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The LATVIAN IS CLUSTER: CASE OF INDUSTRY – UNIVERSITY COOPERATION

The LATVIAN IS CLUSTER: CASE OF INDUSTRY – UNIVERSITY COOPERATION. Valdis Avotins, Latvian Investment & Development Agency. WB KE Forum III, Budapest, March 23-26 , 200 4. C ONTENTS. 1. what did we have starting point reforms completed industry clusters 2. what we do have

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The LATVIAN IS CLUSTER: CASE OF INDUSTRY – UNIVERSITY COOPERATION

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  1. The LATVIAN IS CLUSTER: CASE OF INDUSTRY – UNIVERSITY COOPERATION Valdis Avotins, Latvian Investment & Development Agency WB KE Forum III, Budapest, March 23-26, 2004

  2. CONTENTS • 1. 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

  3. LATVIA: CRISIS, STABILIZATION, REFORMS AND DEVELOPMENT (but what kind of?) GDP/per capita 1st phase - degradation (till 1991) 6th phase –endogenous innovative economics (2005 - …) 2nd phase - riddance (1991-1993) Inflation 3rd phase - stabilization (1993-1994) 5th phase –exogenous innovative economics (2000 -2005) 4th phase - recovery (institutional reforms: 1994-2000) Prof. U.OSIS

  4. LATVIA: GROSS DOMESTIC PRODUCT GDP at constant prices (changes in % of previous period) Long-term strategy Reforms in Latvia Privatization of large enterprises Riga Stock Exchange Latvian Privatization Agency Latvian Development Agency LVL Stabilization policy Fiscal and monetary policy Price liberalization Prof. U.OSIS

  5. 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

  6. LONG TERM ECONOMIC STRATEGY(2001) INNOVATION POLICY (2003) • 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-industrialknowledge-intensivesectors 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

  7. 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)

  8. 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

  9. ROLE OF INFORMATION SYSTEMS SECTOR IN LATVIAN 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” product • no need for energy resources

  10. Public institutions Banking & finance Software development Business process re-engineering, Data transmission & storage IS, Integrated networks, ASP, Databases & IT consultations Transaction software, Financial data storage, Specific applications applications, WAP solutions, Client Hardware architecture handling systems Networking & data Transport transmission solutions EDI systems, warehousing, distribution & Wireless & cable transport software, aviation software communications Healthcare Data transmission & storage IS, Large customer registers, WAP solutions, Call Centers, ASP solutions P atient & case-record registers, medical equipment support software, telemedicine Service & manufacturing C lient handling systems, Accounting & Education & science L financial software, Network architecture, AN, Internet & Intranet solutions, Digital WEB solutions, office software, ASP services signal processing LATVIAN ICT SECTOR The main specialisations and products

  11. LATVIA: A PART OF THE NEW ECONOMY Vision of Latvia’s IS cluster by 2010 • Latvia would be a leading software services exporter in Eastern Europe • Cluster of more than 10 000 qualified specialists • Annual export of services over 1 billion USD • Sourcing of additional HR from Russia and Belarus • Provision of ASP services, know-how and products • Current expertise in implementing large-scale projects would be enhanced by 2010 • Establishment of an R&D center for the development of IS projects

  12. GOVERNMENT SUPPORTS DEVELOPMENT OF KNOWLEDGE BASED SECTORS • IS 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)

  13. INDUSTRY – UNIVERSITY COLLABORATION • 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

  14. RAPIDLY GROWING AMOUNT OF IT STUDENTS • Priorities in 2004 • Keep No of graduates • Doctor level students • Quality of education • Life-long learning Number of IT students Source: Ministry of Education and Science

  15. Universities Professional education(colleges & adult training) CREATION OF IT UNIVERSITY COLLEGENETWORK IN LATVIA • 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

  16. 2. Government/ business dialogue 1. Identification of problems 4. Monitoring and evaluation to assess impact 3. Implementation by decision-makers Cycle of Reform UPGRADING OF INNOVATION CLIMATE • Institutional Partners: • Foreign Investors Council in Latvia (FICIL) • Latvian Chamber of Trade and Industry • Foreign Chambers of Commerce • National Economy Council • Industrial Clusters (ICT) • Small and Medium Business Council • Other Industry Business Associations Political Champion - Deputy Prime Minister

  17. 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

  18. 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

  19. 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

  20. For university Scientific exposure & project acquisition Success Joint projects SYNERGY BETWEEN UNIVERSITY AND INDUSTRY Education of applied scientists benefits positively affects For industry Solution of fundamental problems Sci. publication benefits may require IP, revenue generates Research into innovative products necessary for generates Basic research expertise provides Highly trained staff stimulate Market driven ideas Determines key areas provides provides needs University orders Industry designes Study Programs, Professional standards Based on Ulm university model

  21. LESSONS LEARNED • Macro: • Innovative, but mostly exogenous, innovation absorbing – specific to transitional economy, in the process of restructuring • Exogenous development istime, 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%)

  22. LATVIAN INVESTMENT & DEVELOPMENT AGENCY Perses iela 2, Riga, LV 1442, Latvia Phone: +371 7039400 Fax: +371 7039401 E-mail: invest@liaa.gov.lv http://www.liaa.gov.lv Ministry of Economy Brivibas 55, Riga LV 1519, Latvia www.em.gov.lv

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