Central and Eastern Europe Must Boost Home-Grown Innovation, says EIU

A major new Economist Intelligence Unit survey of 12 Central and Eastern European countries has revealed that the region is underperforming in terms of innovation – and risks compromising five years of economic growth as its status as a low-cost labor base begins to erode.

The economies of Central and Eastern European (CEE) countries are at risk of weakening in the next five years due to low levels of home-grown innovation, according to a new Economist Intelligence Unit (EIU) survey commissioned by Oracle.

The survey, entitled A Time for New Ideas: Innovation in Central Eastern Europe, examines current and future innovation performance and the overall ‘innovation environment’ in 12 countries: Bulgaria, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Russia, Slovakia, Slovenia and Ukraine. It is based on three main components: a survey of 370 executives carried out in Spring 2008; the Economist Intelligence Unit’s own innovation model; and 20 in-depth interviews with C-level executives, consultants and other experts working in the region.

The primary conclusion of the survey is that innovation – including the development and commercialization of new products, services, business models and management techniques – is vital to the continued economic success of the CEE area as its status as a low-cost labor base begins to weaken due to its economic growth and associated rising costs.

Most Innovation Comes from Overseas Firms

Although the area has benefited economically from innovation over the past five years, the survey finds that most of this has come from foreign multinational companies (MNCs) operating in the region, rather than from local companies, universities and research institutions. In addition, the innovations pioneered by MNCs have largely failed to permeate the domestic business environment, creating a risk that if the MNCs choose to move their operations elsewhere, their culture of innovation will depart with them.

The survey ranks the 12 countries surveyed using the EIU’s proprietary innovation model. It finds that Slovenia shows the highest levels of innovation performance – measured in part on the number of patents granted by the European Patent Office – while the Czech Republic offers the most favorable environment for innovation, which includes factors such as taxation, bureaucracy and levels of investment in education and R&D. At the other end of the scale, Romania is currently performing the least well, while the most challenging environment is to be found in Ukraine.

Local Innovators Need Greater Encouragement

While the region undoubtedly boasts many specialist skills, innovative ideas and success stories, several of which are profiled in the report, these pockets of innovation are being let down by a political and business environment which is failing to invest adequately in research and development and to encourage entrepreneurship.

Paul Lewis, Managing Editor of Executive Briefing at the Economist Intelligence Unit and one of the authors of the report, says that the onus is on govenments in the region to do more to encourage home-grown innovation. “The post-communist economic transition of the CEE countries has been remarkable, but it has relied on investment from foreign companies,” he said. ”Governments need to be aware that it is no longer enough to imitate and assimilate innovation from abroad – they must encourage a favorable environment for home-grown innovation, or the long-term growth potential of the region will suffer.”

Investment in Education and Skills is Critical

The report offers specific recommendations for how governments, businesses and academia can work together to improve the innovation environment and innovation performance in their respective countries. Recommendations include investing in skills, research and IT infrastructure, and relaxing bureaucracy, reducing taxation and creating more flexible labour markets.

Oracle’s Senior Vice President for Oracle Eastern Europe and CIS Region, Alfonso Di Ianni, who has overseen Oracle’s operations and business expansion in the CEE region over the past five years, believes that a more committed and collaborative approach to innovation is required. “A structured approach to fostering innovation is what differentiates the successful economies,” he said. “Collectively, governments, educational institutions and businesses can create a dynamic environment which allows the untapped wealth of domestic talent to flourish.”

Oracle Actively Involved in Encouraging Innovation

Oracle itself is working closely with governments and educational institutions in the region to encourage and foster innovation. Recent Oracle initiatives in this area include the training of 1,600 teachers in Romania to include 21st century skills like teamworking, project working and the use of the internet in their classroom activities, and the creation of a Mobile Application Development Centre in Warsaw, Poland.

Most recently, Oracle has launched its Innovate Program across the region, in which it is working with universities, venture capital firms and other partners to help IT students and graduates turn their innovative ideas into successful, profitable businesses.

The full report, A Time for New Ideas: Innovation in Central Eastern Europe, is available from the EIU website

Related Links

For more about the findings of the EIU survey, see the press release Central and Eastern Europe Must Boost Home-Grown Innovation, Says Oracle-Sponsored Economist Intelligence Unit Study

To download the EIU report, A Time for New Ideas: Innovation in Central Eastern Europe, visit the EIU website

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