Research & Development 2019 by Business Publishing Services Kft.

Research Development P r i c e : H U F 1, 4 9 0

2019

WHAT CONSTITUTES R&D? • GOVERNMENT SUPPORT: HUNGARIAN INVESTMENT PROMOTION AGENCY, NATIONAL INNOVATION OFFICE • WHY CHOOSE HUNGARY? • REGIONAL COMPARISONS • THE LABOR CRISIS • R&D SUCCESS STORIES

FROM ‘MADE IN HUNGARY’ TO ‘DESIGNED IN HUNGARY’

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CONTENTS R&D: Hungarian Creativity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Skanska: Connected to the future . . . . . . . . . . . . . . . . . . . . . . . 5 Focus on Innovation and Research & Development . . . . . . . . . . 6 Hungary and IP Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Knowledge in the Service of Society . . . . . . . . . . . . . . . . . . . . 14 Government Support for IT and The AI Coalition . . . . . . . . . . . 18 Tungsram Innovates through Partnerships . . . . . . . . . . . . . . . 22 Expanding R&D Activities Spur Booming Innovation . . . . . . . . 24 R&D Jobs: Brand is a Powerful Motivation . . . . . . . . . . . . . . . 32 The Future of Scientific Research in Hungary . . . . . . . . . . . . . 36 Harnessing the Power of AI Can be a Game Changer . . . . . . . 40 What Qualifies as Research and Development? . . . . . . . . . . . . 44 How Does Hungary Compare in R&D Expenditure? . . . . . . . . . 47 R&D in Hungary: Case Studies . . . . . . . . . . . . . . . . . . . . . . . . . 49 R E S E A RC H & DE V E LO PM E NT 2019

A B U D A P E S T B U S I N E S S J O U R N A L P U B L I C AT I O N

BBJ Editor-in-chief: Robin Marshall • Editorial: Balázs Barabás, Christian Keszthelyi, Bálint Szőnyi, Helga Timaroczky, Zsófia Végh • Sales: Bernadette Oláh, Csilla Lengyel, Erika Törsök • Layout: Zsolt Pataki • Publisher: Business Publishing Services Kft. • Media representation: AMS Services Kft. • CEO: Balázs Román • Address: Madách Trade Center, 1075 Budapest, Madách Imre út 13-14, Building A, 8th floor • Telephone: +36 (1) 398-0344 • Fax: +36 (1) 398-0345 • ISSN 2676-9638

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INTRODUCTION

R&D: HUNGARIAN CREATIVITY The photo on this page shows a structure known as a Gömböc: it is the physical representation of a mathematical idea first suggested by a Russian mathematician. In 1995, he argued the possibility of a convex threedimensional homogeneous body that, resting on a flat surface, would have has just one stable and one unstable point of equilibrium. (If that’s a difficult idea to grasp, think of a much more complex version the children’s self-righting rolypoly toy, the Weeble.) The proof of the theory, the Gömböc, was only found in 2006, the creation of Hungarian scientists Gábor Domokos and Péter Várkonyi. Those of you of a certain age may recall a musical comedy duo from the 1950s and ’60s called Flanders

and Swann. They sang of a fictitious all-purpose plant called the Wompom, whose various parts could be put to endless uses (“Oh, there’s nothing that a Wompom cannot do.”) I used to think of the Gömböc as the anti-Wompom; a very clever solution to a theoretical problem but one that served no purpose, beyond being a conversation piece. Or possibly a paperweight. But it seems I am wrong. There has apparently been research into creating Gömböcshaped cages for delivery drones, the idea being that, if there was a mid-air collision and the load was dropped, the cage could self-right, protecting the contents. It may simply be that the right application has yet to be found for the egg-shaped oddity.

Viewed another way, the Gömböc represents pure or fundamental research, research almost for the sake of it, dealing with generalizations and theory, rather than applied research, that seeks to find a solution to a specific problem. And that is, at least in part, what lies at the heart of the stand-off between the government and the Academy of Sciences (MTA). The latter wants to direct funds towards R&D that serves a purpose, that creates a value; the former argues that scientists must be free to research whatever they chose, for who knowns where it might lead? For now, the government has the upper hand in that argument, having taken the MTA’s research staff and facilities under its control. But whatever side of the debate you come down on, you cannot deny that Hungarians have a gift for R&D. Just think of the Rubik’s Cube, which celebrated its 40th anniversary in 2014. Originally designed to explain 3D geometry to architectural students, initially not even its own inventor, Ernő Rubik, could solve it. Only later was it developed into the world’s best-selling toy. This new publication celebrates the creativity of the Hungarian mind, the drive to bring more R&D roles here, to create interesting jobs and challenges that circumvent a brain drain. We look at the incentives on offer, and offer cases studies of those already experiencing R&D success here. We explore the R&D landscape of today as the country moves from a “Made in Hungary” approach to “Designed in Hungary”. We do hope you enjoy reading this, and find it useful. Robin Marshall Editor-in-chief Budapest Business Journal

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INSIDE VIEW

SKANSKA: CONNECTED TO THE FUTURE Technology, automatization and data are getting an ever-bigger role in the way office buildings work. The Budapest Business Journal asked András Ábrahám, project manager of Skanska Property Hungary, to tell us why PropTech is such an important trend in the sector and what kind of benefits the approach can offer office users. BBJ: Why is PropTech a hot topic now? András Ábrahám: Property technology is the digital transformation changing the property industry and creating smart buildings. It is reshaping the sector in many ways, offering plenty of opportunities and benefits not only for tenants and building users, but also for facility management. Through the use of such innovative solutions, we aim for our buildings to become more efficient and user-friendly, to respond to the diverse needs of tenants and gain a competitive edge. Skanska is working closely with tech companies to be in the forefront of innovations. BBJ: What is Skanska’s answer to the challenges of the digital era? AA: We have developed and launched Connected by Skanska, our own integrated building operating system, in partnership with an innovative PropTech company. It includes a mobile application for everyday users and a web portal for tenant and building administration. It works as an open platform integrating smart and user-friendly functionalities with a social approach for building community in an office complex, connecting not only the people with the building but people with people BBJ: How can the new system make a difference in the office users’ lives? AA: Most importantly it integrates people in a workplace. Thanks to the Connected Building feature, Skanska offices will have a smart infrastructure that is linked to building functions, including activity-based parking, access to the building and tenant premises with a mobile phone instead of plastic cards and a virtual reception for hosting visitors. In addition, we are building a community within the building with the help of a social feed within the app. It allows users to get to know

the building and the neighborhood. Such features as the daily menu in the cafeteria, the public transport timetable, information about nearby events, ridesharing or even the possibility to organize an after work table tennis game are also available for users. The system has an additional offer for the most innovative tenants, Connected Fit Out. The feature includes indoor positioning for easier navigation around the workplace, room booking integration, and work environment management to maximize the comfort of employees by turning the lights on or off and adjusting the temperature, just one click away! Since we at Skanska put a lot of effort in building in a more sustainable way, sharing our knowledge with our tenants and inspiring them in becoming greener and even certifying their own premises is part of our strategy. That is why we developed the Connected Green feature, which is an additional option, including support and consultancy for tenants’ interior LEED and WELL certification, and a green education module for employees. BBJ: What kind of data can this system provide for tenants? AA: Our smart building solutions are not only beneficial to building users, but also to office administration teams, as they can coordinate and evaluate different office settings within one system. A facility management issue can be also easily managed through the portal. Tenants have access to real-time data and historical data of office usage, including information about parking efficiency, office occupancy throughout the day, conference and meeting room availability. Using the data provided through Connected by Skanska,

András Ábrahám, project manager of Skanska Property Hungary tenants may even find new purposes for various areas in their premises, to maximize efficiency. BBJ: Is Connected by Skanska already available in Hungary? We first introduced the system with certain features in our Mill Park office complex last fall. Nordic Light Trio, our next project to be delivered in 2020, will benefit from Connected by Skanska on wider scale. The system will enable users to move around the building using their smartphones or even smart watches. With the virtual reception module, visitors can easily gain access with a QR code invitation on their mobile phone, created in advance by their host, which basically works as a boarding pass. Virtual invitees are all registered in a virtual guest book and when they arrive, a notification will pop up on the phone of the host. The building will feature a parking system that will recognize license plates. The app also encourages sustainable initiatives like ride sharing. The web portal for tenants’ administration will supply analytics for better decision making.

NOTE: ALL AR TICLE S M ARK ED INSIDE VIE W ARE PAID PROMOTIONAL CONTENT FOR WHICH THE BUDAPE S T BUSINE S S JOURNAL DOE S NOT TAK E RE SP ONSIBILIT Y

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FOCUS ON INNOVATION AND RESEARCH & DEVELOPMENT The Hungarian Investment Promotion Agency (HIPA) explains what it and the country’s government are doing to promote R&D in Hungary.

Diehl Aviation’s Engineering and Service Center.

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One of Hungary’s competitive advantages over other countries in the region is the government’s strong commitment to supporting an increase in productivity and the creation of innovation capacities of companies in Hungary. In recent years, emphasis has been put on high value added activities and research & development projects, promoting a shift from a “Made in Hungary” approach to “Invented in Hungary”. Hungary plans to spend 1.8% of its GDP on R&D by 2020, and to further increase this to 3% by 2030. Based on the latest analytics of the Hungarian Central Statistical Office, R&D related expenses reached 1.49% of the GDP in Hungary during 2018. It can be stated that the ratio of the business sector’s contribution to R&D related expenditures is significant in the region; 2018 witnessed a massive increase of 21.5% in R&D expenditure in Hungary, reaching an overall HUF 628 billion. The number of R&D units increased by 10.2% to 3,426, while the total headcount of R&D related employees reached almost 65,000 people. The number of projects that fall under to the “Invented in Hungary” category is continuously growing among the ones managed by HIPA, apart from “Made in Hungary” investments. The proportion of projects of a high added value continued to grow in 2018. This trend is reinforced, and the success of new incentive forms is supported by the fact that the number of technologyintensive projects and those receiving R&D grants based on individual government decisions is three times the number of those in 2017. During 2018, 10 out of the 36 automotive projects were related to R&D or engineering functions, while 29 projects are to be realized in the

“Hungary plans to spend 1.8% of its GDP on R&D by 2020, and to further increase this to 3% by 2030. Based on the latest analytics of the Hungarian Central Statistical Office, R&D related expenses reached 1.49% of the GDP in Hungary during 2018.”

area of business service centers, information and communication technologies and R&D. As a result of this, 4,795 new jobs of a high added value are to be created. The Hungarian government is offering wide-ranging incentives – refundable and non-refundable – to facilitate both foreign direct investment and reinvestment by local enterprises and to support R&D activities across the country. The aim of HIPA is to provide professional assistance and support regarding R&D-related projects in Hungary. Currently, the following R&D-related incentives are available in Hungary: • VIP cash incentive for R&D; • Corporate (development) tax incentive in R&D capital investment projects exceeding HUF 100 million; • 200% “super deduction” of R&D costs from corporate income tax base; • Reduction in local business tax base and local business tax payable; • Social tax exemption and social tax allowance. VIP CASH INCENTIVE FOR R&D One of the incentive opportunities is the non-refundable VIP cash incentive, provided on the basis of individual decisions taken by the government. Since the role of the Hungarian economy started to shift from “Made in Hungary” towards “Invented in

Hungary” with the aim of becoming the innovation center of Europe, favorable changes have been introduced into the VIP cash incentive system from the beginning of 2017, extending its focus areas with the direct purpose of supporting R&D. The objective of the post-financed cash incentive system, effective from January 1, 2017, is to promote the R&D activity of large enterprises and the creation of R&D competence centers in Budapest and other parts of Hungary. The maximum intensity of the aid is 25% of the eligible project costs. Within the framework of the VIP cash incentive scheme, the R&D project to be supported must focus exclusively on industrial research and/ or experimental development activity. In order to be eligible for the incentive, the project cost (the depreciation of assets, rental fee, material costs and contract research for up to 25% of the total costs to the extent and for the period of the project) and staff related expenditures must reach a threshold of EUR 3 million, within a period of one-to-three years. The realization of the project must also result in an increase of the R&D headcount of the company by 25 persons and the ratio of highereducated employees within this new R&D headcount must come to at least 50%. The headcount

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“The ratio of the business sector’s contribution to R&D related expenditures is significant in the region; 2018 witnessed a massive increase of 21.5% in R&D expenditure in Hungary, reaching an overall HUF 628 billion.” related commitments will also be maintained for a minimum period of two years after the completion of the project. FAVORABLE TAXATION SYSTEM FOR R&D In addition to direct cash subsidies, the Hungarian taxation system provides benefits for the full spectrum of the R&D lifecycle. For example, it incentivizes R&D activities from an income taxation perspective, and also provides the opportunity to decrease the tax base for the royalty income from intellectual property that is a result of successful R&D activities (proportionally to the contribution to the creation of the IP). The tax incentives connected to R&D activities allow for a tax base decrease in corporate income and local business taxes; another benefit was recently introduced to decrease the payable social contribution tax in relation to R&D employees. The latter is especially favorable for the international competitiveness of Hungary as a possible R&D location, as it qualifies as an EBITDAdecreasing item, thus positively affecting the financial indicators typically used to measure the efficiency of subsidiaries. The incentive system, together with a well-trained, yet relatively low-cost workforce, makes Hungary a very competitive location for innovative firms. This is also supported, for

example, by the results of PwC’s global survey regarding the digital economy (one of the main focus points of which was the effective tax rates and incentives regarding innovative activities), where Hungary has been in the top tier of the most attractive investment locations for several years now, together with Ireland and Italy. MAJOR R&D INVESTMENTS IN HUNGARY Robert Bosch Bosch has been present in Hungary since 1898, and has grown to become Hungary’s largest foreign industrial employer with nine Hungarian subsidiaries currently. The company now has nearly 14,800 associates, of whom more than 2,600 work in the area of research and development. Most of the R&D associates work in the Engineering Center Budapest (ECB), while some 200 of them work on power tools development in Miskolc (186 km northeast of Budapest) or at the automotive parts company in Maklár (123 km northeast of the capital, close to the city of Eger). Bosch funded R&D projects into mobility solutions and power tool manufacturing amounted to a total of HUF 71 bln in 2018, more than ever before. The Bosch ECB is an increasingly prominent site in the company’s global development network, playing an important role in developing

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AVL Hungary Kft.

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automated and electric mobility. In 2018, ECB announced a further expansion of its Budapest campus through a HUF 37 bln project scheduled for completion by 2021. With the new campus, ECB will be one of the most important development centers in the mobility sector globally. Formlabs Formlabs is establishing the industry benchmark for professional 3D printing for engineers, designers and manufacturers around the globe, and is accelerating innovation in a variety of industries, including engineering, product design, dentistry, healthcare, jewelry and research. In 2015, two Formlabs engineers started the production of Form 2 machines in Hungary, which became a market leading 3D printer in its category. To date, Formlabs has shipped more than 50,000 3D printers that have cumulatively printed in excess of 40 million parts. Since Formlabs was founded in 2011, the company has grown to reach a headcount of 500 people. The Hungarian manufacturing of the Form 2 printer has played a significant role in this growth, and in parallel to Form 2, Formlabs already makes parts for its Form 3 and Form 3L machines in Hungary. In the Budapest office, Formlabs is working on software solutions that simplify and ease the process of 3D printing for the user so that anyone will be able to use the technology. In its new R&D center, the company is developing a web-based Dashboard application that can track print activities real time around the globe. This software, called PreForm, supports each piece of Formlabs’ hardware, with tens of thousands of people using it in seven different languages. The company is planning to extend the current headcount of 11 people up to 100 in the following three years.

“During 2018, 10 out of the 36 automotive projects were related to R&D or engineering functions, while 29 projects are to be realized in the area of business service centers, information and communication technologies and R&D.”

In five years’ time, Formlabs is planning to reach a target of one billion people using products in which Formlabs tools were involved, and in 10 years to involve Formlabs products in the making of most things in the world by providing a wide portfolio of digital manufacturing tools. Diehl Aviation Diehl Aviation works in a field that has seen tremendous development in composites with thermoplastic matrix. Its innovation plans include the reinforcement and automated production of composite materials with thermoplastics polymer matrix and endless fibers tape reinforcement technology, which enables it to significantly reduce the long cycle time of the current production process. Diehl Aviation, part of Diehl Group which employs 17,000 people worldwide, is an aircraft parts supplier for companies such as Airbus and Boeing. Diehl Aviation

Hungary started its manufacturing operation in 2011 in Nyírbátor (266 km east of Budapest). As a result of its continuous growth and success, Diehl announced the opening of a new Engineering and Service Center in Hungary’s second city Debrecen (232 km to the east of the capital) in 2017, creating 150 new jobs. One of the goals of the Engineering and Service Center is to actively participate in development projects, using a full range of local engineering knowledge in the field of “Design and Stress & Weight” and in research. Each R&D project starts with the guidance of German development engineers, from which the Debrecen center can consolidate the foundations of it innovation activity. Diehl Aviation’s long-term goal is to support the strengthening of both the Hungarian and international aerospace industry by contributing to the knowledge base. Continental Continental develops pioneering technologies for sustainable and connected mobility of people and their goods, and provides cuttingedge technological solutions to avoid accidents on the roads. Continental started the development of Artificial Intelligence Solutions in its Budapest Deep Learning Competence Center, operated by the Advanced Driver Assistance Systems (ADAS) business unit of the Chassis & Safety Division, last year, targeting an initial team of 100 highly trained software, hardware and big data experts. The responsibility of this R&D center is to provide AI-based solutions for object detection by ADAS optical sensors like front looking or surround view cameras.

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The AI component of modern ADAS sensors is used to detect other traffic participants and road objects with a high degree of accuracy. This is the pre-requisite for the safe implementation of driver assistance systems on the way towards autonomous driving.

a competitive landscape of high tech and automotive companies, Continental is able to find the talents and experts it needs. The Budapest center is an important and highly integrated R&D center in the worldwide engineering cooperation network.

The Deep Learning Competence Center in Budapest is working on the core software component for the next generation of driver assistance sensors. The team provides end-to-end solutions, starting with the selection of the appropriate AI method, up to the application and validation of the new algorithms in a test car.

AVL The company’s Hungarian subsidiary, AVL Hungary Kft., entered into business 17 years ago. It specializes in the R&D of the powertrain systems used in passenger cars, trucks, construction and agricultural vehicles, be they traditional combustion, hybrid or purely electric powertrain systems. Its R&D activities include design, simulation, testing, software development, calibration and production engineering.

Budapest provides a very good environment to develop automotive software components. With several academic institutes and

AVL Hungary Kft employs 375 people at its sites in Budapest, Kecskemét (87 km southeast) and Zalaegerszeg (227 km southwest). An R&D presence in the Hungarian market is very important for AVL, because the Austrian company has the second largest unit of its global network in Hungary where it plans to develop and test powertrain solutions and electric motors supporting environmentally friendly and autonomous driving. Technology professionals graduating from Hungarian universities are a key asset to AVL’s projects developing future mobility solutions. By establishing its new R&D center in the town of Érd (just 22 km southwest of central Budapest), 350 new jobs will be created in mainly high value-added engineering areas.

FormLabs: professional 3D printing for engineers.

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HUNGARY AND IP PROTECTION How could more patents be filed in Hungary, and what is the future of the EU-wide patent? The Budapest Business Journal talks with Dr. Katalin Szamosi, managing partner and president of SBGK Attorneys at Law and Patent Attorneys. By Zsófia Végh “In Hungary, the number of patent applications that mature into international or European patent applications is low,” Szamosi confirms. And applications designating foreign territories are not only low compared to other countries; they are low in relation to previous years and to Hungary’s economic weight, she adds. One major problem is that much of the R&D activity that takes place here is done at the subsidiaries of multinational companies, with the innovation results filed and protected in the parent company’s country. Typical examples are the German manufacturers in Hungary, which conduct elements of their R&D activity as well as production within the premises of the subsidiary, but they are filed in Germany. How this will change after the latest initiatives of the Ministry for Innovation and Technology remains to be seen. At this point, there is no legislation in place to ensure that the first filing of patent applications must be Hungary, if the R&D activity has been conducted here. One impediment is the lobbying of multinationals. It is also a question if a company can be forced to do so. But the government may have other ways to encourage companies to file patents here.

Dr. Katalin Szamosi Managing partner SBGK Attorneys at Law and Patent Attorneys

One such measure could be linking R&D subsidies to the requirement for filing a patent in Hungary, as has been proposed by the Hungarian Intellectual Property Office. This could revitalize the patent attorney profession and would also help technical language to survive, which may disappear unless something is changed, Szamosi explains. A further reason for the low number national filings is cost: it is cheaper and more convenient for the parent company to file a patent in English, as one can save on the costs of official translation. It is not widely known that patent application can also be filed in

English at HIPO, with the translation filed later, which would allow multinational companies to start their international phase here. INDIVIDUAL FEES The official fees of a patent are often said to be costly, but for an individual person, at least in Hungary, they are not, Szamosi says. On the other, hand what makes the process of obtaining a patent expensive are foreign professional and maintenance fees, especially if they are valid in several countries. The maintenance fees must be paid annually and costs add up during the 20-years lifecycle of a patent.

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This was also one reason why the European Union decided to introduce a so-called Unitary Patent Protection, which would mean that a European Patent granted by the European Patent Office will have effect across all member states which participate in the Unitary Patent Court (UPC) system. The launch of the unitary patent and court has been talked about for years. To date, 25 member states have signed the Agreement on a Unitary Patent Court (UPCA) but for it to enter into force it requires ratification by at least 13 countries, but importantly including the United Kingdom, France and Germany. At present, 16 countries have ratified the agreement from the 25 EU member states that signed the enhanced cooperation. After the referendum on Brexit, the UK finally ratified the UPCA and the Protocol on Privileges and Immunities (PPI) at the end of April last year. Following parliamentary adoption of the legislation on the implementation of the UPCA in Germany, a constitutional complaint was lodged with the German Constitutional Court, which has still not yet decided on the case. FLAWED CONCEPT? Accordingly, the legislation has not come into effect, and is in any case stalled due to the potential of a “hard Brexit”, where the United Kingdom crashes out of the EU without a deal in place. But the concept itself also some faults as well, according to Szamosi. Though it has been created with the aim of simplifying the filing procedure in Europe and preventing a prospective proprietor from having to file a patent in every relevant country, some parts of the process may actually become more complicated under the UPP. In terms of cost, no substantial savings can be expected either.

Though it has been created with the aim of simplifying the filing procedure in Europe and preventing a prospective proprietor from having to file a patent in every relevant country, some parts of the process may actually become more complicated under the UPP. In terms of cost, no substantial savings can be expected either. The core problem is that the advantages of the system lie with the rich and developed countries and companies, with the disadvantages more prominent in small and technologically relatively underdeveloped countries. According to an impact study by PwC, the amount of patent litigations will increases dramatically. The study suggests it is likely that Hungarian entrepreneurs will potentially find themselves in the position of a defendant. CONSTITUTIONAL RULING On June 29, 2018, the Constitutional Court of Hungary published its opinion on to how to interpret the relevant rules of the Hungarian Constitution regarding the ratification of the Agreement on a Unitary Patent Court (UPCA). The court stated that “an international contract may not be signed and published which transfers jurisdiction related to judgement in group of private law disputes to an international institution and, therefore, completely subtract such disputes and the constitutional review of judicial decisions from Hungarian state jurisdiction.” Accordingly, Hungary may not join Unitary Patent System unless Parliament

amends the constitution, which seem highly unlikely. Many say that, due to high costs and complicated procedures, it is not worth filing a patent. According to Szamosi, it makes sense to consult with a patent attorney to find out whether an innovation can be protected, if there is any inventive step. Such an opinion may help investors to better asses the business potential of the invention. Organizing awareness-raising campaigns for innovators to draw attention to available subsidies such as IPARJOG/GINOP, which can provide funding for national and international patent applications, would considerably increase the number of filings. Another incentive could be to increase the credits given in these subsidies for filing patents here in Hungary, Szamosi adds. It would increase the country’s reputation if foreign companies were aware that Hungary has valuable intellectual capital and expertise and that it is worth coming here to do research, and to use Hungary as first filing country before they continue their patent application in other jurisdictions, Szamos concludes.

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KNOWLEDGE IN THE SERVICE OF SOCIETY Horizon 2020, the seven-year EU program for research and development and innovation will terminate next year. Not surprisingly the EU regards this program as a flagship initiative: the EUR 80 billion fund has been designed as the main engine of boosting Europeâ&#x20AC;&#x2122;s global competitiveness, and Hungary has been one of its beneficiaries. What will be the basis of financing the RDI system in Hungary from January 2020? Dr. ZoltĂĄn Birkner, president of the National Research, Development and Innovation Office (NKFIH) shares his views with the Budapest Business Journal.

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By Balรกzs Barabรกs BBJ: Why was a new system needed in the RDI sector? ZB: Compared to previous years, last year state and private company funds spent on R&D and innovation started growing more dynamically. But we aim to speed up in narrowing the gap between our country and the more developed European states; therefore, the whole system had to be redesigned. While the innovation space and its players had some sporadic successes, these activities were not pursued logically and consciously enough and lacked a systemic approach. So, first we had to rethink the funding system. We achieved a very important goal, a framework which divided the very wide zone of RDI into three areas, along the logic of the EU funding. The first is traditional basic research, where the key factor is the individual and team success, but here, too, we have expressed a new expectation, that of social benefit. That is, the goal should not be the research per se, but the logic of basic research must aim at social and scientific benefit. This is a very important new message within the new system. The second area, which is perhaps even more exciting than the first, is seeking answers to the most pressing current challenges. There are plenty of global challenges, so we easily reached the conclusion that the operational logic of research done in the Hungarian higher education, state and academic system must shift to handling and researching these areas, also involving applied research, experimental developments and establishing contacts with private companies. The third financing area is clearly about enterprise innovation. Speaking about this in Hungary, we have to acknowledge that the multinational and Hungarian large companies

Dr. Zoltรกn Birkner President NKFIH

are performing well: in the past 10 years corporate RDI has grown dynamically. Large companies, whether because of global pressure or competition, understand that without invested knowledge they cannot grow or keep their market share. But the small- and medium-sized companies are significantly lagging behind, therefore we have focused on SMEs while redesigning the enterprise innovation incentives. BBJ: Does the new financing system also trigger a new institutional system? ZB: The institution system of Hungarian RDI has two elements: the knowledge-creating organizations and the users of this knowledge. This is the innovation ecosystem. Who creates knowledge? The Hungarian state-owned universities, the statefunded research institutes and the academic research institutes. Of course, Hungarian research institutes operated by private companies are also part of this system, but they operate according to market considerations, so the state can only support these activities, but cannot generate organizational changes. We

analyzed what decisions the state can implement within the state-funded, knowledge creating organizations and we set the following criteria. First: there should be no parallel activities at all. Second: a managerial approach to research, that considers knowledge as an asset which has market value, is required. This is a very important new approach. BBJ: This was not evident until now? ZB: No. The essence of the whole structural change is precisely this: a research facility does not exist for its own sake, but for the purpose of improving Hungarian society and the life standard of Hungarian citizens. In order to achieve this, knowledgecreating institutions must become much more open to market demands and be much more efficient in using resources. It is also important that, irrespective of the subject of the research, social and economic gain must be the primary goal. So, before anyone starts any R&D project, one must have a vision and an understanding of what it will lead to. Yes, if we aim at achieving international competitiveness, we need to acquire this kind of awareness.

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“Within the Horizon 2020 program, the funds won by the 13 Central and Eastern European states, that is, those who joined the EU in 2004 or later, was only 5%. Compared to this, the 15 “old” EU member states, that are better embedded in the system and have a better understanding of the application methodology, were granted 87% of the available funds. And let me add a truly shocking detail: even some non-EU member states are better at self-management; they reached 8%, with Israel and Switzerland being the most successful among them.” BBJ: How is this organizational change made specifically? ZB: First, we implemented a managerial approach to state and academic research institutions, so that this awareness starts gaining ground. As a second step, we decided that we shall designate universities as the main actors of the new innovation ecosystem, since they are the most receptive to changes. Universities can be easily revamped, if we teach them knowledge management and make them capable of understanding and handling the idea that they are sitting on a huge asset, which, if they use it wisely, can bring enormous benefits. If this happens, state funding will be complemented by market investments in the university system, and in this way universities can connect to the international circulation system, they will be able to develop, train new high-profile professors or bring such experts back home. So there will be an opportunity for the Hungarian university structure to grow further in the international arena. The other player is the market. How can we bring to this new space Hungarian

interest, especially Hungarian SMEs? The transformation of the stateowned, knowledge creator institutions based on management awareness is already under way, and starting from January 2020 it will be completely new, much better managed, much better synchronized. Then, it will be well worth examining the potential ways we would be able to channel in market demands. We have already started thinking where the connection points between the two sectors are, and how we can catalyze them to operate much better. BBJ: What is the role of the NKFIH in these processes? ZB: First, the two main financing systems, that of research and of innovation, are supervised by our office. So, basically, all state-generated financial sources will reach the academic, university and state research institutions via our office, as well as companies, based on the approach I already outlined. It is also our task to ensure that this system includes not only state funds and investments made by companies operating in Hungary, but to enable the players to access EU funds. In order to achieve this,

starting with this year, we launched large projects, training, services, so that local applicants can expand their international competitiveness and fundraising capacity. In the next EU financing period, RDI programs form the biggest package, so it is essential to gain access to the highest amount of funds available. Let me tell you a surprising figure, which can be interesting to our Western friends, too. Within the Horizon 2020 program, the funds won by the 13 Central and Eastern European states, that is, those who joined the EU in 2004 or later, was only 5%. Compared to this,

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the 15 “old” EU member states, that are better embedded in the system and have a better understanding of the application methodology, were granted 87% of the available funds. And let me add a truly shocking detail: even some non-EU member states are better at selfmanagement; they reached 8%, with Israel and Switzerland being the most successful among them. I am not being critical of the “old” states, since they already learned the methodology; I am, rather, critical of ourselves, as we were unable to learn this until now. Again: there are tremendous funds at stake, the framework starting in 2021 will provide access to a sum of EUR 100 bln.

BBJ: Does this mean that, with such a tiny share, we were only able to reach very modest results? ZB: In fact, the Hungarian share was not that bad, since among the EU13, we were ranked third. So, on a regional level, we are in a good position; however, our share does not even reach 0.6% of the total, given the reasons I just mentioned. To summarize, what we must achieve in the near future are the following: knowledge creation in accordance with the market demands; much better knowledge management; and a much more efficient international presence. According to the ranking of

the European Innovation Scoreboard, based on its innovation performance, Hungary is currently in the third group of four, among the moderate innovators. Our aim is to take a great leap, and elevate Hungary to the second group, that of strong innovators. But in order to achieve this, we need radical changes in system financing and management, otherwise our course will rise only slowly or even become stagnant. This is what we have done in 2019. By intervening in all three areas – financing, system structure and international presence – we hope we will be able to see results, perhaps by as soon as 2020.

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GOVERNMENT SUPPORT FOR IT AND THE AI COALITION The role and importance of information technology and ICT industries in the Hungarian economy has seen a remarkable expansion over the last few years. Prospects for the future seem ambitious but promising, with a widespread consensus amongst public and private sector players that the future of sector is going to unfold in the arms of AI.

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Dr. Ferenc Dietz Chancellor Budapest Business School.

By Helga Timaroczky TRAINING AND TERTIARY EDUCATION Only four years ago, growing labor shortages and significant labor quality problems in the IT market stood as a great barrier to the economic development of the country. IVSZ, the ICT association of Hungary, had reported at the time that the number of enrolments into IT training fields had fallen by 38% between 2001 and 2014, resulting in more than 22,000 IT specialists missing from the market by the year 2015. Since then, short, intensive and highly practice-oriented IT courses and boot camps have been normalized as a convenient alternative to three- to-five–year university level degrees, within the framework of “IT Development Career Start Program.” The program has so far cost the National Employment Fund HUF 2.5 billion, with an additional HUF 1.45 bln input by companies funding their own internal operations. (By way of comparison, Training360 Kft., for example, generated more than HUF

“Within two-to-three years, every member of the Hungarian society will perceive AI as a positive, exciting tech solution that helps their everyday lives.”

2.5 bln in net revenue in 2018, based on data by ceginformacio.hu.) The first signs of educational improvements came in 2017 with a 10% increase in new student applications for shortterm IT courses. In 2018, there was another 13%, according to IVSZ data. A completely new form of tertiary education for IT was launched in September 2018 at the Budapest University of Technology and Economics (BME). Called Basics of Programming (BProf), it puts a much greater emphasis on practical experience featuring a compulsory internship of at least oneyear as part of the degree. According to the latest recruitment statistics, 32% more students started a BProf degree in September 2019 than at its launch the previous year.

DIGITALIZATION Besides quantitatively filling the lack of IT professionals in the country, the decision-makers have also realized the importance of stimulating digitalization. Tamás Deutsch, the first commissioner of the Digital Prosperity Program, said: “The digital transformation of the entire Hungarian education system will take place in the next three-to-five years ahead,” before handing his role over to Minister for Innovation and Technology László Palkovics in 2018. The American Chamber of Commerce in Hungary (AmCham) has also recognized that, in order to accomplish accelerated digitalization in the coming years, there needs to be a close collaboration between government,

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“The state and big market data controllers need to work together to develop a legal, economic and physical framework for the proper sharing and use of data.”

professional organizations, interest representatives, large consulting firms and market players.

on the internet today. It is, therefore, crucial to educate and create interest across all generations already.

AmCham accordingly launched the first conference in Hungary on digitalization in 2018, where some of the key digital objectives and policy recommendations for the period up to 2020 period were discussed. These included the digital infrastructure for education, re-skilling of the workforce based on closely examined labor market demands, responsible implementation of GDPR data protection requirements and gaining international competitive advantage through revolutionary digital projects.

“Within two-to-three years, every member of the Hungarian society will perceive AI as a positive, exciting tech solution that helps their everyday lives,” Dietz hopes. That will be targeted through measures like spreading promotional material, educational videos and games and making courses widely available for the public.

ARTIFICIAL INTELLIGENCE The conversation on keeping up with the digital age has pivoted more towards the unexplored opportunities inherent in artificial intelligence. Palkovics’ innovation ministry has set up the AI Coalition, dedicated to both evangelizing the sector and bringing all the main actors under one roof, and promised the release of the national AI strategy by the end of this year. In order to find out how AI can help mass education, from public education to doctor training, specific project teams have already been set up within the AI Coalition for education and awareness, headed by Dr. Ferenc Dietz, chancellor of the Budapest Business School (BGE). Dietz told the Budapest Business Journal that, over the next decades, AI will become indispensable to everyday life in similar ways to our reliance

The BBJ asked the professional leader of the AI Coalition, Gergely Szertics, about the feasibility of training a strong workforce of AI experts within the coming years, and of the creation of a so-called AI Academy. “The current institutional framework should be able to cover most aspects of AI-related education,” he believes. “Only certain well-targeted developments will be required. The AI Academy is not meant to be a single public education center, but rather the interdisciplinary manifestation of knowledge dissemination.” Besides education and awareness, the main goal of the AI Coalition is to shed light upon market opportunities offered by AI tech and in doing so, improve the competitiveness of Hungarian entrepreneurs as well as the career prospects of employees. Palkovics told the AI Coalition Plenary Session on June 21, 2019 that the aim is to accomplish this transformation through both the application of AI onto state processes and the organic

integration of AI into business processes, with a particular focus on small- and medium-sized enterprises. Szertics highlights that another pressing task of the Coalition will be the structuring of the data industry. IVSZ has found that there are nearly 200 companies in Hungary engaged in some form of research or implementation of AI, but the

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enormous quantities of data available remain unexploited, partly because the legal and economic conditions for this are not yet in place. “The state and big market data controllers need to work together to develop a legal, economic and physical framework for the proper sharing and use of data,” insists Roland Jakab, managing director of Ericsson Hungary.

A recent analysis by management consulting firm McKinsey and Company found that Hungary’s digital economy would need to grow by 11% to close the gap with Northern European countries by 2025. But if Hungary successfully accelerates digitalization, its gross domestic profit could reach EUR 9 bln (HUF 3 trillion) by 2025. Such ambitions are not impossible,

considering that in the period 20182020, the EU will spend EUR 1.5 bln on AI, coupled with investment of up to EUR 20 bln through partnerships with the private sector. For a successful digital transition in Hungary, however, a joint effort from government, business and individuals is needed, McKinsey concludes.

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INDOOR FARMING, FITNESS RESE ARCH, ONLINE MARKETPL ACE

TUNGSRAM INNOVATES THROUGH PARTNERSHIPS When Tungsram returned to the market in 2018 as an independent company, it did so with the slogan it still uses today: “Innovation is our heritage”. At the same time it launched its own business dedicated to innovation, now called Tungsram Edge: combined with intensive R&D activities, this is now the business with most visible innovation results. However, the general manager of innovation at Tungsram, Ferenc Pongrácz, does not believe that the company of 4,000 employees, 22 subsidiaries and five factories should do all the heavy lifting itself. Partnerships with universities, SMEs, startups and researchers help Tungsram enter into new areas outside its core lighting business. INFRATRAINER: RESEARCH FOR THE U.S. MARKET A good example of cooperation with external partners and academic

institutions while using the manufacturing capacity of Tungsram, is Infratrainer, an innovative fitness equipment from Hungary. The Infratrainer proposes zero-fat technology, an innovative exercising method that can be performed by anyone as it does not require any special physical condition, it provides ideal intensity for losing weight with no burden on the joints, and accelerated metabolism through heat exposure during exercise. The pilot data from an Infratrainer tenweek intervention study indicates an average weight loss of between 15-30 pounds (about 6.8-13.6 kg), an average speed of weight loss of 2 pounds/week (about 0.9 kg/week), healthier lifestyle, and an increased motivation to continue the exercise regimen.

Agritech

Tungsram is now manufacturing Infratrainers that are widely used in Hungary and looking towards global markets, such the United States. For the overseas market, scientific data is needed to convince the customers. In order to obtain this data, Tungsram has signed an R&D agreement with New Jersey City University, where Manuela C. Caciula, PhD will execute a study to determine the safety and efficiency of a four-month Infratrainer exercise intervention in U.S. adults classified as overweight or obese. Rising rates of obesity are becoming a

major problem in the Western world, with multiple implications for individuals’ health and also healthcare resources. According to Center For Disease Control and Prevention figures from 2019, the prevalence of obesity is 39.8% and affects about 93.3 million U.S. adults. Obesityrelated conditions include heart disease, stroke, type two diabetes and certain types of cancer that are some of the leading causes of preventable, premature death. Infratrainer could be a tool to fight all these. It combines the effects of an infra source, and a magnetic therapy machine for maximum performance. During workout, the infra beams exerts their effects under the skin by heating up and dissolving the adipose tissue from inside, and also dissolving the accumulated toxins. After these processes, the fat could be easily transformed into energy. The Magnevital System synergically intensifies the positive effects, and also supplements the treatment with a vitality increasing magnetic therapy program. If the study finds Infratrainer effective, it will provide the Tungsram sales team with the necessary USP’s to enter this huge market and make this product a global success. AGRITECH: FOOD FOR THE FUTURE Indoor farming requires 95-98% less water and a significantly lower quantity of

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and produce vegetables, certain fruits and herbs throughout the year.

Tungsram on Times Square.

pesticides than cultivation outside. What is more, any plant variety can be cultivated anywhere in the world, irrespective of climate. With the assistance of LED technology, plants can be provided with the color temperature that results in the most intensive growth and nutrient uptake in the given segment of the life cycle. Tungsram is dreaming of a future in which the cultivation of vegetables, fruit, herbs and spices, and plants serving as the raw ingredients for cosmetics and pharmaceuticals can happen completely independently of season and geographical location, even in offices, residential properties and food stores. Experts from the company are working at full speed on research programs linked to precision indoor farming.

Paradicsom Kft., under the patronage of the Hungarian Ministry for Innovation and Technology; again an example of wide partnership. Now, Tungsram is preparing to set up an indoor farm operation at its premises in Budapest that could aid research to understand how lights affect the growth of plants and how LED technology and special sensors can influence, for example, the taste, sugar content or size of herbs and vegetables. Tungsram already has a product that the market is immensely interested in: the so-called growth fridge is a piece of equipment that can be placed anywhere indoors

INNOVATION MARKETPLACE The Tungsram Innovation Marketplace, powered by iLex Group, helps SMEs innovate more smoothly by basically providing a whole “innovation department” to them. The plan is to start a service with the help and technology of the iLex Group that is able to kickstart the stalled innovation processes of SMEs. This is an online marketplace where the services and experts related to innovation are all available. After registration, the decision-maker of a company has access to four levels of innovation service. Level zero is consulting, Dr. Marianna Ritter, the founder of iLex Group, explains. Level one is digitalized, and the rest of the levels represent personal presence, innovation management and the team of experts. If the decisionmaker needs samples of documentation, advice, guidance or an innovation manager specific to their business, they can find what they need. In its first phase, the scope of the project is Hungary. In this product, Tungsram is present as a partner in high volume manufacturing, product development and sales with its network in 110 global markets.

The Tungsram Agritech division was established in the fall of 2018. “The goal is the development of world-beating LED and smart solutions that can be successfully applied by enterprises active in the field of precision indoor farming,” says Zoltán Sejpes, head of Tungsram Agritech. As a first step, in December 2018 the company signed a trilateral declaration of intent for collaboration on carrying out joint industry-level research and development activities with Szent István University, renowned as a bastion of agro-education in Hungary, and Veresi

Infratrainer

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EXPANDING R&D ACTIVITIES SPUR BOOMING INNOVATION Boosted by tax incentives, the Hungarian research and development (R&D) vertical is quickly expanding, and aspires to become a leader in the region. Multinationals are opening up or expanding existing R&D operations here, reflecting a truly bullish attitude toward the sector.

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By Christian Keszthelyi By mid-2018, China’s increasing investments in research and expansion of its higher education system was a signal to many that the economy giant was working hard to close the research and development gap with its major rival; the United States. China was reported to produce 1,177 R&D researchers per million of its population at that time, a threefold increase since the 1990s, while the United States produced 4,321 such professionals per million. How the race develops between the world’s two biggest R&D powers is a question that only time will answer, and then, of course, there are the distractions of trade wars, tech competition and 5G to factor in. Since the beginning of the 21st century, we have seen the globalization of R&D activities. While in the past, universities used to be the main arena for research and development, and one that firms would try to benefit from, nowadays businesses either fund such activities at higher education campuses close to their operations, or take R&D under the umbrella of their parent companies, to help fuel innovation. But whether it happens in a university or a company lab, R&D activities can be incentivized through tax breaks. Among Organization for Economic Cooperation and Development countries, Hungary was ranked fifth in 2016 in terms of the total volume of central government support for corporate R&D, amounting to 0.31% of GDP, according to an OECD report published in 2017. During the year, tax incentives accounted for 48% of total public support for business R&D. By 2018, Hungary ranked second highest among European Union

“Hungary is attractive to companies wanting to invest in R&D. A highly educated workforce, good infrastructure and financial incentives are available. The establishment of the new Ministry of Innovation and Technology sends a strong message that the government is considering the domain very seriously, and has a strong focus on R&D and innovation topics in the country in all vertical industries.”

members in terms of the business sector share in total expenditures on research and development, according to figures from the EU’s official statistical organization Eurostat. In 2017, the highest shares of corporate R&D expenditure were recorded in Slovenia (75%) and Hungary (73%), followed by Ireland and Sweden (both 71%), Bulgaria and Austria (both 70%), Germany (69%), Belgium and the United Kingdom (both 68%), according to another report by Eurostat. During the year, spending on research and development in Hungary amounted to HUF 517 billion, or 1.35% of GDP, up 21.1% from a year earlier, according to a summary of data by the Hungarian Central Statistical Office (KSH). Hungary also increased the R&D investments threshold available for the R&D tax credit to EUR 340,000, according to a KPMG report published in 2017. All these figures support the idea that Hungary has been building an increasingly favorable R&D tax incentive regime, which is certainly in line with the government’s stated intention to encourage

and enhance the R&D activity of Hungarian enterprises, as well as multinationals with a Hungarian presence, Gábor Beer, partner and head of tax at KPMG Hungary, writes in the report. Additionally, for local business tax and innovation contribution purposes, it is possible to deduct R&D expenses, the KPMG report states. On the top of this, government grants and EU tenders are also available, as well as a preferential treatment of royalty income and tax exempt sale of intangibles embodying rights to royalty income, the report adds. The increasing number of companies embarking on the road of R&D in Hungary can also be considered as proof of a healthy ecosystem with large scale ambitions in this small Central Eastern European country. AUDI FUELS E-MOBILITY With synergy between Germany and Hungary strong, chiefly due to the automotive sector, Audi Hungaria is unsurprisingly one of the major players in the sector. “R&D has a growing importance in the operation of Audi Hungaria. Our R&D operations are divided into

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“Hungary’s R&D spending remains low: 1.35% of GDP, a total HUF 517.3 billion in 2017. The fastest digitalizing countries, such as Israel and Korea, spend more than 4.2% of their GDP on research and development. Even small economies can be very good and move to the forefront in piloting projects. In this regard, Hungary could become a testing ground for new business models.” two segments,” Audi Hungaria tells the Budapest Business Journal. Audi’s Drivetrain Development department has had a presence in Győr (120 km west of Budapest) since 2001, supporting production with development work for series production. Moe than 300 engineers and other employees are working on various projects, for example on friction optimization and engineacoustics analysis, as well as on the development of engine derivatives. Additionally, Drivetrain Development in Győr currently operates 20 test stands: 16 highly dynamic fullfunction test stands, two friction test stands, a swivel test stand and a climate test chamber. The Engine Development Center has been expanded to include a workshop equipped with cuttingedge technology. A new building with six fully functioning test stands was erected in 2015. Audi Hungaria engineers can test all engines, from three- to 12-cylinder units, on the running test stands. Six more test stands were installed by 2017 as part of a second expansion phase. Audi Hungaria expanded its development activities in late

2011 with the Complete Vehicle Development department, which currently employees more than 70 engineers, focusing on productionrelated vehicle development. This includes supporting the start of production of new models at Audi Hungaria, as well as diverse engine component and vehicle tests during the development process. Various loads placed on the car by the customer are modeled, in part by means of vehicle and component simulation. There are two new test systems for strength testing of engine and automobile parts. The acoustic, strength and road characteristics of all Audi models can be investigated in the Total Vehicle Development technical center, the analytical expertise of which was expanded in 2017. Additional test stands for components and complete vehicles were commissioned. Audi engineers have access to the only total vehicle test stand of its kind in Hungary to test entire automobiles with respect to energy management, strength and acoustics. The vehicles can be analyzed at speeds of up to 280 km/h (174 mph) on a simulated road without moving.

In the future, Audi’s Hungarian unit says it plans to expand its Drivetrain Development department, putting electric mobility at the forefront in the Győr factory, focusing on electric projects in the field of motor and vehicle construction and in technical

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Audi E-motor production.

development. Through this e-transformation project, the automaker expects to add 250 new jobs. “Audi AG will be a leader in the field of electromobility, a goal we [at Audi Hungaria] will make

a major contribution to. In recent years, we have already taken the first necessary and important steps; for example, with the launch of electric motor production in 2018. Our plans for the next period are focused on electromobility and sustainability,” said Achim Heinfling,

chairman of the management board of Audi Hungaria Zrt., when announcing the transformation project. “With the e-transformation project, we are creating the prerequisites of a new era and strengthening the

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Suzuki Motor Corporation. The design proto comes essentially on paper, in blueprints to Esztergom where, after thousands of hours of engineering and meticulous craftsmanship, experimental development results in a pilot model, followed by a new model of series version,” he adds.

Dr. László Urbán Deputy managing director Magyar Suzuki

competitiveness of our company. Audi Hungaria will remain a key player both within the Audi Group and the Hungarian economy,” Heinfling added. SUZUKI FORGES PARTNERSHIPS Magyar Suzuki Corp. Ltd. (MSC), which produces cars in Esztergom (50 km northwest of Budapest), has followed another path. With no basic research activities at its base, the firm enters into cooperation partnerships with university and/ or research institutes, possibly involving one or more members of their supply chain. “The best example is our four-year consortium project GINOP 2.2.1. with the Bay Zoltán Institute and Pázmány Péter Catholic University, which are currently working on a basic research subproject with 60-year-old PEMÜ, one of our oldest suppliers,” László Urbán, deputy managing director at Magyar Suzuki tells the Budapest Business Journal. “The innovation work at the factory is essentially linked to model development: the basic is the design proto development that is done at our parent company,

The deputy managing director also notes that the Hungarian Innovation Act, adopted in 2014, clarified this experimental development process, previously only known, and sometimes not recognized, from the Frascati Handbook and the Oslo Protocol. “Of course, our Esztergom factory has a long tradition of kaizen, which is rightly considered one of the first forms of everyday practical innovation. Also, besides the experimental development and thus the model innovation, MSC applies other forms of innovation activity, such as organizational, marketing innovation etc.,” he adds. For the uninitiated, kaizen is the Sino-Japanese word for “improvement”. In business, kaizen refers to activities that continuously improve all functions and involve all employees, from the CEO to the assembly line workers.

Urbán has been in charge of managing MSC’s innovation activity since 2009. Under his oversight, significant advances have been seen in R&D and conscious innovation. “Until the adoption of the aforementioned 2014 law, many have blurred the R&D and innovation process with the aim of getting EU and/or government support and grants. Today it is clear: no innovation without direct or indirect realization of the results of the R&D activities. Since the European Union’s Horizon 2020 project was announced, the true innovators only mention R&I as an expression of the fact that self-serving, support-only research and developments have no sense,” Urbán adds. The 2014 legislation is seen to have usher in an R&D revolution in Hungary, not only because of legislative and institutional changes, but also because a very significant part of EU convergence money has been spent to support real innovation. “The domestic real economy, the companies have very high hopes for the new [Innovation and Technology] Ministry, which may slowly be entering adulthood. The cost of innovation in Hungary as

“Audi AG will be a leader in the field of electromobility, a goal we [at Audi Hungaria] will make a major contribution to. In recent years, we have already taken the first necessary and important steps; for example, with the launch of electric motor production in 2018. Our plans for the next period are focused on electromobility and sustainability.”

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a percentage of GDP is just 40% compared to Japan, but in absolute terms, Japan’s innovation potential is approximately 40-50 times bigger than that of our country in terms of GDP or population,” Urbán notes. The Suzuki deputy leader has a strong pro-innovation message. “Without innovation, we would not have come down from the tree. Fire was one of mankind’s most significant innovations! Back to earth: Without innovation, companies are threatened by market failure or bankruptcy,” he says. In the short term, Urbán expects Hungary share of GDP spent on innovation to reach 1.8% of GDP by 2020, a goal already announced by the government. In the medium- to

long-term, the deputy leader says Hungarian companies will need to acquire advanced innovation management solutions (IMS) and obtain relevant ISO-certificates if they are to achieve a lasting breakthrough in domestic and global markets. ERICSSON URGES RAISING SME AWARENESS Ericsson has come a long way in its more than a century of history in Hungary. The first Ericsson affiliate was established in Budapest in 1911. Although the company left the country in the 1930s, BHG produced electromechanical crossbar exchanges under an Ericsson license agreement for almost two decades starting in 1968. A new era began for

Ericsson in 1990 with the foundation of its Hungarian subsidiary: Ericsson Magyarország Kft. Currently, Ericsson employs about 2,000 people in Hungary, and says it is committed to extending its local presence and improving employment in Hungary. “The Hungarian affiliate is one of the largest companies in the country in the field of software and hardware development, telecommunications and information technology research. The chain of education, fundamental research, applied research, and industrial implementation is exemplary in its operations,” an Ericsson spokesperson tells the Budapest Business Journal.

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“Of course, our Esztergom factory has a long tradition of kaizen, which is rightly considered one of the first forms of everyday practical innovation. Also, besides the experimental development and thus the model innovation, MSC applies other forms of innovation activity, such as organizational, marketing innovation etc.” Its corporate center, offering managed services, performs maintenance activities both in the field and at the customers’ premises for Hungarian service providers. In 1990, Ericsson Magyarország employees set up the first analogue mobile telephone network in Hungary, and the total capacity of the telephone exchanges they delivered in Hungary from 1991 to date is about one and a half million lines. Ericsson also claims credit for being the first to introduce the gradually evolving stages of mobile internet, including GPRS, EDGE, 3G and HSPA. Today, Ericsson is the supplier of the mobile network for the leading telecommunication service provider in Hungary. On January 2, 2012, Ericsson technology was used to launch the first fourth generation (4G/LTE) mobile service in Hungary; in April 2014, Ericsson was the first to demonstrate LTE-Advanced technology, and in November 2016, the company and Magyar Telekom achieved a download rate of 1,200 Mbps using 4G+ technology. On October 19, 2017, Ericsson and Magyar Telekom debuted the first 5G connection in Hungary. This year, ZalaZone, the first 5G-based test track for self-driving vehicles opened in Zalaegerszeg (220 km southwest of Budapest) using 5G mobile technology installed by Ericsson.

“Hungary is attractive to companies wanting to invest in R&D. A highly educated workforce, good infrastructure and financial incentives are available,” the Ericsson spokesperson tells the BBJ. “The establishment of the new Ministry of Innovation and Technology sends a strong message that the government is considering the domain very seriously, and has a strong focus on R&D and innovation topics in the country in all vertical industries,” the company adds. Ericsson believes the 5G Coalition and the Artificial Intelligence Coalition are strong contributors to streamlining the digitization and modernization of the key segments of the Hungarian economy, as well as facilitating the collaboration between academia and the public sector and businesses. “In Hungary, multinational companies drive the R&D ecosystem while SMEs have a low ranking in innovation scoreboards. Subsidies and special initiatives could incentivize international companies with best practices, if they conduct education programs and share their knowledge on innovation,” Ericsson adds. The company says it of the utmost importance that SMEs are educated

in their approach to innovation in order to create more high valueadded jobs in Hungary. “Higher educational institutions can also complement this approach: special, high-level entrepreneurship programs can be started at universities,” Ericsson adds.

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Audi’s vehicle development center.

Even small economies can be very good and move to the forefront in piloting projects. In this regard, Hungary could become a testing ground for new business models,” Ericsson says.

Zalaegerszeg is something that could place Hungary on Europe’s technology map. Having facilities where one can test and develop technologies for the future is something the country can do more of.

And Ericsson tells BBJ that the autonomous car proving ground in

“Another important factor is fostering an innovative culture, an

environment where people believe that their ideas can contribute. The creation of new, innovative ideas should be supported by tax policies. New enterprises should be incentivized to expand to other markets,” the Ericsson spokesperson adds.

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R&D JOBS: BRAND IS A POWERFUL MOTIVATION Three major organizations, the World Intellectual Property Organization (WIPO), Cornell University and the international graduate business school INSEAD, recently released the Global Innovation Index, or GII, 2019. Hungary maintained its position from last year.

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By Balázs Barabás Published annually since 2007, the study draws on the expertise of its Knowledge Partners: the Confederation of Indian Industry (CII), Dassault Systèmes – The 3DEXPERIENCE Company, and the National Confederation of Industry (CNI) and Serviço Brasileiro de Apoio às Micro e Pequenas Empresas (SEBRAE), as well as an advisory board of international experts. GII is an exhaustive compilation of 129 country/economy profiles, including data, ranks, and strengths and weaknesses, with 80 data tables for indicators from more than 30 international public and private sources. This year’s ranking places Switzerland at the top of the most innovative countries, followed by Sweden, the United States, the Netherlands and the United Kingdom. Hungary ranked 33rd among 129 countries, unchanged from last year, which can be regarded as an honorable position. Some countries in the region performed better: the Czech Republic (26), Slovenia (31), while others were somewhat lagging behind: Slovakia, Lithuania, Poland and Bulgaria (37-40). GII also provides a detailed report for each country, pointing to strengths and weaknesses. Hungary seems to excel in Knowledge absorption, with a “plus” for sub-categories like: high-tech imports, FDI net inflows and research talent (% in business enterprise). Another category of strength is Knowledge diffusion, with good performances in intellectual property receipts, high-tech net exports and FDI net outflows. GII also identified major weaknesses: insufficient intensity of local competition, ease of protecting

“At AmCham, one of our priorities is to help make Hungary an ideal destination for high added value investments, which of course encourage high added value employment. The most important criteria for potential R&D investors are incentives, tax breaks, business friendly regulations and the availability of experienced, skilled talent.” minority investors, market capitalization and venture capital deals, as well as a low percentage of firms offering formal training.

Farkas Bársony President AmCham Hungary

FASTER DEVELOPMENT These findings echo the views of trade and professional organizations in Hungary. Innovation relies heavily on research and development made by private companies. Some of the largest are members of the American Chamber of Commerce in Hungary (AmCham): BlackRock, Citi, Continental Automotive, Flextronics, GE, IBM, Morgan Stanley, MSCI,

National Instruments, Oracle, Robert Bosch, Siemens, TEVA, and Tungsram. They represent a wide variety of sectors, but the main areas are IT, manufacturing, pharmaceutical and finance, Farkas Bársony, the president of AmCham Hungary told the Budapest Business Journal. “At AmCham, one of our priorities is to help make Hungary an ideal destination for high added value investments, which of course encourage high added value employment. The most important criteria for potential R&D investors are incentives, tax breaks, business friendly regulations and the availability of experienced, skilled talent,” Bársony said. But the one thing that Hungary is short of today is skilled labor force, a setback that is also experienced by the AmCham member companies. It is increasingly difficult to fill open positions today, which is especially true for high added value positions which require a more unique background or skillset, Bársony says. Regardless of the industrial sector in which the R&D is performed (manufacturing, pharmaceutical, finance or other), the presence of information technology professionals is vital for any company.

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“It is quintessential to employ IT professionals who can support your researchers and provide special solutions to ensure faster development and effective operations,” Bársony adds. BRAND MATTERS However, different companies experience different levels of labor shortage. The company brand can be a powerful motivation. “An important factor in attracting and retaining employees is the brand of SAP as an employer, a brand sustained by many best

Krisztina Horváth Head of HR dept. SAP Hungary

employer awards worldwide,” Krisztina Horváth, the head of HR department at SAP Hungary tells the BBJ. SAP Hungary says it does not see a labor shortage on the market, as until now the company has always been able to fill all open positions with excellent talents. The company currently has 1,200 employees and openings for 17 different positions. SAP is typically searching for software engineers and cloud specialists for its development and support service center in

Budapest, which also performs global tasks, when required. About two-thirds of the new colleagues are recruited via employee recommendations, while SAP also has close cooperation with Hungarian academic institutions, Horváth says. But academic institutions have their flaws, György Strausz, president of Hungarian chief information officers’ association VISZ (Magyarországi Vezető Informatikusok Szövetsége) says. The Hungarian education system has transformed, and not in a good direction: Hungarian education is less competitive on the international market. And the government has a significant responsibility in improving this area. Strausz argues that the way higher education currently operates and the mentality inside it are not able to meet the demands generated by the expansion of technology, while new areas continue to emerge: cloud, robotics, artificial intelligence, data mining. And even if universities were to starting operating immediately as he believes they should, there would still be a three-to-five year lag until the new generation of specialists graduates, Strausz says. MARKET NICHE Just as worrying, VISZ says it has no information about what the affinity of the young generation is, how many of them would follow this path. The good news is that many small businesses already identified this niche market and they have started training people as software developers. The “early birds” have ongoing contracts with multinational companies and large enterprises and can meet their demands for skilled professionals, Strausz adds. Bársony shares Strausz’ view on the professional quality of university

György Strausz President VISZ

graduates. “While they usually arrive with solid foundations, they quite often lack the necessary soft skills such as problem solving, effective communication, teamwork, work ethic and critical thinking. In addition, the curriculum cannot keep up with the unparalleled speed of technological progress, therefore their knowledge is outdated. Today, your business must be ready to teach, train or retrain the new employees who may lack some of the requisite skills you need,” he noted. While many complain that the labor shortage has driven salaries (and salary expectations) irrationally high, Bársony has a different opinion on this. Talent retention, he says, is not just about a good salary and benefits; one must be able to provide a flexible, dynamic working environment where employees have the opportunity to learn, improve and advance as well as find a suitable challenge every day. “There is a fierce competition for the highly skilled, experienced professionals who are less

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likely to move, so companies rely on emerging young talent to train and develop the next generation of professionals,” Bársony explains. “One thing is certain. Companies must become involved in education by cooperating with secondary schools, universities and research centers to meet the needs of the economy and our society. Knowledge sharing, financial support, access to technology and infrastructure, guest lecturing, joint projects as well as fostering innovative and entrepreneurial mindset are proven solutions to this critical issue,” he concludes.

Strausz argues that the way higher education currently operates and the mentality inside it are not able to meet the demands generated by the expansion of technology, while new areas continue to emerge: cloud, robotics, artificial intelligence, data mining. And even if universities were to starting operating immediately as he believes they should, there would still be a three-to-five year lag until the new generation of specialists graduates.

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THE FUTURE OF SCIENTIFIC RESEARCH IN HUNGARY The words “research” and “science” have been bandied around a lot in Hungary over the last few months. In July, the Hungarian government ratified a law that places institutes belonging to the Hungarian Academy of Sciences (MTA) under full political and financial control, in order, the government says, to strengthen the institutional and financing system.

Building of the Hungarian Academy of Sciences (MTA), Széchenyi István tér, Budapest.

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Photo by posztos/Shutterstock.com

By Helga Timaroczky But the move could be described as being akin to a hostile takeover, certainly the MTA has not welcomed it. Academy president László Lovász, opened his speech at an extraordinary general assembly of the MTA on December 6, 2018: “We are scared! We fear for our Academy. But it is not the Academy as an institution, which is at stake, it is the future of science in Hungary”. With the law set to come into effect in September, as this publication was going to print, the question seems paramount: What is the future of research in Hungary? Minister of Innovation and Technology László Palkovics presented the bill to Parliament. The document outlined the transference of 15 MTA research institutes along with their properties to the newly-formed, governmentrun Eötvös Loránd Research Network (ELKH). The ministry’s justification for so doing is that the current system is inefficient and that only government oversight can eliminate fragmentation of R&D budgets while allowing for a more performancebased financing of research in the future. Under the new law there will

László Lovász President MTA

be an increased focus on Hungarian patents and inventions, and research will be specifically aimed at benefitting the Hungarian economy. In essence, the arguments runs that rather than allowing research just for the sake of it, it should serve a practical purpose. RADICAL CHANGE Speaking in Hungarian to right-leaning national daily newspaper Magyar Hírlap, Palkovics stated that the

“By establishing independent research institutes, it [MTA] has modernized its organizational structure and successfully positioned itself as a cooperation partner for other organizations, including a large number of German institutions. These important successes are at risk when the academy’s autonomy no longer includes structural and budgetary sovereignty.”

fundamental principles of financing require a radical change, and at research institute level an increase in performance is required. Responding to these claims, Lovász opened an international press conference on June 12 by highlighting the long-standing excellence of the institution. He argued that MTA “has been successful in running its research network as proven unwaveringly by the fact that based on output/resources, it ranks among Europe’s finest.” He also argued that even if some form of change was needed, “innovation performance will not be improved by putting a successful basic research network under government control.” According to the Global Innovation Index 2019 (GII), an internationally trusted metric to capture the richness of innovation in a society on the level of R&D, Hungarian innovation, R&D and patents performance is in line with expectations for the level of development of the country. Hungary’s position on the GII

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Speaking in Hungarian to right-leaning national daily newspaper Magyar Hírlap, Palkovics stated that the fundamental principles of financing require a radical change, and at research institute level an increase in performance is required.

world ranking has gone from 39th in 2017 to the 33rd place in 2018, a rise of six positions. According to Attila Ferik, head of the American Chamber of Commerce in Hungary’s Innovation Policy Task Force and managing director of GE Healthcare, although the government has made some great progress in expanding R&D grants and incentivizing innovation, there need to be improvements in the situation of companies who only operate R&D centers. INCENTIVE SYSTEM “Today, the grants mostly benefit companies who generate profit in Hungary from selling products developed here. The incentive system should also be expanded to include service innovation, recognizing the importance of the sector to the Hungarian economy,” Ferik tells the Budapest Business Journal. Besides the lack of what he sees as valid reasoning, Lovász, an awardwinning mathematician, has voiced a number of serious concerns with the government restructuring and the new law. Firstly, there is no guarantee for the basic operational funding of the academy that was previously guaranteed by Article X of the Fundamental Law of Hungary, he argues.

Secondly, the separation of the research network from the academy would cause “an extremely complicated legal situation,” considering the number of existing contracts. Then there is threat of a brain drain. MTA’s “Lendület” (Momentum) program aims at bringing back “exceptionally talented” scientists and researchers from abroad by providing them with equal remuneration and research opportunities at home, and Lovász says it has been working with great success since 2009. Lovász now worries that what he sees as political interference in the scientific and intellectual sphere might result in a growing group of scientist and researches either leaving Hungary or refusing to return because the law imperils the autonomy of the academy. CORE PRINCIPLES Elements of the international scientific community have also spoken out against the new law. The German Rectors’ Conference (HRK), Conference of Rectors of Academic Schools in Poland (KRASP) and Universities Austria (UNIKO) have released a joint statement, in which they describe the law as a breach of core European principles. According to them, the bill undermines academic freedom and autonomy; therefore, it is

László Palkovics Minister of Innovation and Technology

likely to put Hungary’s position in jeopardy in future international research programs. Prof. Jörg Hacker, president of the Academy of Sciences Leopoldina, the national academy of Germany, voiced his views on MTA’s situation in an open letter: “By establishing independent research institutes, it has modernized its organizational structure and successfully positioned itself as a cooperation partner for other organizations, including a large number of German institutions. These important successes are at risk when the academy’s autonomy no longer includes structural and budgetary sovereignty.” ALLEA, the European Federation of Academies of Sciences and Humanities, similarly stated that the new law “politicizes scientific research and jeopardizes Hungary’s strong European and international partnerships in science.” It also “threatens to create a structure that will diminish the quality and scope of scientific output of Hungary, particularly but not restricted to the research conducted within the humanities.” (A full list of open letters of support from international and national organizations can be found on MTA’s website.)

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MTA highlighted in its 2018 proposal for the revision of the Hungarian innovation system that it is undeniably vital to have direct and effective channels between the scientific community and legislative authorities in order to allow for strong and comprehensive political decision-making bodies. That said, EuroScience, a pan-European grassroots organization for the support and promotion of science and technology in Europe has warned that excessive centralization and a complete government control over resource allocation has historically set a precedent for weakening rather than strengthening research and innovation.

it says it harbors deep regret that there was a lack of substantial negotiation between the government and the scientific community. On the future of research, MTA commented briefly: “[…] the Academy will continue to do everything in its power to represent the interests of science and to stand up for academic freedom and the integrity of science even after the law comes into force.”

“Ethics and Responsibility” has been chosen as the theme of the 2019 World Science Forum, which will be held in Budapest, on November 21. Amongst the speakers are MTA’s Lovász, President of Hungary János Áder as well as leaders from UNESCO, International Science Council, and the World Academy of Sciences. Keynote lecture titles include subjects such as “The ethics of science funding” and “Are there ethical limits to what science can achieve or should pursue?”

Editor’s note: The Budapest Business Journal contacted the Ministry for Innovation and Technology to ask it to comment directly on the matters raised in this article, but it had not responded by the time we went to press.

In its latest press release, MTA has acknowledged the enactment of the new law even though

SHARE OF THE EUR 237 MLN BUDGET AMONG FACULTIES OF THE HUNGARIAN ACADEMY OF SCIENCES

Other

Natural Sciences

20% Nuclear Research Center

Agricultural Sciences

24%

5% 6%

11%

7% Faculty of Liberal Arts

Asronomy and Earth Science Center

Biological Research Center

11% Wigner Research Center forPhysics

Institute of Experimental Medicine

Others: Center for Energy Research; Economic and Regional Studies Research Center; Institute of Linguistics; Center for Ecological Research; Alfred Renyi Institute of Mathematics; Computer and Automation Research Institute; Social Science Research Center

Source: MTA

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HARNESSING THE POWER OF AI CAN BE A GAME CHANGER More than 220 speakers shared their thoughts on the latest tech trend at the ITU Telecom World 2019 conference in Budapest. The hottest topics addressed at the gathering of the International Telecommunication Union (ITU), the United Nations’ ITC agency, included to what extent disruption is embraced in a corporate environment, what to watch out for in applying AI to business processes and how moving ICT investments up the priority ladder could be a game changer. By Bálint Szőnyi The conference, which brought some of the brightest and biggest innovation minds to the Hungarian capital, including 4,000 delegates from 125 counties, ran from September 9-12. It was opened in the presence of Hungarian Prime Minister Viktor Orbán. The majority of corporates seem to care more about so-called “innovation theater” than actual innovation, a recent Deloitte study found. Companies hold workshops and organize events on innovation, yet they do not cooperate with disruptors, invest in them or provide corporate venture capital. A clear innovation strategy is often missing as well. Panelists at a roundtable discussion organized by the INPUT Program argued that their reality didn’t quite match the one illustrated by Deloitte’s findings. As Gergő J. Budai, external affairs director of Vodafone Hungary said, corporate giants cannot afford an “if it ain’t broke, don’t fix it” mentality.

“The rule applies in the telco industry in particular that if you don’t follow trends, you’ll go down. Customers don’t care about tech anymore, they simply want a working solution.” “The rule applies in the telco industry in particular that if you don’t follow trends, you’ll go down,” Budai said. “Customers don’t care about tech anymore, they simply want a working solution.” A step-by-step approach is what pays off during cooperation between startups and big corporations. It also helps if one startup at a time enjoys the undivided attention of a behemoth.

ECOSYSTEM ACCELERATORS Ecosystems can accelerate innovation a great deal, whether on a global, European or local scale. Take the example of 5G Coalition or AI Coalition in Hungary both of which Vodafone is member of. The platforms concerned gather key stakeholders to find synergies and generate partnerships, which is bound to lead to growth, Budai said. Péter Szekeres, CEO and founder of Neticle, an AI-focused startup, believes that innovation managers don’t always have enough power in big enterprises and innovation teams should be integrated a lot more into the operations of companies. Indonesian serial entrepreneur Reza Maulana stressed the importance of the combination of the right business culture and mindset, as that is what the success of innovation efforts comes down to. Disruption in healthcare innovation, in turn, is very much impaired by regulation as patient data can’t be used for research due to privacy issues, Gabriella Sódar of Semmelweis University’s Directorate of Innovation pointed out.

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Data privacy is also key when it comes to applying AI, making it essential to handle the issue of trustworthy AI. No blank regulation is needed, though, as many areas concerned by artificial intelligence are already wellregulated, concluded another panel at ITU 2019, citing the examples of GDPR and cybersecurity. Gábor Varga, national technology officer of Microsoft, said that software development is a great example of to how to comply with ethics standards since data used for algorithms must be safe and unbiased to start with. He reminded the audience that technology can be used for good or evil. “It is not a question of what computers can do, but what they should do,” he

“It is not a question of what computers can do, but what they should do. We have the power to harness AI to tackle and solve some of the biggest problems of humankind in a sustainable manner.” explained. “We have the power to harness AI to tackle and solve some of the biggest problems of humankind in a sustainable manner.” MAXIMIZE BENEFIT, MINIMIZE RISK For Jeannice Fairrer Samani, managing director of Fairrer Samani Group, LLC “Innovation is in the

wild, so AI policies should be public policies to maximize benefits and minimize risk.” SMEs, academia and corporations should all be engaged in policy creation, in a transparent and inclusive process, she argued. So-called quantum computing will be commercialized in the next five

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another reason for laying down ethical guidelines at a very early stage,” he said. Francis Gurry, director general of the World Intellectual Property Organization, spoke of the importance of innovation at the center of a competitive advantage at another roundtable discussion on connectivity. With technology moving so quickly, risks and threats, such as AI “deep fakes”, are commonplace which is “a real problem for the integrity of information that we have around the world.”

years and will cause a huge shift in the market, said Liam Benham, VP of government and regulatory

relations at IBM Europe. “We’re going to have incredibly powerful systems and it’s going to happen very fast;

“Industry wants to make money and governments can’t keep up to speed with changes,” Gurry summarized. Therefore, it is ever more often scientists that are expected to set the parameters of responsible

ITU TELECOM WORLD 2019 CONFERENCE BUDAPEST Under the broad theme of “Innovating Together; Connectivity That Matters”, the event showcased and debated the technologies, policies, strategies and approaches that will not only drive connectivity in itself, but extend a connectivity that is secure, affordable, interoperable, relevant and fit for purpose. With local content in local languages, supported by digital skills, digital education and digital awareness. In short, the organizers said, a truly meaningful connectivity. With more than 260 exhibitors, including more than 150 SMEs, and 20 sponsors and partners from more than 40 countries, the exhibition showcased technologies including 5G, satellite, e-waste management, robotics, blockchain, Smart AI, Banking and Cities (Smart ABC), smart agriculture,

smart homes, climate change mitigation, FinTech and more. From 5G powered VR or AR demos to stories of ICT in action in developing countries, delegates could see, touch and explore first-hand the impact of these technologies. National Pavilions highlighted talent, innovation, investment and partnership potential from countries around the world and include the host country’s Hungary National Pavilion, showcasing established tech companies, startups, universities and incubators. Other Pavilions included Azerbaijan, Bangladesh, Burundi, Cameroon, China, Equatorial Guinea, Iran, Japan, Korea, Mozambique, Rwanda and South Africa, with special Pavilion “spotlights” highlighting the ICT industries of Angola, Ghana

and Indonesia. Thematic Pavilions included China SMEs, the China Satellite Application Industry Association, the Telematics Industry Application Alliance and the Visegrad 4 countries (Hungary plus the Czech Republic, Slovakia and Poland). The conference Forum convened an influential global audience spanning governments, key ICT industry players, regulators, international organizations, high-growth SMEs, consultants, academia, media and more. Euronews moderated the Forum Summit. Sessions covered topical areas from technological developments and impacts in 5G, IoT, Artificial Intelligence (AI), smart cities, digital literacy to supporting tech SME growth, mitigating gender bias in AI, frontier technologies for climate change, wireless broadband to gigabit strategies and more.

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innovation. More risk mitigation measures and greater care should be priority in the wake of such rapid technological developments. SHIFT TO THE EAST The future will be shaped by two major trends, Gurry believes. The first of these is, “The general dematerialization of value as intellectual capital becomes more important than physical capital and innovation moves more and more into the digital space.” The second is the geopolitical shift to the east. Panelists agreed that, among the major catalysts to connectivity, are a holistic government approach with digitized government services, advanced manufacturing and robotics, precision manufacturing and personalized education enabled

Ministerial roundtables brought together ministers from across the globe to debate issues such as data privacy, the role of government in 5G deployment or stimulating public private collaboration on connectivity and adoption. Partner sessions provided expert insights in areas such as digital transformation, micro-, small-

We’re going to have incredibly powerful systems and it’s going to happen very fast; another reason for laying down ethical guidelines at a very early stage,” he said.

by Industry 4.0. Development must go hand-in-hand with making finance ministers realize the key importance of ICT to all sectors of the economy and society, moving ICT investment up the priority ladder. Péter Halácsy, chief technology officer and co-founder of Prezi, wrapped up the discussion by pointing out that the

and medium-sized enterprises (MSMEs) in Uganda, spectrum pricing, sustainable nextgeneration networks and 5G planning, strategy, cooperation. The event wrapped up with Internet Generation Day, a program of interactive workshops, demos, competitions, guided tours, company presentations

unconnected coming on board now could learn from the experiences of the developed world, move forward systematically and not repeat previous mistakes. It is our collective responsibility, the panel agreed, to ensure that connectivity is not only available to all, but useful to all.

and more, especially designed for university students, young entrepreneurs and innovators from Hungary and the region. Curated by Hungary’s leading incubators, accelerators, academia and innovation hubs, the program covered a diverse range of topics including robotics, AI, blockchain and FinTech.

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WHAT QUALIFIES AS RESEARCH AND DEVELOPMENT? Depending on the context, “research”, “development” and “innovation” can have several different definitions.

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Barbara Koncz Tax director PwC (left) András Kaszap Director KPMG (right)

By Zsófia Végh Within the European Union, the most universal and widely used is probably ESA 2010 (from the European System of Accounts, an internationally compatible accounting framework for a systematic and detailed description of the economy).

“This [ESA 2010] definition links research and development to a value of expenditure on creative work undertaken on a systematic basis in order to increase the stock of knowledge.”

According to this framework, R&D is “creative work undertaken on a systematic basis to increase the stock of knowledge, and use of this stock of knowledge for the purpose of discovering or developing new products, including improved versions or qualities of existing products, or discovering or developing new or more efficient processes of production”.

R&D calls for applications of subsidy programs, for instance, detail exactly what policy makers actually perceive as research and development, wherein the lists of eligible expenditure describe the components of a successful R&D activity.

According to András Kaszap, a director at KPMG, “This definition links research and development to a value of expenditure on creative work undertaken on a systematic basis in order to increase the stock of knowledge.”

IMPORTANT DUALITY These lists also help shed light on the important duality which bases R&D on the fundamental need for both technical (e.g. special research equipment) and human resources, Kaszap explains.

A slightly different concept is used by government bodies to define R&D, which is based on the above but takes research and development on a much more concrete level.

A third concept of R&D, and perhaps the most pragmatic, is the one that businesses use: the way a company leader thinks of R&D and, indeed, innovation.

We are getting away from basic research here as the most important aspect of R&D, with rentability and effectiveness, at least on the longterm instead taking on greater significance in the business segment. At this level, there are huge differences between what qualifies as R&D. For example, at a pharmaceutical firm, the thresholds of what qualifies would be completely different from that of a successful Hungarian middle-sized enterprise, Kaszap says. It is very reliant on the industry and the activity a company is involved in. “In summary, it is a matter of concept, what defines R&D”, Kaszap says. One

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“In R&D, we are looking for some novelty as well but not necessarily for patent-level novelty. We also have to see if what we are aiming to resolve is scientifically feasible, technically achievable and whether there is information available on how we achieve that.”

could look at the purchase of a new computer as an element of “innovation” in the case of a poor school with weak infrastructure for instance, while this is clearly business as usual for a large multinational company. Buying skills development toys for a kindergarten could be considered a largescale innovation from that organization’s viewpoint, despite their low financial value. Going from abstract textbook definitions to a more practical approach used in business, it is becoming harder to give a universal definition for RD. LINKED TO INNOVATION What is common between all concepts, however, is that R&D is widely linked to innovation both in the corporate and government world, in the public and private sectors. In certain industries, R&D is essential. It is what allows a company to stay on top of its competition. Without an R&D program, a company might not survive on its own and may have to rely on other ways to innovate. Of course, there are many examples for that when, for example, companies acquire innovation through mergers and acquisitions or partnerships with firms. Pharmaceuticals, semiconductor, and technology companies are the ones that generally spend the most. One of the key benefits of R&D for a company, then, beyond adding to

its bottom lines, is staying ahead of competition or having a market. Through R&D, companies can improve their existing offerings or design new products. Think of how Apple created the market for the iPad tablet, for example, a type of computer positioned somewhere between a smartphone and a laptop that basically did not exist before the Apple’s scientists designed and Steve Jobs persuaded enough people they really needed one. In summary, R&D is aimed at resolving scientific or technical uncertainty, says Barbara Koncz a tax director of PwC. “In R&D, we are looking for some novelty as well but not necessarily for patent-level novelty. We also have to see if what we are aiming to resolve is scientifically feasible, technically achievable and whether there is information available on how we achieve that,” she explains.

NEW AND IMPROVED If any of these “boxes” are checked, we can talk about R&D. Innovation is a broader term and the element of uncertainty is not necessarily there; the goal here is rather to come up with something new or improved, she says. R&D can be further divided into three categories. Basic research, usually carried out by scientists and science institutes such as the National Academy of Science, serves more theoretical scientific purposes where there is no particular aim to put that research in use. With applied or industrial research, a practical aim is defined but there is no specific product at the end of the process, though it does have some commercial relevance. Experimental development, on the other hand, is aimed at producing or improving products or processes, e.g. a prototype. Of course, there is natural connection between the three; basic research should, where possible, directly promote or support some commercially relevant research aims as well, Koncz notes. There should always be room and resources for what might seem like industrially “aimless” research, as this may well turn out useful in the long run, she adds, but motivating the basic research-focused scientific community to strengthen the cooperation with the industry would, indeed, be beneficial for increasing the R&D spending in Hungary.

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HOW DOES HUNGARY COMPARE IN R&D EXPENDITURE? How successful a country is in R&D comes down to a large extent to money. And to put it crudely, Hungary needs more to bring in more R&D projects here and to a success. By Zsófia Végh Look at the country’s effectiveness, as measured by the European Innovation Scoreboard, a tool used to assess EU member states R&D efforts, and Hungary’s position has not improved: the country’s businesses are still classified as “moderate innovators”. But the list includes a number of other aspects, and in some of these the country stands out, László Palkovics, Minister for Innovation and Technology told the Budapest Business Journal. For example, the country is very attractive for companies wishing to bring R&D activities here, he explains: “Many recent investments here are related to R&D and not manufacturing. Still, one thing is for sure: we need to spend more on innovation and R&D.” The government has decided to increase R&D support by 25% as of next year, he says. What makes this possible is that amount of available resources is increasing, and this can help Hungary compensate for another disadvantage, a lack of cooperation at European level. This is one major reason why Hungarian R&D institutes are inefficient, because they don’t cooperate at an international level, Palkovics adds. This is partly a question of money as well: if a Hungarian university doesn’t

László Ábrahám General manager NI Hungary

have the necessary equipment to cooperate with a German university, it will not be taken seriously, the minister says. Both researchers and equipment need funding.

says. An additional HUF 200 bln should be allocated by 2020 which, together with institutions winning subsidies and doing R&D will be sufficient to meet the 1.8% target by that year, he adds.

To boost R&D and catch up with the United States, the European Union will allocate the greatest fund it has yet put together – around EUR 100 billion – in its new “Horizon Europe” program, which kicks off in 2021. Hungary, clearly, doesn’t want to miss out on this opportunity either.

But that is still relatively low, and more needs to be done, the minister says. That could also be said for much of Europe, though. The EU set a 2020 goal of 3% of GDP spent on R&D for member states, although an average of 2-2.1% now looks more likely.

RISING EXPENDITURE R&D expenses as of ratio of GDP stood at 1.5% in 2018, which equals too roughly HUF 630 bln, the minister

Eurostat, the EU-wide statistical body, says that, according to its data: “After a period of slow but rising growth, gross domestic expenditure on R&D as a percentage of GDP (‘R&D intensity’)

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“Many recent investments here are related to R&D and not manufacturing. Still, one thing is for sure: we need to spend more on innovation and R&D.” in the EU stagnated at around 2.03% between 2014 and 2016. As a result, the 3% Europe 2020 target is still some distance away.” However, there is one goal where Hungary has become an overachiever. Corporate expenditure on R&D accounts for three-quarters of the overall, as opposed to the two-thirds recommended by the EU. This means the state needs to increase its expenditure. Between 2003 and 2019, innovation and R&D expenditure accounted for more or less the same. “There were other sources such as the Cohesion funds, but it is still too low,” Palkovics says. The state also has a role in supporting cooperation, not only between research institutes but also between universities and industry. This is problematic because of different priorities: companies have market and time considerations, researchers tend to work at a different pace. “Most tenders have cooperation among the list of requirements to support this,” says Palkovics. In terms of incentives offered for R&D activities, Hungary stands out, says Barbara Koncz Tax Director of PwC. NOVELTY INCENTIVES “There are a number of incentives that are not found elsewhere or have just been introduced, while we have had them for years,” she says. Hungary has, for instance, had a specific intellectual property box regime (corporate tax base deduction

items related to the income derived from the commercialization of certain IP) for some time, while France has only just introduced a scheme for IPrelated income-based benefits. Another novelty that was much welcome by the market is a 50% tax relief for social contributions paid after employees working on R&D. Most tax breaks offered for R&D decrease the tax base; however, headquarters and mother companies are usually looking at pre-tax revenues when deciding on the location of R&D projects. This why this incentive was so much appreciated, Koncz explains. The government offers cash subsidies as well, which is less common in many countries. Overall, in terms of benefits and subsidies, Hungary fares quite well. What could and should be improved is the image of the country as an R&D location. Indeed, while there are plenty multinational companies that have brought R&D activities here, there are still many others unaware of the possibilities. More marketing campaigns could help; diplomats could also have a brief, easily digestible information package available when promoting the country, Koncz says. EDUCATION AND CREATIVITY Another key to success in this field is education. Despite being resourceful, Hungary is not particularly an innovative nation, László Ábrahám, president of the Alliance for the Future Engineers (EJMSZ) and also general manager of National Instruments Hungary tells the BBJ.

The main culprit, according to Ábrahám, is education, as children are not driven to think freely. Instead, they are told what to do and learn and recite what they are taught, giving no room for creativity. Beyond education at the public sector, creative thinking and individual initiative are not welcome at all. “For example, highway toll gates aimed at enforcing EKÁER, are capable of measuring speed not only at the gate but between them. It would take a simple technology tweet to make them do so. Yet they aren’t adjusted and drivers trick authorities by slowing down at the gate. Similarly, when someone resigns, they need to take with them seven pages of paper-format documentation instead of storing it in the clouds,” Ábrahám points out. Besides underfinancing, the tendering system is also to blame for inefficiencies in the field of R&D, Ábrahám says. Tenders often offer “soft money” – financing that supports the research of something that doesn’t really serve the purposes of the industry. Ábrahám says that what he is calling for is, effectively, the introduction of a new system, a new approach and also allocating more funds for the Hungarian research ecosystem. “A young person won’t work for low wages at a university’s research institute. And without the young, we can hardly innovate,” he says. Financing is crucial. The fact that the use of funds available is quite limited is also a problem. There are abundant funds for, say, installing a solar panel on a school but there is much less for equipment procurement, he argues. See also Government Support for IT and The AI Coalition, page 18, and The Future of Scientific Research in Hungary, page 36.

Research Development

R&D IN HUNGARY: CASE STUDIES What are the benefits of performing R&D in Hungary? The Budapest Business Journal talked to three multinational companies that have long experience in the field in this country. By Zsófia Végh SIEMENS ZRT. “R&D is of the utmost importance at Siemens: the company has been historically very active in terms of R&D”, Dale A. Martin, President and CEO of Siemens Zrt. tells the BBJ. “Innovation is one of our key values that we live up to also in Hungary and it helps us to be a worldwide leader in electrification, automation and digitalization”, he adds. One of the company’s key activities is software development: evosoft Hungary (100% owned by Siemens AG) currently employs more than 1,600 software developers and is, according to no less a source than the BBJ’s Book of Lists, one of Hungary’s largest software firms. To start and succeed in R&D in Hungary, an excellent idea, entrepreneurial spirit and good timing are necessary, Dale says. Enthusiastic and committed employees are also a must and Siemens could attract many talented students from universities it is in partnership with including the Budapest University of Technology and Economics. Its most recent R&D activities started in 2014, with a team comprising just two people. In 2016, Siemens’ dedicated R&D arm, Corporate Technology, was officially established in Hungary as well and the team has grown ever since,

Dale A. Martin President and CEO Siemens Zrt.

reaching more than 100 people by this year, developing drivetrains for hybridelectric aircraft, making Siemens a trendsetter in this field. “We started with our R&D activities as our own initiative in Hungary, and the achievements quickly caught the eyes of our headquarters. They realized that the speed, pace and quality our team at with here in Hungary is exceptional, and we were tasked with more and more projects, allowing the team to grow significantly, reaching the current number of more than 100 people.” The company applied for state grants as well. It was able to secure funding for these activities, but most of the

resources came either from within Siemens Hungary or from the parent company’s Munich HQ. The company also participates in the so-called University-Industry Cooperation (FIEK) with the Budapest University of Technology and alongside other companies in order to drive forward applied research. “Our activities in electrification have reached a milestone, as Rolls-Royce, a leading OEM in the aerospace industry, will acquire our activities and take our research from the world of electrification into the world of aviation,” Martin says. The completion of the transfer will be later this year.

Research Development

Siemens’s R&D team in Hungary will in the future focus on hardware-inthe-loop simulator development for electric cars, a field in which it expects to make significant progress over the coming years. NI HUNGARY In 2001, National Instruments Hungary was established solely with the purpose of bring the end phase of manufacturing here. Eighteen years later, the number of staff linked to manufacturing is in a minority compared to engineers and other knowledge-based processes including shared services or legal issues. “All this comes down to our efforts to not only do what we were assigned with, but also come up with ways of becoming a more efficient member of the NI group,” László Ábrahám, managing director of NI Hungary tells the BBJ. “I believe we have succeeded as we now have 100 R&D staff sustaining an engineering team that is involved with a part of product design.” In 2008, NI Hungary introduced LEAN-management. As a result, its efficiency rate has grown by 15-20%, and it also simplified production and administrative procedures. It has an active university link, which provides a supply of future employees, but also means its staff give lectures. Throughout its years of operation here, the company has won billions in state funds to support its R&D activities. But what it boils down to, according to Ábrahám, is NI’s corporate culture. “We have a 100-year plan, with core values including respect, transparency and striving for improvement.” Today the company has more than 4,000 products, some of the innovations provided by NI Hungary: the company introduced lead-free glazing, for example. When replacing pick and place machines, the company

Roland Jakab Managing director Ericsson Hungary

tested all the models available in the world before selecting one. This also qualifies as innovation though it may not be scientifically acknowledged, Ábrahám says. Many companies have an R&D center here but the type of work done in these centers. What types of R&D procedure is delegated to Hungary depends, in large part, on the Hungarian subsidiaries’ management. They need to be welltrained with international experience and have expert level language skills to be able to make the case for Hungary when it comes to a decision on where to locate an R&D center. There is also a need for an excellent pool of experts, engineers who are able to deliver good quality work on time, and document it as well, Ábrahám adds. In this respect, Hungarian engineers fare well. ERICSSON Partnerships between universities and a company are very important to succeed in this field, says Roland Jakab, managing director of Ericsson Hungary. “Graduates will have a more valuable diploma if they are able to work on

industrial projects and the company can call on talented and motivated students early on,” he adds. Since the company started this activity in Hungary, it has directly invested in its partnership with universities (this includes, labs, costs of experiments, etc.). Since it was established, Ericsson Hungary has filed more than 500 patents. There were years when the company had the highest number of industrial filings; many of these were filed outside Hungary, but all were produced by authors here. Many of these patents have been quite relevant in the development of the telecommunications field, for example, 4G and 5G. It is also crucial that Hungarian developers and research teams bring R&D project to success, says Gábor Éry, CEO of Ericsson Hungary. Management and team leaders have a huge impact on this, he adds. Being aware of what the market wants is also important. To that end, Ericsson organizes regular meetups for developers and clients so that the former get acquainted with the reallife considerations of the end users and get feedback, Éry explains.

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