ICT, Innovation, and Economic Growth in Transition Economies by World Bank Russia

ICT-ENABLED INNOVATION AND ENTREPRENEURSHIP SERIES

ICT, INNOVATION, AND ECONOMIC GROWTH IN TRANSITION ECONOMIES

www.infoDev.org

ICT, INNOVATION, AND ECONOMIC GROWTH IN TRANSITION ECONOMIES

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

AN info Dev PUBLICATION PREPARED BY ECORYS Nederland B.V.in collaboration with TNO and IDEA 2007

Information for Development Program

www.infoDev.org

ICT-enabled INNOVATION AND ENTREPRENEURSHIP SERIES

ICT, INNOVATION, AND ECONOMIC GROWTH IN TRANSITION ECONOMIES

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

AN info Dev PUBLICATION PREPARED BY ECORYS Nederland B.V.in collaboration with TNO and IDEA 2007

Information for Development Program

www.infoDev.org Footer goes here

ÂŠ2007 The International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org E-mail: feedback@worldbank.org All rights reserved The findings, interpretations and conclusions expressed herein are entirely those of the author(s) and do not necessarily reflect the view of infoDev, the Donors of infoDev, the International Bank for Reconstruction and Development/The World Bank and its affiliated organizations, the Board of Executive Directors of the World Bank or the governments they represent. The World Bank cannot guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply on the part of the World Bank any judgment of the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this publication is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. The International Bank for Reconstruction and Development/The World Bank encourages dissemination of its work and will normally grant permission to reproduce portions of the work promptly. For permission to photocopy or reprint any part of this work, please send a request with complete information to infoDev Communications & Publications Department., 2121 Pennsylvania Avenue NW; Mailstop F 5P-503, Washington, D.C. 20433, USA; telephone: 202-458-4070; Internet: www.infodev.org; Email: info@infodev.org. All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, The World Bank, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2422; e-mail: pubrights@worldbank.org. Cover design by Patricia Hord Graphic Design, Inc. Typesetting by The Word Express, Inc.

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

Table of Contents

Preface

Chapter 1. Executive Summary

Chapter 2. Background and Methodology

Chapter 3. The Selection of Regions and Sectors Chapter 4. Survey Results and Analysis

ANNEXES Annex 1: EBS Methodology

Annex 2: Country Characteristics Annex 3: Regions

Annex 4: Selection Criteria for Sectors Annex 5: Selected Sectors

Annex 6: Properties of the Dataset

Annex 7: Results of the Survey â&#x20AC;&#x201C; Tables Annex 8: Company Case Studies

125

Annex 9: Electronic Business Survey (EBS) Baseline Questionnaire

131

Table of Contents

iii

iv ICT, Innovation, and Economic Growth in Transition Economies

Preface

The Information for Development Program (infoDev) has commissioned a multi-country study of information and communication technologies (ICT), innovation, and economic growth in selected transition economies. The studyâ&#x20AC;&#x2122;s particular focus is on firm-level survey data collection and analysis framed by a clear articulation of the constraints and enabling conditions at the industry and country levels. The overall objective of the study is to advance understanding of the relationship between ICT, innovation, and economic growth in transition economies. The study focuses on five countries: Estonia, Latvia, Lithuania, Poland, and Russia. It is not designed to be a comprehensive analysis of the above-mentioned issues in all sectors and all regions of these countries. Instead, it provides an in-depth survey and analysis of a reasonably representative sample of firms in several regions and/or sectors so that broader conclusions can be drawn with some degree of

confidence. The study draws conclusions about conditions and challenges common to several or all of the countries in the study. The study aims to assess the diffusion and impact of ICT at the firm level and the related policy implications. It also makes specific recommendations for promoting and supporting ICT usage to improve competitiveness and new business creation. These recommendations concern the enabling environment and point at some specific lessons learned/best practices at the firm level. The study examines both traditional and new sectors. It explores whether and under what conditions traditional sectors have been successful in harnessing ICT, and identifies new opportunities and sectors that have emerged, thanks to ICT. A consortium of three companies has carried out the study. ECORYS Nederland B.V. led the consortium with TNO and IDEA as partners.

Preface

vi ICT, Innovation, and Economic Growth in Transition Economies

Chapter 1

Executive Summary

1.1 Introduction to the Study

1.2 Why this Study?

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

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

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

Hitherto, there have been no studies that have gone beyond the narrow look at ICT utilization. Past surveys of ICT dynamics in transition countries are of what might be called the “e-readiness” variety. These surveys gather data on firm-level ICT investments and construct profiles of the technological evolution in various sectors and industries. This evolution is then tied to assumptions and estimates about use patterns and probable effects on performance and productivity. Industry-wide impacts are then produced by means of aggregations and projections based upon these assumptions and estimations. However, this approach does not sufficiently serve the purpose of analyzing the effects of ICT on the economic performance of firms, and their position in the marketplace. Nor does it provide a solid foundation for linking the ICT take-up by firms with key enablers, barriers and constraints. The present study derives its purpose from the context outlined above and aims to achieve the following:

1 For example, ‘Information Technology and the US Economy’ (2001) by D. W. Jorgenson and ‘ICT Investments and Growth Accounts for the European Union 1980–2000’ (2003) by Van Ark et al. 2 http://www.oecd.org/document/21/0,3343,en_2649_33757_2539157_ 1_1_1_1,00.html

Executive Summary

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

1.3 Main Characteristics of the Present Study This study addresses the need for collecting more revealing data on ICT utilization and its impact at the firm level, the need for more rigorous analysis of how ICT investment and use affects innovation, and the need for better understanding of how this complex translates into productivity increases and enhanced competitiveness. Accordingly, the main research questions of the study are as follows: 1. 2. 3.

What is the contribution of ICT utilization to the economic performance of firms? What is the contribution of ICT utilization to innovation in firms? What are the enablers, barriers, and constraints for ICT utilization at firm level in transition countries?

Throughout the study we draw comparisons with findings from similar studies conducted for Western Europe and the United States, to ascertain whether there are any particular characteristics of ICT utilization and its impacts in transition countries. In addition to providing reliable data and analysis of ICT utilization and its effects, the study identifies a set of recommendations that can guide decision-making at firm and government levels.

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

1.5 Geographic Coverage, Selection of Regions and Sectors The countries included in this study, as specified by infoDev, are Estonia, Latvia, Lithuania, Poland, and Russia. These countries have many things in common because they have all been subject to significant transformations associated with the transition process and their accession to the EU (with the exception of Russia). As such, they are of interest to a study that aims to analyze the role of ICT and innovation for economic growth within the context of transition. However, the countries are also different in many ways. For example, Estonia is at the forefront of ICT and innovation among the transition countries, while Russia has yet to establish

2 ICT, Innovation, and Economic Growth in Transition Economies

a solid ICT infrastructure that can serve as a foundation for economic growth. Accordingly, the selection of countries offers the opportunity to study the role of ICT and innovation in different settings and contexts, albeit under the same processes of change associated with transition economies. In order to provide a more focused and in-depth study, the area of analysis in Poland and Russia was narrowed further to a selection of regions. These regions represent areas of significant economic importance to the two countries, and were primarily selected for that reason. A set of key sectors was selected on the basis of the following criteria: N

Growth potential and/or strategic importance for economic development of the country concerned. Potential for cross-country comparisons and extrapolation of findings to other sectors. ICT and innovation content.

The companies at the forefront of ICT usage in selected transition economies of Central and Eastern Europe were the target groups for the study. In total, 620 firms participated in the survey.

1.6 Key Findings The findings emerging from this study reveal a number of issues surrounding the development, application, and utilization of ICT and its implications for innovation and economic growth. Below, we outline the key findings and messages emanating from our study. This is followed by more in-depth answers to the key research questions of the study. N

ICT plays an important role in facilitating the modernization and improved economic performance of firms in transition countries. ICT in itself is often insufficient for improving economic performance. Rather, a range of complementary factors are required, e.g., organizational change and new marketing strategies. ICT use among firms in transition countries is primarily geared towards improved production and transaction processes, e.g., organizational change and improved marketing, rather than the development of new or improved products.

There are significant sectoral differences in the role and scope of ICT use. The greater the information intensity of production and transaction processes, the greater the scope for applying and using ICT. Promoting the application and use of ICT for improved economic performance requires policies tailored to the individual sectors of the economy.

1.7 What is the Contribution of ICT to the Economic Performance of Firms? 1.7.1 ICT Usage

The study reveals that ICT is a technology of growing importance in all countries surveyed. Access to the Internet is almost universal among the firms surveyed (99 percent of all firms). About 98 percent of all enterprises used e-mail and 44 percent used an Intranet provision. Local area networks are also rather popular (74 percent). However, the nature of the access and its use are very different among the firms, as summarized in the box below. It is mainly the less advanced ICT that is quickly spread in the region, rather than the latest generations of it. The latter is very much dependent on the technical infrastructure available within the individual countries, which was found to vary greatly in the sample. While Estonia is moving fast towards broadband connections, Latvia, Poland, and Russia are lagging behind. Nevertheless, perhaps contrary to expectations, companies do not find the technical infrastructure (defined as network reliability, network flexibility, and range of available services or geographic coverage) disturbing and hampering their activities. About 70 percent of the companies state that telecommunications prices do not inhibit the use of ICT. Moreover, in transition economies, companies use ICT to serve customers and markets. About half of the companies in the survey place a high priority on two interrelated business areas: purchasing and procurement, and marketing and sales. Firms actively use computer networks for these activities and almost all of them are using the Internet to buy and sell goods and services. The Internet is a common means for servicing customers, providing them with information on products and services,

Executive Summary

contact facilities and often after-sales support. Market/customer related activities are automated within half of the firms. This seems to be the primary driving force for automation and ICT use in other business areas such as procurement and purchasing, finance (especially invoicing), delivery, and stock control.

1.7.2 ICT Utilization and Economic Performance

It is clear from this study that ICT utilization is already having an impact on economic performance among firms in transition countries. This is reflected in the findings on the impact of ICT on economic performance (see Table 1.1 and box below), where it is evident that ICT is a substantial contributor to productivity, profitability, and growth. Moreover, the fact that 30 percent of the firms say that ICT usage itself generates increases in ICT investment indicates that engagement in ICT usage is to a certain extent a self-sustaining process that requires cumulative investment. However, while the use of ICT is resulting in improved economic performance of firms, it is important to note that ICT utilization does not automatically translate into economic impacts, but require a range of complementary factors. Hence, one of the most notable findings relates to the factors shaping ICT utilization and impact on economic performance. Figure 1.1 below depicts the factors that contribute to the positive impact of ICT,

BOX 1.1. Findings on Use of Internet Access to the Internet is becoming increasingly differentiated, with wide variations in type and intensity. While almost all companies surveyed had made use of the Internet during the last three years, the means of connecting to the Internet differed greatly. For example, almost 22 percent of the surveyed firms are making use of fast connections with download speeds of more than 2 Mbps, while almost 18 percent of the firms are still using an analogue connection. Selling via the Internet is less popular among firms than buying. Hence, more than 47 percent of firms placed orders, while less than 40 percent received and processed orders using the Internet. Purchasing and Procurement and Marketing and Sales are the most popular uses of computer networks by firms, with approximately half of the companies in the study placing a high priority on the use of ICT in these business areas.

and ICTâ&#x20AC;&#x2122;s relative importance. Figure 1.1 shows the aggregate number of times each of the factors was mentioned as a positive contributing factor. It is evident that a new marketing strategy, capital investment in equipment, and organizational change are the three factors that are most critical for successfully translating the adoption and utilization of ICT into positive economic outcomes. Moreover, different factors affect different dimensions of the economic performance of firms.

TABLE 1.1. ICT and Economic Performance of Firms Percent of firms with reported increase

ICT contribution (percent)

ICT in combination with other factors (percent)

Labor productivity

50.4

13.1

47.0

Operational costs

41.1

5.1

28.1

Revenue from sales

55.2

7.0

43.4

Profitability

44.0

10.5

48.2

Capital investment in innovation

51.5

16.1

57.5

ICT investment

45.4

30.2

46.0

Competition in price

57.1

5.3

29.1

Competition in quality

63.8

10.0

39.5

18.6

15.7

51.7

Performance indicators

Percent of firms with reported decrease Operational costs

4 ICT, Innovation, and Economic Growth in Transition Economies

Figure 1.1. Factors Reinforcing the Positive Effect of ICT in Companies new marketing strategy capital investment in equipment organisational change own specification not applicable don't know training of staff changes in salary structure refusal 0

100

200

Accordingly, a new marketing strategy is particularly relevant for translating the introduction and use of ICT into the improvement of profitability. This is mainly because the use of ICT together with new marketing initiatives enables firms to strengthen their position in existing markets, or enter new markets, and thereby improve profitability. ICT and investment in equipment is particularly important for lowering operational costs and increasing revenues. This is perhaps not surprising, as ICT is said to allow for new and more efficient production processes, which in turn require investment in new equipment. The impact of ICT on production processes thus does not primarily arise from ICT in itself. Rather, ICT is a means by which new and more efficient production processes can be achieved when combined with new equipment. Organizational change is particularly important for achieving greater labor productivity, lower operational costs, and higher revenues. The close correlation between these dimensions of improved economic performance from ICT and organizational change identified in this study corresponds well with findings from other studies on the impact of ICT on firm performance.3 It has thus often been argued that the effective utilization of ICT requires more horizontal organizational structures with greater levels of responsibility for the overall

300

400

500

600

coordination of work placed on the individual employee. It also requires the implementation of clearer functional descriptions of tasks. All this often requires a complete re-shaping of the organizational structure of the firm where all aspects of the organizational development are consequently given attention. This view is further supported by the case studies conducted as part of this project, which highlighted the importance of changes in organizational structures and ensuring that every employee has a sense of responsibility for his or her work. These findings also have to be seen in the light of the wider transition process that shapes the context in which the firms operate. Hence, it is important to note that the firms are going through a period of rapid modernization, emphasizing improved production processes and flexible organizations that can address the needs of the market, as part of transformations of the socio-economic fabric to a market-driven economy. This may in part explain why ICT is combined with other factors, such as new marketing strategies and organizational change, for improved economic performance. In addition, it is worth noting that the size of the firm appears to matter when ICT and performance 3 Room, G, Dencik, J. et al (2004), Conceptualisation and Analysis of the New Information Economy

Executive Summary

inidcators are looked at. For productivity and profitability the attribution of positive effect to ICT (mainly or along with other factors) ranges between 67 percent and 61 percent for large firms and between 55 percent and 53 percentfor micro and small enterprises. Micro and small enterprises score relatively better for revenue increases than for cost reductions. For revenue increases, the difference between micro and small and large enterprises is 18 percent while for cost reduction it is13 percent.

1.7.3 Sectoral Differences in ICT Use and Economic Impacts

The introduction, use, and impact of ICT is not only determined by the characteristics of the individual firm, but also by the nature of the goods or services being produced and sold. More specifically, there appears to be a strong correlation between the â&#x20AC;&#x153;information intensityâ&#x20AC;? of the product and the capacity of firms to use ICT to increase performance. This involves both product characteristics as well as transaction characteristics. In other words, it is not the nature of the tangible or intangible product that determines the extent to which ICT can be used to improve performance, but the extent to which procurement, production, and sales processes are information rich or information poor. The findings specific to particular sectors on ICT and economic performance are summarized and presented in Table 1.2 below.

TABLE 1.2. Sector Related Key Findings on ICT and Economic Performance Sector

Contribution of ICT to economic performance

Finance

High

Food Processing

Low

Furniture

Low

Heavy Machinery

High

ICT services

High

Retail & wholesale

Medium

1.7.4 Country Differences in ICT and Economic Performance

While it is not the aim of this project to conduct a comprehensive comparative analysis of the five countries included in the study, the data set allows us to identify some tentative findings pertaining to ICT use and its impacts in individual countries. However, these findings should be interpreted with great caution. Our regional samples have been constituted to be representative of the geographical area under scrutiny. Sectors were chosen that are important for the economies of those regions. As a consequence, the industrial composition of our sample varies considerably per country, leaving little scope for rigorous comparative analysis. It may seem paradoxical that samples that are more or less representative of regional economies cannot be compared but, as is demonstrated in this study, the rate of adoption and potential effects of ICT usage on firm performance vary significantly per sector, and differences in the sectoral composition of the economy in the different regions may therefore determine regional outcomes. Proof of this was obtained by comparing the different regional samples. Many differences were found, but most of them could not be explained without taking into account the incidental influence on a given regional sample of non-comparable sectors. The proper way to infer regional or country differences is thus to operate by triangulation, i.e. to find out about residual differences by comparing identical sectors or industries in different countries. Unfortunately, when applied with rigour this approach yields only a relatively small sample of three sectors (food, ICT and retail) for three countries (Estonia, Poland and Russia). At a general level, when comparing productivity effects, a ranking is obtained in which Estonia holds the first place, followed by Russia and Poland, but with only marginal differences between the latter two. Note that the ranking is not static, but is an indication of the dynamism displayed by the industry in the last three years (2002â&#x20AC;&#x201C;2005). It may well be, for example, that the rate of adoption of ICT in a given country is higher in absolute terms, but the pace of adoption has recently been higher in another country. Among the firms that reported an increase in productivity, Russia and Estonia both show a

6 ICT, Innovation, and Economic Growth in Transition Economies

TABLE 1.3. Country Related Key Findings on ICT and Economic Performance Percent of firms with reported increase in labor productivity*

Percent of firms with reported reduction in operational costs*

Percent of firms with reported increase in revenues*

Percent of firms with reported increase in profitability*

Estonia

58 (64)

18 (67)

58 (45)

40 (56)

Poland

38 (42)

15 (42)

34 (21)

28 (18)

Russia

41 (76)

24 (72)

63 (56)

43 (80)

* The figure in brackets is the percentage of firms who reported increase/decrease and who attributed this change mainly to ICT or ICT and other factors.

significant contribution from ICT, while the role of ICT in generating productivity gains is much more limited in Poland4. Similarly, the role of ICT in delivering cost reductions, revenue increases, and improved profitability is far more limited in Poland compared to Estonia and Russia. It is thus evident that the overall role and impact of ICT in the transition countries differs significantly between countries. This should perhaps not surprise us, as the diverse overall socio-economic and political contexts of the different countries will create varied environments for ICT adoption and utilisation. We explore these issues further in a subsequent section of the study (see section on Barriers and enablers) In the Box below, we summarize our findings and answers to the first research question of the study.

1.8 What is the Contribution of ICT to Innovation among Firms? In addition to identifying the immediate impact of ICT on the economic performance of firms, the study also ascertains how firms use ICT to improve their future performance, namely through innovation. The findings of the study suggest that ICT in itself is only a minor facilitator of innovation; it only becomes powerful in combination with a number of other complementary factors. In Figure1.2 below, the factors that contribute to innovation and their 4 It should be noted that the starting point of the countries are also different, which may explain some of the differences in the results.

BOX 1.2. Findings on Impact of ICT on Firmâ&#x20AC;&#x2122;s Performance N As a contributing factor to productivity growth, the utilization of ICT must be looked at in the context of a more generic set of measures

N N N

and efforts to increase productivity. Hence, the productivity increase is caused by a combination of factors, with the introduction and use of ICT being only one of them (see above). The contribution of ICT to productivity is both through reductions in operational costs and increases in revenue. However, neither of these is generally achieved by ICT in isolation, but only by integrating ICT into wider efforts to reduce costs or increase revenue, such as investment in equipment, organizational change and training of staff. As with cost reductions and revenue increases, ICT is also seen as contributing to the overall profitability of firms. However, once again, this is rarely achieved by ICT in isolation. Rather, ICT needs to be complemented with other factors, notably a new marketing strategy. ICT is an important contributor to investment in innovation and efforts of firms to modernize, with ICT taking up a significant proportion of innovation investment. ICT is mainly contributing to firmsâ&#x20AC;&#x2122; efforts to compete on quality rather than price. This finding should be placed in the wider context of ICT being a decisive factor in generating efficiency gains, but is not generally considered a distinguishing factor in effectively attaining a competitive advantage over competitors that are equally investing in ICT. Size matters, with larger firms being more able to utilize ICT to generate performance improvements. Accordingly, larger firms consistently performed better on the selected indicators than medium, small, and micro enterprises. The potential effect of ICT on the firmâ&#x20AC;&#x2122;s performance will be determined by the information intensity of the product, which involves both product characteristics and transaction characteristics. The role and impact of ICT differ significantly between transition countries.

Executive Summary

Figure 1.2. Factors Contributing to Innovation changes in salary structure training of staff not applicable refusal don't know own specification capital investment in equipment organisational change new marketing strategy 0

200

400

relative importance are depicted. The chart shows the aggregate number of times each of the factors was mentioned as a positive contributing factor. Furthermore, the study found that the role of ICT is different for different types of innovation. In most of the sectors surveyed in the countries, ICT contributes more to process innovation than to product and relational innovation. The use of ICT is thus mainly for changes in production processes within the organization, rather than the development of new products or the furthering of relationships especially with suppliers. In a comparable study of Western European firms5, it was found that relatively fewer firms report decreasing costs as a result of ICT. Rather, the contribution of ICT to product innovation was higher in the Western European sample. Even more significant was the contribution of ICT to relational innovation, in particular the contribution of ICT to increasing customer loyalty and consolidating preferential relations with suppliers. These effects are less outspoken in our study of Eastern European firms. The comparison confirms the picture of the Eastern European sample as composed of firms that are rapidly modernizing their organizational structures. The effect of ICT use on internal organization is likely to be more marginal in firms that already have a highly streamlined internal organization and are already well adapted to the market economy. It is also easier for firms that are

600

800

1,000

1,200

1,400

modernizing their structure to integrate ICT in the workings of their organizations. In that sense, Eastern European firms may benefit from being “followers.” This would include benefits from learning experiences and investments in Western European economies. However, it also leads to the conclusion that ICT usage is comparatively less mature. First, reaping the full benefits of ICT usage also requires streamlining external and internal transaction processes. Our findings indicate that Eastern European firms find it comparatively more difficult to enter that stage. Second, several forms of ICT-driven product innovations, particularly for intangible products, are conditional upon, or will only significantly pay off when external and internal processes are mutually integrated. Our findings indicate that many, if not most, Eastern European companies have not yet reached that stage. However, in time they may benefit from being “second” here as well. The more detailed findings of the study on ICT and innovation are summarized in Table 1.2 below.

1.8.1 Sectoral Differences in ICT Use and Innovation

As with ICT and economic performance of firms, there appear to be sectoral differences in the role of 5 Verhoest, P., Huverneers, C. & Hawkins, R. (#00#). ‘Economic Impacts of E-Business’, in P. Cunningham & M. Cunningham (eds.) eAdoption and the Knowledge Economy: Issues, Applications, Case Studies. Amsterdam: IOS Press, ###-##0.

8 ICT, Innovation, and Economic Growth in Transition Economies

TABLE 1.4. Key Findings of the Study Related to ICT and Innovation Type of innovation

Findings

Process innovation

A majority of firms surveyed have recently managed to improve the speed and reliability of business processes (68 percent). There is a positive relationship between ICT utilization, improved speed, and reliability of business processes and a reduction of business process costs. (38 percent). Key factors of importance for process innovation, beyond ICT, are organizational change, a new marketing strategy and capital investment in equipment. The main processes improved through process innovation are automation, information management, and wider processes of organizational change.

Product innovation

The companies surveyed said the development of new products and services played an important role. Product innovation has contributed significantly to revenue increases in the last three years. The contribution of ICT to product innovation is very limited. New marketing strategies, investment in equipment, training of staff, and organizational change are key to product innovation. The main outcomes of product innovation are the customization of products and new bundled offerings

Relational innovation

Relational innovation is closely linked to product and process innovation, and explains the role of new marketing strategies in facilitating innovation. ICT plays only a minor role in facilitating relational innovation with customers, but is more important for the relationships with suppliers. Key factors for relational innovation are, perhaps unsurprisingly, new marketing strategies, organizational change, and capital investment in equipment. The main outcomes of relational innovation towards customers are changes in sales value per customer, a greater share of retained customers, and changes in the sales value per retained customer. The main outcomes of relational innovation towards suppliers are changes in the number of suppliers; changes in value of purchases per supplier; changes in the number of repeat suppliers; and the value of purchases by repeat suppliers.

ICT for innovation. Again, the degree of information intensity correlates positively with the impact of ICT on innovation. In table 1.4 below, we summarize the impact of ICT on the different types of innovation for the respective sectors.

1.9 What are the Enablers, Barriers, and Constraints for ICT Utilization at Firm Level in Transition Countries? While the emphasis of the study has been on the role of ICT within firms, we have also explored the role of factors external to the firm itself that

influence ICT use and the impact of the technology on innovation and economic growth. More specifically, the study analyzed to what extent the existing policy and regulatory environments facilitate or inhibit the take-up and use of ICT among firms. A central finding from these efforts is that there are significant policy areas in need of improvement, if firms in the countries included in the study are to benefit fully from the opportunities offered by ICT. Hence, inadequate education and training, and inappropriate taxation and fiscal policy were most negatively looked upon. The provision of online government services was also considered an area that needed improvement. In contrast, commercial law, intellectual property, and security policy are

Executive Summary

TABLE 1.5. Sector-related Key Findings on ICT and Innovation Sector

Contribution of ICT to process innovation

Contribution of ICT to product innovation

Contribution of ICT to relational innovation

Finance

High

Medium

Food Processing

Low

Furniture

Medium

Heavy Machinery

High

ICT services

High

Retail & wholesale

Medium

generally evaluated relatively positively, while telecommunication prices and quality of service are most positively looked upon. In interpreting these findings, it should also be taken into account that even though they have been positively evaluated on average, many of these factors have also been obstacles for firms to engage in or to intensify ICT usage. Surmountable obstacles for proactive players may be insurmountable for the lesser players. Our findings therefore indicate an order of priority (established by experienced users) but do not allow conclusions about levels of satisfaction in general. In addition to these general findings on enabling and inhibiting policy and regulatory environments, the study also identifies results pertaining to the specific circumstances of the countries. Hence, it is important to emphasize that the five countries included in the study face a range of very different policy challenges that requires different approaches and prioritization. For example, in Estonia the introduction of appropriate legislative, regulatory, and policy initiatives has played a significant positive role in the development of its information society. Indeed, all the Baltic States and Poland have introduced a range of reforms as part of their accession to the EU, which has acted as a catalyst for improved take-up and use of ICT. However, Estonia has by far been the quickest in adapting existing legislative and regulatory frameworks, resulting in a more advanced position with respect to ICT adoption and use compared to the other four countries included in the study.

Hence, Russia has been slower in taking steps to establish a policy and regulatory environment conducive to greater ICT adoption and utilization by firms. For example, weak enforcement of intellectual property rights and regulation has been a major inhibitor for the development of the ICT market. In the 1990s, it was common for most of Russian businesses to use pirated copies of the Windows Operating System. While the piracy rate is falling, the Business Software Alliance reported that the rate was still 87 percent in 2002.6 More recently, however, more significant efforts have been made to improve ICT dissemination and use in Russia. Notably, the ‘Electronic Russia 2002– 2010’ program was initiated in January 2002 “to increase the efficiency of the economy both in the public and private sectors; make wider use of information technology in government departments; and transfer much of the state’s work online.” In part motivated by the objective of gaining WTO membership, the program targets four key areas of ICT: regulatory environment and institutional framework; Internet infrastructure; e-government, and e-education. The policy and regulatory environment for ICT adoption and use is thus expected to improve significantly in Russia in the near future. However, the current weaknesses manifest themselves in the relatively low productivity impact of ICT identified in this study.

http://www.american.edu/initeb/sw5840a/analysis.htm

10 ICT, Innovation, and Economic Growth in Transition Economies

The different issues emerging for the five countries are summarized in Table 1.6. In sum, it is evident from the findings outlined above that ICT is playing an increasingly important role in shaping economic progress in the transition countries. For these processes of transformation to continue and to ensure that the changes translate into economic growth, it is important that there is an appropriate regulatory and policy environment. Indeed, the transformations associated with the introduction of ICT and innovative activity is by no means an automatic process, but requires an appropriate facilitative environment shaped by appropriate policies and regulations.

1.10 Conclusions The point of departure for this project was the increasing awareness of the role of ICT in facilitating economic growth. Accordingly, the central objective of this study has been to place the debate about ICT and economic growth within a transition context. In other words, this study has explored whether and how ICT is being used by firms in transition countries and the impact of introducing ICT on innovation and economic growth. Our study has adopted a forward-looking perspective. Methodologically, this was achieved by two means. Firstly, instead of investigating the status

TABLE 1.6. Country-related Key Findings of the Study Country

Key findings

Estonia

Estonia is at the forefront with respect to ICT among the five countries. The participants in the survey generally showed a high level of satisfaction with the policy and regulatory environment. Key areas of concern are the lack of sufficient government training programs and somewhat inadequate protection of intellectual property rights and public financial support for research and development (R&D), diffusion, or uptake.

Latvia

Latvia has a fast growing ICT sector, but is generally worse placed in terms of ICT infrastructure compared to its Northern Baltic neighbor. The participants in the survey showed only moderate satisfaction with the policy and regulatory environment. Key areas of concern are the insufficient public financial support for R&D and the inadequate government training programs. In addition, Latvia needs more public and private awareness raising activities and an improved education system for ICT usage.

Lithuania

Lithuania has had greater difficulties than Estonia or Latvia with respect to the establishment of an ICT infrastructure. Participants in the survey showed a reasonable level of satisfaction with the policy and regulatory environment. The key areas of concern are the inadequate government training programs and the insufficient public financial support for R&D, diffusion, or uptake.

Poland

The overall infrastructure for ICT and innovation in Poland is relatively poor. The satisfaction with the policy and regulatory environment was considered moderate to poor. The key areas of concern are inappropriate taxation measures, and public financial support for R&D, diffusion, or uptake that act as critical barriers for further ICT development and innovation. In addition, the government training programs are viewed as inadequate.

Russia

Russia has a comparatively weak ICT and innovation infrastructure, and according to some assessments, the development of ICT in Russia is lagging behind that of the leading Western countries by some 5â&#x20AC;&#x201C;10 years. The satisfaction with the policy and regulatory environment is generally poor. The key areas of concern are the inappropriate taxation measures, and lack of public financial support for R&D, diffusion, or uptake. In addition, the inadequate commercial law is a cause for concern, while public and private awareness-raising measures and government training programs will also need to be improved.

Executive Summary

quo, we adopted a dynamic approach by asking firms to report ongoing trends. Secondly, we concentrated our investigation on proactive firms on the assumption that the conduct and results obtained by these firms are indicative of more generic future evolutions. The findings of this study suggest that ICT is already playing a significant role in the transition economies, with ensuing economic benefits. However, it is also evident that the introduction of new technologies must be accompanied by a range of complementing factors for ICT to be effectively utilized and to contribute to productivity gains and economic growth. In particular, firms must develop appropriate and new marketing strategies, invest in equipment, and undertake processes of organizational change. This raises a critical question of whether the reason for some firms having yet to experience economic benefits from ICT lie with their failure to undertake the complementary efforts, or if it is due to some limitations inherent in ICT itself. Sector differences play an important role in understanding the different degrees of ICT utilization and the capacities of firms to use it to improve performance and innovative activity. Some characteristics may be specific to a given sector, but most can be captured under more generic categories. They relate to the information intensity of a product (service or good) and associated transactions (inter- and intrafirm). As is argued and demonstrated, the informational nature of the product is an important variable because it determines the extent to which production can be ICT supported or even entirely ICT based, as well as the extent to which inter- and intrafirm transactions can be entirely performed electronically. However, on the basis of our observations, four additional important characteristics can be specified: product complexity, product standardization, frequency of transactions, and amount of transactions. Here is a brief explanation of each: N

Complex products require more information processing than simple products. This very complexity may form an obstacle to implementing ICT solutions, but the potential for performance improvements through informatization is greater for complex than for simple products. Standardized products require less information handling than products that are produced on a

one-off basis, which require additional information handling before the actual production process can be started. The obvious example of this is product customisation. Frequent transactions will evidently increase the potential for cost reductions through ICT usage compared to occasional transactions, and increase economies of scale. Finally, the amount of transactions equally determines whether transaction costs can be reduced through scale effects. Mass transactions will yield more cost reductions than dedicated ones.

The above characteristics may or may not occur simultaneously but will tend to be mutually reinforcing when they do. This is illustrated by the charts below that can mentally be superimposed and rotated to make characteristics coincide. The potential for using ICT to increase economic performance is obtained by adding up pluses (+, ++, +++). It has been shown that wider socio-economic factors in general, and the regulatory and policy context in particular, have a significant impact on the extent to which firms can and will make use of ICT as a means for improving their competitiveness. This is, for example, evident from the significant differences in economic impact of ICT tentatively identified as part of this study. Countries that have established an appropriate policy and regulatory environment thus appear to be better placed to exploit the opportunities offered by ICT for innovation and economic growth. This is a particular challenge for transition countries undergoing significant changes in their legal and regulatory systems. An extensive analysis of the role of the policy and regulatory environment in shaping ICT use and its impact on innovation and economic growth has been beyond the scope of this study, but it is evident that this is an area in need of further research. Accordingly, the findings of this study are as interesting for the questions it raises, as for the answers it provides. With regard to ICT and innovation, this study has found that ICT utilization has substantial effects on process innovation, a moderate effect on product innovation, and only a limited effect on relational innovation. These findings are in stark

12 ICT, Innovation, and Economic Growth in Transition Economies

Complex Product + Tangible Standardised Product

++ Tangible

++ Intangible

+++ Intangible

Intangible +

Intangible ++

Tangible

Frequent Transaction + Tangible One-off Product

+ Tangible

Simple Product

contrast to recent findings from Belgium, where the contribution of ICT was comparatively greater for product innovation and less important for process innovation. Moreover, the Belgian study found a significant contribution of ICT to relational innovation, whereas this was negligible in our study, indicating that there may be differences in the use of ICT between Western and Eastern Europe. In particular, it also indicates that ICT usage is comparatively less mature in Eastern Europe. First, reaping the full benefits of ICT usage requires streamlining external and internal transaction processes. Our findings suggest that Eastern European firms find it comparatively more difficult to enter that stage. Second, several forms of ICTdriven product innovation, particularly for intangible products, are conditional upon, or will only significantly pay-off when external and internal processes are mutually integrated. Again, our findings suggest that most Eastern European firms have yet to reach that stage. Moreover, the study has found that, for the transition countries to successfully exploit the full potential of ICT, there are still, possibly insurmountable, barriers to be overcome. Indeed, the type of industrial transformation these regions are going trough does not mean that these economies are entering the age of the so-called knowledge economy, and this even assuming that firms are effectively catching up in terms of ICT adoption and intensity of usage. Firstly, our sample, which is representative of the economic fabric of the regions observed, contains a majority of low-value added and labor intensive sectors. Secondly, in terms of

Dedicated Transaction

++ Tangible

Intangible

Intangible ++

Tangible

Mass Transaction

+ Tangible

Simple Product

ICT usage, observed effects mainly concern process innovation and much less product innovation. By contrast, the Western European economies are concentrating their efforts on high-value added activities and our survey results suggest that they are better able to use ICT for product innovation. In this way these economies are likely to be able to maintain their competitive edge for the foreseeable future. We are thus witnessing two types of industrial transformation, which in geo-economic terms may lead to the emergence of different tiers of the knowledge economy. One could view such an outcome as undesirable in so far as it reflects different levels of progress towards a single technologically determined knowledge economy. If so, the failure of transition countries to use ICT for product innovation may be a serious impediment for future growth and the ability to catch up with Western Europe and other OECD countries. Alternatively, one could view the findings of this study as suggesting that the application and use of ICT does not lead to a single technologically determined knowledge economy. Rather, existing differences in socio-economic and institutional context also become manifest in the manner in which the new technologies are utilized, with the introduction and use of ICT resulting in a diverse range of knowledge economies. Such an outcome can be seen as a result of the mechanisms of comparative advantage, with ICT being used as a means to advance the respective comparative strengths of each country. As such, the

Executive Summary

emergence of different uses and impacts of ICT is not only to be expected but also desirable. The ensuing policy implications from such conclusions pertain mainly to the need for tailoring policies to the circumstances of each individual country—there is no one-size- fits-all policy. From a policymaking perspective, it is thus necessary to identify how ICT fits within the overall socioeconomic fabric and the sectors relevant for the country’s comparative advantage, rather than how the socio-economic fabric needs dramatic restructuring in order to realize some pre-conceived notion of an optimal and uniform knowledge economy. The emphasis should therefore be on how ICT can be used to increase value added and improve performance within the prevailing socio-economic context, and thus explore opportunities for using ICT as a vehicle for moving up the value chain within existing sectors. This, no doubt, makes it much harder to design and formulate appropriate policies and benchmark progress in the era of the knowledge economy, and represents a critical methodological and policymaking challenge that will need to be addressed. Notwithstanding such differences between countries, it is important to emphasize that the findings of this study have also highlighted a range of common problems facing transition countries. More specifically, an appropriate policy and regulatory environment is critical for companies to begin using ICT for competitive advantages. Irrespective of the nature of the use of ICT, it is thus evident that there has to be a suitable policy and regulatory environment in order to provide firms with an incentive to use ICT to improve their competitiveness. Moreover, it is important to stress that differences in wider institutional and socio-economic context do not mean that there are no opportunities for countries to learn from each other’s experiences and engage in active policy learning. Rather, such policy learning has to take account of the different contexts in which the policies are implemented. Finally, it is important to note that the activities and processes of the emerging knowledge economy (or economies) are increasingly taking place across a global terrain. From this observation it does not necessarily follow that national policymakers are therefore powerless. On the contrary, the more the

world becomes a single market place, the more significant it may become that the actions of national authorities provide a supportive regulatory and policy regime.

1.11 Policy Recommendations In light of the above findings and conclusions, a set of recommendations can be outlined. We first explore some general policy implications and then provide a summary of the recommendations that arise from this study in tabular form. This is followed by a more elaborate discussion of each of the recommendations, coupled with good practice examples. Our data shows that generic measures with and indirect effect on businesses’ performance such as telecommunication regulation, education, etc. make a difference (see our findings on the Baltic States). The data also show a direct relation between investment levels in ICT and performance increases (see our findings on the differences in average performance increases in Russia and Poland). Such investments may be enhanced by generic measures such as competition law and taxation measures. With regard to investment, however, our data also suggests that policies should take into account sectoral variations. Indeed, the effect of ICT investment may vary per sector and per industry (some sectors will benefit more than others). Moreover, within a give sector or industry, investment will yield more or less results depending on the application area (business processes that benefit the most from ICT in terms of performance vary). Policies can be tailored for this by taking sector specificities into account in policies that can be designed to have more direct effects on specific industries, such as science and technology and support to innovation. Our findings suggest that, given public financial resources (tax revenue) such policies can be inspired by two types of choices. First, should industries that are of strategic importance to a country receive preferential treatment? Second, given the nature of the sectors, what kind of application areas are likely to yield the most effect and should therefore be targeted by innovation and ICT programs?

14 ICT, Innovation, and Economic Growth in Transition Economies

What

Why

Examples of activities

Encouraging greater adoption and use of ICT in the private sector

Enhances productivity and profitability

Promote good practice examples, improve tax and fiscal incentives, improve education and training systems (see below), improve public support systems.

Encouraging greater adoption of ICT in the public sector

Creates markets

Creates network effects

Demonstration effects Encourages take up and use of technologies and applications

Promoting Internet security and trust

Builds familiarity and trust

RTD on organizational change, introducing key e-public services, e-identity authentication, promotion of Open Source Software, establish understanding of future demand patterns, regulation to create a market for supporting technologies, skills for the e-public sector. Civil and criminal framework, development of mechanisms for criminal enforcement and civil liability (including forensics), trust e-marks and Web seals, more actions on spam, stimulate e-identity standardization, RTD on e-identities.

Direct benefits in public sector Builds familiarity and trust Increases propensity to adopt applications or use technologies Creates markets

Supporting research and innovation

Promotes technological leadership

Strengthening intellectual property rights and commercial law. Support R&D investment. Support networks between science and enterprise. Improve tax and fiscal incentives for R&D. Ensure the engagement of SMEs in RTD. Demand-side regulation for deployment of new technologies.

Supports the development of assisting technologies Overcomes technological constraints

Strengthening competition

Removes constraints on rolling out new applications

Improve competition in telecom markets - address issues such as roaming fees and number portability, tackling issues in relation to VoIP, RFID, spectrum allocation and intellectual property rights.

Increases competition and innovation Underpinning developments in skills and the labor market

Provides the skills to adopt and use new technologies Encourages implementation of organizational changes to complement technological opportunities

In many cases it will not be possible to answer these kinds of questions on a nationwide scale due to the existence of regional clusters of economic activity. But this observation actually reverts to saying that sectoral differences matter to industrial policies. The more concrete recommendations that follow should be read with this in mind. Accordingly, while the recommendations are of a fairly general nature, their implementation requires consideration of how they are best tailored to sectoral differences.

1.11.1 Encouraging Greater Take Up and Utilization of ICT in the Private Sector

Fund best practice projects in use of the Internet as a pedagogical tool, promote multi-stakeholder partnerships for high-level ICT skills to identify a common set of core skills as a reference for national programs; prioritize the promotion of ICT-related management skills through specific training actions to develop e-business; ensure skills development and ICT-awareness are integrated into employment policies.

are still significant unexploited opportunities. A high priority for governments in the transition countries should therefore be the further adoption and utilization of ICT among companies. This will involve highlighting the benefits to companies of using the new technologies and promote good practice for introducing and utilizing ICT within organizations. In addition, policymakers must ensure that the tax and fiscal system does not discourage investment in ICT products. This includes addressing issues such as the types of goods included as investment (e.g. Software) and their deductibility and depreciation rates. It can also involve tax credits for investments by firms in ICT skills for employees.

While ICT is already making its mark on the economic fabric in the transition economies, there

Executive Summary

1.11.2 Encouraging Greater Adoption of ICT in the Public Sector

The public sector has a critical role to play in the development of a wider ICT infrastructure within the transition countries. The more public services are available on-line, the greater the incentives are for private enterprises and individuals to adopt the new technologies. Accordingly, the use of ICT for the provision of public services (e.g. taxation and registration) can lead to significant efficiency gains from ICT to private enterprises. Indeed, the more ‘networked’ the society and economy becomes, the more gains can accrue from the new technologies (as noted by Metcalfe’s law). Furthermore, the public sector can act as an example to the private sector on how to introduce and use ICT.

Good Practice Example: Electronic Integrated Customs Duty and Tax System (Poland) The electronic Integrated Customs Duty and Tax System in Poland is well-established. It operates on a nation-wide scale and offers extensive functionality in supporting all customs procedures and documents as well as the financial processes relating to the collection, settlement, and justification of customs duties and tax due. In addition, it supports the budgeting and account functions of all the customs department’s activities and provides a well-used means for electronic data interchange with traders, thus bringing significant benefits to all its users and Poland as a whole.

1.11.3 Promoting Internet Security and Trust

In order to promote greater use of ICT, enterprises and individuals must trust the technologies and security of the information they provide and receive via the Internet. Consequently, improving the overall security of Internet use (E-security) should be considered a key priority for the development of

Good Practice Example: Estonia’s ID-program The purpose of the Estonian ID-program is to use nationwide electronic identity and develop a new personal identification card that would be a generally acceptable identification document and contain both visually and electronically accessible information. On January 28, 2002, the first ID-cards were issued to Estonian citizens. The output of the ID-program is the ID-card, which functions on an electronic crypto-processor, based on smart-card technology. It includes personal certificates and private keys of the card owner.

the ICT infrastructure. It is, for example, of interest to note that this study found only limited use of ICT for selling goods and services among the surveyed companies. This may in part be due to inadequate security, or at least a perception of risk, associated with the use of ICT for consumption. Improving Internet security can therefore be a catalyst for improving the opportunities for firms to make more extensive use of ICT for improving sales.

1.11.4 Supporting Research and Innovation

Both economic theory and empirical analysis underline the key role of research and innovation in economic growth and progress. Yet, market failures (in the form of spillovers and externalities) generally cause enterprises to under-invest in research and innovation. This is generally referred to as the ‘appropriability’ issue, where key-knowledge and the return of being the first to develop are only partly appropriable. Accordingly, there is a need to design and implement tailor-made policy instruments and investment mechanisms to stimulate R&D spending and innovation. This involves an approach that begins with identifying the needs of the levels where innovation, growth and job creation takes place: industry, sectors and companies. By identifying specific needs or drivers instrumental to an increase in research and innovation, specific policy measures can be designed. In addition, the transition countries that have, or are about to, obtain membership of the EU, have a range of new opportunities and funds available for supporting research and innovation. Successfully exploiting the opportunities offered by EU membership is critical for successfully advancing the knowledge economy.

Good Practice Example: Tallinn Technical University Innovation Centre (Estonia) A number of specific initiatives have been taken in Estonia to encourage the development of new knowledge-based businesses, including the Tallinn Technical University Innovation Centre (TUIC). The TUIC seeks to promote linkages between the R&D base of Tallinn Technical University and businesses. Its activities include active marketing of R&D projects that have market potential; providing assistance to university staff seeking to cooperate with industry; managing the spin-off program, and developing incubation services for knowledge based start-up companies.

16 ICT, Innovation, and Economic Growth in Transition Economies

Good Practice Example: Use of EU Structural Funds (Lithuania)

Good Practice Example: Estonia’s Tiger Leap

Membership of the EU has given several transition countries access to significant EU Funds for supporting research and innovation. Lithuania provides an illustrative example of how EU membership gives rise to new opportunities to support research and innovation. EU accession in May 2004 was followed by a first round of implementation of the EU’s Structural Funds, which allowed Lithuania to double the amount of funding available for innovation. Several measures directly addressing innovation are currently implemented to strengthen the innovation support infrastructure and develop its institutional capacities; to improve R&D and business co-operation in innovation development; to improve the quality of human resources for R&D and innovation; and to strengthen the public and private R&D base. Direct support for innovation in firms was also offered.

The Estonian ‘Tiger Leap’ is a national target program launched by the Ministry of Education of Estonia, with the objective of modernizing the educational system in the country by introducing information and communication technology. Initiated by Estonia’s President Lennart Merti and sponsored in part by the UNDP, Tiger Leap is based on cooperation between schools, universities, private enterprises and public institutions. The program builds up structures for distance learning and continuous learning for teachers and students. Estonian teachers are provided training in computer skills and the use of educational software. The program has ensured that 98 percent of Estonia’s schools have access to the Internet, with more than one computer per 20 students. It has created a national learning network for teachers and trained 40 percent of Estonian teachers in ”advanced computer skills.”

1.11.5 Strengthening Competition

Ensuring that the ICT markets are competitive is critical for lowering connectivity prices and increasing take-up. The liberalization of the telecommunication market is therefore a critical priority for the successful furthering of the information society. A more open and competitive telecommunication market will also ensure that new technologies are rolled out quickly, as competitive pressures provide the incentive to develop better and more efficient telecommunication products and services. In addition, it is important to ensure a regulatory framework that protects intellectual property rights, so that markets remain open to new products and services.

Good Practice Example: Estonia’s liberalization of the telecommunications market Estonia has been one of the first countries among the CEE countries to open the telecommunications market for liberalization, providing a basis for the development of the Estonian information society. The telecommunications market in Estonia was fully liberalized from Jan. 1, 2001. Increased competition in the telecommunications market since 1991 resulted in a 50–80 percent reduction in the price of international long-distance calls, lower prices on national long-distance calls, and price reductions of 50 percent for Internet connections.

1.11.6 Underpinning Developments in Skills and the Labor Market

It is widely recognized that success in the era of the knowledge economy is dependent upon the availability of appropriate skills, so that the workforce can deal effectively with technological innovation in ICT and organizational change. Meanwhile, the opportunities for learning are also enhanced by the emer-

gence of ICT, with the new technologies enabling learning in a range of new ways and environments. ICT is thus said to offer a host of new e-learning opportunities. In order to exploit the new education and training possibilities offered and necessitated by ICT, governments need to increase levels of investment in human capital in general, and in ICTrelated skills in particular. Moreover, the policy and regulatory environment should encourage firms and private individuals to invest in their human capital.

1.12 Recommendations for Firms In addition to the policy recommendations, the findings and conclusions of this study also have implications for firms and their efforts to introduce and utilize ICT for competitive advantage. The key recommendations for firms are as follows:

1.12.1 The Introduction of ICT Needs to be Well Prepared and Fit with the Overall Business Strategy

When introducing ICT into the production process of a firm, it is important that the new technologies are introduced with a view to supporting the overall business strategy. This involves identifying the appropriate technologies and suppliers that are suitable for the particular needs of the company. While this may seem an obvious point, many new technologies are often introduced as a result of prevailing ‘hype’ about their importance rather than on the basis of a strategic assessment of the company’s needs.

Executive Summary

1.12.2 ICT Needs to be Complemented with a Range of other Factors

ICT rarely results in enhanced competitiveness and improved performance in isolation. Rather, the successful utilization of ICT often requires organizational change and training of staff that allows the business to change production processes in a manner that leads to a more efficient operation. Depending on the type of activities for which ICT is intended to be used, there may also be other changes required, such as a new marketing strategy etc. Hence, if firms are to realize the true potential of ICT, the required investment is larger and more comprehensive than the expenditure on ICT itself.

1.12.3 Use ICT for Product Innovation

It appears as if ICT is currently not optimally used to facilitate process of product innovation in the transition countries. Companies should explore possibilities for integrating ICT more effectively into efforts to develop new and better quality products to increase the value added of their activities.

1.13 Implications and Questions for Further Research This study has found a number of interesting issues pertaining to the take-up, use and impact of ICT among firms in transition countries. However, in many ways the value of the study lies as much in the questions raised by its findings as the questions answered. In particular, the methodological questions that come to light from this study are manifold. In light of the attempt to develop a more nuanced perspective on the role of ICT at firm level, a number of issues came to the fore, meriting further analysis. In this section we outline some of the key questions emerging from the study, and make suggestions for further research. First and foremost, this study has shown that ICT works in combination with other factors in generating improved economic performance among firms. Hence, it was evident that the economic impact from ICT use emerged when the new technologies were combined with other factors such as organizational change, investment in new equipment and new marketing strategies. However, it remains unclear how

ICT interacts with other factors in shaping improved economic performance. In other words, is ICT a critical ingredient for facilitating the contribution of other factors or merely one of several substitutable factors that contribute to economic performance? For example, is it possible to initiate successful organisational change for improved economic performance without ICT, or is ICT a critical enabler or perhaps even the trigger of such organizational change? In view of such questions, it would thus be of interest to disentangle the relationship between ICT and the other factors to identify the exact role of ICT. This could be explored by complementing the questionnaire with in-depth interviews or workshops to explore, for example, the counter factual question of what would have happened in the organization if ICT had not been adopted and used? In general, a more detailed and nuanced picture of the impact of ICT could be achieved by including more in-depth questions about the nature of use, its purpose and the type of equipment available. Moreover, it is of interest to explore in greater detail how the actual use of ICT is implemented together with other operational factors related to organizational change, investment in other equipment etc. In other words, what are the processes through which ICT is introduced and how do these processes interact with other factors of change, such as an internal reorganization? Are there any general lessons learned about these-processes that can be applied more generally among firms operating in transition economies? Answering these questions will allow us to draw conclusions about and develop more detailed recommendations for firms operating in transition economies. Such conclusions and recommendations can be translated into practical guidance for firms about the take-up and use of ICT for improved economic performance. Furthermore, this study found significant sectoral differences in the impact of ICT in transition economies. However, the differences between sectors did not necessarily follow any traditional distinctions between sectors of economic activity, such as manufacturing vs. services or tangible vs. intangible. Rather, service sectors such as financial services and ICT services coupled with manufacturing sectors such as heavy machinery were all found to make effective use of ICT for improved economic performance. This is a notable contrast with the

18 ICT, Innovation, and Economic Growth in Transition Economies

results emerging from other studies of ICT in transition economies, where the role of ICT in the manufacturing sectors has been found to be limited. Such differences in findings suggest that further research on the role of ICT within individual sectors is called for. In particular, it is of interest to explore whether it is the more nuanced approach to exploring the impact of ICT used for this study that uncovers a different role for ICT in certain sectors, or whether it is merely a result of the particular sample used for this study.

determine the impact of ICT on economic performance, such as education and training. For example, when comparing countries or sectors, there may be significant differences in the skilllevels of employees in the firms surveyed, creating a bias in the results. This suggests that it would be worthwhile developing the survey methodology such that it is possible to take account of key factors, such as skills, that have been found to have an influence on the ability of individuals and firms to make effective use of ICT.

More specifically, it is important to note that the sample for the current study is limited to â&#x20AC;&#x153;frontrunnersâ&#x20AC;? in the take-up and use of ICT. Such an approach was taken because we wanted to explore the dynamics and impact of ICT use in firms where the new technologies had existed for some time. However, only focusing on front-runners may well have given rise to a positive bias in the results with respect to impact, explaining why firms in heavy machinery report a higher impact of ICT than other studies. Accordingly, it would be of interest to expand the scope of this study to encompass firms that operated further behind the technological frontier.

Finally, this study identified a number of issues pertaining to the enablers, barriers, and obstacles that firms in transition countries are faced with. The results suggest significant differences in overall performance of and the type of barriers facing different countries. However, the study did not provide an in-depth comparative analysis of policy approaches adopted in the different countries explaining these differences. In light of the findings of this study, it would be of interest to further develop the analysis to get a better picture of the types of policies that are conducive for the take-up and utilization of ICT among firms. This would involve examining the links between performance by firms and particular types of regulation and policy instruments in greater detail.

Also, the current study does not control for some of the other factors that have been found to

Executive Summary

20 ICT, Innovation, and Economic Growth in Transition Economies

Chapter 2

Background and Methodology

2.1 ICT, Innovation and Economic Growth in Transition Economies 2.1.1 ICT, Innovation and Economic Growth

The New Economy paradigm has emerged as an attempt to understand the changes to modern economies caused by the introduction and widespread diffusion of ICT. Crucial to the New Economy paradigm is the understanding of ICT as not only new products, but also as acting as catalysts for the transformation of fundamental economic and social processes and activities. Rather than merely being a new additional product to businesses and households, the utilization of information and communication technology constitutes a change in the way producers and consumers conduct their business. It is thus argued that these new technological developments are of a significantly different nature than other improvements in products and processes that industrialized economies have experienced since the end of World War II. First, ICT increases the speed and number of ways in which electronic information can be transferred from one person or machine to another. Second, developments in ICT have made it possible to store and transfer many different types of information electronically that previously took a non-electronic form. These two aspects of ICT combine into a forceful alteration of the ways in which information can be used in production and consumption processes. By increasing the speed at which electronic information can be transferred and processed, and giving a number of different types of information and knowledge an electronic form, ICT enhances the role of electronic information in economic processes. This has led some observers to regard ICT as a ‘general purpose technology’—“one useful not just for one narrow class but for an extremely wide variety of production processes, one

for which each decline in price appears to bring forth new uses, one that can spark off a long-lasting major economic transformation. Such general purpose technologies are, as Bresnahan and Trajtenberg (1995)7 say, ‘engines of growth’: precisely because they have a wide range of potential uses, and are complementary to a large proportion of other inputs, their price elasticity of demand is likely to be high” (DeLong and Summers, 2001).8

2.1.2 ICT, Innovation and Economic Growth in Transition Countries

The transition economies of Central and Eastern Europe face considerable challenges in adapting their economies to compete effectively in regional and global markets. Among the challenges facing these countries is the need to increase their productivity, adapt the structure of their economies to global competition in an increasingly knowledgeintensive global economy, foster innovation and new business creation, and develop new goods and services that respond to changing domestic and international demand. ICT can help address all of these challenges by: N N

increasing productivity; increasing the knowledge component of goods, services and production processes; increasing the capacity of firms to identify quickly, and respond to, changing domestic and international markets; facilitating innovation in products and services, and new business creation; increasing the skills and adaptability of the work force; and by opening new markets for ICT-enabled production and services at a distance.

7 Bresnahan, T. F. and Trajtenberg, M. (1995), General purpose technologies: ‘Engines of growth’? Journal of Econometrics (65), 1, pp. 83-108 8 Delong, J. B. and Summers, L. H. (2001), How Important Will the Information Economy Be? Some Simple Analytics.

Background and Methodology

ICT, in short, can help workers be more effective and competitive. It can help existing firms be more innovative and responsive, and help new firms emerge exploit new market opportunities and promote innovation. While some research has been done on the uptake of ICT as tools of productivity, competitiveness, and innovation at the industry level in these countries, there is so far little rigorous data on the adoption of ICT at the firm level in key sectors of the economy that have the greatest opportunity to be sources of country’s innovation and competitiveness. Nor is there adequate knowledge of the key enablers of ICT take-up, and ICT-driven innovation, in existing or new firms. There is also a great need for better understanding of the constraints facing entrepreneurs and innovators in these countries, and the opportunities and challenges facing firms and industries as they increasingly integrate with the regional and global economies (including the particular challenges facing the countries now joining the European Union.) It is important to better understand how ICT can help firms and innovators address these challenges. More substantial and rigorous data, as well as analyses of these issues are valuable in efforts to better understand, and provide policy guidance on, how to create the conditions for ICT-enabled growth and competitiveness in the transition economies. It also contributes to a better understanding, more generally, of the impact of ICT on innovation and competitiveness.

above-mentioned issues in all sectors and regions of these countries. It provides an in-depth survey and analysis of a reasonably representative sample of firms in several regions and sectors so that broader conclusions can be drawn with a certain degree of confidence. The study draws conclusions not only about individual sectors but also about individual countries, and, most importantly, about conditions and challenges common to several or all of the countries in the study. The study aims at assessing the diffusion and impact of ICT at the firm level and the related policy implications. It also gives some specific recommendations on what each country, sub-region and region could do to better promote/support ICT usage to improve competitiveness and new business creation. These recommendations concern the enabling environment and point to some specific lessons learned and best practices at the firm level. The study examines traditional and new sectors. It explores whether and under what conditions traditional sectors, such as the food industry, have been successful in harnessing ICT. It also identifies new opportunities and sectors that have emerged, thanks to ICT. The study intends to serve as an important element of infoDev’s broader attention to the challenges facing developing and transition countries in promoting ICT-enabled innovation, growth and competitiveness.

2.3 Survey Methodology 2.2 Scope of the Study The overall objective of the study is to advance understanding of the relationship between ICT, innovation, and economic growth in transition economies. Commissioned by the Information for Development Program (infoDev), the study focuses on firm-level survey data collection and analysis framed by a clear articulation of the constraints and enabling conditions at the industry and country level.

A key objective of the study was to analyze and assess the diffusion and impact of ICT at the firm level in relation to productivity, competitiveness, and innovation in selected key sectors. To show where and how actual productivity and performance gains occur within firms as a result of ICT adoption, it is important to identify adoption rationales, key enablers and inhibitors of ICT take-up, as well as of the relation between ICT take-up and: N

With a focus on five countries—Estonia, Latvia, Lithuania, Poland, and Russia—the study is not designed to be a comprehensive analysis of the

N N N

cost structures; revenue generating capacity; innovation (product, process innovation); relationships with suppliers and customers;

22 ICT, Innovation, and Economic Growth in Transition Economies

N N

business organization and strategy; and external factors (economic and regulatory conditions).

Furthermore, as these variables are subject to various other forces, it is important to determine the extent to which the effects are substantially or uniquely attributable to ICT. This is an important condition for determining the additionality of ICT. Therefore, parameters and benchmarks can vary not only for each country, but also for each industry and firm.

2.3.1 A New, Tested Approach to Data Collection and Analysis

The project team based its approach on the EBS methodology. A major advantage is that the EBS approach has already been well tested in previous international studies. EBS was developed by TNOSTB, in collaboration with the OECD, the Telematica Instituut (a Dutch government-industry research initiative), the Institute for Prospective Technological Studies (IPTS, a Joint Research

Centre of the EU) and the Belgian Central Plan Bureau. The EBS methodology adopts a “business” rather than a “technology” perspective, by focusing the data gathering and analytical processes on the evolution of business as such. EBS can be administered in a qualitative, quantitative, or mixed form that captures great amounts of detail. In qualitative form, the method is applied via case studies based on in-depth “audits” of firm level ICT application activities, using a standardized data gathering and analytical format. The audit includes sub-routines to gather detailed information on investment patterns (similar to “readiness” studies), adoption-application processes and impacts on innovation. The quantitative form, which is used in this study, embeds these routines into a conventional survey instrument.9 (See Annex 1)

9 For further information on the EBS methodology and the way it has been tailored for this study please see Annex 1

Background and Methodology

24 ICT, Innovation, and Economic Growth in Transition Economies

Chapter 3

The Selection of Regions and Sectors

The geographic scope of the study is confined to five transition economies in the north-eastern part of Europe: Estonia, Latvia, Lithuania, Poland, and Russia. These countries share not only a common past legacy, but also a similar need for adapting and transforming their economies. For the purpose of our analysis, Annex 2 provides an overview of economic and ICT key characteristics of each of the countries.

3.1 Selected Regions In order to provide a more focused and in-depth study, the analysis was narrowed further to a selection of regions. The following survey regions have been selected: N

Estonia – country as a whole, prime focus on the Tallinn and Tartu regions. Latvia – country as a whole, prime focus on the Riga region. Lithuania – country as a whole, prime focus on the Klaipeda-Kaunas-Vilnius west-east corridor. Poland – Pomorskie (Gdansk and surroundings), Mazovieckie (Warsaw and surroundings) and Slaski (Katowice and surroundings). Russia – the city of Moscow and the city of St. Petersburg.

Annex 3 provides a descriptive profile of the selected regions from Poland and Russia.

3.2 Selected Sectors 3.2.1 Selection Criteria

Key sectors have been targeted in each of the countries. The selection has been based on three sets of criteria (for more details on the selection criteria please see Annex 4):

Growth potential and/or strategic importance for economic development of the country. Potential for cross-country comparisons and extrapolation of findings to other sectors. ICT and innovation content.

3.2.2 The List of Sectors

Based on the above criteria, at least five sectors were identified for each of the selected countries and regions. (See Table 3) The initial idea of a priori selecting well-defined and delineated sectors and/or product categories ready for surveying has been put aside, as no adequate and precise data for this purpose could be retrieved. The current choice was made on the basis of existing statistical data, results of earlier country studies, and expert judgements of the local survey managers. For each of the chosen sectors per region or country, key company data were collected, such as products or services segment (NACE code), a short description of the products and/or services produced/ marketed, and company size (small, medium, or large, based roughly on number of employees). This also applies to other useful company details, such as a contact person for each company, addresses (actual and postal), telephone and fax numbers, and e-mail addresses. The resulting long lists of firms for each country and region, covering the full scope from micro-enterprises to large firms, were processed and have been replaced by practical country shortlists for the purpose of interviews. In Annex 5 we provide more information on the distribution of companies per country/region and sectors for the sample of 620 firms. In addition, there is more detailed information on the sectors in each of the countries.

The Selection of Regions and Sectors

TABLE 3.1. Final Lists of Sectors & Aggregate Product Categories to be Surveyed Country

Region

Secondary sector

Tertiary sector

Estonia

Tallinn and Tartu regions

Primary sector

Food Furniture (wood value chain) ICT equipment

Retail Banking ICT services

Latvia

Riga region

Food Furniture (wood value chain) Chemicals Light machinery ICT equipment

Retail Banking ICT services

Lithuania

Klaipeda-Vilnius corridor

Food Furniture (wood value chain) Automotive industry Textiles ICT equipment

Banking Retail ICT services

Poland

Mazowieckie (Warsaw)

Food Automotive industry Construction materials ICT equipment

Banking Retail ICT services

Poland

Slaskie (Katowice)

Petroleum refining

Food Automotive industry ICT equipment

Banking ICT services

Poland

Pomorski (Gdansk)

Petroleum refining

Food Shipbuilding ICT equipment

Banking Transport ICT services

Russia

Moscow city

Food Furniture (wood value chain) Paper (wood value chain) Machinery Construction materials ICT equipment

Transport ICT services

Russia

St Petersburg city

Food Furniture (wood value chain) Paper (wood value chain) Machinery Construction materials ICT equipment

Transport ICT services

26 ICT, Innovation, and Economic Growth in Transition Economies

Chapter 4

Survey Results and Analysis

This chapter provides a detailed analysis of the results of the survey. The chapter gives an overall picture of the scale of ICT usage and its business applications. Further, it discusses firmsâ&#x20AC;&#x2122; performance in relation to ICT usage. The performance of firms is based on a combination of four sets of indicators: productivity, growth, innovativeness, and competitiveness. The following indicators are looked at: N N N N N N N N

Labour productivity Operational costs Revenues from sales Profitability Investment in innovation Investment in ICT Competition on price Competition on quality.

The above indicators are analysed across the whole sample as well as across large, medium, micro, and small companies, and sectors. Following the discussion on firmsâ&#x20AC;&#x2122; performance, the analysis moves on to the innovativeness of companies. The effects of ICT on different types of innovations are considered, such as process and product innovation and relational innovation. Process innovation covers: N N N N

speed and reliability of business processes; automation; information management; and organizational change.

Product innovation considers: N N N

new products and services; customization; and new bundling offerings.

Relational innovation looks at a number of indicators describing innovations in relationships with customers and suppliers. These include:

N N N N N N N

number of customers and suppliers; change in sales value per customer; value of purchases per supplier; share of retained customers; number of repeat suppliers; changes in sales value per retained customer; and value of purchases per repeat supplier.

The issue of innovation is analyzed across the whole sample of firms as well as across different sizes of companies and sectors. Finally, the chapter discusses obstacles and enablers for ICT usage. Internal and external factors for the company are taken into account. Special attention is paid to the regulatory and policy context, where other relevant information from the countries is included to support (or not) the results of the study. The role of the government is looked at on a country-by-country basis.

4.1 ICT Usage Profile This section presents an overview of the type of Internet connections, computer networks used, and the presence of information technologies within firms, including their integration and electronic linkages with other (automated) systems. It identifies the types of business activities that are supported by the ICT usage: how firms use information technologies in buying and selling products and services, and how customers and suppliers are approached and serviced. The section provides information on how inter-firm and customer relationships have changed, or continued, over time. Finally, it gives an insight in the way firms communicate and deal with government organizations. It should be noted that our sample only comprises a selection of proactive ICT users. It is therefore not representative of the sectors as a whole, let alone of

Survey Results and Analysis

the regions surveyed. However, it does allow a forward-looking analysis of the evolution of the leading sectors and regions concerned, and with that of the economy at large. Throughout the text, tables will be repeatedly referred to. These tables are included in Annex 7 of the present report.

4.1.1 Scale of Internet Connections and ICT Use

Unsurprisingly, the use of Internet and computers is widespread among the surveyed companies. This is only to be expected, as the companies had in part been selected on the basis of them being at the forefront of ICT use in the countries included in the study. Hence, all of the surveyed enterprises used one or more computers, while 99 percent used the Internet during the last three years. However, as is evident from Figure 4.1 below, connections to the Internet vary widely, both in type and intensity. While connections to the Internet among firms may thus be increasing, significant qualitative differences in the nature of the connections are of increasing importance to an analysis of access. In addition, 98 percent of all enterprises used e-mail and 44 percent availed of an Intranet provision. Local area networks were rather popular with 74 percent of all enterprises. Twelve percent of the surveyed firms indicated that they use other computer networks than the Internet. (See Table 2)

Figure 4.1. Specifics of Internet connection Cable Modem (>2Mbps) Cable Modem (<2Mbps)

No internet DSL (<2Mbps)

DSL (>2 Mbps) Analogue

Other

Other broadband (> 2Mbps) Other broadband (< 2Mbps)

ISDN

4.1.2 Business Use and Applications of Computer Networks

Computer networks are used for internal and external communications with business or governmental parties. The need for intensifying external communications stimulates the use of intra-firm computer networks. The results referring to technology usage show that electronic systems are introduced very much alongside the value chain starting from supply, production, and logistics; moving to purchasing and procurement; marketing and sales; and some financial administration services mainly related to invoicing. (See Figure 4.2 and Figure 4.3) The results also provide a picture of the electronic links between computer networks introduced to support and serve particular business areas with other automated systems within the firm. The latter shows the intention of the companies to automate, as much as possible, interrelated business activities. Some business areas though stay outside the attention of the companies for the time being. These include human resource management, including training and asset, and inventory management. From Figure 4.2 it is evident that firms relate the use of ICT technologies with their aim to become more competitive and productive. The initial signals from the companies sampled indicate that market related business activities are high on their agenda. This can be observed in this part of the study and confirmed later on.

Figure 4.2. Electronic Links between Computer Networks Used to Place Orders for Goods and Services and other Automated Systems within the Firm Computer system(s) for receiving orders not linked to any of the above

Systems for ordering or stock control

Other internal or external systems Marketing and customer relations systems Systems for delivery of products (including electronic delivery)

Systems for invoicing customers

Systems for production or service operations

About half of the companies in the study place a 28 ICT, Innovation, and Economic Growth in Transition Economies

high priority on two inter-related business areas: Purchasing and Procurement and Marketing and Sales. Fifty-two percent of all firms actively use computer networks to buy goods and services. Almost 95 percent of these firms use the Internet to do so. (See Table 4) Most firms that use computer networks for placing orders for goods or services have in some way established an electronic link with existing automated systems within their firms. Most frequently observed is a link with an invoicing system. Thirty-three percent of all firms that said they place orders via a computer network had an operational link to an invoicing system. Almost a third of these firms used a system for ordering or stock control. (See Figure 4.2 and Table 4) Selling via the Internet is slightly less popular than buying. Forty-seven percent of all firms placed orders using the Internet. Almost 40 percent received and processed orders over the Internet. Five percent of all firms used (also) other computer networks for selling their products, whereas 5 percent placed orders via other computer networks than the Internet. (See Table 5) The majority of firms that received and processed orders via the Internet did so by means of an e-mail link on their Website. Thirty-six percent of the firms received

their orders via a more advanced online ordering facility. Fifteen percent of the firms sold their products through a third-party Website, and 8 percent via Electronic Data Interchange (EDI) over proprietary networks. (See Table 6) Sales transactions via the Internet and other computer networks are in a number of ways electronically linked to other systems within the company. Of the 247 firms selling via computer networks, 35 percent had established an electronic link with a system for invoicing customers. Almost 28 percent had an automatic link to an internal customer system, and another 29 percent to a marketing or customer relations system. Forty percent of the firms that received orders via computer networks, however, did not have electronic links to internal systems whatsoever. (See Figure 4.3 and Table 7) It is rather common to use the Internet for servicing customers, not only by attracting them by presenting catalogues, price lists, or product specifications, but also by providing contact facilities and even after sales support. The more passive, “simple” forms of customer services like the first few mentioned appear to be more popular. (See Figure 4.4) More demanding forms of customer contact, such as providing a contact facility, are popular with half of

Figure 4.3. Electronic Links between Computer Networks Used for Receiving Orders/Sales and other Systems within the Firm (number of observations) Don’t know / NA / Refusal Other internal or external systems Computer system/s for receiving orders not linked to any of the above Suppliers’ computer systems Marketing or customer relations systems Systems for delivery of products (including electronic delivery) Systems for production or service operations Systems for invoicing customers Systems for ordering or stock control Customer systems (including related enterprises) 0

100

Survey Results and Analysis

Figure 4.4. Use of the Internet or other Computer Networks for Providing the Customer Services Donâ&#x20AC;&#x2122;t know / NA / Refusal Other internal or external systems Computer system/s for receiving orders not linked to any of the above Suppliersâ&#x20AC;&#x2122; computer systems Marketing or customer relations systems Systems for delivery of products (including electronic delivery) Systems for production or service operations Systems for invoicing customers Systems for ordering or stock control Customer systems (including related enterprises) 0

100

the firms surveyed. Thirty percent of the firms collect customer information online. More sophisticated forms of customer services are less frequently observed, yet not uncommon: almost 13 percent provide order tracking online and 19 percent provide after-sales support. (Table 8)

mental (public) level rather than at firm level, especially in the case of SMEs. Introduction of modern HRM approaches, such as recruitment, assessment, human resource development, planning, etc., within firms, and SMEs in particular, will require automation and therefore use of ICT.

To summarize, Internet connections and ICT use within the companies in the sample are concentrated in market or customer-related activities, where buying goods and services, placing orders, and providing customers with information on products and services are automated in approximately half of the firms. Further, in order to support the above activities, firms have introduced automated systems in areas such as invoicing, production and service operations, and delivery of products and stock control. (See Table 9) Areas where computer networks did not play any role are training, human resources, and asset and inventory management. The explanation one can attach to these results is closely linked to the phase of the business development in the countries within the study.

Another area with a high potential for ICT use within firms is in asset, inventory and logistics management. Although not related directly to the customer, improvement in the above areas would result in higher efficiency and quality of services. It is our judgment that inventory and logistics management as concepts are less known and understood in the countries studied, than for example, marketing. ICT usage comes when the need is there but also the understanding of the importance of the business activities it supports. The gaps described above indicate ample room for progress in, first of all, spreading ICT use and secondly, integrating various systems within the firm and achieving future efficiency benefits. (See Table 10)

The fast growth of the domestic markets, coupled with the dynamic processes of their integration into the European and international markets, make Purchasing and Procurement and Marketing and Sales primary business functions at firm level. In many of the transition countries, human resource management (HRM) systems were introduced at a govern-

Companies were also asked to comment on using ICT to access government resources. Fifty-five percent of all enterprises used the Internet or any other computer network for obtaining information from the government. Downloading of and requesting government forms were equally popular. Almost one-third of all firms did not use the Internet at all for dealing with government organizations. (See

30 ICT, Innovation, and Economic Growth in Transition Economies

Table 11) Naturally, the extent to which this is possible depends on the state of development of egovernment and the services offered by government organizations. We provide more information on this issue in section 4.4 on Obstacles and Enablers.

4.2 Firm Performance in Relation to ICT Usage A particular emphasis of the study has been placed on the issue of how ICT influences the performance of firms. Being aware that ICT as a performancestimulating factor should be taken into account with other factors, we have tried to allocate these sets of factors that act as the most powerful combination to boost performance. The concept of performance is operationalized, using four sets of indicators on productivity, growth, innovativeness and competitiveness: N

Productivity changes are estimated by relating gross outputs to changing labor costs and other (operational) costs. Growth is estimated on the basis of changes in revenues from sales as well as changing profit margins. Innovativeness is assessed by estimates on the relation between capital investments in innovation in general and in ICT specifically. Competitiveness is assessed by relating the importance of competition on quality and on price in relation to changing market shares.

For each of these indicators, firms were asked to assess the importance of ICT usage in affecting observed changes. The estimates produced by our respondents allow us to make an assessment of the importance of ICT in relation to other factors that affect the performance of firms.

4.2.1 Productivity, Growth, Innovation and Competitiveness Labor Productivity The results of the study show that there has been a substantial increase in productivity in the last three years among the firms surveyed. There are also significant opportunities for further increases in the coming years. The results show that productivity

BOX 4.1. Some Statistics on ICT and Labor Productivity N 50 percent of all responding firms report a labor productivity

increase compared to three years ago. Forty-five percent of all firms believe productivity levels remained the same and only 5 percent state that output per employee decreased over the last three years. (See Table 12) N Of the firms that observed productivity increases over the last three years, 35 percent report a 0â&#x20AC;&#x201C;10 percent increase; 37 percent estimate the increase to lie between 10 percent and 25 percent and 19 percent have faced an increase of 25â&#x20AC;&#x201C;50 percent. (See Table 13) N The vast majority of firms (74 percent) that report a decrease in productivity attribute this mainly to other factors than ICT. (See Table 14)

increase is caused by a combination of factors where ICT usage is one of them. Of all firms reporting productivity increases, 13 percent attribute these increases to ICT and 47 percent to ICT in combination with other factors. This is a rather high attribution score compared to the other performance indicators in our survey. These findings seem to counter the thesis of Solowâ&#x20AC;&#x2122;s productivity paradox, which holds that ICT investment has not produced significant improvements in productivity in industrialized economies. However, it should be added that our sample is atypical for industrial economies. The firms investigated are all part of an economy in rapid transition, involving a number of factors, including firm specific issues and broader market conditions (e.g., business and investment climate, political and macro-economic environment, etc.). This is illustrated by the fact that 50 percent of the firms report significant productivity increases and only 5 percent report decreases. It should also be noted that firms have been selected because they belong to the more proactive ICT users. In light of this, it is equally relevant to note that 40 percent of firms with productivity increases report that ICT usage did not at all contribute to this performance. However, it is of interest to note that the companies reporting a decrease in productivity attribute this to factors others than ICT. The findings reported above place the contribution of ICT to productivity in perspective and call for an examination of other factors that contributed to productivity gains. The other key other factors that

Survey Results and Analysis

BOX 4.2. Case Study Case study: AB Klaipedos duona (KD) – ICT works in interaction with other factors KD is one of the largest and most modern baking enterprises in Lithuania. The company has made extensive use of ICT for the ordering system, with customers being able to give their orders online. This has resulted in an increase in the number of customers without having to increase the number of employees, thus improving the overall productivity and competitiveness of the business. KD has also used ICT for the processing of obligatory documents to the relevant authorities within government, thereby improving the process by which documents are filed and submitted. Finally, ICT has been a useful tool for improving quality management systems within the organization, with ensuing progress in quality and customer satisfaction. In order to make effective use of ICT, the company has experienced that a number of complementary aspects also have to be in place and improved. In particular, the introduction of new technologies has to be supported by systematic training of staff, ensuring that all employees have a sense of responsibility for their work according to their position and competence. Hence, ICT has not brought about benefits to the operation of the company in isolation, but within a wider context of organizational change and improvement of the skills of staff.

account for the observed productivity increases are organizational change, investment in equipment, and training of staff. The importance of these other factors indicates that ICT usage is important, but has to be looked at in the context of a more generic set of measures and efforts to increase productivity. It also indicates that companies’ expectations to improve productivity through ICT alone would be wrong. When planning to increase usage of ICT, one should place it in the context of whether the company is organizationally prepared for this, and whether it has the possibility to invest in equipment and develop the capacities of its human resources accordingly. Operational Costs Although few firms report a decrease in costs, this decrease can be attributed to the ICT usage alone or in combination with other factors. At the same time, ICT contributed to the opposite—increase in costs—although to a much lesser extent than other

factors. In general, ICT has a stronger effect on decrease rather than increase of operational costs. ICT influence on costs should be looked at in the context of a wider set of measures and efforts. Capital investment in equipment, organizational change, and changes in the salary structure are the other factors that most strongly influence cost reduction. Change in salary structure differs from the other set of factors influencing productivity. We attribute this to the overall trend in Central and Eastern Europe of faster growth in salaries in comparison to productivity growth. It may partly indicate an increased need for more skilled (and more expensive) staff due to ICT usage. Revenues from Sales Again, almost half of the companies experienced an increase in revenues due to ICT and other factors. The three other factors are the same as those influencing productivity. Interestingly, companies reporting a decrease in revenues do not relate this

BOX 4.3. Some Statistics on ICT and Operational Costs N 41 percent of all firms declare that average operational costs per unit of output have increased. Forty percent indicate that operational

costs remain roughly unchanged, whereas 19 percent experienced a decrease compared to three years ago. (See Table 15) Of the firms with higher operational costs, 50 percent face a 0–10% increase. Thirty-two percent notes an increase between 10 percent and 25 percent, and 16 percent note a 25–50 percent increase. Firms with a decrease in operational costs face a change over a similar range, however decreases are smaller on average, namely 64 percent, 23 percent and 11 percent, respectively. (See Table 16) N Of firms that report lower operational costs, 16 percent report that ICT usage was the main factor, 52 percent say it was one of the contributing factors along with others, and 33 percent believe mainly other factors were responsible for cost decreases. N Of firms with higher operational costs, 5 percent report that ICT was the main factor, 28 percent that is was one of the factors, and 67percent of the firms believe mostly other factors explain higher costs. (See Table 17)

32 ICT, Innovation, and Economic Growth in Transition Economies

BOX 4.4. Some Statistics on ICT and Revenues from Sales N Fifty-five percent of the firms indicate revenues from sales to be higher than three years ago. Thirty-four percent report similar revenues

and 11 percent of the firms report lower revenues. (See Table 18) Of the enterprises with an increase in revenues, 33 percent experience increases up to 10 percent, 38 percent experience increases in the range of 10–25 percent, and 18 percent experience revenue rises of 25–50 percent. (See Table 19) Seven percent of the firms attribute increasing revenues mainly to ICT usage; 43 percent to ICT and other factors, and another 50 percent report that increases in sales have to be attributed to entirely other factors than ICT. N Decreases in revenue are more modest. Fifty-eight percent of the firms with a decrease can be found in the 0–10 percent range and 31 percent in the 10–25 percent range. Lower revenues are even more markedly attributed to other factors, namely in 94 percent of all cases. Only 6 percent partially attribute revenue decreases to ICT and none at all saw ICT as the main reason for revenue decreases. (See Table 20)

to ICT. However, it should be noted first that many more firms report increased revenue (55 percent) than firms reporting cost reductions (19 percent). Slightly more than half of the firms report a positive effect on revenue attributable to ICT (7 percent mainly to ICT and 43 percent to ICT in conjunction with other factors). By comparison, this is significantly less than the 67 percent of the firms that mentioned ICT in the context of decreasing costs. It also leaves 50 percent of firms for which ICT usage did not contribute to increasing revenue. However, the negative effect of ICT on revenue is minimal. No firms attribute revenue decreases to ICT usage, and only 6 percent hold ICT partially responsible. In contrast, 33 percent of firms saw ICT as a contribution to increasing costs. Along with investment in equipment, organizational change and training of staff are the main contributing factors to increasing revenue. It is interesting to note that the effect of ICT as the dominant ‘stand-alone’ factor on decreasing costs (mentioned by 16 percent of the firms) is more than double the effect of ICT on increasing revenue (7 percent). Interestingly, investment in equipment (other than ICT) is seen as the other main other contributing to increasing revenue. Hence, the effect of ICT as a stand-alone factor is limited in general, but in particular on increasing revenue. Profitability In more than half of the total sample of firms in the study, ICT, mostly in combination with other factors, has contributed to the increase of profitability in the last three years. Although similarities in figures can be seen with the performance indicators discussed above, a new important contributing factor appears here as a

driver of change, namely the introduction of “new marketing strategy.” Thus, as with productivity, the contribution of ICT to profitability seems to be positive on average, but this contribution needs to be seen in a broader perspective. Fifty-nine percent of firms mention ICT as a contributing factor to favorable developments in profitability, which includes those firms that believe ICT is the main factor (11 percent) and those that believe it is one of several factors (48 percent). For 41 percent of the firms, ICT did not significantly contribute to improving profitability. These figures on profitability are comparable to those on productivity, albeit with effects that are slightly less positive. For example, 44 percent of firms indicate an increase in profitability, compared to 50 percent of firms with productivity increases. It is striking that 16 percent of the firms indicate a decrease in profitability against only 5 percent that indicate a loss in labor productivity. A possible explanation for these differences is the increase in operational costs (other than labor costs) reported by 41 percent of firms. Moreover, it is important to note that the profitability of firms is largely explained by the extent of competition and the pricing power of firms. If the firms operate in competitive markets, the productivity gains will in part be translated into lower prices for consumers rather than increased profitability of firms. As with productivity, the contribution of ICT to profitability seems to be positive on average, but this contribution needs to be seen in a broader perspective. Firstly, the amount of firms that do not mention ICT as a contributing factor remains significant. Secondly, the vast majority of firms that

Survey Results and Analysis

regard ICT as a contributing factor still see this mainly in conjunction with other factors.

Pricing and quality improvements are the essential parts of any marketing strategy.

As other factors, new marketing strategy is mentioned most frequently, followed at great distance by capital investment in equipment and organizational change.

In the end, the effect of a new or improved marketing strategy is in the intensified link between the producer and the customer. The latter should result in better economic performance, including higher revenues and increased profits, but this often does not show immediately. Since the efforts of CEE companies to introduce new marketing strategies (or marketing strategies at all) are relatively recent, broader effects may be expected at a later stage.

The significance of new marketing strategy as a factor for profitability may indicate that the positive effects to which ICT usage contributes are not only to be situated in efficiency gains, but also in increased outputs and/or higher profits per unit of output. What is surprising though is that new marketing strategies was not perceived as one of the top responsible factors for productivity or revenue increases, nor cost reduction. Perhaps, the increase in profit can be attributed to the reduction in operational costs reported earlier, which provides an almost immediate effect on a company’s results. If linked to ICT usage, new marketing strategies may be related to (among others): N N N

new or improved customer systems; systems of invoicing customers; and new or improved marketing or customer relations systems.

As we discussed before, the Internet is used for servicing customers, which is a new development in the transition economies and can also be considered a new marketing approach. Customers get more information about the products/services offered, higher level of product specifications, and are offered contact information and after-sales support. In addition, as the results of the study reveal later on, quality and price (in this order of priority) are seen as important factors to increasing market presence.

Investment in Innovation Capital investment of firms in innovation is broadly defined for the purposes of this study as expenditure on R&D, technology renewal, and re-engineering of business processes and organization. The results show that firms are mostly keeping up or increasing investment levels. Only 4 percent of the interviewed firms report decreasing investment in innovation over the last three years. Fifty-eight percent of the respondents mention ICT as one of the reasons for increased investment. For 16 percent, it is even the main factor. The top three other factors explaining a changing pattern of investment in innovation are not surprising, with capital investment in equipment being by far the most important category, followed by new marketing strategy and organizational change. The important investment levels and the nature of the other factors, which along with ICT influence the investment, suggest again an economy in transition that is making substantial efforts to modernize and introduce new and more effective approaches in attracting customer.

BOX 4.5. Some Statistics on ICT and Profitability N Forty-four percent of the firms indicate a rise in profits; 16 percent report a decrease, and 40 percent state similar profits compared to

three years ago. (See Table 21)

N Forty-six percent of the firms with higher profits experienced an increase between 0–10 percent; 32 percent report an increase of be-

tween 10–25 percent, and 10 percent noted an increase of 25–50 percent. Of the enterprises with higher profits 11 percent attribute this mainly to ICT usage, 48 percent to ICT usage and other factors, and 41 percent mainly to other factors. N Of the firms with lower profits, 37 percent put themselves in the 0–10 percent range, 34 percent in the range 10–25 percent and 19 percent in the range 25–50 percent. (See Table 22) 88 percent of all firms that face a decrease attributed this to mainly other factors, 11percent to ICT and other factors and only a fraction (1 percent) mainly to ICT. (See Table 23)

34 ICT, Innovation, and Economic Growth in Transition Economies

BOX 4.6. Some Statistics on ICT and Investment in Innovation N The amount of capital investment of firms in innovation is higher for 52 percent of firms, more or less equal for 44 percent of firms and

lower for only 4 percent of firms. (See Table 24)

N Of firms with increased investment in innovation, 40 percent report spending between 0–10 percent more, 34 percent report between

10–25 percent more, and 16 percent report between 25–50 percent more. (See Table 25) Sixteen percent of the firms indicate that the increased investment in innovation is primarily due to ICT usage. Forty-one percent say that this increase is due to ICT usage and other factors, and 43 percent of the firms say investment in innovation increased mainly due to other factors. N Of all firms with decreasing investments in innovation, 77 percent declare that this change is due to mainly other factors and 18 percent to ICT and other factors. (See Table 26)

Investment in ICT The results of the study confirm the finding that ICT investment takes up a substantial part of the efforts of firms to modernize. The fact that 30 percent of the firms say that ICT usage itself generates increases in ICT investment also indicates that engagement in ICT usage is to a certain extent a self-sustaining process that requires cumulative investment. When we look at the other factors that motivate ICT investment, we see that investment in ICT is related to a production technology (capital investment in equipment), in ICT usage as process technology, (organizational change) and in ICT usage as a transaction technology (new marketing strategies). The other factors influencing increases in ICT investments are the same as those motivating investment in innovation in general. Again, capital investment in equipment is by far the most important factor, followed by new marketing strategy and organizational change. Competition on Price More than half of the firms realize that price competition plays a crucial role in gaining market

shares. They also report results of increased market shares as a consequence of engaging in price competition. Price competition is not much related to ICT; rather it is related to a set of other factors where marketing strategy is the number one factor followed at great distance by organizational change. Only 34 percent of firms perceive ICT as one of the factors that contributes to increasing market share through price competition. This figure contrasts with the 67 percent of firms that mention ICT as one of the factors that contributes to the reduction in operational costs. Accordingly, although ICT can significantly contribute to reducing operational costs, this is seldom a decisive factor among firms when it comes to competition on price per se. It should also be noted that the importance of price competition does not automatically mean that prices are declining. Forty-two percent of all enterprises saw an increase in sales prices compared to three years ago. Fortyfour percent of the respondents indicate that prices have stayed the same; 15 percent state that prices actually declined. (See Table 33) The attribution of

BOX 4.7. Some Statistics on Investment in ICT N Forty-five percent of the firms surveyed indicate that the amount of capital investment has increased over the last three years; 51

percent say it remained roughly equal and 4 percent of the firms state that capital investment in ICT decreased. (See Table 27)

N Most increases in ICT investment fall in the 0–10 percent range (40 percent) and the 10–25 percent range (37 percent of firms); 10

percent fall in the 25–50 percent range. Decreases are mostly situated in the 0–10 percent range (67 percent of firms). (See Table 28) N Increase in ICT capital investment over the past three years is attributed to ICT itself by 30 percent of firms, to ICT and other factors by 46 percent, and mainly to other factors by 24 percent of firms. Decrease in ICT investment is mostly due to other factors (83 percent). (See Table 29)

Survey Results and Analysis

BOX 4.8. Some Statistics on ICT and Competition on Price N Fifty-seven percent of all respondents believe that price competition has become more important to gaining market share compared to

three years ago. Thirty-seven percent of the firms believe that the importance of price competition has not changed. Only 6 percent of all firms state that price competition has become less important to gaining market share over the last three years. (See Table 30). N Fifty percent of firms that engage in price competition have increased their market share by 0â&#x20AC;&#x201C;10 percent, 30 percent believe the increase is in the range of 10â&#x20AC;&#x201C;25 percent and 15 percent indicate a 25â&#x20AC;&#x201C;50 percent increase. (See Table 31) Of all firms that believe price competition has been important for increasing market shares, 5 percent believe that the change in the intensity of price competition is mainly due to ICT usage, 29 percent believe it is due to ICT and other factors, and 66 percent believe mainly other factors are responsible for intensifying price competition. N Firms for which price competition is less important are slightly more divided between the extremes: 11 percent of the respondents believe ICT mainly contributed to decreasing price competition, while 71 percent find mainly other factors responsible for this effect. (See Table 32)

price increases and declines to factors other than ICT is very high (72 percent and 73 percent, respectively), again indicating a weak relation between ICT usage and price levels. Competition on Quality Firms grant more importance to ICT as a driving force for competition on quality (50 percent) than they do for price competition (34 percent). At the same time, the loss of market share as a result of competition on quality is in 67 percent of the cases associated with other factors, similar to what was observed for competition on price. This finding supports the proposition that ICT is one of the decisive factors in generating efficiency gains, but is not a distinguishing factor in effectively attaining a competitive edge over other companies. Again, new marketing strategies are mentioned as by far the most important factor (by half of the respondents), followed at a distance by organizational change and investment in equipment.

4.2.2 Differences in Company Size and Overall Performance

Size matters, as is illustrated by the tables below.10 Large firms seem better able to utilize ICT to generate performance improvements compared to smaller ones. More specifically, large companies score substantially better than medium, small, and micro enterprises on all selected indicators. On specific indicators, the results of the study show the following: a. For productivity and profitability the attribution of positive effect to ICT (mainly or along with other factors) ranges between 77 percent and 71 percent for large firms and between 55 percent and 53 percent for micro and small enterprises. b. Micro and small enterprises score relatively better for revenue increases attributable to ICT 10 In conformity with the applicable EU definitions, i.e. 0-9 employees: micro enterprises; 10-49 employees: small enterprises; 50-249 employees: medium enterprises; 250 and more employees: large enterprises.

BOX 4.9. Some Statistics on ICT and Competition on Quality N Sixty-four percent of respondents perceive competition on quality to have become more important in gaining market share; 35 percent

believe that its importance has remained about the same, and only a little more than 1 percent believe competition on quality has become less important over the past three years. (See Table 34) N Of the firms that state that quality has become more important, 47 percent indicate that they have increased their market share by up to 10 percent; 35 percent indicate an increase of between 10 percent and 25 percent; 14 percent indicate an increase of between 25 percent and 50 percent. (See Table 35) N Ten percent of respondents who report that competition on quality contributed to increasing market share believe that this is due mainly to ICT: Forty percent attribute the increase to ICT and other factors and 51 percent to other factors than ICT. N Of the firms reporting that they suffered from competition on quality, 67 percent attribute the decreasing market share to factors other than ICT and 33 percent to ICT and other factors. None of the firms holds ICT responsible for decreasing its capacity to compete on quality. (See Table 36)

36 ICT, Innovation, and Economic Growth in Transition Economies

TABLE 4.1. ICT, Productivity and Profitability Productivity increases: attribution to ICT

Profitability increases: attribution to ICT

Mainly ICT

ICT and other

Mainly other

Mainly ICT

ICT and other

Mainly other

Large

11%

66%

23%

Large

63%

29%

Medium

18%

40%

42%

Medium

52%

42%

Micro and Small

12%

41%

47%

Micro and Small

14%

41%

45%

Mainly ICT

ICT and other

Mainly other

TABLE 4.2. ICT, Costs and Revenues Operational Cost Reduction: attribution to ICT

Revenue increases: attribution to ICT

Mainly ICT

ICT and other

Mainly other

Large

15%

63%

22%

Large

61%

36%

Medium

12%

64%

24%

Medium

44%

53%

Micro and Small

21%

32%

47%

Micro and Small

12%

35%

54%

(mainly or with other factors) than for cost reductions. For revenue increases, the difference between micro, and small and large enterprises is of 64 percent vs. 47 percent (17 percent-point difference) but for cost reduction this is reduced to 68 percent vs. 53 percent (15 percent-point difference). The possible explanation for why company size matters in relation to the use of ICT and general performance is that larger organizations benefit more from economies of scale and scope in applying ICT than micro and small companies.

4.2.3 Sector Differences in ICT Use and Overall Performance

For a number of years, it has been increasingly recognized that sector differences are important in understanding the potential effects and benefits of ICT usage. The ambitious European Commissionâ&#x20AC;&#x2122;s E-Business Watch, for example, is almost entirely sector-based11 The size of the sample of the present study is too limited to allow detailed analyses for all the different sectors. Sectors were selected to be representative of the industrial fabric in the countries and regions under scrutiny, with the additional criteria of being significant sectors in their respective economies and relatively proactive in their adoption

of ICT. Although some sectors have been analyzed for all five countries, this does not apply to all sectors observed. As a result, not all sector datasets are sufficiently large to be analyzed in their own right. Our analysis will therefore be limited to the largest sectoral datasets. On a more substantial level, sectors were selected to constitute a sufficiently diverse set to reveal which industry characteristics primarily affect ICT usage. This selection is based on previous research that revealed that it is not sector specificity per se that determines ICT usage, but specific product and market structure characteristics that may be common to very different sectors.12 In particular, the way product characteristics and related market structures affect transaction costs appears to be a determinant of the effects of ICT usage. In this context, literature on ICT and business development often distinguishes between tangible and intangible products. It is then assumed 11 http://www.ebusiness-watch.org/ 12 Verhoest, P., Hawkins, R, Desruelle, P. et al (2003). Electronic Business Networks: An assessment of the dynamics of business-to-business electronic commerce in eleven OECD countries: A Summary Report of the e-Business Impacts Project (EBIS). Brussels: European Commission, on-line: http://www. jrc.es/home/publications/publication.cfm?pub=1122. Also available in print (Report Eur 20776)

Survey Results and Analysis

that because of their very nature, intangible products offer more possibilities for ICT-based production and transactions. For similar reasons, many studies start out by distinguishing service and goodsproducing sectors. The six sectors selected for analysis in this chapter can be categorized along these lines (three per three), but as it is demonstrated, both distinctions are misleading in that they only reveal part of the relevant factors with regard to the effective usage of ICT. The rankings below have been obtained by sorting data on the basis of positive effects of ICT (â&#x20AC;&#x2DC;mainly ICT and ICT and other factors taken together). On the basis of the analysis, the most revealing and/or inclusive indicators were selected. For performance, these are productivity, profitability, operational costs, and revenues from sales. Performance Indicators for Selected Sectors Both for productivity and profitability heavy machinery is the lead sector in terms of attribution of positive effects to ICT usage, with almost 75 percent of firms attributing positive effects to either ICT or ICT and other factors. The direct attribution of effects to ICT, however, is much higher for productivity (31 percent) than for profitability (17 percent). ICT services, finance, and retail and wholesale form a trio with around 70 percent of the firms attributing positive effects to ICT or ICT and other factors. For profitability, however, the attribution of positive effects to ICT (mainly ICT and ICT and others jointly) of the financial sector is significantly higher

(almost 85 percent) than for ICT services and retail and wholesale. Retail and wholesale shows a much lower rate of attribution to ICT as a main factor (7 percent for productivity and 9 percent for profitability) than the four other sectors already mentioned (which range between 17 percent and 31 percent). Furniture manufacturing and food processing close the ranks with a significantly lower attribution of positive effect to ICT for around 50 percent of firms. The attribution of positive effect to mainly ICT, however, is markedly higher for furniture (10 percent and 17 percent for productivity and profitability, respectively) than for food processing (0 percent). The financial sector by far exceeds the other sectors in terms of positive attribution to ICT of both cost reductions for 100 percent of firms and revenue increases for 82 percent of firms. The difference between both categories is accentuated by a very high direct attribution to ICT of 57 percent for cost reduction. For heavy machinery the positive attribution of effects to ICT is higher for cost reduction (67 percent of firms) than for revenue increases (58 percent). Most significantly, the direct attribution of effect to ICT for revenue increased is nil (compared to 17 percent for cost reduction).

TABLE 4.3. Sector Findings on ICT, Productivity and Profitability Productivity increases: attribution to ICT

Mainly ICT

ICT and other

Mainly other

Profitability increases: attribution to ICT

Mainly ICT

ICT and other

Mainly other

Heavy Machinery

31%

54%

15%

Heavy Machinery

17%

67%

17%

ICT Services

19%

53%

28%

Finance

28%

56%

17%

Finance

29%

42%

29%

ICT Services

27%

40%

33%

60%

33%

Retail & Wholesale

55%

36%

10%

43%

48%

Furniture

17%

33%

50%

42%

58%

Food Processing

41%

59%

Retail & Wholesale Food Processing Furniture

38 ICT, Innovation, and Economic Growth in Transition Economies

BOX 4.10. Case Study BankServiss (Latvia) â&#x20AC;&#x201C; The importance of preparation BankServiss is the leading company for payment card data processing services in the Baltic States. The main operations of the company are issuing processing, acquiring processing, clearing and settlement with domestic and international banks and payment schemes. In 2005 the company introduced two new e-commerce solutions to ensure reliable and secure Internet payments for banks, merchants, and cardholders. A central lesson emerging from the experiences of BankServiss is the importance of choosing the right supplier. When selecting the supplier, the emphasis should be on their experience and knowledge rather than price and quantity, since the new technologies are likely to be extensively used for a long period of time. Moreover, it is important to ensure the compatibility of the different types of software. Proper preparatory work and background research on the products are therefore important, including the consultation of other users to assess their experiences.

For retail and wholesale the contribution of ICT is markedly higher for cost reductions (88 percent) than for revenue increases (56 percent), with also a significant difference in direct attribution (33 percent for cost reduction and 0 percent for revenue increases). ICT services show a relatively even distribution (56 percent for cost reduction and 46 percent for revenue increases). The same accounts for food processing (55 percent and 46 percent, respectively) but with a much lower rate of attribution to ICT as main factor (0 percent both for costs and revenues).

Furniture is the only sector where the positive rate of attribution to ICT is higher for revenue increases (46 percent of firms) than for cost reductions (33 percent of firms). The figures confirm that the distinctions between tangibles and intangibles, or services and goods are rudimentary when it comes to predicting the potential of ICT to increase economic performance. The number one ranking of heavy machinery for both productivity and profitability increases, wholly or partially attributable to ICT, confirms this. We may confidently assume that the explanation for this high ranking is to be found in product characteristics of heavy machinery. Heavy machinery generally is a very complex product that is also often produced on a one-off basis according to customer specifications. Transaction costs will therefore tend to be high. This involves costs related to coordination, contract and/or control costs, internal to the firm and/or between the supplier and the customer. This assumption is confirmed by the higher attribution of ICT-related effects on cost reduction than on revenue increases and a direct attribution to ICT as main factor which is significantly higher for cost reduction than for revenue increases. As will be shown in the following section, revenue increases for heavy machinery can at least partially be explained by factors relating to product innovation and customer relations. Based on these observations, it is more accurate to posit that the potential effect of ICT on the firmâ&#x20AC;&#x2122;s

TABLE 4.4. Sector Findings on ICT, Costs and Revenues Operational Cost Reduction: attribution to ICT

Mainly ICT

ICT and other

Mainly other

Revenue increases: attribution to ICT

ICT and other

Mainly other

Finance

57%

43%

24%

59%

18%

Retail & Wholesale

33%

44%

22%

Heavy Machinery

58%

42%

Heavy Machinery

17%

50%

33%

Retail & Wholesale

14%

42%

44%

ICT Services

11%

44%

ICT Services

14%

40%

46%

55%

46%

Furniture

46%

55%

11%

22%

67%

Food Processing

32%

66%

Food Processing Furniture

Finance

Mainly ICT

Survey Results and Analysis

performance will be determined by the information intensity of the product. This involves both product characteristics as well as transaction characteristics. For example, the number two and three sectors in ranking, finance, and ICT services are products that have a high informational component and can be traded electronically as well. Financial products have an even higher informational nature than ICT services, which is expressed in the higher average ranking of finance and in particular a higher attribution for revenue increases. The latter subject will be touched upon again in the section on relational innovation. Furniture manufacturing and food processing are undoubtedly the sectors with the lowest information intensity, both in the product and transaction area. Logically, both close the ranks in all categories under scrutiny: productivity, profitability, and cost and revenues. However, furniture scores relatively better for revenue increases. This result, as will be demonstrated in the following sections, can be related to the usage of ICT for customization and the effect this has on customer relations. Finally, retail and wholesale hold a middle position in general, but score significantly above average on the cost reduction category. Contrary to heavy machinery, finance, and ICT services, the information intensity of these products generally does not provide much potential for spectacular performance improvements through ICT usage. The gains of ICT usage are to be situated in the area of transactions and can be due either to the high frequency of transactions and/or the amount of customers and suppliers that are involved.

4.2.4 Country Differences in ICT and Economic Performance

While it is not the aim of this project to conduct a comprehensive comparative analysis of the five countries included in the study, the data set allows us to identify some tentative findings pertaining to ICT use and its impacts in individual countries. However, these findings should be interpreted with great caution. Our regional samples have been constituted to be representative of the geographical area under scrutiny. Sectors were chosen that are important for the economies of those regions. As a consequence, the industrial composition of our sample varies considerably per country, leaving little scope for rigorous comparative analysis. It may seem paradoxical that samples that are more or less representative of regional economies cannot be compared but, as is demonstrated in this study, the rate of adoption and potential effects of ICT usage on firm performance vary significantly per sector, and differences in the sectoral composition of the economy in the different regions may therefore determine regional outcomes. Proof of this was obtained by comparing the different regional samples. Many differences were found, but most of them could not be explained without taking into account the incidental influence on a given regional sample of non-comparable sectors. The proper way to infer regional or country differences is thus to operate by triangulation, i.e. to find out about residual differences by comparing identical sectors or industries in different countries. Unfortunately, when applied with rigor this approach yields only a relatively small sample of three sectors (food, ICT and retail) for three

TABLE 4.5. Country Findings on ICT and Economic Performance Percent of firms with reported increase in labor productivity

Percent of firms with reported reduction in operational costs

Percent of firms with reported increase in revenues

Percent of firms with reported increase in profitability

Estonia

Poland

Russia

40 ICT, Innovation, and Economic Growth in Transition Economies

TABLE 4.6. Factors Responsible for Improved Productivity Percent of firms that attribute it mainly to ICT

Percent of firms that attribute it to ICT and other

Percent of firms that attribute it to mainly other

Estonia

Poland

Russia

countries (Estonia, Poland and Russia). In the table below, the trends in economic performance among the firms operating in these three sectors and countries are shown. When the data for the individual countries is broken down further, we see that the contribution of ICT to the economic performance of firms differs significantly between countries. For productivity increases ICT is a contributor mainly together with other factors. However, the impact of ICT is far greater in Estonia and Russia than in Poland.

Don’t know or N/A

BOX 4.11. Case Study Estonia – ‘clean sheet’ advantage The findings from this study have revealed that a strong technological heritage does not necessarily translate into success in the application and use of ICT. While countries with a relatively strong technological heritage such as Russia and Lithuania have only made moderate steps towards establishing an ICT infrastructure, Estonia is at the forefront of ICT development and use among the transition countries, despite having only a limited tradition of technological development. Indeed, the ‘clean sheet’ has been considered a critical advantage for Estonia as most of the companies have bought new and modern ICT technology in part because they did not have older technologies available.

TABLE 4.7. Factors Responsible for Reduced Operational Cost Percent of firms that attribute it mainly to ICT

Percent of firms that attribute it to ICT and other

Percent of firms that attribute it to mainly other

Estonia

Poland

Russia

Don’t know or N/A

TABLE 4.8. Factors Responsible for Increased Revenue Percent of firms that attribute it mainly to ICT

Percent of firms that attribute it to ICT and other

Percent of firms that attribute it to mainly other

Estonia

Poland

Russia

Don’t know or N/A

Survey Results and Analysis

TABLE 4.9. Factors Responsible for Increased Profitability Percent of firms that attribute it mainly to ICT

Percent of firms that attribute it to ICT and other

Percent of firms that attribute it to mainly other

Estonia

Poland

Russia

Don’t know or N/A

For cost reductions, ICT is again only one of several contributing factors, with a far bigger contribution of ICT for firms in Russia and Estonia compared to Poland.

altogether are the main cause of improved performance. The effects of ICT are most significant for productivity and somewhat less for profitability.

Similarly, ICT is making a larger contribution towards revenue increases in Russia and Estonia than Poland. However, rather than being the main contributing factor, ICT contributes together with other factors.

The other main factors contributing to performance besides ICT usage—being organizational change, new marketing strategies, and investment in equipment—indicate that ICT usage is part and parcel of a more profound modernization that reveals economies in transition.

For profitability of firms, ICT is a significant contributing factor in Estonia and Russia. However, firms in Poland appear less able to translate the use of ICT into greater profitability. It is evident from the above that the overall role and impact of ICT in the transition countries differ significantly between countries. This should perhaps not surprise us, as the diverse overall socio-economic and political contexts of the different countries will create varied environments for ICT adoption and utilization. We explore these issues further in a subsequent section of the study (see section on Barriers and Enablers).

4.2.5 Conclusions on ICT and Performance of Firms

All findings indicate that ICT is a substantial contributor to productivity, profitability, and growth. Simplified, the average scores lead to a 10–50–40 division of scores. Hence, on most indicators, around 10 percent of firms on average state that ICT is the main factor of improved performance while in roughly 50 percent of cases, ICT is mentioned as contributing to better performance only along with other factors, leaving about 40 percent of firms reporting that other factors

One important question that remains to be addressed is whether the firms for which ICT is not a contributing factor have failed to sufficiently or adequately use ICT, or whether this ‘non-contribution’ was inherently due to the limitations of ICT itself. For firms that mention ICT as one of the main contributing factors, the question may be asked how ICT usage is articulated vis-à-vis other factors and where the benefits of ICT usage are (predominantly) located. In this respect, an interesting observation is that ICT is contributing relatively more to reducing costs than to increasing revenue. In addition, it is also evident from the findings outlined above that both the size of the company and the information intensity of the product are important for the possible contribution of ICT for performance. Hence, larger firms are better placed to exploit the benefits of ICT, while greater overall information intensity of the product also provides greater opportunities for using ICT for improved economic performance. We discuss these findings, and their implications, in greater detail in subsequent sections of the study.

42 ICT, Innovation, and Economic Growth in Transition Economies

4.3 Effects on Innovation So far, our survey has provided estimates of the contribution of ICT in improving the performance of firms in the regions and industries studied. It left unanswered the question of how the enterprises in the sample obtained these results. Our survey addresses parts of this issue by investigating the effects on different types of innovation at business process level. The ambition of this study is not to identify all possible effects of ICT at the business process level. This would require a study in its own right. Instead, this study concentrates on a number of effects that have been observed in previous studies and are known to be significant.13 These effects are the following: N

Process innovation: speed and reliability, automation of tasks (production as well as administration), information management and the overarching category of organizational change. Product innovation: new products and services, customization and bundling of goods and services. Relational innovation: number of customers/ suppliers, value of sales/purchases per customers/ suppliers, repeat customers/suppliers, value of sales per repeat customers/suppliers.

Process and product innovation are well-known concepts, but the concept of relational innovation may require some explanation. The concept of relational innovation describes the way firms innovate in the way they are conducting business with suppliers and customers. It is narrower than the concept of strategic innovation, which is sometimes used to indicate the way firms reposition themselves vis-à-vis other players in the field, including for example government. Rather, the concept of relational innovation concentrates on the relations between suppliers and customers and more specifically the transactional aspects of these relations.14

4.3.1 Process Innovation Speed and Reliability Not only did a majority of firms manage to improve the speed and reliability of business processes (68 percent), but there is also a positive relationship between ICT usage, improved speed and reliability,

and the decline of business process costs. (See Table 37) In firms where costs went down, 85 percent relate this change to ICT usage alone or in combination with other factors. In firms where improved speed and reliability led to increased costs, the connection with ICT was far less pronounced but still significant. The study shows that: N

Forty-six percent of the enterprises that increased speed and reliability also increased their business process costs. Only 31 percent actually saw a cost decline as a result of increased speed and reliability. For 23 percent within this group, business process costs remained about the same. (See Table 38) Of all firms that improved their speed and reliability of business processes, 15 percent attribute this mainly to ICT, 50 percent to ICT and other factors, and 36 percent mainly to other factors. The attribution to ICT is significantly higher for firms that have lowered process costs by increasing speed and reliability: 38 percent mainly to ICT, 47 percent to ICT and other factors, 15 percent mainly to other factors. (See Table 39)

The most important other factors are organizational change, followed by new marketing strategies and capital investment in equipment. The presence of new marketing strategies as one of the important contributing factors indicates that speed and reliability improvement is not only just oriented towards internal business processes, but also contributes to handling operations with customers and suppliers. Automation Almost 60 percent of the contacted firms managed to automate tasks over the past three years. This has had a largely positive effect on reducing overall business process cost. Only 28 percent of the firms report increasing costs over the past three years and ICT is reported relatively more often in the context of cost reduction (81 percent) than in the context of 13 Verhoest, P., Desruelle, P., Hawkins, R. et al (2003). Electronic Business Networks: An assessment of the dynamics of business-to-business electronic commerce in eleven OECD countries: A Summary Report of the e-Business Impacts Project (EBIS). Brussels: European Commission, on-line: http://www. jrc.es/home/publications/publication.cfm?pub=1122. Also available in print (Report Eur 20776) 14 Hawkins, R. & Verhoest, P. (2002). ‘A transaction structure approach to assessing the dynamics and impacts of ‘business-to-business’ electronic commerce’, Journal of Computer-Mediated Communication, 7(3), on-line: http://www.ascusc.org/jcmc/vol7/issue3/hawkins.html

Survey Results and Analysis

BOX 4.12. Some Statistics on Automation N Fifty-nine percent of firms report having automated tasks and

N N

41 percent report not to have done so over the past three years. (See Table 40) For 50 percent of the firms that automated tasks, this change led to a lowering of overall business process costs; 22 percent report no cost change. For 28 percent of the firms, task automation led to higher business process costs. (See Table 41) 14 percent of the firms attribute higher costs due to task automation mainly to ICT usage, 58 percent to ICT usage and other factors, and 28 percent to entirely other factors. Firms that automated tasks and have lower costs in the context of task automation point relatively more often to ICT as a contributing factor: 38 percent state that mainly ICT is responsible, 43 percent say ICT and other factors are responsible, and 19 percent attribute mainly other factors. (See Table 42)

cost increases (72 percent) related to task automation. But the association of ICT as the sole main factor of change is much higher among firms that were able to reduce costs through task automation than those that saw their costs increase (38 percent versus 14 percent). As for other contributing factors, automation is mostly associated with capital investment in equipment, followed by organizational change. Along with ICT, the most important other factors are capital investment in equipment followed at a distance by organizational change.

BOX 4.13. Some Statistics on Information Management N For 41 percent of all firms that improved information manage-

ment, this improvement led to a decrease in business process cost. For 31 percent of the firms, business process costs remained the same, and for 28 percent of the firms, costs increased. (See Table 44) N Among firms that have decreased cost through better information management, 46 percent attribute this mainly to ICT usage, 38 percent to both ICT usage and other factors, and 16 percent mainly to other factors. N Among firms that report an increase in cost, 25 percent held mainly ICT responsible; 60 percent point to a mix of ICT and other factors, and 15 percent to mainly other factors. (See Table 45)

Information Management A large majority (75 percent) of all firms report improvements in information management. (See Table 43) As could be expected, the contribution of ICT usage to this improvement is significant. Eighty-four percent of firms consider that ICT contributed to this in one way or another. Fortyone percent of firms say improved information management has contributed to cost reductions, while 28 percent report increasing costs. Thirtyeight percent see ICT as the sole main factor for lowering costs through better information management and more than 46 percent report positive effects of ICT usage as one of the contributing factors. Organizational change is (again) the most often mentioned other factor, followed by training of staff, capital investment in equipment and new marketing strategies. Noteworthy, but logically, training of staff reappears here as one of the leading contributing factors. That the category of new marketing strategies also appears in the top three of other factors indicate that information management is also oriented towards managing relations with suppliers and customers.

4.3.2 Organizational Change

A substantial number of the firms have gone through organizational changes (63 percent). (See Table 46) This is not surprising at all, bearing in mind the factor “organizational change” that appeared in all sets of “other than ICT factors” influencing the corporate performance.

BOX 4.14. Some Statistics on Organizational Change N Of firms that decreased costs, 10 percent regard ICT

usage as the main contributing factor to organizational change; 47 percent state that ICT and other factors together were responsible, and 43 percent say other factors triggered organizational change. N For firms that increased costs through organizational change, ICT was the driving force in only 4 percent of cases. Forty-six percent saw ICT as one of the contributing factors and for 51 percent said other factors were the main drivers. (See Table 48)

44 ICT, Innovation, and Economic Growth in Transition Economies

Business process costs have decreased (in 43 percent of all cases) rather than increased (in 30 percent of cases) as a result of the introduction of organizational changes. (See Table 47) More companies that decreased costs as a result of organizational changes find ICT usage as the main factor. For firms that increased costs through organizational change, ICT was the driving force in only 4 percent of the cases. By far, most respondents point to a failing internal organization as the main driver of organizational change, followed by new marketing strategies and less so training of staff and investment in equipment. Overall, this analysis confirms some of the main propositions formulated in the previous main section on performance indicators. The application of organizational change and its effect as observed in our sample are indicative of economies in transition that are undergoing processes of rapid modernization. Of great significance in the context of this survey is that ICT is relatively less often seen as contributing to organizational change compared to other categories of process innovation. On average 46 percent mention other factors as the main cause of change compared to 7 percent that see ICT as the main factor. However, where ICT was the main driver of organizational change, this resulted more often in cost reductions (10 percent) than cost increases (4 percent).

4.3.3 Product Innovation New Products and Services The companies in the sample give new products and/or services an important role (70 percent, Table 49). In 73 percent of the companies that have introduced new products/services, this has driven the sales substantially up in the last three years (by 2005) (See Table 50). More than half of the firms associate these trends with other factors and very few attribute them to ICT only (9 percent, Table 51) New marketing strategies influence the growth of new products/services, meaning that product innovation is very much market driven. Customization The study shows that new products/services go hand in hand with customization. More than half of the firms have launched customized products in the market for the reporting period. This also is the cause in many cases for the increase of sales volumes. ICT comes out as one of the factors behind the above trends, but as before, it is more powerful in a combination with other factors. Similar to the introduction of new products, new marketing strategies are playing an important role. The contribution of ICT to the customization of products is marginally higher than its contribution to the creation of new products and services, and the

BOX 4.15. Case Study Electropribor (Russia) â&#x20AC;&#x201C; Careful management of the introduction of ICT Electropribor is a leading center of development and production of sea and space navigation, radio communications, and wind energy products. With more than 2,000 employees, the successful management and organization of the introduction of ICT is paramount. Within a short time-span the company had to introduce an extensive new ICT infrastructure and ensure its effective utilization across the organization. The new ICT infrastructure would enable the organization to undertake significant restructuring and become more internationally competitive. The implementation of the new ICT infrastructure followed several stages, with the creation of a powerful IT division as a starting point, followed by the development of ICT rules, and an integrated dialogue environment. These steps have since been followed by the careful selection of appropriate software. The gradual process of introducing the new ICT infrastructure has been seen as a critical success factor. Moreover, the general lessons to be drawn from Electropriborâ&#x20AC;&#x2122;s experience can be summarized in the following strategic principles critical for success: 1. Dedicated top management focused on fast and complete introduction of ICT. 2. Concentration of the management responsible for introducing the process in one common qualified ICT division with authority and a budget. 3. Careful analyses and reengineering of key business processes. 4. Continuous target preparation of the personnel (training etc.). 5. Orientation to the best ICT solutions with careful selection of suppliers. 6. Maximum outsourcing of the work. In sum, the introduction of ICT has to be carefully managed with complementary organizational changes and training/preparation of staff.

Survey Results and Analysis

attribution to ICT is similar. It is significant that almost 54 percent of all firms say they have introduced customized products and almost 61 percent have introduced new products and/or services in a relatively short period of three years. It points to rapidly changing markets in terms of product types and quality offerings that—with caution—might serve as a sign of still relatively immature markets and economies. What it also emphasizes is the highly proactive nature and behavior of the firms surveyed. The latter indicates an increasing outward looking (e.g. customer-related) behavior of the companies. New Bundled Offerings Product/service bundling is a commercial strategy that is greatly enhanced by ICT usage, in particular the offering of information services over the Internet. This is reflected in attribution rates that are moderate but still higher than for new products and customized products. That comparatively few firms (35 percent, Table 55) offer bundled services and that the attribution rate to ICT is moderate may be an indication of the development and integration of Internet in business processes thus far. Like other types of ICT-based product innovation, the offering of bundled products and services typically requires a high level of integration of ICT in internal and external business processes. The relatively low direct attribution of product innovation to ICT may therefore suggest that a significant proportion of firms still have to come to terms with ICT and process innovation, before being able to effectively engage in ICT-based product innovation. It is important to point out that in 69 percent of the firms that offered new product/service bundling, the share of bundled offerings as a percentage of total sales increased (See Table 56 and 57). The latter shows that this new commercial strategy offers economic advantages to the companies. Effects on product/services innovation are attributed to ICT alone in a small proportion of the cases, but in more than half of the companies ICT in combination with other factors played an important role. New marketing strategies is by far the most quoted other factor, followed at great distance by organizational change and investment in equipment. Training of staff is in some cases seen as important as the organizational change.

BOX 4.16. Some Statistics on Product Innovation N Nine percent of the firms that have increased the value of

sales of new products mention ICT as the main driver behind the creation of new products and services, and 43 percent of firms mention ICT and other factors. Forty-eight percent of the firms thought that mainly other factors were responsible. N Of firms that have increased value of sales by offering customized products, nine percent say ICT is the main driver of customization. For 46 percent of firms this is ICT in combination with other factors. Forty-six percent held mainly other factors responsible. (See also Table 54) N Thirteen percent of all firms that increased the value of sales through bundled offerings point to ICT usage as the main responsible factor; 43 percent point to ICT and other factors and 44 percent to other factors.

The finding that new marketing strategies are by far the main triggering factor for the new products and services indicates that product innovation is mostly market-driven. The score of investment in equipment, which would indicate supply-led strategies, is almost four times lower. Congruent with this finding, ICT scores moderately as a driver of new product offerings compared to, for example, different categories of process innovation. Interestingly, introducing new products and services is a rather popular form of serving markets. At the same time, it is a very effective sales strategy when it comes to increasing turnover, surpassing in this respect both customization and—to a lesser extent—also bundling.

4.3.4 Product and Process Innovation for Different Sectors More than 90 percent of the firms in the heavy machinery, retail and wholesale sectors that have reduced costs by increasing speed and reliability of operations and/or automated tasks attribute this gain mainly to ICT or to ICT and other factors.

Still in the domain of process innovation, finance and ICT services hold middle positions but follow closely with scores between 80 percent and 90 percent of the surveyed firms. Food processing and furniture close the ranks with scores below 50 percent. In the domain of product innovation, finance and ICT services take the two top positions. In these

46 ICT, Innovation, and Economic Growth in Transition Economies

sectors, approximately 70 percent of the firms that have increased revenue by launching new products or customizing products attribute this mainly to ICT or to ICT and other factors.

the firms with an increase in the number of customers, ICT usage is regarded as the main responsible factor while 44 percent noted that ICT and other factors played a role.

Furniture and retail and wholesale hold the two middle positions with scores around 50 percent. Food processing and heavy machinery score the least on product innovation. Heavy machinery scores higher on customization even though it has the lowest score of all for new products.

Change in Sales Value per Customer The contribution of ICT to increasing the value of sales per customer lies in the same range as its contribution to attracting more customers. Seven percent of the firms that increased their sales value per customer say that ICT was the main contributing factor while 41 percent stated that ICT and other factors are jointly responsible. Again, in comparison with process and product innovation, this may point to a relative under-utilization of the Internet as a transaction tool to increase customer loyalty.

Findings concerning product and process innovation confirm the conclusions formulated with regard to the role of information intensity of products and transactions as determinants of effective ICT usage. Finance and ICT services both have a high potential for ICT usage as both products and transactions have high information intensity. The assumption that the tangible nature of products offers only a partial explanation for the potential of ICT usage to increase performance is confirmed by the top positions of heavy machinery and retail and wholesale in the process innovation categories. The product characteristics, in particular of heavy machinery as a complex product often produced to customer specification, explain its relatively good potential for customization. This contributes to understanding the relatively good score of heavy machinery on increased revenues. But the majority of performance increases lie in the area of process innovation based on transaction cost reduction. In line with the formulated expectations, furniture and food processing show the least potential for cost reductions through process innovation because of the relatively low information intensity of transactions. However, in the area of product innovation, furniture has a distinct potential for customization, which helps explain why it also score higher on the category of revenue increases.

4.3.5 Innovation in Customer Relationships Number of Customers The combination of new products and customization as well as the influence of the factor “new marketing strategies” contributes to explaining why the number of the customers increased in the last three years (61 percent, Table 58). For 6 percent of

Share of Retained Customers ICT is an appropriate tool to increase customer loyalty and can be effectively used to lock-in customers. Figures indicate that most firms were successful in keeping the share of retained customers as a percentage of total customers at least stable—with total customer numbers going up— or even increase this share. This can be interpreted as a significant improvement in firm-customer stability and trust relationships. The low score of ICT (7 percent) as a tool to increase the share of retained customers, however, at least in comparison to other scores in the survey, may indicate that the usage of ICT as a transaction tool is still very much in development in the studied sample and has not lived up to its potential. This indicates that there is ample room for growth in this area. Changes in Sales Value per Retained Customer Similar to the share of retained customers, the contribution of ICT to increasing the sales value per customer is low and it is again possibly indicative of an underdeveloped usage of ICT as transaction technology with customers. This is largely confirmed by the fact that throughout, new marketing strategies score more than 60 percent as the single most important factor in improving customer relations and related revenue effects. In addition, observations show that most growth in sales value per customer stems from new customers rather than existing customers. In comparison with product innovation and certainly in comparison with process innovation the

Survey Results and Analysis

BOX 4.17. Some Statistics on Innovation in Customer Relationships N Only 7 percent of all firms faced a decrease in customers. Ninety-seven percent of firms with a decreasing number of customers at-

tributes this mainly to other factors and not to ICT. (See Table 59)

N Forty-five percent of all firms indicate that their sales value per customer had gone up in the last three years. 45 percent witnessed no

change and 10 percent faced a decrease of the sales value per customer. (See Table 60) 92 percent of the firms that faced a decrease of sales value due to ICT attribute this mainly to other factors. (See Table 61) N Forty-seven percent of all firms indicate that the share of retained customers had increased compared to three years ago. For 47 percent of the firms that share remained about the same, and for 7percent of the firms a decrease was observed. (See Table 62) 7 percent of the firms attributed increases mainly to ICT and 42 percent to ICT usage and other factors. 51 percent of firms attribute the increase mainly to other factors. Decreases in the share of retained customers are attributed to mainly other factors (94 percent of the firms). (See Table 63) N Forty-four percent of all firms indicate a rise in sales value per retained customer. 48 percent of the firms see no change and 8 percent faced a decrease. (See Table 64) Only 6 percent of the firms that faced an increase stated that mainly ICT was responsible, 40 percent points to ICT and other factors and 55 percent mainly to other factors and not ICT. 92 percent of the firms that faced a decrease in sales value per retained customer pointed to other factors. (See Table 65)

contribution of ICT to increasing the number of customers, retaining the customers and increase sales value per customer (retained) customer is small compared to other possible drivers. The most frequently quoted other factor causing positive effects of innovation on customer relationship is new marketing strategy. This factor accounts for almost half of all quotesâ&#x20AC;&#x201D;followed by organizational change and capital investment in equipment.

4.3.6 Innovation in Supplier Relationship Number of Suppliers The 40 percent of firms that mention an increase in the number of suppliers is significantly lower than the firms showing an increase in customers (61 percent). About 77 percent of the firms showing decreasing numbers of suppliers attribute this to other factors than ICT usage. The relation between ICT usage and doing business with more suppliers is markedly more positive, with almost 50 percent of firms mentioning ICT usage as one of the contributing factors. This attribution rate is comparable to that reported with regard to the number of customers. Value of Purchases per Supplier The relation between the use of ICT and a decreasing value of purchases per supplier is negligible. The relation between ICT and increased value of purchases is significant but weak. Of the 43 percent of firms for which the value of purchases had increased, almost 62 percent stated that this was due to factors other than ICT. (See Table 68) The 3

percent of firms that faced an increase in the value of purchases per supplier stated that this was due mainly to ICT usage (35 percent). (See Table 69) Number of Repeat Suppliers Not many firms (26 percent) show an increase of repeat suppliers. Sixty-seven percent of the firms report that the number of repeat suppliers remained about the same and 7 percent report a decrease. (See Table 70) Increases were predominantly attributed to ICT by 5 percent of the firms, to ICT usage and other

BOX 4.18. Some Statistics on Innovation in Suppliersâ&#x20AC;&#x2122; Relationship N Forty percent of the firms reported an increase in the number

of suppliers. 54 percent of the firms indicate that the number of suppliers had remained the same and 7 percent claim to have witnessed a decrease. (See Table 66) 6 percent of firms that witnessed an increase in the number of suppliers attribute this mainly to ICT usage, 44 percent to ICT usage and other factors and 51 percent mainly to other factors. Decreases are attributed to mainly other factors by 77 percent of firms. (See Table 67) N Forty-one percent of the firms indicate that the purchase value per repeat supplier increased. 53 percent declare that it remained the same and 7 percent that it decreased. (See Table 72) N Five percent of firms that faced an increase of the value of purchases per repeat supplier stated that this was due mainly to ICT, 36 percent to ICT and other factors and 60 percent pointed to mainly factors. Firms that faced a decrease predominantly pointed to mainly other factors (84 percent). (See Table 73)

48 ICT, Innovation, and Economic Growth in Transition Economies

factors by 36 percent and to mainly other factors by 60 percent. (See also Table 71) Value of Purchases per Repeat Supplier Remarkably, there is little difference between the evolution of value of purchases per supplier (general) and per retained supplier. The number of firms reporting increased sales is slightly over 40 percent, with ICT playing no determining role in increasing value of sales per supplier as yet.

Finance and ICT services consistently figure in the top positions for increasing the amount of customers, the sales per customer, the amount of repeat customers and the sales per repeat customers. Hence, attribution of ICT usage to increasing revenue is between 54 percent and 68 percent.

In about half of the surveyed firms, the most quoted factor contributing to the suppliers relationships of any kind is new marketing strategy, followed by other reasons of much less importance.

Retail & wholesale consistently holds a middle position with scores between 52 percent and 41 percent. Still in the middle range, furniture manufacturing scores better for the categories relating to customer loyalty and sales, namely between 53 percent and 63 percent, but worse for its capacity to use ICT for attracting more customers (42 percent) by using ICT.

4.3.7 Relational Innovation for Different Sectors

Food processing on average scores the lowest on all accounts.

Heavy machinery has a top score of above 60 percent of firms, linking ICT usage to more revenue generated by attracting more customers. In the categories of customer loyalty and revenue per customer, this sector has among the lowest attribution rates.

Figures on relational innovation provide no counter evidence for the conclusions made so far. They confirm some earlier findings and provide additional information. The good score of heavy machinery for attracting new customers can be explained by the

TABLE 4.10. Sector Findings on ICT and Relational Innovation Number of customers & revenue increases: attribution to ICT Heavy Machinery

Mainly ICT

ICT and other

Mainly other

15%

46%

39%

Sales per customers & revenue increases: attribution to ICT

Mainly ICT

ICT and other

Mainly other

Finance

24%

47%

29%

ICT Services

18%

39%

43%

ICT Services

31%

34%

Finance

11%

37%

51%

Furniture

63%

38%

44%

54%

Retail & Wholesale

50%

47%

Retail & Wholesale Furniture

42%

58%

Food Processing

37%

63%

Food Processing

35%

63%

Heavy Machinery

21%

79%

Mainly ICT

ICT and other

Mainly other

ICT Services

26%

42%

32%

Repeat customers & revenue increases: attribution to ICT ICT Services

Mainly ICT

ICT and other

Mainly other

19%

46%

35%

Sales per repeat customers & revenue increases: attribution to ICT

Finance

50%

46%

Finance

13%

50%

38%

Furniture

53%

47%

Furniture

63%

38%

Retail & Wholesale

39%

56%

Retail & Wholesale

42%

58%

Heavy Machinery

17%

67%

Heavy Machinery

38%

63%

27%

74%

Food Processing

16%

84%

Food Processing

Survey Results and Analysis

fact that this sector is strongly export-oriented and has internationalized in recent years. The weak scores for customer loyalty are perhaps surprising for a sector that offers customized products and uses ICT to do so, but it is logically explained by the nature of the market: heavy machinery is not sold to the same customers on a regular basis. The counter example of furniture shows a product where the link between the number of customers and level of ICT usage in customer relations is weak but where product innovation, and in particular customization, is a good basis for increasing customer loyalty and revenue per customer. This finding also contributes to explaining the good score of furniture for revenue increases observed in the previous section. In line with earlier findings, finance and ICT services score high on all categories of relational innovation. Significantly, they are the only sectors with substantial scores for positive effects on customer loyalty and revenue that can be attributed mainly to ICT. This is consistent with the market structure and transaction patterns of these sectors. Both sectors also benefit from some lock-in effects and both sectors dispose of a relatively large and stable customer base that performs regular transactions. The latter is particularly the case for the financial sector. This is expressed in the higher scores of finance vis-à-vis ICT services for customer loyalty and associated revenue effects. ICT services is a relatively new sector with an expanding customer base. This is expressed in its higher score for increasing revenue by attracting new customers with the support of ICT. Food processing closes the ranks on all categories of relational innovation. This is congruent with the observation that this sector has the lowest degree of integration of ICT in internal transaction processes and the weakest uplink to production processes. This finding also illustrates the systemic linkage between process, product and relational innovation, and how one is conditional upon the other.

4.3.8 Conclusion on Effects of Innovation

ICT usage appears to have substantial effects on process innovation, yet a limited effect on product innovation and a moderate result with respect to

relational innovation. The same order of intensity applies to the capacity of ICT to contribute to lower costs or higher revenues. This is a marked difference with observations using a partially similar questionnaire in the Belgian economy15, indicating important differences between Western and Eastern Europe. Western European companies report a higher contribution of ICT to product innovation and relational innovation than East European firms in the sample. This is consistent with earlier findings revealing important lock-in effects in OECD countries.16 In the Western European study, relatively fewer firms also reported decreasing costs17. The comparison makes it clear that the East European companies are rapidly developing organizations with frequent changes in processes and structures. Companies that already have a highly streamlined internal organization and are well adapted to the market, like the Western European firms, would observe only a marginal effect of ICT on their internal organization. It is also easier for firms that are structurally modernizing to integrate ICT in the workings of their organizations. However, it also leads to the conclusion that ICT usage is comparatively less mature in the Eastern European firms. Reaping the full benefits of ICT usage requires streamlining external and internal transaction processes. Our findings indicate that Eastern European firms find it comparatively more difficult to enter that stage. Several forms of ICT-driven product innovations, particularly for intangible products, are conditional upon, or will only significantly pay-off when external and internal processes are mutually integrated. Our findings indicate that many if not most Eastern European companies have not yet reached that stage. However, in time they may benefit from being “second” here as well. 15 Verhoest, P., Huverneers, C. & Hawkins, R. (#00#). ‘Economic Impacts of E-Business’, in P. Cunningham & M. Cunningham (eds.) eAdoption and the Knowledge Economy: Issues, Applications, Case Studies. Amsterdam: IOS Press, ###-##0. 16 Verhoest, P., Desruelle, P., Hawkins, R. et al (#00#). Electronic Business Networks: An assessment of the dynamics of business-to-business electronic commerce in eleven OECD countries: A Summary Report of the e-Business Impacts Project (EBIS). Brussels: European Commission, on-line: http://www. jrc.es/home/publications/publication.cfm?pub=####. Also available in print (Report Eur #0###) 17 Note that the Belgian sample was composed of representative samples of four industries while the Eastern European sample consists of a selection of proactive ICT users in various industries and a focus on strong performing regions. Assuming that our Eastern European firms are also pro-active on other fronts (as our findings indicate), our comparison is one of Western European average firms with Eastern European forerunners.

50 ICT, Innovation, and Economic Growth in Transition Economies

4.4 Obstacles and Enablers of ICT Usage To further complete our picture of key enablers, barriers, and obstacles to introducing and using ICT within firms, firms were asked to comment on a range of contextual factors. Some of these factors are firm-specific and relate to the firm’s strategy, culture, and positioning towards the use of ICT. It addresses the question of how internal resources are deployed to stimulate and harness ICT use within the firm. A second, separate cluster of contextual factors relates to the position of the firm within the supply chain, its upstream and downstream relationships with suppliers and customers, and how it handles the issue of in- and outsourcing. Another cluster of factors relates to the physical, economic, and policy context that together co-determine the market environment in which firms have to operate. Firms were asked to evaluate existing policy rules and regulations as well as policy instruments in relation to the investment, uptake, and use of ICT within the firm.

4.4.1 Factors Internal to the Enterprise

For the majority of firms, in-house know-how, skills, and training appeared sufficient to support the uptake and effective use of ICT. However, one out

BOX 4.19. Case study Case study: Epicor – Fear of change The work of Epicor in Poland provides an illustrative example of how the fear of change can impede the application and utilization of ICT in organizations. For 20 years, the company has been a recognized leader in the provision of integrated solutions for Enterprise Resource Planning (ERP), Customer Relationship Management (CRM) and Supply Chain Management (SCM). Focusing on companies operating in manufacturing, distribution, enterprise service automation and hospitality, Epicor leverages innovative technologies, like Web services, in the development of end-to-end industry-specific solutions. In order to improve transparency and control of the company’s performance, software was introduced that would allow for easier accountancy, client relationship management, and project management. However, a key barrier to the effective introduction and use of the new software has been the difficulties of some staff to adapt to and accept the changes and novelties associated with the new technologies. Consequently, the new technology was not as rapidly adopted as it could have been. Notwithstanding these barriers, however, the company has still managed to use the new technology to increase revenue, efficiency, and profitability.

BOX 4.20. Case Study WebService – Capacity for change WebService is one of Poland’s fastest growing interactive agencies. Established in 1996, the company has implemented almost 300 integrated marketing, consulting, and IT projects for the biggest Polish and foreign companies. Accordingly, the services provided by WebService include e-marketing, e-consulting and e-technologies (content solutions). In their work, WebService has encountered a number of factors that inhibit the easy introduction and utilization of ICT in organizations. In particular, the fear of change and lack of time/resources to adapt are primary barriers to the successful application and utilization of ICT. The experiences of WebService therefore suggest that a suitable integration of current and new processes and routines is of great importance for companies aiming to exploit the advantages of ICT.

of five firms stated that they did not have sufficient in-house know-how to support the uptake of new ICT. Similar figures applied to the question whether available staff skills and training were sufficient to support effective ICT usage. Readiness Towards ICT Two-thirds of all firms had no problem in justifying ICT investment costs, whereas for almost one-fifth of the firms, ICT investment costs could not be easily justified (see Table 76). Even more firms—73 percent of the total—stated that their management could be described as proactive in promoting ICT. (See also Table 77). Lock-in Effects An interesting question is whether firms felt that ICT usage had made it easier or more difficult for them to switch between suppliers. An overwhelming majority indicated that ICT usage had in fact made it easier. Yet 37 percent of firms answered “don’t know” or “not applicable” (37percent). (See Table 78) Outsourcing and “In-sourcing” of Activities Thirty-nine percent of all firms indicated that ICT usage had encouraged the outsourcing of activities, and 37 percent said that ICT usage had encouraged the “insourcing” of activities. Again, 50 percent of firms indicated that they either didn’t know, and 53 percent said that insourcing or outsourcing did not apply (distributed rather evenly among the two categories). When leaving out the categories not applicable, don’t know and refusal, 84 percent indicated that ICT usage had encouraged the

Survey Results and Analysis

outsourcing of activities. An equal percentage applies to insourcing. (See Table 79 and Table 80)

firms are the most satisfied, while the highest level of dissatisfaction is observed in Lithuania. This finding is perhaps surprising, as telecommunication costs are often seen as a major impediment to the take-up of ICT. However, telecommunication prices in all the countries have declined significantly in recent years. This has particularly been the case in Estonia, where efforts to liberalize the telecommunications market have been most pronounced. Moreover, it is important to stress that the survey was of leading firms, with respect to ICT adoption and use, in the countries included in the study. Prices that are not seen as major impediments for ICT take-up among these firms may be a significant barrier for other firms.

4.4.2 Regulatory and Policy Context Telecommunications Infrastructure The uptake of investment in and use of ICT by firms could potentially be hampered by factors relating to the quality and costs of using the existing telecommunications infrastructure. For most of the respondents such infrastructural factors appeared not to play a role of importance. Seventy percent of all respondents stated that telecommunication costs did not in any way inhibit the use of ICT, and only 19 percent said that it did (see Table 81 and Annex 2 for telecommunication prices).

For network reliability the position of the Lithuanian firms is reversed. They are the firms with the highest degree of satisfaction. For the other countries, satisfaction levels are in the same range as for costs.

Likewise, more technical infrastructural properties, like network reliability, network flexibility, and the range of (available) services or geographic coverage were not seen as obstacles to the use of ICT by a majority of firms. For 17 percent of the firms, network reliability was a problem. (See Table 82) Only 8 percent of the firms indicated that geographical coverage was insufficient (see Table 84), whereas network flexibility and services appeared a problem for 11 percent of the firms surveyed. (See Table 83)

On network flexibility and range of services, Lithuania is still the most positive country, followed by Estonia. But it has not been a major problem in any other country either. Latvians are the least satisfied.

Asked to state the most important information technology to their firm, 23 percent of respondents mentioned e-mail, and 28 percent mentioned general Internet access, percentages that even lie somewhat higher than mobile (20 percent) and fixed telephony (22 percent) (See Table 85) As far as telecommunication prices are concerned, the firms surveyed are generally positive. Estonian

Geographic coverage is perceived as good in all countries. On this account, Estonians are the most satisfied, closely followed by Lithuania. Latvians are the least satisfied. Perhaps surprisingly, the regions observed in Poland and Russia reveal a relatively positive evaluation of firmâ&#x20AC;&#x2122;s satisfaction with telecommunication prices and quality of services. The main differences in perception are observed in Lithuania.

TABLE 4.11. Costs and Reliability Country ratios: appreciation of policy and regulatory factors

Estonia

Latvia

Lithuania

Poland

Telecommunication costs

12.60

3.85

1.88

2.65

Russia 4.54

Average 3.69

Network reliability

10.33

5.09

49.00

3.05

3.22

4.16

Network flexibility and range of services

12.60

5.60

47.00

4.50

7.58

6.90

Geographic coverage of the network

65.00

4.50

44.00

8.81

10.71

10.34

52 ICT, Innovation, and Economic Growth in Transition Economies

TABLE 4.12. Security Country ratios: appreciation of policy and regulatory factors

Estonia

Latvia

Lithuania

Poland

Russia

Average

Available level of transaction security

32.0

3.83

19.5

2.89

3.00

4.14

9.5

4.00

14.5

3.00

2.39

3.47

Existing authentication and certification systems

Here perceptions suggest that there is a tension between low telecommunication costs and a high quality of service, whereby a good quality of service is obtained only at the expense of high prices.

and Latvia. Poland and notably Russia receive a less positive evaluation on this account.

E-security Fifty-seven percent of all enterprises indicated that the available level of transaction security encouraged ICT usage, 14 percent stated the opposite and almost 30 percent responded that it either did not apply or they did not know. (See Table 86) On the impact of authentication and certification systems on ICT usage, enterprises were less outspoken and certain. Although a large number of firms thought the existing system did encourage ICT usage (44 percent), an almost similar percentage indicated “don’t know” or “not applicable (43 percent).” A remaining 13 percent stated that existing authentication and certification actually discouraged ICT usage. (See Table 87).

Findings on security are consistent with the findings regarding quality of service. These findings should, however, not only be interpreted in technical terms but also in terms of the regulatory incentives given to and obligations imposed on service providers by regulation. In this respect, it is revealing that the ranking of countries in this category remains about unchanged in the next sections dealing with the regulatory environment.

Available levels of network security were most positively evaluated in Estonia, followed by Lithuania and Latvia. Poland and Russia display the greatest levels of dissatisfaction.

Commercial Law and Intellectual Property Rights Forty-one percent of the firms claimed that commercial law was sufficient to encourage the use of ICT, and 42 percent claimed that protection of intellectual property rights was sufficient to encourage ICT use. Compared to other factors, 23 percent of firms indicated that commercial law was not sufficient and 20 percent said the protection of intellectual property rights was not sufficient. Thirty-four percent of all enterprises indicated a “don’t know” and 40 percent said “not applicable” (see Table 88 and Table 89).

Existing authentication and certification systems are most positively evaluated in Estonia and Lithuania

Prevailing commercial law is most appreciated in Estonia and Lithuania. Polish firms are very

TABLE 4.13. Commercial Law and Intellectual Property Country ratios: appreciation of policy and regulatory factors Commercial law in place Protection of intellectual property

Estonia

Latvia

Lithuania

Poland

Russia

20.33

3.33

5.50

1.42

–1.10

Average 1.85

3.71

2.77

8.25

2.65

1.07

2.02

Survey Results and Analysis

TABLE 4.14. Tax and Financial Incentives Country ratios: appreciation of policy and regulatory factors Taxation measures Public financial support for R&D. diffusion or uptake

Estonia

Poland

Russia

Average

14.33

Latvia 1.57

2.86

–5.81

–5.0

–2.02

2.25

-–4.56

–1.71

–4.94

–7.5

–3.85

moderately positive. Russia is the only country in which negative scores exceed the positive ones. Protection of intellectual property is evaluated mildly positively overall. It is most positively evaluated in Lithuania, then Estonia and Latvia; Poland and Russia close the ranks. The regulatory regimes of the Baltic States are consistently perceived by our respondents as being the most favorable to electronic trade. The regulatory measures of the Polish government are more often evaluated as being insufficient, but it may be hoped that the continuous efforts of the European Commission to harmonize regulations will have a positive effect. Particularly with regard to commercial law, the Russian situation is a cause for concern. Tax Policy and Financial Incentives On average, neither tax measures nor (direct) financial support for R&D were perceived sufficient to encourage firms to engage in the use of ICT. Forty-two percent of all enterprises even indicated that existing tax measures discouraged them to engage in ICT usage. For only 10 percent of all firms, public financial support was perceived sufficient to encourage ICT usage. (See Table 90 and Table 91).

Lithuania

state that they are dissatisfied with taxation and financial incentives. Only in Estonia a majority of firms judged that public financial support for R&D, diffusion and uptake was sufficient. These findings are consistent with other levels of satisfaction with government intervention in, amongst other things, ICT regulation. In that sense, they are revealing of the governments’ attitudes towards ICT. However, another correlation can be established, namely with GDP per capita and available public funds to support industrial policies, thus revealing (inherited) material boundaries to proactive ICT policies. Accordingly, for the new EU member states in the survey, streamlining some of the EU structural funds towards innovation and stimulation of ICT will be highly appropriate in light of previous relevant experience of the EU-15. Use of international loans can also be an option although many of those are seen as too expensive in light of the financial capabilities of the countries at this stage.

The Russian and Polish firms are the most dissatisfied with taxation policy. A significant majority of firms support the statement that taxation discouraged the adoption of ICTs. By contrast, a majority of Estonian firms evaluate taxation policy positively, followed by the Lithuanian and, at some distance, the Latvian enterprises.

Education About 44 percent of the firms indicated that the current education system delivered adequately trained personnel to engage in ICT usage and 28 percent stated that the system delivered inadequately trained personnel. Compared to existing staff skills and training of firm personnel, which for 69 percent of all firms appeared sufficient to support the uptake of ICTs, newcomers to the labor market still have a learning trajectory to go through. (See Table 92)

A vast majority of the Russian firms, closely followed by Polish firms, state that public financial support was insufficient to support R&D, diffusion and uptake of ICTs. A smaller but still significant proportion of firms in Latvia and Lithuania also

In all countries, except Poland, the education system is positively evaluated as adequately preparing for ICT usage by a significant but moderate majority of firms. In Poland, the number of firms stating that the education system inadequately prepares for ICT

54 ICT, Innovation, and Economic Growth in Transition Economies

TABLE 4.15. Education System Country ratios: appreciation of policy and regulatory factors Education system

Estonia

Latvia

Lithuania

Poland

Russia

Average

2.19

1.33

2.2

1.03

1.89

1.55

usage is almost as important as the group that agrees with the statement that it is adequate.

the firms agree that the online provision of services by government made ICT usage more attractive. The opinions of the Russian firms are more divided.

Figures on education deviate from the traditional pattern with regard to the government’s role in promoting ICT. For obvious reasons, ICT policies are not the only factor affecting this score, which is dependent on overall levels of pedagogical quality as well. Most of all the speed of response of the educational system in the surveyed countries is still insufficient to accommodate the dynamism and the requirements of the businesses. This stems, in part, from the weak relationship between the business and education and R&D communities. It is the obligation of the government to create an environment that stimulates this relationship and hence makes the educational system more adaptive and flexible to the requirements of the businesses.

National differences in the appreciation of egovernment services as a stimulating factor for the uptake of ICT in the economy correlate relatively well with other governmental efforts to stimulate ICT. However, overall levels of appreciation are significantly lower than for other factors, indicating that the provision of online services is a relatively weak stimulus for the uptake of ICT services in the business community. Awareness, Training and Demonstration Programs Private programs to raise awareness of (the usefulness of ) ICT in firms and private demonstration programs did on average contribute more to improve ICT usage than public programs. Almost 21 percent of all firms indicated that private awareness raising and demonstration programs were not sufficient. In other words, they could be improved upon.

E-government Services For 38 percent of all enterprises, government provision of online electronic services made it more attractive to engage in ICT usage. Yet even more firms did not know or stated that government online e-services did not apply (altogether 49 percent). Curiously, almost 13 percent of the firms stated that government online electronic services made it less attractive to engage in ICT usage. (See Table 93)

This figure was almost 23 percent for public programs. 45 percent, respectively 41percent indicated a “don’t know” or “not applicable” (See Table 94 and Table 95.)

In all new EU member states and particularly in Estonia and Lithuania, a significant majority of

TABLE 4.16. E-government Country ratios: appreciation of policy and regulatory factors Government provision of online electronic services

Estonia

Latvia

Lithuania

Poland

Russia

Average

17.5

9.33

3.29

1.28

3.03

Survey Results and Analysis

TABLE 4.17. Awareness, Training and Demonstration Country ratios: appreciation of policy and regulatory factors

Estonia

Latvia

Lithuania

Poland

Russia

Average

Public awareness raising & demonstration programs

14.00

1.65

2.50

1.61

–1.59

1.36

Private awareness raising & demonstration programs

9.00

1.60

4.67

2.24

–1.02

1.79

Government training programs

–1.63

–2.69

–3.57

–4.15

–2.02

–2.66

Private training programs

14.33

2.41

3.57

1.94

1.54

2.23

Opinions about public awareness and demonstration programs vary among countries, from very positive in Estonia to very negative in Russia. Scores for private awareness and demonstration programs are not significantly better in the top three countries (the Baltic countries). In Poland, the evaluation is slightly more positive for private programs than for public programs. In Russia, scores are markedly better for private than for public programs. However, in its own right the score for private programs is not good either. Indeed, the number of firms that state that private programs are sufficient is approximately equal to those that said they are insufficient. Government training programs score negatively in all countries, with a majority of firms agreeing with the statement that they were insufficient to support the uptake of ICT. The Estonian and Russian firms are the least negatives of all. The number of Russian firms that reply “non-applicable” is markedly lower than for Estonia, possibly indicating that participation in government training activities is much higher in Russia. Private training programs are perceived far more adequate in supporting the firm’s capacity in ICT usage. The contrast with government ICT training programs is particularly striking (respectively 15 percent and 43 percent). Similarly, government training programs are generally rated insufficient in supporting the enterprise, against 19 percent for private training programs. (See Table 96 and Table 97) Private training programs are positively evaluated on average, from very positive in Estonia to moderately

positive in Russia with Lithuania, Latvia and Poland in decreasing order on the middle positions. Overall, the role of government is more appreciated with respect to awareness and demonstration programs than for training programs. Differences between countries are following the general patterns: both government and private programs score better in countries that have higher average scores. In analysing and explaining these findings, it is necessary to link them to the wider policy environment for ICT and innovation. Accordingly, in the section below, we provide a more detailed analysis of the relevant policy environments in the countries included in the study.

4.4.3 Policy Environments

The enabling environment for ICT should be looked upon more broadly: the overall economic and business environment and the government policy towards innovation and development of the knowledge economy are contributing factors. A case in point is Estonia where, alongside with the efforts for economic transformation in the early 1990s, there has been a clear focus on innovation and high-tech industries. In 1998, the Estonian parliament approved the Principles of Information Policy that provided the basis for the Information Policy Action Plan for establishing an information society. Estonia has carried out among others ID, public key infrastructure, state register reform and document management programs. Estonia has been using digital citizen ID cards to communicate with government agencies, for online banking, and for digital signatures since the beginning of 2002.

56 ICT, Innovation, and Economic Growth in Transition Economies

BOX 4.21. Case Study

BOX 4.22. Case Study

Government care for enabling environment – Estonia

Catching up – Latvia

The favorable policy and regulatory environment in the Baltic countries, and notably Estonia, is in part the result of concerted efforts by the national governments to create business environments more conducive to innovation and technological development and diffusion. Notably, the Estonian Research and Development Strategy 2002–2006 represents a deliberate attempt to transform the Estonian economy from relying on cheap labor as a source of competitiveness towards an innovation-based economy with high-quality human capital and innovation systems that support R&D, and the application of new knowledge in the interest of cultural, social, and economic development. This has included the facilitation of cooperation between traditional industry and new-economy sectors. The strategy builds on extensive R&D and education reforms during the 1990s, which set in motion institutional reform, the creation of a financing system, and the drafting of corresponding legislation to support the system. In addition, the activities of research institutions have been reorganized and a range of support structures for innovation created.

Latvia’s national e-government strategy was set out in the document “Latvia’s e-Government Conception” adopted by the Cabinet of Ministers on 20 August 2002. In February 2005, the draft Information Society programme “e-Latvia 2005–2008” was presented. The aim of the programme is to ensure the dynamic development and competitiveness of the country in the knowledge-based economy. Priority areas include e-government, e-learning, e-business and welfare, e-health, broadband and access to services, and security. The 2004–2006 Structural Funds are currently supporting a program aimed at the development and improvement of e-government infrastructure at both state and municipal levels, which also aims at providing the basis for e-government systems in rural areas.21

The Lithuanian e-government strategy was laid down in the Position Paper on E-Government adopted on Dec. 31, 2002. On Dec.14, 2004, the Lithuanian Parliament endorsed the Program of the Government of the Republic of Lithuania for 2004– 2008. One of its key aims is to “encourage the development of the IT and telecommunications sectors and to put the Lisbon strategy and e-action plan into practice.” It also intends “to arrange for egovernment services to be provided for both private individuals and legal entities and to link state registers and information systems into a secure public institution network”.18 An E-Gate for the government providing a one-stop shop to public information was launched in 2004.19 Latvia is lagging behind not only the EU-average, but its neighboring Baltic countries in a number of key indicators such as access to broadband, ecommerce and e-business development, low relative rates of Internet usage at home and even in workplaces. “Observers point to problems related to higher relative prices, low connectivity outside urban areas, as well as need for training related to new Internet and information technologies. ICT related innovation is largely confined to software applications and systems, with ICT manufacturing confined to assembly”.20 Although Russia contributes with about 12 percent to the world R&D potential, it appears still quite

difficult to commercialize this potential. The Russian part in the world knowledge-based production is about 0.3 percent compared to about 36 percent of the United States and 30 percent of Japan. The government of Russia has taken innovation and technological development seriously on its policy agenda. Since 2002 a number of policy papers, laws and regulations have passed the Parliament and President Putin has personally initiated some of them. The objectives in the field of ICT are to achieve ICT contribution to the GDP of 10 percent by 2008 and 5 percent contribution to Russian exports (against about 0.3 percent at present). Russian companies in the present study identify the following areas where improvements can be made: public awareness and government support (especially financial support) to ICT, and government regulations in the field of intellectual property and taxation. At the same time, it seems that private initiatives in the field of awareness raising and training are not filling the gap. It is important to mention that Russia, unlike the other four countries in the study, is relatively far ahead with venture capital development, especially for high-tech, innovative companies. This fact is not reflected in the results of the study for Russia. It can be due to 18 European Commission (2005) “e-Government in the Member States of the European Union”. Available at: http://europa.eu.int/idabc/en/document/4370/254. 19 Policy brief: Lithuania ICT performance, europa.eu.int/comm/regional_ policy/ sources/docconf/gothenburg/doc/briefl_lithuania.pdf 20 Idem. 21 Policy brief: Latvia ICT performance, europa.eu.int/information_society/ activities/ gothenburg_conference/doc/pdf/brief_latvia.pdf

Survey Results and Analysis

BOX 4.23. Case Study

BOX 4.24. Case Study

Barriers to innovative companies in Russia (the case of North-West Region)22

Key findings from case studies of innovative companies in Poland24

Results of a number of studies within the project show that there are three main barriers for innovative SMEs:

N There is high potential for spin-offs from Academy of Sciences,

1. Weak and ineffective innovation infrastructure. 2. Insufficient skilled experts for innovation activities. 3. Lack of or difficult access to financial resources for innovation. The innovation infrastructure includes relevant training opportunities, information sources, advisory services in marketing, finances, commercialization of science, tendering, etc. The links between innovative SMEs and R&D units or other companies are seen as insufficient and hamper the transfer of knowledge and information along the entire innovation process. Although there is a choice of R&D and highly qualified local experts, there are additional qualities needed from the staff members of innovative SMEs. These are: high professional culture and moral, entrepreneurship, commercial feeling. These qualities will need to be developed through relevant training courses.

other R&D institutes and universities.

N Entrepreneurship is the main driving force to commercialize an

innovative idea.

N Start up financed by the founders; in some cases public

research institutions play the role of incubators.

N Public funds for R&D in industry – limited; too long-term; evalu-

ated on their R&D merits only; often bureaucratic procedures; more applicable to public R&D units. N Financing in development phase – a problem: expensive credits of commercial banks; no venture capital for high risk activities (such as R&D); PARP25 is the only source to support a limited scope of activities. N Need of intermediaries for: searching for foreign partners and international markets; export opportunities; participation in EU programs. N Cooperation with R&D public units and universities – a must: there is a lag in practical orientation and commercial attitude (e.g. experience with contract research for industry).

Innovative SMEs do not have enough financial resources and have only limited access to other financial resources: credits are expensive; short-term credits prevail; venture capital is in its early stage of development; and state financing is bureaucratic.

the set up of the questionnaire where private funding is not explicitly mentioned. Polish companies miss almost the same stimulating factors as the Russian companies do—namely tax incentives, public financing/incentives, pubic awareness raising and training organized by public institutions. Polish companies also find the educational system inadequate for the fast development of their businesses. At the same time, the Polish government has been concerned with the promotion of ICT and innovation in general. Promoting information technology is described as an essential task under the government program Improving Innovation of the Economy in Poland by 2006.23 The program was adopted by the Council of Ministers on July 11, 2001. Among the government information technology plans it is important to note the Plan of IT Implementation in Administration drawn up by the Minister of Interior and Administration that is divided into five structural areas: telecommunications, information technology, law, organization and safety. It should also be mentioned that Poland has prepared an Innovation Act submitted to the

Parliament in 2005. This Act offers a number of tax and other financial incentives that would stimulate a faster commercialisation of the R&D and innovation in companies. An e-government action plan for 2005–2006 was adopted in October 2004 that is an outcome of the broader e-Poland strategy for 2004–2006. Targets include broad Internet access for all of the public administration, providing local governments with access infrastructure during 2004–2006 and supporting local initiatives for broadband access through exchange of best practice. A key current project is the “Gateway to Poland” (Wrota Polski), a central e-government portal in Poland. It will be an integrated platform supporting a number of interactive services, with user identification/ authentication, electronic case handling and epayments when needed. Pilot implementations are

22 Djarova. J, Executive Summary in: White Paper How to develop SME innovation business in Russia, Recommendations to Federal and Regional authorities, St. Petersburg, 2004; withih the project “Promotion of Innovative SMEs in the Baltic Region of the Russian Federation” (financed by the EC) 23 Polish Council of Ministers 2002 “Improving Innovation of the Economy in Poland by 2006” 24 Djarova, J. Conference Presentation within the frame of the project ‘Strengthening government policy and institutional cohesion to enhance innovativeness of Polish economy before accessing the European Union’ (financed by the Dutch Ministry of Economic Affairs), 17 February 2005, Warsaw 25 PARP (Polish Agency for Enterprise Development) plays an increasing role in stimulating innovation at the level of SMEs in the country.

58 ICT, Innovation, and Economic Growth in Transition Economies

underway in two regions (‘Podlasie Gateway’ and ‘Malopolska Gateway’).26

4.4.4 Conclusions on Enablers and Obstacles of ICT Usage

The observation of considerable outsourcing and insourcing of activities, as well as the absence of lock-in effects, are all indicators of an economy in motion and in which value chains are being reengineered. ICT plays a role as facilitator of this dynamism but, as explained in the previous sections, the usage of ICT as a tool for streamlining commercial relations still holds a lot of unused potential. Considering that our sample is constituted of proactive ICT users, it is not surprising that inhouse know-how, skills and management attitude are generally favourably looked upon. However, the quality of public education and of public training is evaluated more negatively when it comes to preparing the workforce for ICT.

In interpreting these findings, it should also be taken into account that even though they have been positively evaluated on average, many of these factors have also been obstacles for firms to engage in or to intensify ICT usage. Surmountable obstacles for proactive players may be insurmountable for the lesser players. Our findings therefore indicate an order of priority (established by experienced users) but do not allow conclusions about levels of satisfaction in general. With regard to policy, along with education and training, taxation and fiscal policy was most negatively looked upon. The provision of online government services may be considered an area to improve upon. Commercial law, intellectual property and security policy are generally evaluated relatively positively. Telecommunication prices and quality of service are well appreciated. 26 Poland brief: Poland ICT performance, europa.eu.int/information_society/activities/ gothenburg_conference/doc/pdf/brief_poland.pdf

Survey Results and Analysis

60 ICT, Innovation, and Economic Growth in Transition Economies

ANNEXES

Annexes

62 ICT, Innovation, and Economic Growth in Transition Economies

Annex 1

EBS Methodology

5.1 General Description The EBS methodology was first applied in a mainly qualitative form by the OECD in 2001 and formed the basis for the Electronic Commerce Business Impacts Project (EBIP). This study included 217 case studies covering 20 industry sectors spread out among 11 participating countries (Canada, France, Italy, Korea, Mexico, the Netherlands, Norway, Spain, Sweden, and the UK). A summary of the research findings has been published by the IPTS27 . A fully quantitative iteration of the EBS methodology was then applied by the Belgian Central Plan

Bureau in collaboration with TNO and the OECD, involving a sample of 220 enterprises in four different sectors of the Belgian economy (for a summary see Verhoest et al 200328).

27 Verhoest, P., Hawkins, R., Desruelle, P. et al. (2003) Electronic Business Networks: An assessment of the dynamics of business-to-business electronic business in eleven OECD countries: A Summary Report of the e-Business Impacts Project (EBIS). Seville: IPTS. (also available on-line: http://www.jrc. es/home/publications/publications.html) 28 Verhoest, P., Huveneers, Ch & Hawkins, R. (2004) E-business and enterprise’s performances. Paper for the eChallenges e-2004 conference sponsored by the European Commission, Vienna 27–29 October 2004 (http://www. echallenges.org/2004/). Preliminary findings presented at the OECD’s Working Party on the Information Economy, Paris 5–6 May 2003. Main findings discussed at an OECD Workshop on 3 December 2003.

BOX 5.1. Summary of the EBS Methodology and its Application to the Study To determine how ICT take-up and usage relate to competitiveness and economic performance, six sub-questions are addressed in the different modules of the survey: Module Module Module Module Module Module

A: What are the characteristics of the enterprise? B: Which ICT applications are available in the enterprise? C: How are these applications being used in distinct business processes? D: To what effect are these ICT applications being used? E: How does the usage of these applications relate to the enterprise’s business environment? F: How does the usage of ICT applications relate to the enterprise’s political and regulatory environment?

Module A serves to identify a number of basic characteristics of the enterprise and its position in the market. These “calibration data” are important to assess the enterprise’s capacity to adopt and use ICT business applications and/or its capacity to influence the ICT usage of other enterprises in their market. Module B, about which technologies are available in the enterprise, is similar to that of most ICT diffusion studies. This part of the survey questionnaire will be largely based on existing procedures used by the European Commission and/or the OECD to allow international comparison. Module C examines the effects of ICT usage as well as other factors on productivity, competitiveness and innovation. In addition, it is investigated how ICT usage and other factors relate to each other in increasing or decreasing the firm’s performance. In this context, an indication of the additionality of ICT is provided. Module D on effects assesses the contribution of ICTs to the enterprise’s performance. The aim of this question is to establish the causal relation between the usage of certain technologies in certain business processes to their effects, including negative effects. Unlike most surveys, the EBS methodology produces these estimations in a quantified and comparative way. Module E on the relation between the enterprise and its environment aims at identifying so-called strategic issues, which are not easily quantified. Questions relate to the relation between the enterprise and its business environment, in particular the value chain(s) in which the enterprise is active. Finally, module F relates to the policy and regulatory environment in which firms operate. A specific approach, tested in the EBIS survey is used to weigh the relative importance of incentives and obstacles to the usage of ICT applications.

Annex 1: EBS Methodology

The big advantage of the EBS methodology is that it explores productivity and performance impacts of technical change—ICT for this case—from the general perspective of how businesses and industries evolve relative to their specific product and/or service groups and markets. EBS therefore does not impose any a priori assumptions about how any particular technology investment and any particular productivity or performance outcome are linked. Instead, the survey question routine is set up such that firms enumerate the impacts of ICT within the business dynamics and within their own firmsupplier-customer context. We believe that this approach is especially appropriate for transition economies, as it can both fill the existing data gaps and highlight its evolutionary development path at the same time.

5.2 How to Deal with the “Additionality” Problem? A principal problem with all ICT impact measurement is how to separate the effects of ICT from all of the other factors and forces that affect productivity—in other words, to show the additionality of ICT as a specific outcome. In qualitative analysis this can be determined to an extent through examples. But in quantitative analysis, these determinations are difficult, often requiring long data time series that typically are unavailable. In its quantitative form, therefore, a specific protocol is used during the data gathering process to check for additionality (i.e. to establish the correlation between how technology has been applied and its effects). Respondents are asked to: N

identify normally expected performance parameters for specific business segments or product areas (e.g. expected growth rates, cost reductions, etc.); benchmark themselves against these parameters during the period in which ICT applications were made; and estimate the degree to which positive or negative outcomes could be attributed to ICT investments.

In other words, rather than benchmarking with a control group of firms with no or low-level ICT, additionality effects are determined on the firm level

by comparison over time; before and after the ICT take-up. This method is more efficient and more effective than using control groups, both in terms of resources used and results obtained.

5.3 Tailoring the EBS 5.3.1 Adaptations to Previous Iteration of the EBS

For this study, we have adapted the basic EBS logic and question structure of the EBS research instrument to the term of reference provided by the World Bank. In particular, we have specified new indicators that are specific to labour productivity and competitiveness. We have also adapted EBS questions on the effects of innovation in business processes such that the responses will fit into the new scheme. Modules A and B are based on work in progress at the OECD. An arrangement has been made by TNO with the OECD Working Party on Information Economy Indicators to use OECD survey instrument questions on technology usage. These have been used for survey calibration purposes, and to provide a baseline to compare results of our survey with OECD data as possible and appropriate. The following changes have, inter alia, been added to the questionnaire: Limitations to the initial length of the questionnaire which was considered far too long, accomplished by reducing the OECD part of the questionnaire, in particular (i) the questions on security, and (ii) the questions on effects on performance, since we evaluate these effects in our own module D. Module D is based on categories and indicators used in the previous TNO study in Belgium. Module C was designed by TNO especially for this study. It has not been tested but it is based on vested techniques and categories and indicators that derive directly from observations in our previous studies. Modules F and G are based on categories and techniques previously used by TNO in its OECD studies. The World Bank added section G.

5.3.2 Sampling Procedures

It is important to note that the firms in our sample are not representative of the sector as a whole. Instead firms were selected that can be labelled as being proactive users. They have been using ICT

64 ICT, Innovation, and Economic Growth in Transition Economies

comparatively (to other firms in the same sector) intensely, successfully and for a period of time of minimally three years. In other words, our study is

looking at forerunners and therefore is representative of trends that are likely to affect the industry or sector in the foreseeable future.

TABLE 5.1. Conceptual Background to Survey Questions Implementation factors

Impact indicators

Productivity

Rationales

Enablers

Inhibitors

Determined in terms of replacing labor with capital and/or increasing the output per worker.

How was IT investment linked conceptually to productivity, competitiveness and innovation?

What barriers were encountered that delayed or prevented implementation or exploitation of IT at the desired levels?

Competitiveness

How did IT investment impact (re)organization? Did the firms adjust their operations to utilize the IT? Or was it reorganization that promoted the IT investment?

Which factors facilitated the implementation of IT? (e.g. price of technology, availability of solutions, government assistance (subsidies), policy and regulatory impediments, inward investment

Determined in terms of price, quality, sales volumes, market shares, or access to domestic and global markets.

Which internal and external factors influenced the decision to invest in IT? What were the expectations?

Innovation Determined in terms of ability to establish new or improved products, processes and relational/ organizational structures in the market. Distinguish between ‘innovation’, which is developed within the enterprise, and ‘improvement’ which often involves just the importation of existing systems and processes.

(e.g. high technology and software prices, lack of in-house implementation knowledge, lack of government assistance, lack of inward investment etc.)

N Output per worker N Labor costs N Higher overall

production

N Total revenues and

business costs

Price levels Sales volumes Market share Capital expenditure Number of ‘new’ customers N Market access / expansion (do the firms serve customers in new regions /countries, etc.?) N N N N N

N New or improved

products

N New or improved

processes

N New or improved

business models

Annex 1: EBS Methodology

66 ICT, Innovation, and Economic Growth in Transition Economies

Annex 2

Country Characteristics

6.1 Estonia Estonia has undergone significant socio-economic changes and experienced an average annual economic growth rate of 5.7 percent during the period 1994â&#x20AC;&#x201C;2004. During this period, the structure of the Estonian economy significantly shifted, with services

taking an increasing role and a more export-oriented focus. Estonia has been able to respond and adapt to the process of globalization, and is one of the frontrunners of the 10 new EU member states in terms of e-connectivity with an overall Internet penetration rate of almost 50 percent. These trends also manifest themselves in the prices of connectivity.

TABLE 6.1. Overview of all Prices in Estonia All prices quoted in USD

Estonia Exchange rate used: 1 EEK = US Dollar

Unit

0,07911

Estonia

Source

Analog modem

minute

0.01

Elion

ISDN

minute

0.01

Elion

Other narrowband

minute

0.20

EMT

ADSL < 2Mbps

month

42.48

Elion

SDSL < 2Mbps

month

93.35

Elion

ADSL >= 2Mbps

month

92.56

Elion

SDSL >= 2Mbps

month

186.70

Elion

Cable modem with contractual download speed < 2Mbps

month

7.91

Cable modem with contractual download speed >= 2Mbps

month

79.11

E-mail

month

3.88

Elion

Website

month

7.83

Zone

Mobile phones

subscription per month

4.67

EMT

minute

0.14

EMT

subscription per month

9.49

Elion

minute

0.02

Elion

Fixed telephony

Remarks

Starman

MicroLink

5 email addresses

Annex 2: Country Characteristics

Moreover, ICT has been given high priority by the Estonian government, with a score of 5.3 out of 7 on the latest World Bank benchmark. In addition, Estonia has a relatively sound R&D basis, with a comparatively high proportion of scientists and engineers working in R&D.

6.2 Latvia Latvia faced an average annual economic growth rate of 5.9 percent in the period 1994â&#x20AC;&#x201C;2004. The rapid rate of economic progress has been associated with a significant structural change, with services taking on an increasingly dominant role in the economy as in Estonia. ICT is the fastest-growing sector in the country and is among the three top national economic priorities, alongside timber and light industry. Hardware and services have traditionally been stronger, but the total number of software development companies, some ISOcertified, has grown to more than 100 and

employing over 4,000 people in the period 2001â&#x20AC;&#x201C; 2002. Latvia was one of the most advanced regions in the former Soviet Union in terms of telecommunications development. Today the country ranks 39 out of 75 of overall Readiness for the Networked World, which is significantly below Estonia, but above neighboring Lithuania. Internet penetration reached a little more than 35 percent in 2005. The relatively weaker ICT infrastructure is also evident in the prices of connectivity. The relatively weak ICT infrastructure is in part the outcome of frequent changes in the government, and less priority given to ICT than in neighbouring Estonia. Moreover, the basis for innovation is rather weak in Latvia compared to its Baltic neighbours, with a limited number of scientists and engineers working in research and development.

TABLE 6.2. Overview of all Prices in Latvia All prices quoted in USD

Latvia Exchange rate used: 1 Lat = US Dollar

1,7826

Unit

Price

Source of information

Analog modem

minute

0.02

Latellekom

ISDN

month

26.56

Latellekom

Other narrowband

minute

0.18

LMT GSM

DSL (ADLS,SDSL, VDSL etc) < 2Mbps

month

70.95

Latellekom

DSL (ADLS,SDSL, VDSL etc) >= 2Mbps

month

229.95

Latellekom

E-mail

month

7.13

Apollo

Website

month

14.26

Apollo

Mobile phones

subscription per month

8.52

LMT GSM

minute

0.05

LMT GSM

subscription per month

6.31

LMT GSM

minute

0.32

LMT GSM

Fixed telephony

68 ICT, Innovation, and Economic Growth in Transition Economies

6.3 Lithuania

establishing a strong ICT infrastructure. Below, the prices for connectivity are presented.

Lithuania, like the other Baltic countries, has experienced significant economic growth in the last decade, with an average annual economic growth rate of 5.1percent in the years 1994–2004. Again, this economic progress has been accompanied by structural change in the economy, with services taking on a more dominant role. However, the structural change in Lithuania is less pronounced than in the other Baltic countries. This may partly be the result of Lithuania’s role as a leading manufacturer of electronics in the former Soviet Union.

Notwithstanding these difficulties, the basis for innovation in the country is fairly good, with a comparatively large number of scientists and engineers working in research and development.

6.4 Poland

Although the technological heritage provides the country with a favorable infrastructure for ICT development, notably hardware, the research of Readiness for the Networked World conducted in 2001–2002, ranked Lithuania 42nd of 75 countries. Moreover, the study ranked Lithuania 58th in the ecommerce micro-index, while the country’s ranking on ICT policy was 67. Such rankings are reflected in indicators of the ICT infrastructure, with—for example—an Internet penetration of approximately 28 percent in 2005. Accordingly, Lithuania has had greater difficulties than both Estonia and Latvia in

Although Poland was one of the better performing transition economies in the 1990s, recent years have proven more difficult with lower growth and high levels of unemployment. In the years 1994–2004, Poland thus had an average annual economic growth rate of 4.1 percent. The structural change accompanying the transition process has been characterized by a growing services sector. In addition, the economy has become more open, with significant increases in trade as indicated by an average annual growth in exports of 10.8 percent from 1994–2004. With regard to the ICT infrastructure of Poland, there has been a significant increase in ICT expenditure from $71per capita in 1995 to $271.1 per

TABLE 6.3. Overview of all Prices in Lithuania All prices in USD

Lithuania Exchange rate used: 1 LTL = US Dollar

Unit

0,35858

Price

Remarks

Source

Analog modem

minute

0.01

ISDN

month

7.17

Other narrowband

DSL (ADLS,SDSL, VDSL etc) < 2Mbps

month

DSL (ADLS,SDSL, VDSL etc) >= 2Mbps

month

Mobile phones

subscription per month

0.72

Omnitel

minute

0.10

Omnitel

minute

0.14

AB Lietuvos Telekomas

Fixed telephony

AB Lietuvos Telekomas For 40 hours of connectivity

AB Lietuvos Telekomas

13.63

70 USD installation costs

AB Lietuvos Telekomas

41.95

90 USD installation costs

AB Lietuvos Telekomas

0.0032

Omnitel

Annex 2: Country Characteristics

TABLE 6.4. Overview of all Prices in Poland All prices quoted in USD

Poland Unit

Price

Source

Analog modem

minute

0.013

Telekomunikacja Polska S.A

DSL (ADLS,SDSL, VDSL etc) < 2Mbps

month

Telekomunikacja Polska

25 USD installation costs

DSL (ADLS,SDSL, VDSL etc) >= 2Mbps

month

92.25

Telekomunikacja Polska

130 USD installation costs

Cable modem with contractual download speed < 2Mbps

month

UPC Telewizja Kablowa

92 USD installation costs

Cable modem with contractual download speed >= 2Mbps

month

UPC Telewizja Kablowa

Mobile phones GPRS (WAP – Wireless Application Protocol)

10 kb of data

0.0738

Remarks

Polska Telefonia Cyfrowa operating Era GSM network

Note: GPRS General Packet Radio Service. GPRS is a mobile data service available to users of GSM mobile phones. Often described as “2.5G”, i.e., between the second (2G) and third (3G) generations of mobile telephony.

capita in 2001. However, the overall ICT infrastructure in Poland is relatively poor, as evidenced by an Internet penetration of only 28 percent in 2005. The relatively poor ICT infrastructure is in part related to the low government prioritization of ICT in Poland, with the World Bank estimating a score of only 3.6 on a scale of 7 in 2002. The prices for connectivity in Poland are presented below. In addition, the country has a comparatively low number of scientists and engineers working in research and development, suggesting that the overall foundation for developing, applying and utilising ICT for innovation and economic growth is weaker in Poland than in some of the other countries that are analysed in this study.

6.5 Russia Among the countries included in this study, the Russian economy has experienced the most difficult transition process in the last decade. These difficulties are reflected in the comparatively low average annual economic growth rate from 1994–2004 of

3.2 percent. As with other transition economies, the decade of change has also seen significant structural changes, with services becoming more dominant. However, it should be noted, that the manufacturing sector was, and remains, more significant in Russia than in the other countries included in this study. A relatively slow pace of ICT development is reflected in the comparatively weak ICT infrastructure in Russia. Hence, Internet penetration reached only a little more than 15 percent in 2005. As for the ICT sector, it contributes to approximately 1 percent of GDP, and according to some assessments, the development of ICT in Russia is lagging behind that of the leading Western countries with some 5–10 years. The prices for connectivity in Russia are presented in the table below. The number of people employed in scientific jobs was significantly reduced in the period 1990–2001, with an associated significant reduction in spending on science. In addition, the foundation for innovation in Russia is further limited by the poor commercial application of scientific knowledge, with less than 5 percent of scientific discoveries being

70 ICT, Innovation, and Economic Growth in Transition Economies

TABLE 6.5. Overview of all Prices in Russia All prices quoted in USD Russian Federation (Moscow, St. Petersburg)

Unit Analog modem

Price

minute

0.01

month

ADSL < 2Mbps

month

ADS >= 2Mbps

month

150

Cable modem with contractual download speed < 2Mbps

month

Cable modem with contractual download speed >= 2Mbps

month

150

Other broadband with contractual download speed >= 2Mbps E-mail

Fixed telephony

200

month

minute

0.02

subscription per month

applied in commercial settings during the last 10 years. Accordingly, of the countries included in this study, Russia appears to have the weakest basis for

Remarks

some users of broadband connections are instead charged 0.02â&#x20AC;&#x201C;0.07$/Mb

successfully developing, applying, and utilizing ICT for economic growth.

Annex 2: Country Characteristics

72 ICT, Innovation, and Economic Growth in Transition Economies

Annex 3

Regions

7.1 Poland 7.1.1 Pomorskie Region

The Pomorskie Region in Poland is located in the Northern part of the country. The regional economy is dominated by shipbuilding, oil refining, electrical, transport, fishing and tourism. According to the latest official data of Polish Official Statistics (GUS), there were 226,329 business entities in the region29. Roughly 3,221 of these enterprises had a share of foreign capital30. The region benefits from a number of advantages, of which the most important are: N N N

N N N

N N

a diversified economy; a developed SME sector; the tri-city metropolitan area (Gdańsk, Gdynia and Sopot) is one of Poland's main centers of economic growth, and an important transportation junction; a maritime location; the presence of high-tech industries; strong agricultural potential of the Żuławy region; a young, well-educated labor force; a large and differentiated raw material resource base; export capacities of the shipbuilding industry; and an attractive region for tourism.

Notwithstanding such advantages of the regional economy, there is a high unemployment rate of more than 20 percent. Among the employed, almost 23 percent work in industry and more than 15 percent in trade and repair. The regional innovation system benefits from several universities, of which the most important are the University of Gdańsk (more than 27,000 students); the Technical University of Gdańsk

(almost 17,000 students); Pomerania Pedagogical Academy in Słupsk (almost 10,000 students); and the Marine University in Gdynia (more than 8,000 students).

7.1.2 Mazowieckie Region

The Mazowieckie Region is located around the capital city of Warsaw. The regional economy is dominated by food, automotive, oil, chemical (mainly pharmaceutical), publishing, energy, telecoms, banking, finance, insurance and IT. According to the latest official data of Polish Official Statistics (GUS), there were 575,598 business entities in the region. Roughly 17,090 of these enterprises had a share of foreign capital31. The region benefits from a number of advantages, of which the most important include the following: N

It is an area with a large concentration of companies and the highest level of income per capita. It is in the trans-European transport corridors; has well-developed railway network and the largest airport in the country, ensuring connections with large cities in the country and in Europe. It is an area with the highest innovation levels. Outlays on R&D activities are one of the highest in the country. The region is often visited by foreign tourists, thanks to advantageous connections with other European cities, high quality of hotel, transport, telecommunication and financial services. In economic and cultural terms, the voivodship is dominated by Warsaw—capital of the country and the region, as well as city of international importance.

29 GUS – Statistical Yearbook of the Regions 2004 – Poland. See page 637. 30 Pomorskie Region Profile. See http://www.paiz.gov.pl/index/ ?id=f2fc990265c712c49d51a18a32b39f0c. 31 GUS – Statistical Yearbook of the Regions 2004 – Poland. See page 637.

Annex 3: Regions

Warsaw is characterized by high levels of inward investment, a large pool of qualified labor and high rate of privatizing the state sector. The Warsaw Stock Exchange is the largest bourse in Central Europe.

Compared to the country as a whole, the region has a fairly low unemployment rate of approximately 16 percent. Among the employed, more than 30 percent are employed in either industry or trade and repair. The regional innovation system benefits from several universities, of which the largest are Warsaw University (more than 50,000 students), Warsaw University of Technology (more than 30,000 students), Kazimierz Pułaski Technical University in Radom (almost 20,000 students), Warsaw School of Economics—number of students (more than 12,000 students), Warsaw Agricultural University (almost 18,000 students) and University of Commerce and Law in Warsaw (more than 10,000 students).

7.1.3 Slaskie Region

The main city of the Śląskie region is Katowice. The regional economy is dominated by mining, iron, lead and zinc, metallurgy, power engineering, automotive, chemicals and textiles industries. According to the latest official data of Polish Official Statistics (GUS), there were 424,031 business entities in the region. Roughly 4,105 of these enterprises had a share of foreign capital32. The region benefits from several advantages, the most important of which are listed below: N

It is the most industrialized and urbanized region of Poland. It has a large market—almost 5 million consumers and many large companies. It has a comparatively good road, railway, and telecommunications infrastructure; International airport "Katowice" in Pyrzowice ensures domestic and international flight connections. It has a broad range of sectors where investment opportunities exist: industry, services, development and modernization of infrastructure, tourism, agriculture. It has a well-developed and diversified R&D base (over 30 universities, numerous R&D units, 200 000 students).

It has active cross-border cooperation, thanks to the proximity of the Czech and Slovak borders.

Despite these advantages, the regional unemployment rate is more than 20 percent. Among the people employed, almost 30 percent are working in industry, and a further 16 percent are employed in trade and repair. The regional innovation system benefits from several universities, of which the largest are the Silesian University in Katowice (more than 40,000 students), the Technical University of Częstochowa (more than 22,000 students), the Technical University of Silesia (almost 30,000 students), the Academy of Technology and Arts (more than 5,000 students), the Karol Adamiecki Academy of Economics (more than 12,000 students) and the University of Marketing Management and Foreign Languages in Katowice (more than 11,000 students).

7.2 Russia 7.2.1 Moscow

The regional economy around the capital city of Moscow is dominated by mechanical engineering, the food industry, the electric power industry, the fuel industry, the chemical and petrochemical industry and forestry, wood processing and pulpand-paper. In 2004, the fastest growing sectors were food (7.7 percent), light (15.9 percent), non-ferrous metallurgy (21.7 percent), mechanical engineering & metal working (21.4 percent), building materials industry (2.9 percent), forestry and wood processing (4.2 percent). The level of registered unemployment is 0.6 percent (February 2005), while an employment study done by Moscow Statistical Committee showed that the real unemployment rate is higher, at around 1.1 percent. Among the people employed in large and medium-sized enterprises, 12 percent were employed in processing industries, 12 percent in education, 11 percent were working in transport 32 GUS – Statistical Yearbook of the Regions 2004 – Poland. See page 637.

74 ICT, Innovation, and Economic Growth in Transition Economies

and communications, 11 percent in organisations performing research and development, 10 percent in health and social care, 8 percent in wholesale and retail trade and 6 percent in construction. Among the large- and medium-sized enterprises, the largest increases in the number of employees between February 2004 and February 2005 were in wholesale and retail trade, financial services and construction.

7.2.2 Saint Petersburg

Saint Petersburg is the largest industrial center of Northwest Federal district that accounts for 30 percent of the total amount of the industrial output of this district. The city is one of the largest diversified industrial complexes of Russia. The industry of Saint Petersburg employs more than 20 percent of the population and contributes 26.3 percent of tax revenues in the budgetary system and almost 45

percent of the total sum of profits received in the economy of the city. The basis of the industry of Saint Petersburg is dominated by mechanical engineering enterprises, producing technically complex high technology production, and enterprises from the food industry. There are about 700 large industrial enterprises and more than 12,000 thousand medium and small enterprises. Approximately 39 percent of all industrial production in Saint Petersburg is produced by private companies, while more than 31 percent is by joint Russian and foreign companies, more than 18 percent by foreign enterprises and 5 percent by mixed Russian (without foreign capital) firms. The share of the state-owned enterprises represents slightly more than 6 percent of the total volume of industrial production.

Annex 3: Regions

76 ICT, Innovation, and Economic Growth in Transition Economies

Annex 4

Selection Criteria for Sectors

A. Growth Potential and/ or Strategic Importance for Economic Development Sectors have been selected on the basis of an assessment of their current and future importance for the national economy, taking into consideration sectors with a particularly high growth potential and/or strategic importance for general economic development in the country concerned. Current sector performance and growth potential were taken as a point of departure for the selection of key sectors. Not only economic performance and growth per se (i.e. income and wealth creation), but also employment growth potential (including which quality segments) are important variables, viz. the phenomenon of â&#x20AC;&#x153;joblessâ&#x20AC;? growth. Indeed, improved overall labor participation is a key factor to development, particularly so in transition economies.

B. Potential for Cross-country Comparisons & Extrapolation of Findings to other Sectors In order to allow cross-country comparisons and extrapolation of findings to other sectors, the selection of sectors includes equivalent sectors over all five countries. The basis for comparison lies in shared product characteristics. To this end, our sampling method uses matrices comprising different dimensions such as: goods and/or low information component products versus services and/or high

information component products; simple and/or standardized products versus complex products and/ or variable product specifications.

C. ICT and Innovation Content and Intensity Past experience indicates that it is important to select firms where the level of ICT application is known already to be reasonably extensive and where the applications are diverse enough to encompass SMEs as well as large companies. The supply chain (value system) dynamic is known to be a key component of productivity effects. Firms that have been using ICT actively, for a relatively long period and success are more indicative of future trends and possibilities. The selection of sectors was made having in mind a more or less comparable distribution between sectors in terms of ICT intensity and assets between the countries. Both ICT-producing and ICT-using firms have been taken into account, with an emphasis, however, on ICT-using manufacturing and services.

TABLE 9.1. Sector/product Category Selection Matrix ICT producing

ICT using

Manufacturing

Services

Annex 4: Selection Criteria for Sectors

78 ICT, Innovation, and Economic Growth in Transition Economies

Annex 5

Selected Sectors

9.1 Distribution by Country/ Region The table below shows the distribution of companies per country/region and sectors over the whole sample of 620 firms. The final selection of firms and the downsizing of the long list to practical shortlists for interviewers are based on a number of criteria:

A good fit with the final pre-specified list of product groups/sectors in each of the countries and regions. Balanced and representative representation of firms according to size (micro, small, medium and large enterprises) and in accordance with the structure of the sector concerned. Adequate attention for foreign direct investment and foreign-owned enterprises, but an emphasis on domestic enterprises.

TABLE 10.1. Distribution of Companies per Country/Region and Sectors Country

Region

Secondary sector

Tertiary sector

Estonia (69)

Tallinn and Tartu region

Food – 17 Furniture (wood value chain) – 12 (incl. 9 wood products, 3 furniture) ICT equipment – 4

Total

Retail – 11 Banking – 7 ICT services – 12 Transport – 1 Others – 5 36

Latvia (70)

Riga region

Retail – 7 Banking – 17 ICT services – 5 Publishing – 2 Construction services – 1 Transport – 1 Others – 5

Total

Food – 7 Furniture (wood value chain) – 15 (incl. 5 wood products, 10 furniture) Chemicals – 2 Heavy machinery – 1 Light machinery – 1 ICT equipment – 0 Construction materials (incl. basic metals) – 6 32

Lithuania (57)

Klaipeda-Vilnius corridor

Banking – 12 Retail – 6 ICT services – 0 Construction services – 2 Others – 1

Total

Food – 8 Furniture (wood value chain) – 0 Automotive industry – 10 Textiles – 9 ICT equipment – 1 Construction materials (incl. basic metals) – 3 Light machinery – 3 Heavy machinery – 2 36

Poland

Mazowieckie (Warsaw) (63)

Food – 5 Automotive industry (manufacturing and repair) – 0/4 Construction materials – 7 ICT equipment – 1 Heavy Machinery – 2

Banking – 7 Retail – 21 ICT services – 15 Construction services – 1

(continued on next page)

Annex 5: Selected Sectors

TABLE 10.1. Distribution of Companies per Country/Region and Sectors (continued)

Country

Region

Secondary sector

Tertiary sector

Poland

Slaskie (Katowice) (60)

Food – 4 Automotive industry (manufacturing and repair) – 4/9 ICT equipment – 0 Machinery/light machinery – 6/3

Banking – 0 ICT services – 9 Retail – 5 Transport – 20

Poland

Pomorski (Gdansk) (77)

Food – 17 Shipbuilding – 20 ICT equipment – 0 Chemicals – 5 Machinery/light machinery – 1/1

Total

200

Banking – 0 Transport – 17 ICT services – 9 Retail – 2 Construction services – 1 Other – 4 111

Russia

St Petersburg city (124)

Food – 18 Furniture (wood value chain) – 17 (incl. 5 wood products, 12 furniture) Paper (wood value chain) – 1 Machinery / light machinery 20/1 Construction materials – 13 ICT equipment – 0 Motor vehicles incl. shipbuilding – 2 Chemicals – 4

Transport – 9 ICT services – 15 Retail – 14 Publishing – 5 Construction services – 1 Others – 4

Russia

Moscow city (100)

Transport – 1 ICT services – 16 Retail – 16 Construction services – 1 Others – 4

Total RF Total

224 620

Food – 13 Furniture (wood value chain) – 8 (incl. 6 wood products, 2 furniture) Paper (wood value chain) – 3 Machinery / light machinery 14/1 Construction materials – 19 ICT equipment – 2 Repair motor vehicles – 3 136 326

Pro-activeness of firms as measured by degree of innovativeness and (a priori assessed) successfulness in applying ICT over the last three years.

9.2 Selected Key Sectors: some Stylized Facts and Figures by Country 9.2.1 Estonia Food The Estonian food sector has undergone a comprehensive renewal process during which equipment for production processes has been modified to meet the EU requirements. The biggest production shares in the food sector are dairy and drink products. Those two types of products also represent the best export articles. With the recent EU membership of

98 294

Estonia, the food sector benefits from opportunities for expanding business activities across borders and increase exports to other EU countries. Indeed, with the new opportunities arising with EU membership, coupled with increasing domestic demand, the future prospects for the Estonian food sector are generally considered good. However, in order to fully exploit the opportunities associated with EU membership, the sector must address some critical weaknesses, such as the limited number of suppliers and the problem with rapidly aging and occasionally infected products that have a negative impact on sales and the reputation of the Estonian food sector. Furniture (Wood) Wood is the number one export article and the most valuable natural asset to Estonia. Almost 25 percent of all exports are wood and wooden products—i.e. furniture. A very large investment has been made in the center of Estonia, where the biggest sawmill is

80 ICT, Innovation, and Economic Growth in Transition Economies

Country

Region

Estonia

Tallinn and Tartu region

Primary sector

situated. Furthermore, furniture producers have spent a lot of time on design and testing to fulfill the needs of clients. Over the past few years, more and more Estonian-made furniture has been used all over the country (private and public office spaces, schools, universities etc.). As a result, the volume of sales and exports has increased more than other production categories. Accordingly, the future prospects of the furniture (wood) sector are generally considered bright and promising. However, as with other sectors in Estonia, the furniture sector struggles with a limited number of suppliers. Moreover, the sector suffers to some extent from a reputation of producing goods of low reliability and durability. ICT Equipment ICT equipment has only been of significance to the Estonian economy in the last five years. Due to Estonia’s status as a pioneer among transition countries in the field of ICT, that sector has experienced significant growth during the last five years. The sector has, in particular, gained a competitive advantage from low prices combined with good know-how in building computers, servers and other equipment compared to Western Europe. With Estonia’s membership of the EU, the opportunities for exploiting this competitive advantage have improved. However, the future growth of the sector is constrained by a lack of affordable skilled labour, with skilled workers becoming more expensive or even leaving the country. Retail For the retail sector, success is mostly dependent on best location, rental prices, and potential clients. During the past years several new shopping areas have been constructed and more internationally known trademarks are represented in them. As long as the prices of consumables and other merchandise remain at a lower level compared to the northern and western neighbors—Finland and

Secondary sector

Tertiary sector

Food

Retail

Furniture (wood value chain)

Banking

ICT equipment

ICT services

Sweden—the growth of retail business is unlikely to slow down. Besides, the Estonian population is saving less and spending nearly all of their incomes, which, in part, explain Estonia’s economic growth. Banking The banking sector is of critical importance to the Estonian economy, as a well functioning economy requires a sophisticated and functioning banking system. The Estonian banking sector has developed fast internally and externally. Services have reached high levels, with competition now increasingly based on the interest offered on loans. Externally the development is mainly about opening new branches in the Baltic States and in Russia. As for the future of the sector, the main threat to the domestic banks is the potential entry of European competitors into the Estonian market. ICT Services The ICT services sector does not differ much from the ICT equipment sector, in so far as it is often the same companies that are involved in the two sectors—e.g. Microlink Computers and FujitsuSiemens. The last 5–10 years have seen a noticeable increase of companies that are oriented towards ICT services. Those firms are mainly micro-enterprises and do not have a substantial influence on the market. The level of ICT knowledge of Estonian companies (i.e. employees) is comparable to Western European countries. Although a key threat for the sector is the attraction of higher salaries abroad, there is no reason to predict a shortage in IT personnel during the next few years. Rather, the future prospects for the sector look good and the demand for ICT services is continuing to increase due to the technological developments and growing use of ICT.

Annex 5: Selected Sectors

9.2.2 Latvia Food Until the collapse of the Russian economy in the late 1990s, this sector was the largest part of Latvia’s manufacturing total, with nearly 45 percent of total production. The food-processing sector has been hit heavily by the adverse economic situation in Russia, upon which it relied heavily for exports. However, according to the forecasts of a study (“The overview of food trade market in Latvia” by Marketing a Konsultaciju Centers SIA), the food industry in Latvia has a bright future in the long-term and there are good prospects. The positive outlook for the sector is further indicated by the attraction of foreign investments, and till the end of the year 2001 the sector received € 70 million from foreign investors, mainly Swedish, British and Finish. Furniture (Wood) Furniture manufacturing makes up 36 percent of Latvia’s timber industry. The value of the furniture manufactured in Latvia for 2003 in comparison with 2002 has increased by 11.3 percent, and the sector employs approximately 12,900 people in about 400 mainly small and medium-sized enterprises. Almost 80 percent of the furniture was exported, mainly to Denmark, Germany, and United Kingdom. There are good opportunities for the development of furniture manufacturing in Latvia, but the main priorities for the realization of these opportunities are investments in human resources and technologies. Latvia’s forest sector is explicitly focused on the external market, since it exports approximately 70 percent of the production to more than 50 different countries all over the world, but mostly to the EU.

Country

Region

Latvia

Riga region

Primary sector

It is of interest to note that every year the share of higher value-added products in total exports increases. Chemicals The chemical industry in Latvia has a long tradition, and the sector contributes 5.5 percent of industrial production and employs 6,500 people. The main areas of manufacturing of the Latvian chemical industry are fibres, pharmaceuticals, paints, varnishes, soaps, cosmetics, rubber and plastic products. More recently, oil and natural gas chemistry, which is supported by the stable transit of oil and gas through Latvia, are becoming areas of importance to the chemicals sector. The Latvian chemical industry has been attractive to many companies around the world, and has already invested € 41 million. In addition, the largest pharmaceutical companies in Latvia aim tot serve international distribution channels, for which they have an advantageous position in the center of Europe. Light Machinery There has been considerable restructuring in the machinery and electrical equipment sectors in Latvia over the past decade. The region was heavily dependent on trade with Russia and foreign companies have taken the opportunity to supply machinery and equipment to the country, and to identify and use Latvian subcontractors. Latvia has a long tradition of mechanical engineering and metalworking, with many such companies having been established to use Latvia as a route to the Russian market. The output of machinery and electrical equipment in Latvia has been approximately € 60 million per annum, representing some 6 percent of total manufacturing output, though

Secondary sector

Tertiary sector

Food

Retail

Furniture (wood value chain)

Banking

Chemicals

ICT services

Light machinery ICT equipment

82 ICT, Innovation, and Economic Growth in Transition Economies

there was a large fall in production in 1999, due to reduced demand from Russia. This further illustrates the continued dependency of the sector on the Russian market. ICT Sector ICT equipment and services is the fastest growing economic sector in Latvia with a yearly growth rate of 20–30 percent during the last decade. Exports of the sector have been rapidly increasing in recent years with an annual growth rate of approximately 15 percent. The industry’s main asset is highly qualified human resources with more than 8,000 graduated ICT specialists and an additional 6,000 in universities and colleges. The key competence area of the Latvian ICT industry includes customized IT solutions, financial applications, localization, implementation of large-scale projects, and application services. Besides the development of software, Latvian ICT companies offer integrated solutions in complex areas like project implementation, business process engineering and business strategy. The competence of Latvian ICT sector has been proven by the successful outsourcing activities of IT giants like IBM, Microsoft, Unisys, Sybase, Lotus, and Sun, as well as by the acquisition of Latvian companies by Exigen, TietoEnator and others. These developments also reflect Latvia’s full embrace of the Information Age. Latvia has embarked on an ambitious plan to become the recognized regional leader in the information technology and telecommunications sector. Latvia offers a wide range of opportunities for ICT businesses, with Latvian software companies having developed excellent skills in developing major systems, and is successfully providing ERP (enterprise resources planning system) implementation services to Western companies. The unique mix of strong industrial traditions in advanced systems and software engineering, welldeveloped transport infrastructure and skilled IT professionals, suggests Latvia is the ideal hub for high-tech manufacturing. Latvia is thus an attractive location for outsourcing the development of Ecommerce solutions, and for the development of web-design and web hosting. Banking Constituting almost 16 percent of the FDI stock (2003) the banking (financial services) sector has experienced remarkable growth rates with tripled commercial bank assets and a six-fold increase in

loans since 1996. Experts estimate that the financial market in Latvia will maintain the same growth speed, considerably higher than average indicators on the EU, for at lest 3–8 more years (as of 2005). The Latvian banking and insurance market is dominated by important regional players (e.g. Förenings-Sparbanken, SEB, Nord/LB, Nordea) who are present either as owners of, or important/ majority shareholders in banking operations initially established locally. However there are still a number of niche opportunities within the domestic financial services market, especially in the field of corporate banking. Particular growth within the banking sector is expected in the financing of loan operations, export/import deals and online banking. It is expected that the most rapidly growing insurance markets will be services related to corporate and social insurance. Growth is expected also in new and yet not thoroughly explored areas such as pension and investment funds. The most important driving force for further growth remains the constants increase of purchasing power and overall economic activity in the country. This, in combination with the stable, conservative monetary policy of the Bank of Latvia makes Latvia an attractive financial environment. Key advantages of the sector are the stable monetary policy, constantly growing purchasing power and demand for financial services (source: LIDA). Retail The retail sector in Latvia has been growing steadily during the last few years with a growth rate of around 12 percent per year on average. The structure of the sector has changed dramatically, as five years ago more than half of the turnover came from food-products, but now around 65 percent of the retail turnover comes from non-food products (Ministry of Economics of Latvia). Some of the retail sub-sectors like textile and clothing, building, and household goods and appliances had a growth of around 30 percent last year (Central Statistical Bureau of Latvia). The high growth in retail trade in Latvia in the last few years is explained by the growth if people’s incomes and by the development of crediting and leasing services. Also development of retail trade networks and distribution of bigger quantities of goods through retail companies have influenced the growth of retail trade in Latvia. The changes of the

Annex 5: Selected Sectors

structure of the retail sector are linked with changes in consumption structure triggered by the growth of peopleâ&#x20AC;&#x2122;s incomes. However, the majority of changes in the retail trade structure were determined by difference in the dynamics of consumer prices in various groups of products. The turnover has increased most rapidly in enterprises trading clothes, footwear and textiles comprising 36 percent, and household goods up by 32 percent (www.ambriga. um.dk). Key advantages of the sector are rapid realestate development; continuously growing purchasing power, demand for more qualitative better products and services and competition among big retail and wholesale chains.

9.2.3 Lithuania Secondary Sector (Food, Furniture, Automotive Industry, Textiles and ICT Equipment) Manufacturing in Lithuania comprises some 9,000 companies (14.8 percent of total), of which 24 are larger than 1000 employees, which is remarkable for Lithuania compared to other Baltic States. Industry, which includes furniture, automotive industry and textiles, contributes 4.2 Billion Euro to the national GDP, equivalent to 23.5percent of total GDP. The productive activities, which include the food sector, ICT equipment and retail sector contribute 5.3 billion Euros, approximately 30 percent of total GDP. The secondary sector is also becoming increasingly internationalized, with growing exports. Hence, the food industry exported a total 693 million Euros in 2004, while the exports from the automotive industry amounted to 406 million Euros in the same year, and the textile sector exported goods for a

Country

Region

Lithuania

Klaipeda-Vilnius corridor

Primary sector

total value of 825 million Euros. Exports from the ICT equipment sector amounted to 350 million Euros in 2004. The internationalization of the secondary sector is further reflected in increasing foreign direct investment, with the manufacturing sector receiving cumulative foreign direct investment (as of 2002) of almost 600 million Euros. Tertiary sector (Banking, Retail, ICT Services) Banking and ICT services belong to the classification of financial intermediation and business services activities that has 8,573 companies and constitutes a share of 14 per cent of the total, and contributes 2 billion Euros to the economy, equivalent to approximately 11 percent of total GDP. The retail sector is part of wholesale and retail trade section, which has the most number of enterprisesâ&#x20AC;&#x201D;24,804 that is equivalent to a share of 40.6 percent of the total. As with the secondary sector, the tertiary sector is becoming more internationalized. This is primarily reflected in significant amounts of foreign direct investment, with wholesale and retail receiving total cumulative foreign direct investment (as of 2002) of more than 450 million Euros, equivalent to almost 20 percent of the total foreign direct investment to Lithuania. The equivalent figure for financial intermediation is almost 500 million Euros, while post and telecommunication received more than 350 million Euros in foreign direct investment.

Secondary sector

Tertiary sector

Food

Banking

Furniture (wood value chain)

Retail

Automotive industry

ICT services

Textiles ICT equipment

84 ICT, Innovation, and Economic Growth in Transition Economies

9.2.4 Poland Food Sector The blossoming of the food sector began at the start of the 1990s when the role played by private capital increased significantly33. In the 1980s, the state controlled 80 percent of the food industry. This fell in the 1990s to 15 percent. Inflows of the foreign capital helped to accelerate development and lift the standards of companies in the sector. By the end of 2000 about $5 billion in foreign investment had been directed to the sector (by comparison, the whole Polish industry in this period accumulated about $20 billion). Investors were mainly interested in the Polish sugar production, tobacco, beer companies and meat industry. The largest foreign investors in the food sector are: Coca Cola Hellenic Bottling Company, Germany’s Reemtsma Cigarettenfabrik GmbH, the U.S.’s Philip Morris, Swiss Nestle, U.S. Pepsico and Dutch Harbin BV and Heineken. Automotive Industry Poland has become one of the most attractive markets in Europe for companies engaged in the automotive industry34 (however, competing strongly against Slovakia, Czech Republic and Hungary). Several multinational auto companies are manufacturing or have announced firm commitments and plans to open their factories in Poland. General Motors’ Opel Division has completed construction of modern car manufacturing operation in southwestern Poland, in Gliwice near Katowice, where it manufactures approximately 140,000 latest models

annually (e.g. Zafira). Fiat has been manufacturing its cars in the southwestern region of Tychy (Śląskie Region) for several years now and will continue activities here (the new Cinquecento model will be assembled only in Poland). Other car companies presently assembling cars in Poland include Volkswagen, in Poznań. Machinery In the 1990s the highly centralized bureaucratic machinery industry was reorganized into a large number of small and medium-sized private firms. The reorganization targeted mainly but not solely at expansion of the housing construction industry. The second goal of this reorganization was to revive demand for relatively modern and sophisticated construction machines that Polish industry was able to produce. Currently this sector becomes subject of many foreign investments, e.g. Whirlpool invested in Polar in Wrocław, Merloni, Bosh and Siemens in the neighborhood of the second Polish town—Łódź, etc. ICT Sector Some Polish computer companies have developed strongly: Prokom, ComputerLand, Softbank and Comarch are among the biggest companies. All are listed on the Warsaw Stock Exchange and are also investing abroad. The value of the Polish IT market is estimated at about $2.7 billion, excluding telecom operators. The 33 See http://poland.gov.pl/?document=481; 34 See http://www.millercanfield.com/services/practice/automotive.asp;

Country

Region (Capital)

Primary sector

Secondary sector

Tertiary sector

Poland

Mazowieckie (Warszawa)

—

Food

Banking

Automotive industry

Retail

Construction materials

ICT services

ICT equipment Poland

Slaskie (Katowice)

Petroleum refining

Food

Banking

Automotive industry

ICT services

ICT equipment Poland

Pomorskie (Gdansk)

Petroleum refining

Food

Banking

Shipbuilding

Transport

ICT equipment

ICT services

Annex 5: Selected Sectors

dynamic growth in the value of this market is therefore huge, the largest in the Polish economy and many times higher than the rate of the national GDP growth.

Norway, Denmark. Stocznia Szczecińska Nowa, over 50 years old, has built more than 600 ships. It specializes in building large chemical tankers and container ships.

The IT branch structure has also changed, with the share of hardware production and sell falling—from 62 percent in 1997 to almost 43 percent in 2000, with sales of services and software growing, respectively, from 38 percent to more than 57 percent.

Banking Most banks in Poland operate as multipurpose institutions. They are involved in various types of deposit taking and financing activities, offering a wide range of commercial and personal banking services. Many of them are also active on the capital markets through their own brokerage houses. Some of the banks are involved in investment banking activities, such as underwriting issues of bonds and stocks, or advisory services. The number of banks offering i-banking services has also increased.

Internet is another factor that makes the IT sector growth even more dynamic. It is estimated that between 6 and 8 million people in Poland have access to the Internet (while in 2000 it was 1 million). Additionally, as research centre findings indicate, the number of connections to the Internet is rising very rapidly, both among private and corporate users. Results of the research show that about 60 percent of the Polish enterprises thought they could not develop without the Internet. Shipbuilding Polish shipbuilding expanded rapidly in the 1960s and 1970s, spurred by the Soviet drive to become a maritime “superpower”35. In the 1980s the industry included six shipyards, 21 equipment factories and three research and development centres, altogether employing about 57,000 people. In that decade, Poland became the fifth largest producer of ships in the world, exporting most of its products to the Soviet Union. At the end of that decade, however, the industry suffered greatly from drastic reduction in orders from the Soviet Union and other customers, the loss of government subsidies in the midst of production, and a rapid rise in domestic material costs for ships already contracted. Poland is now still one of the largest ship makers in the world, successfully competing with the Asian shipyards. In 2000, Poland was in “fourth spot,” after South Korea, Japan and China, in the world ranking of shipbuilding, with 5.7 percent of world orders on trading vessels36. Today, Poland has two main centers of shipbuilding: Gdynia and Szczecin. Grupa Stocznia Gdynia S.A. (to date, about 550 ships built there, a hundred different types for fleets from 20 countries) and in Gdańsk (the largest repair yard in Poland; its main clients are fleets from the Baltic region: Germany,

The banking network has been developing very fast for a few years. In 2000, the domestic office network of commercial banks (excluding head offices and representative offices) comprised over 2,400 branch offices and over 8,600 other offices (sub-branches, customer service offices, etc.). Moreover, cooperative banks operated just over 2,000 offices, including 1,148 branch offices. Investments in ATMs (Automatic Teller Machines) are progressing at an even swifter rate. By the end of 2003 their number exceeded 6,000. To meet the challenges of growing competition, Polish banks are investing heavily in their network, as well as in automation and information technology. There are already very strong Polish virtual banks operating on the market as well as bank services available via the Internet and cellular phones using WAP technology. Some of the banks are considering their development of Internet banking in other central and eastern European countries. The banking sector has also been dominated by foreign investors, which have acquired majority stake in almost all top Polish banks (with exception of state owned Pekao BP): UniCredito Italiano (Peako SA), Commerzbank (BRE Bank), ING (Bank Śląski), Allied Irish Bank (Bank Zachodni Wielkopolski Bank Kredytowy), etc.

35 See http://www.country-studies.com/poland/industry.html; 36 See http://poland.gov.pl/?document=478;

86 ICT, Innovation, and Economic Growth in Transition Economies

Transport Poland’s central location in Europe means that transport, especially surface transport, plays an important role as the country is crossed by many of important transport routes connecting Western and Eastern Europe37.

services and also provides tourist transport. Integration with the European Union contributes to further growth of road transit through Poland and increase of income from this source.

In total, there are 357, 700 kilometres of roads or 114, 4 kilometres of roads per 100 square km. The network and its quality still require a lot of investment in order to put its density and quality on the European standards.

Food Sector The food sector accounts for more than 15 percent of Russia’s output (2004), with annual growth of approximately 4 percent in 2003–2004. The sector is mainly producing for the domestic, with its contribution to total exports falling from 2.5 percent in 2002 to 1.8 percent in 2003.

An extended railway network (23,420 km in total) links all the major cities and towns. The density of that network, 7.5 km per 100 sq km, is lower than in Germany, Switzerland, and Belgium, but higher than in the United Kingdom, Italy, and France. Approximately 95 percent of railways lines are standard-gauge lines of the same track width as in Western Europe and over 50 percent of the total is electrified.

9.2.5 Russia

Furniture and Paper (Wood) The forestry, wood-processing and pulp-and-paper sectors account for a little more than 4 percent of GDP in Russia, and experienced growth of approximately 3 percent in 2003–2004. The sector accounts for approximately 4 percent of Russian exports.

There are 3, 812 km of navigable waterways. The best opportunities for inland navigation can be found on the Odra River and its tributaries, while the largest ports in Poland are Gdańsk, Szczecin, Gdynia and Świnoujście and the main airports are situated in Warszawa, Kraków, Katowice, Poznań and Wrocław.

Machinery The mechanical engineering and metal working sector is the most important part of the Russian economy, accounting for more than 20 percent of GDP, and experiencing a growth rate of almost 12 percent in 2003–2004. The sector accounted for less than 8 percent of exports in 2003, down from 9 percent in 2002.

The Polish transport system offers services of a transit character, renders storage and transport

37 See http://www.polbizbkk.com/main_sector_of_the_economy.htm;

Country

Region

Russia

Moscow city

Primary sector

Secondary sector

Tertiary sector

Food

Transport

Furniture (wood value chain)

ICT services

Paper (wood value chain) Machinery Construction materials ICT equipment Russia

St. Petersburg city

Food

Transport

Furniture (wood value chain)

ICT services

Paper (wood value chain) Machinery Construction materials ICT equipment

Annex 5: Selected Sectors

Construction Materials The construction materials sector accounts for less than 3 percent of Russian GDP and grew by more than 5 percent in 2003â&#x20AC;&#x201C;2004. ICT Sector Russian ICT developed into an independent industry in the beginning of the new century. It is one of the youngest industries in the Russian economy (the first companies emerged in 1987â&#x20AC;&#x201C; 1988), and key features of the sector are the dominance of private capital, absence of influence of the government and strong dependence on the foreign suppliers. As part of countryâ&#x20AC;&#x2122;s economy, ICT is almost not consolidated. It is a fragmented mass of small companies permanently struggling with the lack of reserves necessary for their future development. The volume of the Russian information communication technologies industry equals USD 12,130 billion, where 72 percent accounts for telecommunications and only 28 percent for the IT market (equipment, software, IT services). Moreover, the average growth of the investments of Russian companies in IT is 11 percent.

According to various research data, the most profitable of the medium Russian ICT companies are those offering IT services (from 35 percent to 42 percent) and software (20 percent-34 percent). On the other hand, the profitability of the equipment and telecommunication services markets is respectively 12 percent and 20 percent. But, they differ from the IT and software market because they are more stable and not so risky. In general, after 10 years of development of the ICT industry there are 15,000 companies in Russia. It is noticed that 20 percent of the participants in the market are producing 80 percent of the gross product. Next to it, private capital is the leading type of capital in this industry. It stays far ahead of the state; foreign and mixed types of capital and major users of ICT services are big private companies. They account for more than 50 percent in all sub-industries (for example in telecommunications the division is 60/40 for the private enterprises).

88 ICT, Innovation, and Economic Growth in Transition Economies

Annex 6

Properties of the Dataset

10.1 General Properties

10.2 Company Size Classes

The dataset contains information on 620 firms. It has 989 variables, which are all uniquely defined and labelled so that the answers of each question and each option can be traced easily in the dataset. The information has been stored in the most disaggregate form possible, and in a simple and logic manner, namely each variable corresponds to a data entry field. Separate country and region variables were added on the base of the uniquely defined identification variable ID. The next table provides an overview of the observations by region and country.

The average company size in 2004 was 215 employees with a minimum of one employee and a maximum of 7,000. Median value for employment size was 48 persons. The next table provides an overview by size class and country. In total, 24 firms did not provide an answer on the employment size in 2004, of which 11 were located in Latvia and 9 in Poland. The distribution across the four SME classes is relatively balanced for the sample as a whole. Yet for individual countries some significant variances remain.

From the 620 firms, 47 acquired other firms or merged with other firms in the past three years. For about 80 firms the name of the holding company was provided. The dataset also contained information of the business incubators in Latvia and companies located at the business incubator in Estonia, Latvia and Poland.

The Russian sample is more skewed towards the medium-sized and large enterprises, with virtually no micro firms. Poland is the opposite case with a firm size distribution that is skewed towards micro and medium enterprises. The Baltic States have a strong representation in the small and medium-sized SME classes.

TABLE 11.1. The Distribution of Firms in the Sample by Country Region/country

Number of observations

Percent share in total

Cumulative percentage

Mazovia

Pomorski

Silezia

Poland

200

St.-Petersburg

124

Moscow

100

Russia

224

100

Total

620

100

Estonia

Lithuania Latvia

Annex 6: Properties of the Dataset

TABLE 11.2. Distribution of Firms in the Sample Across Size Classes and Countries Estonia

Lithuania

Latvia

Poland

Russia

Total

Micro

6 (8,96)

8 (14,29)

14 (23,73)

101 (52,9)

3 (1,34)

130 (21,81)

Small

23 (34,33)

16 (28,57)

23 (38,98)

58 (30,4)

51 (22,77)

172 (28,86)

Medium

21 (31,34)

18 (32,14)

11 (18,64)

24 (12,6)

98 (43,75)

172 (28,86)

Large

17 (25,37)

14 (25,00)

11 (18,64)

8 (4,2)

72 (32,14)

122 (20,47)

Total

67 (100)

56 (100)

59 (100)

191 (100)

224 (100)

596 (100)

Note 1: The number between brackets indicates the percent shares in the column total; the size classes are defined as <10 is micro, 10< <50 is small, 50< < 250 is medium-sized and > 249 is large. Note 2: 24 enterprises did not indicate the number of employees and therefore could not be attributed to a size class.

10.3 Sectors The number of respondents is not equally divided among sectors. Sectors with the most respondents include manufacturing of food products (89), retail trade (82) and ICT services (81) followed by transport (48), heavy machinery (46) and finance (43). Respondents in the food sector, retail trade are fairly equally divided among Russia, Poland and the Baltic States but for the other sectors one or two countries dominate the sample. Textiles and pulp and paper products are concentrated in one country (Lithuania, respectively Russia); shipbuilding, transport and repair of motor vehicles mostly from Poland; building materials, heavy machinery, and furniture from Russia; and motor vehicles and financial services mostly from the Baltic States aggregated.

More than half of the micro enterprises are only in three sectors, computer and related activities, retail trade and transport.

10.4 The Respondents Who answered the questionnaire? This can be analyzed by looking at question A5 that inquired about the position of the interviewee in the enterprise. 159 respondents indicated that they had ICT-related positions. An ICT-related position was defined as a position where the terms “IT”, “information”, “computer”, “network”, “system” or “programmer” were included. The other respondents were mainly directors, proprietors or managers.

90 ICT, Innovation, and Economic Growth in Transition Economies

TABLE 11.3. Distribution of Firms in the Sample by Sectors and Countries Country where the firm is located Sector Unknown

Estonia

Latvia

Lithuania

Poland

Russia

Total

Textiles and textile products

Wood and wood products

Pulp, paper and paper products

Publishing, printing and reproduction of recorded media

Chemicals and chemical products

Non-metallic mineral prod. (inc. building materials)

Basic metals and fabricated metal products

Machinery and equipment

Computers (inc. info processing equipment)

Electrical machinery and apparatus

Motor vehicles

Other transport equip. (inc. shipbuilding; repair)

Furniture

Construction (services)

Sale, maintenance; repair of motor vehicles and parts

Food products and beverages

Retail trade

Transport

Post and telecommunication

Financial intermediation (inc. banking; lending)

Computer and related services (inc. activities)

Total

200

224

620

Annex 6: Properties of the Dataset

TABLE 11.4. Distribution of Firms in the Sample Across Size Classes and Sectors SME class in 2004 by employment Micro

Small

Medium-sized

Large

Total

Others

Food products and beverages

Textiles and textile products

Wood and wood products

Pulp, paper and paper products

Publishing, printing and reproduction of recorded media

Chemicals and chemical products

Non-metallic mineral prod. (inc. building materials)

Basic metals and fabricated metal products

Machinery and equipment (referred to as heavy machinery)

Computers (inc. info processing equipment)

Electrical machinery and apparatus

Motor vehicles

Other transport equip. (inc. shipbuilding; repair)

Furniture

Construction (services)

Sale, maintenance; repair of motor vehicles and parts

Retail trade

Transport

Post and telecommunication Financial intermediation (inc. banking; lending)

Computer and related services (inc. ICT activities)

132

171

172

122

597

Total

92 ICT, Innovation, and Economic Growth in Transition Economies

Annex 7

Results of the Survey – Tables

TABLE 1. How Firms are Connected to the Internet (last 3 years) Analog-modem (dial-up via standard phone line)

142

17.80%

ISDN

108

13.6%

Other narrowband

5.4%

161

20.2%

DSL (ADSL, SDSL, VDSL etc) with contractual download speed >= 2Mbps

7.0%

Cable modem with contractual download speed < 2Mbps

6.6%

Cable modem with contractual download speed >= 2Mbps

5.6%

Other broadband with contractual download speed < 2Mbps

11.5%

Other broadband with contractual download speed >= 2Mbps

9.3%

0.6%

2.3%

DSL (ADSL, SDSL, VDSL etc) with contractual download speed < 2Mbps

Not applicable Don’t know

TABLE 2. Use of Information Technologies by Firms (last 3 years) E-mail

608

98.1%

Web presence

478

77.6%

Local area network (LAN)

427

68.9%

Intranet within enterprise

296

68.9%

Extranet between enterprise and other organizations (including related enterprises)

154

24.8%

Wide area network (WAN)

149

24.0%

12.7%

Other computer (proprietary or closed non-IP based) networks than the Internet

TABLE 3. Purchases and Procurement of Goods and Services Using Computer Networks How orders for goods and services are placed Via computer networks

Of which via the Internet

Of which via computer networks other than the Internet

Yes

322 (51.9%)

294

287 (46.3%)

11 (1.8%)

Don’t know / NA

Annex 7: Results of the Survey – Tables

TABLE 4. Electronic Links between Computer Networks Used to Place Orders for Goods and Services and other Aautomated Systems within the Firm (March 2005) Systems for ordering or stock control

27.9%

117

33.0%

Systems for production or service operations

23.1%

Systems for delivery of products (including electronic delivery)

22.0%

103

29.6%

Other internal or external systems

5.1%

Computer system(s) for receiving orders not linked to any of the above

7.3%

Systems for invoicing customers

Marketing and customer relations systems

TABLE 5. Sales and Purchases Via the Internet: A Comparison Sales: firms receiving orders via the Internet

Purchases: firms placing orders via the Internet

Yes

247

39.8%

294

47.4%

362

58.3%

48.3%

1.8%

4.1%

Don’t know / NA

TABLE 6. Way in which the Orders over the Internet are Received Via website with e-mail link

197

77.0%

Via an online ordering facility on the website

35.5%

Through a third party website

14.5%

Via EDI over the Internet

7.8%

Don’t know / NA

4.3%

TABLE 7. Electronic links Between Computer Networks Used for Receiving Orders/Sales and other Systems within the Firm (on March 2005) Customer systems (including related enterprises)

27.5%

Systems for ordering or stock control

27.5%

Systems for invoicing customers

35.3%

Systems for production or service operations

24.3%

Systems for delivery of products (including electronic delivery)

18.5%

Marketing or customer relations systems

29.4%

Suppliers’ computer systems

14.1%

Computer system/s for receiving orders not linked to any of the above

6.3%

Other internal or external systems Don’t know / NA / Refusal

3.1%

103

40.4%

94 ICT, Innovation, and Economic Growth in Transition Economies

TABLE 8. Use of the Internet or other Computer Networks for Providing the Customer Services (last 3 years) Product catalogues or price lists

382

62.0%

Product specifications or configuration on-line

192

31.2%

Inquiry or contact facility on web site

309

50.2%

Customized web page for repeat clients

103

16.7%

Order tracking on-line

12.8%

Customer information collected on-line

186

30.2%

After sales support

118

19.2%

Other Don’t know / NA / Refusal

1.1%

116

18.8%

TABLE 9. Top 5 in Business Applications and Use of Computer Networks (last 3 years) Marketing

61.5%

Purchasing/procurement

51.0%

Finance

50.6%

Sharing and distribution of information or data

45.8%

Customer service

41.3%

Selling goods and services

39.8%

TABLE 10. Business Applications and Use of Internal and External Computer Networks (last 3 years) Marketing

381

61.5%

Purchasing/procurement

316

51.0%

Inventory management

141

22.7%

Production or services operations

208

33.5%

Selling goods and services

247

39.8%

Processing orders

217

35.0%

Delivery and logistics

196

31.6%

Customer service

256

41.3%

Finance

314

50.6%

Budget and account management

231

37.3%

Asset and facility management

143

23.1%

Payroll

194

31.3%

Human resources management

147

23.7%

Training

160

25.8%

General management and decision making

187

30.2%

Sharing and distribution of information or data

284

45.8%

Other Don’t know / NA / Refusal

0.5%

10.3%

Annex 7: Results of the Survey – Tables

TABLE 11. Use of the Internet or Other Computer Networks for Dealing with Government Organizations (last 3 years) Did not use

191

30.8%

Obtaining information

340

54.8%

Downloading or requesting government forms

325

52.4%

Completing or loading forms on-line

180

29.0%

Purchasing good and services from government organizations

6.3%

Selling goods and services to government organizations

5.8%

Making online payments to government organizations

155

25.0%

Other dealings with government

4.8%

Don’t know / NA / Refusal

3.7%

TABLE 12. How are Outputs per Employee Different from What they were Three Years Ago? Frequency

Percent

Lower

4.9

Equal

257

44.7

Higher

290

50.4

Total

575

100.0

TABLE 13. How are Outputs per Employee Different from What they were Three Years Ago? – Percentage Increase/Decrease With what percentage have outputs per employee increased/decreased compared to three years ago? Outputs per employee Lower

Count % within C1 % of Total

Higher

Total

0–10% 7

10–25% 10

25–50% 5

50–75% 1

75–100% 100–150% 3

>150%

26.9%

38.5%

19.2%

3.8%

11.5%

0.0%

2.6%

3.8%

1.9%

0.4%

1.1%

0.0%

Total 26 100.0% 9.8%

Count

239

% within C1

35.1%

36.8%

20.5%

2.9%

0.0%

2.1%

2.5%

100.0%

% of Total

31.7%

33.2%

18.5%

2.6%

0.0%

1.9%

2.3%

Count

265

% within C1

34.3%

37.0%

20.4%

3.0%

1.1%

1.9%

2.3%

100.0%

% of Total

34.3%

37.0%

20.4%

3.0%

1.1%

1.9%

2.3%

100.0%

96 ICT, Innovation, and Economic Growth in Transition Economies

90.2%

TABLE 14. How are Outputs per Employee Different from What they were Three Years Ago? – Change in the Output per Employee of the Business is due to ICT and Others Change in the output per employee of the business is due to Outputs per employee Lower

Mainly ICT

Count

% within C1

7.4%

% of Total Higher

Total

ICT and other

Mainly other

18.5%

0.7%

Total 27

74.1%

1.8%

100.0%

7.2%

118

9.7%

Count

100

% within C1

13.1%

% of Total

11.9%

Count

% within C1

12.6%

44.2%

43.2%

100.0%

% of Total

12.6%

44.2%

43.2%

100.0%

47.0%

251

39.8%

42.4%

100.0%

36.0%

123

90.3%

120

278

TABLE 15. How are Average Operational Costs per Unit of Output Different from Three Years Ago? Frequency

Percent

Lower

102

18.6

Equal

220

40.2

Higher

225

41.1

Total

547

100.0

TABLE 16. With what percentage have your operational costs per unit of output increased/decreased compared to three years ago? Operational costs per unit of output

0–10%

Lower

Count

% within C5

64.0%

23.3%

10.5%

2.3%t

0.0%

100.0%

% of Total

20.1%

7.3%

3.3%

0.7%

0.0%

31.4%

Count

188

% within C5

49.5%

31.9%

16.0%

1.1%

0.5%

100.0%

% of Total

33.9%

21.9%

10.9%

0.7%

0.4%

68.6%

Higher

Total

Count

148

10–25%

25–50% 9

50–75%

75–100%

100–150%

>150%

Total 86

274

Annex 7: Results of the Survey – Tables

TABLE 17. Change in Operational Costs per Unit of Output is due to ICT and Others Change in operational costs per unit of output is due to Average operational costs Lower

Mainly ICT

% within C5

15.7%

51.7%

32.6%

4.9%

16.1%

10.2%

Count

89 100.0% 31.2%

131

% within C5

5.1%

28.1%

66.8%

3.5%

19.3%

46.0%

Total

% of Total Count Total

Mainly other

% of Total Higher

ICT and other

Count

101

196 100.0% 68.8%

160

285

% within C5

8.4%

35.4%

56.1%

100.0%

% of Total

8.4%

35.4%

56.1%

100.0%

TABLE 18. How are Total Revenues from Sales Different from Three Years Ago? Frequency

Percent

Lower

10.8

Equal

185

33.9

Higher

301

55.2

Total

545

100.0

TABLE 19. How are Total Revenues from Sales Different from Three Years Ago? – Percentage Increase/Decrease With what percentage have total revenues from sales increased/decreased compared to three years ago? Total revenues Lower

25–50%

50–75%

75–100%

100–150%

>150%

Count

57.8%

31.1%

8.9%

2.2%

0.0%

0.3%

0.0%

249

% within C9

33.3%

37.8%

18.1%

3.6%

1.6%

2.4%

3.2%

100.0%

28.2% 109

4.8%

32.0% 108

1.4%

45 100.0%

Count

8.8%

Total

Count

% of Total Total

10–25%

% within C9 % of Total Higher

0–10%

15.3% 49

3.1% 10

15.3%

1.4%

2.0%

2.7%

294

84.7%

% within C9

37.1%

36.7%

16.7%

3.4%

1.4%

2.0%

2.7%

100.0%

% of Total

37.1%

36.7%

16.7%

3.4%

1.4%

2.0%

2.7%

100.0%

98 ICT, Innovation, and Economic Growth in Transition Economies

TABLE 20. Change in the Total Revenues from Sales of the Business is due to ICT and Others Change in the total revenues from sales of the business is due to Total revenues from sales Lower

Higher

Mainly ICT

Mainly other

% within C9

0.0%

6.3%

93.8%

% of Total

0.0%

1.0%

14.7%

Count

Total

ICT and other

Count

112

7.0%

43.4%

49.6%

% of Total

5.9%

36.6%

41.8%

48 100.0% 15.7%

128

% within C9

Count

Total

115

258 100.0% 84.3%

173

306

% within C9

5.9%

37.6%

56.5%

100.0%

% of Total

5.9%

37.6%

56.5%

100.0%

TABLE 21. How are Profits from Sales Different from Three Years Ago? Frequency

Percent

Lower

16.2

Equal

209

39.8

Higher

231

44.0

Total

525

100.0

TABLE 22. How are Profits from Sales Different from Three Years Ago? – Percentage Increase/Decrease With what percentage have profits from sales increased/decreased compared to three years ago? Sales profits

0–10%

Lower

Count

% within C13

37.3%

34.3%

19.4%

6.0%

1.5%

0.0%

100.0%

% of Total

10.0%

9.2%

5.2%

1.6%

0.4%

0.0%

26.9%

Count

182

% within C13

45.6%

32.4%

10.4%

4.4%

1.1%

2.7%

3.3%

100.0%

% of Total

33.3%

23.7%

7.6%

3.2%

0.8%

2.0%

2.4%

73.1%

Higher

Total

Count

108

10–25%

25–50%

50–75%

75–100%

100–150%

>150%

Total 67

249

% within C13

43.4%

32.9%

12.9%

4.8%

1.2%

2.4%

100.0%

% of Total

43.4%

32.9%

12.9%

4.8%

1.2%

2.4%

100.0%

Annex 7: Results of the Survey – Tables

TABLE 23. Change in the Profits from Sales is due to ICT and Others Change in the profits from sales is due to Sales profits Lower

Higher

Mainly ICT

Mainly other

Total

Count

% within C13

1.4%

11.1%

87.5%

100.0%

% of Total

0.4%

3.0%

24.0%

27.4%

Count

191

% within C13

10.5%

48.2%

41.4%

100.0%

7.6%

35.0%

30.0%

72.6%

% of Total Total

ICT and other

Count

100

142

263

% within C13

8.0%

38.0%

54.0%

100.0%

% of Total

8.0%

38.0%

54.0%

100.0%

TABLE 24. How is the Amount of Capital Investment in Innovation Different from Three Years Ago? Frequency

Percent

Lower

4.3

Equal

248

44.2

Higher

289

51.5

Total

561

100.0

TABLE 25. Change in the Amount of Capital Investment in Innovation – Percentage Increase/Decrease With what percentage has the amount of capital investment in innovation increased/decreased compared to three years ago?

Capital invested in innovation

0–10%

Lower

Count

% within C17

50.0%

22.7%

9.1%

0.0%

100.0%

4.2%

1.9%

0.8%

0.0%

8.4%

% of Total Higher

Total

10–25% 5

25–50%

50–75%

75–100% 100–150%

>150%

Total 22

Count

240

% within C17

39.6%

33.8%

15.8%

3.8%

2.5%

1.3%

3.3%

100.0%

% of Total

36.3%

30.9%

14.5%

3.4%

2.3%

1.1%

3.1%

91.6%

Count

262

% within C17

106 40.5%

32.8%

15.3%

11 4.2%

3.1%

1.1%

3.1%

100.0%

% of Total

40.5%

32.8%

15.3%

4.2%

3.1%

1.1%

3.1%

100.0%

100 ICT, Innovation, and Economic Growth in Transition Economies

TABLE 26. Change in the Amount of Capital Investment in Innovation due to ICT and Others Change in the amount of capital investment in innovation is due to Capital invested in innovation Lower

Higher

Total

Mainly ICT

ICT and other

Mainly other

Count

% within C17

4.5%

18.2%

77.3%

% of Total

0.4%

1.5%

6.3%

Total

103

22 100.0% 8.1%

Count

106

% within C17

16.1%

41.4%

42.6%

% of Total

14.8%

38.0%

39.1%

Count

% within C17

15.1%

39.5%

45.4%

100.0%

% of Total

15.1%

39.5%

45.4%

100.0%

107

249 100.0% 91.9%

123

271

TABLE 27. How is the Amount of Capital Investment in ICT Different from Three Years Ago? Frequency

Percent

Lower

3.7

Equal

276

50.9

Higher

246

45.4

Total

542

100.0

TABLE 28. How is the Amount of Capital Investment in ICT Different from Three Years Ago? – Percentage Increase/Decrease With what percentage has the amount of capital investment in ICT increased/decreased compared to three years ago? 0–10% Lower

Count

% within C21

66.7%

5.6%

% of Total Higher

Total

10–25%

5.2%

0.4%

25–50% 2 11.1% 0.9%

50–75% 1

75–100% 100–150%

Total

5.6%

11.1%

0.0%

0.4%

0.9%

0.0%

213

3.8%

0.5%

3.3%

100.0%

3.5%

0.4%

3.0%

231

100.0% 7.8%

Count

% within C21

39.9%

37.1%

10.3%

% of Total

36.8%

34.2%

Count

% within C21

42.0%

34.6%

10.4%

5.2%

4.3%

0.4%

3.0%

100.0%

% of Total

42.0%

34.6%

10.4%

5.2%

4.3%

0.4%

3.0%

100.0%

9.5%

>150%

5.2% 4.8% 12

92.2%

Annex 7: Results of the Survey – Tables

101

TABLE 29. Change in the Amount of Capital Investment in ICT in due to ICT and Others Change in the amount of capital investment in ICT in due to Capital invested in ICT Lower

Count % within C21 % of Total

Higher

Total

Mainly ICT

ICT and other

Mainly other

11.1%

5.6%

83.3%

0.9%

0.4%

6.4%

Total 18 100.0% 7.7%

Count

215

% within C21

30.2%

46.0%

23.7%

100.0%

% of Total

27.9%

42.5%

21.9%

Count

% within C21

28.8%

% of Total

28.8%

100

92.3%

233

42.9%

28.3%

100.0%

42.9%

28.3%

100.0%

TABLE 30. How is the Amount of Capital Investment in ICT Different from Three Years Ago? Frequency Less important

Percent

6.0

The same

208

36.9

More important

322

57.1

Total

564

100.0

TABLE 31. How Important is Competition on Price for Market Share Compared to Three Years Ago? With what percentage has competition on price increased/ decreased your market share compared to three years ago? 0–10% Less important

Total

50–75%

75–100%

Total

% within C25

74.1%

25.9%

0.0%

100.0%

7.5%

2.6%

0.0%

10.1%

Count

241

% within C25

49.8%

29.9%

14.9%

3.3%

2.1%

100.0%

% of Total

44.8%

26.9%

13.4%

3.0%

1.9%

89.9%

Count

120

25–50%

Count

% of Total More important

10–25%

268

% within C25

140 52.2%

29.5%

13.4%

3.0%

1.9%

100.0%

% of Total

52.2%

29.5%

13.4%

3.0%

1.9%

100.0%

102 ICT, Innovation, and Economic Growth in Transition Economies

TABLE 32. How Important is Competition on Price for Gaining Market Share Compared to Three Years Ago? Change in the intensity of competition on price is due to Mainly ICT C25

Less important

Count % within C25 % of Total

More important

Total

Count

ICT and other 5

Mainly other

10.7%

17.9%

71.4%

1.0%

1.7%

6.8%

174

% within C25

5.3%

29.1%

65.7%

% of Total

4.8%

26.3%

59.4%

Count

Total

194

28 100.0% 9.6% 265 100.0% 90.4% 293

% within C25

5.8%

28.0%

66.2%

100.0%

% of Total

5.8%

28.0%

66.2%

100.0%

TABLE 33. How are Your Average Sales Prices Different from Three Years Ago? Frequency

Percent

Lower

14.9

Equal

269

43.6

Higher

256

41.5

Total

617

100.0

TABLE 34. How Important is Competition on Quality for Gaining Market Share Compared to Three Years Ago? Frequency Less important

Percent

1.4

Remained the same

197

34.8

More important

361

63.8

Total

566

100.0

Annex 7: Results of the Survey â&#x20AC;&#x201C; Tables

103

TABLE 35. How Important is Competition on Quality for Gaining Market Share Compared to Three Years Ago? – Percentage Increase/Decrease With what percentages has competition on quality increased/ decreased your market share compared to three years ago? 0–10% Less important

Count

% within C29 % of Total More important

Total

Count

10–25%

25–50%

75–100%

>150%

Total

50.0%

33.3%

0.0%

16.7%

0.0%

100.0%

1.1%

0.7%

0.0%

0.4%

0.0%

2.2%

128

50–75%

271

% within C29

47.2%

34.7%

14.0%

3.0%

0.7%

0.4%

100.0%

% of Total

46.2%

33.9%

13.7%

2.9%

0.7%

0.4%

97.8%

277

% within C29

Count

131 47.3%

34.7%

13.7%

2.9%

1.1%

0.4%

100.0%

% of Total

47.3%

34.7%

13.7%

2.9%

1.1%

0.4%

100.0%

TABLE 36. Change in the Intensity of Competition on Quality is due to ICT and Other Change in the intensity of competition on quality is due to Competition on quality C29

Less important

More important

Mainly ICT

Mainly other

% within C29

0.0%

33.3%

66.7%

% of Total

0.0%

0.7%

1.3%

100.0% 2.0%

% within C29

10.0%

39.5%

50.5%

100.0%

9.8%

38.7%

49.5%

98.0%

117

147

Count

115

Total

Count

% of Total Total

ICT and other

Count

151

291

297

% within C29

9.8%

39.4%

50.8%

100.0%

% of Total

9.8%

39.4%

50.8%

100.0%

TABLE 37. Levels of Speed and Reliability of Companies During the past three years, has your company increased the speed and reliability of business processes?

Frequency

Percent

186

32.3

Yes

389

67.7

Total

575

100.0

104 ICT, Innovation, and Economic Growth in Transition Economies

TABLE 38. Levels of Speed and Reliability of Companies â&#x20AC;&#x201C; Effect on Overall Business Process Costs? During the past three years, has your company increased the speed and reliability of business processes? Yes

Total

Count

What was the effect of improved speed and reliability on your overall business process costs, compared to three years ago? Lower 114

Equal

Higher

Total

171

372

% within D1

30.6%

23.4%

46.0%

100.0%

% of Total

30.6%

23.4%

46.0%

100.0%

Count

114

171

372

% within D1

30.6%

23.4%

46.0%

100.0%

% of Total

30.6%

23.4%

46.0%

100.0%

TABLE 39. Improved Process Speed and Reliability was due to ICT and Others What was the effect of improved speed and reliability of business processes on your overall business process costs, compared to three years ago? Lower

Higher

Count

Mainly ICT 43

ICT and other

Mainly other 17

114 100.0%

% within D2

37.7%

47.4%

14.9%

15.4%

19.3%

6.1%

Count

% within D2

14.5% 8.6%

Count

Total

% of Total

% of Total Total

Improved process speed and reliability was due to

40.7%

166

50.0%

35.5%

100.0%

29.6%

21.1%

137

59.3% 280

% within D2

23.9%

48.9%

27.1%

100.0%

% of Total

23.9%

48.9%

27.1%

100.0%

TABLE 40. During the Past Three Years, has your Company Automated Tasks? Frequency

Percent

238

41.0

Yes

343

59.0

Total

581

100.0

Annex 7: Results of the Survey â&#x20AC;&#x201C; Tables

105

TABLE 41. What was the Effect of Task Automation on your Overall Business Process Costs, Compared to Three Years Ago? Costs

During the past three years, has your company automated tasks? D5

Yes

Lower

Count

Total

161

equal

Higher

Total

320

% within D5

50.3%

21.9%

27.8%

100.0%

% of Total

50.3%

21.9%

27.8%

100.0%

320

Count

161

% within D5

50.3%

21.9%

27.8%

100.0%

% of Total

50.3%

21.9%

27.8%

100.0%

TABLE 42. The Effect of Task Automation on Overall Business Process Costs, Attributed to ICT and Others. What was the effect of task automation on your overall business process costs, compared to three years ago? Lower

Higher

ICT and other

Mainly other

Total

Count

155

% within D6

38.1%

43.2%

18.7%

100.0%

% of Total

24.2%

27.5%

11.9%

63.5%

Count

% within D6

13.5%

58.4%

28.1%

21.3%

10.2%

% of Total Total

Mainly ICT

4.9%

Count

% within D6

29.1%

% of Total

29.1%

119

89 100.0% 36.5%

244

48.8%

22.1%

100.0%

48.8%

22.1%

100.0%

TABLE 43. During the Past Three Years, has your Company Improved Information Management? Frequency

Percent

148

24.9

Yes

446

75.1

Total

594

100.0

106 ICT, Innovation, and Economic Growth in Transition Economies

TABLE 44. Effect of Improving Information Management on Overall Business Process Costs, Compared to Three Years Ago? During the past three years, has your company improved information management? D9

Total

Yes

Count

What was the effect of improving information management on your overall business process costs, compared to three years ago? Lower

Equal

170

130

Higher

Total

114

414

% within D9

41.1%

31.4%

27.5%

100.0%

% of Total

41.1%

31.4%

27.5%

100.0%

Count

170

130

114

414

% within D9

41.1%

31.4%

27.5%

100.0%

% of Total

41.1%

31.4%

27.5%

100.0%

TABLE 45. Effect of Improved Information on Overall Business Process Costs, Attributed to ICT and Others What was the effect of improving information on your overall business process costs, compared to three years ago? Costs Lower

Higher

Mainly ICT

ICT and other

Mainly other

Total

Count

169

% within D10

46.2%

37.9%

16.0%

100.0%

% of Total

27.7%

22.7%

Count

113

% within D10

24.8%

60.2%

15.0%

100.0%

9.9%

24.1%

6.0%

% of Total Total

Improvement in information management can be attributed to

Count

106

132

9.6%

59.9%

40.1%

282

% within D10

37.6%

46.8%

15.6%

100.0%

% of Total

37.6%

46.8%

15.6%

100.0%

TABLE 46. Amount of Organizational Change During the past three years, has your company been through organizational changes?

Frequency

Percent

223

37.2

Yes

376

62.8

Total

599

100.0

Annex 7: Results of the Survey â&#x20AC;&#x201C; Tables

107

TABLE 47. Organizational Change â&#x20AC;&#x201C; Effect on Overall Business Costs During the past three years, has your company been through organizational changes? Yes

Count % within D13 % of Total

Total

Count

What was the effect of these organizational changes on your overall business process costs, compared to three years ago? Lower 148

Equal

Higher

Total

106

348

42.5%

27.0%

42.5%

27.0%

148

30.5%

100.0%

30.5%

100.0%

106

348

% within D13

42.5%

27.0%

30.5%

100.0%

% of Total

42.5%

27.0%

30.5%

100.0%

TABLE 48. Effect of Organizational Change Attributed to ICT and Others What was the effect of these organizational changes on your overall business process costs, compared to three years ago? Lower

Higher

Total

Organizational changes were driven by Mainly ICT

ICT and other

Mainly other

Total

Count

148

% within D14

10.1%

46.6%

43.2%

100.0%

% of Total

6.0%

27.5%

25.5%

59.0%

Count

103

% within D14

3.9%

45.6%

50.5%

100.0%

% of Total

1.6%

18.7%

20.7%

41.0%

Count

116

251

% within D14

7.6%

46.2%

100.0%

% of Total

7.6%

46.2%

100.0%

TABLE 49. New Products and/or Services Have you placed new or substantially new products and/or services in the market during the past three years?

Frequency

Percent

233

39.3

Yes

360

60.7

Total

593

100.0

108 ICT, Innovation, and Economic Growth in Transition Economies

TABLE 50. Change in the Value of Sales of New or Different Products over the Last Three Years. Have you placed new or substantially new products and/or services in the market during the past three years? Yes

Total

Compared to three years ago, has the value of sales of new or different products/services as a percentage of total sales revenue? Equal

Higher

Total

Count

Lower 7

242

333

% within D21

2.1%

25.2%

% of Total

2.1%

25.2%

Count

% within D21

2.1%

25.2%

72.7%

100.0%

% of Total

2.1%

25.2%

72.7%

100.0%

72.7%

100.0%

72.7%

100.0%

242

333

TABLE 51. New Products and/or Service Developments are Driven by ICT or others Compared to three years ago, has the value of sales of new or different products/ services as a percentage of total sales revenue? Lower

Count % within D22 % of Total

Higher

Count % within D22 % of Total

Total

Count

New products and/or service developments are driven by Mainly ICT 1 12.5% 0.4% 22 9.2% 8.9% 23

ICT and other 3 37.5% 1.2% 102 42.9% 41.5% 105

Mainly other

Total

50.0%

100.0%

1.6%

3.3%

114

238

47.9%

100.0%

46.3%

96.7%

118

246

% within D22

9.3%

42.7%

48.0%

100.0%

% of Total

9.3%

42.7%

48.0%

100.0%

TABLE 52. Offering of Customized Products or Services Do you offer customized goods or services to your customers

Frequency

Percent

279

46.4

Yes

322

53.6

Total

601

100.0

Annex 7: Results of the Survey â&#x20AC;&#x201C; Tables

109

TABLE 53. Change in the Value of Customized Products and Services Offered

Do you offer customized goods or services to your customers Yes

Total

Count

Compared to three years ago. has the value of sales of customised products as a percentage of total sales revenue? Lower

Equal

146

Higher

Total

141

297

% within D17

3.4%

49.2%

47.5%

100.0%

% of Total

3.4%

49.2%

47.5%

100.0%

Count

146

141

297

% within D17

3.4%

49.2%

47.5%

100.0%

% of Total

3.4%

49.2%

47.5%

100.0%

TABLE 54. Changes in the Value of Sales of Customized Goods and Services are due to ICT or Others Compared to three years ago, has the value of sales of customized products as a percentage of total sales revenue? Lower

Count % within D18 % of Total

Higher

Total

Count

Changes in the value of sales of customized goods and services are due to Mainly ICT

ICT and other

33.3%

16.7%

1.4%

0.7%

Mainly other

Total

50.0%

100.0%

2.1%

4.2%

138 100.0%

% within D18

8.7%

45.7%

% of Total

8.3%

43.8%

144

Count

95.8%

% within D18

9.7%

44.4%

45.8%

100.0%

% of Total

9.7%

44.4%

45.8%

100.0%

TABLE 55. Amount of New Bundled Offerings During the last three years, have you started offering new bundled offerings

Frequency

Percent

376

64.7

Yes

205

35.3

Total

581

100.0

110 ICT, Innovation, and Economic Growth in Transition Economies

TABLE 56. Change in the Value of New Bundled Offering as a Percentage of Total Revenue.

During the last three years, have you started offering new bundled offerings? D25

Total

Yes

Compared to three years ago, has the value of sales of new bundled offerings as a percentage of total sales revenue? Lower

Equal

Higher

Count

138

Total

% within D25

1.5%

29.1%

69.3%

100.0%

% of Total

1.5%

29.1%

69.3%

100.0%

Count

% within D25

1.5%

29.1%

69.3%

100.0%

% of Total

1.5%

29.1%

69.3%

100.00%

199

138

199

TABLE 57. Value of New Bundled Offerings â&#x20AC;&#x201C; New Bundled Product and/or Service Offering are Driven by ICT or Others Compared to three years ago, has the value of sales of new bundled offerings as a percentage of total sales revenue? Lower

Higher

Total

New bundled product and/or service offering are driven by Mainly ICT

ICT and other 1

Mainly other

Total

Count

% within D26

0.0%

50.0%

100.0%

% of Total

0.0%

0.7%

1.4%

Count

138

% within D26

13.0%

42.8%

44.2%

100.0%

% of Total

12.9%

42.1%

43.6%

98.6%

Count

140

% within D26

12.9%

42.9%

44.3%

100.0%

% of Total

12.9%

42.9%

44.3%

100.0%

TABLE 58. Number of Customers of your Enterprise Compared to three years ago, has the number of customers of your enterprise

Frequency

Percent

Lower

6.5

Equal

192

32.9

Higher

353

60.5

Total

583

100.0

Annex 7: Results of the Survey â&#x20AC;&#x201C; Tables

111

TABLE 59. Change in the Number of Customers due to ICT and Others Compared to three years ago, has the number of customers of your enterprise D29

Increased

ICT and other

Mainly other

% within D29

0.0%

2.7%

97.3%

Count % within D29 % of Total

Total

Mainly ICT

Count

% of Total Decreased

Is change in the number of customers due to

Count

0.0%

0.3%

5.7%

9.6%

171

44.4%

347

49.3%

40.1%

37 100.0%

9.4%

154

6.3%

Total

100.0%

44.5%

155

90.4%

207

384

% within D29

5.7%

40.4%

53.9%

100.0%

% of Total

5.7%

40.4%

53.9%

100.0%

TABLE 60. Value of Sales in Customer Base Compare the value of sales in your customer base to three years ago. Has the value of sales per customer Valid

Frequency

Decreased

Percent

9.9

Remained equal

238

44.7

Increased

242

45.4

Total

533

100.0

TABLE 61. Value of Sales in Your Customer Base â&#x20AC;&#x201C; Change in the Total Value of Sales per Customer in due to ICY and Others Compare the value of sales in your customer base to three years ago. Has the value of sales per customer Decreased

ICT and other

Mainly other

% within D32

2.0%

6.0%

92.0%

Count % within D32 % of Total

Total

Mainly ICT

Count

% of Total Increased

Change in the total value of sales per customer in due to

Count

0.3% 16 6.8% 5.6% 17

1.0% 98 41.4% 34.1% 101

16.0% 123 51.9% 42.9% 169

Total 50 100.0% 17.4% 237 100.0% 82.6% 287

% within D32

5.9%

35.2%

58.9%

100.0%

% of Total

5.9%

35.2%

58.9%

100.0%

112 ICT, Innovation, and Economic Growth in Transition Economies

TABLE 62. Share of Retained Customers Compared to three years ago, the share of retained customers has

Frequency

Decreased

Percent

6.5

Remained the same

259

46.5

Increased

262

47.0

Total

557

100.0

TABLE 63. Share of Retained Customers due to ICT and Others Compared to three years ago, the share of retained customers has Decreased

ICT and other

Mainly other

% within D35

0.0%

5.9%

94.1%

Count % within D35 % of Total

Total

Mainly ICT

Count

% of Total Increased

Change in the share of retained customers is due to

Count

0.0% 18 6.9% 6.1% 18

0.7% 108 41.7% 36.9% 110

Total 34 100.0%

10.9% 133 51.4%

11.6% 259 100.0%

45.4% 165

88.4% 293

% within D35

6.1%

37.5%

56.3%

100.0%

% of Total

6.1%

37.5%

56.3%

100.0%

TABLE 64. Comparison between the Values of Sales per Retained Customer Compare the value of sales per retained customer to three years ago. Has the value of sales per retained customer Decreased

Frequency

Percent

7.9

Remained the same

236

47.9

Increased

218

44.2

Total

493

100.0

Annex 7: Results of the Survey â&#x20AC;&#x201C; Tables

113

TABLE 65. Change in the Value of Sales per Retained Customer Compare the value of sales per retained customer to three years ago. Has the value of sales per retained customer Decreased

Increased

Total

Change in the value of sales per retained customer is due to Mainly ICT

ICT and other

Mainly other

Total

Count

% within D38

0.0%

7.9%

92.1%

100.0%

% of Total

0.0%

1.2%

13.8%

15.0%

Count

118

216

% within D38

5.6%

39.8%

54.6%

100.0%

% of Total

4.7%

33.9%

46.5%

85.0%

Count

153

254

% within D38

4.7%

35.0%

60.2%

100.0%

% of Total

4.7%

35.0%

60.2%

100.0%

TABLE 66. Number of Suppliers of your Enterprise Compared to three years ago, has the number of suppliers of your enterprise

Frequency

Decreased

Percent

6.5

Remained the same

296

53.7

Increased

219

39.7

Total

551

100.0

TABLE 67. Change in the Number of Suppliers to your Enterprise due to ICT and Others Compared to three years ago, has the number of suppliers of your enterprise Decreased

Increased

Total

Is the change in the number of supplies due to Mainly ICT

ICT and other

% within D41

8.6%

14.3%

77.1%

% of Total

1.2%

2.0%

10.8%

Count

Mainly other

Count

110

% within D41

5.6%

43.5%

50.9%

% of Total

4.8%

37.5%

43.8%

Count

137

Total 35 100.0% 13.9% 216 100.0% 86.1% 251

% within D41

6.0%

39.4%

54.6%

100.0%

% of Total

6.0%

39.4%

54.6%

100.0%

114 ICT, Innovation, and Economic Growth in Transition Economies

TABLE 68. Value of Purchases in your Supplier Base Compare the value of purchases in your supplier base to three years ago. Has the value of purchases per supplier

Frequency

Decreased

Percent

6.6

Remained the same

260

50.8

Increased

218

42.6

Total

512

100.0

TABLE 69. Change in the Value of Purchases in your Supplier Base due to ICT and Others Compare the value of purchases in your supplier base to three years ago. Has the value of purchases per supplier D44

Decreased

Increased

Total

Change in the total value of purchases per supplier is due to Mainly ICT

ICT and other

Mainly other

Total

Count

% within D44

3.1%

9.4%

87.5%

% of Total

0.4%

1.2%

11.3%

Count

% within D44

2.8%

35.2%

62.0%

% of Total

2.4%

30.6%

54.0%

Count

% within D44

2.8%

31.9%

65.3%

100.0%

% of Total

2.8%

31.9%

65.3%

100.0%

100.0% 12.9%

134

216 100.0% 87.1%

162

248

TABLE 70. Number of Repeat Suppliers of your Enterprise Compared to three years ago, has the number of repeat suppliers of your enterprise has

Frequency

Percent

3.6

67.0

Decreased Remained the same

6.8

Increased

358

26.1

Total

528

100.0

Annex 7: Results of the Survey â&#x20AC;&#x201C; Tables

115

TABLE 71. Change in the Number of Repeat Suppliers to your Enterprise due to ICT and Others Compared to three years ago, has the number of repeat suppliers of your enterprise Decreased

Increased

Total

Change in the number of repeat suppliers is due to Mainly ICT

ICT and other

Mainly other

Total

Count

% within D47

2.9%

8.8%

88.2%

% of Total

0.6%

1.8%

17.9%

Count

134

% within D47

4.5%

35.8%

59.7%

100.0%

% of Total

3.6%

28.6%

Count

% within D47

4.2%

30.4%

65.5%

100.0%

% of Total

4.2%

30.4%

65.5%

100.0%

100.0% 20.2%

47.6%

79.8%

110

168

TABLE 72. Value of Purchases in your supplier Base per Repeat Supplier Compare the value of purchases in your supplier base to three years ago. Has the value of purchases per repeat supplier

Frequency

Decreased

Percent

6.5

Remained the same

260

52.8

Increased

200

40.7

Total

492

100.0

TABLE 73. Change in the Value of Purchases per Repeat Supplier is due to ICT and Other Compare the value of purchases in your supplier base to three years ago. Has the value of purchases per repeat supplier Decreased

Increased

Total

Change in the value of purchases per repeat supplier is due to Mainly ICT

Count

% within D50

3.1%

% of Total

0.4%

Count

ICT and other 4 12.5% 1.7% 71

Mainly other 27 84.4% 11.7% 118

% within D50

4.5%

35.9%

59.6%

% of Total

3.9%

30.9%

51.3%

Count

145

Total 32 100.0% 13.9% 198 100.0% 86.1% 230

% within D50

4.3%

32.6%

63.0%

100.0%

% of Total

4.3%

32.6%

63.0%

100.0%

116 ICT, Innovation, and Economic Growth in Transition Economies

TABLE 74. Available In-house Know-how Number of firms

Was insufficient to support uptake of new ICT

130

21.0

Was sufficient to support uptake of new ICT

410

66.1

Not applicable

5.5

Don’t know

5.0

Refusal

2.1

618

99.7

Multiple options Total

0.3

Missing

130

21.0

Total, including missing observations

620

100.0

TABLE 75. Existing Staff Skills and Training Number of firms

Was insufficient to support the uptake of new ICTs

137

22.1

Was sufficient to support the uptake of new ICTs

429

69.2

Not applicable

4.0

Don’t know

3.1

Refusal

1.6

620

100.0

Total

TABLE 76. Investment Costs in ICT Number of firms

Could not easily be justified

108

17.4

Could easily be justified

403

65.0

Not applicable

4.4

Don’t know

10.8

Refusal

2.4

620

100.0

Total

TABLE 77. Management Attitude Number of firms Management was reluctant in promoting ICT

9.4

455

73.4

Not applicable

9.8

Don’t know

4.2

Refusal

2.9

618

99.7

0.3

Management was proactive in promoting ICT

Multiple options Total

Annex 7: Results of the Survey – Tables

117

TABLE 78. Lock-in Effects in Relations with Suppliers Number of firms

9.8

My enterprise finds it easier to switch between suppliers because of ICT usage

306

49.4

Not applicable

113

18.2

Don’t know

116

18.7

3.4

617

99.5

My enterprise finds it more difficult to switch between suppliers because of ICT usage

Refusal Total Missing Total

0.5

620

100.0

TABLE 79. Outsourcing of Activities Number of firms

Was discouraged by ICT

7.3

Was encouraged by ICT

240

38.7

Not applicable

150

24.2

Don’t know

158

25.5

4.2

619

99.8

Refusal Total Missing Total

0.2

620

100.0

TABLE 81. Telecommunication Costs Number of firms

Was discouraged by ICT

6.9

Was encouraged by ICT

227

36.6

Not applicable

142

22.9

Don’t know

184

29.7

Refusal Total

3.7

619

99.8

0.2

620

100.0

Missing Total

118 ICT, Innovation, and Economic Growth in Transition Economies

TABLE 81. Telecommunication Costs Number of firms

Inhibited the success of the ICT usage initiative

117

18.9

Did not inhibit the ICT usage initiative

435

70.2

Not applicable

4.0

Don’t know

5.3

Refusal

1.6

620

100.0

Total

TABLE 82. Network Reliability Number of firms

Has been a problem to ICT usage

108

17.4

Has not been a problem to ICT usage

453

73.1

Not applicable

3.9

Don’t know

3.9

Refusal

1.8

620

100.0

Total

TABLE 83. Network Flexibility and Range of Services Was insufficient to engage in ICT usage

Number of firms

11.3

482

77.7

Not applicable

3.5

Don’t know

5.8

Refusal

1.6

620

100.0

Was sufficient to engage in ICT usage

Total

TABLE 84. Geographic Coverage of the Network Was insufficient to encourage the enterprise to engage in ICT usage Was sufficient to encourage the enterprise to engage in ICT usage

Number of firms

7.6

485

78.2

Not applicable

5.5

Don’t know

6.9

Refusal Total Missing Total

1.6

619

99.8

0.2

620

100.0

Annex 7: Results of the Survey – Tables

119

TABLE 85. Which Iinformation Technology is the Most Important to your Enterprise? E-mail

Number of firms

142

22.9

Website

5.8

Mobile phones

126

20.3

Fixed telephony

139

22.4

General internet access

176

28.4

Total

619

99.8

0.2

620

100.0

Missing Total

TABLE 86. Available Level of Transaction Security Number of firms

Discouraged the enterprise to engage in ICT usage

13.7

Encouraged the enterprise to engage in ICT usage

351

56.6

Not applicable Donâ&#x20AC;&#x2122;t know

9.4

108

17.4

Refusal Total

2.9

620

100.0

TABLE 87. Existing Authentication and Certification Systems Number of firms

Discouraged ICT usage

12.7

Encouraged ICT usage

273

44.0

Not applicable Donâ&#x20AC;&#x2122;t know

15.0

150

24.2

3.5

617

99.5

Refusal Total Missing Total

0.5

620

100.0

120 ICT, Innovation, and Economic Growth in Transition Economies

TABLE 88. Commercial Law in Place Number of firms

Was insufficient to encourage ICT usage

142

22.9

Was sufficient to encourage ICT usage

262

42.3

Not applicable Don’t know Refusal Total Missing Total

8.9

139

22.4

3.4

619

99.8

0.2

620

100.0

TABLE 89. Protection of Intellectual Property Number of firms

Was insufficient to encourage ICT usage

124

20.0

Was sufficient to encourage ICT usage

251

40.5

14.2

136

21.9

Not applicable Don’t know Refusal Total

3.4

620

100.0

TABLE 90. Taxation Measures Number of firms

Discouraged the enterprise to engage in ICT usage

260

41.9

Encouraged the enterprise to engage in ICT usage

129

20.8

Not applicable Don’t know Refusal Multiple options Total Missing Total

11.9

124

20.0

5.0

0.2

619

99.8

0.2

620

100.0

Annex 7: Results of the Survey – Tables

121

TABLE 91. Public Financial Support for R&D, Diffusion or Uptake Number of firms

250

40.3

10.5

Not applicable

133

21.5

Don’t know

144

23.2

3.2

Was insufficient to encourage ICT usage Was sufficient to encourage ICT usage

Refusal Multiple options Total

0.3

614

99.0

1.0

620

100.0

Missing Total

TABLE 92. Education System Number of firms

Provided inadequately trained personnel

176

28.4

Provided adequately trained personnel

272

43.9

Not applicable

10.0

Don’t know

14.4

Refusal

3.1

618

99.7

Multiple options Total

0.3

Missing

620

100.0

Total

176

28.4

TABLE 93. Government Provision of On-line Electronic Services Number of firms

12.7

238

38.4

12.9

197

31.8

Made it less attractive to engage in ICT usage Made it more attractive to engage in ICT usage Not applicable Don’t know Refusal Total

3.9

618

99.7

0.3

620

100.0

Missing Total

122 ICT, Innovation, and Economic Growth in Transition Economies

TABLE 94. Public Awareness Raising and Demonstration Programs Number of firms

Contributed insufficiently to the success of ICT usage

144

23.2

Contributed sufficiently to the success of ICT usage

195

31.5

Not applicable Don’t know Refusal Total

14.7

173

27.9

2.7

620

100.0

TABLE 95. Private Awareness Raising and Demonstration Programs Number of firms

Contributed insufficiently to the success of ICT usage

131

21.1

Contributed sufficiently to the success of ICT usage

233

37.6

12.9

164

26.5

Not applicable Don’t know Refusal Total

1.9

620

100.0

TABLE 96. Government Training Programs Number of firms

247

39.8

15.0

Not applicable

107

17.3

Don’t know

159

25.6

2.3

620

100.0

Insufficiently supported the enterprise

119

19.2

Sufficiently supported the enterprises

265

42.7

12.1

149

24.0

Insufficiently supported the enterprise Sufficiently supported the enterprise

Refusal Total

TABLE 97. Private Training Programs

Not applicable Don’t know Refusal Total

1.9

620

100.0

Annex 7: Results of the Survey – Tables

123

124 ICT, Innovation, and Economic Growth in Transition Economies

Annex 8

Company Case Studies

13.1 The case of Data Telecom OÜ – Estonia

13.2 The Case of BankServiss – Latvia

Data Telecom OÜ, is a company offering information technology and telecommunication services to the Estonian business. The quality and reliability related issues of the services are of paramount importance. The services are delivered under the trademark Data Telecom.

BankServiss is the leading company for payment card data processing services in the Baltic States. The company was the first multiple-bank owned payment card data processing center in Latvia and started operations in 1992. The company has been certified to process transactions for the world’s foremost payment card networks: Europay/ MasterCard, VISA, American Express and Diners Club. Besides these international cards BankServiss operates proprietary cards for several local banks and fuel companies such as Shell and Neste.

The company offers high-quality communications and server related services, tailored to the individual customer’s necessities. A considerable amount of turnover comes from providing local telecom operators with international IP connectivity with superb parameters. The company’s services are: N

N N

Communication services (Business Connect, IP Transit, ATM services, Traveller) E-mail Web hosting (Administration Interface, Database Support, Resource Utilisation) Hosting and housing services (Server Housing, Public FTP Server, Entry Level Housing) Multimedia Streaming (Video Archives in the Internet, Digitalising Service)

It has been proven to be very useful to dispose of a wide area network from bureaus serving technical infrastructure (servers). This is positive at least in two ways—first, the easy movement for offices and workspaces is guaranteed and second, the possibility of working at home is much more enhanced. Thus clients can save considerable resources. When working home or abroad, the company uses VoIP technology for calling (telephoning). This ensures considerable savings on communication expenses.

The main operations of the company are issuing processing, acquiring processing, clearing and settlement with domestic and international banks and payment schemes. The high technological level and professionalism of employees in the company allows for running large projects and BankServiss was the first payment card-processing center in the Baltics to entirely prepare its card processing systems for the issuing and acquiring of chip cards. In 2005 BankServiss started two important projects—payment authentication through 3 D Secure and EMV smart card personalization center. Implementation of 3 D Secure will stimulate banks and merchants participation in e-commerce. BankServiss implements these e-commerce technological solutions to ensure reliable and secure Internet payments for banks, merchants and cardholders. BankServiss processes more than 1,300, 000 cards (international and local debit and credit cards) per month and over 4 million issuing and acquiring authorizations38. 38 http://www.bankserviss.lv/en/about/

Annex 8: Company Case Studies

125

The company’s recommendation to all companies that are working almost exclusively with processing of data is to choose the right supplier. Here experience and knowledge is more important than price or quantity, because one is going to work with the selected hard- and software presumably for a very long time. In addition, compatibility of programs is very important so that cooperation with or competition over potential clients would be possible. ICT also has a major role in our quality management system as well. The registration of customers’ problems, requests and new tasks and the tracing of the executive process are essentially improved by implementing a new task executive process tracing system. The quality documentation is established in an electronic form that ensures rapid document turnover and links between documents exploiting e-mail.

company have been modified in order to supply the required information with a minimum of manual work. For example, taxes and fees can be paid online. All information on servers and computers is safe-copied on data-carriers that ensure the backup database.

13.4 Implementation of a New IT Product – Russia Established in the 2000, company Industrial Information System, is engaged in development and promotion of new administrative technologies and automated systems. The basic activities of Industrial Information System include: N

13.3 The Case of AB “Klaipedos Duona” (KD) – Lithuania AB “Klaipėdos duona” (KD) is one of the largest and most modern baking enterprises not only in the Klaipėda district but also in Lithuania. Every 24 hours the company bakes about 50 tons of bread and cake, confectionery products, and wafers. The enterprise can offer such an abundant—over a hundred names—assortment of bread, cake, confectionery products, and wafers. Over 90 percent of production is packed at the request of customers either in loaves, split into several parts, or sliced. KD has developed its own programs for taking and accepting of orders online, which enabled to increase the number of clients without any increase in the number of employees. This improves several aspects of the company’s competitiveness and efficiency— productivity, lower prise, less time-consuming saleprocess, lower labor costs etc. Using ICT technologies, KD improved the obligatory document processing. As authorities removed strict requirements for reporting and reporting became possible, the internal programs of the

N N N

development of technology Business Reality and Business Reality Suite platform; development of typical and custom-made software products and decisions on basis of proprietary technology Business Reality ™; training and support of the partners developing and delivering finished decisions based of our technologies; customized exploitations and support of corporate systems of various purpose; consulting services in the field of construction of effective control systems and carrying out of organizational changes; performance of complex projects on automation of control systems of corporations "on a turn-key basis"; information audit; integrating the hardware-software systems; and management of projects of system integration.

In May 2004 OAO “Industrial information systems” released a new system of electronic document circulation called Globus, based on the platform Business Reality™. This system has received favorable assessment at the international exhibition CeBIT 2004. Globus™ takes into account specific needs of Russian enterprises. This technology includes personnel training, consulting, and technical support. Although there is still great interest in electronic document circulation, the market is still not yet mature. There is no infrastructure, and there are no

126 ICT, Innovation, and Economic Growth in Transition Economies

qualified experts capable of rendering professional services. Therefore, in many cases, the type of a document circulation system is determined by availability of a strong support team. Frequently, customers reject more advanced technologies or systems because of the lack of appropriate support services. Until recently, even the largest providers were unable to provide support. Three key lessons can be learned from the experiences of Russian companies with the introduction of IT systems: N

The client should be sufficiently mature to establish the system. In this case, the director takes care of all the problems related to worker resistance. The role of IT advisers in the given situation is not to persuade personnel. It is appropriate to begin introduction of the new technologies at the highest levels of a company’s hierarchy, where there is the highest visible effect. Further actions will pass more easily. It is expedient beforehand to determine the degree of computer literacy of the personnel and to determine the terms and the times they are available for training. Pre-design inspection is very important at this stage where both the customer and the executor formulate the answers to various questions: What is necessary to introduce the program? Which problems is it solving? In the Russian example, there is the possibility to save considerable amount of resources without having to obtain a program with an excess of functions (for example SAP), but at the same time bearing in mind that the development of the company will influence the use of the program.

Major mistakes and failures of the introduction of IT systems are connected with prolonging the deadlines of the project, political intrigues, and insufficient political will of the management. In this case, the program is bought already, but there is a huge resistance to introduction and its purchase is seen as mistake. In the worst case there are two programs working at the same time—the old and the new one. This situation reduces the overall performance of the company instead of increasing it.

13.5 Integration of ICT in a Large Company – “Electropribor”, Russia The State Centre of Science of the Russian Federation “Electropribor” is a leading centre in Russia in the area of development and production of sea and space navigation, radio communications, and wind energy In many of its fields the company is internationally competitive. The problems of the effective utilization of ICT in a company having more than 2,000 employees were that from the point of view of functional application the company can be distinguished in three groups of users: 1. High-level developers, using in their work most advanced IT systems for designing and managing projects and life cycle of products, and focusing on IT systems of leading global firms, particularly Windchill. 2. Production-workers of pilot production which work is under the management of an “internallydeveloped” Management Information System that is outdated and is supported by a special group of programmers. 3. The financial-economic block of the company also using “internally-developed” financial— accounting system of a low level. Electropribor has a network of a few hundred computers. Key problems include maintenance of these computers and low qualification of the personnel operating the technical equipment. The management of the company had in very short time to solve the problem of development and implementation of a plan for the integration of ICT that would move the company at a principally new usage level of ICT and allow its integration into the global environment of development and production. The solution to the problem can be developed in a few stages within the framework of the general strategy for integrating ICT.: 1. Creation of a powerful IT division and the post of an “Assistant to the General Director” who would develop information technologies, allocate

Annex 8: Company Case Studies

127

a solid budget for ICT and use of project control systems for ICT tasks. ICT service was created in 2004 and united the isolated IT experts solving problems of creating and maintaining databases, supporting management information systems, purchasing hardware, and maintaining networks. However, in the future, some of these tasks will be outsourced, because having an extensive IT services division within the company is too expensive. 2. Development of ICT rules that determine what software should be installed, location of the software, how many workplaces should exist in a certain divisions, what tools (applied software) should be available, qualification of personnel and certification of users. Other rules should be developed about the relationship between the IT service and its users, and general rules for the workplace, etc. This stage is completed. There are more than 1,200 workplaces operating that are equipped with modern computers, 70 percent of which are incorporated into the corporate network. 3. Creation of an integrated dialogue environment of ICT users by replacing communication through circulating paper documents with information interchange through a computer Intranet— network with a speed of data transmission up to 100 Mb / sec. This leads to improvement in the skills of all workers in the company, including ICT personnel. 4. Selecting a proper ERP-system: Electropribor is in the stage of choosing a proper ERP-system. Contrary to other large industrial enterprises, where the implementation of the Western ERPsystems takes very long due to the enterprises being unprepared and the relatively low qualification of the personnel of partner firms (the implementation of SAP R/3 at “Electrosila” lasts already three years), “Electropribor” is making its choice of ERP-system according to criteria such as cost, speed of introduction, integration opportunities, and experience of the partner company. From the considered variants of the Russian (“Galaxy”) and foreign (Axapta, SAP) the preferred one is ERP-Axapta of Microsoft. For the pilot project, Electropribor has prepared about 10 key business-processes. Basic requirements for the introduction include: full testing of all the operations on key users, and a constant presence of the IT company-partner during the introduction.

5. In the field of financial accounting, planning, and control: the preference will be probably given to the Russian ERP-system “Galaxy” which to a bigger extent meets the needs of the financial administration of the enterprise and allows to keep the accounts, in Russian, as well as in international accounting and reporting systems.

Conclusions

Introduction of ICT completely from scratch in an already working environment under Russian conditions is impossible. At the moment there are no large enterprises in which all the processes are automated. In first instance key business—processes determining the quality of the end production should be automated. In large Russian companies, developing and producing innovative products, distinguished by different target requirements; different levels of readiness to use ICT; and already having “island” automation of separate processes; an integrated approach for the use of ICT are necessary. Such an approach using the experience of “Electropribor” can be generalized in few strategic principles: N

Dedicated top management to a fast and complete introduction of ICT. Concentration of staff responsible for managing the process of ICT introduction in one common, qualified ICT division with authority and a budget. Careful analysis and reengineering of key business processes for the preparation of complex automation, and regulation of workplaces and processes. Continuous target preparation of the personnel for overcoming the natural resistance to ICT introduction. Orientation to the best ICT-solutions with strict selection of suppliers. Maximum outsourcing of ICT support and introduction processes.

13.6 WebService – Poland The WebService Internet company is one of Poland’s largest and fastest developing interactive agencies. Established in 1996, the company has implemented almost 300 integrated marketing,

128 ICT, Innovation, and Economic Growth in Transition Economies

consulting, and IT projects for the main Polish and foreign companies.

N N N

WebService provides solutions based on the knowledge and experience of experts in consulting, IT, programming, graphics, Internet services and multimedia presentations. A key competence of WebService is the skill to develop consistent concepts of distinguishing the client’s company and building its brand. The company’s offering goes far beyond standard proposals of interactive agencies and includes: N

E-marketing – developing Internet services, preparing advertising campaigns, loyalty programs, eCRM, multimedia presentations and NetPR activities. E-consulting – consulting on the implementation of Internet solutions and the application of new technologies. E-technologies – developing and implementing Content Management Systems (CMS), e-learning, Internet and extranet solutions and corporate portals, developing applications upon request, developing visualization systems of the Corporate Identity type, creating the presentation layer for advanced e-commerce applications, e-learning platforms and electronic banking.

WebService e-competences: 1. 2. 3. 4. 5. 6. 7. 8. 9.

Focus on network application solutions Internet systems solutions Internet strategies solutions Advisory solutions – communications Advisory solutions – technology Corporation portals Multimedia solutions Extranet Dedicated solutions

WebService Uses Many Different ICT Solutions in its Business: N N N N N N

Tools for presentations E-mail boxes Internet chat Internet communicators Video-conferences Broadband access to the Internet (headquarter and local offices) Mobile access to the Internet (GPRS, WAP, WiFi solution)

N N N

IP telecommunication VPN – Virtual Private Network Office applications Project management systems CRM – Customer Relationship Management Intranet (work flow, organizational structure, address e-book, access to files) Extranet (communication client support, after sales support, orders, etc).

In terms of internal costs of using new technologies, the time and tools of implementation are covered by the company and its staff. The total cost of implementation for WebService clients is not revealed. Asked about the barriers to ICT introduction (internal and external) the company points to the following: 1. Barriers to ICT introduction – people: N They have their daily duties and they do not want to participate in new activities, which would mean another duty for them. N They are afraid of changes. N Communication problems between client representatives and consultant/ implementer. 2. Barriers for implementation – Client: N After the implementation process every organization has to work normally while every implementation of new technologies brings period of training during which problems with using those technologies may appear. N Integration of new and old processes is a time-consuming process. N The implementation process must take into consideration possible requirements from the client side. N The implementation process of new ICT tools requires some specific changes (in service process, contacts with IT users, etc.). 3. Barriers for implementation – technology: N Based on users’ needs—not always easy to be incorporated into the new technologies. N Integrated with present technologies. N Reliability of new technologies is usually lower than after few months of getting experience in using them. N Flexibility and graduation of new technologies is required and these two factors are not always possible to predict during the introduction phase.

Annex 8: Company Case Studies

129

13.7 Comarch – Poland39 Comarch is an international software house and systems integrator that provides innovative IT solutions to telecommunications, finance, banking, service sector companies and public administration. The IT solutions cover billing, ERP systems, IT security, CRM and sales support, electronic communication and business intelligence. Comarch also offers outsourcing and consulting services. In 1993, a group of the most gifted telecommunications experts at the Kraków University of Science and Technology, led by professor Janusz Filipiak (Comarch’s founder, president, and CEO), was commissioned to conduct analysis, expertise, and feasibility studies for TPSA (a Polish incumbent operator and part of the France Telecom Group). This was, in effect, the birth of Comarch. Less than one year later, the group, know as the “COMputer ARCHitects”, was awarded a contract to implement a billing system for TPSA’s satellite service. Following the success of this first project, TPSA extended its relationship with Comarch by implementing other billing and network management systems. In 2000, Comarch expanded its solutions to offer new modules based on different technologies for new types of customers. In 2001 the telecommunication unit was awarded its first international contract. Development of new services and modules continued. 2002 saw the expansion of the group’s client base to Latin America, the Middle East and the United States. The background of one of the services of Comarch was a gap in the emerging IT market in Poland, i.e., the need for a network inventory management solution.

13.8 Epicor – Poland

supply chain management (SCM) software solutions to mid-market companies around the world.

Epicor leverages innovative technologies like Web services in developing end-to-end, industry-specific solutions for various sectors such as: N N N N

manufacturing; distribution; enterprise service automation; and hospitality.

Motivation for ICT Implementation Include: N

control and transparency of company’s performance; need of transparency and complete picture of who is earning and spending how much, for what, and when; with numerous built-in key performance indicators (KPIs), the company wants to measure internal process performance and suppliers’ performance.

How was ICT Used to Resolve Internal Problems: The company implements and uses its business software to supply its own needs in such fields as: N N N

accountancy; client relationship management (CRM); and project management.

As result of using ICT technologies, the company dramatically increased both profits as customer satisfaction.

Barriers to ICT Introduction:

The main barrier relates to the human factor— general fear of change and introduction of new things. This requires time as well as internal attention and a positive management attitude.

Introduction

For 20 years, Epicor has been a recognized leader dedicated to providing integrated: N N

enterprise resource planning (ERP); customer relationship management (CRM); and

39 This case has been adapted from the project “Strengthening governmental policy and institutional cohesion to enhance innovativeness of Polish economy before accessing the European Union” under PPA (Dutch bilateral programme) carried out by ECORYS in 2002-2005.

130 ICT, Innovation, and Economic Growth in Transition Economies

Annex 9

Electronic Business Survey (EBS) Baseline Questionnaire Some Methodological Remarks The EBS methodology has been designed to allow comparisons between industries, sectors, countries and regions. In order to encourage its worldwide usage infoDev has decided to make the EBS â&#x20AC;&#x2DC;Baseline Questionnaireâ&#x20AC;&#x2122; available on-line. Its usage and the sharing of results by different parties throughout the world will lead to more diverse and richer datasets, and this to the benefit of all participants. Before applying the methodology, however, candidate users need to be cautioned about some of its characteristics, in particular relating to the usage of the baseline questionnaire, the sampling procedures and the need to update and adapt the questionnaire. These different aspects are briefly outlined below. For more details and assistance, as well as to obtain access to the datasets contact info Dev (info@infodev.org).

Baseline Questionnaire

As its denomination indicates, the baseline questionnaire is not the actual questionnaire, but a standard from which the actual questionnaire(s) will be inferred. The questionnaire has been constituted with scientific rigor. Even though excessive economic jargon has been avoided, certain terminology may not be accessible to interviewees. Moreover, the questionnaire is generic and has to be adapted to the different settings (industries, sectors, etc.) to which it will be applied. For example, some industries will prefer the term service to the term product. As trivial as they may seem, such small changes have a major impact on the comprehensibility of the questionnaire. In sum, research teams and interviewers will have to adapt the questionnaire to context and circumstances. To be able to make this conversion, they will

have to receive appropriate training. Experience has shown indeed that researchers need extensive training in order to be able to understand the scientific principles underlying the questionnaire and its formal rationale in order to be able to use it in practice.

Sampling

As mentioned above, the EBS methodology has been designed to allow comparability between different types of economic activity and geographical settings. Cross-industry and geographical comparisons, however, require different sampling procedures, which can be combined. Sampling procedures may also differ depending on the scope of the project. Is it to be representative nationally or regionally, or does it need to reflect a specific type of economic activity?

Updates and Adaptations

Part B of the questionnaire on technology usage is a selection of questions originally designed for an OECD questionnaire. This questionnaire has substantially evolved since we used it. Consequently, Part B of the EBS questionnaire needs to be substantially revised if it is to remain comparable with OECD data. The core of the EBS questionnaire is sections C and D, which deal with the effects of innovation in relation to the usage of ICT in different business processes. Both sections have been duly tested and repeatedly improved. Nevertheless, the application of each new iteration of the questionnaire reveals possible improvements. This is not different for this version. The same applies to section E and F. Finally, users need to be aware that the questionnaire is modular. Which modules to use will depend on the aim of the project and the resources available.

Annex 9: Electronic Business Survey (EBS) Baseline Questionnaire

131

ICT Usage/Electronic Commerce in Enterprises Survey in Eastern Europe This survey consists of the following modules:

A9. What was the total number of employees in your enterprise in 2002, 2003 and 2004? December 2002 .............................................. December 2003 .............................................. December 2004 .............................................

Module A: General Information Module B: ICT Usage in the Enterprise Module C: Productivity and Competitiveness Module D: Effects of Innovation Module E: Strategic Factors Module F: Policy and Regulatory Factors

Module A: General Information A1. Unique Survey Identification Number ........................................................................

A10. Has your company acquired or merged with other companies in the past three years? [

] Yes

[

] No

A11. Total turnover of the enterprise in 2004 In national currency, excluding value added taxes ........................................................................ A12. Value of goods and services purchased in 2004 In national currency, excluding value added taxes ........................................................................

A2. NACE Code of the sector .....................................................................

A12. Name of holding company (if applicable) ........................................................................

A3. Name of the Interviewer ........................................................................ A4. Name of the interviewee ........................................................................ A5. Position of interviewee in the enterprise ........................................................................ A6. Telephone number of the interviewee ........................................................................ A7. Activity of the enterprise. Please specify

Module B: ICT Usage in the Enterprise Questions B1 and B2 need to be positive to complete the rest of the questionnaire. This should be checked before the actual interview is taking place. B1. Did your enterprise use computer/s during the past three years? A computer includes: a personal computer, laptop, personal digital assistant (handheld computer), minicomputer, mainframe. [

] Yes

[

] No

[

] Not applicable

[

] Donâ&#x20AC;&#x2122;t know

[

] Refusal

........................................................................ A8. Name of enterprise ........................................................................

132 ICT, Innovation, and Economic Growth in Transition Economies

B2. Did your enterprise use the Internet during the past three years? Internet refers to Internet Protocol (IP) based networks: WWW, Extranet over the Internet, EDI over the Internet, Internet accessed by mobile phones, Internet email. [

] Yes

[

] No

[

] Not applicable

[

] Donâ&#x20AC;&#x2122;t know

[

] Refusal

[ ] Cable modem with contractual download speed >= 2Mbps [ ] Other broadband with contractual download speed < 2Mbps

B3. How did your enterprise connect to the Internet during the past three years? Tick all which apply [ ] Analog modem (dial-up via standard phone line) An analog modem converts a digital signal into analog for transmission by traditional (copper) telephone lines. It also converts analog transmissions back to digital. [ ] ISDN (Integrated Services Digital Network) ISDN is a telecommunication service that turns a traditional (copper) telephone line into a higher speed digital link, typically 64 Kbps or 128 Kbps. It is generally regarded as narrowband.

Likely to include technologies such as leased lines, optic fibre cable, some mobile phone access (such as UMTS), satellite and fixed wireless. Contractual download speed is equivalent to advertised speed. A 1.5Mbps cut-off may be used in those countries (e.g. US, Canada) where this is more applicable than 2 Mbps. [ ] Other broadband with contractual download speed >= 2Mbps [ ] Not applicable [ ] Donâ&#x20AC;&#x2122;t know [ ] Refusal B4. Which of the following information technologies, if any, did your enterprise use during the past three years? Tick all which apply [ ] Internet email

[ ] Other narrowband Includes mobile phone access. [

A modem which uses cable TV lines for connection to the Internet. Contractual download speed is equivalent to advertised speed. A 1.5Mbps cutoff may be used in those countries (e.g. US, Canada) where this is more applicable than 2 Mbps.

] DSL (ADSL, SDSL, VDSL etc) with contractual download speed < 2Mbps

Digital subscriber line; it is a high-bandwidth, local loop technology carrying data at high speeds over traditional (copper) telephone lines. Contractual download speed is equivalent to advertised speed. A 1.5Mbps (megabits per sec) cut-off may be used in those countries (e.g. US, Canada) where this is more applicable than 2 Mbps. [ ] DSL (ADSL, SDSL, VDSL etc) with contractual download speed >= 2Mbps [ ] Cable modem with contractual download speed < 2Mbps

Electronic transmission of messages, including text and attachments, from one computer to another by the Internet. [ ] Intranet within your enterprise A network using the same protocol as the Internet and allowing communication within an organisation. It is typically set up behind a firewall to control access. [ ] Extranet between your enterprise and other organisations (including related enterprises) A private, secure extension of the intranet running on Internet protocol that allows selected external users to access

Annex 9: Electronic Business Survey (EBS) Baseline Questionnaire

133

some parts of an organisation’s intranet. [ ] Local area network (LAN) Local area network: a network connecting computers within a localised area such as a single building, department or site; may be wireless. [ ] Wide area network (WAN) Wide area network: a network that connects computers over long distances. [ ] None of the above information technologies. Specify

[

] Not applicable

[

] Don’t know

[

] Refusal

Purchases/procurement of goods or services via computer networks B7. Did your enterprise place orders for goods or services (that is, make purchases) via any computer networks during the past three years? Including: the Internet and other computer networks (e.g. EDI over proprietary networks) [

] Yes

[ ] Not applicable

[

] Not applicable

[ ] Don’t know

[

] Don’t know

[ ] Refusal

[

] Refusal

........................................................................

B5. Did your enterprise use computer networks other than the Internet during the past three years? This includes proprietary or closed networks which are not IP based (for example, the closed computer networks originally set up to facilitate Electronic Data Interchange – EDI).

[

] No

If no, go to B11

B8. Did your enterprise place orders for goods or services (that is, make purchases) via the Internet during the past three years? Refers to purchasing/procurement Including: via Web sites, specialised Internet marketplaces, extranets, EDI over the Internet, Internet-enabled mobile phones e.g. WAP

Excluding: the Internet

Including: orders placed via the Internet whether or not payment was made on-line

[

] Yes

[

] Not applicable

Excluding: orders submitted via conventional email

[

] Don’t know

[

] Refusal

[

] No

Excluding: orders which were cancelled or not completed

B6. Did your enterprise have a Web presence during the last three years? Web presence includes your own Web site/home page as well as a presence on a third party’s site (including a related entity) where your enterprise has full control over the content of the site/page. It excludes a listing in an on-line directory or other Web pages where the enterprise does not have full control over the page’s content. [

] Yes

[

] No

[

] Yes

[

] No

[

] Not applicable

[

] Don’t know

[

] Refusal

B9. Did your enterprise place orders (make purchases) for goods or services via computer networks other than the Internet during the past three years? For instance: EDI over proprietary networks Including: orders placed via those networks whether or not payment was made on-line

134 ICT, Innovation, and Economic Growth in Transition Economies

Excluding: orders which were cancelled or not completed

Including: orders placed via the Internet whether or not payment was made on-line

[

] Yes

Excluding: orders submitted to your enterprise via conventional email.

[

] Not applicable

Confirm the exclusion of email orders.

[

] Don’t know

[

] Refusal

Excluding: orders which were cancelled or not completed.

[

] No

B10. Did the computer system/s used by your enterprise to place orders via the Internet or other computer networks link electronically with any of the following as at March 2005? Tick all which apply [

] Your enterprise’s systems for ordering or stock control

[

] Your enterprise’s systems for invoicing customers

[

] Your enterprise’s systems for production or service operations

[

] Yes

[

] No

[

] Not applicable

[

] Don’t know

[

] Refusal

If no, go to B18

B12. How were those (Internet) orders received? Tick all which apply [

] Via Website with an email link

[

] Your enterprise’s systems for delivery of products (including electronic delivery)

] Via an online ordering facility on your website

[

] Your marketing or customer relations systems

] Through a third party website e.g. specialised Internet marketplace

[

] Via EDI over the Internet

[

] Other internal or external systems (please specify)

[

] Not applicable

[

] Don’t know

[

] Refusal

........................................................................ [

] Computer system/s for receiving orders not linked to any of the above

[

] Not applicable

[

] Don’t know

[

] Refusal

B13. What proportion of your enterprise’s total turnover during the past three years (excluding value added taxes) did Internet orders (sales) represent? Internet orders are as defined in B7. .......%

Selling goods and services via computer networks B11. Did your enterprise receive orders (make sales) via the Internet during the past three years. Including: via Web sites, specialised Internet marketplaces, extranets, EDI over the Internet, Internet-enabled mobile phones e.g. WAP Including: orders received on behalf of other organisations and orders received by other organisations on behalf of your organisation

[

] Not applicable

[

] Don’t know

[

] Refusal

Note: For Internet orders received on behalf of other organisations, include only fees or commissions earned on those orders. However, include the value of Internet sales orders received by other organisations on your behalf (e.g. by agents).

Annex 9: Electronic Business Survey (EBS) Baseline Questionnaire

135

Note: For financial services, include only fees earned in respect of services provided over the Internet.

[

] Your customers’ systems (including related enterprises)

[

] Your enterprise’s systems for ordering or stock control

[

] Your enterprise’s systems for invoicing customers

Customers within your country .................. %

[

] Your enterprise’s systems for production or service operations

Customers outside your country ................. %

[

] Your enterprise’s systems for delivery of products (including electronic delivery)

=100

[

] Your marketing or customer relations systems

B14. Please provide a percentage breakdown of the value of Internet orders (sales), by location of customer:

[

] Not applicable

[

] Your suppliers’ computer systems

[

] Don’t know

[

] Refusal

] Computer system/s for receiving orders not linked to any of the above

[

] Other internal or external systems (please specify)

[

] Not applicable

[

] Don’t know

[

] Refusal

B15. Did your enterprise receive orders (make sales) for goods or services via computer networks other than the Internet during the past three years? For instance: EDI over proprietary networks [

] Yes

[

] No

[

] Not applicable

[

] Don’t know

[

] Refusal

B16. What proportion of your enterprise’s total turnover during the past three years (excluding value added taxes) did those orders (sales) represent? .......% [

] Not applicable

[

] Don’t know

[

] Refusal

B17. Did the computer system/s used by your enterprise to receive orders (make sales) via the Internet or other computer networks link electronically with any of the following systems as at March 2005? Tick which apply

Use of ICT for other business processes within your enterprise B18. Did your enterprise use the Internet or other computer networks for dealing with government organisations during the past three years? Note that government organisations are defined per the SNA93. They include government organisations at local, regional and national level. See http://unstats.un.org/unsd/sna1993/ glossform.asp?getitem=219 Tick all which apply [

] Did not use the Internet or other computer networks for dealing with government organisations Go to B19

[

] For obtaining information

[

] For downloading or requesting government forms e.g. taxation forms

136 ICT, Innovation, and Economic Growth in Transition Economies

[

] For completing or lodging forms on-line e.g. applications, claims for grants, tenders

[

] Inventory management

[

] For purchasing goods and services from government organisations,

[

] Production or service operations

[

] Selling goods and services

[

] For selling goods and services to government organisations,

[

] Processing orders

[

] Delivery and logistics

[

] For making on-line payments to government organisations.

[

] Customer service

[

] Finance

[

] Other dealings with government (please specify)………………..………….……

[

] Budget and account management

[

] Asset and facility management

[

] Payroll

[

] Human resource management

[

] Training

[

] General management and decision making

[

] Sharing and distribution of information or data

[

] Not applicable

[

] Don’t know

[

] Refusal

B19. Did your enterprise use the Internet or other computer networks for providing the following customer services during the past three years?

Other, specify

[

] Providing product catalogues or price lists

........................................................................

[

] Product specification or configuration online

[

] Not applicable

[

] Inquiry or contact facility on web site

[

] Don’t know

[

] Customised web page for repeat clients

[

] Refusal

[

] Order tracking on-line

[

] Customer information collected on-line

[

] After sales support

[

] Other. Specify

........................................................................ [

] Not applicable

[

] Don’t know

[

] Refusal

B20 Did your enterprise use internal or external computer networks in any of the following areas of your business during the past three years? [

] Marketing

[

] Purchasing / procurement

Module C: PRODUCTIVITY C1. How are the outputs per employee different from what they were three years ago? Are they: In other words, this is a question on labour productivity. Outputs can be either goods or services. [

] More or less equal (go to C5)

[

] Higher

[

] Lower

[

] Not applicable

[

] Don’t know

[

] Refusal

Annex 9: Electronic Business Survey (EBS) Baseline Questionnaire

137

C2. With what percentage have outputs per employee increased/decreased compared to three years ago?

C5. How are your average operational costs per unit of output different from three years ago? This includes depreciation, maintenance and operational costs, but excluding labour costs. Units of output can be measured in terms of items sold, services delivered, customers contracted.

[

] 0–10 %

[

] 10–25 %

[

] 25–50 %

[

] 50–75 %

[

] 75–100 %

[

] More or less equal (go to C9)

[

] 100–150 %

[

] Higher

[

] more than 150 %

[

] Lower

[

] Not applicable

[

] Not applicable

[

] Don’t know

[

] Don’t know

[

] Refusal

[

] Refusal

C3. Change in the output per employee of the business is due: [

] Mainly To ICT usage (go to C5)

[

] To ICT usage and other factors

[

] Mainly to other factors

[

C6. With what percentage have your operational costs per unit of output increased/decreased compared to three years ago? [

] 0–10 %

[

] 10–25 %

[

] 25–50 %

] Not applicable

[

] 50–75 %

[

] Don’t know

[

] 75–100 %

[

] Refusal

[

] 100–150 %

[

] more than 150 %

[

] Not applicable

[

] Don’t know

[

] Refusal

C4. What is the most important of these other factors? [

] .................................................................

[

] Organisational change

[

] Capital investment in equipment

[

] Changes in salary structure

[

] Training of staff

[

] New marketing strategy

[

] Not applicable

[

] Don’t know

[

] Refusal

C7. Change in operational costs per unit of output is due: [

] Mainly To ICT usage (go to C9)

[

] To ICT usage and other factors

[

] Mainly to other factors

[

] Not applicable

[

] Don’t know

[

] Refusal

138 ICT, Innovation, and Economic Growth in Transition Economies

C8. What is the most important of these other factors?

C10. With what percentage have total revenues from sales increased/decreased compared to three years ago?

[

] .................................................................

[

] Organisational change

[

] 0–10 %

[

] Capital investment in equipment

[

] 10–25 %

[

] Changes in salary structure

[

] 25–50 %

[

] Training of staff

[

] 50–75 %

[

] New marketing strategy

[

] 75–100 %

[

] 100–150 %

[

] more than 150 %

[

] Not applicable

[

] Don’t know

[

] Refusal

[

] Not applicable

[

] Don’t know

[

] Refusal

C9. How are total revenues from sales different from three years ago? Number of units sold X price, excluding other revenues, for example from financial investments

C11. Change in the total revenues from sales of the business is due:

[

] More or less equal (go to C13)

[

] Mainly To ICT usage (go to C13)

[

] Higher

[

] To ICT usage and other factors

[

] Lower

[

] Mainly to other factors

[

] Not applicable

[

] Don’t know

[

] Not applicable

[

] Refusal

[

] Don’t know

[

] Refusal

C9b. Please provide a percentage breakdown of the value of revenue, by location of customer: Customers within your country .................. % Customers outside your country ................. % =100 [

] Not applicable

[

] Don’t know

[

] Refusal

C12. What is the most important of these other factors? [

] .................................................................

[

] Organisational change

[

] Capital investment in equipment

[

] Changes in salary structure

[

] Training of staff

[

] New marketing strategy

[

] Not applicable

[

] Don’t know

[

] Refusal

Annex 9: Electronic Business Survey (EBS) Baseline Questionnaire

139

C13. How are profits from sales different from three years ago? Pre-tax profits but excluding other profit sources such as financial investments.

C15. Change in the profits from sales is due: [

] Mainly To ICT usage (go to C17)

[

] To ICT usage and other factors

[

] Mainly to other factors

[

] More or less equal (go to C17)

[

] Higher

[

] Not applicable

[

] Lower

[

] Don’t know

[

] Not applicable

[

] Refusal

[

] Don’t know

[

] Refusal

C16. What is the most important of these other factors? [

] .................................................................

[

] Organisational change

[

] Capital investment in equipment

[

] Changes in salary structure

[

] Taining of staff

Customers outside your country ................. %

[

] New marketing strategy

=100

[

] Not applicable

[

] Don’t know

[

] Refusal

C13b. Please provide a percentage breakdown of the value of profits from sales, by location of customer: Customers within your country .................. %

[

] Not applicable

[

] Don’t know

[

] Refusal

C14. With what percentage have profits from sales increased/decreased compared to three years ago? [

] 0–10 %

[

] 10–25 %

[

] 25–50 %

[

] 50–75 %

[

] 75–100 %

[

] 100–150 %

[

] more than 150 %

[

] Not applicable

[

] Don’t know

[

] Refusal

C17. How is the amount of capital investment in innovation different from three years ago? This includes research and development, renewal of technology and the re-engineering of business processes and organisation. [

] More or less equal (go to C21)

[

] Higher

[

] Lower

[

] Not applicable

[

] Don’t know

[

] Refusal

C18. With what percentage has the amount of capital investment in innovation increased/ decreased compared to three years ago? [

] 0–10 %

[

] 10–25 %

140 ICT, Innovation, and Economic Growth in Transition Economies

[

] 25–50 %

[

] Not applicable

[

] 50–75 %

[

] Don’t know

[

] 75–100 %

[

] Refusal

[

] 100–150 %

[

] more than 150 %

[

] Not applicable

[

] Don’t know

[

] 0–10 %

[

] Refusal

[

] 10–25 %

[

] 25–50 %

[

] 50–75 %

C22. With what percentage has the amount of capital investment in ICT increased/ decreased compared to three years ago?

C19. Change in the amount of capital investment in innovation is due:

[

] 75–100 %

[

] Mainly To ICT usage (go to C21)

[

] 100–150 %

[

] To ICT usage and other factors

[

] more than 150 %

[

] Mainly to other factors

[

] Not applicable

[

] Not applicable

[

] Don’t know

[

] Don’t know

[

] Refusal

[

] Refusal

C20. What is the most important of these other factors?

C23. Change in the amount of capital investment in ICT is due: [

] Mainly To ICT usage (go to D1)

[

] To ICT usage and other factors

[

] Mainly to other factors

] Changes in salary structure

[

] Not applicable

[

] Training of staff

[

] Don’t know

[

] New marketing strategy

[

] Refusal

[

] Not applicable

[

] Don’t know

[

] Refusal

[

] .................................................................

[

] Organisational change

[

] Capital investment in equipment

[

C24. What is the most important of these other factors?

C21. How is the amount of capital investment in ICT different from three years ago? This is all investment in ICT, regardless of whether it is innovative or not. [

] More or less equal (go to D1)

[

] Higher

[

] Lower

[

] .................................................................

[

] Organisational change

[

] Capital investment in equipment

[

] Changes in salary structure

[

] Training of staff

[

] New marketing strategy

Annex 9: Electronic Business Survey (EBS) Baseline Questionnaire

141

[

] Not applicable

[

] Don’t know

[

] Refusal

C25. How important is competition on price for gaining market share compared to three years ago? [

] More or less the same (go to C21)

[

] More important

[

] Less important

[

] Not applicable

[

] Don’t know

[

] Refusal

C26. With what percentage has competition on price increased/decreased your market share compared to three years ago?

C28. What is the most important of these other factors? [

] .................................................................

[

] Organisational change

[

] Capital investment in equipment

[

] Changes in salary structure

[

] Training of staff

[

] New marketing strategy

[

] Not applicable

[

] Don’t know

[

] Refusal

C29. How important is competition on quality for gaining market share compared to three years ago? [

] More or less the same (go to C21)

[

] More important

[

] Less important

[

] Not applicable

[

] Don’t know

[

] Refusal

[

] 0–10 %

[

] 10–25 %

[

] 25–50 %

[

] 50–75 %

[

] 75–100 %

[

] 100–150 %

[

] more than 150 %

[

] Not applicable

[

] Don’t know

[

] 0–10 %

[

] Refusal

[

] 10–25 %

[

] 25–50 %

[

] 50–75 %

[

] 75–100 %

[

] 100–150 %

[

] more than 150 %

[

] Not applicable

[

] Don’t know

[

] Refusal

C27. Change in the intensity of competition on price is due: [

] Mainly To ICT usage (go to C21)

[

] To ICT usage and other factors

[

] Mainly to other factors

[

] Not applicable

[

] Don’t know

[

] Refusal

C30. With what percentage has competition on quality increased/decreased your market share compared to three years ago?

142 ICT, Innovation, and Economic Growth in Transition Economies

C31. Change in the intensity of competition on quality is due:

[

] Not applicable

[

] Don’t know

[

] Refusal

[

] Mainly To ICT usage (go to C21)

[

] To ICT usage and other factors

[

] Mainly to other factors

[

] mainly to ICT usage (go to Q X)

[

] Not applicable

[

] to ICT usage and other factors

[

] Don’t know

[

] mainly to other factors

[

] Refusal

C32. What is the most important of these other factors?

C35. Change in your average sales prices is due:

C36. What is the most important of these other factors? [

] .................................................................

[

] .................................................................

[

] Organisational change

[

] Organisational change

[

] Capital investment in equipment

[

] Capital investment in equipment

[

] Changes in salary structure

[

] Changes in salary structure

[

] Training of staff

[

] Training of staff

[

] New marketing strategy

[

] New marketing strategy [

] Not applicable

[

] Not applicable

[

] Don’t know

[

] Don’t know

[

] Refusal

[

] Refusal

C33. How are your average sales prices different from three years ago? [

] more or less equal (go to Q X)

[

] higher

[

] lower

C34. With what percentage have your average sales prices increased/decreased compared to three years ago? [

] 0–10 %

[

] 10–25 %

[

] 25–50 %

[

] 50–75 %

[

] 75–100 %

[

] 100–150 %

[

] more than 150 %

Module D: EFFECTS OF INNOVATION Effects of Process Innovation D1. During the past three years, has your company increased the speed and reliability of business processes? [

] Yes

[

] No

[

] Not applicable

[

] Don’t know

[

] Refusal

If no, go to D5

D2. What was the effect of improved speed and reliability of business processes on your overall business process costs, compared to three years ago? Costs (i.e. all costs including operational and net labour costs)

Annex 9: Electronic Business Survey (EBS) Baseline Questionnaire

143

[

] Increased

[

] Decreased

[

] Remained about the same

[

] Not applicable

[

] Don’t know

[

] Increased

[

] Refusal

[

] Decreased

[

] Remained about the same

[

] Not applicable

D6. What was the effect of task automation on your overall business process costs, compared to three years ago? Costs (i.e. all costs including operational and net labour costs)

D3. Improved process speed and reliability was due [

] Mainly to the usage of ICT [go to D5]

[

] Don’t know

[

] To ICT usage and other factors

[

] Refusal

[

] entirely to other factors

[

] Not applicable

[

] Don’t know

[

] Mainly To ICT usage [go to D9]

[

] Refusal

[

] To ICT usage and other factors

[

] Mainly to other factors

[

] Not applicable

D7. Improvements in task automation can be attributed

D4. What is the most important of these other factors? [

] .................................................................

[

] Don’t know

[

] Organisational change

[

] Refusal

[

] Capital investment in equipment

[

] Changes in salary structure

[

] Training of staff

[

] New marketing strategy

[

D8. What is the most important of these other factors? [

] .................................................................

[

] Organisational change

] Not applicable

[

] Capital investment in equipment

[

] Don’t know

[

] Changes in salary structure

[

] Refusal

[

] Training of staff

[

] New marketing strategy

[

] Not applicable

[

] Don’t know

[

] Refusal

D5. During the past three years, has your company automated tasks? [

] Yes

[

] No

[

] Not applicable

[

] Don’t know

[

] Refusal

if no, go to D9

D9. During the past three years, has your company improved information management? That is the production, collection, storage, processing and usage of information for efficient management.

144 ICT, Innovation, and Economic Growth in Transition Economies

[

] Yes

[

] No

[

] Not applicable

[

] Don’t know

[

] Refusal

if no, go to D 13

D10. What was the effect of improving information management on your overall business process costs, compared to three years ago? Costs: That is all costs including operational and net labour costs [

] Increased

[

] Decreased

[

] Remained about the same

[

] Not applicable

[

] Don’t know

[

] Refusal

D11. Improvements in information management can be attributed [

] Mainly to the increased usage of ICT [go to D13]

[

] to increased ICT usage and other factors

[

] Mainly to other factors

D12. What is the most important of these other factors? [

] .................................................................

[

] Organisational change

[

] Capital investment in equipment

[

] Changes in salary structure

[

] Training of staff

[

] New marketing strategy

[

] Not applicable

[

] Don’t know

[

] Refusal

D13. During the past three years, has your company been through organisational changes? [

] Yes

[

] No

[

] Not applicable

[

] Don’t know

[

] Refusal

if no, go to D17

D14. What was the effect of these organisational changes on your overall business process costs, compared to three years ago? Costs: (i.e. all costs including operational and net labour costs) [

] Increased

[

] Decreased

[

] Remained about the same

[

] Not applicable

[

] Don’t know

[

] Refusal

D15. Organisational changes were driven [

] Mainly to the usage of ICT [go to D17]

[

] To increased ICT usage and other factors

[

] Mainly to other factors

[

] Not applicable

[

] Don’t know

[

] Refusal

D16. What is the most important of these other factors? [

] .................................................................

[

] Organisational change

[

] Capital investment in equipment

[

] Changes in salary structure

[

] Training of staff

[

] New marketing strategy

Annex 9: Electronic Business Survey (EBS) Baseline Questionnaire

145

[

] Not applicable

[

] Changes in salary structure

[

] Don’t know

[

] Training of staff

[

] Refusal

[

] New marketing strategy

[

] Not applicable

[

] Don’t know

[

] Refusal

Effects of product innovation D17. Do you offer customised goods or services to your customers? [

] Yes

[

] No

[

] Not applicable

[

] Don’t know

[

] Refusal

if no, go to D21

D18. Compared to three years ago, has the value of sales of customised products as a percentage of total sales revenue [

] Increased

[

] Decreased

[

] Remained about the same

[

] Not applicable

[

] Don’t know

[

] Refusal

D19. Changes in the value of sales of customised goods and services are due [

] Mainly to the usage of ICT [go to D21]

[

] To increased ICT usage and other factors

[

] Mainly to other factors

[

] Not applicable

[

] Don’t know

[

] Refusal

D20 What is the most important of these other factors? [

] .................................................................

[

] Organisational change

[

] Capital investment in equipment

D21. Have you placed new or substantially new products and/or services in the market during the past three years? [

] Yes

[

] No

[

] Not applicable

[

] Don’t know

[

] Refusal

if no, go to D25

D22. Compared to three years ago, has the value of sales of new or different products/services as a percentage of total sales revenue [

] Increased

[

] Decreased

[

] Remained about the same

[

] Not applicable

[

] Don’t know

[

] Refusal

D23. New product and/or service developments are driven [

] Mainly to the usage of ICT [ go to D25]

[

] To increased ICT usage and other factors

[

] Mainly to other factors

[

] Not applicable

[

] Don’t know

[

] Refusal

146 ICT, Innovation, and Economic Growth in Transition Economies

D24. What is the most important of these other factors?

D28. What is the most important of these other factors?

[

] .................................................................

[

] .................................................................

[

] Organisational change

[

] Organisational change

[

] Capital investment in equipment

[

] Capital investment in equipment

[

] Changes in salary structure

[

] Changes in salary structure

[

] Training of staff

[

] Training of staff

[

] New marketing strategy

[

] New marketing strategy

[

] Not applicable

[

] Not applicable

[

] Don’t know

[

] Don’t know

[

] Refusal

[

] Refusal

D25. During the last three years, have you started offering new bundled offerings (i.e. linked the purchase of one good or service to the purchase of another good or service?) [

] Yes

[

] No

(if no, go to D29)

Effects of innovation on customer relationships D29. Compared to three years ago, has the number of customers of your enterprise [

] Increased

] Not applicable

[

] Decreased

[

] Don’t know

[

] Remained about the same [go to D32]

[

] Refusal

[

] Not applicable

[

] Don’t know

[

] Refusal

D26. Compared to three years ago, has the value of sales of new or different products/services as a percentage of total sales revenue

D30. Is change in the number of customers due:

[

] Increased

[

] Decreased

[

] Mainly to the usage of ICT

[

] Remained about the same

[

] To increased ICT usage and other factors

[

] Mainly to other factors

[

] Not applicable

D27. New bundled product and/or service offerings are driven [

] Mainly to the usage of ICT

[

] Don’t know

[

] To increased ICT usage and other factors

[

] Refusal

[

] Mainly to other factors

[

] Not applicable

[

] Don’t know

[

] .................................................................

[

] Refusal

[

] Organisational change

D31. What is the most important of these other factors?

Annex 9: Electronic Business Survey (EBS) Baseline Questionnaire

147

[

] Capital investment in equipment

[

] Not applicable

[

] Changes in salary structure

[

] Don’t know

[

] Training of staff

[

] Refusal

[

] New marketing strategy

[

] Not applicable

[

] Don’t know

[

] Increased

[

] Refusal

[

] Decreased

[

] Remained about the same [ go to D38]

[

] Not applicable

[

] Don’t know

[

] Refusal

D32. Compare the value of sales in your customer base to three years ago. Has the value of sales per customer [

] Increased

[

] Decreased

[

] Remained about the same [go to D35]

[

] Not applicable

[

] Don’t know

[

] Refusal

D33. Change in the total value of sales per customer is due [

] Mainly to our ICT capability

[

] To our ICT capability and other factors

[

] Mainly to other factors

[

] Not applicable

[

] Don’t know

[

] Refusal

D34. What is the most important of these other factors? [

] .................................................................

[

] Organisational change

[

] Capital investment in equipment

[

] Changes in salary structure

[

] Training of staff

[

] New marketing strategy

D35. Compared to three years ago, the share of retained customers has

D36. Change in the share of retained customers is due: [

] Mainly to the usage of ICT

[

] To increased ICT usage and other factors

[

] Mainly to other factors

[

] Not applicable

[

] Don’t know

[

] Refusal

D37. What is the most important of these other factors? [

] .................................................................

[

] Organisational change

[

] Capital investment in equipment

[

] Changes in salary structure

[

] Training of staff

[

] New marketing strategy

[

] Not applicable

[

] Don’t know

[

] Refusal

148 ICT, Innovation, and Economic Growth in Transition Economies

D38. Compare the value of sales among retained customers to three years ago. Has the value of sales per retained customer

[

] Training of staff

[

] New marketing strategy

[

] Increased

[

] Not applicable

[

] Decreased

[

] Don’t know

[

] Remained about the same

[

] Refusal

[

] Not applicable

[

] Don’t know

[

] Refusal

D42. Compare the value of purchases in your supplier base to three years ago. Has the value of purchases per supplier

Effects of innovation on supplier relationships D39. Compared to three years ago, has the number of suppliers of your enterprise [

] Increased

[

] Decreased

[

] Remained about the same [go to D42]

[

] Not applicable

[

] Don’t know

[

] Refusal

D40. Is the change in the number of suppliers due: [

] Mainly to the usage of ICT

[

] To increased ICT usage and other factors

[

] Mainly to other factors

[

] Not applicable

[

] Don’t know

[

] Refusal

[

] Increased

[

] Decreased

[

] Remained about the same [go to D45]

[

] Not applicable

[

] Don’t know

[

] Refusal

D43. Change in the total value of purchases per supplier is due [

] Mainly to our ICT capability

[

] To our ICT capability and other factors

[

] Mainly to other factors

[

] Not applicable

[

] Don’t know

[

] Refusal

D44. What is the most important of these other factors?

D41. What is the most important of these other factors?

[

] .................................................................

[

] Organisational change

[

] Capital investment in equipment

[

] Changes in salary structure

[

] Training of staff

[

] New marketing strategy

[

] .................................................................

[

] Organisational change

[

] Not applicable

[

] Capital investment in equipment

[

] Don’t know

[

] Changes in salary structure

[

] Refusal

Annex 9: Electronic Business Survey (EBS) Baseline Questionnaire

149

D45. Compared to three years ago, the number of repeat suppliers has [

] Increased

[

] Decreased

[

] Remained about the same [go to

[

] Not applicable

[

] Don’t know

[

] Refusal

D46. Change in the number of repeat suppliers is due :

D48. Compare the distribution of the value of purchases among repeat suppliers to three years ago. The value of purchases per repeat supplier has [

] Increased

[

] Decreased

[

] Remained about the same

[

] Not applicable

[

] Don’t know

[

] Refusal

D49. Change in the value of purchases per repeat supplier is due:

[

] Mainly to the usage of ICT

[

] To increased ICT usage and other factors

[

] Mainly to other factors

[

] Mainly to the usage of ICT

[

] To increased ICT usage and other factors

[

] Not applicable

[

] Mainly to other factors

[

] Don’t know

[

] Refusal

[

] Not applicable

[

] Don’t know

[

] Refusal

D47. What is the most important of these other factors? [

] .................................................................

[

] Organisational change

[

] Capital investment in equipment

[

] Changes in salary structure

[

] Training of staff

[

D50. What is the most important of these other factors? [

] .................................................................

[

] Organisational change

[

] Capital investment in equipment

] New marketing strategy

[

] Changes in salary structure

[

] Training of staff

[

] Not applicable

[

] New marketing strategy

[

] Don’t know

[

] Refusal

[

] Not applicable

[

] Don’t know

[

] Refusal

150 ICT, Innovation, and Economic Growth in Transition Economies

Module E: STRATEGIC FACTORS Which internal and external factors acted as obstacles and/or advantages in exploiting the potential of ICT usage during the last three years?

Factors internal to the enterprise

Choose the statement that best applies. Tick only one answer per row. Available in- house know-how

Was sufficient to support the uptake of new ICTs

Were insufficient to support the uptake of new ICTs

No effects

Existing staff skills and training

Were sufficient to support effective ICT usage

Were insufficient to support effective ICT usage

No effects

Investment costs in ICT

Could easily be justified

Could not easily be justified

No effects

Management attitude

Management was proactive in promoting ICT

Management was reluctant in promoting ICT

No effects

Other (please specify) ...................................................................................................................................

Strategic factors

Choose the statement that best applies. Tick only one answer per row. Lock-in effects in relations with suppliers

My enterprise finds it more difficult to switch between different suppliers because of ICT usage

My enterprise find it easier to switch between different suppliers because of ICT usage

No effects

Outsourcing of activities

Was encouraged by ICT usage

Was discouraged by ICT usage

No effects

â&#x20AC;&#x2DC;In-sourcingâ&#x20AC;&#x2122; of activities

Was encouraged by ICT usage

Was discouraged by ICT usage

No effects

Lock-in effects in customer relations

My enterprise uses ICT to make it more difficult for its customers to switch between different suppliers

My enterprise uses ICT to make it easier for its customers to switch between different suppliers

No effects

Other (please specify) ...................................................................................................................................

Annex 9: Electronic Business Survey (EBS) Baseline Questionnaire

151

Module F: POLICY AND REGULATORY FACTORS Telecommunications Infrastructure Choose the statement that best applies. Tick only one answer per row. Telecommunication costs

Did not inhibit the ICT usage initiative

Inhibited the success of the ICT usage initiative

No effects

Network reliability

Has not been a problem to ICT usage

Has been a problem to ICT usage

No effects

Network flexibility and range of services

Was sufficient for the enterprise to engage in ICT usage

Was insufficient for the enterprise to engage in ICT usage

No effects

Geographic coverage of the network

Was sufficient to encourage the enterprise to engage in ICT usage

Was insufficient to encourage the enterprise to engage in ICT usage

No effects

Other (please specify) ...................................................................................................................................

Regulatory factors Choose the statement that best applies. Tick only one answer per row. Available in- house know-how

Encouraged ICT usage

Discouraged ICT usage

No effects

Existing staff skills and training

Encouraged ICT usage

Discouraged ICT usage

No effects

Investment costs in ICT

Was sufficient to encourage ICT usage

Was insufficient to encouraged ICT usage

No effects

Management attitude

Was sufficient to encourage ICT usage

Was insufficient to encourage ICT usage

No effects

Other (please specify) ...................................................................................................................................

152 ICT, Innovation, and Economic Growth in Transition Economies

Government Policy Choose the statement that best applies. Tick only one answer per row. Taxation measures

Encouraged the firm to engage in ICT usage

Discouraged the firm to engage in ICT usage

No effects

Public financial support for R&D, diffusion or uptake

Was sufficient to encourage the firm to engage in ICT usage

Was insufficient to encourage the firm to engage in ICT usage

No effects

Education system

Provided adequately trained personnel to engage in ICT usage

Provided inadequately trained personnel to engage in ICT usage

No effects

Government provision of on-line electronic services

Made it more attractive to engage in ICT usage

Made it less attractive to engage in ICT usage

No effects

Other (please specify) ...................................................................................................................................

Support measures Public awareness raising & demonstration programmes

Contributed sufficiently to the success of ICT usage

Contributed insufficiently to the success of ICT usage

No effects

Private awareness raising & demonstration programmes

Contributed sufficiently to the success of ICT usage

Contributed insufficiently to the success of ICT usage

No effects

Government training programmes

Sufficiently supported the firm’s capacity to engage in ICT usage

Insufficiently supported the firm’s capacity to engage in ICT usage

No effects

Private training programmes

Sufficiently supported the firm’s capacity to engage in ICT usage

Insufficiently supported the firm’s capacity to engage in ICT usage

No effects

Other (please specify) ...................................................................................................................................

Annex 9: Electronic Business Survey (EBS) Baseline Questionnaire

153

What is the most useful measure the government can take to stimulate the uptake of ICT usage? Give a brief description and context of the proposed measure(s). Measure 1 ................................................................ ................................................................................. .................................................................................

Measure 3 ............................................................... ................................................................................. ................................................................................. ................................................................................. ................................................................................. .................................................................................

................................................................................. ................................................................................. .................................................................................

Measure 2 ............................................................... ................................................................................. ................................................................................. ................................................................................. ................................................................................. .................................................................................

154 ICT, Innovation, and Economic Growth in Transition Economies

About infoDev infoDev is global development financing program among international development agencies, coordinated and served by an expert Secretariat housed at the World Bank Group, one of its key donors and founders. It acts as a neutral convener of dialogue, and as a coordinator of joint action among bilateral and multilateral donorsâ&#x20AC;&#x201D;supporting global sharing of information on ICT for development (ICT4D), and helping to reduce duplication of efforts and investments. infoDev also forms partnerships with public and private-sector organizations who are innovators in the field of ICT4D. The infoDev Secretariat is housed in the Global ICT Department (GICT) of the World Bank Group. For additional information about this study or more general information on infoDev, please visit www.infodev.org/innovation or contact Seth Ayers, infoDev (email: sayers@worldbank.org or tel: +1.202.473.4868). www.infodev.org

Information for Development Program

www.infoDev.org

ICT-ENABLED INNOVATION AND ENTREPRENEURSHIP SERIES

ICT, INNOVATION, AND ECONOMIC GROWTH IN TRANSITION ECONOMIES

www.infoDev.org

ICT, INNOVATION, AND ECONOMIC GROWTH IN TRANSITION ECONOMIES

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

AN info Dev PUBLICATION PREPARED BY ECORYS Nederland B.V.in collaboration with TNO and IDEA 2007

Information for Development Program