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This article is based on the contents of «An Analysis and Calculation of the Socio-Economic Consequences of Scientific and Technological Development in a Regional Context», prepared by the «North-West» Centre for Strategic Studies and commissioned by the «Kurchatovsky Institute» in 2007 (Head of Research V. N. Knyaginin, members of the working group E. A. Alexeyeva, M. S. Lipetskaya, V. V. Movily and others).

To guarantee the development of the country’s economy in the new phase, the Russian system of innovation technology must undergo substantial changes — above all in the field of state and corporate control of scientific-technical policy (STP).

Three trends

There can now be hardly anybody in Russia who needs convincing of the necessity of basing the country’s economy on the growth of its innovative segments. It is more important to understand how this growth occurs. Let us establish one thing immediately: the development of a modern innovation technology system in our country is largely being implemented, and will proceed in accordance with general world trends, but undoubtedly with its own national specifics.

The changes in the world innovation environment are currently proceeding in accordance with three trends, dependent in one way or another on state and corporate control of STP.

The First Trend. In developed countries the state, after creating the economic and legal environment for the innovation development of the economy as a priority, largely cedes supremacy in the determination of STP to business, primarily to big business. Corporations that demonstrate the demand for a hi-tech product pay the costs of developing it themselves, so becoming the main motive force of innovation activity in the global economy. In the USA the state’s share of expenditure on Scientific Research and Experimental Design (SRED) in 2003 was only 30%, in comparison with over 50% in the early 1980s. In Europe too business is taking on more and more of the costs of SRED. Whereas in Britain and France in the early 1990s over 50% of expenditure on SRED was financed by the state, in 2003 these parameters had been reduced to 30% and 39% respectively, and in the last few years have fallen still further.

According to the data of analysts from the American agency Booz Allen Hamilton, 1000 companies — the world leaders in the volume of expenditure on SRED — spent a total of $407 billion in 2005, whereas in 2004 the figure was $384 million. This means that in 2004-2005 alone expenditure by major corporations on SRED increased by 4.2%. As a whole, the share of private investment in SRED in the «golden billion countries» is now close to 70%.

The second important trend is connected with changes in approach to the control of STP in the corporations themselves. The creation of technologies within major companies (or under their direct control) is becoming an integral part of the business processes of the most competitive corporations. Frequently companies’ research and development departments, thanks not only to their financial capabilities but also to their flexibility and adaptability to market demand, outstrip higher education establishments and scientific research institutions not only in the volume of funds invested, but also in the launching of finished products on the market.

In this situation the role of the traditional research structures — universities, academic and associative scientific research institutes — is radically changing: they are more and more frequently involved in the innovation activity of corporations, becoming part of their scientific-technical policy. The companies, renouncing SRED isolationism, are becoming the clients of scientific centres, forming pools of designers from departments in high-profile educational establishments, scientific research institutes and design bureaux for joint work on specific projects, reserving for themselves a controlling («conducting») function.

As a result of this co-ordinated action, corporations have reduced expenditure on their own SRED in the last three years from 4.5% to 3.5% of total sales, in a period when the volume of SRED outsourcing rose from 20% to 35%. Such indicators are demonstrated by, for example, the American company NineSigma. It has renounced the absolute priority of internal SRED and has extended its co-operation with independent designers and the multinational giant Procter & Gamble ¹. The company has a technical intelligence department with forty employees, whose tasks include seeking and signing contracts with independent designers of new concepts throughout the world. In addition, Procter & Gamble, with the assistance of the Eli Lilly pharmaceutical company, has created a special website — InnoCentive.com, whose database includes over 70,000 innovative designers. The world has even seen the appearance of whole companies that act as innovation technology brokers — «holders» of research networks. The same NineSigma has created a database of scientific research institutes, research centres that are part of various companies, and independent scientists and designers, including more than a million and a half specialists. It is used to seek out innovative ideas and recruit the members of project groups, designing new technologies commissioned by NineSigma’s clients.

Another trend determining the development of the world innovation sector is the global migration of centres of industrial manufacture (the principal contemporary consumer of innovative products) and the consequent relocation of SRED centres. The main motive force for such relocations is also the multinational corporations.

At first the relocation of manufacturing affected low-technology branches of industry — the extraction and initial treatment of natural resources. Then large metallurgical companies extended their operations into resource-purveying countries, and timber-processing operations were relocated in districts of timber procurement (this is also evident in the changes taking place in the timber industry in North-West Russia). All this is being brought about by corporations striving to be closer to their resource base, and also to major ports, by the simplification of logistics, i.e. the access of goods to their consumers. The most attractive countries for the transfer of resource-intensive production are currently considered to be the BRIC countries (Brazil, Russia, India and China). The production of oil, gas and chemicals is being relocated in districts rich in raw materials: the BRIC countries, the eastern Arab countries, Pakistan, Vietnam, and now more and more in Africa.

At the present time major research technology centres of resource branches are being relocated in these countries (an oil and gas technopark in the UAE, research and design centres for technological equipment for the mining industry and metallurgy in China, biotechnological centres in Brazil, and so on).

In the last decade changes in the world’s economic geography have also been taking place in the most technological branches of industry. Developing countries are more and more often being used as outsourcing and offshore zones in car manufacture, ship and aircraft building, precision engineering, electronics and IT. According to the estimates of McKinsey, car manufacture will be relocated still further in the BRIC countries, and the mass civil high-tonnage shipbuilding industry will be transferred from Europe and Japan to Korea and China, where technological centres of shipbuilding, car manufacture, power engineering etc. have been taking shape over the last 20-30 years.

This redistribution of market centres is also leading to the migration of centres of innovation technology. Their proximity to clients and markets (the markets of developing countries are also becoming the main consumer centres) is a token of their long-term competitiveness. This also includes communicational, institutional and cultural accessibility. The attraction of China and India for outsourcing is based, among other things, on the widespread use of English as the language of education, research and technical documentation, which significantly lowers barriers of communication. Since 1993, when Motorola based its first overseas scientific laboratory in China, the number of SRED representations has grown to 700 in that country alone. In India one of the world’s major multinationals, General Electric, has taken on more than 2400 employees for the design of aircraft engines, long-life consumer goods and medical equipment. The pharmaceutical companies Astra-Zeneca, Eli Lilly, GlaxoSmithKline, Novartis, Pfizer and Sanofi-Aventis conduct clinical research in India. All this facilitates not only the active development of the process of transferring technologies to that country, but also the creation of India’s own technological bases, which will enable it to achieve competitive positions in the world technology market: the centres of technology production being formed there are beginning to focus not so much on internal consumption as on the global market.

In Russia — Similar, but Different

What then is the situation in our country? Firstly, it can be said that Russia’s innovative technology system, while remaining an original and independent participant, is being drawn more and more into the global innovation system. A great deal remains to be done, of course, for our innovation environment to become as fertile a ground for the rapid growth of technologies as it is in developed countries. It is essential to finally define intellectual property in legal terms, giving a higher school the freedom to develop on its base numerous small companies, the humus of general innovative growth, and correspondingly to consolidate tax and other preferences by legislation to nourish this growth, without confining it in special zones, etc. However, a general trend is already noticeable.

There is a noticeable redistribution of funds for science and SRED from the state to corporations. For example, the expenditure of «Norilsk Nickel» on SRED is two and a half times greater than the sum Moscow State University allocates to scientific research ². Today the research budgets of oil, gas and metallurgical companies run into billions. However, still greater funding for new knowledge and technology is beginning to be allocated by the state not directly through the budget, but through state corporations that are being created. The three-year budget of «Rosnanotekhnologiy» exceeds 150 billion roubles, and this money is earmarked exclusively for the development of new technology. Substantial funding for SRED is promised by «Rosatom» and «Rostekhnologii», which are coming under enormous pressure from the competitive global environment.

State corporations will have to arrange research work internally, after swallowing up multiprofile companies. Without doubt, in the case of a large corporation, the arrangement of intracorporate outsourcing — between manufacturing and research companies — will happen more quickly. Large Russian corporations, having «privatized» many high-profile educational establishments, also work with them on the principle of intracorporate outsourcing. However, promising ideas may also be developed «on the side», as do «Norilsk Nickel» and Moscow State University in its hydrogen project. «Bazel», «Rusal» and other major Russian corporations have their own departments devoted to the search for new ideas. Banks are also not averse to this: «VTB» has a successful investment subdivision, whose responsibilities include searching for new ideas and presenting them in a venture package.

The very factors of development in the field of innovation technology are changing. The most advanced, developed branches of Russian industry have already completed the first stage of constructing an innovation technology module in the new paradigm. This stage is largely connected with the appearance in the Russian market of leading world companies — equipment suppliers and service companies seeking to relocate their service centres closer to the market. For example, major suppliers of mining equipment have already arrived in Kuzbass: «JOY» (USA/Britain), «DBT» and «Eickoff» (Germany), «Glinik» and «Fazos» (Poland), and others. «Parker Drilling», «Pride», «KCA Deutag», «ENI-Agip» and «Nabors» are drilling in the Khanty-Mansiysk and Yamalo-Nenetsky autonomous republics. Service centres of suppliers of timber-processing machinery are now located in Irkutsk, Arkhangelsk and Vologda.

In the next stage, with the growth of the consumer market for technically complex production, we should expect the relocation of hi-tech manufacturing in Russian regions in the form of outsourcing. We are talking here of entire branches of industry, using Russian qualified personnel and foreign technological bases. Later scientific centres developing hi-tech products will begin to appear in these markets. Moreover, new science and technology modules will be created on a different institutionalised base, where the role of global players will be particularly great.

Table 1.

Stages of development of traditional and new innovation technology modules in the Russian Federation

The current development of the Russian economy is redrawing the map of the country’s functional macro zones. The geography of the main industrial specializations is also changing. The transport framework is being reorganized. Clusters of logistic and transport services are forming.

We are seeing a shift of manufacturing to new regions in the country. In the raw materials sectors of the world «raw material supercycle» economy, as a result of the exhaustion of known resources, there is an incentive to discover new sources of raw materials. This has led to the appearance of new areas of exploration, primarily in the north and east of Russia.

Along with the relocation of extraction work, the geography of manufacturing output is also changing. This also applies to large-tonnage raw material production relating to the initial treatment of hydrocarbons: the manufacture of mineral fertilisers, synthetic rubber, technical carbon, caprolactam, and so on. Its capacity (and most of these products are for export) is reaching its limit. New manufacturing output is being located on industrial sites in Tobolsk or Surgut, planned in Soviet times, or on sites close to major transport hubs in direct proximity to export markets, and in places convenient for gas connection. Also, as a result of the exhaustion of workable deposits of iron ore, chiefly in the Urals and in Siberia, the question of transferring metallurgical plants (or creating new ones) in the north and east of the country is being raised.

The growth of the domestic market is creating the conditions for an increase in the mechanical engineering sector, orientated, on the one hand, towards end-users (for instance, the manufacture of cars and car components), and, on the other hand, towards investment (the production of heavy mechanical engineering and metal-working). A cluster of car component manufacturers has actually been formed in the central and north-western regions of Russia.

In common with world trends, the relocation of consumer markets for hi-tech products will bring with it the migration of scientific-technical modules. More dynamic will be the science and technology centres, working in liberalized markets, integrated both corporately and institutionally into the global economy. If centres orientated towards industrial consumption follow extraction and mechanical engineering production to the new Russian regions, companies orientated towards the supply of technology to end-user markets (again car manufacture) will, in future, be concentrated near the major consumer markets — Moscow, St. Petersburg and other large cities. As far as the protected markets, particularly the defence, space and nuclear industries, ship and aircraft building are concerned, in the medium term they are most likely to retain their current scientific bases established in the previous stage of the country’s development, stationary in both geographical and institutional terms.

It has to be said that in order to relocate innovation technology clusters in the Russian territories, the environmental improvement of those areas will have to be tackled seriously, and specialized markets for educational services and labour organized. There is already a clear tendency in the world for hi-tech clusters to actually formulate the specific organization of the places where they are located, leading to «IT» and «Bio» cities, «aerotropolises», and so on.

As yet the shift of industry to the east is not guaranteed to a sufficient extent by innovation technology. Virtually all the major sectors of the innovation infrastructure are concentrated in the west of Russia, primarily in the highly-populated cities. At the same time, the old industrial regions are facing another problem: they will not have sufficient new industrial parks to accommodate new businesses («Greenfields»), or technical parks for design and technology. For them the burning question will be how to retain on their territory innovation technology modules of branches of industry that have effectively already emigrated.

Barriers to Innovations

The creation of new scientific-technological centres in the country’s territories requires the solution of a number of substantial problems, and will take place in several stages.

The creation and development of new science and technology clusters will, of necessity, be carried out in conditions where the consumer market for Russian innovation technology is not yet fully formed. Most Russian innovation consumers are not yet prepared to be fully-fledged clients: this will take time, so the designers of scientific products will have to aim towards future market demands.

The majority of corporations that are capable of being the driving force for the development of science and technology have not yet established internal systems of «knowledge management». Meanwhile, major western companies, operating according to the strategy and canons of «knowledge management» technology, have included in their own systems exchanges of innovation technology and scientific knowledge with leading Russian technical colleges and research centres. Multinational companies have located their research subdivisions in Russia, and they form the backbone of the innovation sector of the Russian economy ³. The aim of these corporations is, above all, the reduction of research costs by employing cheaper highly-qualified personnel, and also comparatively inexpensive access to the designs of Russian scientific organizations. The research undertaken by the subdivisions of these multinationals is mainly of an applied character.

Another barrier for the innovation technology sector is the country’s shortage of scientific personnel with the necessary qualifications. Russia has the world’s fifth largest number of workers in the research and design sphere — 144 for every 1000 people, but we are only 24th in expenditure on SRED and gross domestic product (data for 2004). Russia comes almost bottom in the index for quotes from scientific works and in the number of patents granted, which demonstrates the ineffectiveness of Russian scientists’ research work.

This shortage of scientific personnel will only increase. According to data produced by the Social Information Agency, no more than 10% of Russian postgraduates go on to work in scientific jobs. The average time a young scholar spends in science is 6-7 years, but four of these are spent in writing a dissertation. A third of the permanent teaching staff at Russian higher educational establishments are over 60 years of age.

Another problem is that Russian higher educational establishments are not significant players on the technology market. Research and educational activity in Russian higher educational establishments are separate, unlike American and European research universities, where graduates have far more opportunities to participate in design projects than their Russian counterparts. The share of higher educational establishments in the Russian research and design market does not at present exceed 5%, and it is largely research financed by the state and not by business. In the establishments themselves expenditure on research accounts for only a few per cent of the total budget, substantially lower than in the world’s most powerful universities.

The problem of the development of the sector is that traditional higher educational establishments and scientific research institutes are outside the market centres where the clients for innovation technology are concentrated. For example, many of the high-profile educational establishments training chemical specialists (the Gubkin State Oil and Gas University, the Mendeleyev Russian Chemical-Technological University, the Lomonosov Moscow State Academy of Fine Chemical Technology, the Open University, the Textile University and others) are located in Moscow. At the same time, Astrakhan, Voronezh, Omsk and Ryazan, relatively major centres of oil and gas chemistry, do not have their own higher chemical-technological educational establishments or even the corresponding faculties.

A significant responsibility for the solution of all these difficult problems lies with the corporations. The state’s task is to co-ordinate the development of a science and technology module by «mild» means of control, including a cluster policy, and national and regional foresight. Above all, however, the state must convincingly demonstrate by its actions its interest in carrying out a distinct technological policy.

1. Whereas in 1970 only 5% of international patents were granted to private inventors, the number has now risen to a third and is still growing. Experts believe that it is difficult for a company with a turnover of $50 billion to achieve substantial growth based only on its own ideas. In order to increase sales to $100 billion, 500 new products with a turnover of $100 million each or 50 products with a turnover of $1 billion are necessary.

2. www.asi.org.ru

3. This differs from the previous strategy of foreign companies of employing Russian specialists in their research and design departments. Now, according to expert opinion, research and design is largely outsourced (especially if the basic processes, in particular management and marketing, and also the finding of a niche in the market, remain with the client).