CE Financial Observer: Over the next seven years Poland will receive a massive financial injection from the EU for research and development (along with the regional programmes on the so-called smart specializations, the financing will amount to 46 billion euro). Previous experience with spending funds for innovative projects suggests that we could have serious problems with the absorption of this money. What do you think?
Luk Palmen: As a country and as a society, Poland is highly ranked in terms of innovation and Poland is fully aware of its current „15 minutes of fame” in the EU. Therefore, I do not expect problems with the absorption of the funds. I would rather ask the following question: what is this spending supposed to achieve? When we’re talking about innovation, it means the ability to take advantage of the emerging chances and opportunities on the market, to read the signals and trends and seize them with the potential that is at our disposal. When thinking about innovation, I don’t mean new inventions (in the form of techniques or technologies), whose introduction to the market is forced at any price and without prior examination of certain phenomena and behaviour of consumers or clients (including enterprises).
Not every legitimate invention becomes an innovation. For example, something that improves a device in such a way that it will live longer, will not require servicing or spare parts, seems to be a legitimate yet unwanted solution. Such solutions mean that the companies earn less. Taking care of the economy does not mean more „legitimate” inventions.
Are we able to distinguish between legitimate and needed solutions in Poland?
Needed solutions are ones which create needs, address certain expectations and which are desired by clients (both business clients and ordinary consumers). But will the EU funds be used in these areas where businesses and people are active, where new technologies are actually developed? And is this research suitable for commercialization on the market, i.e. is there demand for it? This question will remain unanswered for now.
Could you give some examples of needed technologies? In the new EU financial perspective we selected 19 so-called smart specializations in the regions, so the areas of exploration for new technologies have also been strictly defined.
The scope of these new smart specializations covers 70-80% of the Polish economy. Poland chose the widest possible range of assistance measures for the widest possible group of beneficiaries. In some areas which were selected as specializations, no less than PLN 0.5 billion has to be put on the table in order to achieve technological progress and to put specific applications into production. The question therefore arises whether these innovations will have a chance to be developed and implemented under these technical and administrative circumstances…
Let’s look at medicine and the field of innovative medications. For example, clinical trials are required and the costs of such projects usually start from PLN 100 million. This is serious money. A similar situation exists in the energy sector or the chemical sector. Large companies and large budgets are often necessary for the implementation of advanced research and demonstration works. In this financial perspective the majority of funds are allocated for projects with small and medium-sized enterprises.
The fact that huge amounts are required should cool the hot heads of some officials who made the choice of our specializations. We probably shouldn’t bother searching for innovations in certain areas which are dominated by the capital of multinational companies, such as the aforementioned pharmacy. We have no real chance.
This wide range of specializations gives us room for manoeuvre! In Poland we don’t yet have fully crystallized specializations, we are still a developing country in transition, although there are many who believe that after these 25 years it is high time to finally move on from the stage of building foundations. Before entering the era of an innovative economy we will surely have to go through a phase of great consolidations. This is already happening in certain sectors, such as the chemical industry. In some industries companies are merging, like those from the industrial automation sector, and in others medium-sized leaders are emerging who have achieved market success with their product and are now extending production, growing and transforming into big corporations. They will soon reach a certain critical mass. They are facing the challenge of diversification of their financial structure, obtaining external resources to fund new business projects on the international arena. The belief that their current development guarantees their financial self-sufficiency for many years ahead is a trap.
Staying on the topic of consolidation – apart from Aviation Valley in the Podkarpackie voivodeship and the few best-known clusters, we don’t have many such ventures. Entrepreneurs don’t want to unite, work together, they are accusing each other of stealing ideas and technological solutions. They are afraid to share their experiences. How can we overcome this?
The Institute for Market Economics has been supporting promotion processes in the field of building of clusters for the past 14 years. Also in my work as a consultant and adviser I have dedicated a lot of time to promoting the idea of clusters in Poland. Not by the formal building of cluster companies, but at first as a certain philosophy of doing business together. And this approach has worked in various situations, e.g. a group of entrepreneurs who were not in a cluster, behaved as if they were. They used similar potentials, raw materials, and resources and competed on common markets.
Clusters are a solution that reaches far beyond the simple customer-supplier relationship. They provide new opportunities on the market, strengthen potential, and are a place of reflection and exchange of experiences, new practices and knowledge. This exchange of knowledge sometimes indeed carries the risk of theft of intellectual property. That is why we need education and the construction of a dynamic ecosystem that would protect not only property in the form of patents, but also know-how.
Our experience suggests that if someone comes to us with an innovative idea, we can be certain that at least 10 other inventors are working on the same or similar solution. Therefore the stake in this game is time. Clusters have a tested business environment, people there know each other and sometimes all it takes to reach an agreement is just one phone call instead of months of arduous negotiations.
Has Poland developed any financial tools to support innovation outside of the EU funds?
There are more than 80 accelerators and seed capital funds operating in Poland. They analyse ideas and build small ecosystems around interesting solutions. Ten of them are working under the Bridge Alpha programme. This is implemented in cooperation with the National Centre for Research and Development. In addition to the above organization, the Polish market of high risk capital specialized in supporting new technologies and the development of young innovative companies also includes capital funds, which engage their capital in the subsequent stages of financing of the development of a business project.
Examples include funds launched by companies, for example by KGHM TFI, or the more than 50 funds which belong to the Polish Private Equity Association. We also have many companies in Poland with financial surpluses that are looking for interesting projects. It is said that there is PLN 281 billion lying on companies’ bank accounts. These savings are the result of unrealized business transactions (based on the report „Social Capital and Trust in Polish business in 2015”, Rzetelna firma). You can see the size of this dormant potential.
You’re talking about building the foundations for investment ecosystems in Poland, while the world is talking about excellent self-financing systems. Not only are we joining the race of new technologies on the next lap, but we’re already short of breath. This is a real battleground and we have nothing to defend ourselves with. Our innovation brokers are only just learning how to promote the inventions of academia. Business does not trust the science community and vice versa.
The concept of brokers was an idea of the Ministry of Science and Higher Education and it really is a label attached to a system that has already existed. In fact, centres of innovation and technology transfer have been operating at the universities for many years. They were supported by subsequent assistance instruments in the framework of projects lasting from a few months to three years. In this way we kept enthusiasts, often young people, under a financial support system, until their enthusiasm gradually faded. So far Poland has not had the courage to consistently and systematically support these types of centres. This was a mistake.
The multiplication of entities – development agencies, technology parks, business incubators, etc. – has led to a situation where these institutions, in order to ensure their own survival, have started to duplicate their tasks, focusing on the same target groups. We have hundreds of so-called business environment institutions. Instead of focusing on the professionalisation of the support system, we have allowed for the dispersion and the duplication of activities. Nobody realized that such fragmentation of projects would prevent the creation of institutional capital in Poland. We’ve consumed the funds and checked off additional indicators. As a result, the foundations on which we are currently building successive layers of the domestic system of innovation are still very weak.
I don’t believe, however, that business people and scientists in Poland do not trust each other. Research units and companies cooperate on a daily basis. Of course, we do sometimes hear about projects that were not implemented because of administrative delays or misunderstandings, but there are also hundreds of examples showing that it is worth cooperating in the development and implementation of innovative solutions.
The money is on the market and we have the infrastructure as well. So what are we still missing?
What worries me is the huge generational gap at Polish universities. A very large percentage of the staff will soon retire and there is no one to replace them. In recent years, mainly due to the restructuring of higher education, mid-level employees have been looking for employment outside of academia, they have been absorbed by business, or they have been treated so badly by their superiors that they moved abroad. There are too few young scientists with the title of Doctor or even PhD students to maintain the appropriate ratios and courses at the universities.
Therefore, over the next seven years we will either see a mass production of post-doctoral degrees or the death of some courses and specializations at the universities. The reluctance of the scientific community to cooperate with business is currently not caused by the bad intentions of the scientific staff. It is caused by the shortage of people and the necessity on the part of the young scientists to focus on the development of their careers in order to ensure the existence of their home institutions.
I would like to emphasize that having been in contact with Poland since 1996 and having lived here for over 16 years, I have witnessed the enormous changes that are taking place here. Both Polish companies and research units were able to cope with the rapidly changing economic situation. Each barrier proved to be another chance for development. As I said at the beginning of our conversation, we are not lacking in inventiveness, but maybe sometimes a bit of luck and courage to translate inventiveness into innovation.
Interview by Katarzyna Bartman
Luk Palmen has been involved in consultancy and coaching in the field of innovation management, SMEs, clusters and the commercialization of technology for over 10 years. He is a member of the supervisory boards of technological companies and an expert in the Gliwice Technological Accelerator seed fund. Author and co-author of practical guides in the field of commercialization of technology and clusters. Since 2011 he has been the manager of the Silesia Automotive cluster.