The LATVIAN IS CLUSTER: CASE OF

INDUSTRY – UNIVERSITY

COOPERATION

Valdis Avotins, Latvian Investment & Development Agency

WB KE Forum III, Budapest, March 23-26, 2004

CONTENTS1. what did we have

• starting point• reforms completed• industry clusters

2. what we do have• Government role• innovation policy

3. what do we want to have

LATVIA: CRISIS, STABILIZATION, REFORMS AND DEVELOPMENT (but what kind of?)GDP/per capita

Inflation

1st phase - 1st phase - degradationdegradation (till 1991)(till 1991)

2nd phase - 2nd phase - riddanceriddance(1991-1993)(1991-1993)

3rd phase - 3rd phase -

stabilizationstabilization(1993-1994)(1993-1994)

4th phase - 4th phase - recoveryrecovery(institutional (institutional reforms:reforms: 1994-2000)1994-2000)

5th phase –5th phase –exogenous exogenous innovative innovative economicseconomics (2000 -2005)(2000 -2005)

6th phase –6th phase –endogenouendogenous s innovative innovative economicseconomics (2005 - …)(2005 - …)

Prof. U.OSIS

-12,6

-32,1

-11,4

2,2

-0,9

3,7

8,4

4,82,8

6,8 7,9 6,7 7,5

-35

-30

-25

-20

-15

-10

-5

0

5

10

1991 1993 1995 1997 1999 2001 2003*

GDP at constant prices GDP at constant prices (changes in % of previous period) (changes in % of previous period)

Price liberalizationPrice liberalization

Stabilization policyStabilization policyLVLLVL

Latvian Privatization AgencyLatvian Privatization AgencyRiga Stock ExchangeRiga Stock Exchange

Latvian Development AgencyLatvian Development Agency

Fiscal and monetary Fiscal and monetary policypolicy

Privatization of large Privatization of large enterprisesenterprises

Long-term strategy

Prof. U.OSIS

LATVIA: GROSS DOMESTIC PRODUCT

Reforms in Latvia

TODAY TODAY ......

• Innovation Policy at the top of policy agenda at national level

• Macroeconomic stability: macro-economic reforms completed

• impressive FDI inflow; acquisition of new technology and skills

Still weaknesses ...• The economy depends on low tech and low value added

goods• Low level of national savings, high current account deficit• Outworn infrastructure• Poor quality of education and research system• Regional and social disproportions

INNOVATION POLICY INNOVATION POLICY (2003)(2003)KEY OBJECTIVE - to enhance national innovation capacity : formation of the society open to innovative activity Creation of a harmonized and innovation-friendly environment; Creation of innovative SMEs base and promotion of their further

growth efficient cooperation between all elements of the innovation system

LONG TERM ECONOMIC STRATEGYLONG TERM ECONOMIC STRATEGY (2001)(2001)

Objective : to achieve the EU average GDP per capita level in the next 20-30 years

•intensive utilization of knowledge and high technologies, transition from labour-intensive economy to knowledge-intensive economy

•by renovating traditional sectors of economy on modern technology basis and by developing new post-industrial knowledge-intensive sectors

GOVERNMENT INITIATIVE – INDUSTRIAL CLUSTER PROJECT

Project funded by EU Phare in 2001 Project objective – strategic economy restructuring based on the Clustering idea: improvement of competitiveness of Latvia’s export potential through collaboration between cluster participants based on the shared vision

Covered four industrial sectors - IS, Forestry, Composite materials, Engineering (Optic Fibres)

EXPERIENCE OF FORESTRY CLUSTER

• Members: Wood working companies, large sawn mills, SMEs, furniture industry and University of Agriculture

• Fueled by Latvian Forest Industry Federation• Cluster Concept approved by Government (2002)• Forest Development Fund (MoA, Federation)• Woodworking Development Institute at University

of Agriculture Certification, standards, tests, measurement techniques,

chemical technologies, cross-sectoral education and R&D supply

• Forest Cluster Information Centre Information, market analyses, timber usage promotion

• Regional Centres of Competence (Jekabpils, Ventspils)

• Design of long – term Forestry Industry Strategy

ROLE OF INFORMATION ROLE OF INFORMATION SYSTEMS SECTOR IN SYSTEMS SECTOR IN LATVIAN ECONOMYLATVIAN ECONOMY Fastest growing export sector (55%), 3000

engineers In 2002, gross sales of packaged software: 0,76% of GDP The most potential sector for future development

Ernst & Young, 1999; Arthur Andersen, 2001; ITC, 2003

Sector is supported by several government strategic documents: National Program: Informatics; National Development Plan Industrial Development Plan, Long Term Strategy for National Economy Product characteristics :

high value added“Clean” productno need for energy resources

Software developmentIT consultations

Hardware architectureNetworking & data

transmission solutions

Banking & financeData transmission & storage IS,Transaction software, Financial

applications, WAP solutions, Clienthandling systems

Wireless & cablecommunications

Data transmission & storage IS, Largecustomer registers, WAP solutions, Call

Centers, ASP solutions

Public institutionsBusiness process re-engineering,

Integrated networks, ASP, Databases &data storage, Specific applications

TransportEDI systems, warehousing, distribution &

transport software, aviation software

HealthcarePatient & case-record registers, medical

equipment support software, telemedicine

Education & scienceLAN, Internet & Intranet solutions, Digital

signal processing

Service & manufacturingClient handling systems, Accounting &

financial software, Network architecture,WEB solutions, office software, ASP

services

LATVIAN ICT SECTOR The main specialisations and products

LATVIA: A PART OF THE NEW ECONOMYVision of Latvia’s IS cluster by 2010Latvia would be a leading software services

exporter in Eastern EuropeCluster of more than 10 000 qualified specialistsAnnual export of services over 1 billion USDSourcing of additional HR from Russia and

BelarusProvision of ASP services, know-how and

productsCurrent expertise in implementing large-scale

projects would be enhanced by 2010Establishment of an R&D center for the

development of IS projects

GOVERNMENT SUPPORTS DEVELOPMENT OF KNOWLEDGE BASED SECTORSIS cluster Articulated and agreed cluster strategy (vision, mission and values) IS Cluster Code of Ethics signed by all involved companies Back – office: Cluster resources pool and costs assessed Several legislative initiatives started with government of Latvia Communication network created - www.is.lv

Role of Government : State aid to export marketing and export training Development of IT education and professional standards Support to IT University College network Development of Postgraduate IT&T professional training centre Participation in process of improvement of business environment (through identification of the main problems and legislative initiatives)

•EU and US IT course programs have been adopted, certified and are used in Riga Technical University, the University of Latvia, and the Institute of Transport and Communications

•Significant support / donations: Siemens, CISCO, FESTO, IBM, Samsung Electronics

•Practical IT skills are acquired in Latvian software houses

•Local firms provide significant contribution (research prizes, scholarships, donations, etc.)

•University and company collaboration to promote the interest of youth in IT

•Centre of Competence: MII, University of Latvia and DATI Group

•Collaboration for advanced mainframe studies: Exigen, UoL, ITC

INDUSTRY – UNIVERSITY COLLABORATION

25382940

3876

4804 4961

0

1000

2000

3000

4000

5000

6000

1998/99 1999/00 2000/01 2001/02 2002/03

Number of IT students

Source: Ministry of Education and Science

RAPIDLY GROWING AMOUNT OF IT STUDENTS

Priorities in 2004

•Keep No of graduates

•Doctor level students

•Quality of education

•Life-long learning

CREATION OF IT UNIVERSITY COLLEGE NETWORK IN LATVIA

Universities

Professional education (colleges & adult training)

Regional Centres of Competence

•Valmiera Cybercity project

•Ventspils ITTE

•Jelgava Bioinformatics Centre

Baltic network of Private Baltic Computer Academy

2500 students – HP, IBM, Microsoft, Novell, CIW

Cycle of Reform

1. Identification of

problems

2. Government/

business dialogue

3.Implementation

by decision-makers

4. Monitoring and evaluation to assess impact

Political Champion - Deputy Prime MinisterInstitutional Partners:Institutional Partners:

Foreign Investors Council in Latvia Foreign Investors Council in Latvia (FICIL)(FICIL)

Latvian Chamber of Trade and Latvian Chamber of Trade and IndustryIndustry

Foreign Chambers of CommerceForeign Chambers of Commerce

National Economy Council National Economy Council

Industrial Clusters (ICT)Industrial Clusters (ICT)

Small and Medium Business CouncilSmall and Medium Business Council

Other Industry Business AssociationsOther Industry Business Associations

UPGRADING OF INNOVATION CLIMATE

Friendly Business Environment for ICT

• “Green Card” scheme for highly qualified IT professionals Simplified immigration and employment conditions for

up to 90 days for up to 100 ICT professionals per calendar year Short-run remedial solution: designed and implemented by

LIDA

• Fiscal (Tax) Incentives for Diploma Education• Non-application of salary tax for employer’s expenses for

diploma education of employees in ICT areas• Long-run stimulus: researched by Ernst&Young by LIDA

commission• Responsible institution: Ministry of Finance• Planned to come into effect June 2004

SOFTWARE OUTSOURCING IN LATVIA - BACKGROUND AND TRENDS

Today•Subcontracting activities, dependent on few

contractors•Lack of critical mass for large projects•Skill sets are fragmented•Key selling factor is still a cost efficiency

Future sector trends•Provision of additional value added services that

are based on core competencies•Capabilities to undertake and manage large scale

projects, need for scalability•Corporate marketing effort, knowledge of key

customers•Developing and maintaining unique knowledge

OPPORTUNITIES

need to innovate and move up the value chain where cost and price

sensitivities are not as

critical

BALTIC IS CLUSTER INITIATIVE• Initiative of Latvia’s IS cluster• Creating Baltic IT Brand• Provision of joint Baltic

competences to sizeable projects• Collaboration for Global markets• Create Baltic IT Forum / Network

SYNERGY BETWEEN UNIVERSITY AND INDUSTRY

University

Basic research expertise

Scientific exposure &

project acquisition

Solution of fundament

al problems

Market driven ideas

Highly trained staff

IP, revenue

Education of applied

scientists

Research into

innovative products

SuccessFor university

stimulate

needs

provides

generates

For industrypositively affects

necessary for

providesprovides

may

require

benefits

benefits

generates

Based on Ulm university model

Determines key areas

IndustryStudy Programs,

Professional standards

designesorders

Sci. publication

Joint projects

LESSONS LEARNED• Macro:

Innovative, but mostly exogenous, innovation absorbing – specific to transitional economy, in the process of restructuring

Exogenous development is time, capital and space limited The alternative for the future – endogenous innovative

development

• Micro Achieved needed growth of IT graduates (>1000 Y) Network contributes to IT growth Standards implemented Confidence achieved Growth by members and volume (export 55%)

LATVIAN INVESTMENT & DEVELOPMENT AGENCY

Ministry of EconomyBrivibas 55, RigaLV 1519, Latviawww.em.gov.lv

Perses iela 2, Riga, LV 1442, LatviaPhone: +371 7039400Fax: +371 7039401 E-mail: invest@liaa.gov.lvhttp://www.liaa.gov.lv