Europe, Macroeconomics and macroeconomic policy, Private sector development, innovation and knowledge-based economy

Knowledge-based enterprises in Central and Eastern Europe: Contributing to the diffusion of innovation rather than innovating

KEINS (Knowledge-based Entrepreneurship: Innovation, Networks and Systems), a project funded under the EU Sixth Framework Program and led by CESPRI (the Centre of Research on Innovation and Internationalization) at Bocconi University in Milan, Italy, was devoted to the analysis of the factors behind the evolution and growth of knowledge-intensive firms. CASE's contribution to the project was to study in partnership with the School of Slavonic and East European Studies of University College London (SSEES UCL) over 300 knowledge-based enterprises (KBEs) in six transition countries (Croatia, the Czech Republic, Hungary, Lithuania, Poland and Romania). The industries studied were drawn from both the service and manufacturing sectors and included, among others, software, media, pharmaceuticals, aerospace and optoelectronics.

If knowledge-intensive enterprises can be divided into two groups of firms: knowledge-creating (these are the real inventors, scientific and technological innovators, often encapsulated by the terms "knowledge-based" or "high-tech") and knowledge-customizing firms, or firms that take other companies' inventions and modify them for use in local conditions, one of the key insights of the research is that KBEs in Central and East European (CEE) countries tend to be concentrated in the latter group. Thus, the majority of knowledge-based firms in the region are contributing more to the diffusion of innovation than to innovation itself. This is not to demean these firms, however, as they play a crucial role in the catching-up process that the countries of Central and Eastern Europe must undergo in order to attain the average standard of living of the European Union.

Firms can also be separated into three groups based on the sources of knowledge they use for product, process and service innovation. The most numerous group relies primarily on value chain partners; that is, suppliers and customers. The second relies primarily on its own in-house research and development (R&D) work.  And the third relies on specialized external sources of knowledge such as research institutions (e.g., universities and industrial R&D institutes), patents and industry journals.

Finally, there are three types of groups based on what they indicate as the key factors underlying their success. One group of firms are the so-called new technology based firms. These are the genuine innovators, operating on the frontier of scientific and technological development. But this is a relatively small group of the CEE knowledge-based firms. Two other groups are more numerous. One is a group of firms referred to as networkers. The most important success factors for these firms are their links with other firms and scientific organisations and their reliance on EU Framework Programs and other forms of government support. The third group of firms sees their success as lying in their customer-oriented organizational abilities, i.e., the managerial abilities that allow them to identify customer needs and deliver quality goods and services at low cost – the sorts of capabilities one habitually thinks of as determining the success of any firm, knowledge-based or not.

Though the project came to an end, CASE and SSEES UCL will continue the analysis of the data, exploring the relationships between firm characteristics and growth using econometric techniques.  The study of knowledge-based enterprises in CEECs will also be pursued under AEGIS (Advancing Knowledge- Intensive Entrepreneurship and Innovation for Economic Growth and Social Well-being in Europe), a EU FP7 project due to start 1 January, 2009.

The full version of the project summary is a contribution of Richard Woodward.