PHLburg Technologies, Inc.

Is Russia Ready for Commercialization of Science?

February 16, 2005

St. Petersburg Chas Pik (St. Petersburg Rush Hour)
 

Russia is currently in a period of transition from a science guided exclusively by its own needs and priorities to one whose development is dictated by the country’s needs. According to (Ms.) V.N. Yevdokimova, a Rospatent specialist, today the world market share of Russia’s science-intensive products is 0.5%, while that of USA is 36%, Japan – 30%, China – 6%. Up to now Russia has been following the path of development based on raw materials. However, it is an effective interaction between the science sector and entrepreneurs that will determine the rate of transition to an innovations economy.

Financing

Lack of financing is the principal stumbling block on the road to the development of innovations enterprises. The Institutes set up with Government participation for promotion of commercialization processes are trying to solve this problem. Speaking at a recent forum at Obninsk, Mr. Bortnik, General Director of the Foundation for the promotion of small science and engineering businesses, reminded the representatives of Technology Transfer Centers (TTC) of the state budget financing goals.

R&D Funding

Country        Business    Government
Japan            74%        18%
Korea            72%        25%
USA               63%        31%
Russia           33%        58%
Portugal         32%        60%
Poland           31%        61%
Source: OECD, Main Science and Technology Indicators, May 2004

The existing Government programs are intended to reduce investment risks and attract investors, not to completely finance projects. However, it would be too early to say that those programs have been successful to any substantial degree. Moreover, the Promotion Foundation budget is only 1.5% of the total state budget allocations for civil science (according to the Institute of Transition Period Economy).

Undoubtedly, strategically important research should be financed by the state, but applied science areas cannot develop without private investments.

Marketing

The very scheme of technology commercialization in Russia leaves much to be desired. Most scientists, acting as entrepreneurs, attempt to implement their projects without any preliminary market research or any idea of potential demand for their products. This is the so-called technology push model, i.e. a particular technology is developed not on a customer’s initiative, but on the basis of the author’s own considerations. The efficiency of such an approach is much lower than that of an alternative approach called market pull. This model requires that, before undertaking any development or further development of a technology, a technology order be obtained first. Even with the participation of an intermediary or consultant (TTC), it is not so easy to find an investor. Assessments by the Institute of Transition Period Economy indicate that only 10% of Russian industrial enterprises are active in the innovations area, and only one third of them finance R&D. The number of developments is substantially greater than that of customers, which practically means that a portion of the promising scientific products are wasted and get obsolete never to be implemented in practice. In this connection the question of attracting foreign investments still remains open. But are foreign investors ready to risk their money in Russia?

A detached view

Private companies’ activities also promote technology commercialization. For instance, remarkable among the pioneers in this field in St. Petersburg are PHLburg Technologies and Mirantis companies. In their operations they use the market pull and represent the interests of real customers. Among PHLburg Technologies’ clients are such companies as Motorola, General Motors, Deere, Unilever and Henkel. According to Mr. Neil B. Godick, PHLburg’s Director, Western investors underestimate Russia’s potential and that is their mistake. In the course of their contacts with international investors PHLburg and Mirantis become sources of positive information on the investment possibilities in Russia and intercede in Russia’s favor.

We must note that the number of such companies in Russia is disastrously small and their role in the shaping of an information environment favorable for Russia among Western investors is clearly underestimated. According to Mr. Godick, the main difficulties they face in Russia are as follows:

  • insufficient understanding of the commercialization processes and, as a consequence, inadequate (in terms of market requirements) assessment of projects, as well as excessive expectations of gain from their implementation,
  • distrust of Western business representatives,
  • red tape.

Of course, there are also lots of problems due to the fact that Russia has only recently declared its intention of taking the path of innovations development. In the near future the state has first of all to set up an innovations infrastructure that would remove the barriers between the business and science communities.


This article was originally published in St. Petersburg Chas Pik, http://www.chaspik.spb.ru/