Study on Innovative Potential of Central Transdanubia

Study of the innovative potential of Region of Central Transdanubia

Study of the innovative potential of Region of Central Deliverable: Transdanubia Work Package: 3 Situation and Best Practice Analysis 3.1 Preparation of studies on the innovative potential of Activity: FIDIBE partners regions WP Responsible Centre for Research and Technology Hellas (CERTH) partner Version: Final Date: 10/2009 Type: Report Responsible Mid-Pannon Regional Development Company Partner: Ákos Szépvölgyi, External Expert Authors:

Székesfehérvár, October 2009

1 „This project is funded by the European Union and co-funded by the Hungarian Government in the framework of the South East Europe Transnational Cooperation Programme”

CONTENT

ABSTRACT ...... 3 I. EXECUTIVE SUMMARY ...... 4 II. REPORT ON REGIONAL SITUATION ...... 8 II.1. INTRODUCTION ...... 8 II.2. SPECIFIC CHARACTERISTICS OF THE REGION ...... 9 II.2.1. Geopolitical environment, location in the European space, the special features of internal spatial structure ...... 9 II.2.2. The Region’s social characteristics ...... 12 II.2.3. Economic background ...... 15 B Economic performance ...... 15 C Foreign capital ...... 18 II.2.4. R&D situation ...... 20 A Higher education ...... 20 B Research and development ...... 24 II.3. SWOT ANALYSIS OF THE REGION ...... 26 III. MAIN ACTORS OF INNOVATION ...... 29 III.1. GENERAL SITUATION OF THE BUSINESS SECTOR ...... 29 III.1.1. The fundamental characteristics of enterprises ...... 29 III.1.2. The characteristics of innovative enterprises ...... 32 III.1.3. Experiences and behaviours of enterprises ...... 39 III.2. MAIN ACTORS CONTRIBUTING TO THE DEVELOPMENT OF INNOVATIVE CAPABILITY ...... 51 III.2.1. Industrial parks ...... 51 III.2.2. Incubator houses, clusters ...... 53 III.2.3. The special forms of innovative cooperation ...... 57 III.3. ENTREPRENEURSHIP POLICIES AND INITIATIVES ...... 60 II.3.1. Regional Innovation Strategy ...... 60 II.3.2. The situation of start-up/new-born innovative enterprises ...... 62 II.3.3. Supporting programmes ...... 64 II.3.4. Experiences on related domestic and EU funding resources ...... 68 II.3.5. Current funding resources ...... 74 II.3.6. Available and implemented EU programmes in the Region...... 82 III.4. SWOT ANALYSIS OF THE BUSINESS SECTOR ...... 86 IV. SUGGESTIONS AND PROPOSALS ...... 88 V. MAIN CONCLUSIONS ...... 91 BIBLIOGRAPHY ...... 92

2 „This project is funded by the European Union and co-funded by the Hungarian Government in the framework of the South East Europe Transnational Cooperation Programme”

ABSTRACT

The Study of the innovative potential of Region of Central Transdanubia is reviewing the current innovation potential of the Region as the 3.1. activity of the FIDIBE project. The study summarizes the structure forming economic and social background, the situation of business sector, the main actors of innovation development, and the entrepreneur policies and initiatives. By the review of the current situation the study identify the fields of further development and make suggestions for the development of the regional innovation system. By doing so, the study supports further activities of the FIDIBE project, and using common methods of investigation it gives the opportunity to compare the results with other investigated regions.

3 „This project is funded by the European Union and co-funded by the Hungarian Government in the framework of the South East Europe Transnational Cooperation Programme”

I. EXECUTIVE SUMMARY

Overall situation of the region

After the political transformation structural changes of fundamental importance underwent in Central- Transdanubia. One of the most important elements of these changes was that the economy has lost its agricultural-industrial character and by the end of the 1990s industry or more precisely processing industry had become the dominating sector of the region’s economy. Another important feature of these changes is that the typically quantitative changes of the 1990s (a rapid growth in the number of enterprises and in the number of low-skilled labour) were followed by qualitative changes emerging in the early 21th century. This means among others the emergence of new manufacturing and complementary industries in the region enabling the modernization of economic activities and the innovation-oriented development to undergo in the region’s economy.

Industrial restructuring at the late 1990s has definitely resulted in the dominance of machine industry. The number of businesses engaged in machine industry is approximately 900 in the region. Of them the activities of big firms in vehicle industry are considered the most important.

It is important that in the late 1980s Central-Transdanubia Region just like Hungary’s other regions had to face rapid and comprehensive socio-economic changes. The market and sales relations of the region’s economy having mostly been based on trading with socialist countries collapsed and the region’s economic performance and industrial production volume dropped significantly. Now we can take it for granted that the region not only survived the changes but with West-Transdanubia and with the agglomeration zone of Budapest it has developed into Hungary’s one of the most dynamically developing area. Since the early 90s its economic role by far has been surpassing the position it should fill in by its territorial and population size. The success of transformation can be verified by the fact that the value and dynamics of general indicators used for measuring economic development have been higher than the national average since the early 90s and these are accompanied with favourable employment indicators as well. By GDP per capita indicator the Region is the country’s 2nd most advanced area with 10% contribution rate to the national GDP. Industry has a determinant role in the GDP production of Central-Transdanubia. The ratio of servicing sectors in GDP production is lower than the national

4 „This project is funded by the European Union and co-funded by the Hungarian Government in the framework of the South East Europe Transnational Cooperation Programme”

average and the role of agriculture is minimal.

R&D capacities

The R&D and higher education development of the Region is paradox. The regional system of higher education – just like in the past years – is still dominated by social sciences, business and technology oriented training programmes, i.e. these are the courses having been attended by the majority of students in the academic year of 2007-2008. It was the training courses in economics (business) and engineering that were the most popular having been attended by 47.7 per cent of the region’s students. Courses held in the faculties of health, agricultural and physics had the least audience within the same academic year.

The R&D sector have been determined by the fact that between 1977 and 2007 the number of research organizations rapidly increased in Hungary but the volume of growth was different in each region. By the early years of our decade the region – thanks to the growing number of research organizations with a homogenous spatial distribution in all of its constituent counties – was able to close up to the other regions and its number of research organizations now is exceeding the figures of West-Transdanubia and North-Hungary. However in the past few years the process of this spectacular growth seems to halt in Central-Transdanubia Region. We can observe an intensive growth in the number of research organizations on regional level until 2004. In 2005 however due to a sharp drop in the number of research organizations in Veszprém County a fallback is seen but this was followed by another period of expansion which was principally due to an increase in the number of research organizations in Fejér County.

General situation of the business sector

It was a typical phenomenon in Hungary that the overwhelming majority of state property concentrated in the hands of big firms which were split up or closed following their privatization or as a consequence of changes in the market. Their positions were filled in partially by multinational and partially by newly formed Hungarian companies. However the majority of these newly founded Hungarian firms were small business enterprises only. All these increased the role of SMEs in Hungarian economy. By the end of year 2007 the great majority of the Hungarian business organizations employed a staff less than 250 and the number of firms with staff over 250 was 900 only.

Further important characteristics is that the contribution of businesses to the GDP was different in each region in 2006. It can be stated that their contribution to the GDP was greater in economically more advanced regions than in less advanced ones. In Central-Hungary, West-Transdanubia and Central-Transdanubia two-thirds of the region’s overall economic performance was generated by profit-oriented organizations. These are the three regions that have attracted the majority of investors and foreign capital.

By innovation activity Central-Transdanubian enterprises can be regarded the most successful. The ratio of enterprises implementing successful development plans was the highest in this region. Furthermore in this region every second business organization has invented not only new products and services but also introduced new methods having not applied before. Investigating innovative enterprises from the aspect of economic sectors it

5 „This project is funded by the European Union and co-funded by the Hungarian Government in the framework of the South East Europe Transnational Cooperation Programme”

can be observed that in Central-Transdanubia Region following the national average mostly manufacturing firms have implemented innovation activities.

Main actors of innovation

Hungary has 204 industrial parks now and their spatial distribution shows a relative homogeneity not reflecting the otherwise existing regional disparities. Hungary’s 204 industrial parks are hosting 2016 firms and enterprises. The industrial parks of Central-Transdanubia Region are hosting the highest number of enterprises (400) surpassing the figures of Central-Hungary and Central-Transdanubia Hungary’s two economically most advanced regions. A special feature of industrial parks is that they are not profiled for providing innovation and technology transfer services for their enterprises. The region’s typical feature is that the tasks of innovation and technology transfer centres are merged so incubator houses are providing such type of services as well. The region has four incubator houses such as the Enterprise Centre and Incubator House of Technology in Székesfehérvár, the Regional Innovation Centre of Veszprém, Entrepreneurs’ House in Komárom and Innopark Incubator House of Technology in Dunaújváros.

Clustering process which has become an indispensable organizational form for the successful operation of an innovation system has been accelerated in Central-Transdanubia during the past few years but it still does not play a determinant role in the region’s economy.

Entrepreneurship policies and initiatives

The actors of the regional innovation policy of Central Transdanubia Region – preferably the Regional Innovation Council of Central Transdanubia (Hungarian abbreviation: KDRIT) and Regional Innovation Agency of Central-Transdanubia (Hungarian abbreviation KDRIÜ) – prepared the updated regional innovation strategy (RIS) of Central Transdanubia in February 2009.

The document – in accordance with the ‘Cohesion Policy in Support of Growth and Jobs’ Community Strategic Guidelines following the principles of the renewed Lisbon Agenda – is targeted at promoting innovation- oriented growth, at better employment and at increasing competitiveness in areas as regional economic networks and business environment. For this reason it encourages and favours investments in areas with high development potentials and investments aimed at economic growth and better employment.

A highligted element of enterprise support is the Technology Incubation Programme (TIP) starting in 2009. TIP provides incubation services for innovative, R&D enterprises with high development prospects needing technology incubation by an active involvement of private investors and by offering fair compromises, guarantees and advantages for stakeholders in return for participating in the programme. A major goal of this programme is providing support for enterprises needing primarily technology incubation as the highest potentials and start-up risks are bound to this segment. Summary

By the described characteristics, current development of Cenrtral Transdanubia shows some positive and some negative tendencies, as well. The following priorisation matrix shows them and their coherence with 6 „This project is funded by the European Union and co-funded by the Hungarian Government in the framework of the South East Europe Transnational Cooperation Programme”

development perspectives:

Possible impact High Medium Low Global economic Clusterization has already started integration Low level of Hungarian R+D+I

Concentration of industrial parks Forming of international financing Innovative co-operations innovation policy Sectoral diversity High External-internal peripheries Capital supply of SMEs High level of employment R+D+I activity is lower than the is weak Increasing role of knowledge economic potential Innovation services have industries to be developed Adaptation of European Good international appreciation of Improving R+D indicators innovation policy Ch a nce o f ccur r ing Medium the Region Incalculable financing Lack of technology Low level of industrial added value incubation Co-operation among the cities of Supply-demand issues Low Urban tetraeder Higher added value of FDI of university education Decentralization On the basis of the above listed set the current and potential major problems for the region’s innovative enterprises may be summarized as follows:

· Innovation activities in Hungary are one-sidedly process industry oriented · The dominance of manufacturing can be experienced in carrying out innovations. · The embedment of higher education into the innovation chain is inappropriate. · The adaptation of external knowledge into the innovation activities of SMEs remains low. · Business environment still favours implemented developments and investments to be funded by own resources. · The absence of private investors in the early life cycle of businesses in Hungary. · Obtaining bank financing resources is difficult. · Businesses carry out developments on their own, their inclination for cooperation is low · The number of patent applications is low and showing a declining tendency · The majority of incubator house development projects are focusing on infrastructure meeting in this way only a small part of the demands of the real target group.

Consequently, we should not neglect those deficiencies or problems the region’s innovative enterprises are still facing now. The aforementioned sectoral heterogeneity, the inadequacy of policies, the limited access of to investment funds for start-up and spin-off businesses, the insufficiency of R&D capacities, the low inclination for cooperation and the problems of the region’s internal capacities are all crying for a further strengthening of the region’s internal cohesion. Of the proposals having formulated above are all – without exception – aimed at increasing the efficiency of these functions and at the same time they also provide a basis for the further activities of FIDIBE project.

7 „This project is funded by the European Union and co-funded by the Hungarian Government in the framework of the South East Europe Transnational Cooperation Programme”

II. REPORT ON REGIONAL SITUATION

II.1. Introduction

After the political transformation structural changes of fundamental importance underwent in Central-Transdanubia. One of the most important elements of these changes was that the economy has lost its agricultural-industrial character and by the end of the 1990s industry or more precisely processing industry had become the dominating sector of the region’s economy. Another important feature of these changes is that the typically quantitative changes of the 1990s (a rapid growth in the number of enterprises and in the number of low- skilled labour) were followed by qualitative changes emerging in the early 21th century. This means among others the emergence of new manufacturing and complementary industries in the region enabling the modernization of economic activities and the innovation-oriented development to undergo in the region’s economy.

The transformation process was dominated by such factors such as changes in the organization system of economic structure, the increasing amount of foreign direct investments, the sectoral restructuring of the enterprises’ profile or the increasing catalytic effect of Hungary’s economic development axes. The indicators of the changing organizational structure are the increasing number of medium- and big-sized firms and the consolidation of Hungarian SMEs. However quantitative changes are not always followed by desirable qualitative changes. This can be verified by the fact that the local relation systems of big firms are still weak and their local supplier system has only partially been built. For this reason local SMEs failed to integrate into the local production chain in an adequate way.

The sectoral restructuring of economic activities has definitely favoured for tertiary sector by increasing its role in the economy. It has significantly improved the environment for innovations and increased the share of IT, planning legal, financial, marketing and labour organization activities assisting to the process of production.

Foreign ventures engaged principally in mechanical engineering were very important driving forces of the restructuring process. Their immigration quickly increased the productivity of industry but their activities in the majority of cases are limited only to assembling different

8 „This project is funded by the European Union and co-funded by the Hungarian Government in the framework of the South East Europe Transnational Cooperation Programme”

product modules and partial components, the number of businesses manufacturing complete products is too few which explains the low number of sub-contractors and suppliers as well as the low rate of local resources involved into production. This is also a sign of their low embedment into local economy.

The positive impacts of Vienna-Budapest axis may be a further catalysing factor of restructuring. This is directly felt on the northern part of the region principally in Komárom- Esztergom County but it also has positive indirect effects on the economy of the other parts of the region (mostly in the urban zones of Székesfehérvár and Veszprém).

II.2. Specific characteristics of the Region

II.2.1. Geopolitical environment, location in the European space, the special features of internal spatial structure

Central-Transdanubia has very favourable geographical location and geopolitical position. The region is situated in the intersection of Central European development zones. One of these zones has been formulated around the neighbourhood of Prague which is continuing through the South-Bavarian innovation axis and then extended with the Vienna-Bratislava- Győr zone and now merged with the Central-Transdanubian region the line is finishing its way in Budapest. The other line of development is going along the Mediterranean “sunbelt zone” starting from the Venice-Trieste-Ljubljana line and continuing its way towards Budapest. Both lines are crossing the region which makes possible that European development zones and trends could positively influence the region’s development.

9 „This project is funded by the European Union and co-funded by the Hungarian Government in the framework of the South East Europe Transnational Cooperation Programme”

Figure 1: Central Transdanubia Region in the European space Source: Decisions of the Pan-European Conferences of Ministers responsible for Transport;

Due to its favourable geographical location, economic and social openness and to its new economic relations the region is unanimously oriented towards the European Union; it is a part of the European economic space. At the same time none of the region’s cities may be regarded as cities with central role in a European dimension. The region’s economic development level is below the average of the extended EU.

The region’s development is ultimately determined by its distance from the European economic core areas but its relations with the neighbours have similar importance. After joining the EU with the similarly advanced Slovakian neighbour regions of Central Transdanubia the intensity of cross-border economic and institutional relations between the two regions significantly increased. Due to this fact the development of the region’s northern borderland territories have become more dynamic.

The efficient (co-)operation of the region’s dual growth centres with sub-centres is the primary factor of the sustainable growth of the region’s innovation-oriented economy. Dual growth centres increasing the competitiveness of the whole region (Székesfehérvár, Veszprém) and sub-centres (Tatabánya, Dunaújváros) as elements of an urban tetraeder model

10 „This project is funded by the European Union and co-funded by the Hungarian Government in the framework of the South East Europe Transnational Cooperation Programme”

are the central parts of the region’s polycentric urban network.

Figure 2: The communication channels crossing Central Transdanubia Region Source: own edition

This network is functioning as an intermediary agent for the region’s development resources (innovation, capital) facilitating their flow towards their wider space and integrating them into the European global economic and innovation systems fostering in this way the increase of regional and national competitiveness and intensifying socio-economic cohesion. Regional dual growth centres have fundamental role in employment, higher education, research activities, their cooperation can be characterized by the concentration of economy producing extremely high added value. Regional sub-centres are performing additional, complementary functions in this process. Besides big cities quite a few medium-sized cities and their urban areas are functioning with organic development and characteristic development potentials. Several of them are bearing thematic economic functions of national or regional importance: Pápa (enterprises engaged in food industry and electronics, medium-level education centre), Gárdony and Balatonalmádi (tourism, valuable natural resources), Balatonfüred and Tata (tourism – built and natural values), Bicske (logistics), Esztergom (tourism, national centre of

11 „This project is funded by the European Union and co-funded by the Hungarian Government in the framework of the South East Europe Transnational Cooperation Programme”

religion, vehicle manufacturing), Komárom (river cross-point, developing electronics industry), Mór (wine district centre, active SME activities).

In some areas are a series of small towns and medium-sized cities - (e.g. Ajka, Várpalota, Dorog, Zirc, Oroszlány) having been built during a period of industrialization following World War II in the Transdanubian Mountains for the utilization of the local axis of energy resources – are dominating.. Although their restructuring process started during the last one and a half decade their economy is still dominated by elements of heavy and energy industry (e.g. there is still a chemical industry zone in operation with coal fuelled power plants between the cities of Várpalota and Veszprém).

Of the other microregions with small and medium-sized town centre the areas dominated by agriculture are worth mentioning (Aba, Adony, Ercs microregions as well as the external and internal peripheries having the worst socio-economic indices within the region; the microregions of Enying, Sárbogárd, Sümeg, Tapolca and Kisbér).

II.2.2. The Region’s social characteristics

Central-Transdanubia Region now has 1.1 million inhabitants. Between 1997 and 2007 this figure dropped in similar way to the national average though compared with other regions with dropping population this region’s drop rate was the smallest. Of the Hungarian planning- statistical regions only Central-Hungary and West-Transdanubia could boast with increasing population but this originated from migration surplus only.

Figure 3: Changes in the population of Hungarian regions between 1997 and 2007 (%) Source: TEIR REMEK database 12 „This project is funded by the European Union and co-funded by the Hungarian Government in the framework of the South East Europe Transnational Cooperation Programme”

In case of Central-Transdanubia Region population drop is originating from natural mortality exceeding the figures of migration surplus.

Figure 4: The migration balance of Hungarian regions between 2002 and 2007(The difference between immigration and outmigration rates per 1000 heads) Source: TEIR REMEK database

Analysing the population by age group it seems that in Central-Transdanubia the ratio of active-aged population perfectly matched with the national average during the whole research period (regarding both the absolute value and the ratio of change). The nearly 60 per cent ratio of the 18-59 year age group is counterbalanced by the opposite trend of the age groups of 0- 17 and of above 60.

Figure 5: The distribution of population by age group 1995 – 2005 (%) Source: KSH TSTAR 13 „This project is funded by the European Union and co-funded by the Hungarian Government in the framework of the South East Europe Transnational Cooperation Programme”

By taking a glance on unemployment data it is seen that Central-Transdanubia Region’s unemployment data were by far better than the national average during the whole research period. In Hungary it is only West-Transdanubia and Central-Hungary regions to have better indicators in this field than Central-Transdanubia.

Figure 6: Unemployment rate in Hungarian regions 2002-2007 (%) Source: TEIR REMEK database

The impacts of the global economic crisis have been felt since 2008. The ratio of dismissals and massive lay-offs is the highest in Central-Transdanubia Region. The concentration of enterprises maintaining close business contacts with West-European and global firms engaged in sectors worst hit by the global economic crisis is the highest here. The largest volume of dismissals can be observed in Komárom-Esztergom County and the smallest in Veszprém County. The highest ratio of jobs – eighty per cent of all the redundant jobs – was terminated at motor car industry and telecommunication supplier firms but also in the building industry sector.

14 „This project is funded by the European Union and co-funded by the Hungarian Government in the framework of the South East Europe Transnational Cooperation Programme”

Figure 7: Changes in the figures of unemployment in microregions between October 2008 and April 2009 Source: ÁFSZ

II.2.3. Economic background

B Economic performance

In the late 1980s Central-Transdanubia Region just like Hungary’s other regions had to face rapid and comprehensive socio-economic changes. The market and sales relations of the region’s economy having mostly been based on trading with socialist countries collapsed and the region’s economic performance and industrial production volume dropped significantly. Now we can take it for granted that the region not only survived the changes but with West- Transdanubia and with the agglomeration zone of Budapest it has developed into Hungary’s one of the most dynamically developing area. Since the early 90s its economic role by far has been surpassing the position it should fill in by its territorial and population size. The success of transformation can be verified by the fact that the value and dynamics of general indicators used for measuring economic development have been higher than the national average since the early 90s and these are accompanied with favourable employment indicators as well. By GDP per capita indicator the Region is the country’s 2nd most advanced area with 10% contribution rate to the national GDP.

15 „This project is funded by the European Union and co-funded by the Hungarian Government in the framework of the South East Europe Transnational Cooperation Programme”

Figure 8: Contribution to the national GDP, GDP per capita, 2006 Source: KSH

Industry has a determinant role in the GDP production of Central-Transdanubia. The ratio of servicing sectors in GDP production is lower than the national average and the role of agriculture is minimal.

The dominance of industry is verified by the values of industrial manufacturing as well. It is important that the role of Central-Transdanubia is the highest with nearly 15% production growth rate from the country’s 8% annual increase in industrial production in year 2007, with a similar increase in the per capita industrial production value which being 2.6 times over the national average is an outstanding one in Central-Transdanubia. From sectoral viewpoint the role of machine industry and metal processing (aluminium) is outstanding even on national level.

Region Industrial production Industrial production per capita

billion HUF proportion, % thousand HUF % of country average Central Hungary 4601 22,3 1595,0 77,8 Central Transdanubia 5968 28,9 5395,1 263,1 Western Transdanubia 3357 16,3 3361,5 163,9 Southern Transdanubia 912 4,4 945,7 46,1 Northern Hungary 2382 11,5 1914,5 93,3 Northern Plain 1966 9,5 1293,6 63,1 Southern Plain 1419 6,9 1059,9 51,7 All together 20624 100 2050,9 100 Table 1: The per capita value of industrial production, 2007

Source: KSH

16 „This project is funded by the European Union and co-funded by the Hungarian Government in the framework of the South East Europe Transnational Cooperation Programme”

Figure 9: The industrial production in Central Transdanubia

Source: KSH Thanks to multinational machine industry firms being better furnished by capital stock, operating on higher technical standards and having lower demand for live labour the region’s per employee industrial production performance indicators are outstanding in Hungary.

Figure 10: Industrial production value per employee, 2007

Source: KSH The region has prominent position regarding the continuous growth tendency in the field of the volume of predominantly industrial investments; the growth rate of this indicator was more than 150% during the period between 2006 and 2007.

17 „This project is funded by the European Union and co-funded by the Hungarian Government in the framework of the South East Europe Transnational Cooperation Programme”

Figure 11: The per capita investment performance value of economic organizations on current price (hundred HUF)

Source: KSH

C Foreign capital

In Hungary the total amount of foreign capital stock exceeded 16 billion HUF in 2007. Nearly 28,000 foreign owned corporations are registered here with a total capital stock of almost 10 thousand billion HUF and 87% share of foreign capital resources. Their activities are symbolizing the importance of global economy; the share of foreign owned corporations from the sum of the net sales revenues of all companies is 45 per cent and they are producing 43 per cent of the country’s total gross added value. Their contribution to the total value of investments is nearly forty per cent and they provide jobs for 25% of the region’s total employees. Their number in Central-Hungary is well beyond the average due principally to the central role of Budapest. The share of foreign capital resources in West- and Central- Transdanubia and in Northern Great Plain is very high exceeding the ratio of 90 per cent.

The average number of foreign owned corporations per 10,000 inhabitants is 27 in Hungary but this indicator is the highest (58) in Central-Hungary which is followed by the West- Transdanubia’s nearly average value. In Northern Great Plain and in Central-Transdanubia this figure is 16-17 while Hungary’s other regions have a far less rate of foreign capital investments. Following a large-scale inflow of foreign direct investments in the past years such a tendency may be observed in Central-Transdanubia too as foreign owned corporations a significant portion of their earnings are reinvesting into new plants and as some of their 18 „This project is funded by the European Union and co-funded by the Hungarian Government in the framework of the South East Europe Transnational Cooperation Programme”

suppliers are building several new plants they are generating a new series of foreign direct investments in this way. This besides increasing the value of investments in a positive way through involving new suppliers into the production process is also fostering the embedment of foreign owned corporations into the region’s economy. The average volume of foreign direct investments per enterprise here is one and a half times higher than the national average.

It is important to remark that the spatial location of foreign direct investments is highly concentrated. Nearly 75 per cent of them are targeted at Central-Hungary Region and its surrounding economic axis (including West- and Central-Transdanubia) is attracting 93% of all the amount of foreign direct investments.

Figure 12: The spatial distribution of foreign direct investments (%) on regional level (2007)

Source: APEH

When analyzing the regional ranking of foreign direct investments between 2005 and 2010 it can be observed that by the volume of investments Central-Hungary and Central- Transdanubia are still in leading position. However West-Transdanubia at this time by the volume of accomplished foreign direct investment projects is taking the fifth position only. Regarding the number of new jobs created the tendency seems to be similar.

19 „This project is funded by the European Union and co-funded by the Hungarian Government in the framework of the South East Europe Transnational Cooperation Programme”

volume of projects Number of new investment (number) jobs created (billion HUF) Central-Hungary 12 6936,47 5698 Central-Transdanubia 15 415,1 9925 Northern Great Plain 8 177,827 4587 North-Hungary 7 175,18 8225 West-Transdanubia 6 46,7 3625 South-Transdanubia 2 15,74 1328 Southern Great Plain 1 2,75 530 Table 2: The spatial distribution of the largest (partially planned) foreign direct investment projects by regions (2005-2010)

Source: Ministry of National Development and Economy II.2.4. R&D situation

A Higher education

Central-Transdanubia has fifteen institutes of higher education now. They operate either as head institutions or off-campus departments. This figure grants first place divided by West- Transdanubia and Northern Great Plain in the ranking of provincial regions by the number of higher education institutes. Between 2003 and 2007 in the fifteen institutes – which number following the national tendency has dropped from the 2003 (17) value – the number of tutors showed an increasing while the number of students showed a falling tendency. The number of higher education institutes decreased by one both in Veszprém and Komárom counties but this lowered the total number of tutors and students in the northern (Komárom-Esztergom County) part of the region. In Veszprém County there was a quick increase in both categories. The number of full-time students decreased in Fejér and Komárom-Esztergom counties between 2003 and 2007 but it increased in Veszprém County.

The number of higher education institutes with head office inside the region is nine. Of them one is a university (Pannon University), seven are colleges and one is a college faculty of a university-ranked higher education institute. Of the nine head institutes three are founded by a church, four are funded by the state and the remaining two are funded by private resources.

20 „This project is funded by the European Union and co-funded by the Hungarian Government in the framework of the South East Europe Transnational Cooperation Programme”

Number of institutes, Number of Number of Number of full-time Region (2007) tutors** students** students Central-Hungary 52 10401 175631 106393 Central-Transdanubia 15 1196 20912 12871

Fejér County 7 621 8824 4830 Komárom-Esztergom 4 165 2790 1453 County Veszprém County 4 410 9298 6588

West-Transdanubia 15 1701 32050 17689 South-Transdanubia 11 2223 35758 19753 North-Hungary 10 1505 40224 15148 Northern Great Plain 15 2487 49476 29794 Southern Great Plain 11 2829 42212 24994 Hungary 129 22342 396263 226642 Table 3: The major indices of higher education institutes by regions, 2007 Source: KSH data, 2007. * with off-campus departments **by head institution The Pannon – formerly Veszprém – University has five faculties now, of them one (Georgikon Faculty) in Keszthely is an off-campus department. Certain courses at the university – generally graduate courses and postsecondary professional courses are held in other provincial cities as well therefore they are available at off-campus training centres in some cities such as Nagykanizsa, Székesfehérvár and Pápa. The training palette of Pannon University widened during the past few years and this tendency is expected to continue in the future as well. Today the five faculties offer a wide range of training programmes in the fields of economics, agricultural science, engineering, arts and humanities, social sciences and technical IT sciences. The region’s most important centre of higher education is offering 38 graduate courses, 24 master courses, 16 postsecondary professional training programmes and 8 doctoral schools which are accompanied by the professional training and pedagogical postgraduate schools and courses of the University’s Institute of Adult Education.

The College of Dunaújváros became independent from the University of Miskolc, its head institute, in year 2000 and now it is functioning as an autonomous institute of higher education. This separation served for becoming the innovation centre of the region and of the city of Dunaújváros through transforming and renewing the College’s training system. The educational programme of College which formerly was focusing on metallurgical engineering

21 „This project is funded by the European Union and co-funded by the Hungarian Government in the framework of the South East Europe Transnational Cooperation Programme”

and mechanical engineering has been transformed and renewed with the regime change by introducing new training programmes in the area of technology and IT. During its ‘almost’ ten years of autonomy the College showed willingness for incorporating social sciences into its curriculum and since 2006 the year of adopting the Bologna system its training courses now are covering five major fields of science (technical sciences, IT, economics, social science and pedagogy). The college besides widening the palette of its training programmes has significantly improved its infrastructural background and as a result it could heavily increase the number of its students. Today the College has five thousand students attending the training programmes of eight graduate courses, eleven postsecondary professional training courses and since 2007 of a master course in engineer tutor training.

The Faculty of Geographical Information at the West-Hungarian University is located in Székesfehérvár incorporating three educational units: Institute of Geomatics, Knowledge Base of Land and GIS and the Institute of Regional Development. Institute of Geomatics providing principally surveyor and estate allocator training programmes has recently introduced training courses in administration management and office work to provide highly qualified experts for land administration. The Faculty now is running five bachelor degree courses, a master training programme, a doctoral school and four postsecondary special training programmes. These educational facilities have been widened by further special postgraduate training programmes and courses.

Budapest Tech Polytechnic Institution has also located its Regional Centre of Education and Innovation (Kandó Kálmán Faculty of Electrical Engineering) into Székesfehérvár which maintains direct and intensive contacts with Hungary’s leading companies in computer technology and electronics and this enables the Centre for customizing its training programmes to labour market demands. As a result the Faculty widened its training palette beyond electrical engineering by offering new courses in the technology and IT sector. Today the Faculty’s training offers cover bachelor courses in electrical engineering, technology management and IT engineering, a professional training programme (technology – assistant IT engineer) and a postgraduate training programme (computer network engineer).

The main task of Kodolányi János University of Applied Sciences in Székesfehérvár is “to contribute to the efforts to strengthen the European competitive higher education system and

22 „This project is funded by the European Union and co-funded by the Hungarian Government in the framework of the South East Europe Transnational Cooperation Programme”

the international integration of Hungarian higher education”. To achieve its target the University performs scientific and R&D tasks and organizes popular science and professional meetings and events. The University beyond Székesfehérvár – its central campus – operates off-campus departments in Budapest, Siófok, Orosháza and in Fürstenfeld (Austria). Beyond bachelor and master courses Kodolányi University is offering postsecondary professional courses both within its campus and for its secondary school partners in twelve cities. The University has an important role in the region’s educational life by its professional and adult educational training activities, courses and language teaching programmes.

The training programmes of the College for Modern Business Studies in Tatabánya, the region’s other private resource funded institute of higher education now are offering bachelor courses in economics and technology, postsecondary professional qualification programmes special postgraduate training programmes (cultural management, euromanagement, marketing management, marketing communication, online marketing) In year 2009 launching a master course in marketing is planned.

The region has three church funded institutes of higher education. They are Veszprém Archiepiscopal Theological College, Esztergom Theological College and Presbyterian Theological Academy in Pápa. Beyond traditional theological courses these institutes are offering innovative forms of training fitted to the demands of labour market and of the social care sector. For example in year 2005 an accredited graduate social worker training programme with a course in social science will be started at the Veszprém Archiepiscopal Theological College. Researches – naturally in highly specialized themes - are carried out even in these types of higher education institutes. (e.g. in Kálvin and Simeon Research Institutes under the institutional framework of the Presbyterian Theological Academy in Pápa).

The regional system of higher education – just like in the past years – is still dominated by social sciences, business and technology oriented training programmes, i.e. these are the courses having been attended by the majority of students in the academic year of 2007-2008. It was the training courses in economics (business) and engineering that were the most popular having been attended by 47.7 per cent of the region’s students. Courses held in the faculties of health, agricultural and physics had the least audience within the same academic

23 „This project is funded by the European Union and co-funded by the Hungarian Government in the framework of the South East Europe Transnational Cooperation Programme”

year. The number of students as a whole, on regional and even almost in all fields of science decreased in comparison with the statistical figures of the previous academic year of 2006- 2007. The decrease took place in the largest proportion in the number of students in teacher training programmes (in the whole region) but a similar drop in the number of students can be observed in health and agricultural education as well. In absolute value the largest drop is seen in the figure of the students in business studies. In the academic year of 2007-2008 their number was by 623 less than in the previous one but this tendency is seen in Fejér and Komárom-Esztrgom counties only. Higher education institutes in Veszprém could achieve – though even a modest – increase in the number of their students. A similar rate of drop can be observed in the faculties of social science and humanities where in each sub-discipline the volume of decrease was 100-200 each totalling up to 700. At the same time there was a growth in the number of students in engineering and art faculties. This latter discipline was first involved into the system of higher education in Veszprém County only but later on art faculties were opened in Komárom-Esztergom and Fejér counties as well.

B Research and development

The institutional system of research-development mostly consists of research organizations located in the given region or county, therefore we need to examine their number and trends shown during the past period. Between 1977 and 2007 the number of research organizations rapidly increased in Hungary but the volume of growth was different in each region. Between the starting and the ending year of this period the largest growth rate of research organizations was produced in Central-Transdanubia Region (2007/1997=2.33) but – as it was pointed out in earlier studies1 this can partially be due to the region’s seriously lagged position as by the majority of its R&D indices it took the last position in the ranking of regions. By the early years of our decade the region – thanks to the growing number of research organizations with a homogenous spatial distribution in all of its constituent counties – was able to close up to the other regions and its number of research organizations now is exceeding the figures of West-Transdanubia and North-Hungary. However in the past few years the process of this spectacular growth seems to halt in Central-Transdanubia Region. We can observe an intensive growth in the number of research organizations on regional level until 2004. In 2005

1 Grosz – Csizmadia – Szépvölgyi, 2004 and Szépvölgyi, 2007 24 „This project is funded by the European Union and co-funded by the Hungarian Government in the framework of the South East Europe Transnational Cooperation Programme”

however due to a sharp drop in the number of research organizations in Veszprém County a fallback is seen but this was followed by another period of expansion which was principally due to an increase in the number of research organizations in Fejér County.

In KSH database research organizations by the type of incorporating organization are classified as follows: higher educational research organizations, research organizations of legal entity firms, R&D institutes and other state-funded research organizations. By their distribution in year 2007 we can observe that in Central-Transdanubia Region research departments incorporated into firms are dominating their proportion is exceeding 50 per cent. By the ratio of higher educational research organizations the region takes the last position in the ranking of regions.

Central Transdanubia started from handicapped position regarding the number of research themes and tasks as well: in 1997 it took the last position in this aspect but due to the increasing number of research organizations the region’s position significantly improved exceeding North-Hungary, West-Transdanubia and by 2001 even South-Transdanubia, publicly known as a traditional knowledge centre. This fallback in the 2003-2004 period was followed by another increase in the number of research themes and tasks but its growth rate is falling behind the values of other regions therefore Central-Transdanubia is again the last among the other regions with its 3.72 per cent share from Hungary’s total research themes and tasks.

25 „This project is funded by the European Union and co-funded by the Hungarian Government in the framework of the South East Europe Transnational Cooperation Programme”

II.3. SWOT analysis of the Region

Strengths Opportunities · The region has a very favourable geopolitical position, it · International opinions on the Region’s is crossed by European development zones, transport competitiveness and attraction force promoting corridors, it is located in their utilizable intersection economic renewal are positive · As regards physical accessibility Central-Transdanubia is · There is a significant demand for the renewal of the one of the best positioned regions with denser main road system and more extensive public road network than the local entrepreneurs’ incubators average, motorways M7, and M6 connecting Pécs by 2010 · The increasing appreciation of corporate human will provide quick accessibility to the region’s central and capital and human resources as well as the emerging southern parts while motorway M1 provides an easy demands for lifelong learning are international access to the northern parts of the region tendencies · The Region’s has good railway connections concerning · In modern economic development strategies the the main lines appreciation of networked cooperation-, innovation- · The Region’s „Urban tetraeder” (growth sister centres and and knowledge-based development has increased sub-centres) and dynamical medium-size cities are serving and the different-level policies (national, EU) and as a basis for the networked renewal of regional economy support systems provide extra preferences for them · The Region’s readiness for economic restructuring, adaptation skills and abilities are on a high level · Corporate strategies worldwide highly appreciate the · The value and dynamics of the indices generally used for role of strategic alliances, persistent partnerships and measuring the Region’s development level are persistently cooperation exceeding the national average due to the region’s · The presence of multinational firms regarding traditional big firm structure able to attract foreign direct international tendencies provides a further impulse investments to the integration of local economy into global · The Region has favourable quantitative indices of physical economy, to the adaptation of advanced capital resources compared to the national average technologies and to the spreading of modern · The Region has favourable indices of general employment management and methods of leadership even in international comparison · Strong industrial company culture, manufacturing and · The spreading of European innovation policy export. · Typical European processes: deindustrialization (the · The region’s leading sectors are mechatronics, motor-car slow degradation of the role of industry), industry, plastic industry, environmental industry, IT and tertiarization (the fast-growing dominance of service food industry industry over manufacturing industry), technology · The region’s main strength is an adaptive labour force, change (knowledge industries, skills, the application cheaper and more capable for working in high technology of new technologies), decentralization (the role of environment than average labourers in the European local decisions, competition for resources) Union · The regional presence of foreign investors is dominant. · Foreign investors as a rule have already built their partial network of regional suppliers · The Region is in outstanding position regarding the number of industrial parks, the size of territory they occupy and the number of operating businesses. · Clusterization has already started in the region’s several industries and in several areas this process is promoted by cluster initiatives · the number of research organizations, the number of labourers employed in the R&D sector and the number of research themes increased during the past years · The majority of regional organizations and institutions are committed to the establishment and operation of the regional innovation system · By the opinion of innovative businesses the region’s supply of capital resources and payable demand are above the average · Innovative businesses can be well identified by enterprise- demography aspects · The development objectives of innovative businesses are identified

26 „This project is funded by the European Union and co-funded by the Hungarian Government in the framework of the South East Europe Transnational Cooperation Programme”

Weaknesses Threats · The Region’s past ‘Industrial Axis’ covers small and medium-size · the economic development potentials based on cities needing restructuring coping with the heritage of heavy favourable and relatively cheap wages, leased work industrial, energy power plants built in the past industrialization era. and massive productions are gradually exhausting · The Region can be characterized with external-internal for the Region peripheries being in critical state · In logistics the role of central storage is increasing · The Region by international comparison has lower than average which means tougher competition, expectable economic indices with special regard to the qualitative indices of physical capital territorial segmentation between the member states · The capital supply of micro- small and medium-size enterprises of the Central-European Region and their access to capital resources need improvement · The retreat of leased work type less innovative · There are disparities in the spatial division of the Region’s activities will not be followed by new foreign direct economic potentials · The economic structure is less service-oriented than it would be investments representing higher added value desirable · The long-term persistence of dual economic · The region’s advanced economic level practically refers to structure based on ‘socio-economic-entrepreneurial’ industry, other sectors are not so advanced, due to mass culture production the resources of further rapid development chances have been exhausted · Financing problems, the unpredictability of · The special features of domestic micro- and small enterprises are subsidization policy depending on the situation of valid in this region too: the high ratio of self-employment and of budget enterprises operating without employees · Due to the increasing costs of production investors · The ratio of big firms is below 0.2 per cent, but two-thirds of the region’s total manpower are employed by them will leave the region · When analysing the presence of FDI spatial disparities can be · The outflow of incomes from Hungary earned in the observed territory of the region · The institutional system of promoting FDI investments needs improvement · industrial parks regarding their services, networked cooperation, thematic segmentation need improvement · The ratio of businesses located in industrial parks producing high added value is low · The number of local enterprise incubators is low, no micro- regional level centres are operating · By incubation activities mostly general incubators are available, technology incubation is less dominant · the region’s innovation R&D activities are by far below the region’s economic role · In the region the relationship between the scientific research and economic sector is weak, the activities of the region’s economic actors, especially of small and medium-size enterprises are less innovation and R&D oriented · In the region the relationship between innovative big firms and local small and medium-size entrepreneur sector is weak · The institutional relations between the region’s colleges and universities need improvement, the region’s higher educational capacity is rather fragmented, the region’s training palette is still poor, its research institute background is weak · Technology and knowledge transfer are poorly functioning or do not exist between higher education institutes, research institutes and enterprises · The financial background of organizations of the innovation offer side is unpredictable and unstable · The region’s economic development level is above average but only in domestic comparison, it is above average however by EU comparative statistics · Corporate R&D was sharply cut back after the political transformation and limited to a few companies as a rule, the majority of businesses does not implement any R&D activities and very few enterprises carry out basic and applied researches in the region · The amount of capital resources available for small and medium-size enterprises for development is very limited · The technology level of local micro, small and medium-size enterprises is low in general with out of date machinery and equipment · There are large discrepancies within the region in development level and the internal differences between the impact factors of innovation are large

27 „This project is funded by the European Union and co-funded by the Hungarian Government in the framework of the South East Europe Transnational Cooperation Programme”

Priorisation matrix

Possible impact

High Medium Low

Global economic

Clusterization has already started integration Low level of Hungarian R+D+I Concentration of industrial parks Forming of international financing Innovative co-operations innovation policy Sectoral diversity High External-internal peripheries Capital supply of SMEs High level of employment R+D+I activity is lower than the is weak Increasing role of knowledge o c curr i ng economic potential Innovation services have industries to be developed

C h a nce o f Adaptation of European Good international appreciation of Improving R+D indicators innovation policy Medium the Region Incalculable financing Lack of technology Low level of industrial added value incubation

Co-operation among the cities of Supply-demand issues Low Urban tetraeder Higher added value of FDI of university education Decentralization

28 „This project is funded by the European Union and co-funded by the Hungarian Government in the framework of the South East Europe Transnational Cooperation Programme”

III. MAIN ACTORS OF INNOVATION

III.1. General situation of the business sector

III.1.1. The fundamental characteristics of enterprises

The major part (more than four-fifth) of these latter firms concentrated in Central Hungary, predominantly in Budapest and moreover, this ratio further increased during the past five years against the rest of the Hungarian regions. Besides them several businesses of this size category are located in Central and West-Transdanubia which is explained by these regions’ more favourable infrastructural and economic background and a greater presence of foreign direct investments. There are significant differences in the location of companies with staff over one thousand as four-fifth of all the firms of this size category were registered in these three regions.

Analysing firms by size category it clears out that although SMEs have increased their staff but the number of employees at companies with staff over 250 – with the exception of Central Hungary and Central Transdanubia – has decreased in comparison with an earlier period. Meanwhile the role of these companies in overall employment has also decreased. In 2007 they provided jobs for less than four-tenth of total enterprises despite that their share from total net sales revenue was 50%. Of all the regions the number of workers employed by big firms was the highest in Central-Transdanubia and Central-Hungary and the frequency of occurrence of these big firms was the highest in these two regions as well.

29 „This project is funded by the European Union and co-funded by the Hungarian Government in the framework of the South East Europe Transnational Cooperation Programme”

The volume of total net sales revenues – the major indicator of company performance – largely depends on firm size and on the position of the economic sector the firm is engaged in. Half of the total annual net sales revenues of firms with staff over 5 was gained by big firms and within this circle the share of companies with staff over one thousand exceeded the value of thirty per cent. Of Hungary’s regions the role of businesses with staff over 250 is outstanding in Central-Transdanubia, West-Transdanubia and in North-Hungary.

In case of SMEs in all regions - excluding Central-Transdanubia and North-Hungary – the commercial and the repair sectors are the primary sources of net sales revenues and they are followed by industry being the second largest source of net sales revenues.

Figure 15: The number of businesses per 1,000 inhabitants, 2007 Source: KSH

The contribution of businesses to the GDP was different in each region in 2006. It can be stated that their contribution to the GDP was greater in economically more advanced regions than in less advanced ones. In Central-Hungary, West-Transdanubia and Central- Transdanubia two-thirds of the region’s overall economic performance was generated by profit-oriented organizations. These are the three regions that have attracted the majority of investors and foreign capital.

30 „This project is funded by the European Union and co-funded by the Hungarian Government in the framework of the South East Europe Transnational Cooperation Programme”

Figure 16: The distribution of gross added value among economic sectors, 2006 Source: KSH

In Hungary at the end of year 2007 79.1% of the registered profit-oriented organizations were filed into the tertiary sector by their main activity. Their share was the highest in Central- Hungary Region and – due to the gravitation of Lake Balaton – South-Transdanubia. Their frequency of occurrence was lower in the Great Plain. Service sectors have an increasing role in value-added production. Except its public administration, defence and the necessary social security branches more than half of the total added value was produced by this sector in all regions although its share nowhere reached the representation level of these enterprises in the organizational structure.

Figure 17: The distribution of registered enterprises by economic sector, 2007 Source: KSH

31 „This project is funded by the European Union and co-funded by the Hungarian Government in the framework of the South East Europe Transnational Cooperation Programme”

III.1.2. The characteristics of innovative enterprises

The comparison of the innovation activity of Central-Transdanubian enterprises with national averages was based on data collected by the Central Statistical Office in 2007 for the 2004- 2006 period.2.

According to the data collected the ratio of innovative enterprises of all the planning- statistical regions of Hungary only in Central-Hungary and Central-Transdanubia exceeds the national average (17.7%). These are the regions where the ratio of big firms with favourable innovation potentials is higher than the average, where the amount of foreign direct investments is high and the spatial location of higher education institutes and research organizations can also be regarded as advantageous.

Central-Hungary

Central-Transdanubia

West-Transdanubia

South-Transdanubia

North-Hungary

Northern Great Plain

Southern Great Plain

Total

0 5 10 15 20 25

Figure 18: The ratio of innovative enterprises, 2004-2006 (%)

Source: A vállalkozások innovációs tevékenységének regionális jellemzői [The regional features of the innovation activity of enterprises], KSH 2009. p. 1.

In Hungary between 2004 and 2006 26.7% of innovative enterprises launched new or significantly developed products or services, 22.5% introduced new manufacturing, logistic, delivery, distributional methods or performed activities for the support of technological and

2 A vállalkozások innovációs tevékenységének regionális jellemzői [The regional features of the innovation activity of enterprises]. Statisztikai Tükör. 2009. vol. 3 issue 59. Central Statistical Office. Data are relevant for the period between 2004 and 2006. The collected data provide information on 19,200 enterprises operating in industry and a part of service sector employing staff of over nine. 32 „This project is funded by the European Union and co-funded by the Hungarian Government in the framework of the South East Europe Transnational Cooperation Programme”

other processes and another 40% did both. The remaining ten per cent of enterprises reported that at the end of year 2006 their innovation project was in progress but so far has yielded no results yet or cancelled their activities of such kind between 2004 and 2006. There was a slight change in the combination of the types of innovation in comparison with the previous years. There was some increase in the rate of profit-oriented economic organizations implementing simultaneously both product and process innovation, while the number of companies implementing one type of innovation only, reduced.

Central-Hungary

Central-Transdanubia

West-Transdanubia

South-Transdanubia

North-Hungary

Northern Great Plain

Southern Great Plain

Total

0% 20% 40% 60% 80% 100%

Product or service Procedure Product or service and product Not closed or failed

Figure 19: The combination of innovative enterprises by type of innovation, 2004-2006 (%) Source: A vállalkozások innovációs tevékenységének regionális jellemzői [The regional features of the innovation activity of enterprises], KSH 2009. p. 2.

By innovation activity Central-Transdanubian enterprises can be regarded the most successful. The ratio of enterprises implementing successful development plans was the highest in this region. Furthermore in this region every second business organization has invented not only new products and services but also introduced new methods having not applied before. The frequency of occurrence of product innovative firms was the highest in Southern Great Plain Region while the number of only new method introducing companies

33 „This project is funded by the European Union and co-funded by the Hungarian Government in the framework of the South East Europe Transnational Cooperation Programme”

was the highest in Northern Great Plain Region. The efficiency of modernisation was the lowest in South-Transdanubia, as here over 25% of enterprises have yielded no concrete profits of their development activities yet.

Investigating innovative enterprises from the aspect of economic sectors it can be observed that in Central-Transdanubia Region following the national average mostly manufacturing firms have implemented innovation activities. With the exception of Central-Hungary Region this tendency is relevant for all Hungarian regions. In Central-Transdanubia Region the ratio of innovations implemented by building industry firms is also above the national average.

Transportation, storage, Building Wholesale postal, Financial Other Region Industry industry trade telecommunication services services services Central- 44.1 4.9 18.6 7.1 6.5 19.0 Hungary Central- 66.7 10.7 9.8 2.3 4.7 5.8 Transdanubia West- 71.0 5.4 10.4 3.2 2.8 7.3 Transdanubia South- 61.0 16.3 11.2 3.0 2.1 6.3 Transdanubia North-Hungary 64.7 21.0 6.4 4.7 3.1 0.0 Northern Great 64.2 11.8 8.9 1.2 6.2 7.7 Plain Southern Great 63.2 8.8 9.3 7.8 2.5 8.3 Plain Hungary total 57.1 9.3 12.9 5.0 4.7 11.0 Table 4: The distribution of innovative enterprises by economic sector, 2006. (%)

Source: A vállalkozások innovációs tevékenységének regionális jellemzői [The regional features of the innovation activity of enterprises], KSH 2009 p. 2.

When analysing innovation activity it is very important to see who has invented the new product, service or earlier not applied method. A modernisation project, scilicet, can be implemented not only within a company’s own corporate structure but it also can be realized through inter-firm cooperation through the involvement of partner companies and institutions or with the assistance of external organizations only. It is a general phenomenon that in all regions new or upgraded products or services have been developed by enterprises themselves but the number of companies introducing new methods – although still their majority independently implemented their development projects – is lower than of the members of the previous group.

34 „This project is funded by the European Union and co-funded by the Hungarian Government in the framework of the South East Europe Transnational Cooperation Programme”

The rate of product and service development implemented within the enterprises’ own organizational structure was the highest in Northern Great Plain Region. But in total perspective the rate of all kind innovations implemented within own organizational structure was the highest in Central-Transdanubia and was the lowest in North-Hungary.

35 „This project is funded by the European Union and co-funded by the Hungarian Government in the framework of the South East Europe Transnational Cooperation Programme”

New product or service

Central-Hungary

Central-Transdanubia

West-Transdanubia

South-Transdanubia

North-Hungary

Northern Great Plain

Southern Great Plain

Total

0% 20% 40% 60% 80% 100%

Predominantly own enterprise Own enterprise in partnership with other enterprise External enterprise or institution

New procedure

Central-Hungary

Central-Transdanubia

West-Transdanubia

South-Transdanubia

North-Hungary

Northern Great Plain

Southern Great Plain

Total

0% 20% 40% 60% 80% 100%

Predominantly own enterprise Own enterprise in partnership with other enterprise External enterprise or institution

Figure 20: The distribution of innovative enterprises by the location of the developer organization, 2004-2006 (%)

Source: A vállalkozások innovációs tevékenységének regionális jellemzői [The regional features of the innovation activity of enterprises], KSH 2009. p. 3.

36 „This project is funded by the European Union and co-funded by the Hungarian Government in the framework of the South East Europe Transnational Cooperation Programme”

Within the circle of organizations implementing modernisation activities the average ratio of organizations doing it in a form of partnership is 37.8%. Enterprises in Central- and West- Transdanubia, North-Hungary and Northern Great Plain entered into partnership more frequently than indicated by this average percentage value while those in South-Transdanubia and Southern Great Plain less frequently cooperated with other organizations.

On national level every fourth innovative enterprise cooperated with its own supplier during the implementation of its development projects and these suppliers played a determining role in each region. Institutes of higher education were the second major partners of companies. The cooperation of firms was the strongest with them in those regions where they launched economic and technical training programmes and carried out researches in such fields. Therefore in the central region innovative enterprises made every fifth of their agreements with colleges and universities. However these institutions much scarcely participated in the practical implementation of development projects in South- and Central-Transdanubia. Users, customers played a smaller role in work contacts although in some regions such as Southern Great Plain and Central-Transdanubia they more frequently were contractors than colleges and universities. The involvement of experts and enterprise research organizations into development projects was more common in West-Transdanubia, while governmental research institutes got more involved into development projects in Northern Great Plain Region. For all that in general perspective this latter type of organization – just like other firms in the firm group – was the least active in cooperating with innovative enterprises.

Taking a glance at the financial funding of innovative enterprises one can observe that between 2004 and 2006 only nearly 30 per cent of innovative enterprises were subsidized by the state which means their majority could expect support only from corporate or other domestic or foreign funding resources. The ratio of innovative enterprises receiving state subsidization was by far higher than the national average in Northern Great Plain (41.4%) and in North-Hungary (39.3%) but was by far lower in South-Transdanubia (24.8%) and in Central-Hungary (25,4%). At the same time the majority of the beneficiaries of state aid beyond their own investments received support from state budgetary funds only. On national level the share of state subsidization was 56%, the two extreme values are 73% in West- Transdanubia and 40% in Southern Great Plain.

37 „This project is funded by the European Union and co-funded by the Hungarian Government in the framework of the South East Europe Transnational Cooperation Programme”

12% of innovative enterprises were subsidized by EU funds for their development activities. The highest number of enterprises receiving EU grants is located in Central-Hungary and the fewest in West-Transdanubia. The share of the latter group among innovative enterprises subsidized by the central budget is 26.7% on national level but 57.4% in Southern Great Plain. The number of cases when the innovative activity of an enterprise received financial support beyond its own resources from a local government is much lower.

One-third of the organisations subsidized from budgetary funds are located in Central- Hungary and another 14% are in Northern Great Plain and Southern Great Plain each.

Figure 21: The volume of resources spent for development purposes per innovative enterprise 2006 (thousand euro)

Source: A vállalkozások innovációs tevékenységének regionális jellemzői [The regional parameters of the innovative activity of enterprises], KSH 2009 p. 7.

The innovation oriented expenditures of innovative enterprises in year 2006 exceeded the sum of 1.7 billion euro which equals to 450 billion HUF on central currency rate. The majority of expenditures – nearly 60% of them were spent on equipment purchase and nearly the same

38 „This project is funded by the European Union and co-funded by the Hungarian Government in the framework of the South East Europe Transnational Cooperation Programme”

size category amount – 300 million euro equalling up to nearly 80 billion HUF – was spent on R&D and on the transfer of others’ R&D results. The lowest rate of expenditures was spent on purchasing external knowledge. The survey showed the most active development activities in Central-Transdanubia and Central-Hungary. Here more than 20 per cent of enterprises implemented innovation (product or know-how innovation) activities. At the same time after Central-Hungary the second largest volume of expenditures was spent for developments in West-Transdanubia. In the last mentioned region the amount of resources allocated for development per innovative enterprise exceeded 1.8 million euro (477 million HUF) while in the previous two regions it was over 550 thousand euro (134 million HUF) and 480 thousand euro (127 million HUF). The additional four regions in total could account for less than 16% of the total expenditures spent for development. With 6.5% of the total expenditures of development North-Hungary was the leader among them with spending an average sum of 380 thousand euro, equivalent to nearly 100 million HUF per innovative organization. All these indicate that innovation is the most intensive in Hungary’s three economically most advanced regions. 84% of the total resources available for spending for internal researches, for purchasing the research results of other organizations, for equipment purchase or for purchasing external knowledge were spent right in these three regions.

III.1.3. Experiences and behaviours of enterprises

The innovative activity of Central-Transdanubian enterprises which by their site, company seat location, by the number of employees or by their sectoral profile may be regarded as representative can be characterized as follows:

In the research period (2005-2007) the region’s enterprises spent 2.2% of their net sales revenue for research-development as an average. The largest proportion of expenditures allocated for R&D was spent by medium-size and big firms and by sorting them by company profile we can see that the largest sums for R&D are spent by companies engaged in information, communication, administrative and service support, processing industry, building industry, professional, scientific and technology activities.

75% of enterprises provide jobs for employees with university degree. But at 40% of enterprises the ratio of employees with university degree is less than 10%. The majority of

39 „This project is funded by the European Union and co-funded by the Hungarian Government in the framework of the South East Europe Transnational Cooperation Programme”

companies employing labour force with university degree are in foreign hands and seated in Fejér and Veszprém counties.

17% of the total labourers in Central-Transdanubia Regions are employed in the research- development sector. Unlike labourers with university degree they are preferably employed by Hungarian-owned micro- and medium-sized firms with maximum 500 million HUF net sales revenues. When analysing the cooperation of enterprises with customers and suppliers we can observe a perfect match between the geographical radius of suppliers and customers and the area they cover has rather local character meaning that both customers and suppliers are embedded in their own county and region. This may be interpreted by two ways: on the one hand this shows the limited territorial structure of the contact system of enterprises which should be extended. This would be very important both for enterprises and for their ‘agents’. On the other hand the local embedment of the great majority of enterprises is a positive sign as well yielding several advantages and it indicates the strength of the local economic contact system.

The international contact systems of the firms of Veszprém County are the most neglected which can be explained by the firms’ ownership structure. The largest discrepancy in the territorial system of contacts between foreign and purely Hungarian owned firms is seen in the fields of international contacts and local embedment. The weak embedment of foreign owned firms into local economies is an indicator of a largely global economy dependant and therefore fragile economy. In case of Hungarian enterprises the shrinking of domestic markets may mean a similarly fragile economic structure, contact system and network structure. Improving economic cooperation between Hungarian and foreign firms is an important task and future potential for both parties. It is worth analysing in the further part of this paper which enterprises3 in the region are implementing innovative activities by territorial unit, business size, sales revenue and form of ownership.

3 The results of a representative survey on the Region’s enterprises. Source: Baranyai, N., Baráth, G., Barta, Z., Debreceni, G., Szépvölgyi, Á.: (2009): Innováció a Közép-Dunántúlon [Innovation in Central-Transdanubia] 2009. KDRIÜ Székesfehérvár. p. 112. 40 „This project is funded by the European Union and co-funded by the Hungarian Government in the framework of the South East Europe Transnational Cooperation Programme”

Process- Organizational and institutional Product innovation innovation innovation

New method, Goods Service Organizational Institutional technology

Spatial unit

Fejér County 35.6 45.7 58.3 57.5 50

Komárom-Esztergom County 22.2 17.1 10 10 14.3

Veszprém County 42.2 37.1 31.7 32.5 35.7

Size of enterprise

Micro-enterprise 23.8 26.5 24.1 21.1 22.5

Small enterprise 45.2 55.9 53.4 44.7 60

Medium-size enterprise 19 14.7 12.1 21.1 12.5

Large enterprise 11.9 2.9 10.3 13.2 5

Sales revenue

1-50 million HUF 22.7 17.1 13.6 10 9.5

51-500 million HUF 34.1 31.4 30.5 25 35.7

501-1000 million HUF 4.5 11.4 1.7 5 4.8

1001-2500 million HUF 6.8 2.9 6.8 7.5 7.1 over 2500 million HUF 4.5 2.9 3.4 7.5 4.8

Form of ownership

100 per cent Hungarian 77.8 94.3 81.4 75 85.7

Majority Hungarian 2.2 2.9 1.7 5 2.4

Majority foreign 4.4 0 3.4 7.5 4.8

100 per cent foreign 15.6 2.9 13.6 12.5 7.1

Table 5: The innovative activities of enterprises Source: Innováció a Közép-Dunántúlon [Innovation in Central-Transdanubia] 2009

Regarding the innovative activity of businesses the categorization of innovations reveals the following correlations:

Product innovation was implemented by 18.6% of businesses between 2005 and 2007. The opinion of businesses active in product innovation of their region’s local endowments and 41 „This project is funded by the European Union and co-funded by the Hungarian Government in the framework of the South East Europe Transnational Cooperation Programme”

business environment and their impacts on innovation is much more positive than of other businesses in general. When analysing innovative businesses by spatial units it is seen that innovative businesses in Veszprém County have positive opinion on their environment regarding the amount of available capital resources, the support provided to innovation and economic development and the amount of payable demand. In Fejér and Komárom- Esztergom counties rather trained labour is the driving force of innovation although in Fejér County inter-firm cooperation is also highly appreciated. On the basis of these correlations we can conclude that in Komárom-Esztergom and Fejér counties innovation is based on the existing structure of economy, on the trained labour of firms, on economic contacts and on the future possibilities of clusterization. However in Veszprém County the subsidization policy of the macro-level economy and the capital resources of businesses and of business environment are the major stimulating factors of innovation.

In our research period 80% of businesses implemented product innovation by themselves therefore the role of inter-firm cooperation is inferior here.

We identified process innovation in case of 60% of businesses. They are principally located in Fejér County and purely owned by Hungarians. Of the regional factors of process innovation the role of trained labour is dominant in Fejér County, the accessibility of risk capital in Veszprém County while in Komárom-Esztergom County labour force, inter-firm relations and demands play the most important role. In case of process innovation it can also be seen that the demands of economically advanced counties and their stimulating effects differ from the motives of firms progressing on their own ways of innovation as it has been seen in case of firms in Veszprém County.

The third type of innovation (institutional – organizational innovation) was implemented by 19% of the total businesses between 2005 and 2007. Among these innovative firms the ratio of Hungarian-owned firms located in Fejér County and small businesses is the highest. On the basis of the major parameters of enterprises implementing product innovation we can declare that typically small businesses with 51-500 million HUF of annual sales revenue and entirely Hungarian owned ones can be regarded as innovative. In the development and launching of products the enterprises in Veszprém County while in the field of services the enterprises of Fejér County are over-represented.

42 „This project is funded by the European Union and co-funded by the Hungarian Government in the framework of the South East Europe Transnational Cooperation Programme”

A significant part of enterprises active in product innovation are engaged in processing industry their share in product development is exceeding the ratio of 70 per cent.

80,0 70,5 60,0 47,1 40,0

17,6 20,0 17,6 14,7 4,5 9,1 2,9 6,8 2,3 6,8 0,0 0,0 0,0 0,0 A rts S e v ic es T o u ri sm C o m me rce B u il d i n g ndu stry S c i e n , a d m istrati on

M i n g , p r oc e ssi ndu stry Products

Figure 22: The frequency of occurrence of product innovation among Central-Transdanubian enterprises by economic sectors, % Source: Innováció a Közép-Dunántúlon [Innovation in Central-Transdanubia] 2009 p. 60.

Businesses active in product innovation see more positively their region’s endowments, i.e. their immediate business environment and its impacts on innovation than non-innovative ones. However spatial differences in this matter among counties are big. More than 70 per cent of innovative enterprises located in Veszprém County are on the opinion that capital supply, innovation and business promotion and the volume of solvent demand are the major factors of business attraction while in Fejér and Komárom-Esztergom counties qualified labour is considered to be the major driving engine of innovation. In Fejér County the role of inter-firm cooperation was also highly appreciated. The overall picture shows that in Komárom-Esztergom and Fejér counties businesses base their activities on the existing economic structure, i.e. on the labour skills of firms, and on possible opportunities of clustering. In Veszprém County however the subsidization policy of the macro-level environment and the capital supply of companies and their external business environment are the major factors of stimulation.

43 „This project is funded by the European Union and co-funded by the Hungarian Government in the framework of the South East Europe Transnational Cooperation Programme”

100,0

75,0

50,0

25,0

0,0

Figure 23: The impact of the economic environment of Central-Transdanubia Region on the innovation activity of firms implementing product innovation by counties, % Source: Innováció a Közép-Dunántúlon [Innovation in Central-Transdanubia] 2009 p. 62.

Among firms implementing process innovation the ratio of entirely Hungarian-owned firms and small enterprises located in Fejér County is significant. Similarly to product innovations process innovations are implemented mostly by enterprises engaged in processing industry but the ratio of building industry firms here is also higher than in the group of firms implementing product and service development.

44 „This project is funded by the European Union and co-funded by the Hungarian Government in the framework of the South East Europe Transnational Cooperation Programme”

80,00

60,00 57,69

40,00

23,08

20,00 15,38

3,85

0,00 Mining, processing Building industry Services Science, administration industry

Figure 24: The frequency of occurrence of process innovation among Central-Transdanubian enterprises by economic sectors, % Source: Innováció a Közép-Dunántúlon [Innovation in Central-Transdanubia] 2009 p. 65.

Among the regional factors of process innovation the availability of trained labour has the highest influence on businesses in Fejér County, the availability of venture capital in Veszprém County while in Komárom-Esztergom County trained labour, inter-company relationship and solvent demand are the key factors of innovation.

And finally, for both institutional and organizational innovation similar conclusions can be drawn, namely that the majority of innovative firms are Hungarian-owned corporations or small enterprises located in Fejér County. The sectoral division of firms shows a similar pattern to the results shown in the fields of product and process innovation: processing industry firms are over-represented both in organizational and institutional innovation and they form single majority within each sector. These firms are followed in rank by companies operating in building industry.

45 „This project is funded by the European Union and co-funded by the Hungarian Government in the framework of the South East Europe Transnational Cooperation Programme”

60,0 55,9 50,0

40,0

23,5 20,0 16,7 11,8 8,3 11,1 2,9 0,0 2,8 0,0 Mining, Building industry Commerce Services Science, processing administration industry

Organizational Institutional

Figure 25: The frequency of occurrence of institutional and organizational innovation among Central-Transdanubian enterprises by economic sectors, % Source: Innováció a Közép-Dunántúlon [Innovation in Central-Transdanubia] 2009 p. 69.

It can clearly be observed that by the size, sales revenue, sectors and form of ownership the same clearly discernible group of companies is performing innovation activities.

In this way the parameters of companies excluding innovation from their business profile may also be figured out. By size they are micro and medium-size enterprises, by the volume of sales revenue their income is over 500 million HUF and by form of ownership they are joint ventures or entirely foreign owned enterprises.

The impacts of innovations implemented by enterprises can already be identified after a few years’ period passed. Only a low percentage of factors shows no or very small contribution of innovation to the development of enterprises.

46 „This project is funded by the European Union and co-funded by the Hungarian Government in the framework of the South East Europe Transnational Cooperation Programme”

to a large to a medium to a small No

degree degree degree contribution

Product innovation Product scale, the enlargement of service palette 36.5 28.6 23.8 11.1 Increasing market share 28.6 33.3 28.6 9.5 Quality development of products and/or services 47.6 28.6 14.3 9.5 Process innovation Flexibility in production or service 34.4 32.8 18 9.8 The utilization of production or service capacities 34.4 24.6 24.6 11.5 To reducing per unit labour expenditures 14.8 16.4 19.7 41 To reducing per unit material and energy expenditures 14.8 27.9 24.6 27.9 Organizational and institutional innovation To increasing the efficiency of labour management 41.7 46.7 10 1.7 To increasing the efficiency of decision- making processes 33.3 38.3 16.7 10 To increase the efficiency of building external relations 28.3 38.3 16.7 16.7 Table 6: The contribution degree of innovations

Source: The author’s own edition based on the work Innováció a Közép-Dunántúlon [Innovation in Central- Transdanubia] 2009.

Note: The table shows the answers for different activities in percentages (the sum is 100% for each activity)

Summarizing the types of innovations and the character of firms implementing them we may suppose that activities of such character are largely determined by the economy of the given county, i.e. the immigrated trans-national firms and the economic environment they have created. This is verified by the fact that in Veszprém County where the presence of foreign big firms is not dominating small firms individually and separately implement their innovation projects while in Komárom-Esztergom County the majority of innovation projects are driven by immigrated trans-national firms. The innovative firms of Fejér County represent a mixture of these two models and the picture drawn by our analysis suggests that the innovation activity of Hungarian small enterprises and foreign-owned big firms complement each other and the dynamism, of innovation to a large extent is fuelled by inter-firm cooperation and supplier contacts.

47 „This project is funded by the European Union and co-funded by the Hungarian Government in the framework of the South East Europe Transnational Cooperation Programme”

The preventive factors of entrepreneurial innovations are generally cost factors, market factors and arguments set up against innovation.

When analysing the knowledge related issues of innovation we found that the absence of skilled labour does not mean serious problems for firms but it is rather the problems of partnership cooperation that hinder their innovative activities.

Among the preventive factors market factors were also mentioned by the innovative firms replying to our questionnaire. Our interviewees they are disturbed by the fact that markets are dominated by businesses with insider contacts and 36% are on the opinion that unpredictable demands for their goods and services mean a threat for them.

48 „This project is funded by the European Union and co-funded by the Hungarian Government in the framework of the South East Europe Transnational Cooperation Programme”

Degree of prevention (%)

Factors Large Medium Small No problems

Cost-related factors

Absence of capital resources in the 22.6 20.2 13.6 43.6 firm or firm group

Absence of potential funds necessary for the external financing of 12.7 20.9 15.6 50.8 innovation

The costs of innovation are too high 17.8 19.3 14.9 47.9

Knowledge-related factors

Absence of skilled labour 8.4 14.1 15.8 61.8

Absence of technology information 1.9 9.1 15.6 73.4

Absence of market-related 3.1 11.7 19.1 66.1 information

Difficulties in finding cooperative 3.2 17.2 17.2 62.4 partners needed for innovation

Market-related factors

Markets are dominated by businesses 17.9 20.0 17.9 44.2 with insider relations

The demand for innovative goods or 10.9 21.6 17.2 50.2 services is unpredictable

Arguments against innovation

No need for innovation due to the 2.2 9.3 18.3 70.2 earlier ones

No need for innovation due to the 4.6 12.2 21.2 62.0 absence of demand for innovations

Table 7: The preventive factors of the innovative activities of enterprises Source: Innováció a Közép-Dunántúlon [Innovation in Central-Transdanubia] 2009

Note: The table shows the answers for different preventive factors in percentages (the sum is 100% for each factors)

As regards future development plans related to the innovation activities of enterprises firms are planning the training and education of their staff (55%), the development of applied technology (51.3%) in the highest ratio, while they are the least interested in institutional 49 „This project is funded by the European Union and co-funded by the Hungarian Government in the framework of the South East Europe Transnational Cooperation Programme”

development (25.6%), product development (32.2%), management and the development of managerial knowledge and skills (33.1%). Innovative enterprises are more engaged in future developments and continuous renewal and also a large proportion has not planned yet but now planning large-scale developments.

Central-Transdanubian enterprises consider capital resources and payable demand the region’s biggest advantage and this is true for innovative enterprises too. The interviewed firm representatives think skilled labour, readiness for cooperation and the availability of appropriate suppliers and sub-contractors are also very important aspects.

As regards the background services for innovations it can be declared that they are considered useful and their effects are appreciated if we accept the assumption that the interviewees would use certain services if they were satisfied with them in the past.

4,1 Inclusion of Business Angels 4,4 15,7 Consultancy services on patent and intellectual property rigts 9,3 19 Monitoring technology trends, preparation of trend reports 10,7 17,4 Professional presentation of valuable patent ideas 11,4 22,3 Product development services 12,6 19 Involvement of risk capital 13,1 24,8 Performing tests in special laboratories 13,3 18,2 Organization of technology displays and sessions for know-… 14,7 29,8 Organization and preparation of manufacturing process 16,6 34,7 Detecting possibilities for technological cooperation 21,2 33,9 Assessment of technological background 21,2 35,5 Provisin of special machinery 23,3 43 Detection of innovative ideas 25,9 48,8 Product inspection, product qualification 30,5 47,9 Technology development 34,7 49,6 Market research 37,3

0 10 20 30 40 50 60 Innovative business organizations Total business organizations Figure 26: The planned utilization of the background services of innovation by Central- Transdanubian enterprises (%) Source: Innováció a Közép-Dunántúlon [Innovation in Central-Transdanubia] 2009

50 „This project is funded by the European Union and co-funded by the Hungarian Government in the framework of the South East Europe Transnational Cooperation Programme”

III.2. Main actors contributing to the development of innovative capability

III.2.1. Industrial parks

Hungary has 204 industrial parks now and their spatial distribution shows a relative homogeneity not reflecting the otherwise existing regional disparities.

27 32

35 19

33 30 28

Figure 27: The regional distribution of industrial parks (number, 2009) Source: Ministry of National Development and Economy 2009.

Hungary’s 204 industrial parks are hosting 2016 firms and enterprises. The industrial parks of Central-Transdanubia Region are hosting the highest number of enterprises (400) surpassing the figures of Central-Hungary and Central-Transdanubia Hungary’s two economically most advanced regions.

Central-Transdanubia Region now has 32 industrial parks. Within the region there are 11 industrial parks in Fejér and Komárom-Eszergom County each. The lowest number of enterprises has been concentrated in Komárom-Esztergom County (105, 26.3 per cent), while Fejér County has more than 40 per cent of enterprises that are located in industrial parks. Nevertheless, the spatial distribution of Central-Transdanubian industrial parks is fairly balanced on county level although on sub-county level rather high differences occur in their spatial distribution between microregions and cities.

51 „This project is funded by the European Union and co-funded by the Hungarian Government in the framework of the South East Europe Transnational Cooperation Programme”

Number of enterprises 40,3 33,5 26,3 located in industrial parks

Number of industrial 34,4 31,3 34,4 parks

0% 25% 50% 75% 100%

Fejér Veszprém Komárom-Esztergom

Figure 28: The spatial distribution of industrial parks and enterprises located in industrial parks by counties (%) Source: Ministry of National Development and Economy (2009) and Hungarian Association of Industrial Parks (2008)

Analysing sub-county level spatial units it is seen that Székesfehérvár microregion (principally the city of Székesfehérvár) is concentrating nearly one-fourth (7) of the region’s all industrial parks. Moreover, only Komárom microregion hosts more than one industrial park. It should also be emphasized that that Sárbogárd microregion and its greater environment, the region’s most underdeveloped area facing high unemployment rate have no industrial parks at all.

52 „This project is funded by the European Union and co-funded by the Hungarian Government in the framework of the South East Europe Transnational Cooperation Programme”

500

400

300

200

100

0 Southern South- Northern North- Central- Central- West- Great Plain Transdanubia Great Plain Hungary Transdanubia Hungary Transdanubia

Figure 29: Number of enterprises located in industrial parks (number, 2008) Source: Hungarian Association of Industrial Parks, 2008. Székesfehérvár microregion has outstanding importance in the field of enterprises located in industrial parks as it is both by the number of industrial parks and by the number of enterprises located in industrial parks is taking the leading position in Hungary. Following Székesfehérvár the microregions of Pápa and Tatabánya also have great capacities having more than 35 enterprises located in the territory of their industrial parks.

A special feature of industrial parks is that they are not profiled for providing innovation and technology transfer services for their enterprises.

III.2.2. Incubator houses, clusters

The region’s typical feature is that the tasks of innovation and technology transfer centres are merged so incubator houses are providing such type of services as well. The region has four incubator houses such as the Enterprise Centre and Incubator House of Technology in Székesfehérvár, the Regional Innovation Centre of Veszprém, Entrepreneurs’ House in Komárom and Innopark Incubator House of Technology in Dunaújváros.

The activities of incubation in the region are mainly basic incubation – giving services independently from the incubated branches – while technology incubation is less dominant.

53 „This project is funded by the European Union and co-funded by the Hungarian Government in the framework of the South East Europe Transnational Cooperation Programme”

Current, newly developed and planned incubators are dealing with the opportunities of technology incubation in their development plans. The incubators of CTD Region are mainly full, there is know possibility to incubate further enterprises. It is chiefly essential for the industrial activities that are the core brances of the region. This fact is shown by the current investments that bases on industrial needs. The services of the incubators are as follows:

Office rental Rental Manufactory rental

Depot rental Conference room

Meeting room Room rental Training room

PC training room Phone line S I C SE RVIC ES BA Internet connection IT services Own server Reception

Massage centre Mailing

Secretary Typeing Database services Office services Archivation

Library Copying

Other services

A D I T O NA L SE R VI C ES PC, laptop, overhead projector Equipment usage Special equipments Translation

Tendering Cooperation Partner search

Business events

SE R VI C ES H I G L E V Technology transfer

Training 54 „This project is funded by the European Union and co-funded by the Hungarian Government in the framework of the South East Europe Transnational Cooperation Programme”

Web page development Accounting business planning technology planning tenants Business finance law

marketing investment logistics

OTHER SPECIAL SERVICES security services

transit

All of the listed services are free of charge or available much more cheaper than the market prices.

Cluster Activity Central Hungarian Automotive Cluster It is based on the supplier network of Suzuki Corporation and covers the region’s all businesses engaged in car industry sector. Central Transdanubian Electronic Cluster Cooperation of Medium sized and large companies in electronic branches. Central-Transdanubian Wood and Furniture Formed for improving the supplier skills of Cluster SMEs engaged in wood and furniture industry and for improving their market, integrator, technological, R&D oriented cooperation with big firms. Meat and Food Industry Cluster of Pápa Vertical and horizontal inter-firm cooperation between agriculture and food industry for development of supplier system. Central-Transdanubian Regional IT Cluster The obejctive is the activation of IT-related businesses, encouraging their participation on tenders. Mezőföld Building Industry Cluster Its major purpose is integrating, consolidating and creating opportunities for building industry firms in the south part of 55 „This project is funded by the European Union and co-funded by the Hungarian Government in the framework of the South East Europe Transnational Cooperation Programme”

Fejér County for participating in tenders and also providing all the necessary assistance for their efficient and successful meeting of tendering requirements. Central-Transdanubian Regional Cluster of The founders set its role as a coordinating Bioenergetics agent between the cooperating economic, user and scientific sectors and at the same time as fostering the development of the region’s firms engaged in bioenergetics sector. Central-Transdanubian Innovation Cluster Cooperation of firms engaged in vehicle part manufacturing and in other fields of machine industry for improving R&D activities. Balaton IT and Tourism Cluster Joint development of management, marketing, and other services for the development of Balaton Region. North Balaton Environmental Industry and Aimed at decreasing domestic and industrial Hazardous Waste Disposal Cluster waste through joint technology development. Cluster on Mechatronics and Automotive Local cooperation of firms, municipalities Industy of Ajka and education for balancing supplies and demands in this branches. Central Transdanubian Regional Cluster on Cooperation for supplier network Solar Energy development in solar energy. Ökopolisz Cluster Aimed at decreasing environmental loading by industry and agriculture through the development of green technologies. SINUS Environmental Technology Cluster Cooperation of universities and firms on technology transfer. Pannon e-Education Cluster E-learning service development for the better utilization of the capacities of Pannon University. Pannon R+D+I+E Cluster Aimed at utilizing R+D+I capacities of Pannon University.

A klaszterek alapvetően a résztvevő vállalkozások közötti intenzív technológiai- és tudástranszferen keresztül a működés hatékonyságának növelését eredményezik. Most of the listed clusters have additional financial resources in 2008 from the application for cluster development in the Regional Operational Programme. By doing so, their services and activities have become wider and their accreditation is on the way as well.

Finally, we have to stress that the Regional Cluster Community have founded in 2006. Its goal is the joint dissemination of results as well as regional level lobbying and implementing

56 „This project is funded by the European Union and co-funded by the Hungarian Government in the framework of the South East Europe Transnational Cooperation Programme”

joint events.

III.2.3. The special forms of innovative cooperation

The Regional University Knowledge Centre (Hungarian abbreviation: RET) network programme was initiated by the Pázmány Péter Programme of the Office of National Research and Technology. The purpose of University Knowledge Centre programme in wider sense is building a university level scientific and technology workshop system complying with international standards, which as a professional and regional gravity centre performs premium quality research-development and technology innovation activities.

Central-Transdanubia has three Regional University Knowledge Centres. They are as follows: FuturIT Knowledge Centre of IT Security, ÖKORET Knowledge Centre of Environmental Security IT and Knowledge Centre of Regional Material Science and Technology in Dunaújváros.

Before the foundation of FuturIT Knowledge Centre of IT Security a syndicate was formed with members as Technical and IT Faculty of Pannon University, KÜRT Plc. and other Hungarian and foreign research organizations. As a result of this cooperation FutureIT Integrated Research-Development Centre of IT was founded in 2005 under the organizational framework of the Technical and IT Faculty of Pannon University. The Centre in its activity integrates the research of contemporary and future IT security issues with physics, logic and human security and develops process and instrument-centred methodologies and technologies as a response. Development results will be utilized and materialized both in Hungary and in international markets by spin-off and start-up ventures founded by syndicate members. Several scientific conferences and popular science events will be held by the Centre on annual basis. We have also plans for organizing scientific seminar series, lectures and workshops in the field of information security and its relevant technologies (e-signature, mathematical statistical foundations etc.). Two Ph.D. students have started their research in this field in year 2005.

The researchers of the Faculty of Technical IT (Hungarian abbreviation: MIK) have elaborated internationally recognized methodologies for solving several highly complicated tasks. The management and experts of KÜRT Plc. regularly hold presentations for students as a part of curriculum at the departments of the Faculty of Technical IT as guest lecturers. The 57 „This project is funded by the European Union and co-funded by the Hungarian Government in the framework of the South East Europe Transnational Cooperation Programme”

Ph.D. research themes investigated by the staff of Technical IT Faculty (MIK) are jointly steered by the researchers of MIK and by the information technology professionals of KÜRT Plc. The participation of KÜRT Plc. in the supervision of research is a guarantee that research themes are always updated to studying the latest problems of information security.

The objective of ÖKORET Knowledge Centre of Environment Security IT is providing solutions with maximum conformity with ecological aspects, as well as preparing the practical introduction and implementation of services fostering the application of new environmental technologies. The Knowledge Centre now is implementing four simultaneous projects; its staff is creating an environmental information (monitoring) system, preparing an environmental expert system, adapting environmental friendly planning procedures and providing their own R&D services.

The major purpose of the foundation and operation of the Knowledge Centre of Regional Material Science and technology is generating efficient and massive knowledge of material science through a team of skilled professionals; creating a wide-scaled cooperation system between the business and research sector; creating jobs for young researchers; fostering innovation at companies; promoting SMEs in the affected sectors. The project is targeted at managing the concrete problems of the region’s business corporations arising in the fields of manufacturing, daily operation, application technique and processing technology by providing solutions of scientific nature. Through the implementation of its research-development and training programmes the Knowledge Centre will serve as an indispensable basis and driving engine of innovation and knowledge-based economic development for the region in the next decade.

The integration of the members’ knowledge by the Knowledge Centre will favour for generating industrially usable knowledge in material science which the members alone would be unable to implement successfully and efficiently in practice. By cooperation industrial firms can save development resources and gain additional funds for new developments which they can utilize for creating new jobs. By this way they can stimulate the foundation of new ventures which will increase the region’s and the country’s competitiveness.

The region has two cooperative research centres (Hungarian abbreviation: KKK), both are based on the professional background provided by Pannon University. In 2004 a tender was

58 „This project is funded by the European Union and co-funded by the Hungarian Government in the framework of the South East Europe Transnational Cooperation Programme”

announced by the ‘Research-Development Innovation’ Priority Programme of the National Development Plan Operative Programme for economic Competitiveness under the title ‘Assistance to Building Partnerships and Networks (Cooperative Research Centres) between Higher Education and Firms for Fostering Cooperative Research and Technology Centres’ which was targeted at establishing Cooperative Research Centres (CRCs).

Under the organizational framework of the Institute of Chemical Engineering and Process Engineering at Pannon University a cooperative research centre (Chemical Industry Cooperative Research Centre – Hungarian abbreviation: VIKKK) was established in a competition system sponsored by the Ministry of Education and the National Committee for Technology Development (Hungarian abbreviation: OMFB) on 1st July 2001. VIKKK is operating now as a syndicate the co-founders besides Pannon University are the country’s leading chemical corporations namely as: MOL Hungarian Oil and Gas Company, Tisza Chemical Group Public Limited Company, Gedeon Richter Plc, Borsodchem Company, Nitrokémia 2000 Industrial and Property Management Corporation, Nitrogénművek Plc; and its patrons are Regional Innovation Centre Veszprém, Foundation for the Qualification of Engineers Veszprém, the Municipality of Veszprém Town of County Rank, Hungarian Investment and Trade Development Public Company. The funding of the operation costs of VIKKK is split between the Ministry of Education (50%) and the members of the syndicate (50%).

VIKKK has a long-term plan of becoming such a development centre of chemical industry which through the concentration of big firms can achieve a critical mass – and by attracting SMEs manages to perform an integrated breakthrough – which is now an expectation of the EU. This tendency may have fundamental importance in reversing the downward trend of chemical R&D activities. We are doing our best so that VIKKK – beyond its basic functions in the region – could develop into a national centre of chemical researches and a training centre of high qualified chemical engineers able to meet the environment-oriented and special demands of industry as well as it could function as a competence centre in certain partial fields of chemical industry.

The Cooperative Research Centre of Environment and IT at Pannon University is an economically autonomous, independently funded unit commissioned for carrying out

59 „This project is funded by the European Union and co-funded by the Hungarian Government in the framework of the South East Europe Transnational Cooperation Programme”

multidisciplinary research-development and innovation activities and providing intensive support to doctoral training in the fields of environmental protection and technologies as well as in material sciences technologies. On the other hand the Cooperative research Centre should build contacts with economic partners for the practical implementation of research findings and for representing practical economic and social demands in the structure of researches. And finally building an integrated system-oriented and intellectual environment for the preparation of curricula for graduate, doctoral and post-graduate training programmes as well as cooperation with other institutes and departments of Pannon University in graduate, doctoral and post-graduate training are also parts of the fundamental objectives and tasks of the Centre.

III.3. Entrepreneurship policies and initiatives

This chapter is giving an overview on policy issues serving as a basis for providing business promotion services for Central-Transdanubian enterprises. It focuses on those existing and planned intervention policies which may provide support for innovative enterprises being in early development phase.

II.3.1. Regional Innovation Strategy

The strategy’s overall objective is improving the competitiveness of Central-Transdanubia Region having achieved excellent results in employment and productivity oriented economic restructuring necessitated by the regime change as a basic core area of the development of Hungarian economy but now needing changes in its course. The objective also covers the favouring of innovation-oriented economic development, the involvement of working capital having strategic importance in producing added value through an innovation-oriented dynamic development of small and medium-size enterprises. The specific objectives of strategy are as follows:

60 „This project is funded by the European Union and co-funded by the Hungarian Government in the framework of the South East Europe Transnational Cooperation Programme”

· An internationally attractive regional economic environment, i.e. innovative business infrastructure, entrepreneurial (technological) incubation servicing background, increasing the role of regional and local investments in competitive spatially specified economic development, providing solutions for the capital supply problems of enterprises, · The domestic owners of small and medium-size enterprises have consolidated and this necessitates improving the innovative skills and abilities of enterprises, the strengthening of their market positions and their technical, technological, organizational and process-oriented development, · Competitive, innovative and integrated economic organizations, i.e. network schemed development of the economy, clustering, sustainable improvement of innovative supplier integrations, · Innovation-oriented economic structure involving the qualitative improvement of regional research networks, increasing the efficiency of applied research-development and experimental development promoting in this way the spread of strategic products and services generated by enterprises.

The Region’s innovative policy comprises the following territorial preferences: · in the area of development poles and the relation system of urban networks concentrating on the Region’s dual growth centres (Székesfehérvár, Veszprém) functioning as the Region’s Pole Axis, regional sub-centres (Dunaújváros, Tatabánya) and medium-size cities (Ajka, Bicske, Esztergom, Komárom, Mór, Pápa, Tata) serving as engines for dynamic development for their environment by promoting the settlement and consolidation of innovative economic activities producing high added value, using high technology, employing highly qualified labour through increasing the capital resources and fostering technology and product development for micro-, small- and medium-size enterprises, · in the area of closing up external and internal peripheries and of closing up economically backward areas coping with the economic, social and environmental heritages of the past socialist industrialization (‘Energy Axis’ in the Central Transdanubian Mountains, industrial districts on river Danube between Komárom and Esztergom) through granting priorities to investments targeted at easing the problems of economic restructuring and unemployment and to their related capital investments and through strengthening the market positions of micro-, small and medium-size enterprises; it also focuses on local resource based diversification of economic activities, on alternative income earning methods, on creating the necessary foundations for sustainable agricultural economy in lagging or stagnating agricultural rural (Kisbér, Sümeg, Tapolca, Aba, Adony, Ercsi, and in the rural areas of South- Mezőföld). · in the area of the Region’s economically advanced ‘territories of internal identity’ (Lake Velencei-Vértes Mountains, M4-M8 motorways) and in the area of integrated development areas of national importance by focusing on investments targeted at the preservation, utilization and development of natural resources it concentrates on creating the necessary background for the persistent competitiveness of Lake Balaton

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Area and for the sustainable development of Danube-river area (as a part of the Danube Bend development project), · in the area of strengthening cross-border cooperation it concentrates on interregional and cross-regional cooperation, their potential possibilities through building logistic services, fostering joint investment promotion, economic development and the coordination of training systems by utilizing the evidently available potentials for contact building, for raising extra funds for development and for local synergies and economic-commercial chances offered by internationalization.

Finally, an important note: RIS as the fundamental guideline for innovative policy does not grant priority for any industries but it considers necessary to nominate those branches which potentially may be regarded as the region’s present and future key industrial sectors. They are as follows: mechatronics, car industry, material science related technologies, environmental industry and technologies, IT industry and food industry.

II.3.2. The situation of start-up/new-born innovative enterprises

The number of SMEs in Hungary has shown a gradually increasing tendency in the recent years and the number of registered businesses is even higher of which nearly 80% are active. 99.9% of businesses operating in Hungary are micro-, small or medium enterprises. Among them the rate of businesses employing no staff or staff of 1-9 both regarded as micro- businesses is very high (95.1% of total active businesses) but the ratio of medium-size businesses is very low in comparison to international standards.

The majority of enterprises are funding their developments and investments from their own earnings or family savings. These forms of funding are followed by bank loans but their ratio is by far below the EU average. All over Europe banking sector plays a crucial role in the financing of SMEs and it is followed by leasing, subventions then by private investments and venture capital. The access of start-up businesses to external financial resources is strongly limited as financial sector does not favour long-term investments as they mean higher risk for him.

The productivity of SMEs is lower than of large companies, only a small minority are able to emerge on global and tertiary markets, and only a small fragment of this group is able for keeping up with the modernisation of economy. The financial management of their majority is characterized by high labour costs and low capital intensity and their share in employment is much higher than in sales revenues or income earnings. This is a normal phenomenon itself 62 „This project is funded by the European Union and co-funded by the Hungarian Government in the framework of the South East Europe Transnational Cooperation Programme”

but in international comparison the difference between Hungarian small and medium-sized enterprises seems rather big.

Some of the tax liabilities of businesses for example wage taxes and wage related contributions are higher in Hungary than in its neighbour countries. The high tax and contribution charges are pushing businesses towards grey economy. The administrative costs of businesses are too high and the public administration procedure of businesses is too slow. However the tax reliefs of R&D (corporation tax, employer’s contributions etc.) may increase the participation of private sector in R&D and with this the exploitation of R&D results in the market.

Only nearly 57% of businesses are participating in informal or formal cooperation. The frequency of practical and formal cooperation activities targeted at acquiring, sharing and using business information is extremely low and the number of development and competition oriented cooperation projects is also less than desired. The distribution of both informal and formal cooperation projects by business size categories shows that micro-enterprises are less but bigger, i.e. small and medium enterprises are more inclined to participating in cooperation than the average.

The managers of micro- and small businesses are generally professionals in the specific profile of their company but they have no relevant knowledge in company management and often they feel no need for acquiring any skills like that. It is mainly firms in early business phase that continuously face difficulties in financing and as managers are always busy with the everyday problems of liquidity they have no time for performing business development, marketing and other activities. At the same time due to the aforementioned reasons they have insufficient financial resources for paying adequately trained expertise that would manage and solve such issues for enterprises.

In several cases the protection of intellectual property has great importance for innovative enterprises as the absence of registered patent, or trademark or copyright or copyright in design frequently works against external capital involvement and successful market exploitation. Between 2000 and 2007 the number of submitted patent applications to the Hungarian Patent Office showed a sharply declining tendency. Starting from 2003 multinational (predominantly pharmaceutical industry) firms operating in Hungary are no

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more liable to submit their European patent applications to the Hungarian Patent Office as well. Before that foreign ventures emerging on the Hungarian market, due to the absence of a relevant international agreement, did submitted a report on their latest developments therefore of the total 4,883 patent applications 4,073 were of foreign origin. In year 2007 791 patent applications were submitted of which 686 were of domestic and 105 of foreign origin. The ratio and number of foreign patent applications further declined from the previous year’s level to 13% only in 2007.

II.3.3. Supporting programmes

In Hungary several attempts were made during the past years for bettering the positions of innovative, start-up businesses with high growth potentials. Under the programme of the National Development Plan several incubator houses obtained financial subsidization for their development and as a result quite a large number of – let us call them as ‘incubator houses’ in the absence of proper terminology – having no research infrastructure have been established in various parts of Hungary. Seeing the experiences of these initiatives it can be stated that these supporting programmes failed to generate a significant breakthrough in changing the situation of domestic incubation and they did not even introduced positive practices. Due to the false assumptions of the planners of the supporting programme and to the strong lobbying activities of real estate developer groups these projects concentrated on infrastructural development only, presuming that the target group (young, innovative enterprises) will move into these houses and will claim for high tech incubation services. However in fact, with the exception of a few cases these incubation houses are inhabited not by innovative enterprises with high growth potentials engaged principally in R&D and needing very intensive, locally concentrated incubation services – as it was intended to happen originaly. Instead, the majority of incubation houses are hosting such enterprises which do not fit into the criteria of the original target group. By now it has been become evident that the planning of this programme was a failure and we also can see that no corrections have been made in its progress yet and the market still misses the functions of incubation as the original objectives of the programmes have not or only in a small part have been realized.

The other serious problem having arised in this field is that checking the efficiency of R&D support programmes was not an important issue so far in Hungary as the monitoring of R&D

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support was a very complicated procedure and was difficult to evaluate objectively. The NKTH (National Office for Research and Technology) by following the international practice very well recognized that a firm’s development objectives and their relevance to market conditions can be best assessed by private investors therefore their involvement into financial subsidization related decision-making is strongly advisable.

In Hungary private investor groups do not invest in businesses in their early life cycle as a rule but at the same time international investment funds are emerging in an increasing number on regional and domestic levels. This is explained by the fact that investors do their best for avoiding risks at businesses in their early life cycle and except for the USA, no funds are following such a type of business promotion policy.

As it is seen a heavy demand is shown for venture capital investments claimed by innovative R&D and technology oriented enterprises as they have difficulties in financing in their start- up period. International experiences also show that following venture capital investment a young, innovative enterprise can speak of market failure regarding the capital involvement capabilities of young innovative, R&D and technology oriented enterprises.

The supporting of start-up businesses

In Hungary the supporting of high-tech, innovative SMEs being in start-up phase enjoyed priority during the past years. This priority role is also emphasized by the New Hungary Development Plan approved for the 2007-2013 programming period. Concerning this matter a feasibility study was prepared in 2009 under the title ‘The Possibilities of Seed Capital Fundraising in Hungary’.

Private equity market and at the same time private equity investments emerged in Hungary during the past 5-7 years. Large European private equity funds are putting heavy sums out in Hungary through capital financing transactions into various industrial branches by applying various financial constructions. The New Hungary Venture Capital Programme (Jeremie Programme) launched in 2008 became an element of the economic supporting policy with similar objectives but the Jeremie programme assigns no priorities to supporting high-tech innovation and seed capital based start-up enterprises. Furthermore, it is quite common that business angel networks, incubation support programmes and start-up, seed and private equity investment funds are not integral parts of the Hungarian market of investments. 65 „This project is funded by the European Union and co-funded by the Hungarian Government in the framework of the South East Europe Transnational Cooperation Programme”

The raising of Seed Capital Fund to be operated in Hungary under the supervision of NKTH and with the subsidization of the Hungarian government has been necessitated by the following factors of business finance and development policy:

• Due to the global slowing down of economy the export-oriented small and medium- sized enterprise (SME) sector is very badly hit be the dropping volume of orders decreasing their own profitability and efficiency,

• In Hungary the small and medcium-sized enterprise (SME) sector and particularly young (or start-up) businesses can access bank financing facilities or start-up loans only with difficulties or at a very high price for funding their R&D and innovation activities.

• The private sector will not solve the financing problems of start-up businesses. Currently Hungary has no seed capital funds in operation. This is a sign of fundamental market failure which will negatively affect the development of SME sector and corporate R&D and innovation activities in the long run. A new seed capital fund raised for capital financing innovative, start-up enterprises can be a perfect accessory to the programmes supporting incubation and start-up businesses.

From the above mentioned facts it can be seen that such an innovative start-up business supporting scheme now is only in its initial phase yet. This is – as detailed above - a serious competitive disadvantage for technology and knowledge intensive enterprises.

Technology Incubation Programme

The Technology Incubation Programme (TIP) starting in 2009 is aimed at managing the above-described problems. TIP provides incubation services for innovative, R&D enterprises with high development prospects needing technology incubation by an active involvement of private investors and by offering fair compromises, guarantees and advantages for stakeholders in return for participating in the programme. A major goal of this programme is providing support for enterprises needing primarily technology incubation as the highest potentials and start-up risks are bound to this segment. The Technology Incubation Programme provides a chance for Hungary’s elite start-up businesses to get into an ideal or nearly ideal environment and provides all the necessary conditions for the highest growth and creating its fundaments. We consider the exploitation of the infrastructure development potentials within the competition system of GOP (Economic Competitiveness Development 66 „This project is funded by the European Union and co-funded by the Hungarian Government in the framework of the South East Europe Transnational Cooperation Programme”

Programme) 1.2.2 Supporting Innovation and Technology Parks an excellent chance as this programme by the establishment of a suitable research and ICT infrastructure presumably will be capable for providing a wide palette of high quality, customized R&D&I and technology incubation services for the given sector or specialty. Thus, within the Technology Incubation Programme the infrastructural framework will consist of establishments equipped by common research and lab infrastructure facilities available for use as needed by businesses immigrating there. This will increase the efficiency of other supporting programmes as well as businesses will have to obtain only the equipment – possibly through a grant application system – they have no access for leasing on the premises. The Technology Incubation Programme is also an excellent business opportunity for the hosts of this infrastructure as it will create excellent market for the utilization of their capacities and will guarantee the return of their investments.

Within the Technology Incubation Programme we differentiated two incubation phases and two important actors: Technology Incubation Companies and Technology Start-up Companies. Technology Incubation Companies are private equity investors or business angels having high amounts of starting capital or incorporated into a project company capable for capital involvement able to rendering or transparently organizing specific technology or business incubation services in high quality. For Technology Incubation Companies it is compulsory to organize a so-called Investment Board whose members with their professional competence and experiences will provide support to the election of the right members of Technology Start-up Company. Technology Incubation Companies will gain business share option in the incorporated Technology Start-up Companies which in case of meeting the success criteria may be realized in exchange for a fair sized capital increase in the Technology Start-up Company. The Technology Incubator Company’s goal is to develop the incorporated Start-up Company in the 1st incubation phase – which may last up to 24 + 6 months – to a level worth for direct capital investment. The interest of Technology Incubation Company lies in the maximization of the value of business share obtainable under relatively fair conditions and its sell-out on the best possible exit value. Technology Incubation Companies are selected by NKTH through the Technology Incubation bidding procedure (It is expected that in Central-Transdanubia a company with operation scope for the whole territory of Transdanubia will be founded with the contribution of Közép-Pannon Zrt (Mid-Pannon Plc.) and Central-Transdanubian Regional Development Agency). The beneficiaries of competition 67 „This project is funded by the European Union and co-funded by the Hungarian Government in the framework of the South East Europe Transnational Cooperation Programme”

are entitled for participating in the programme and will provide assistance to its start-up and the organization of its operational frameworks in a form of 50 million HUF non-refundable grants. The selected by the NKTH Technology Start-up Company candidates will submit a proposal for the Technology Start-up competition in which in case of positive decision 80 million HUF of non-refundable grant will be transferred with 100% intensity of subsidization. The Technology Start-up Company can spend the won non-refundable support for technology and business incubation services. Beyond this the support scheme allows accounting for personal expenditures to a certain extent for covering the wage costs of key employees and researchers in the initial phase of enterprise. The support can solely spent for business development which means here technology incubation services but no R&D expenditures. This support may be given in the 1st incubation phase only and it is terminated upon the case the Technology Incubation Company invests through buying out its business share terminating by this the 1st incubation phase.

The 2nd incubation period may last up to maximum 4 years in which the Technology Incubation Company under market conditions may any time sell out its business share to an independent party. An important prerequisite of the realisation of the 2nd incubation phase is that the government should introduce the proposed tax incentive package related to Young Innovative Business Status prepared by NKTH with the approval of the Ministry of Finance. In the 2nd incubation phase by eliminating the direct support provided in the 1st incubation phase we are planning to introduce a much more market-oriented tax incubation scheme in which we will relieve the tax and contribution charges of enterprises on the basis of successfully tested international experiences.

II.3.4. Experiences on related domestic and EU funding resources

Economic Competitiveness Operational Programme (2004-2006)

The budgetary framework of the Economic Competitiveness Operational Programme (ECOP) was more than 154 billion HUF in the period between 2004 and 2006 providing chances in Hungary for funding the implementation of various competition programmes ranging from technology development through research-development and major investments until the development of the information society.

The calls for proposals announced by ECOP received great attention as more than 21 68 „This project is funded by the European Union and co-funded by the Hungarian Government in the framework of the South East Europe Transnational Cooperation Programme”

thousand applications were submitted to them in total. The total support claim of 350 billion HUF was double of the amount available. The programme’s managing authority supported 9,162 applications and the total sum of support won by competitors amounted to more than 162 billion HUF. On national level between 2004 and 2006 the Hungarian GDP increased by more than 3,000 billion HUF on current price; of this the contribution of the Economic Competitiveness Operational Programme amounted to 290 billion HUF, more than ten per cent of the total growth. The programme’s contribution to the growth of employment was also high; more than 83 thousand new and preserved jobs can be owed to the the Economic Competitiveness Operational Programme. According to an interim report the number of the beneficiaries of the programme is nearly 6,700 of which the majority are enterprises in a number of 6,100 and of which 2,900 are private and micro enterprises. This latter category has won 19 billion HUF support in total.

Received Approved by IH Paid Year 2009 data Number Million HUF Number Million HUF Number Million HUF ECOP-1.2.1 21 1890 4 400 4 391 ECOP-1.2.1-05/1 29 3197 16 1931 16 1906 ECOP-2.2.2 469 471 168 173 165 2010 ECOP-2.2.2-05/1 664 657 328 331 319 308 ECOP-3.3.1 101 2074 42 880 42 855 ECOP-3.3.1-05/1 225 4834 103 2235 103 2109

Source: NFU, 2009.

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The 1.2.1 component of ECOP was targeted at developing industrial and innovation infrastructure. The major goal of this component means the development of business infrastructure and the establishment and development of industrial parks and logistic centres which even now are capable for efficient economic performance. As a result of the past years’ development the network of industrial parks spatially covers the whole territory of Hungary. The beneficiaries of this project are industrial parks, incubator houses, innovation parks and technology transfer centres. Half of the currently active 164 industrial parks are local government properties and another 25% are owned by big firms. The number of innovation parks is 6-8, and of technology transfer centres is about 20-25. This project involves two medium-sized firms, a micro, a big company and a non-profit organization. The winner applicants are all specialized in vehicle-electric machine and equipment manufacturing. The principal demands of the beneficiariess are infrastructural development, capacity increase, support to operation and the availability of value-added services such as legal, business or tendering advisory services.

All the applicants won a support of 100 million HUF. The fixed value of support comes from the nature of tender. Presumably this sum is not harmonising with market demands as it assumes equal demands on the part of each actor.

In general it can be stated that the idea of industrial parks is good but a great part of domestic industrial parks do not function as an industrial park should. The role of industrial parks should be reconsidered and only well-operating and promising industrial parks should be supported. Beyond this the availability of large sites straight away to be recommended for investors would be necessary. The competition should be founded on a complex and focused investment and investment promotion strategy specifying the roles and functions of industrial parks.

The ECOP-2.2.2 measure had an aim of launching an advanced level business line specific consultation service for small and medium-sized enterprises. The goal of this tender was the distribution of trade specific knowledge among enterprises needed for their successful operation and further progress. Its further aims were the dissemination of knowledge needed for organizing and running the business successfully and hereby increasing the efficiency of micro, small and medium-sized enterprises as well as improving their chances for survival

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and growth.

The targeted beneficiary circle of the Programme was the small and medium-sized enterprise sector having several hundred thousand members by statistical figures. The services to be assisted within the framework of Programme look back to no history yet among beneficiaries and the actual needs in this field are not known yet. The objectives of the calling for tender in 2004 were not unambiguous for the applicants and in several cases they failed to make out exactly what they exactly can apply for. For a better understanding of objectives and assisted activities the 2005 calling for tender provided a detailed list on activities eligible for returning their expenses. This resulted in a weaker performance of this component and in only a low utilization level of available funding resources.

The average amount of support won by competition was 1.2 million HUF and the the amount of total accountable expenditures – with regard to the 50% rate of support intensity – was 2.4 million HUF in the majority of cases.

If we look at successful applicants by enterprise size it seems that small entrepreneurs have been the most active regarding both the number of applications and the volume of grants they have won. If we look at the sectoral distribution of successful applications it seems the majority of winners came from the trade and repair sectors.

As a rule it can be declared that the Programme looks back to a short history only and the number of demands and the level of interest having shown for it so far are relatively low. Experiences show that the quality of the implementation of a project is hard to be monitored. There is a low need for advanced level consultancy services and the supply side is also weak yet.

ECOP-3.3.1 measure had an aim of supporting the innovation tasks of new, technology and knowledge-intensive enterprises and spin-off companies. The Programme was targeted at improving the competitiveness of the corporate sector, improving the quality of corporate research facilities, the encouragement of innovative technology-intensive activities, supporting high value-added activities, broadening the fields of corporate R&D activity, strengthening the adaptation and utilisation of R&D results at companies, improving the quality of corporate research and raising the quality of corporate research infrastructure. As it is seen the concrete tasks drafted here are rather mingled so the planners’ original aims and 71 „This project is funded by the European Union and co-funded by the Hungarian Government in the framework of the South East Europe Transnational Cooperation Programme”

primary objectives are not clear.

The beneficiaries of the Programme are private individuals and university research teams registered within the previous 5 years with staff below 10. The demands of the beneficiaries in case of private individuals were formulated towards the continuation of R&D projects and in most cases they have such ideas which they can more easily implement by the assistance of the aid.

The highest rate of support, namely 74% was granted to micro enterprises. The representation of private persons affiliated mainly to universities and research institutes was 25%. In many (77% of) cases the winners won 100% of the sum they applied for. The highest amount of support was granted to successful applications in the field of research-development and business promotion services. The winning sectors were IT, health and social care services and equipment manufacturing.

One of the Programme’s weakest point was that the distribution of sums was too fragmented (de minimis) and the scope of activities eligible for support was too broad and at the same time no significant assistance was provided for entrepreneurs for applying their results on the market.

Other EU programmes

Hungary joined the 5th Framework Programme of the European Community for Research, Technological Development and Demonstration Activities in August 1999 where Hungarian applicants shared equal rights with researchers in the member states. Under the 5th Framework Programme 7 Hungarian institutions submitted their grant applications for training and hosting novice researchers, PhD students and 3 of them won support: they all were institutes of higher education applying in researcher training network project scheme. 160 young Hungarian researchers won support for participating in a training or research programme at a foreign institute. Individual Marie Curie Fellowship contributing to the training of experienced researchers was won by 57 domestic applicants.

Hungary participated in the 6th Framework Programme as having learnt the lessons of the 5th Framework Programme and Hungarian research teams were bidding in hundreds of consortia for participating in projects under specific programmes set by the European Commission. As a rule the amount of grants won by Hungarian applicants was rather low for their number. The 72 „This project is funded by the European Union and co-funded by the Hungarian Government in the framework of the South East Europe Transnational Cooperation Programme”

vast majority of the winner Hungarian applicants were research institutes or universities the participation rate of enterprises in competiztions was very low. The majority of winning projects were aimed at promoting the establishment of researcher training networks and in a smaller part promoting knowledge transfer. However the participation of domestic enterprises and research organizations in international research cooperation projects is less typical, for example the Hungarian’s contribution to the European Union’s 6th Framework Programme was rather limited..

The now ongoing 7th Framework Programme is fostering the cooperation of such SMEs and SME associations whose research activities need outsourcing to universities or research institutes. The Programme supports mostly SMEs of low or medium technology with low capacities for research. The Programme also welcomes research intensive SMEs also in need of outsourcing their research activities for improving their research facilities.

Aggregated data FP7-SME-2007-2 FP7-SME-2008-1 Submitted projects 167 673 Number of participants proposed for approval 26 93 Number of the participants of submitted projects 1158 5633 Number of the participants of projects proposed for 353 762 approval Source: NFU, 2009.

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FP7-SME- FP7-SME- Hungarian participation 2007-2 2008-1 Number of projects with Hungarian participants 15 - Number of projects with Hungarian participants proposed for 7 - approval Hungarian participants – submitted projects 25 112 Hungarian participants – projects proposed for approval 11 14 Hungarian coordinators – submitted projects 2 15 Hungarian coordinators – projects proposed for approval 1 3 Source: NFU, 2009.

II.3.5. Current funding resources

GOP (Economic Development Operational Program Priority I)

These programmes encourage industrial research and experimental development programmes exploitable for the economy and to be implemented in close cooperation between enterprises, universities and research institutes and also provide assistance to building modern research infrastructure, to applications for patents and in certain areas of primary importance to the permanent renewal of utilizable knowledge and to their expedience in market environment. Furthermore these programmes are targeted at establishing innovation and technology parks, hosting research and innovative enterprises and improving the existing institutional system. The focal points of these programmes are as follows: - intensifying the presently low activity of domestic corporate R&D innovation; - a more efficient utilization the existing capacities and results; - and increasing the cooperation between the stakeholder actors.

Regional Development Operational Program (KDOP)

The Priority Axis 1 of the Operational Program of KDR (Regional Development Agency of Central-Transdanubia) for the programming period 2007-2013 concentrates on the development of regional economy. In this aspect it encourages setting up an internationally attractive regional economic environment, the promotion of competitive, innovative economic cooperation systems and networks, stimulating the building of an innovation-oriented network of regional economy and improving the skills and abilities of the domestic owners of small- and medium-size enterprises.

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TIOP (Social Infrastructure Operational Program) - 1.3.1. scheme

The objectives of the scheme are as follows: improving the infrastructure necessary for the qualitative improvement of the R&D+I and training activities of higher educational institutes, and creating the necessary infrastructural and technological background for increasing the number of students educated at faculties of technology and natural science by modernizing and improving the supply of research equipment and instruments in the fields of mathematics, natural sciences, technology, IT and life sciences.

TÁMOP (Social Renewal Operational Program) – higher educational R&D schemes

These schemes assist to the promotion of the technology transfer of higher education institutes, the supporting of the selected basic research projects of innovative research teams, the publication of the scientific results of higher education institutes, the planning of a tutorial-researcher lifelong career and the promotion of talented Hungarian students. They also contribute to the qualitative improvement of education and research, to increasing the ratio of eminent students and tutor-researchers and urges for achieving excellent results. A further objective of the schemes is involving foreign researchers or Hungarian professionals working at foreign research institutes into Hungarian research projects easing in such way the integration of home-coming Hungarian or foreign researcher-tutors into the domestic world of science.

KTIA (Research and Technology Innovation Fund)

The objective of KTI Fund is promoting the establishment of an innovation-driven, knowledge economy and society. The programmes are inspiring the birth of products, technologies or services from knowledge and innovative ideas which can be sold on world market. This is expressed by the „From Idea to Market” action plan with the following major objectives: - Improving knowledge bases, building knowledge bases complying with international standards; - Supporting R&D programs linked to National Strategic objectives; - Increasing the utilization efficiency of R&D results, intensifying the foundation of innovative enterprises, Introduction of technological and business incubation; - Development of regional innovation; - Intensifying international R&D cooperation, fostering Hungarian participation in EU R&D programs.

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The Fund’s major programs are as follows: Pázmány Péter Program, Asbóth Oszkár Program, Baross Gábor Program, Irinyi János Program, Apponyi Albert Program, Déri Miksa Program, Kozma László Program, Öveges József Program, Polányi Mihály Program, Teller Ede Program.

OTKA (Hungarian Scientific Research Fund Basic programs)

By the grants of OTKA such scientific researches and the creation of preconditions needed for their performance and publication can be sponsored through a public tendering system which can guarantee the recognition of new scientific trends, knowledge, methods and procedures. The grants of OTKA may also be allocated for infrastructure development purposes contributing to the achievement of such scientific results.

The concrete funding schemes are as follows:

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Incentives for corporate R&D and innovation

Amount of Assistance Intensity Name of grant Beneficiaries (million HUF) (max. %) min. max. Assistance to market-oriented R&D business associations, 25 300 50 activities cooperatives Assistance to accredited innovation business associations 250 1,500 50 clusters business associations, Assistance to corporate innovation 15 350 45 cooperatives Assistance to the corporate business associations 15 350 25 innovation of accredited clusters Increasing corporate research- business associations 200 1,500 50 development capacities Development of the supplier and technology innovation activities of business associations 15 400 45 enterprises business associations, cooperatives, non- profit organization Assistance to National Technology government-funded 200 1,000 N/A Program Strategic Researches research institute, institute of higher education business associations, cooperatives, non- profit organization, Assistance to National Technology government-funded 1,500 1,500 N/A Program Integrated R&D projects research institute, institute of higher education business associations, cooperatives, non- profit organization, Assistance to the legal copyright of government-funded 0 10 N/A intellectual property (IPARJOG_08) research institute, institute of higher education Assistance to the implementation of private individuals, R&D results and innovative ideas business associations, 5 150 N/A (5LET) private entrepreneurs Technology Incubator Program business associations 50 250 N/A business associations, Preservation and human resource government-funded 10 100 100 development of R&D labour research institute, non- profit organization EGT & Norwegian Financing business associations 63 750 90 Mechanisms

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Creating internationally competitive scientific and innovative capacities

Amount of Assistance (million HUF) Intensity Name of grant Beneficiaries (max. %) min. max.

Development of R&D centres business associations 400 1,000 50

Assistance to innovation and business associations 1,000 5,000 50 technology parks

institutes of higher education, International Knowledge government-funded research 500 1,000 N/A Centre Program institutes

institutes of higher education, Development of National government-funded research 100 500 N/A Research Infrastructure institutes, private individuals

Assistance to infrastructural and IT development projects needed to the qualitative institutes of higher education 150 2,200 95 improvement of higher education

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Development of knowledge society

Amount of Assistance Intensity Name of grant Beneficiaries (million HUF) (max. %) min. max. business associations, institutes of higher education, Swiss Contribution 87 218 85 government funded research institutions Assistance to basic research exploitable by economy laying private individuals, government 10 150 100 the foundations of innovation funded research institutions (OTKA-A08) Research Mobility grant private individuals 10 90 100 (HUMAN-MB08) business associations, private Human resource development individuals, government funded 1 100 N/A grant research institutes, institutes of higher education Development of National Research Infrastructure consortium of non-profit 550 550 90 Electronic Information Service organizations (EISZ) Development of National private individuals, economic Research Infrastructure associations, non-profit 0.2 10 100 Donation organizations Assistance to internationally prominent young researchers’ private individuals, government 8 31 100 basic researches in certain funded research institutes topics Additional research funds for private individuals, government the support of international 0.5 10 100 funded research institutes researches private individuals, government Assistance to basic researches 0 40 100 funded research institutes Grant for supporting the private individuals, government foundation of young 10 90 100 funded research institutes researchers’ team Assistance to highly expensive private individuals, government 10 120 100 basic researches funded research institutes Assistance to research projects or training programmes private individuals, government 0 40 100 scheduled in international funded research institutes cooperation

79 „This project is funded by the European Union and co-funded by the Hungarian Government in the framework of the South East Europe Transnational Cooperation Programme”

Development of regional innovation

Amount of Assistance Name of Intensity Beneficiaries (million grant (max. %) HUF) min. max. economic associations, non- Promotion profit organizations, of clustering cooperatives, 15 150 80 and cluster research institutes, development educational institutions local governments, Promoting economic Technology 5 100 85 associations, non- transfer profit organizations local governments, Assistance to economic experimental 5 10 85 associations, non- projects profit organizations economic Assistance to associations, private business 100 entrepreneurs, consultation public corporations economic Baross associations, Gábor government funded 5 100 90 regional research institutes, programs institutes of higher education Innocsekk economic 0 30 50 Plus associations

80 „This project is funded by the European Union and co-funded by the Hungarian Government in the framework of the South East Europe Transnational Cooperation Programme”

Intensification of cooperation with the European Union and of international contacts

Amount of Assistance Intensity Name of grant Beneficiaries (million HUF) (max. %) min. max. economic associations, Assistance to the Hungarian part of cooperatives, non-profit exploitation-oriented R&D+I organizations, government funded 25 400 N/A projects to be implemented in research institutes, institutes of international cooperation higher education Promotion of Hungarian government funded research participation in bilateral inter- institutes, institutes of higher 0 10 N/A governmental scientific and education, , non-profit technological cooperation organizations, private individuals Assistance to Hungarian researchers achieving excellent results on the competitions of the private individuals, government 100 400 100 European Research Council (ERC) funded research institutes by promoting the foundation of their own research team economic associations, cooperatives, non-profit Assistance to participating in organizations, government funded 20 250 N/A EUREKA program research institutes, institutes of higher education Promoting Hungarian government funded research participation in ERA-NET and institutes, institutes of higher 20 50 N/A ERA-NET Plus programs education, non-profit organizations Promotion of Hungarian economic associations, participation in EU R&D joint cooperatives, non-profit programs (EUROSTARS, AAL) organizations, government funded 20 400 N/A and technological initiatives research institutes, institutes of (ARTEMIS, ENIAC) higher education economic associations, Assistance to Hungarian cooperatives, non-profit participation in the EU 7th organizations, government funded 1 5 N/A Framework of Research research institutes, institutes of Technology Development higher education municipalities, municipal Hungary-Slovakia Cross-border associations, non-profit 13 375 95 Cooperation Program 2007-2013 organizations, international organizations Hungary - Slovakia - Romania - municipal associations, Ukraine Cross-border Cooperation cooperatives, institutes of higher 25 125 90 Operational Program 2007- 2013 education, non-profit organizations

81 „This project is funded by the European Union and co-funded by the Hungarian Government in the framework of the South East Europe Transnational Cooperation Programme”

II.3.6. Available and implemented EU programmes in the Region

In Central-Transdanubia Region since its establishment in 1996 several Cummunity funded projects have been implemented for improving the general economic environment, developing the institutional system of regional development and innovation and raising the innovation activity of the region’s small and medium-sized enterprises. The major parameters of the implemented projects are as follows:

INTERREG IIC RDA Net CEDA was an international programme for strengthening cooperation between the regional development agencies of Danube countries. The programme with the participation of regional development agencies sought for the most adequate conditions of successful cooperation, problems and their possible ways of solution through sharing the partner agencies’ experiences learnt in regional development and other international programmes. For the tasks of CEDA in this field were information supply, developing new forms of cooperation and satisfying learning demands.

The contribution to a more efficient institutional development and capacity building, the preparation of common project plans and the accomplishment of expert exchange programmes may all be listed among the major results of the programme. The programme was implemented between 1998 and 2001.

The Cer2Net („Central-European Regions Cluster for Energy from Renewables”-NETwork) project was implemented under the INTERREG IIIB Programme between 2004 and 2006. The project’s objective was strengthening regional economy and increasing employment through increasing the share of renewable energy resources and energy saving technologies. To achieve these goals a regional and a transnational expert (cluster) network were established which yielded added value for the region in the fields of competences, financing and process management. The direct beneficiaries of the project were the participant organizations and the experts attached to them as well as the energy experts, planners SMEs and other inviolved parties participating in trainings and the cluster network.

The I-LOG (Industrial Logistics) project was also implemented between 2004 and 2006. This international project having been implemented under the Interreg IIIB programme aimed at fostering the strategic use of logistics and transportation in Hungary and at serving as a bridge between between the cost reduction of SMEs, the quality improvement of services and 82 „This project is funded by the European Union and co-funded by the Hungarian Government in the framework of the South East Europe Transnational Cooperation Programme”

the demands of local environment protection and local society. In Hungary the target group consists of small and medium-sized enterprises, logistic and transportation companies, foreign trade enterprises, multinational and other big firms and furthermore other organizations attached to the innovation chain and of the region’s population. The activities of I-LOG project were realized in close connection with the participating transnational partners. Several studies and analyses have been prepared in association with the I-LOG project. The studies were prepared with the inclusion of local enterprises and were based on questionnaire surveys. The participants of the program on the part of Central-Transdanubia Region were Közép- Dunántúli Regionális Fejlesztési Ügynökség (Central-Transdanubian Regional Development Agency) and Közép- Pannon Terület- és Gazdaságfejlesztési Szolgáltató Kht (Mid-Pannon Regional and Economic Development Service Public Non-profit Company).

The main goal of the Model de Development des Systemes Locaux pour le Soutien des Entrprises (MODELE) INTERREG IIIC project (2005-2007) was the consolidation of the local (regional) small and medium-sized entrepreneur sector. Beyond this general task further sub-priorities were set such as fostering the capital supply of SMEs by applying innovative financial solutions and means; making the region attractive for investments fitting into the local economic environment and attached to SMEs by several threads and increasing the operational efficiency of organizations dealing with the planning and management of Structural Funds.

The project provided an input to the preparation of the Operative Programme of Central- Transdanubia for the 2007-13 programming period. It also served as a basis for the call for tender which made possible the implementation of international pilot projects on the above- mentioned areas. On the basis of the proposals evaluated by the Project Management Authority in October 2006 the following sub-projects have been implemented in Central- Transdanubia Region:

Közép-Pannon Regionális Fejlesztési Zrt. (Mid-Pannon Regional Development Plc.): the sub- project is aimed at fostering small and medium-sized enterprises in getting financial supply by means of bank indemnity, loan or venture capital in the different regions. The regions have worked out the business plan of the different means and they have exchanged their working experiences.

83 „This project is funded by the European Union and co-funded by the Hungarian Government in the framework of the South East Europe Transnational Cooperation Programme”

The Municipal Government of Székesfehérvár: the sub-project was aimed at strengthening the development and servicing institutional system of SMEs and at coordinating their services. Several studies have been prepared in this matter under the project and the city has also implemented a developmental pilot project (The establishment of a Business Information Centre).

Chamber of Commerce and Industry in Komárom-Esztergom County: as a result of project an investment related conference was organized in Nitra and Tatabánya (Investors’ and Suppliers’ Conference hosted by Vértes Expo on 23rd August) and an Investors’ Handbook and CD has been prepared in Hungarian and English languages.

Közép-Pannon Fejlesztési Kht. (Mid Pannon Development Public Corporation): the project is aimed at strengthening regional investment promotion activities, providing assistance to attracting new investors into the region and to the exchange of experiences between partners. The programme gives an insight how regional level investment promotion can properly be managed following mostly the experiences of the Spanish Navarra Region, the consortium leader.

The project Regional Innovation Strategy (RIS): Regional Innovation Strategy of Twin Regions – the Innovation Axis of Hungary was implemented under the 5th Framework Programme between 1st January 2002 and 31st August 2004. In year 2001 Central- Transdanubia and Central-Hungary regions together with the Italian Umbria and the German Brandenburg region won a competition of the European Union 5th Research, Technology Development and Demonstration Framework Programme for the preparation of a Regional Innovation Strategy (RIS). RIS is a complex programme aiming at the development of the region’s innovation capacity and the innovative skills of small and medium-sized enterprises through which the region’s institutions and businesses may improve their international competitiveness.

The project’ major result is that for the first time it ’brought together’ the principal actors of innovation to think collectively. This largely contributed to the later foundation of the innovation council and regional development agency. Beyond them it brought international expertise into the region. Furthermore the detailed innovation demand and supply analysis of Central-Transdanubia has also been prepared under this project. And finally as a ‘final product’ the region’s innovation strategy and action plan has also been prepared which is still serving as a basis for regional 84 „This project is funded by the European Union and co-funded by the Hungarian Government in the framework of the South East Europe Transnational Cooperation Programme”

planning documents, innovational competitions and was an important input for the foundation of Central-Transdanubian Regional Development Agency.

In connection with the previously mentioned facts between 2006 and 2007 the RIS+ (Strand 3) consultancy project was implemented. Under the 6th Framework Programme experts of international consortia visited those regions that had prepared a regional innovation strategy. Central-Transdanubia Region was a target area of the following two consultancy projects: the first is Innovation Coach aiming at supporting regional innovation policies and the implementation of RIS and the second is IMIS focusing on developing models for the financing of innovation in the different regions.

The international experts of innovation provided assistance for the staff of Central-Transdanubian Regional Innovation Agency in three fields such as: spin-off pilot programme (Pannon University) technology- and knowledge transfer (College of Dunaújváros) and the preparation of seed fund raising (Mid-Pannon Zrt.).

85 „This project is funded by the European Union and co-funded by the Hungarian Government in the framework of the South East Europe Transnational Cooperation Programme”

III.4. SWOT analysis of the business sector

Strengths Opportunities · Strong industrial company culture, manufacturing and export. · There is a significant demand for the renewal of the local · The region’s leading sectors are mechatronics, motor-car entrepreneurs’ incubators industry, plastic industry, environmental industry, IT and food · In modern economic development strategies the appreciation of industry networked cooperation-, innovation- and knowledge-based · The region’s main strength is an adaptive labour force, cheaper development has increased and the different-level policies and more capable for working in high technology environment (national, EU) and support systems provide extra preferences for than average labourers in the European Union them · The regional presence of foreign investors is dominant. · The presence of multinational firms regarding international · Foreign investors as a rule have already built their partial network tendencies provides a further impulse to the integration of local of regional suppliers economy into global economy, to the adaptation of advanced · The Region is in outstanding position regarding the number of technologies and to the spreading of modern management and industrial parks, the size of territory they occupy and the number methods of leadership of operating businesses. · Hungarian owned SMEs are the major actors of innovation · Clusterization has already started in the region’s several industries · Several EU funds are available for innovative enterprises and in several areas this process is promoted by cluster initiatives · the existence of R&D+I tax reliefs e.g.: relieving innovation · By the opinion of innovative businesses the region’s supply of contribution) capital resources and payable demand are above the average · Heavy demand for the involvement of venture capital · Innovative businesses can be well identified by enterprise- · The promotion of start-up businesses is a policy priority demography aspects · The venture capital investment system has been spreading · The development objectives of innovative businesses are significantly for 5-7 years identified · A state subsidized seed capital system is under preparation now. · Central-Transdanubian firms are the most successful regarding the volume of innovations · Only a low proportion of innovative businesses are presented on the EU markets. · Several very useful lessons have been learnt from the EU funded innovation projects implemented in the region.

Weaknesses Threats · The capital supply of micro- small and medium-size enterprises · The long-term persistence of dual economic structure based on and their access to capital resources need improvement ‘socio-economic-entrepreneurial’ culture · The economic structure is less service-oriented than it would be · Financing problems, the unpredictability of subsidization policy desirable depending on the situation of budget · The region’s advanced economic level practically refers to · Innovation activities in Hungary are one-sidedly process industry industry, other sectors are not so advanced, due to mass oriented production the resources of further rapid development chances · Product and service innovation are followed by the introduction have been exhausted of new methods in every second case · The institutional system of promoting FDI investments needs · The dominance of manufacturing activities in carrying out improvement innovations · Industrial parks regarding their services, networked cooperation, · The embedment of higher education into the innovation chain is thematic segmentation need improvement inappropriate · The ratio of businesses located in industrial parks producing high · The adaptation of external knowledge into the innovation added value is low activities of SMEs remains low · The number of local enterprise incubators is low, no micro- · Business environment still favours implemented developments regional level centres are operating and investments to be funded by own resources · By incubation activities mostly general incubators are available, · Persistently high venture tax duties technology incubation is less dominant · The slow procedure of business administration. · In the region the relationship between innovative big firms and · The absence of private investors in the early life cycle of local small and medium-size entrepreneur sector is weak businesses in Hungary · The financial background of organizations of the innovation offer · Obtaining bank financing resources is difficult. side is unpredictable and unstable · The amount of capital resources available for small and medium- size enterprises for development is very limited · The technology level of local micro, small and medium-size enterprises is low in general with out of date machinery and equipment · Businesses carry out developments on their own, their inclination for cooperation is low · The number of patent applications is low and showing a declining tendency · The majority of incubator house development projects are focusing on infrastructure disregarding in this way the demands of the real target group. · The participation in international R&Đ projects is low. 86 „This project is funded by the European Union and co-funded by the Hungarian Government in the framework of the South East Europe Transnational Cooperation Programme”

On the basis of the above listed set the current and potential major problems for the region’s innovative enterprises may be summarized as follows:

These problems in the majority of cases have been raised not only by the region’s potentials or development features. Consequently, the chances of local interventions are limited. This means the unfavourable business environment in Hungary is the key factor of regional innovation activities. The services of the institutional system of regional innovation may provide partial solutions for the existing and potential problems, especially in the fields of the development of cooperation, the integration of the institutes of higher education into a single innovation chain and the adaptation of external knowledge.

87 „This project is funded by the European Union and co-funded by the Hungarian Government in the framework of the South East Europe Transnational Cooperation Programme”

IV. SUGGESTIONS AND PROPOSALS

A survey on the Region’s general economic environment, R&D&I institutions and major activities, on policy background and its major activities and innovative business activities may provide a general overview on how the region’s innovative capacities and the efficiency of business promotion provided for innovative enterprises may be increased. In the following part we are presenting our proposals based on the major experiences collected upon this set of issues.

Central-Transdanubia has relatively favourable economic conditions. It has strong domestic economic position, its exporting potentials are beyond the average and its geopolitical advantages may very well be exploited. On such a basis the increasing of innovation activity could be done much more efficiently if success could be achieved in finding those sectoral nodes in the region’s quite heterogeneous economic structure which could make the region competitive both in domestic and foreign markets. The professional basis for development policy decision-making is granted but building lobbies of professional concern needs further improvement.

The fundamental goals of regional innovation policy were set during the past decade. Simultaneously, national innovation policy has undergone fundamental – positive – structural changes. The Regional Innovation Strategy (RIS) drafts all the development guidelines needed for the implementation of their attached projects. However further steps are necessary for achieving concordance between tendering priorities and strategic objectives. The integration of RIS measures into the planning of regional development resources may be the principal tool of its implementation.

In close connection with the aforesaid the availability of funding facilities outside the competition system and of investment subsidization schemes is rather poor. The system of seed and venture capital investments is unformed and at a low stage of development yet. The exploitation level of such investment forms is by far even below the least popular bank credit system. Developing such financing facilities which would assist to the incubation of enterprises in their early development phase could be a remedy for this problem. In mid-term perspective this could be realized by the participation of the region (namely the Central-Transdanubian Regional Innovation Agency and Közép-Pannon (Mid-Pannon) Zrt in the National Technology Incubation Programme by founding a Regional Incubation Company.

The region’s limited higher educational and public funded research-development capacities raise serious problems for enterprises. The economics-oriented higher education system fails to meet 88 „This project is funded by the European Union and co-funded by the Hungarian Government in the framework of the South East Europe Transnational Cooperation Programme”

the demands of enterprises of mostly technical nature. This results in occasional and weak cooperation among the higher educational, R&D and business sectors. Due to the rigidity of the higher educational system it is not the expansion of training and research supply that would mean a solution for this problem (although several of the region’s higher education institutes have won significant amounts of grant for the expansion of their R&D activities in 2year 2009), but rather the bettering of coordination between the capacities outside the region and entrepreneurial demands inside the region.

Regarding innovation-oriented cooperation the region has achieved positive results as well for example through the activities of regional innovation councils (on NUTS II, IV. and V levels). However these organizations are supported by entrepreneurs to a limited extent only. Increasing this kind of support is indispensable for improving the quality of their professional expertise and profile. The activities of the Region’s Regional University Knowledge Centres (Hungarian abbreviation: RET) and Cooperative Research Centres (Hungarian abbreviation: KKK) definitely support the marketing of innovative project ideas. However the maintenance of their operation and their regional-level professional support has not been solved yet. The expansion of the network of business centres, innovation parks and the coordination of such initiatives need a further improvement of the institutional system. In their case besides promoting professional coordination the stimulation of inter-settlement cooperation should be the primary objective. The network of regional stakeholders is need to be developed. It could increase the interest of participation in innovation. To support this network, it is essential to jointly disseminate all results.

The activity level of promoting innovative ideas, especially of the protection of intellectual property – following the national tendency – is rather low. In the majority of cases the pressure for participating in competitions is the only motivating force of different property protection activities. The simplification of procedures and the development of its supporting regional institutional system would significantly contribute to the successful marketing of innovative ideas.

For the compensation of the aforementioned poorly functioning system of investment grants increasing the role of grants accessible through competitions may significantly improve the situation. Increasing the absorption of EU R&D&I funds is a great necessity now. In this matter promoting the funding potentials of the 7th Framework Programme and CIP Programme is the timeliest task now. The better utilization of task reliefs on R&D activities is also a matter of financial importance. In this respect fostering the local utilization of innovation contributions is 89 „This project is funded by the European Union and co-funded by the Hungarian Government in the framework of the South East Europe Transnational Cooperation Programme”

the major task.

The majority of the aforementioned factors are in close correlation with the demands of increasing the region’s internal capacities. This necessitates efficient interventions in three groups of actors. The first measure should be aimed at improving the economy-oriented competences of R&D organizations. The second necessitates the actualization and rationalisation of the servicing activities of innovation bridge builder organizations. And finally it requires the expansion of knowledge base from entrepreneurial side. In all the three cases a more careful consideration of the demands of the region’s SMEs (also used for the preparation of this paper) with adapting the obstacles of their development would be advisable for the further development of the regional innovation system.

90 „This project is funded by the European Union and co-funded by the Hungarian Government in the framework of the South East Europe Transnational Cooperation Programme”

V. MAIN CONCLUSIONS

Since the regime change the region has undergone fundamental structural changes turning from the former agro-industrial character into a region dominated by processing industry. It is very important to see that quantitative changes so typical for the 1990s (rapidly increasing number of businesses, quickly growing number of untrained employees, etc.) were followed by qualitative changes in the early 21th century. As a result of this, new industrial sectors and manufacturing systems with their complementary activities emerged in the region providing an opportunity for the modernisation of economy and turning the region’s economy into an innovation-oriented development course.

Owing to the region’s geographical position, socio-economic openness and to the fact that through its new economic relations it is definitely bound to the European Union it is to be regarded as a part of the European space. However none of the region’s cities may be regarded as a core city with central functions in European dimension. The region’s overall development level is below the average of the EU-25 member states.

This double-faced development has also created a duality of development chances for the region’s enterprises and particularly for SMEs. On the one hand their above national average positions are granted creating good fundamentals for the increase of the activity level of their innovation. On the other hand it limits their activities into local or national level as their role in international markets is minimal. The institutional system of regional innovation strengthening both factors has already been established and the centrally promoted activities of the Regional Innovation Agency were a really great step forward in this matter. The inclination of the actors of the regional institutional system for cooperation is fairly high which is quite favourable for SMEs easing the access of information and services for them.

For all that we should not neglect those deficiencies or problems the region’s innovative enterprises are still facing now. The aforementioned sectoral heterogeneity, the inadequacy of policies, the limited access of to investment funds for start-up and spin-off businesses, the insufficiency of R&D capacities, the low inclination for cooperation and the problems of the region’s internal capacities are all crying for a further strengthening of the region’s internal cohesion. Of the proposals having formulated above are all – without exception – aimed at increasing the efficiency of these functions and at the same time they also provide a basis for the further activities of FIDIBE project.

91 „This project is funded by the European Union and co-funded by the Hungarian Government in the framework of the South East Europe Transnational Cooperation Programme”

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