of ministries and agencies (distribution of the functions of general economic and industry specic regulation, establishment of the mechanism of inter-departmental coordination). According to the law, the ministries have the right to grant lower income taxes and accelerated amortization, low interest nancing using the state credit organizations, and to conclude contracts on state procurement, including for R&D purposes. Legal stimulation is done through the set of general economic laws, basic laws on science-technology development, and industry specic laws. Organizational stimulation is done through state planning of science-technology programs and activities of ministries and agencies. Economic stimulation is done through direct nancing using the state budget funds for programs and projects, provision of tax and customs preferences. Investments into science-technology development is stimulated by the lower rate of income tax (30%), provision of low interest long term loans for R&D in priority areas. The structure of R&D costs is presently the following: fundamental research – 13.6%, applied research – 25.1%, experimental design works – 61.3%. R&D is mainly performed by industrial companies (over 70% of the total volume of R&D), universities - 14.8%, state research institutes – 9.8%. For a long time Japan lagged behind developed countries in fundamental research and advanced technologies and used foreign licenses. The country spent over 10 million USD during the last 10 years, and the majority of licenses were purchased in the USA. The government supported the purchases and quick introduction into production.

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R&D nancing by the state and industry specic programs is done by ministries, Science and Technology Department, MFTI and the Bank of Japan. The rms can get preferential loans for promising activities with support of the ministries and using the funds of the Financial Investment Program (for a long term, up to 21 year, under low interest). Financing is done on the contractual base. Science-technology sphere includes three sectors (Picture 4.16):  State research institutes subordinate to industry specic ministries. Their activity is coordinated by the Science and Technology Department under the Cabinet of Ministers;  State universities subordinate to the Ministry of Education. They perform fundamental research having high theoretical importance;  Research organizations of the private sector (the majority) perform applied R&D. The private sector is the main source of R&D funding (up to 80%). According to the analytical information [46], the technology parks play a considerable role in the research &development in Japan. They can be divided according to their functions: Industry



Research organizations of the private sector, technology parks and cities State research institutes State universities



Fundamental research

Applied research

Production and processing

pilot samples


Picture 4.16 – National innovation system of Japan

Technical service


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scientic-research parks (41% of the total), created for introduction of innovations of the national research institutes into production; – scientic parks (33%), promoting creation of new high-tech enterprises; innovation centers (26%). About 70% of Japanese technology parks were established for supporting small and medium enterprises in regions, and 58% of their total number is oriented toward production of high-tech goods. About 73% of Japanese technology parks provide technical support, and 52% provide other types of support (e.g., consulting services, marketing studies, legal advice) to new rms and companies in the region. The government developed the following special programs for the development of the national technology parks: - “Plan of Development of Technology Parks and Cities” providing subsidies, low interest loans for venture business and lower payments for leasing premises and equipment.  “Plan of R&D Production Sites” providing for territorial concentration of regional productions and their unication according to specialization.  “Plan of Fundamental Research” promoting development of the enterprise at the early stages of its existence. The above programs stipulate the special role of the local administrations which have the authority to provide additional preferences to the participants, including exemption from local taxes, allocation of target subsidies and loans from the local budget. In order to attract foreign investors the Japanese government developed a system of preferential conditions. For example, investors planning to invest into scientic productions and technology parks on the Kyushu island (specializing in production of microelectronics, communication and computer technologies) get loans from the municipal authorities of up to 10 million USD under 1-8% with repayment period of up to 10 years (with grace period of 2 years). In order to stop further concentration of research in the cities and to provide support to the industrial enterprises located in the rural areas, the government developed a comprehensive program which implementation started in 1988 after the law was adopted on placement of key research

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institutions. It can be conditionally called the program of disseminating scientic knowledge. In reality it was a continuation of the famous Technopolis Project (1981), which was very successful from the point of view of enhancing university research centers, however was unable to ensure their links to industries in the regions. The program of dissemination of scientic knowledge was designed to remove this aw by organizing 23 scientic research centers in the rural areas. There is a recent trend of enhanced regulation of R&D nancing and increasing its share in the expenditure on fundamental research, and also Japan’s aspiration to carry out its own scientic-technology policy abroad. We can say with condence that concentration of efforts on introduction of new technologies combined with active industrial policy based on priority nancing of the most important industries became the basis of further economic development of Japan [48].

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184 Bibliography

1. . . Dynkyn, . . Dagayev (editors). On the threshold of the knowledge economy (world practice of scientic-innovation development). ., IMEMO RAS, 2004. 2. P. Khimanen, M. Kastels. The information society and the welfare state: the Finnish model. ., Logos, 2002. 3. L.N. Nekhorosheva. Innovation systems of the modern economy / L. N. Nekhorosheva, N. I. Bogdan. Minsk, BGEU, 2003. 4. V.V. Ivanov. Areas of high concentration of scientic-technical potential in the EU countries / V.V. Ivanov, B.I. Petrov, K.I. Pletnev. – M.: Skanrus, 2001. 5. A.A. Oreshenkov. Journal of international law and international relations. – 2006. – No.1. =990&Itemid=168 6. N.V. Shelyubovskaya. A new innovation policy of EU countries. http://confap. cpic. ru/upload/ conf2005/ reports/doklad_634.doc 7. State regulation of innovation activities will be improved through creation of technological platforms // Innovation management. – No. 6. – 2010. – p. 20-24. 8. Indicators of innovation activity of domestic enterprises are constantly behind similar parameters of economically developed countries // Innovation management. – No. 6. – 2010. – p. 18-19. 9. Innovation priorities of the state / A.A. Dynkin, N.I. Ivanova (editors) Institute of world economy and international relations, RAS. – M.: Nauka, 2005. 10. B.E. Orlov. Germany at the threshold of the XXI century // Russia and the modern world. – 2000. – No.1. – p. 64-77. 11. . A. Dagayev. Transfer of technologies from the public sector to the industries as an instrument of the state innovation policy // Problems of theory and practice of management, 1999, 5, P. 65-70. 12. G. A. Lakhtin, L. E. Mindeli. Difculties on the path to innovations // Herald of the Russian Academy of Sciences, 1998, 4, P. 306-313. 13. A. D. Korchaghin. Patent logistics / . . Korchaghin, V. Y. Dzhermakyan, Y. G. Smirnov. ., Rospatent, 2001. 14. A. Rubvalter. Poles of competitiveness for science. http://www. 2006-10-11/13_polusa.html. 15. V. V. Ivanov. Methodological aspects of formation of the national (state) innovation systems // Economic strategies, 2002, No. 6, P. 95-99. 16. A. Rubvalter. Poles of competitiveness. 2009-1202/11 france.html 17. 18. K. Prokshin. Discovered by technical reasons // Kommersant, appendix of Autsorting. – No. 41. – 10 March, 2005. 19. Faire gagner le Sud: un challenge d»equipe // Mediterannee. 11/04/2002.

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20. L»Atlas geopolitique & culturel du Petit Robert des noms propres // P., Dictionnaires Le Robert, 1999. 21. Jeunes chercheurs et entreprises partenaires pour innover. Guide des Aides Nationales // Ministere de la Recherche. – 2000. 22. V. Knyaginin, P. Shchedrovitsky. From growth to development // Expert. – No. 5. – 7-13 Febr., 2005. – p. 44-50. 23. Le petit Robert des noms propres. Nouvelle edition refondue et augmentee // P., Diction-naires le Robert. – 2001. 24. Research and development expenditure EUR 6.9 billion. (2009, November 26). Retrieved August 26, 2010, from http://www.stat./til/tkke/2008/tkke_2008_2009-1126_tie_001_en.html: http://www.stat. 25. M. Muravyeva. Finland: bid on innovations. http://www. innovation.aspx?CatalogId=223&d_no=12573 26. S.V. Emelyanov. USA: state policy stabilizing innovation competitiveness of American producers. Innovation strategy of the US government in the XXI century // Corporative management. 27. Code of Federal Regulations. – U.S. Gov. print. off., Wash., GPO 1996. 28. Thom Rubel, Scott Palladino. Nurturing Entrepreneurial Growth in States Economies. NGA, Wash., 2000. 29. Michael E. Porter, Debra van Opstal. U.S. Competitiveness 2001: Strength, Vulnerabili-ties and Long-Term Priorities. Council ob Competitiveness. 2001, p. ii. 30. Statistical Abstract of the United States. 1997. p.544, 545. 31. China Statistical Yearbook on Science and Technology. 32. Global innovations in China. 33. N.V. Chikin. The Chinese innovation system: main peculiarities and characteristics. 34. A. Lukin. Chinese policy: high technologies and socialism. http://www. izvestia. ru/ comment/article3109694/?print 35. M. Zavadsky. Initial accumulation of technologies // Expert. -2012.–No.12. p. 30-32. 36. Kim L. 2001. Crisis, National Innovation, and Reform in South Korea., Working Paper, MIT.s Center for International Studies. Available on-line http://web. mit-japan/www/Product/ WP0101.pdf. 37. IMD (Institute of Management Development) 2003, World Competitiveness Report Lau-sanne, Switzerland. 38. Suh J.H. 2000. Koreas Innovation System: Challenges and New Policy Agenda., Discussion Paper Maastricht: Institute for New Technologies, No. 2004-4. 39. Yim D.S., Song W.J., Cho H.H. and Song I.Y. (2003), .The Restructuring of Government Research Institutes and Their Performance Factors: Korean Experience,. Portland International Conference on Management of Engineering and Technology 2003, Portland, U.S.A, 2003.


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40. Sak John Kim. Policy of transfer of Korean technologies. Proc. of abstracts and reports of speakers of the Innovation congress. – Astana, 2010. – p. 351-363. 41. Deok Soon Yim. Korea’s National Innovation System and the Science and Technology Policy. 42. Kim Y., Lee B. and Lim Y. 1999. A Comparative Study on Managerial Features Between Public and Private R&D Organizations in Korea: Managerial and Policy Implications for Public R&D Organizations., International Journal of Technology Management. – Vol. 17. – No. 3. 43. Bon Jin Cho. The role dynamics of the IKED, government agencies, supporting institutes and incubation centers in Korea. Proc. of abstracts and reports of speakers of the Innovation congress – Astana, 2010. – p. 295-312. 44. Science in Japan Science in Japan. 45. N. Maslennikov. Methodology of «assessment of knowledge» and the Japanese innovation potential. metodologija-ocenki-znanii-i-innovacionnyi-potencial-japonii.html 46. Development Bank of Japan. Research Report. – 53. – . 7. http://www. 47. Experience of creation of technology parks in the countries of Asian-Pacic region. 48.

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CHALLENGES AND HORIZONS FOR INNOVATION DEVELOPMENT IN THE REPUBLIC OF KAZAKHSTAN 5.1 Present-day status of innovation development in Kazakhstan This phase of innovation development in Kazakhstan can be characterized as a transition from scientic conceptualization of innovation development regularities and challenges, to the systematic and time-phased process of building a national innovation system. Kazakhstan has dened its own innovation development model and designed mechanisms for innovation activities, nancing and commercialization of innovation projects (Figure 5.1). The Committee on Science under the RK Ministry of Education provides base nancing for fundamental and applied research conducted by R&D institutions and universities. The JSC Science Fund (SF) and JSC National Innovation Fund (NIF) support research and development activities that have matured to the stage of experimental prototyping. The NIF deals only with engineering designs. All other development institutions and second-tier banks are oriented at manufacturers, i.e., small innovation businesses, which can produce competitive goods and are responsive to changes in the market [1].

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Thus, relevant institutions have already started functioning at every stage of the innovation life cycle to support innovative development in Kazakhstan.

Committee on Science Base Financing

JSC Science Fund Project Financing


Scientific idea

Development institutions Second tier banks

National Innovation Fund


Fundamental research

Research organisations, universities


Applied research

Research and development

Engineering research

R&D teams, factories, small technology businesses



Technical design

Manufactu res

The finished product

Enterprise production, stock exchange


Fig. 5.1 – Innovation process ow chart

To develop national information resources for research and technology in the country and provide access to domestic and world information resources for corporate and individual subscribers, the National Scientic and Technical Information Center has been established, and will form an integral part of the national innovation infrastructure. Technology parks already exist in a number of cities (Ust Kamenogorsk, Almaty, Shymkent, Uralsk and Karaganda) which qualify for such parks and have adequate educational, research-and-technology and production potential. According to data provided by the RK Statistics Agency, the 2009 innovation activity level in Kazakhstan was 4.2% (as compared to 4.0% in 2008) [2]. Innovations were introduced by 399 enterprises. The city of Almaty is a leader and accounts for 37.8% of the total number of innovative enterprises. It is followed by the Karaganda Region (14.0%), East Kazakhstan Region (11.8%), Pavlodar Region (4.8%), Aktyubinsk Region (4.0%) and South Kazakhstan Region and Astana (3.8% each) (Figure. 5.2).

Ka h-



rn ste Ea


na ta

aâ sk sk n ta hs za Ka





k ns







an M


Volume of innovation output (million KZT)



v Pa


th or




y na

nd ga



y yz

sta Ko

s We




tan mby a Zh


k za






olin ktobe maty A Al


sta n

Innovations: from idea to implementation

Innovation activity rate (%)

Fig. 5.2 – Innovation activity by administrative region of Kazakhstan

At present, the country’s innovation infrastructure includes 9 technology parks, 5 national laboratories, 15 regional laboratories and 9 venture funds. Three engineering design bureaus already exist and it is planned to build others, such as a transport-vehicle engineering unit (city of Astana), mining and metallurgical machinery design (city of Ust Kamenogorsk), oil and gas equipment engineering bureau (city of Petropavlovsk), agricultural engineering bureau (city of Kokshetau) and instrument-engineering bureau (city of Almaty) [3]. To facilitate further investments, the Alatau innovation technology park in the city of Almaty has been designed as a free economic zone giving preferential tax and customs tariff treatment to the companies operating within the park area. The Aksai industrial park will be one of the rst oil and gas service technology projects to be deployed in the West Kazakhstan Region. It is intended for producing automated control systems, modular equipment and telecommunication systems. In addition, it will serve as a center for new welding technologies conforming to the international standards [4]. Kazakhstan has started the process of connecting to the European technology transfer network, which will give opportunities to Kazakh-


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stani enterprises to access European technologies, while technologies designed in Kazakhstan will nd their way to overseas intellectual property markets. Domestic science is a main source of innovations in the country, and its status is characterized below:  Research funding increased from KZT16.9 to KZT20 billion (or by 18%) during the period of 2007-2010;  There are more than 400 scientic organizations;  R&D institutions and universities employ around 22 thousand Doctors and Masters of Science;  Over 400 Kazakhstani scientists have taken training courses abroad;  27 major international projects are being implemented in the country;  Around 6,500 scientic papers have been published. In 2010, the number of international publications of Kazakhstani scientists and citation ratio went up three-fold [4]. Experts give the following information on the stafng of scientic institutions:  The period of 1991-1999 saw a 2.6-fold decrease in the R&D staffing level (from 40,900 to 15,800 people), while during 2000-2009 the stafng level grew by 7%;  In 2009, there were 988 scientists/researchers per one million people in Kazakhstan, which was signicantly lower than in Russia (3,319 researchers per milliion in 2007), Finland (7,832), Iceland (6,807), Sweden (5,416), Japan (5,287), the USA (4,605) and Australia (3,759);  In 2009, 115 institutions provided training for candidates for a master’s degree, 102 institutions had postgraduate courses and 42 dealt with postdoctoral research;  Though younger people have joined the cohort of researchers in recent times, the ‘ageing’ trend among R&D staff still remains [5]. The legal framework for innovation development in Kazakhstan is the RoK Innovation Support Act of 2006, which was amended in 2009 to enhance the authorities of such development institutions as the Engineering and Technology Transfer Center, Science Fund, KazAgroInnovation, and National Innovation Fund. Further development of innovation processes in Kazakhstan brought the understanding that new challenges had to be addressed. Thus, the RoK Act titled On State Support of Industrial and

Innovations: from idea to implementation


Innovation Activities was passed in January 2012. The Act sets out a legal, economic and institutional basis that provides incentives for innovationrelated activities and denes measures for state support. In particular, the new legislation is aimed at encouraging industrial and innovation actors to develop national high-tech competitive production capacities and improve their export potential. This Act also species competence and authorities of the Government, other authorized agencies and innovators. It is noteworthy that the new Act stipulates that RoK regional executive bodies shall also have a sphere of duties related to providing support to industrial and innovation development, which should be harmonized with the national development institutions and national planning agencies. The new Act is aimed at getting results from innovations; therefore, it species components and functions of industrial innovation infrastructure and names instruments and funding mechanisms for the state support to be provided to innovation-related activities. Thus, elements of a systematic legal framework are emerging in Kazakhstan, which are necessary for carrying out every stage of innovation-related activities and providing measures of state support. In addition, a legal and regulatory framework is being established to govern registration of innovative companies and relations among the participants of an innovative infrastructure [6]. In order to establish market-oriented research centers and develop a competitive knowledge market in Kazakhstan, leading universities of the country are being transformed into research universities. These universities will help to concentrate nancial, material and staff resources for addressing major research and technology challenges. Recent legislation, namely the RoK Science Act and the RoK Education Act (as amended), stipulates further development of tertiary education. New types of university have started appearing in Kazakhstan, termed national research university, national higher education institution, research university, university, academy and institute. Research universities are intended for implementing the ve-year development program approved by the RoK Government. In addition, they can draw up their own curricula based on the results of fundamental and applied research in order to generate and transfer new knowledge. An important mechanism for building the Kazakhstani innovation infrastructure is the opportunity to create innovation and education consortia, which will be supported by law. Such consortia will be a type of


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voluntary equitable association that will function based on joint operation agreements whereby universities, research institutions and other legal entities working in production area will pool their intellectual, nancial and other resources for the purpose of providing high quality training. Such innovation and education consortia will help to integrate education, science and production by connecting universities with R&D institutions that will be supplying new knowledge to faculty and students. A research management model stipulated by the RoK Science Act has become a signicant step forward in developing the national innovation system. The model enhances the role of scientists in decision-making, eliminates needless bureaucratic barriers, and species sharing of strategic, administrative and expert powers. In addition, it gives more authority to the Supreme Scientic and Technical Committee instituted under the Government of Kazakhstan. The Committee will identify research priorities and arrange disposition of funds. National Research Councils composed of both Kazakhstani and foreign researchers will play a key role in nalization of decision-making on implementing research projects and programs. Decisions made by the National Research Councils shall be binding for the authorized agencies, namely: the RoK Ministry of Education and Science, Ministry of Health, Ministry of Agriculture and other ministries dealing with research programs. The role of the Scientic and Technical Peer Review Agency is strengthening. The Agency has been instituted under the National Scientic and Technical Peer Review Center (NSTPRC) and shall hand over its peer review results directly to the National Research Councils [4]. Thus, the scientic community now has a say in decision-making. The new system will simplify research project review and appraisal procedures, bail research activities out of the purview of the RoK Government Procurement Act, limit formal approach and help to avoid bureaucratization. As a result, research project selection procedures will become more objective and relevance of the research will improve. As suggested by RoK President Mr. N.A. Nazarbayev, the RoK Science Act species new funding mechanisms for research activities. Forms of nancing to be used are grant, base and targeted nancing. The grant system makes it possible to provide funding for research conducted not only by R&D institutions or universities, but also by in-

Innovations: from idea to implementation


dividual scientists and their teams. Base nancing is a mechanism used by R&D institutions and universities to cover costs of their infrastructure, utilities, administrative expenses, payroll, information support, etc. Program-targeted nancing will be used to solve strategic tasks set by governmental programs and other high-level regulatory documents [7]. Summarizing, task-specic measures taken by the state to facilitate innovation development have brought about cardinal changes in the national innovation system of Kazakhstan. These changes will lead to improved ‘institutional design’ of the innovation process. Centers of excellence have been started in the country. They include research universities, applied research institutions, design ofces, business incubators and technology parks. All of these create preconditions for developing small and medium-sized high-tech businesses, which will act in close cooperation with venture funds and development institutions. Centers of excellence can become regional foci of innovation development in Kazakhstan. A model linking a university and technology park was suggested by the East Kazakhstan Technical University [9]. It can serve as an example of transforming a university into the backbone component of a regional innovation infrastructure. The University started introducing changes in the overall goal of university education with the understanding that the research component must be activated. To facilitate students’ involvement in innovation projects, a business incubator named Bastau has been set up, which can serve to launch successful projects into the commercialization stage by establishing science-intensive small businesses. The university curricula have been revised to include innovative and entrepreneurial approaches. New disciplines have been included in the curricula, such as Innovation Activity, Fundamentals of Research Work, Patent Practice, Fundamentals of Standardization, Assessment of Intellectual Property and Intangible Assets, Intellectual Asset Management, Technological Progress and Innovation Activity, etc. In 2003, for the rst time in its history Kazakhstan started training master’s degree candidates in the category Innovation Entrepreneurship. This became possible due to close cooperation with the Hoseo University of South Korea. The innovative East Kazakhstan Technical University has become a platform for building up a regional technology park, which is the rst


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in Kazakhstan and has been named Altai. The technology park has 16 laboratories and production units with a very favorable environment for training students and for their work on innovation projects. Ongoing university research projects include Ceramic Materials, Uranium, Titanium, New Building Materials, Mineral Resources and IT Projects. In the future, the Altai Technology Park will grow into a science city, that is to say an independent and locally integrated complex of science, highly developed production capacities and education. Today’s vision is that an effective interaction of science, industry and nancial institutions can be achieved through creation of educational/research/innovation/ production complexes (ERIPC), which are seen as an inter-sectoral integration of training, research, innovation, production and nancial institutions that voluntarily come together to form an association on the basis of either independent legal entities or as a merger. Thus, a regional innovation system is being built in East Kazakhstan, with the innovative university being its base component (Fig. 5.3). At present, the Nazarbayev University in Astana is considered to be a breakthrough in the area of education, research and technology integration. The University has been established due to close cooperation with major foreign universities and research institutions. As anticipated, the university will become the main generator of innovations and new technologies in Kazakhstan, aiming to eventually take its place among the best educational centers in Eurasia. To this end, it is planned to employ graduates of the Bolashak program, closely cooperate with intellectual schools, and build up technology parks around the university. In order for students to get involved in research without traveling abroad, the following facilities are already available at the university: the Center for Energy Research and Bioscience, as well as the International Interdisciplinary Instrument Center having unique equipment. The latter will be used as a base for setting up laboratories of chemometry, infrared spectrometry, bioceramic, biostimulators, etc. The Nazarbayev University has taken on the ambitious task of being included in the prestigious Shanghai ranking of universities by 2020. Hence, the University strategy should serve as a roadmap for the university elite of the world [8]. Summarizing the results of innovation development of the country over the past two decades, the following changes can be highlighted:

The State

Venture capital funds Innovation Инвестиционные Венчурные Investment funds Инновационные fond фонды фонды фонды

Science Фонд науки foundation

Fundamental science

JSC АО “Востокмаш VostokMash завод” Zavod

LLP ТОО “Казахмыс” KazakhMys

LLP ТОО трейд” AlTrade





“САТИМ” SATIM др. andи others

Research laboratories едовательские лаборатории






Pilot production

Fig. 5.3 – Model of a regional innovation cluster

Applied science











JSC АО KazZinc “Казцинк” Civil Строительные Construction о Companies, и др. etc.

Technical support



West Kazakhstan University ВКГТУ им. Д.Technical Серикбаева

Лаборатория IRGETAS инженерного Engineering профиля Laboratory “ИРГЕТАС”





А Л L IЬ Я A Н N С C “ E ”

“ А Л L Т А IЙ


Innovations: from idea to implementation 195

Galym Mutanov


Universities have been undergoing qualitative changes and have started to transform into entities that really integrate education, science and business (becoming regional innovation clusters), with the goal being to further develop innovations at all stages of the life cycle starting with generation of ideas and up to commercialization. Stafng of R&D has been improved step-by step in order to nd world-standard skills. There has been an ongoing process of enhancing legal, administrative and economic support provided by the government to innovation development, with the goal being to intensify activities of all components of the national innovation system, such as technology parks, business incubators, technology transfer centers, high technology zones and venture funds. 4. Priority research areas have been identied and supported, which are in line with world trends and make use of the resource advantages of the country such as intellectual potential, geographic situation and traditional industries. 5 . Work is ongoing in developing new innovation funding mechanisms in order to improve their economic effect.

Knowledge use in economy – 2009 Norway


GDP per capita

France United States Japan Canada Germany Great Britain Oman Kazakshtan Jamaica Mongolia

Russia Malaysia Turkey Armenia


Innovations: from idea to implementation


Macroeconomic trends of innovation development in Kazakhstan show that the country has achieved a certain progress in building up all components of the national innovation system. The research potential has been mobilized and is being enhanced, new legal instruments are being designed to nd sources of nancing and improve funding mechanisms, and effectiveness of innovation management is being improved. However, World Bank experts are of the opinion that the country has not yet demonstrated any signicant progress in improving efciency of its innovation system. As per the macroeconomic indicators, Kazakhstan is placed among the median-income countries, while the Knowledge Economy Index (KEI) shows that Kazakhstan is comparable with Mongolia and Kenya, where household income is much lower. Judging by KEI, Kazakhstan signicantly lags behind the more developed countries of the world, holding 72nd place following Moldova (71), Panama (70) and Georgia (69); though it is doing better than Jamaica (74), Colombia (75), Lebanon (77) and Peru (78). However, it should be noted that innovative development of Kazakhstan is on the rise, given that this index went up by 8 points in 2009. The Innovation Index is another important indicator. It also shows that Kazakhstan is lagging behind developed economies, being approximately at the same level as Russia and Chile and a little bit ahead of some post-Soviet countries.

GDP per capita

United States Finland Sweden Japan Great Britan

Latvia Kazakshtan Turkey Chile Angola Russia Ukraine Mongolia Zimbabwe Innovation index1


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[Annotations in the gure (from left to right and from bottom to top): Zimbabwe, Mongolia, Angola, Kazakhstan, Ukraine, Russia, Chile, Turkey, Latvia, UK, Japan, Sweden, Finland, USA]. To understand why innovation process in Kazakhstan is slower than desired, let us review expert opinions that give an analysis of factors hindering knowledge economy development in the country. At the request of the Kazakhstan National Innovation Fund, Columbia University School of International and Public Affairs collected relevant data from various information sources and conducted an opinion survey covering government ofcials, academic institutions, private businesses, Kazakhstani businessmen and multilateral institutions. A thorough analysis of the collected data helped to reveal a number of factors hindering the innovation development in Kazakhstan [9]. Each factor has been evaluated from the point of view of its impact and ease of overcoming (Table 5.1). Foreign analysts are of the opinion that Kazakhstan does not have any system such as would be required to coordinate funding coming from various sources; and there is no system ensuring cooperation between public and private sectors. Such systems must be in place to ‘seed and cultivate’ innovations. Other barriers include nepotism, and the fact that local nancial institutions lend money only to large enterprises. These are factors that completely block any access of innovators, as well as small and medium-sized businesses, to much-needed capital and governmental budget funding. Table 5.1 Factors hindering innovation development in Kazakhstan

Impact level

Ease of overcoming



Post-Soviet culture



Tertiary education does not give any practical/ managerial skills





Poor physical infrastructure

Small domestic market/ nancial interest

Innovations: from idea to implementation Poor coordination within the machinery of government




Vocational training



Poor connections between governmental, business and R&D centers



Lack of understanding of the notion of innovation in the government and businesses



Weak nancial incentives





Weak mechanisms of implementation



Low level of trust in legal system



Low level of domestic competition/high level of monopolization



Bureaucratic barriers

The major problem of the innovation process in Kazakhstan is the huge nancial cost of transition from the stage of R&D to commercial production, which is explained by high cost of capital, high risks and limited funding due to the fact that the market of freely sold securities is underdeveloped. The experience of Western countries demonstrates the need for an integrated system of generating, evaluating and obtaining adequate nancial support for innovations. The experts note another important aspect – lack of personnel capacity to develop innovations. According to international ratings, the quality of higher education in Kazakhstan stands at 51st place worldwide, while innovation activity comes in 70th. In order to achieve economic success, the innovation activity in the country must, at least, reach the level of higher education. Although over the last ten years the higher education system in Kazakhstan has been growing, the growth has been only quantitative, in that the number of higher establishments increased to 177. However, there was no qualitative growth, not to mention training the specialists able to ensure the introduction of innovations and thus to promote economic development.


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Also there was a pronounced disparity in Kazakhstan between labor market demand and workers’ skills, especially in the technical sphere. On the one hand, the number of specialists with higher education considerably exceeds the number of specialists with vocational education. The number of the latter actually fell from 203,100 in the early 1990s to 89,600, and the number of students graduating from vocational schools decreased by 70%. On the other hand, technical specialists are irreplaceable during transfer and adaptation of technologies, and it is obvious that their numbers are inadequate. According to surveys of private sector representatives and investors in innovations, lack of labor with appropriate knowledge and skills is one of the major obstacles in their activities. The disparity of the labor market can be explained by imperfect shortterm and long-term forecasting of economic processes. Another reason, an even more important one, is rapid reduction in the number of vocational schools. This has led to the current situation in Kazakhstan where 43 regional centers do not have sufcient number of vocational institutions. At the same time, it is well known that vocational education considerably inuences the innovation activity in the country. Modifying innovations which suppose introduction of slight changes into already existing projects can, as a whole, cause a larger direct impact on innovation growth than introduction of completely new technologies obtained through R&D. Moreover, international practice shows that innovation development based on modifying innovations has, to some extent, replaced the traditional model of innovation development based on scientic research. Because the main part of modifying innovations is performed by the workers themselves, accessibility and quality of vocational education become key factors for innovation development. Legislation related to investments in innovations also needs improvement. Despite certain formal guarantees given to both domestic and foreign investors and enhanced protection of intellectual property rights, investors still believe that Kazakhstani legislation is a serious obstacle to innovation process and private investments in the innovation sector. For example, let us compare taxation policy in natural resources and innovation sectors. The following tax incentives are given to subsoil users in Kazakhstan:

Innovations: from idea to implementation


• lower rates of corporate income tax, value added tax and tax on production of natural resources; • automatic recovery of VAT debit; • less strict norms on calculation of the excess prot tax; • application of investment tax preferences to subsoil users. Compare the above to R&D taxation: • no corporate income tax exemption; • no value added tax exemption; • goods imported into the territory of the Republic of Kazakhstan to carry out research are fully subject to customs duties and value added tax. Obviously, such a taxation policy not only hinders development of innovations, it also prevents diversication of the national economy because it leads to consolidation of large businesses and major national nance around sales of natural resources, which bring high revenues without any investment in innovation. That is why the number of drivers – people interested in development of high-tech industries in Kazakhstan – is low as is, consequently, the number of innovation enterprises [13]. In general, Kazakhstani and foreign experts assessing the current situation in our country conclude that use of efcient mechanisms of support and introduction of innovations remains a weak link in the national innovation system. At the regional level, implementation of innovation policy in Kazakhstani conditions is complicated by absence of experience and favorable prospects. First, limited nancial resources of the local budget do not allow carrying out sector restructuring. Second, only few regions have research capacity sufcient for serious R&D. Technology parks established in some regions have not yet become the drivers of innovation development or instruments of unifying regional research participants. Development institutes, as main elements of the research sector, have not boosted integration processes. Functioning separately from each other, they have been unable to promote efcient use and commercialization of scientic research. In its turn, scientic research is now conducted in many separate organizations, e.g., universities, independent research institutes, former organizations of the Academy of Sciences, Parasat Holding, and research centers of large companies, and is not coordinated at the national level.


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According to foreign experts, a serious drawback in the development of innovations in Kazakhstan is absence of small and medium companies in innovation activities of key industries, such as extraction and production of natural resources, energy, metallurgy and agriculture. Thus, in conditions of global competition Kazakhstan is facing an urgent problem of more active development within the country of various levels of cooperation and integration between education, science, production and business. The role of the government is also very important, since it determines the strategic vector of innovation development and its legislative foundation, and coordinates interactions between the state bodies and industries. Kazakhstan needs a national innovation system in which all actors will understand their roles and will efciently operate in a changing environment.

5.2 Prospects of innovation development in Kazakhstan Systematic work is carried out in Kazakhstan so that knowledge becomes the driving force of progress and the source of new welfare. President Nursultan Nazarbayev tasked the Government with preparing a detailed National List of Scientic Innovation, which will be broken into years, objects and funding levels, taking into consideration the growth of government expenditure in the next three years. Starting from the end of 2012, the ministries will submit their programs for participation with business in development of science and innovation [14]. In addition, the Program of Innovation Development and Promotion of Technological Modernization in 2010-2014 will increase government expenditure on science and innovation to 1% of GDP by 2015, i.e., four times the current level. Also, a new model of remuneration of research workers is being elaborated, taking into account their status, work conditions and specics. A Technology Commercialization project has been launched jointly with the World Bank in order to use international experience and mechanisms of commercialization of scientic research in endeavoring to carry out such commercialization independently [9]. Because scientic achievements are the basis of creation and development of innovations, Nursultan Nazarbayev put the following concrete tasks to Kazakhstan researchers:

Innovations: from idea to implementation


• to ensure continuity in research and transfer of knowledge to youth; • to optimize the research institutions in order to save resources and establish a network of research universities; • to increase the share of Kazakhstani research publications in international publications and to develop domestic scientic information space; • to create a Kazakhstani website specializing in science and research; • to ensure practical implementation of intellectual property applications; • to include domestic fundamental science in international research, using achievements of our scientists in creation of powerful information systems on the basis of supercomputers, biotechnology and nanotechnology, new materials creation, food production, energy, medicine and space; • to ensure inow of investments into science from private business based on the “Business and Science – 2020” roadmap; • to prepare a new model of the national report on science in compliance with international standards; • to ensure integration into the international scientic community; • to foster a spirit in Kazakhstani society that is in tune with the country’s tasks of innovation development [3]. Based on the best international practice and having determined the real level of innovations in Kazakhstan, as well as the factors and reasons negatively inuencing their efciency, we will be positioned to take the next steps in our innovation development. Remarkably, the majority of our tasks are institutional in nature and this means that they can be solved as a result of consistent state policy in the sphere of innovation. And while at the national level we observe understanding of the need for transition to a knowledge economy since it is a necessity of our time, at the level of districts and at the micro level there is still lack of adequate mechanisms of activation of innovation development processes. Compare, for example, our situation with international practice, where companies achieve economically efcient and technologically advanced results and have R&D share in the produced goods of up to 20% or even higher, while in Kazakhstan this share does not exceed 2%. In order to overcome the innovation market gaps and re-orient innovation processes in the country toward expected results, we need sys-


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temic state support of a set of appropriate legislative, economic and organizational measures. Innovation development should be accompanied by consistent state policy in the sphere of education because, as we know from the US experience, the best and the most efcient new ideas are born in creative minds. Under the conditions of global competition, education is seen as the starting point of the social and economic progress of any country. Therefore personnel policy in the eld of creation and development of innovations in Kazakhstan must, at this stage, include the following components: 1. Modernization of the education curricula of higher and post-graduate educational institutions in order to offer new specializations allowing the graduates to not only creatively apply their knowledge, but also to develop and commercialize their own creative ideas. 2. Opening of business schools at universities devoted to innovation entrepreneurship and creation of high-tech enterprises, where special education will be provided to students and professors so that we have researchers able to work in the business environment. 3. Use of intellectual potential of graduates of the Bolashak state program to develop R&D intensive rms, thus ensuring transfer of new knowledge and technology in priority sciences, obtained in foreign universities, into the domestic economy. 4. Active international cooperation of our universities with leading research centers of the world on the basis of carrying out joint R&D, organizing “mirror” labs and inviting foreign professors and managers. 5. Better accessibility and higher quality of vocational education. The latter should be expanded to include advanced knowledge and technology, which will allow graduates to perform modifying innovations. In order to create an integrated and efcient national innovation system in Kazakhstan we need to implement the following organizational mechanisms which have already been a success in the most developed countries: 1. For the purpose of improvement of management of innovation development in the country and carrying out single-state policy related to research and technology we need to create an appropriate department similar to the Ofce of Science and Technology Policy in the Executive Ofce of the US President, or the Higher Council of Science and Tech-

Innovations: from idea to implementation


nology under the President of the French Republic. This will promote inter-sectoral and regional coordination of science, avoid duplication of research and determine priority directions of science with a long-term perspective. This measure will also allow simplifying the structure of research management and will ensure transparency of funding and activities of all organizations and responsible persons. 2. To clarify and determine in detail priority directions for development of new technologies which will be the most popular among Kazakhstani businesses in the medium and long term, we need to create several industry-specic working groups, similar to the British Government’s initiative, as a mechanism of governmental monitoring and consultation with specialists and experts. At the early stage the purpose of these working groups should be determining the most promising foreign technologies which will be transferred to Kazakhstan and used as a springboard to create our own innovations. It will be expedient to use the Chinese experience of transfer of foreign technologies which allowed that country to successfully pass all stages of accelerated technology development: • simple (pure) imitation; • innovative (creative) imitation; • imitative innovation; • independent innovation [15]. 3. In order to activate innovation development we need to complete transformation of the leading universities of the country into research and innovation universities. They should become active subjects of regional economy and intellectual centers of an innovation cluster. High technology zones should be developed on the base provided by regional universities and technology parks, which will become the driving force of economic modernization of the regions. Their structure should include research and design institutes using the material base of university labs of an open type, business incubators, advanced technology centers, venture funds, socially oriented enterprises and corporations closely interacting with the institutes of development and industries. Structures within this innovation cluster should, from the very beginning, be oriented toward income generation, and therefore we believe that research and innovation universities should obtain the legal status of joint stock companies, and scientic and other organizations – the status of limited liability partner-


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ships. Thus, the proposed reorganization of universities will ensure their international competitiveness. 4. In order to attract investments in R&D intensive sectors, it will be expedient to give FEZ status to high technology zones, with a number of tax and customs preferences. This will allow stimulating investments into high-tech businesses, transfer of advanced foreign technologies and establishment of joint ventures. 5. For the purpose of improving efciency of application of funds allocated by the government and invested by business into science we need to proceed from cost management to results management in the area of fundamental sciences, and to create innovation infrastructure in the area of applied sciences, thus allowing introduction of a public-private partnership. Technological modernization should be performed mainly by business. In this respect it will be appropriate to use Finland’s experience where the chief imperative of innovation policy was increasing the number of companies based on innovations and know-how, and also support of organizations engaged in research activity. The Finnish model of innovation growth is based on tripartite cooperation: universities, state enterprises and private companies, unifying the country’s research resources. In order to create necessary conditions for development of an integrated national innovation system, we need to form a systemic legislative base which will support all stages of innovation activity and measures of its state support, including protection of intellectual property [16]. That is why we need to amend the following laws of the Republic of Kazakhstan: “On Education,” “On Science,” “On State Support of Industrial and Innovation Activity” and “On Protection of Intellectual Property” so that they comply with modern international standards to a maximum extent. Regulatory-legislative mechanisms of development of innovations in Kazakhstan should also stipulate regulation of the following aspects: 1. Conditions for establishing subjects of innovation infrastructure to perform all stages of the innovation cycle, their functioning, hierarchy, relations and stimulation mechanisms. 2. Improvement of legislation in the sphere of intellectual property protection. The most urgent issues today are: • assessment of intellectual property costs and conditions of its inclusion in economic turnover;

Innovations: from idea to implementation


• participation of the authors in revenue sharing or granting them a share in joint stock capital, since they are the owners of intellectual property objects; • determining the size of the charter capital in the form of intellectual property objects; • patenting abroad. 3. Stipulating moral and material responsibility of the subjects of innovation activity for the results of their activity. In order to perform systemic assessments of innovation activity in Kazakhstan, we need to develop a system of target indicators, similar to the European Innovation Scoreboard. This will allow monitoring of the level of innovation development in the country, regions and sectors, and taking timely and adequate measures during the process of implementation of the innovation projects, and will allow organizing a system of management of innovation processes oriented toward expected results. Establishment of such “rules of the game” is very important for Kazakhstan at the modern stage in order to make engagement in innovation development an economically benecial activity. Only under these conditions will we be able to attract stakeholders and private capital to this sphere. Considering that the innovation market is a high-risk market, we need to provide indirect methods of stimulating innovation activity using the following measures which are of an economic nature: 1) introduction of tax deductions and preferences for subjects of innovation activity; 2) state co-nancing of start-up companies in high-tech industries; 3) stimulation of venture fund activities; 4) further development of the national stock exchange and various nancial instruments; 5) stimulation of license trading in intellectual property. On the other hand, the government should develop and support a competitive environment forcing entrepreneurs to introduce innovations, because competition is a natural economic mechanism, both forcing and rewarding introduction of innovations both at the enterprise level and in the country as a whole. Implementation of the proposed institutional and economic measures will allow orienting the state innovation policy in Kazakhstan toward


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provision of conditions for transformation of science and research into productive sectors of the new economy and development of scientic innovation activity via improvement of legislation, innovation management and diversication of funding mechanisms. Kazakhstan has approached the most important stage of innovation development, where we need to proceed from plans and intentions to the actual work. We need a clearly formulated state industrial policy providing for both creation of our own innovations and transfer of advanced foreign technologies. We need even more active measures to obtain access to new international technologies and ideas to ensure their wide diffusion among national companies. As noted by Nursultan Nazarbayev, in order to achieve a qualitatively new level of development, we need deep systemic modernization, which includes comprehensive solution of technological, economic, social, political and personnel problems. We can transform our country into an innnovation-type state through a well-built system of education and training of human captial for innovation economy, which will include all elements of stimulation and motivation of innovation activity. And all of these activities are well within our reach.

Innovations: from idea to implementation


Bibliography: 1. G. Mutanov, G. Abdykerova. Information system of assessment of innovation projects. Ust-Kamenogorsk: East-Kazakhstan State Technical University, 2010, 136 p. 2. Scientic and technical activities in the Republic of Kazakhstan in 2009: Statistical report. Almaty: Agency of the Republic of Kazakhstan on Statistics, 2010. 3. Speech of the President of the Republic of Kazakhstan Nursultan Nazarbayev at the Forum of Scientists of Kazakhstan. 1.12.2011 http://www.ako 4. Speech of the Minister of Industry and New Technology of the Republic of Kazakhstan A. Issekeshev during the meeting with representatives of Castle Oil and Gas Fields Services company. 5. B. T. Zhumagulov. Does the law establish new targets for science? Liter. 22.02.2011 6. Y. Suleymenov, N. Iskichekova. Dynamics of scientic-technical potential of the Republic of Kazakhstan in 2000-2009. Element – science and innovation. 2011, No.02(08), p. 24-29. 7. Law of the Republic of Kazakhstan “On State Support of Industrial-Innovation Activity,” 09.01.2012. 8. Law of the Republic of Kazakhstan “On Science,” 18.02.2011. 9. Speech of the President of the Republic of Kazakhstan Nursultan Nazarbayev at the ceremony establishing the higher Board of Guardians of Nazarbayev University. 10. G. M. Mutanov (editor). Transformation of the technical university into the innovation university: Methodology and practice. Ust-Kamenogorsk: East-Kazakhstan State Technical University, 2007, 479 p. 11. G. M. Mutanov (editor). Education. Science. Innovations. 2nd edition. UstKamenogorsk: East-Kazakhstan State Technical University, 2010, 226 p. 12. Analytical report “Stimulation of industrial innovations in Kazakhstan” prepared for the National Innovation Fund of Kazakhstan by a group of experts at the School of International and Public Affairs at Columbia University (USA): J. Bernston, F. Chadotsang, K. Dong, M. Gosh, K. Greenstein, Y. Vasileyo, F. Veks. 13. T. T. Paltashev. Problems of industrial-innovation development of Kazakhstan. Materials of the workshop at Kazakh State National University named after Al-Farabi. Almaty, 2011. 14. Speech of the Prime Minister of the Republic of Kazakhstan K. Massimov at the opening of the forum “Innovative Kazakhstan: A look into the future after 20 years of independence.” 15. M. Zavadsky. Initial accumulation of technologies. Expert. 2012, No.12, p. 30-32. 16. G. M. Mutanov. The problem of transforming the system of education and science into the key factor of creation and development of knowledge economy. UstKamenogorsk: East-Kazakhstan State Technical University, 2009, 40 p.

Galym Mutanov



In the modern world innovation activity is one of the main factors in the welfare of nations, augmenting the prosperity of countries occupying top places in the world economy. That is why it is very important, not only at the state level, but also at the individual level, to perform a drastic review of the role of innovations, especially now when the world is at the stage of implementation of exceptionally powerful technologies never seen before. Humankind may well be on the threshold of another change in technology patterns and quality changes in the vector of world innovation development, which will become the basis of the future global economy. In this connection our book, we hope, provides an opportunity to obtain systemic knowledge on the laws of innovation development and to become acquainted with the best international practice in the area of formulating innovation systems. Study of innovation development in the context of the theory of its life cycles allows us to form the conclusion, important for Kazakhstan, that the process of commercialization of innovations can be performed at any stage of its maturity: at the level of idea generation, at the level of its fundamental or applied research, and at the stage of design works. It is important that innovation be seen to represent an asset for society, with potential demand among consumers. The ability to create something new that is in demand today or to offer something new that will be in demand tomorrow, has allowed many leading world corporations and countries to achieve great success in converting new knowledge into real income. Another noteworthy conclusion made in this book draws attention to what seems to be a well-known truth: that in order to transfer to the

Innovations: from idea to implementation


economy of advanced technology we need an integrated system able to continuously generate innovations. At the same time, efcient innovation activity is impossible without new economic and territorial establishments (technology parks, business incubators, regional innovation funds, venture funds, venture rms), representing a full-scale infrastructure support of all life-cycle stages of innovation. Having analyzed the specicity of the innovation development in Kazakhstan we offer systematic measures for priorities and prospects of improvement for the national innovation system. Scientists and researchers in our country are facing particularly challenging objectives because according to the Order of the President Nursultan Nazarbayev, they will have to implement by 2020 the National Project “100 Kazakhstan Innovations.” According to the Head of the State, if at least ten out of 100 projects result in absolute innovations, we can speak of a great victory of the Kazakhstani people!

Galym Mutanov


Sci ence publicatio n

Galym Mutanov INNOVATIONS: FROM IDEA TO IMPLEMENTATION The book is published in the author’s correction Computer page makeup: G. Shakkozova Cover designer: G. Kurmanova

IB No. 6024 Signed for publishing 07.10.12. Format 70x100 1/16. Offset paper. Digital printing. Volume 17,2 printer’s sheet. Edition: 500. Order No.1263. Publishing house “Kazakh Universiteti” Al-Farabi Kazakh National University KazNU, 71 Al-Farabi, 050040, Almaty Printed in the printing office of the “Kazakh Universiteti” publishing house E-mail: [email protected], [email protected]