specific support to horizon 2020 lithuania policy support · horizon 2020 policy support facility...

Horizon 2020 Policy Support

Facility

Specific Support to Lithuania

Fit for the futureIncentivising research and innovation partnerships and attracting innovative investment to Lithuania

Alasdair Reid, Michel Lemagnen, Emily Wise & Hans-Jörg Büllinger

Vilnius, 12 October 2017

Horizon 2020 Policy Support Facility

Specific support to Lithuania

n Support' activity focused on two subjects:n cooperation between the public science base and business; and n attraction of innovation-oriented foreign direct investment (FDI)

n Support delivered in the following steps:n Kick-off (Brussels) on 22 February with the Lithuanian authoritiesn Drafting of the background reportn 1st mission of the expert team to Lithuania (10-12 April)n Draft report and expert team working meeting (23 May)n 2nd mission 28-30 August to discuss the draft recommendationsn Final report end September.


Challenge 1 : policy does sufficiently address the key bottlenecks in the system

n Intensive science-business cooperation in Lithuania is limited to a small number of niche, high-tech sectors (e.g. biopharmaceuticals, photonic and some information and communication technologies).

n Wider-scale science-business cooperation is hindered by a number of clearly identified barriers on both the supply (science) or demand (business) side.

n However, there remain specific gaps and inconsistences in the policy measures to support science-business cooperation.


Challenge 2: support & incentivise business-orientated strategies of applied research facilities.

n the significant investment in research infrastructure has not been matched by sufficient growth in the number and skills sets of the management, researchers and technicians in the open access research centres (OACs).

n the OACs’ applied research activities remain over-dependent on core funding from government, despite limited growth in contract research (including testing and related services) income.

n Most of the OACs have been unable to create more permanent and structured business partnerships which raises issues of future financial sustainability.


Challenge 3: better identify and proactively support businesses with innovation potential

n there is a need to build innovation management capacity within a larger number of companies, across a broader range of sectors.

n the Lithuanian smart specialisation strategy seeks to concentrate investment, but there is a highly variable capacities among businesses across the priority areas to design and develop R&I partnerships.

n Business need more to advice and support to develop internal capacity they require to engage with and absorb knowledge.


Challenge 4 : a fragmented science-business ‘ecosystem’

n Past policy initiatives and decisions have created an ‘ecosystem’ of business support and funding agencies, science, education and business valleys, OACs, science and technology parks and over 50 clusters.

n However, the system is neither effective nor efficient and leads to a dispersion of public funding rather than the consolidation of investment and targeted support for sustainable and strategic innovation partnerships


Specific issues for innovative foreign direct investment

n Only a few examples of innovative activities with the critical mass to attract higher value-added investment from foreign sources.

n Attract other types of foreign investment (R&D contracts, innovation pilots, venture capital investments in start-ups) to improve Lithuania’s ranking as an ‘innovation-location’.

n Critical importance of aftercare in securing longer-term, sustainable investment that enables Lithuania to move up global value chain

n skills bottlenecks in priority FDI sectors pose a significant challenge. Talent attraction and retention are closely related challenges.


Overall vision – consolidate, segment & incentivise to increase ‘active innovators’

n Consolidate and professionalise business innovation support ecosystem by creatinga single national agency, reduced number of clusters, etc.

n Segment (prioritise) businesses for support by their potential to scale up and increased added value. Shift to account management of priority firms and reinforce aftercare for foreign investors

n Incentivise co-operation:n New funding model for applied R&D

centres to reward third party revenuen Build capacity in business sector and pro-

actively develop projects (follow-on innovation vouchers, Interface Lithuania)


Recommendations

n 13 specific recommendations grouped into three themes:n strengthened foundations for the R&I policy support system, n science-business cooperation, and n innovation-oriented FDI.

n For each recommendation, we summarise the rationale underpinning it, followed by the detailed recommendation, and we set out the operational steps required and time frame for implementation.


Cross-cutting recommendations


Business-science co-operation recommendations


Innovative Foreign Direct Investment recommendations


R1: Consolidation of business support agencies

n A single national business and innovation support agency, tentatively titled ‘Business Lithuania’, should be formed by the phased merger of the five existing agencies.


R2: Segmentation and targeting of support to companies with growth potential.

n The new Business Lithuania agency should develop an account management process for key segments of the business base (domestic & foreign owned) and an effective client information system


R3: Review of incentives for innovation investment and co-operation

n A preparatory study, incl. benchmarking with more advanced business support systems, should be undertaken to assess and review the criteria for awarding support including related State Aid rules.

n Greater priority be given to funding collaborative projects through ‘commercialisation’ projects as well as by ‘innovation platforms and pilots’ (involving several companies, research institutes and public sector in the joint development or testing of technologies).


R4: Innovation Voucher follow-on awards

n Introduce Innovation Voucher follow-on awards (e.g. €30-€50k) to encourage firms to go beyond the stage of feasibility studies and develop co-operation with firms.

n Consider introducing an industrial fellowship scheme to help firms recruit specialised R&D and innovation managers for project delivery.


R5: Strategic review of operations and financing of OACs and TTOs

n Undertake a strategic review of all OACs including staffing and equipment to assess industrial relevance,

n Reintroduce the obligation for reporting on key performance indicators related to business usage of equipment

n Revise financing model towards a ‘top-up’ of non-budgetary funds


R6: Stronger, more internationally visible and professional cluster initiatives

n Reduce the number of clusters by applying stricter criteria (related to critical mass, importance/potential of domain, long-term strategy for collective action, etc.) and adjust approach to funding

n Ensure operational partnerships with S&T park and OACs n Professionalise the management and delivery of cluster

organisations’ services to firms


R7: Pro-active engagement with business: Interface Lithuania

n Create a single national interface structure (staffed by industrially experienced staff) to ensure pro-active engagement with business

n Interface Lithuania will be tasked with a pro-active business outreach function that will include a programme of visits to companies that require support in defining their needs for support for an R&I project


Timeplan for implementing innovative FDI recommendations

n The six recommendations under the theme of innovation oriented foreign direct investment are inter-linked and are steps towards a revised and updated approach to optimising the value obtained from attracting and retaining more innovative foreign investors


R8: Revise classification of innovation oriented FDI and related key performance indicators

n This strategic overhaul should include revising the definition of R&I projects, introducing new criteria to support decision making and reviewing the target sectors and source countries for innovative FDI.

n The KPI of 20% of projects being “pure R&D” is unrealistic, does not reflect market reality in Lithuania, CEE or even Western Europe. A 10% target would be more realistic but still very challenging target


R9: Review the sector and country targeting to improve coverage of likely sources of innovative FDI

n Review sector and sub-sector targeting with the goal of identifying the most promising FDI opportunities for Lithuania. This should include the full spectrum of FDI opportunities rather than just focusing on greenfield investment.

n focus on the potential investment deal flow (i.e. the market size) in conjunction with the competitive strength of Lithuania’s sector/niche FDI value proposition.

n Review country targeting priorities to consider the potential from other important European and global FDI source markets


R10: Shift towards FDI aftercare strategy based on strategic, key account management

By end 2018, the Investment division of Business Lithuania will have developed a key accounts strategy in order to identify the existing foreign investors with greatest potential for migration to R&I and other higher value-added functions in Lithuania:

n Re-focus the KPIs so that the overall balance for aftercare should account for 60% of all FDI jobs and 80% of R&I FDI jobs

n Appoint a dedicated aftercare lead and two assistantsn Map, segment and prioritize the existing foreign investors in order to

identify the cohort of companies that will be account managed vs more indirect support;

n Produce a SWOT analysis for each individual key account which would form a key component of the account plan

n Develop key account plans which include named account managers, account teams and KPIs for each of the key investors.


R11: Reinforce the staffing available to attract FDI, notably in the overseas network

By the end of 2020, the resourcing for FDI attraction to Lithuania should be improved

n In Lithuania – expand and increase resources to include a network of investment promotion officers at each of the main city economic development agencies across Lithuania, supported and mentored by Business Lithuania’s regional investment managers

n Implement a national inward investment training and quality certification process for city economic development personnel by 2020, to ensure high quality, best-practice services and to increase the commitment of cities to business and FDI support

n Strategic assessment of the opportunity and challenges of establishing direct in-market employees from Business Lithuania

n Creation of a dedicated “invest-in” overseas network in each of Lithuania’s core and secondary target markets.


R12:Attraction of alternative modes of innovation-oriented FDI projects and activities that are precursors to FDI

A number of actions should be taken during 2018-2020 to improve the promotion of Lithuania as a location for co-investment, testing and piloting by foreign investors:

n Proactively market opportunities for Lithuanian innovation pilots, R&D contracts and partnerships to both existing and new foreign investors.

n Develop a network to focus on attracting international venture capital investment with the goals of increasing the connections of the Lithuanian start-up ecosystem to Nordic, European and global VC networks.

n Encourage the development of pilot testing platforms or projects, these could include, for example, smart city piloting opportunities.

n Business Lithuania should start to promote M&A opportunities. In particular, this is essential for the liquidity of the start-up ecosystem


R13: A talent attraction initiative to reinforce Lithuania’s image as a place where innovators live and work

n By 2019, we recommend to establish a dedicated unit within the new Business Lithuania agency with responsibility for talent attraction. The focus of the unit should be twofold: a) the Lithuanian diaspore and b) immigrants. n In 2018, during the process of the creation of the new Business

Lithuania agency, this unit could be incubated within InvestLT.

n In our view, the highest priority should be given to the Lithuanian diaspora and could be launched as a pilot exercise during 2018-19.

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