ICT-ENAblED INNOVATION AND ENTREPRENEURSHIP SERIES

ICT, INNOVATION, AND ECONOMIC GROWTH IN TRANSITION ECONOMIES

A Multi-country Study of Poland, Russia, and the Baltic Countries

An infoDev publicAtion prepAreD by ECORYS Nederland b.V.in collaboration with TNO and IDEA 2007

Information for Development Program www.infoDev.org

ICT-enabled INNOVATION AND ENTREPRENEURSHIP SERIES

ICT, INNOVATION, AND ECONOMIC GROWTH IN TRANSITION ECONOMIES A Multi-country Study of Poland, Russia, and the Baltic Countries

An infoDev publicAtion prepAreD by ECORYS Nederland B.V.n collaboraton wth TNO and IDEA 2007

Informaton for Development Program www.nfoDev.org Footer goes here

�2007 The International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org E-mail: feedback@worldbank.org

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To cite this publication: ICT, Innovation, and Economic Growth in Transition Economies: A Multi-Country Study of Poland, Russia, and the Baltic Countries. Washington, DC: infoDev / World Bank. Available at https://www.carmenthyssenmalaga.org of Contents

Preface v Chapter 1. Executive Summary 1 Chapter 2. Background and Methodology 21 Chapter 3. The Selection of Regions and Sectors 25 Chapter 4. Survey Results and Analysis 27

ANNEXES

Annex 1: EBS Methodology 63 Annex 2: Country Characteristics 67 Annex 3: Regions 73 Annex 4: Selection Criteria for Sectors 77 Annex 5: Selected Sectors 79 Annex 6: Properties of the Dataset 89 Annex 7: Results of the Survey � Tables 93 Annex 8: Company Case Studies 125 Annex 9: Electronic Business Survey (EBS) Baseline Questionnaire 131

Table of Contents

v ICT, Innovation, and Economic Growth in Transition Economies

Preface

The Information for Development Program (infoDev) has commissioned a multi-country study of information and communication technologies (ICT), innovation, and economic growth in selected transition economies. The study's particular focus is on firm-level survey data collection and analysis framed by a clear articulation of the constraints and enabling conditions at the industry and country levels.

The overall objective of the study is to advance understanding of the relationship between ICT, innovation, and economic growth in transition economies.

The study focuses on five countries: Estonia, Latvia, Lithuania, Poland, and Russia. It is not designed to be a comprehensive analysis of the above-mentioned issues in all sectors and all regions of these countries. Instead, it provides an in-depth survey and analysis of a reasonably representative sample of firms in several regions and/or sectors so that broader conclusions can be drawn with some degree of confidence. The study draws conclusions about conditions and challenges common to several or all of the countries in the study.

The study aims to assess the diffusion and impact of ICT at the firm level and the related policy implications. It also makes specific recommendations for promoting and supporting ICT usage to improve competitiveness and new business creation. These recommendations concern the enabling environment and point at some specific lessons learned/best practices at the firm level.

The study examines both traditional and new sectors. It explores whether and under what conditions traditional sectors have been successful in harnessing ICT, and identifies new opportunities and sectors that have emerged, thanks to ICT.

A consortium of three companies has carried out the study. ECORYS Nederland B.V. led the consortium with TNO and IDEA as partners.

Preface v

v ICT, Innovation, and Economic Growth in Transition Economies

Chapter 1

Executive Summary

1.1 Introducton to the Study

There have been significant debates about the impact of new ICTs on economic performance and competitiveness in general, and on productivity, efficiency, and innovation in particular. Notably, in seeking an explanation for the acceleration in productivity and economic growth experienced in many industrialized countries in the latter half of the 1990s and early 2000s, many economists have looked at the development, application, and utilization of ICT as a critical factor. It has been argued that ICT represents a new General Purpose Technology, with the potential of transforming economic processes into a "New Economy," generating a sustained increase in economic growth through processes of technological development and innovation. Hence, at firm level, the expectations are of greater efficiency, lower costs, and access to larger and new markets, while governments see the application and use of ICT as generating higher national productivity, job creation, and competitiveness.

In response to these developments, a number of studies have tried to assess the economic impact of ICT on firms and countries. The emphasis in these studies has been on the impact of ICT in OECD countries, in particular the United States and Western Europe1. The findings of these studies suggest that ICT has contributed greatly to productivity growth and competitiveness in the OECD countries in the last decade. More recent studies have focused in greater detail on the processes of application and use of ICT within firms. One such study, the E-commerce Business Impacts Project (EBIP) of the OECD2, came to the conclusion that there is a need to reassess the notion of e-commerce or e-business. Hence, the evolution of ICT usage comes closer to electronic business networking-- "the use of ICT to forge closer and more interactive links between business processes within the firm and commercial processes in the market place."

1.2 Why ths Study?

The ICT dynamics in transition economies are at a stage when one can apply lessons learned from the United States and old European Union (EU) member states both at corporate and government levels. Meanwhile, the nature of the transition economies of Central and Eastern Europe might require tailoring of the lessons learned from Western Europe and the United States, and perhaps even new approaches to policies for ICT adoption and utilization.

Hitherto, there have been no studies that have gone beyond the narrow look at ICT utilization. Past surveys of ICT dynamics in transition countries are of what might be called the "e-readiness" variety. These surveys gather data on firm-level ICT investments and construct profiles of the technological evolution in various sectors and industries. This evolution is then tied to assumptions and estimates about use patterns and probable effects on performance and productivity. Industry-wide impacts are then produced by means of aggregations and projections based upon these assumptions and estimations.

However, this approach does not sufficiently serve the purpose of analyzing the effects of ICT on the economic performance of firms, and their position in the marketplace. Nor does it provide a solid foundation for linking the ICT take-up by firms with key enablers, barriers and constraints.

The present study derives its purpose from the context outlined above and aims to achieve the following:

• It looks beyond the ICT dynamics in terms of ICT investment and technological evolution.
• It selects firms in transition economies as the subject of analysis since little is known on the economic effects of ICT for this unit of analysis within a transition context. The choice of the subject of analysis is further supported by the fact that there are still ample opportunities in transition countries for positive intervention at corporate and government levels.
• It builds on the research carried out on the role and impact of ICT in OECD countries in order to provide a comparative basis. For this purpose, the questionnaire used in the OECD EBIP study has been adapted and applied.

1.3 Man Characterstcs of the Present Study

This study addresses the need for collecting more revealing data on ICT utilization and its impact at the firm level, the need for more rigorous analysis of how ICT investment and use affects innovation, and the need for better understanding of how this complex translates into productivity increases and enhanced competitiveness.

1.4 Methodology

In answering the central research questions of the study, the project has adopted a new and innovative methodology that identifies the impact of ICT at firm level. More specifically, the methodology adopted for this project is an Electronic Business Survey (EBS) that allows us to collect data at firm level, and place the application and utilization of ICT within its proper context. Such a methodology has allowed us to take account of the context specificity of the utilization of ICT within different sectors and firms. In contrast, many existing studies of the impact of ICT have looked at national, regional, or sectoral impacts as their unit of analysis. Such studies have often limited themselves to the role of ICT per se, and failed to capture the critical role and complexity of the utilization of ICT as a determining factor in shaping the impact on innovation and economic outcomes. Hence, the survey methodology for this project has, in part, been designed to address some of the weaknesses of existing studies to gain a more comprehensive understanding of the processes that shape the application and utilization of ICT, and the subsequent impact on innovation and economic growth.

In addition, the survey findings have been complemented with eight case studies of firms that have