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Firmes, marchés financiers et innovation : un modèle anglo-saxon ?

Hungary: Transformation and Innovation in Medium- and Small-Scale Enterprises1

La Hongrie : transformation et innovation dans les petites et moyennes entreprises
András Blahó
p. 339-360

Résumé

Si la recherche développée en Hongrie est abondante, la circulation des connaissances entre le secteur de la R&D et le monde de l’entreprise y est insuffisante. Malgré la concurrence exacerbée, tant nationalement qu’internationalement, beaucoup d’entreprises innovantes ne tirent pas parti de la R&D développée localement. Les connaissances innovantes sont généralement acquises par d’autres voies – souvent par transfert à partir d’une maison mère étrangère – ou encore développées au sein de l’entreprise elle-même. Les firmes se préoccupent rarement de l’impact potentiel de l’acquisition de connaissances nouvelles sur leur chiffre d’affaires. La protection des résultats de la R&D est souvent inadéquate. Le dépôt de brevet est rare, et les parties engagées dans la vente, l’achat ou le transfert de savoir-faire ne concluent que rarement des accords garantissant la confidentialité des informations échangées.

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Texte intégral

  • 1  This article is based on a paper presented at the international conference « L’Economie de l’innov (...)
  • 2  A New Economic Mechanism was introduced on January 1, 1968.
  • 3  A detailed synthesis of the last fifteen years of economic transformation can be found in László C (...)

1If we base our reflection on the specific Hungarian way of economic development since the mid-1960s, we can observe that certain elements of profit-driven management have already been put in place2.  The real change, however, started after 1989. From this year on, it became obvious for all the governments that from wherever the influences come, the most important issue is not the how but rather the what. Modernisation became the key point, bringing renewed structural policy, a new extended role for private companies (privatisation too adopted the step-by-step approach rather than the so called voucher-privatisation in Slovakia, the Czech Republic, and partly in Russia), building up a body of flexible entrepreneurs, enhancing the role of knowledge, technology and innovation3.

The necessity for more intensive knowledge flow4

  • 4  In the international context, knowledge flow is often quantified as the mobility of people with hi (...)

2Despite a high level of research, knowledge flow from the Hungarian R&D sector to the business sphere proved to be slower than needed. Many innovative Hungarian companies even today do not rely on the local R&D capacities despite the fierce national and international competition. Innovative knowledge is usually acquired from other producers—often the foreign parent company—or developed “in-house”.

  • 5  G. Papanek and B. Borsi, “Knowledge flow between research units and companies in Hungary. Comparin (...)

3Taking into account that in the first half of the 20th century there were close relationships between Hungarian companies and research units, today’s poor knowledge flow dates from the 1950-1990 period, and  derives from the economic policy governance that artificially separated research and production. The favourable signs of turning back to the old (and good) traditions can be seen to some extent, underlining the actuality of opening possibilities of solving some problems. Several studies suggest5 that, on the one hand, the two equally poorly performing channels of knowledge flows in the past have now become asymmetric.  Flow from companies to universities intensified and accumulated innovation experiences are often used in education. On the other hand, restoring the backward direction of knowledge flow, a step needed for the efficient knowledge-based economy, also seems possible.

Strengthening the will to innovate

  • 6  For an excellent and critical appraisal of this issue see G. Papanek, P. Tamás, J. Ványai and E. V (...)
  • 7  Központi Statisztikai Hivatal (KSH), Kutatás és fejlesztés (előzetes adataok), op. cit. The diffic (...)

4For a Hungarian it comes as no surprise, but it is an undeniable fact that in the last one and a half decades there has been a constant gap between Government research and development intentions and deeds. This situation is a source of serious worry. Among the reasons can be quoted measures taken without serious prior studies, which were later cancelled, and the lack of continuity and transparency. All this was compounded by the constant changes in the territorial state administration system on top of a constantly redesigned institutional state science and technology set-up6. According to the latest official statistical report on R&D activity in Hungary, the share of R&D in the GDP was a meagre 0.95 % in 20047. This is well behind both the European average (1.94 %) and the unreachable Lisbon target (3 %). Let us be clear: the Hungarian R&D per GDP ratio is exactly half of the European Union average!  There are, however, even more difficulties to be named. The main problem, for example, is that while for state R&D expenditures Hungary is in the mid-range of countries, company R&D expenditures as a share of GDP are very low. In this respect the European Union average is 1.27 %, the Hungarian figure is 0.38 %. The Hungarian handicap compared to the European Union is fourfold.

5The reasons for the low R&D expenditure of Hungarian SMEs are very complex. Here we shall provide only some brief analysis.

  1. Size and structure of the enterprises. The ratio of middle-sized companies is small, though they have the largest innovative potential.  

  2. Activities of enterprises.  The ratio of enterprises in the service sector is no higher than in other OECD countries.  

  3. Mentality of enterprises. Local industries are very individualistic, not ready for co-operation, have a low level of communication abilities and weak marketing activities.

  4. Financing of innovation related investments. The financial institution system is segmented and information dissemination is not efficient.

  5. Innovation strategies and implementing organisations.  The innovation sub-system has not been developed yet.

6One and a half decades after the onset of economic and political transformation, the deficit in co-operation between science and the economy, the lack of diffusion-focused elements (mainly at universities) in the innovation system and the non-functioning organisations prevent the evolution of an effective innovation system that would be appropriate for a knowledge-based economy in Hungary. One way of transmitting scientific achievements attained in universities would be to establish more and more spin-off companies.

  • 8  Á. Bak, Kutatóműhelyekből kinőtt magáncégek (Private firms grown from research laboratories), Buda (...)
  • 9  European Commission, 2003.
  • 10  N. Buzás, “Organizational elements of knowledge transfers in Hungary”, in LENGYEL I. (ed), Knowled (...)
  • 11  Organisation of Economic Cooperation and Development (OECD), Analytical report on high-tech spin-o (...)

7The international literature talks about “spin-off” companies with respect to technology-intensive enterprises that were established by or in co-operation with higher education institutions, other government-financed research institutes or their employees8. Irrespectively of their features, the entrepreneurial spirit is particularly important in the formation of spin-off companies.  In terms of entrepreneurship, research shows that the European Union lags behind the United States9. While in the US, a talented researcher may attempt several times to establish her/his own spin-off firms, in Europe—Hungary included—only those individuals who do not find a decent job start new businesses 10. As several OECD investigations reveal, the number of spin-off companies and their ability to stay alive in the long run are important benchmarks of knowledge flow between research units and “industry”11. Notably, in the Hungarian economy, such companies rarely exist, and their number is not increasing fast enough, although there were many spin-offs established in 1990-1992 when the parent companies (or institutions) were in transition crisis.  Spin-offs or spin-off-like companies are exceptional among the Hungarian medium- and small-scale enterprises (SMEs).

  • 12  Központi Statisztikai Hivatal (KSH), Kutatás és fejlesztés (előzetes adataok), op. cit.

8As we have observed, the marketing of R&D should also improve in the Hungarian innovation system. Marketing theories have been saying for 30 years now that research should start from market demand, paying attention to the attributes of future products and technologies.  It seems, though, that many Hungarian researchers do not think about making business use of the results achieved. According to official statistics12, basic research weighs much more and experimental development much less in Government expenditures on R&D than in the developed economies.  There are few applied researches targeting their corresponding “industrial” sector. Patenting of the technological achievement is also less frequent than needed.

  • 13  According to some sources, this share is about a third of SMEs.  See G. Papanek and B. Borsi, “Kno (...)

9The corporate innovation efforts—which are exerted more frequently among the companies with foreign ownership—are also problematic in some respects.  Many innovative companies13 are engaged in implementing their own development ideas. Another problem is that the companies rarely look after the direct sales possibilities of the acquired “knowledge”, which may explain some of the poor returns.  The protection of R&D results is often inadequate.  Patenting is very rare. The parties—which sell, buy or transfer know-how—frequently do not conclude confidential information agreements.

Corporate demand for R&D in Hungary

  • 14  Several empirical studies and international comparisons revealed that Hungarian industries had alw (...)

10Corporate demand for R&D is rather poor in Hungary. Following the political changes in 1989-1990, innovation started to find its original role in Central and Eastern Europe. In the transition years, corporate innovation processes were focused on technology transfer especially from abroad14. It was not a surprise: in fifteen years approximately US $30 billion of direct foreign investment came to Hungary and by 2005 the share of foreign capital had exceeded 65 % in manufacturing industries and was over 50 % in other economic branches as well.

11An important feature of Hungarian corporate demand for R&D and innovation is that, despite economic growth, the corporate sector still prefers “importing” innovation from abroad instead of relying on domestic suppliers of R&D. As mentioned above, the R&D expenditures/ GDP ratio has been low throughout the transformation process. One of the main reasons was obviously the limited corporate interest in doing research: business enterprise research and development expenditure (BERD) has not risen above the threshold of 0.4 % of GDP since 1990.

12Why did business enterprise R&D remain weak during economic recovery? At the macroeconomic level, it was probably due to the lack of innovation policy, which is confirmed also by the distribution of all R&D expenditures showing structural problems. More than half of the finances for R&D comes from the Government, which supports almost exclusively state-owned institutions: 58 % of government R&D expenditure goes to state-owned research institutions, 37 % to the higher education sector and only 5 % to industry. The business enterprise sector has been financing its own research at a limited and stagnant level.

  • 15  See for more details the latest statistical survey, Központi Statisztikai Hivatal (KSH), A feldolg (...)

13Business research is therefore an enclave in the Hungarian economy and the vast majority of innovation is performed in the manufacturing industries. Agricultural research, which had a 20 % share of BERD in 1993 was substantially downsized by 2000, whereas the service sector seems to have stabilised. Nonetheless, research spending in manufacturing industry is rather monolithic in Hungary: the pharmaceutical industry realises nearly half of BERD (45 %) and 55 % of manufacturing industry research. Only three other sub-sectors of manufacturing industry account for more than 5 % of BERD: other machinery, electrical machinery and motor vehicle research. From the above data we can conclude that Hungarian firms have to rely on themselves in their research efforts; Government does not support business research enough. Moreover, business R&D is very fragmented although the pharmaceutical industry has a marked weight15.  

Innovation policy launched16

  • 16  Országos Műszaki Fejlesztési Bizottság (OMFB), Innovációs stratégia a versenyképességért (Innovati (...)
  • 17  Központi Statisztikai Hivatal (KSH), Kutatás és fejlesztés (előzetes adataok), op. cit, 4.

14Earlier studies already condemned the absence of Hungarian innovation policy. Frequent administrative and institutional changes did not favour a well-thought-through strategy in this respect either. The strategy, drawn up in 1998, called for a 1.5 % R&D share of GDP by 2002. The actual result was 1.01 %17 and since then there has been a steady decline.

15Several Governments, including the present one, have promised far-reaching measures in this field without lasting results. A number of changes to details of the current innovation strategy programme might be recommended.

  • 18  Nowadays, Hungarian researchers in the field are “only” able to present state-of-the-art reports, (...)

16First of all, the monitoring and statistics of innovation (R&D, technology transfer, mobility of human resources devoted to science and technology, etc.) should be reformed18. This is also required as Hungary is a member of both the European Union (EUROSTAT requirement) and of the OECD. The ex-post facto control of expenditures is necessary in the case of all given innovations. The return on spending should also be verified by the grantee with the help of sound calculations and bookkeeping. The strengthening of intellectual property protection is an important condition for a more intensive knowledge flow. We are convinced that as long as this problem in Hungarian business culture is not solved, any other measure motivating innovative business behaviour will be less efficient than it could be. Since many researchers and most of the companies are not prepared to protect their own intellectual property, the solution lies partly in education and further (re)training.

17The science and technology policy framework was defined in the 2002 Government Programme as an increasingly important government tool to promote the development of the society and economy. The Government defined four priority areas:

  1. an innovation-conducive legal framework,

  2. making Hungary attractive as an R&D site,

  3. enhancing the protection of intellectual property,

  4. increasing the sources for innovation in SMEs.

  • 19  National Office of Research and Technology, Research and development in Hungary, 2003-2004, Budape (...)

18When becoming a full member of the European Union, Hungary had to submit its National Development Plan (NFT), which it did in 2003 for the years 2004-200619. The focus of the Hungarian NFT is on convergence with the level of socio-economic development of the EU, which is in line with the primary aim of Structural Funds, namely to strengthen the economic and social cohesion and to reduce the development differences between member states and regions.

19All existing and planned R&D and innovation actions are organised according to three measures:

  1. Support of application-oriented co-operative research and technology development activities.

  2. Improvement of the conditions of research, technology transfer and co-operation at publicly financed and non-profit research facilities.

  3. Reinforcement of corporate R&D  capacities and innovation skills.

Small- and medium-size companies in the economy

  • 20  The population of the country is 10 million.
  • 21  The European Union average is 67 %.

20Not all small-scale activities were nationalised in 1949. On the contrary, craftsmen were active in all trades throughout the years of socialism. With the transformation, however, a “re-privatisation” took place, in which the huge, state-owned companies were dissected into smaller production units. Naturally, a large proportion of these privatised enterprises are SMEs. As a result, today, the number of privately owned enterprises in Hungary is more than one million20 according to the Firm Registry. Even the number of actively functioning enterprises is well above 850,000; hence in Hungary there are 10 SMEs per 100 inhabitants. This ratio is well above the average in the developed countries. The distribution of SMEs by sector is uneven: there are relatively more SMEs in economic services and internal trade. The territorial distribution shows an interesting picture: 39 % of SMEs are registered in Central Hungary (where Budapest is located), and only 9-12 % are situated in the six remaining regions. The SMEs per 1000 inhabitants ratio is 127 in Budapest, 57 in Northern Hungary and 87 in Western Hungary.  The rest of the regions show ratios between those of Northern and Western Hungary. These companies account for 66 % of total employment in Hungary21.

  • 22  The relevant data for the European Union are 29 and 19 %, respectively.

21The performance of the SMEs is substantial, indeed. According to estimates of the Central Statistical Office, about 42 % of GDP is assured by small-scale enterprises, another 15 % by medium-size companies22. Concerning the regional distribution of added value, however, there are substantial differences.

  • 23  Magyar Innovációs Szövetség, A magyar kis- és középvállalatok innovációs képességének továbbfejles (...)

22The size structure of Hungarian SMEs is not favourable. 64 % of them do not have any employees (self-employment type of SME). These sole proprietorhips were established not to meet the needs of demand but out of necessity and the hope for survival only23. The number of dynamic, innovative, enterprises working with few employees, however, is rather low. Indeed, according to a survey conducted in the fall of 2002, the proportion of employees dealing with innovation in the SMEs was as follows.

Table 1. Number and percentage of employees engaged in innovation in firms of different sizes

Number of employees per firm

< 50

51-250

>250

Number of employees dealing with innovation↓

Percentage of firms concerned

Total percentage

0

80

82

76

80

1-5

17

12

16

15

6+

3

6

8

5

Source: Survey taken by the Economic Research Institute, Fall 2002, Budapest, 43.

23These disappointing data indicate that 80 % of SMEs have nobody dealing with innovation at the firm, and only 5 per cent have more than 6 persons in this field.

24One can generally say that firms do undertake innovative actions in order to improve their market performance and hence, their profitability.  The case of Hungarian SMEs is given in Table 2.

Table 2. Percentage of SMEs that want to improve competitiveness by specific actions

Number of employees →

Actions↓

<21-50

51-250

>251

Percentage of firms concerned

Total percentage

Own research

15

6

12

11

R&D  contracted

5

4

4

5

Purchase of licences, know-how, patents

1

4

4

2

Machinery, instruments investments

56

66

68

59

Intensive market research

49

44

28

43

Sales network improvement

51

57

40

51

Intensive advertising, PR activity

31

27

32

31

Source: 2002. Innovation survey of the Economic Research Institute, Budapest, 2003. See: PAPANEK, 2003, 48.

25As can be seen, SMEs quite often aim at improved market activity. Equally important are strengthening market research, the development of sales networks and marketing. At more than half of the enterprises, investments --machinery and instruments--, and through them an increased technological level are considered important as well. Individual research, the purchase of licences, patents and know-how, are however, rather low, much lower than the usual international average in competitive firms and countries.

  • 24  In the SME sector,  R&D institutions play a limited role also in the West.  See OECD report, Les P (...)

26Other empirical studies have pointed out that Hungarian SMEs rely on in-house R&D during innovation, so that corporate demand for R&D  rarely appears on the market24.

27Unfortunately contract research and development is concentrated in only a few state-owned research units. Many large (mostly foreign) companies do their own research to meet their demand for R&D and they pay little attention to contract research --or at least to government sector research. In their technological development, the “biggies” rely more on abroad; however, a few Hungarian universities and research units also seem to play some role (the most renowned academic institutions, certain departments of the Budapest University of Technology and Economics, etc.). An interesting phenomenon in this respect is the growing number of large foreign transnational corporations implanting large R&D units in Hungary. This has been the case with NOKIA, Brown and Bovery, General Electric and others.

Why the low level of corporate R&D demand?

28Another problem is that the managements of these firms set targets based on an exaggerated assessment of their technological level.  38 % of Hungarian SMEs thought, for example, that their products were of European technological level, another 41 % that with a small effort they could be raised to European standards. On top of this, 46 % of these entreprises were convinced that even the prices of their products were competitive on European markets. The problem they acknowledged lay in the shortcomings of their sales networks and marketing. Several facts, however, contradict this self-appraisal. A substantial proportion of SMEs cannot show serious export performance. Only exceptionally well- organised firms—and even these need the help of professional export companies—can export more than 10 % of their production. In the case of the majority of SMEs, the share of exports does not reach 10 % of total company income.

  • 25  This method is suggested and worked out by Technology Future Inc., USA.

29It is quite worrying that even after a year of EU membership, there are hardly any SMEs in Hungary with substantial export performance. As the reasons are manifold, we only name a few: first, as discussed above, Hungarian SMEs exaggerate their technological achievements and base false innovation expectations on this false level. Second, there are no serious attempts in these firms to do market research, to follow the technological life-span of the products, and they do not analyse the development of technological trends. Third, they hardly know the elements of technological strategy analysis25. Fourth, SMEs spend hardly any time on observing various activities of the entrepreneurship, on analysing the results of various measures and on feedback. Fifth, if they are aware of property right issues, they do no research in property rights archives before developing a new product. In spite of innovation opportunities and the improvements in competitiveness of Hungarian SMEs, it is widely held that membership of the European Union will highlight even more shortcomings and that several firms will face bankruptcy. The reasons are shown in Table 3.

Table 3. Percentage of SMEs facing innovation problems

Number of employees →
Problems↓

<21-50

51-250

>251

Percentage of firms concerned↓

Total percentage

Capacity development

39

43

21

38

Weakness of external capacity development

9

16

4

10

Excessive taxation

58

41

13

48

Weaknesses of technological and innovation propriety rights

16

4

4

10

Conservative market demands

30

37

17

31

Unfair business practices

44

35

4

37

Source: 2002. Innovation survey of the Economic Research Institute, Budapest, 2003, 56.

30As can be seen, Hungarian SMEs are dissatisfied with the economic environment of their innovations. A high level of excessive taxation and unfair business practices are blocking innovation as well. We must further mention weaknesses in relation to own capacity developments.

  • 26  N. Buzás, “Technológiatranszfer-szervezetek és szerepük az innovációs eredmények terjedésében” (“T (...)

31The most recent scientific and technological results could (and should) be transferred to SMEs by bridge-over institutions, bridging researchers (education) and users (firms). Buzás26 groups SMEs into three categories based on their innovation strategies and characteristic features. The three groups are: avant-gardes, early followers and late adjusters.

Table 4. Innovation strategies and characteristics of SMEs

AVANT-GARDES

EARLY FOLLOWERS

LATE ADJUSTERS

STRATEGY

Aiming high

Keeping pace

Catching up

CAPABILITIES

New combination of present technologies

Expanding knowledge borders

Changing technology

Quality improvement

Cutting costs

Small-scale changes

Problem solving innovation

Productivity increase

Copying

Technology adaptation

KNOWLEDGE-EXPENDITURE

Scientific research, working out technologies and laboratory models, combining R&D with marketing with the firm

Engineer design, putting in place, selling: combining within the firm design and production

Engineer and management characteristics, feed-back from production processes and product control

TECHNOLOGICAL TARGET

Intra-company research, technological development, establishing R&D network

Technological development, R&D network

Technology transfer, spread of technology, demonstration projects, education, training

PARTNER RELATIONS

Long term R&D cooperation projects with research institutes, end users and transporters

Engineering faculties of universities, advisory firms, technological institutes, users

Learning-by doing projects, productivity centres, clients, transporters of equipments

Source: Buzàs, 2002, 102.

Innovative clusters in Hungary

  • 27  This poor score in the survey comes, for the most part, from the low innovation record of crop and (...)

32Maybe not surprisingly, a substantial percentage of SMEs has not introduced any innovation during the transformation years. Over half of the companies have not had any new product of freshly introduced technology during the past two years (only 45.6 % of them had new products and 46.3 % had new technologies)27. In almost 60 % of the firms belonging to the high-tech sector there were new products and technologies, which is an indication that in this group of firms there is also a high proportion of enterprises living off their traditional products and services, even in branches which are generally innovating quite rapidly.

33Better ratios than the average of the sample are found in large firms and foreign-owned companies. In 74.4 % of the companies with more than 300 employees there were new products, and in the same percentage there were new technologies reported, and in two-thirds of them important organisational and management changes have also taken place (63 % each) over the past two years.

  • 28  Almost twice as frequently as in the other—medium-size companies—group.

34Each group of companies mentioned their own internally accumulated material as their first and most important source of information. The use of such information bases was greater in the high tech sector than in other groups of companies (76 % versus 60 %). This is the group of firms where technical literature is most often used28.

35The role of technological parks and company development institutions is more or less negligible. This is all the more noteworthy because a large proportion of the means and institutional development efforts of Hungarian innovation policy have been concentrated on these elements recently.

36The companies still in state ownership have a very close relationship with the R&D sector, whereas their innovation performance is lower than that of companies with foreign participation. The widespread fear of the early nineties in Hungary that foreign owners would entirely neglect the Hungarian university/R&D institutional sectors, has not come true. In fact, businesses with foreign participation tend to use them even more intensively than Hungarian private companies.

37Almost a third of the companies included in the survey of the years 2002-2004 pursued product development. A quarter of the firms carried out experimental development and a fifth of them were involved in applied research.

38The regional aspects of the research and development clusters are of high interest. The territorial pattern of partner relations is quite balanced along a local – regional – national - international axis. The reduction in local and regional relations (respectively 10 % and 21 % compared with the findings of previous surveys) indicates that the majority of firms are diversifying their relations in terms of geographical breakdown. Obviously, in the majority of the cases, the two markets—local and international—are not used by the same companies. Larger, more dynamic SMEs are focusing on supplying local demand, creating special goods for local requirements. In addition to this, although on a much more modest scale, there is an export-oriented group of SMEs concentrating even their development strategy primarily on international networks. Since European Union membership, being part and parcel of the European integral market, means further possibilities of local flexible specialisation, one can presume that this type of focusing is becoming an increasingly dominant pattern.

39R&D activities are concentrated in large companies; experimental development and product development are pursued by the majority of them (49 % and 71 %, respectively), while 37 % of them conduct applied research as well.  Trade in licences and know-how is also relatively intensive. The question may also be viewed from a different angle: why do only one third of large companies pursue technology transfer activities that can be described in terms of the categories of industrial rights? The majority of large companies have already been closely integrated in international division of labour and, consequently, they could have more intensive transfer relations.

The most important bridge-over institutions of innovation in Hungary

  • 29  F. Amesse and Cohendet P., “Technology transfer revisited from the perspective of the knowledge-ba (...)
  • 30  In order to reinforce Hungarian scientific and technological excellence through the integration of (...)
  • 31  N. Buzás, “Technológiatranszfer-szervezetek és szerepük az innovációs eredmények terjedésében”, op (...)
  • 32  We name just a few: Innostart National Business and Innovation Centre, Innotech Technical Universi (...)

40Due to the changing value of knowledge, technology transfer and the institutions involved have also changed recently. The traditional model of technology transfer --in which technology moves from a well characterized economic unit to another one-- has been transformed into a complex knowledge transfer process29 resulting in special knowledge sharing platforms, such as technology clinics in Finland or co-operation research centres30 in Hungary31. Market players with significant knowledge need to access complementary forms of knowledge from other players to ensure the most efficient use of their internal knowledge.  These knowledge-sharing networks—sometimes called bridging institutions—can reduce the risk of overspecialisation. Among the bridge-over institutions, the most important ones are those giving technological services and advice, usually functioning on market principles32.  

  • 33  For more details, see P. Mogyorósi, M. Vilmányi and B. Révész, “Experiences in the field of innova (...)
  • 34  I. Goldperger,Javaslatok a kis- és középvállalkozások kutatás-fejlesztési hátterét erősítő intézmé (...)

41An important role is played by high-level academic research institutes, university departments and chairs33. The academic research institute network has lost substantial influence since the transformation both with regard to the researchers employed and to academic performance.  Due to constant reorganisations in higher education—of which only the latest is the introduction of the so-called Bologna process—university departments and chairs have not yet found their place in innovation opportunities or are faced with serious under-funding. Lacking their own resources, they can only join innovation projects as sub-contractors. Another fact is that university departments and chairs favour R&D contracts with large, mostly transnational, corporations and not with SMEs. They cannot take the risks and expected loss due to under-funding of SMEs and their low purchasing capacity. This group of higher education institutions is not yet ready to service SMEs at all. It is a characteristic feature that 91 % of SMEs functioning in industrial parks have never ever had any contacts with research institutes, and only a third of them have already had relations with higher educational institutions34.

42The innovation and technology transfer centres are the next important group of bridging institutions. Due to specific Hungarian conditions they overlap with the incubator houses. Unfortunately, having meagre financial means, these centres are not the best place for further development of SMEs’ innovation activity.

  • 35  Economic Research Institute, Budapest, 2001. Fall survey. H. Löfsten and P. Lindelöf, “Science Par (...)

43Industrial parks alone cannot deliver innovative research and development activities.  According to a national survey, in more than 40% of these parks there has not been any innovation activity at all35. The intensity of research and development activity of firms settled in industrial parks is rather low. Half of the entrepreneurships find the demand for their innovative products very low and they are not satisfied with the availability of risk capital, either.  The educational level of labour in the parks is not satisfactory, they claim.

  • 36  G. Papanek and B. Borsi, “Knowledge flow between research units and companies in Hungary. Comparin (...)
  • 37  In this model for analysing innovation systems, knowledge transfer is no longer considered as a li (...)

44Partly due to these institutions, the knowledge flow from companies to universities has intensified, but the opposite direction of information drift is not supported by the relevant institutions36. In spite of increasing governmental financial support for R&D, the lack of effective Technology Licensing Offices (TLOs) in Hungarian universities results in an imperfect Triple Helix37 preventing the effective commercialisation of the inventions. This situation was primarily induced by the status of intellectual property rights related to inventions. Because of the shortage of capital, universities and public research institutes had no financial sources to cover the submission and maintenance of patents; as a result, universities had to refuse their primacy right over inventions. As a consequence of this, during the last decades the intellectual property rights were either awarded directly to the inventors or became public at protection. This is the opposite of the American practice, where patent rights are generally awarded to the universities.

45It may be related to the above phenomenon that Hungarian enterprises—SMEs included—expect more substantial outside help in furthering their innovation capacity. Table 5, below, summarises the current situation in this field.

Table 5. Percentage of firms requesting outside help for solving given tasks

Type of firm→
Tasks↓

21-50 employees

51-250

employees

>251

employees

State

Domestic mother

Foreign

Percentage of firms concerned↓

Total %

Market research

73

67

52

55

71

73

70

Capital extension

47

54

44

48

51

50

51

Skilled personnel

40

39

48

30

36

59

40

Planning, implementing investments

34

34

16

21

33

14

31

Quality control

36

45

32

43

44

27

41

Production - organisation

20

33

36

30

22

18

25

Stock economy

27

31

40

34

25

32

28

Marketing

45

49

48

55

48

41

49

Administration, bookkeeping

14

17

12

21

13

4

14

Legal tasks

16

19

8

16

14

9

15

Source: 2002. Fall Innovation Survey of Economic Research Institute, Budapest, 2003, 87.

46According to these statistics the share of firms requesting outside help for their own innovation activity is not high at all.  SMEs even show a lower share in this respect. We should not forget, however, that behind this there is distrust and a tendency to hide the real needs.

47This is still an unfortunate element of SMEs’ innovation activity, though there are several ways of promoting innovation. There exist mainly two types of governmental support for R&D and innovation in the private sector: first, tax incentives and second, direct non-refundable state support through calls for proposals.

  • 38  Here again, it is evident that this Government policy favours state-owned and non-profit instituti (...)

48Since January 2001, companies have been able to account for their R&D expenditure at 100 %. This option is also available for subcontracted R&D activity not carried out by the companies themselves, but implemented by public or non-profit research organisations38. Also from January 2001 on, the amortisation (depreciation) of all R&D investments has been flexible, and its rate depends on the company. From January 2003, further incentives were introduced such as the option for tax-free investment reserves up to 500 million HUF, accelerated amortisation of ICT investments, 70 % tax release for R&D donations and faster tax reimbursement etc., making innovative activities and overall entrepreneurial conditions more favourable.

49In addition to that, the corporate taxation rules have been changed from January 2004. To improve the competitiveness of domestic enterprises, their corporate tax rate was decreased from 18 % to 16 %.

  • 39  Note the further bias against the private sector.

50The following additional measures will play important role in the Hungarian technology innovation process: 300 % Research and Technological Development (RTD) tax allowance if the company laboratory is located at a university or public research institute39, with  effect from 2004. Up to the level of the official minimum wage, the employment of PhD, MSc or MBA students is tax free in the field of educational and research activities and other services closely related to these activities.

Summary

51The key findings of this article may be summarised as follows:

  • Modernisation—wider range innovation—is crucial for Hungary in its European integration. A substantial reduction in the current “technological gap” is an essential pre-requisite for Hungary’s successful integration.

  • Although Hungarian professionals do not dispute the already evolved system of concepts concerning innovation and the international innovation system, domestic practice is somewhat different from the up-to-date approach and often loses sight of elements of the innovation processes that are beyond the limits of R&D.

  • Surveys carried out within the framework of research also prove that the number of Hungarian businesses involved in R&D is several times higher than the 220 indicated by the 1996 statistics. Therefore, without supplementary information, the domestic R&D statistics do not give a true picture of the current position of R&D and there is almost no authentic information on the innovation processes beyond R&D at all.

  • The diffusion of innovation is slow in the Hungarian economy. The group of innovative domestic companies consists of mostly foreign or foreign dominated companies. Innovative SMEs are only a small fragment of the total, though some improvement in this respect was observed in the years 2002-2004.

  • There are innovative companies in all domestic sectors and regions, SMEs, however, are only a small proportion of them. In the past fifteen years quite a large number of Hungarian companies have introduced new products, technologies and management methods. SMEs, however, are rather slow to follow the trend and to introduce efficiency-seeking innovation activities.

  • Hungarian R&D expenditure—despite the fact that even innovative companies neglect the construction of innovation relations and overvalue the importance of their own R&D—is low by international standards. In the allocation of resources, another problem is that research is not receiving the necessary attention at all.

  • In Hungarian SMEs, the so-called human resource factors—managers who are open to novelty—have become the key stimulants of innovations. In a lot of companies (partly owing to the lack of foreign language proficiency and the resulting isolation), there are no internationally competitive experts as yet.

  • Both government research institutions and higher educational ones have poor relations with innovative businesses; therefore, these institutions do not play such a substantial role in domestic innovation processes as they should. The majority of the domestic bridging institutions cannot perform the intermediating tasks.

  • Modernisation in the Hungarian economy is most hindered because the costs of innovation can hardly be recovered. Besides, there is a shortage of capital. According to the findings of more detailed research quoted in this article, this is a result of the high costs of innovations and the limited possibilities of enforcing and exercising rights associated with intellectual property—brands and patents.

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Notes

1  This article is based on a paper presented at the international conference « L’Economie de l’innovation dans le monde anglo-saxon : ressorts, enjeux, influences », Université de la Sorbonne Nouvelle, Paris, 22-24 September 2005. Special thanks are due here to Profs Martine Azuelos and Marie-Claude Esposito for valuable advice. All the remaining errors are mine.  

2  A New Economic Mechanism was introduced on January 1, 1968.

3  A detailed synthesis of the last fifteen years of economic transformation can be found in László Csaba, The New Political Economy of Emerging Europe, Budapest: Akadémiai Kiadó, 2005. A review article on the study can be read in András Blahó, Acta Oeconomica, vol. 55, n° 3, 2005, 347-354.

4  In the international context, knowledge flow is often quantified as the mobility of people with high qualifications.  The related Hungarian statistics also support our statement and prove the existence of poor knowledge flow. See Központi Statisztikai Hivatal (KSH), Kutatás és fejlesztés (előzetes adataok), 2004, (Research and development ((preliminary data), 2004), Budapest, 2005. G. Papanek, “A comparison of basic data on the performance of Hungarian enterprises with and without foreign capital participation”, Joint ventures in transformation countries in the context of overall investment strategies of their partners, Barcelone: Grup d’Analisi de la Transició Economica, VIII, 1995, 269-287.

5  G. Papanek and B. Borsi, “Knowledge flow between research units and companies in Hungary. Comparing the GKI CO: and the TUB experiences”, Periodica Polytechnica, Ser. Soc. Man. Sci., Budapest, vol. 9, n° 1, 2001, 51-59.

6  For an excellent and critical appraisal of this issue see G. Papanek, P. Tamás, J. Ványai and E. Viszt, National Innovation System in Hungary, Budapest: National Committee for Technological Development, June 1999.

7  Központi Statisztikai Hivatal (KSH), Kutatás és fejlesztés (előzetes adataok), op. cit. The difficulty of finding relevant—and exact—data is shown by the fact that the Government is reporting 0.95 % while the Government agency Central Statistical Office gives 0.88 % for the same year.

8  Á. Bak, Kutatóműhelyekből kinőtt magáncégek (Private firms grown from research laboratories), Budapest: Piac és Profit, April 2004.

9  European Commission, 2003.

10  N. Buzás, “Organizational elements of knowledge transfers in Hungary”, in LENGYEL I. (ed), Knowledge transfer, small and medium-sized enterprises, and regional development in Hungary, Szeged: JATEPress, 2003, 39.

11  Organisation of Economic Cooperation and Development (OECD), Analytical report on high-tech spin-offs, Paris, June 2000.

12  Központi Statisztikai Hivatal (KSH), Kutatás és fejlesztés (előzetes adataok), op. cit.

13  According to some sources, this share is about a third of SMEs.  See G. Papanek and B. Borsi, “Knowledge flow between research units and companies in Hungary. Comparing the GKI CO: and the TUB experiences”, op.cit.,  57.

14  Several empirical studies and international comparisons revealed that Hungarian industries had always been significantly technologically backward despite the world-recognised achievements of Hungarian scientists.  The gap even increased in the second half of the 20th century having a negative effect on the international competitiveness of manufactured products. Although after 1990 technology transfer in parallel with foreign capital import somewhat improved the situation, the proportion of technologically non-competitive firms is still high. See Papanek G. (ed), A magyar innovációs rendszer főbb összefüggései (Main issues of the Hungarian innovation system), Országos Műszaki Fejlesztési Bizottság (OMFB), Innovációs stratégia a versenyképességért (Innovation strategy for competitiveness), Budapest, December 1999.

15  See for more details the latest statistical survey, Központi Statisztikai Hivatal (KSH), A feldolgozóipar innovációs tevékenysége (Innovation activity of the manufacturing industry), op. cit.

16  Országos Műszaki Fejlesztési Bizottság (OMFB), Innovációs stratégia a versenyképességért (Innovation strategy for competitiveness), Budapest, December 1999. A further and more elaborated innovation strategy was introduced in 2002.

17  Központi Statisztikai Hivatal (KSH), Kutatás és fejlesztés (előzetes adataok), op. cit, 4.

18  Nowadays, Hungarian researchers in the field are “only” able to present state-of-the-art reports, when they sometimes publish the results of their empirical investigations. The existence of frequent and reliable “modern” innovation data, and acquaintance with the topic are both inevitably needed for policy-makers as well.

19  National Office of Research and Technology, Research and development in Hungary, 2003-2004, Budapest, 2004.

20  The population of the country is 10 million.

21  The European Union average is 67 %.

22  The relevant data for the European Union are 29 and 19 %, respectively.

23  Magyar Innovációs Szövetség, A magyar kis- és középvállalatok innovációs képességének továbbfejlesztése (Development of innovation capacity of Hungarian SMEs), Budapest, 2002, 18.

24  In the SME sector,  R&D institutions play a limited role also in the West.  See OECD report, Les Petites et Moyennes Entreprises: technologie et innovation, Paris, 1993.

25  This method is suggested and worked out by Technology Future Inc., USA.

26  N. Buzás, “Technológiatranszfer-szervezetek és szerepük az innovációs eredmények terjedésében” (“Technology-transfer institutions and their role in spreading innovation results”) in N. Buzás and Lengyel I. (eds), Ipari parkok fejlődési lehetőségei: regionális gazdaságfejlesztés, innovációs folyamatok és klaszterek (Development possibilities of industrial parks: regional economic development, innovation processes and clusters), Szeged, SZTE GTK: JATEPress, 2002, 93-108.

27  This poor score in the survey comes, for the most part, from the low innovation record of crop and animal husbandry genetics companies.

28  Almost twice as frequently as in the other—medium-size companies—group.

29  F. Amesse and Cohendet P., “Technology transfer revisited from the perspective of the knowledge-based economy”, Research Policy, vol. 30, 2001, 1459-1478.

30  In order to reinforce Hungarian scientific and technological excellence through the integration of R&D capacities and activities, the Hungarian Ministry of Education (R&D Secretary) provided financial assistance through an application process to establish thematic Cooperation Research Centres in 2001. Host institutions had to be universities with a certified Ph. D. program and criteria for participation of business partners also included involvement in the centre’s activities. For “seed capital”, the Government provided half of the budget for the first three years in the range of US$ 200 000 to 1 million. During this initial period, centres have to develop a cooperative way of business in order to make returns which cover at least the burn rate of the CRC for the next 3-6 years. In the first round, five CRCs were established: Trans-University Centre for Telecommunications and Informatics (Budapest), CRC on Industrial and Medical Application of Lasers (Pécs), CRC on Mechatronics and Material Science (Miskolc), CRC on Rational Drug Design (Budapest), CRC for Chemical Industrial Development Based on Green Technologies (Veszprém). See N. Buzás, “Organizational elements of knowledge transfers in Hungary”, op. cit.

31  N. Buzás, “Technológiatranszfer-szervezetek és szerepük az innovációs eredmények terjedésében”, op. cit.

32  We name just a few: Innostart National Business and Innovation Centre, Innotech Technical University Innovation Park, Co., and the National Technological Institute, functioning within the frameworks of the Tivadar Puskás Foundation.

33  For more details, see P. Mogyorósi, M. Vilmányi and B. Révész, “Experiences in the field of innovation services in Hungary”, in I. Lengyel (ed), Knowledge transfer, small and medium-sized enterprises, and regional development in Hungary, Szeged: JATEPress, 2003, 47-59.

34  I. Goldperger,Javaslatok a kis- és középvállalkozások kutatás-fejlesztési hátterét erősítő intézmények, együttműködési hálózatok és támogatási módszerek fejlesztésére (Suggestions for development institutions strengthening R&D background of SMEs, cooperation networks and support methods), Budapest: ECOLAB Gazdasági Tanácsadó Kft, 2002.

35  Economic Research Institute, Budapest, 2001. Fall survey. H. Löfsten and P. Lindelöf, “Science Parks and the growth of new technology-based firms—academic-industry links, innovation and markets”, Research Policy, vol. 31, 2002, 859-876. Löfsten and Lindelöf recently described significant differences between on- and off-park companies in the linkages to the local university.  Analysing 10 science parks and 273 firms in Sweden with statistical methods they confirm the role of the formal university-industry links in the development of new technology-based firms (NTBFs). Concerning the effectiveness of NTBFs in science parks they have found, however, no greater R&D outputs for on-park firms compared to off-park companies.

36  G. Papanek and B. Borsi, “Knowledge flow between research units and companies in Hungary. Comparing the GKI CO: and the TUB experiences”, op. cit.

37  In this model for analysing innovation systems, knowledge transfer is no longer considered as a linear process from origin to application, but a complex system with unique communication interfaces operating in distribute mode. In the model the interactions between the spheres are mediated by special organisations such as technology transfer offices and innovation agencies. See: L. Leydesdorff and H. Etzkowitz, “Emergence of a Triple Helix of University-Industry-Government Relations”, Science and Public Policy, vol. 23, 1996, 279-286.

38  Here again, it is evident that this Government policy favours state-owned and non-profit institutions only and neglects private sector innovative institutions.

39  Note the further bias against the private sector.

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András Blahó, « Hungary: Transformation and Innovation in Medium- and Small-Scale Enterprises »Revue LISA/LISA e-journal, Vol. IV - n°1 | 2006, 339-360.

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András Blahó, « Hungary: Transformation and Innovation in Medium- and Small-Scale Enterprises »Revue LISA/LISA e-journal [En ligne], Vol. IV - n°1 | 2006, mis en ligne le 27 octobre 2009, consulté le 28 mars 2024. URL : http://journals.openedition.org/lisa/2421 ; DOI : https://doi.org/10.4000/lisa.2421

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Auteur

András Blahó

Prof. (Budapest, Hongrie)
András Blahó holds a Chair at the Department of World Economy of Budapest Corvinus University. He started research on the role of transnational corporations in the world economy and gained a PhD. in 1980 in International Economics with the thesis: “Transnational corporations and socialist economies”. He joined the Secretariat of the United Nations in New York between 1982 and 1997 as International Economic Affairs Officer, working on central and eastern European economies and China. After returning to Hungary, he continued research on world economic development, European economic integration, small and medium-size companies, and international economic organisations. His publications include: Going Global (MIT, Press, 1985), Basic Issues of European Integration (in Hungarian), six editions, International Organisations and Institutions (in Hungarian), five editions, World Economics (in Hungarian), two editions.

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