The LATVIAN IS CLUSTER: CASE

OF INDUSTRY – UNIVERSITY
COOPERATION

Valdis Avotins, Latvian Investment & Development Agency

WB KE Forum III, Budapest, March 23-26, 2004
CONTENTS
1. what did we have
• starting point
• reforms completed
• industry clusters
2. what we do have
• Government role
• innovation policy
3. what do we want to have
LATVIA: CRISIS, STABILIZATION, REFORMS
AND DEVELOPMENT (but what kind of?)
GDP/per capita 1st phase - degradation
(till 1991)
6th phase – 2nd phase - riddance
endogenous (1991-1993)
innovative
economics
(2005 - …) Inflation

5th phase –exogenous 4th phase - recovery 3rd phase - stabilization

innovative economics (institutional reforms: (1993-1994)
(2000 -2005) 1994-2000)

Prof. U.OSIS
LATVIA: GROSS DOMESTIC PRODUCT
10 3,7 4,8 6,8 7,9 6,7 7,5
2,2 2,8
5 8,4
0
-5 -11,4 -0,9
-10 -12,6
-15
-20 -32,1
GDP at constant prices
-25
(changes in % of previous period)
-30
-35
1991 1993 1995 1997 1999 2001 2003*

Reforms in Latvia Long-term strategy

Privatization of large enterprises

Riga Stock Exchange

Latvian Privatization Agency
Latvian Development Agency
LVL
Stabilization policy
Fiscal and monetary policy
Price liberalization Prof. U.OSIS
TODAY ...
• Innovation Policy at the top of policy agenda at national level
• Macroeconomic stability: macro-economic reforms completed
• impressive FDI inflow; acquisition of new technology and skills
Still weaknesses ...
• The economy depends on low tech and low value added goods
• Low level of national savings, high current account deficit
• Outworn infrastructure
• Poor quality of education and research system
• Regional and social disproportions
LONG TERM ECONOMIC STRATEGY (2001)
Objective : to achieve the EU average GDP per capita level in the next 20-30 years
•intensive utilization of knowledge and high technologies, transition from labour-
intensive economy to knowledge-intensive economy
•by renovating traditional sectors of economy on modern technology basis and by
developing new post-industrial knowledge-intensive sectors

INNOVATION POLICY (2003)

KEY OBJECTIVE - to enhance national innovation capacity :
 formation of the society open to innovative activity
 Creation of a harmonized and innovation-friendly environment;
 Creation of innovative SMEs base and promotion of their further growth
 efficient cooperation between all elements of the innovation system
GOVERNMENT INITIATIVE – INDUSTRIAL CLUSTER PROJECT
Project funded by EU Phare in 2001
Project objective – strategic economy
restructuring based on the Clustering
idea: improvement of competitiveness of
Latvia’s export potential through
collaboration between cluster participants
based on the shared vision
Covered four industrial sectors -
IS, Forestry, Composite materials,
Engineering (Optic Fibres)
 EXPERIENCE OF FORESTRY CLUSTER
• Members: Wood working companies, large sawn mills, SMEs,
furniture industry and University of Agriculture
• Fueled by Latvian Forest Industry Federation
• Cluster Concept approved by Government (2002)
• Forest Development Fund (MoA, Federation)
• Woodworking Development Institute at University of Agriculture
 Certification, standards, tests, measurement techniques, chemical
technologies, cross-sectoral education and R&D supply
• Forest Cluster Information Centre
 Information, market analyses, timber usage promotion
• Regional Centres of Competence (Jekabpils, Ventspils)
• Design of long – term Forestry Industry Strategy
 ROLE OF INFORMATION SYSTEMS
SECTOR IN LATVIAN ECONOMY
 Fastest growing export sector (55%), 3000 engineers
 In 2002, gross sales of packaged software: 0,76% of GDP
 The most potential sector for future development
Ernst & Young, 1999; Arthur Andersen, 2001; ITC, 2003
 Sector is supported by several government strategic documents:
National Program: Informatics; National Development Plan
Industrial Development Plan, Long Term Strategy for National Economy
 Product characteristics :
high value added
“Clean” product
no need for energy resources
 LATVIAN ICT SECTOR
The main specialisations and products
Banking & finance
Data transmission & storage IS,
Transaction software, Financial
applications, WAP solutions, Client
handling systems
Wireless & cable
communications
Data transmission & storage IS, Large
customer registers, WAP solutions, Call
Centers, ASP solutions
Public institutions
Business process re-engineering,
Integrated networks, ASP, Databases &
data storage, Specific applications
Transport
EDI systems, warehousing, distribution &
Software development transport software, aviation software
IT consultations
Hardware architecture Healthcare
Networking & data P atient & case-record registers, medical
transmission solutions equipment support software, telemedicine

Service & manufacturing

C lient handling systems, Accounting &
L
Education & science financial software, Network architecture,
AN, Internet & Intranet solutions, Digital
WEB solutions, office software, ASP
signal processing
services
LATVIA: A PART OF THE NEW ECONOMY
Vision of Latvia’s IS cluster by 2010
Latvia would be a leading software services exporter in Eastern Europe
Cluster of more than 10 000 qualified specialists
Annual export of services over 1 billion USD
Sourcing of additional HR from Russia and Belarus
Provision of ASP services, know-how and products
Current expertise in implementing large-scale projects would be
enhanced by 2010
Establishment of an R&D center for the development of IS projects
 GOVERNMENT SUPPORTS DEVELOPMENT
OF KNOWLEDGE BASED SECTORS
IS cluster
 Articulated and agreed cluster strategy (vision, mission and values)
 IS Cluster Code of Ethics signed by all involved companies
 Back – office: Cluster resources pool and costs assessed
 Several legislative initiatives started with government of Latvia
 Communication network created - www.is.lv
Role of Government :
 State aid to export marketing and export training
 Development of IT education and professional standards
 Support to IT University College network
 Development of Postgraduate IT&T professional training centre
 Participation in process of improvement of business environment
(through identification of the main problems and legislative initiatives)
 INDUSTRY – UNIVERSITY COLLABORATION
•EU and US IT course programs have been adopted, certified and are used in
Riga Technical University, the University of Latvia, and the Institute of
Transport and Communications
•Significant support / donations: Siemens, CISCO, FESTO, IBM, Samsung
Electronics
•Practical IT skills are acquired in Latvian software houses
•Local firms provide significant contribution (research prizes, scholarships,
donations, etc.)
•University and company collaboration to promote the interest of youth in IT
•Centre of Competence: MII, University of Latvia and DATI Group
•Collaboration for advanced mainframe studies: Exigen, UoL, ITC
 RAPIDLY GROWING AMOUNT OF IT STUDENTS
Number of IT students Priorities in 2004
6000
5000
4804 4961
•Keep No of graduates
3876
4000
3000 2538
2940
•Doctor level students
2000
1000 •Quality of education
0
1998/99 1999/00 2000/01 2001/02 2002/03 •Life-long learning

Source: Ministry of Education and Science

CREATION OF IT UNIVERSITY COLLEGE NETWORK IN LATVIA
Regional Centres of Competence
•Valmiera Cybercity project
•Ventspils ITTE
•Jelgava Bioinformatics Centre

Baltic network of Private

Baltic Computer Academy
Universities
Professional education (colleges & adult training) 2500 students – HP, IBM,
Microsoft, Novell, CIW
 UPGRADING OF INNOVATION CLIMATE
Political Champion -
Cycle of Reform Deputy Prime Minister
Institutional Partners:
1. 2.
Identification of Government/ business Foreign Investors Council in Latvia (FICIL)
problems dialogue Latvian Chamber of Trade and Industry
Foreign Chambers of Commerce
National Economy Council
Industrial Clusters (ICT)
4. 3. Small and Medium Business Council
Monitoring and Implementation
evaluation to assess by decision-makers Other Industry Business Associations
impact
 Friendly Business Environment for ICT
• “Green Card” scheme for highly qualified IT professionals
 Simplified immigration and employment conditions for up to 90
days for up to 100 ICT professionals per calendar year
 Short-run remedial solution: designed and implemented by LIDA
• Fiscal (Tax) Incentives for Diploma Education
• Non-application of salary tax for employer’s expenses for diploma education
of employees in ICT areas
• Long-run stimulus: researched by Ernst&Young by LIDA commission
• Responsible institution: Ministry of Finance
• Planned to come into effect June 2004
SOFTWARE OUTSOURCING IN LATVIA -
BACKGROUND AND TRENDS
Today
• Subcontracting activities, dependent on few contractors
• Lack of critical mass for large projects
• Skill sets are fragmented OPPORTUNITIES
• Key selling factor is still a cost efficiency
Future sector trends
• Provision of additional value added services that are based on core need to innovate
competencies and move up the
• Capabilities to undertake and manage large scale projects, need for value chain where
scalability cost and price
• Corporate marketing effort, knowledge of key customers sensitivities are not
• Developing and maintaining unique knowledge as critical
BALTIC IS CLUSTER INITIATIVE
• Initiative of Latvia’s IS cluster
• Creating Baltic IT Brand
• Provision of joint Baltic competences to
sizeable projects
• Collaboration for Global markets
• Create Baltic IT Forum / Network
SYNERGY BETWEEN UNIVERSITY AND INDUSTRY
For university
Scientific exposure &
project acquisition Joint projects Success
benefits Education of
positively affects applied scientists
For industry
Solution of
Sci. publication fundamental benefits
problems may
generates require Research into IP, revenue
necessary for innovative generates
Basic research products
expertise provides

stimulate Highly trained staff

Determines key Market driven ideas
areas
provides
provides
needs
orders
University designes Study Programs, Industry
Professional standards

Based on Ulm university model

 LESSONS LEARNED
• Macro:
 Innovative, but mostly exogenous, innovation absorbing – specific to
transitional economy, in the process of restructuring
 Exogenous development is time, capital and space limited
 The alternative for the future – endogenous innovative development
• Micro
 Achieved needed growth of IT graduates (>1000 Y)
 Network contributes to IT growth
 Standards implemented
 Confidence achieved
 Growth by members and volume (export 55%)
 LATVIAN INVESTMENT & DEVELOPMENT AGENCY
Perses iela 2, Riga, LV 1442, Latvia
Phone: +371 7039400
Fax: +371 7039401
E-mail: invest@liaa.gov.lv
http://www.liaa.gov.lv
Ministry of Economy
Brivibas 55, Riga
LV 1519, Latvia
www.em.gov.lv