ICT-ENAblED INNOVATION AND ENTREPRENEURSHIP SERIES 47484 ICT, INNOVATION, AND ECONOMIC GROWTH IN TRANSITION A Multi-country Study of ECONOMIES Poland, Russia, and the Baltic Countries An infoDev publicAtion prepAreD by ECORYS Nederland b.V.in collaboration with TNO and IDEA 2007 Information for Development Program www.infoDev.org ICT-enabled INNOVATION AND ENTREPRENEURSHIP SERIES ICT, INNOVATION, AND ECONOMIC GROWTH IN TRANSITION A Multi-country Study of ECONOMIES Poland, Russia, and the Baltic Countries An infoDev publicAtion prepAreD by ECORYS Nederland B.V.n collaboraton wth TNO and IDEA 2007 Informaton for Development Program www.nfoDev.org Footer goes here ©2007 The International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org E-mail: feedback@worldbank.org 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. 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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 v Chapter 1. Executive Summary 1 Chapter 2. Background and Methodology 21 Chapter 3. The Selection of Regions and Sectors 25 Chapter 4. Survey Results and Analysis 27 ANNEXES Annex 1: EBS Methodology 63 Annex 2: Country Characteristics 67 Annex 3: Regions 73 Annex 4: Selection Criteria for Sectors 77 Annex 5: Selected Sectors 79 Annex 6: Properties of the Dataset 89 Annex 7: Results of the Survey ­ Tables 93 Annex 8: Company Case Studies 125 Annex 9: Electronic Business Survey (EBS) Baseline Questionnaire 131 Table of Contents v ICT, Innovation, and Economic Growth in Transition Economies Preface The Information for Development Program confidence. The study draws conclusions about (infoDev) has commissioned a multi-country study conditions and challenges common to several or all of information and communication technologies of the countries in the study. (ICT), innovation, and economic growth in selected transition economies. The study's particular focus is The study aims to assess the diffusion and impact of on firm-level survey data collection and analysis ICT at the firm level and the related policy implica- framed by a clear articulation of the constraints and tions. It also makes specific recommendations for enabling conditions at the industry and country promoting and supporting ICT usage to improve levels. competitiveness and new business creation. These recommendations concern the enabling environ- The overall objective of the study is to advance ment and point at some specific lessons learned/best understanding of the relationship between ICT, practices at the firm level. innovation, and economic growth in transition economies. The study examines both traditional and new sectors. It explores whether and under what The study focuses on five countries: Estonia, Latvia, conditions traditional sectors have been successful in Lithuania, Poland, and Russia. It is not designed to harnessing ICT, and identifies new opportunities be a comprehensive analysis of the above-mentioned and sectors that have emerged, thanks to ICT. issues in all sectors and all regions of these countries. Instead, it provides an in-depth survey and analysis A consortium of three companies has carried out the of a reasonably representative sample of firms in study. ECORYS Nederland B.V. led the consortium several regions and/or sectors so that broader with TNO and IDEA as partners. conclusions can be drawn with some degree of Preface v v ICT, Innovation, and Economic Growth in Transition Economies Chapter 1 Executive Summary 1.1 Introducton to the Study 1.2 Why ths Study? There have been significant debates about the The ICT dynamics in transition economies are at a impact of new ICTs on economic performance and stage when one can apply lessons learned from the competitiveness in general, and on productivity, United States and old European Union (EU) efficiency, and innovation in particular. Notably, in member states both at corporate and government seeking an explanation for the acceleration in levels. Meanwhile, the nature of the transition productivity and economic growth experienced in economies of Central and Eastern Europe might many industrialized countries in the latter half of require tailoring of the lessons learned from Western the 1990s and early 2000s, many economists have Europe and the United States, and perhaps even looked at the development, application, and utiliza- new approaches to policies for ICT adoption and tion of ICT as a critical factor. It has been argued utilization. that ICT represents a new General Purpose Technology, with the potential of transforming Hitherto, there have been no studies that have gone economic processes into a "New Economy," beyond the narrow look at ICT utilization. Past generating a sustained increase in economic growth surveys of ICT dynamics in transition countries are through processes of technological development of what might be called the "e-readiness" variety. and innovation. Hence, at firm level, the expecta- These surveys gather data on firm-level ICT tions are of greater efficiency, lower costs, and investments and construct profiles of the technologi- access to larger and new markets, while govern- cal evolution in various sectors and industries. This ments see the application and use of ICT as evolution is then tied to assumptions and estimates generating higher national productivity, job about use patterns and probable effects on perfor- creation, and competitiveness. mance and productivity. Industry-wide impacts are then produced by means of aggregations and In response to these developments, a number of projections based upon these assumptions and studies have tried to assess the economic impact of estimations. ICT on firms and countries. The emphasis in these studies has been on the impact of ICT in OECD However, this approach does not sufficiently serve countries, in particular the United States and the purpose of analyzing the effects of ICT on the Western Europe1. The findings of these studies economic performance of firms, and their position suggest that ICT has contributed greatly to produc- in the marketplace. Nor does it provide a solid tivity growth and competitiveness in the OECD foundation for linking the ICT take-up by firms countries in the last decade. More recent studies with key enablers, barriers and constraints. have focused in greater detail on the processes of application and use of ICT within firms. One such The present study derives its purpose from the study, the E-commerce Business Impacts Project context outlined above and aims to achieve the (EBIP) of the OECD2, came to the conclusion that following: 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 1 For example, `information technology and the uS economy' (2001) by D. W. Jorgenson and `ict investments and Growth Accounts for the european links between business processes within the firm and union 1980­2000' (2003) by Van Ark et al. 2 http://www.oecd.org/document/21/0,3343,en_2649_33757_2539157_ commercial processes in the market place." 1_1_1_1,00.html Executive Summary 1 It looks beyond the ICT dynamics in terms of 1.4 Methodology ICT investment and technological evolution. It selects firms in transition economies as the subject of analysis since little is known on the In answering the central research questions of the economic effects of ICT for this unit of analysis study, the project has adopted a new and innovative within a transition context. The choice of the methodology that identifies the impact of ICT at subject of analysis is further supported by the firm level. More specifically, the methodology fact that there are still ample opportunities in adopted for this project is an Electronic Business transition countries for positive intervention at Survey (EBS) that allows us to collect data at firm corporate and government levels. level, and place the application and utilization of ICT within its proper context. Such a methodology It builds on the research carried out on the role and impact of ICT in OECD countries in order has allowed us to take account of the context to provide a comparative basis. For this purpose, specificity of the utilization of ICT within different the questionnaire used in the OECD EBIP study sectors and firms. In contrast, many existing studies has been adapted and applied. 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 1.3 Man Characterstcs of the role and complexity of the utilization of ICT as a Present Study determining factor in shaping the impact on innovation and economic outcomes. Hence, the survey methodology for this project has, in part, This study addresses the need for collecting more been designed to address some of the weaknesses of revealing data on ICT utilization and its impact at existing studies to gain a more comprehensive the firm level, the need for more rigorous analysis of understanding of the processes that shape the how ICT investment and use affects innovation, and application and utilization of ICT, and the subse- the need for better understanding of how this quent impact on innovation and economic growth. complex translates into productivity increases and enhanced competitiveness. In addition, the survey findings have been comple- mented with eight case studies of firms that have Accordingly, the main research questions of the allowed us to ascertain in greater detail the factors study are as follows: shaping ICT take-up and use. 1. What is the contribution of ICT utilization to the economic performance of firms? 2. What is the contribution of ICT utilization to 1.5 Geographc Coverage, innovation in firms? Selecton of Regons and 3. What are the enablers, barriers, and constraints for ICT utilization at firm level in transition Sectors countries? The countries included in this study, as specified by Throughout the study we draw comparisons with infoDev, are Estonia, Latvia, Lithuania, Poland, and findings from similar studies conducted for Russia. These countries have many things in Western Europe and the United States, to ascertain common because they have all been subject to whether there are any particular characteristics of significant transformations associated with the ICT utilization and its impacts in transition transition process and their accession to the EU countries. In addition to providing reliable data (with the exception of Russia). As such, they are of and analysis of ICT utilization and its effects, the interest to a study that aims to analyze the role of study identifies a set of recommendations that can ICT and innovation for economic growth within guide decision-making at firm and government the context of transition. However, the countries are levels. 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 founda- There are significant sectoral differences in the tion for economic growth. Accordingly, the selection role and scope of ICT use. The greater the of countries offers the opportunity to study the role information intensity of production and of ICT and innovation in different settings and transaction processes, the greater the scope for contexts, albeit under the same processes of change applying and using ICT. associated with transition economies. Promoting the application and use of ICT for improved economic performance requires In order to provide a more focused and in-depth policies tailored to the individual sectors of the study, the area of analysis in Poland and Russia was economy. 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 1.7 What s the Contrbuton selected on the basis of the following criteria: of ICT to the Economc Performance of Frms? Growth potential and/or strategic importance for economic development of the country concerned. 1.7.1 ICT Usage Potential for cross-country comparisons and The study reveals that ICT is a technology of growing extrapolation of findings to other sectors. importance in all countries surveyed. Access to the ICT and innovation content. Internet is almost universal among the firms surveyed (99 percent of all firms). About 98 percent of all The companies at the forefront of ICT usage in enterprises used e-mail and 44 percent used an selected transition economies of Central and Eastern Intranet provision. Local area networks are also rather Europe were the target groups for the study. In total, popular (74 percent). However, the nature of the 620 firms participated in the survey. 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, 1.6 Key Fndngs rather than the latest generations of it. The latter is very much dependent on the technical infrastructure available within the individual countries, which was The findings emerging from this study reveal a found to vary greatly in the sample. While Estonia is number of issues surrounding the development, moving fast towards broadband connections, Latvia, application, and utilization of ICT and its implica- Poland, and Russia are lagging behind. Nevertheless, tions for innovation and economic growth. Below, perhaps contrary to expectations, companies do not we outline the key findings and messages emanating find the technical infrastructure (defined as network from our study. This is followed by more in-depth reliability, network flexibility, and range of available answers to the key research questions of the study. services or geographic coverage) disturbing and hampering their activities. About 70 percent of the ICT plays an important role in facilitating the companies state that telecommunications prices do modernization and improved economic perfor- not inhibit the use of ICT. mance of firms in transition countries. ICT in itself is often insufficient for improving Moreover, in transition economies, companies use economic performance. Rather, a range of ICT to serve customers and markets. About half of complementary factors are required, e.g., the companies in the survey place a high priority on organizational change and new marketing two interrelated business areas: purchasing and strategies. procurement, and marketing and sales. Firms ICT use among firms in transition countries is actively use computer networks for these activities primarily geared towards improved production and almost all of them are using the Internet to buy and transaction processes, e.g., organizational and sell goods and services. The Internet is a change and improved marketing, rather than the common means for servicing customers, providing development of new or improved products. them with information on products and services, Executive Summary 3 contact facilities and often after-sales support. Market/customer related activities are automated BOx 1.1. Findings on Use of Internet within half of the firms. This seems to be the primary driving force for automation and ICT use Access to the Internet is becoming increasingly dif- ferentiated, with wide variations in type and intensity. While in other business areas such as procurement and almost all companies surveyed had made use of the Internet dur- purchasing, finance (especially invoicing), delivery, ing the last three years, the means of connecting to the Internet differed greatly. For example, almost 22 percent of the surveyed and stock control. firms are making use of fast connections with download speeds of more than 2 Mbps, while almost 18 percent of the firms are 1.7.2 ICT Utilization and Economic still using an analogue connection. Performance Selling via the Internet is less popular among It is clear from this study that ICT utilization is firms than buying. Hence, more than 47 percent of firms placed orders, while less than 40 percent received and already having an impact on economic performance processed orders using the Internet. among firms in transition countries. This is reflected Purchasing and Procurement and Marketing and in the findings on the impact of ICT on economic Sales are the most popular uses of computer networks by firms, performance (see Table 1.1 and box below), where it with approximately half of the companies in the study placing a high priority on the use of ICT in these business areas. 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 and ICT's relative importance. Figure 1.1 shows the cumulative investment. aggregate number of times each of the factors was mentioned as a positive contributing factor. However, while the use of ICT is resulting in improved economic performance of firms, it is It is evident that a new marketing strategy, capital important to note that ICT utilization does not investment in equipment, and organizational change automatically translate into economic impacts, but are the three factors that are most critical for success- require a range of complementary factors. Hence, fully translating the adoption and utilization of ICT one of the most notable findings relates to the into positive economic outcomes. factors shaping ICT utilization and impact on economic performance. Figure 1.1 below depicts the Moreover, different factors affect different dimen- factors that contribute to the positive impact of ICT, sions of the economic performance of firms. TABlE 1.1. ICT and Economic Performance of Firms percent of firms with ict in combination with performance indicators reported increase ict contribution (percent) 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 percent of firms with reported decrease Operational costs 18.6 15.7 51.7 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 0 100 200 300 400 500 600 Accordingly, a new marketing strategy is particu- coordination of work placed on the individual larly relevant for translating the introduction and employee. It also requires the implementation of use of ICT into the improvement of profitability. clearer functional descriptions of tasks. All this This is mainly because the use of ICT together with often requires a complete re-shaping of the new marketing initiatives enables firms to organizational structure of the firm where all strengthen their position in existing markets, or aspects of the organizational development are enter new markets, and thereby improve profit- consequently given attention. This view is further ability. supported by the case studies conducted as part of this project, which highlighted the importance of ICT and investment in equipment is particularly changes in organizational structures and ensuring important for lowering operational costs and increas- that every employee has a sense of responsibility for ing revenues. This is perhaps not surprising, as ICT is his or her work. said to allow for new and more efficient production processes, which in turn require investment in new These findings also have to be seen in the light of equipment. The impact of ICT on production the wider transition process that shapes the context processes thus does not primarily arise from ICT in in which the firms operate. Hence, it is important itself. Rather, ICT is a means by which new and to note that the firms are going through a period of more efficient production processes can be achieved rapid modernization, emphasizing improved when combined with new equipment. production processes and flexible organizations that can address the needs of the market, as part of Organizational change is particularly important for transformations of the socio-economic fabric to a achieving greater labor productivity, lower opera- market-driven economy. This may in part explain tional costs, and higher revenues. The close correla- why ICT is combined with other factors, such as tion between these dimensions of improved new marketing strategies and organizational change, economic performance from ICT and organiza- for improved economic performance. tional change identified in this study corresponds well with findings from other studies on the impact In addition, it is worth noting that the size of the of ICT on firm performance.3 It has thus often firm appears to matter when ICT and performance been argued that the effective utilization of ICT requires more horizontal organizational structures with greater levels of responsibility for the overall 3 room, G, Dencik, J. et al (2004), conceptualisation and Analysis of the new information economy Executive Summary 5 inidcators are looked at. For productivity and 1.7.4 Country Differences in ICT and profitability the attribution of positive effect to Economic Performance ICT (mainly or along with other factors) ranges between 67 percent and 61 percent for large firms While it is not the aim of this project to conduct a and between 55 percent and 53 percentfor micro comprehensive comparative analysis of the five and small enterprises. Micro and small enterprises countries included in the study, the data set allows score relatively better for revenue increases than for us to identify some tentative findings pertaining to cost reductions. For revenue increases, the differ- ICT use and its impacts in individual countries. ence between micro and small and large enterprises However, these findings should be interpreted with is 18 percent while for cost reduction it is13 great caution. Our regional samples have been percent. constituted to be representative of the geographical area under scrutiny. Sectors were chosen that are 1.7.3 Sectoral Differences in ICT Use important for the economies of those regions. As a and Economic Impacts consequence, the industrial composition of our sample varies considerably per country, leaving little The introduction, use, and impact of ICT is not scope for rigorous comparative analysis. It may seem only determined by the characteristics of the paradoxical that samples that are more or less individual firm, but also by the nature of the goods representative of regional economies cannot be or services being produced and sold. More specifi- compared but, as is demonstrated in this study, the cally, there appears to be a strong correlation rate of adoption and potential effects of ICT usage between the "information intensity" of the product on firm performance vary significantly per sector, and the capacity of firms to use ICT to increase and differences in the sectoral composition of the performance. This involves both product character- economy in the different regions may therefore istics as well as transaction characteristics. In other determine regional outcomes. words, it is not the nature of the tangible or intangible product that determines the extent to Proof of this was obtained by comparing the which ICT can be used to improve performance, different regional samples. Many differences were but the extent to which procurement, production, found, but most of them could not be explained and sales processes are information rich or informa- without taking into account the incidental influence tion poor. on a given regional sample of non-comparable sectors. The proper way to infer regional or country The findings specific to particular sectors on ICT differences is thus to operate by triangulation, i.e. to and economic performance are summarized and find out about residual differences by comparing presented in Table 1.2 below. 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). TABlE 1.2. Sector Related Key At a general level, when comparing productivity effects, a ranking is obtained in which Estonia holds Findings on ICT and Economic the first place, followed by Russia and Poland, but Performance with only marginal differences between the latter two. Note that the ranking is not static, but is an contribution of ict to indication of the dynamism displayed by the Sector economic performance industry in the last three years (2002­2005). It may Finance High well be, for example, that the rate of adoption of Food Processing low ICT in a given country is higher in absolute terms, Furniture low but the pace of adoption has recently been higher in Heavy Machinery High another country. ICT services High Among the firms that reported an increase in Retail & wholesale Medium 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 percent of firms percent of firms percent of firms with with reported increase with reported reduction with reported increase reported increase in in labor productivity* in operational costs* in revenues* 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 1.8 What s the Contrbuton of ICT in generating productivity gains is much more limited in Poland4. Similarly, the role of ICT of ICT to Innovaton among in delivering cost reductions, revenue increases, Frms? and improved profitability is far more limited in Poland compared to Estonia and Russia. It is thus In addition to identifying the immediate impact of evident that the overall role and impact of ICT in ICT on the economic performance of firms, the study the transition countries differs significantly also ascertains how firms use ICT to improve their between countries. This should perhaps not future performance, namely through innovation. surprise us, as the diverse overall socio-economic and political contexts of the different countries will The findings of the study suggest that ICT in itself is create varied environments for ICT adoption and only a minor facilitator of innovation; it only utilisation. We explore these issues further in a becomes powerful in combination with a number of subsequent section of the study (see section on other complementary factors. In Figure1.2 below, Barriers and enablers) the factors that contribute to innovation and their In the Box below, we summarize our findings and answers to the first research question of the study. 4 it should be noted that the starting point of the countries are also differ- ent, which may explain some of the differences in the results. BOx 1.2. Findings on Impact of ICT on Firm's Performance 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 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 firms' 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 consis- tently performed better on the selected indicators than medium, small, and micro enterprises. The potential effect of ICT on the firm'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 7 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 0 200 400 600 800 1,000 1,200 1,400 relative importance are depicted. The chart shows modernizing their structure to integrate ICT in the the aggregate number of times each of the factors workings of their organizations. In that sense, was mentioned as a positive contributing factor. Eastern European firms may benefit from being "followers." This would include benefits from Furthermore, the study found that the role of ICT learning experiences and investments in Western is different for different types of innovation. In European economies. However, it also leads to the most of the sectors surveyed in the countries, ICT conclusion that ICT usage is comparatively less contributes more to process innovation than to mature. First, reaping the full benefits of ICT usage product and relational innovation. The use of ICT also requires streamlining external and internal is thus mainly for changes in production processes transaction processes. Our findings indicate that within the organization, rather than the develop- Eastern European firms find it comparatively more ment of new products or the furthering of relation- difficult to enter that stage. Second, several forms of ships especially with suppliers. ICT-driven product innovations, particularly for intangible products, are conditional upon, or will In a comparable study of Western European firms5, only significantly pay off when external and internal it was found that relatively fewer firms report processes are mutually integrated. Our findings decreasing costs as a result of ICT. Rather, the indicate that many, if not most, Eastern European contribution of ICT to product innovation was companies have not yet reached that stage. higher in the Western European sample. Even more However, in time they may benefit from being significant was the contribution of ICT to relational "second" here as well. innovation, in particular the contribution of ICT to increasing customer loyalty and consolidating The more detailed findings of the study on ICT and preferential relations with suppliers. These effects are innovation are summarized in Table 1.2 below. less outspoken in our study of Eastern European firms. The comparison confirms the picture of the 1.8.1 Sectoral Differences in ICT Use Eastern European sample as composed of firms that and Innovation are rapidly modernizing their organizational As with ICT and economic performance of firms, structures. The effect of ICT use on internal there appear to be sectoral differences in the role of organization is likely to be more marginal in firms that already have a highly streamlined internal 5 Verhoest, p., Huverneers, c. & Hawkins, r. (#00#). `economic impacts organization and are already well adapted to the of e-business', in p. cunningham & M. cunningham (eds.) eAdoption and the market economy. It is also easier for firms that are 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 informa- influence ICT use and the impact of the technology tion intensity correlates positively with the impact on innovation and economic growth. More of ICT on innovation. In table 1.4 below, we specifically, the study analyzed to what extent the summarize the impact of ICT on the different types existing policy and regulatory environments of innovation for the respective sectors. 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 1. What are the Enablers, improvement, if firms in the countries included in the study are to benefit fully from the opportunities Barrers, and Constrants for offered by ICT. ICT Utlzaton at Frm Level n Transton Countres? Hence, inadequate education and training, and inappropriate taxation and fiscal policy were most negatively looked upon. The provision of online While the emphasis of the study has been on the government services was also considered an area that role of ICT within firms, we have also explored the needed improvement. In contrast, commercial law, role of factors external to the firm itself that intellectual property, and security policy are Executive Summary TABlE 1.5. Sector-related Key Findings on ICT and Innovation contribution of ict contribution of ict contribution of ict to Sector to process innovation to product innovation relational innovation Finance High High Medium Food Processing low low low Furniture Medium Medium Medium Heavy Machinery High High High ICT services High High High Retail & wholesale Medium Medium Medium generally evaluated relatively positively, while Hence, Russia has been slower in taking steps to telecommunication prices and quality of service are establish a policy and regulatory environment most positively looked upon. conducive to greater ICT adoption and utilization by firms. For example, weak enforcement of In interpreting these findings, it should also be taken intellectual property rights and regulation has been a into account that even though they have been major inhibitor for the development of the ICT positively evaluated on average, many of these market. In the 1990s, it was common for most of factors have also been obstacles for firms to engage Russian businesses to use pirated copies of the in or to intensify ICT usage. Surmountable obstacles Windows Operating System. While the piracy rate is for proactive players may be insurmountable for the falling, the Business Software Alliance reported that lesser players. Our findings therefore indicate an the rate was still 87 percent in 2002.6 order of priority (established by experienced users) but do not allow conclusions about levels of More recently, however, more significant efforts have satisfaction in general. been made to improve ICT dissemination and use in Russia. Notably, the `Electronic Russia 2002­ In addition to these general findings on enabling 2010' program was initiated in January 2002 "to and inhibiting policy and regulatory environ- increase the efficiency of the economy both in the ments, the study also identifies results pertaining public and private sectors; make wider use of to the specific circumstances of the countries. information technology in government departments; Hence, it is important to emphasize that the five and transfer much of the state's work online." In countries included in the study face a range of part motivated by the objective of gaining WTO very different policy challenges that requires membership, the program targets four key areas of different approaches and prioritization. For ICT: regulatory environment and institutional example, in Estonia the introduction of appropri- framework; Internet infrastructure; e-government, ate legislative, regulatory, and policy initiatives has and e-education. played a significant positive role in the develop- ment of its information society. Indeed, all the The policy and regulatory environment for ICT Baltic States and Poland have introduced a range adoption and use is thus expected to improve signifi- of reforms as part of their accession to the EU, cantly in Russia in the near future. However, the which has acted as a catalyst for improved take-up current weaknesses manifest themselves in the and use of ICT. However, Estonia has by far been relatively low productivity impact of ICT identified the quickest in adapting existing legislative and in this study. 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. 6 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 1.10 Conclusons are summarized in Table 1.6. In sum, it is evident from the findings outlined The point of departure for this project was the above that ICT is playing an increasingly impor- increasing awareness of the role of ICT in facilitat- tant role in shaping economic progress in the ing economic growth. Accordingly, the central transition countries. For these processes of objective of this study has been to place the debate transformation to continue and to ensure that the about ICT and economic growth within a transition changes translate into economic growth, it is context. In other words, this study has explored important that there is an appropriate regulatory whether and how ICT is being used by firms in and policy environment. Indeed, the transforma- transition countries and the impact of introducing tions associated with the introduction of ICT and ICT on innovation and economic growth. innovative activity is by no means an automatic process, but requires an appropriate facilitative Our study has adopted a forward-looking perspec- environment shaped by appropriate policies and tive. Methodologically, this was achieved by two regulations. 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 intel- lectual 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 5­10 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 11 quo, we adopted a dynamic approach by asking one-off basis, which require additional informa- firms to report ongoing trends. Secondly, we tion handling before the actual production concentrated our investigation on proactive firms process can be started. The obvious example of on the assumption that the conduct and results this is product customisation. obtained by these firms are indicative of more Frequent transactions will evidently increase generic future evolutions. the potential for cost reductions through ICT usage compared to occasional transactions, and The findings of this study suggest that ICT is already increase economies of scale. playing a significant role in the transition economies, Finally, the amount of transactions equally with ensuing economic benefits. However, it is also determines whether transaction costs can be evident that the introduction of new technologies reduced through scale effects. Mass transactions must be accompanied by a range of complementing will yield more cost reductions than dedicated factors for ICT to be effectively utilized and to ones. contribute to productivity gains and economic growth. In particular, firms must develop appropriate The above characteristics may or may not occur and new marketing strategies, invest in equipment, simultaneously but will tend to be mutually and undertake processes of organizational change. reinforcing when they do. This is illustrated by the This raises a critical question of whether the reason charts below that can mentally be superimposed for some firms having yet to experience economic and rotated to make characteristics coincide. The benefits from ICT lie with their failure to undertake potential for using ICT to increase economic the complementary efforts, or if it is due to some performance is obtained by adding up pluses (+, limitations inherent in ICT itself. ++, +++). Sector differences play an important role in under- It has been shown that wider socio-economic factors standing the different degrees of ICT utilization and in general, and the regulatory and policy context in the capacities of firms to use it to improve perfor- particular, have a significant impact on the extent to mance and innovative activity. Some characteristics which firms can and will make use of ICT as a may be specific to a given sector, but most can be means for improving their competitiveness. This is, captured under more generic categories. They relate for example, evident from the significant differences to the information intensity of a product (service or in economic impact of ICT tentatively identified as good) and associated transactions (inter- and intra- part of this study. Countries that have established an firm). As is argued and demonstrated, the informa- appropriate policy and regulatory environment thus tional nature of the product is an important variable appear to be better placed to exploit the opportuni- because it determines the extent to which produc- ties offered by ICT for innovation and economic tion can be ICT supported or even entirely ICT growth. This is a particular challenge for transition based, as well as the extent to which inter- and intra- countries undergoing significant changes in their firm transactions can be entirely performed elec- legal and regulatory systems. tronically. However, on the basis of our observations, four additional important characteris- An extensive analysis of the role of the policy and tics can be specified: product complexity, product regulatory environment in shaping ICT use and its standardization, frequency of transactions, and impact on innovation and economic growth has amount of transactions. Here is a brief explanation been beyond the scope of this study, but it is evident of each: that this is an area in need of further research. Accordingly, the findings of this study are as Complex products require more information interesting for the questions it raises, as for the processing than simple products. This very answers it provides. complexity may form an obstacle to implement- ing ICT solutions, but the potential for perfor- With regard to ICT and innovation, this study has mance improvements through informatization is found that ICT utilization has substantial effects greater for complex than for simple products. on process innovation, a moderate effect on Standardized products require less information product innovation, and only a limited effect on handling than products that are produced on a relational innovation. These findings are in stark 12 ICT, Innovation, and Economic Growth in Transition Economies Complex Product Frequent Transaction + ++ + ++ Tangible Tangible Tangible Tangible ++ +++ Standardised Intangible Intangible One-off Dedicated Intangible Intangible Mass Product Intangible Intangible Product Transaction Intangible Intangible Transaction + ++ ++ + + Tangible Tangible Tangible Tangible Simple Product Simple Product contrast to recent findings from Belgium, where ICT usage, observed effects mainly concern process the contribution of ICT was comparatively greater innovation and much less product innovation. for product innovation and less important for process innovation. Moreover, the Belgian study By contrast, the Western European economies are found a significant contribution of ICT to rela- concentrating their efforts on high-value added tional innovation, whereas this was negligible in activities and our survey results suggest that they are our study, indicating that there may be differences better able to use ICT for product innovation. In in the use of ICT between Western and Eastern this way these economies are likely to be able to Europe. In particular, it also indicates that ICT maintain their competitive edge for the foreseeable usage is comparatively less mature in Eastern future. We are thus witnessing two types of indus- Europe. First, reaping the full benefits of ICT usage trial transformation, which in geo-economic terms requires streamlining external and internal transac- may lead to the emergence of different tiers of the tion processes. Our findings suggest that Eastern knowledge economy. One could view such an European firms find it comparatively more difficult outcome as undesirable in so far as it reflects to enter that stage. Second, several forms of ICT- different levels of progress towards a single techno- driven product innovation, particularly for logically determined knowledge economy. If so, the intangible products, are conditional upon, or will failure of transition countries to use ICT for product only significantly pay-off when external and innovation may be a serious impediment for future internal processes are mutually integrated. Again, growth and the ability to catch up with Western our findings suggest that most Eastern European Europe and other OECD countries. firms have yet to reach that stage. Alternatively, one could view the findings of this Moreover, the study has found that, for the transi- study as suggesting that the application and use of tion countries to successfully exploit the full ICT does not lead to a single technologically potential of ICT, there are still, possibly insur- determined knowledge economy. Rather, existing mountable, barriers to be overcome. Indeed, the differences in socio-economic and institutional type of industrial transformation these regions are context also become manifest in the manner in going trough does not mean that these economies which the new technologies are utilized, with the are entering the age of the so-called knowledge introduction and use of ICT resulting in a diverse economy, and this even assuming that firms are range of knowledge economies. effectively catching up in terms of ICT adoption and intensity of usage. Firstly, our sample, which is Such an outcome can be seen as a result of the representative of the economic fabric of the regions mechanisms of comparative advantage, with ICT observed, contains a majority of low-value added being used as a means to advance the respective and labor intensive sectors. Secondly, in terms of comparative strengths of each country. As such, the Executive Summary 13 emergence of different uses and impacts of ICT is world becomes a single market place, the more not only to be expected but also desirable. significant it may become that the actions of national authorities provide a supportive regulatory The ensuing policy implications from such conclu- and policy regime. sions 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 1.11 Polcy Recommendatons identify how ICT fits within the overall socio- economic fabric and the sectors relevant for the In light of the above findings and conclusions, a set country's comparative advantage, rather than how of recommendations can be outlined. We first the socio-economic fabric needs dramatic restructur- explore some general policy implications and then ing in order to realize some pre-conceived notion of provide a summary of the recommendations that an optimal and uniform knowledge economy. The arise from this study in tabular form. This is emphasis should therefore be on how ICT can be followed by a more elaborate discussion of each of used to increase value added and improve perfor- the recommendations, coupled with good practice mance within the prevailing socio-economic examples. context, and thus explore opportunities for using ICT as a vehicle for moving up the value chain Our data shows that generic measures with and indi- within existing sectors. This, no doubt, makes it rect effect on businesses' performance such as much harder to design and formulate appropriate telecommunication regulation, education, etc. make policies and benchmark progress in the era of the a difference (see our findings on the Baltic States). knowledge economy, and represents a critical The data also show a direct relation between methodological and policymaking challenge that investment levels in ICT and performance increases will need to be addressed. (see our findings on the differences in average performance increases in Russia and Poland). Such Notwithstanding such differences between coun- investments may be enhanced by generic measures tries, it is important to emphasize that the findings such as competition law and taxation measures. of this study have also highlighted a range of common problems facing transition countries. More With regard to investment, however, our data also specifically, an appropriate policy and regulatory suggests that policies should take into account environment is critical for companies to begin using sectoral variations. Indeed, the effect of ICT ICT for competitive advantages. Irrespective of the investment may vary per sector and per industry nature of the use of ICT, it is thus evident that there (some sectors will benefit more than others). has to be a suitable policy and regulatory environ- Moreover, within a give sector or industry, invest- ment in order to provide firms with an incentive to ment will yield more or less results depending on use ICT to improve their competitiveness. the application area (business processes that benefit the most from ICT in terms of performance vary). Moreover, it is important to stress that differences in wider institutional and socio-economic context do Policies can be tailored for this by taking sector not mean that there are no opportunities for specificities into account in policies that can be countries to learn from each other's experiences and designed to have more direct effects on specific engage in active policy learning. Rather, such policy industries, such as science and technology and learning has to take account of the different contexts support to innovation. Our findings suggest that, in which the policies are implemented. given public financial resources (tax revenue) such policies can be inspired by two types of choices. Finally, it is important to note that the activities and First, should industries that are of strategic impor- processes of the emerging knowledge economy (or tance to a country receive preferential treatment? economies) are increasingly taking place across a Second, given the nature of the sectors, what kind of global terrain. From this observation it does not application areas are likely to yield the most effect necessarily follow that national policymakers are and should therefore be targeted by innovation and therefore powerless. On the contrary, the more the ICT programs? 14 ICT, Innovation, and Economic Growth in Transition Economies What Why examples of activities Encouraging greater Enhances productivity and profitability Promote good practice examples, improve tax and fiscal adoption and use of ICT incentives, improve education and training systems (see in the private sector Creates network effects below), improve public support systems. Encouraging greater Creates markets RTD on organizational change, introducing key e-public adoption of ICT in the services, e-identity authentication, promotion of Open public sector Demonstration effects Source Software, establish understanding of future demand patterns, regulation to create a market for supporting Encourages take up and use of technologies technologies, skills for the e-public sector. and applications Promoting Internet secu- Builds familiarity and trust Civil and criminal framework, development of mechanisms rity and trust for criminal enforcement and civil liability (including foren- Direct benefits in public sector sics), trust e-marks and Web seals, more actions on spam, stimulate e-identity standardization, RTD on e-identities. Builds familiarity and trust Increases propensity to adopt applications or use technologies Creates markets Supporting research and Promotes technological leadership Strengthening intellectual property rights and commercial innovation law. Support R&D investment. Support networks between Supports the development of assisting science and enterprise. Improve tax and fiscal incentives for technologies R&D. Ensure the engagement of SMEs in RTD. Demand-side regulation for deployment of new technologies. Overcomes technological constraints Strengthening competi- Removes constraints on rolling out new Improve competition in telecom markets - address issues tion applications such as roaming fees and number portability, tackling issues in relation to VoIP, RFID, spectrum allocation and intellectual Increases competition and innovation property rights. Underpinning develop- Provides the skills to adopt and use new Fund best practice projects in use of the Internet as a peda- ments in skills and the technologies gogical tool, promote multi-stakeholder partnerships for labor market high-level ICT skills to identify a common set of core skills as Encourages implementation of organizational a reference for national programs; prioritize the promotion changes to complement technological of ICT-related management skills through specific training opportunities actions to develop e-business; ensure skills development and ICT-awareness are integrated into employment policies. In many cases it will not be possible to answer these are still significant unexploited opportunities. A kinds of questions on a nationwide scale due to the high priority for governments in the transition existence of regional clusters of economic activity. countries should therefore be the further adoption But this observation actually reverts to saying that and utilization of ICT among companies. This will sectoral differences matter to industrial policies. involve highlighting the benefits to companies of using the new technologies and promote good The more concrete recommendations that follow practice for introducing and utilizing ICT within should be read with this in mind. Accordingly, while organizations. In addition, policymakers must the recommendations are of a fairly general nature, ensure that the tax and fiscal system does not their implementation requires consideration of how discourage investment in ICT products. This they are best tailored to sectoral differences. includes addressing issues such as the types of goods included as investment (e.g. Software) and their 1.11.1 Encouraging Greater Take Up deductibility and depreciation rates. It can also and Utilization of ICT in the Private involve tax credits for investments by firms in ICT Sector skills for employees. While ICT is already making its mark on the economic fabric in the transition economies, there Executive Summary 15 1.11.2 Encouraging Greater Adoption the ICT infrastructure. It is, for example, of interest of ICT in the Public Sector to note that this study found only limited use of The public sector has a critical role to play in the ICT for selling goods and services among the development of a wider ICT infrastructure within surveyed companies. This may in part be due to the transition countries. The more public services inadequate security, or at least a perception of risk, are available on-line, the greater the incentives are associated with the use of ICT for consumption. for private enterprises and individuals to adopt the Improving Internet security can therefore be a new technologies. Accordingly, the use of ICT for catalyst for improving the opportunities for firms to the provision of public services (e.g. taxation and make more extensive use of ICT for improving registration) can lead to significant efficiency gains sales. from ICT to private enterprises. Indeed, the more `networked' the society and economy becomes, the 1.11.4 Supporting Research and more gains can accrue from the new technologies (as Innovation noted by Metcalfe's law). Furthermore, the public Both economic theory and empirical analysis sector can act as an example to the private sector on underline the key role of research and innovation in how to introduce and use ICT. 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 Good practice example: electronic integrated customs Duty `appropriability' issue, where key-knowledge and the and tax System (poland) return of being the first to develop are only partly The electronic Integrated Customs Duty and Tax System in Poland appropriable. Accordingly, there is a need to design is well-established. It operates on a nation-wide scale and offers extensive functionality in supporting all customs procedures and and implement tailor-made policy instruments and documents as well as the financial processes relating to the investment mechanisms to stimulate R&D spending collection, settlement, and justification of customs duties and tax due. In addition, it supports the budgeting and account functions and innovation. This involves an approach that of all the customs department's activities and provides a well-used begins with identifying the needs of the levels where means for electronic data interchange with traders, thus bringing innovation, growth and job creation takes place: significant benefits to all its users and Poland as a whole. industry, sectors and companies. By identifying specific needs or drivers instrumental to an increase in research and innovation, specific policy measures 1.11.3 Promoting Internet Security can be designed. and Trust In addition, the transition countries that have, or are In order to promote greater use of ICT, enterprises about to, obtain membership of the EU, have a and individuals must trust the technologies and range of new opportunities and funds available for security of the information they provide and receive supporting research and innovation. Successfully via the Internet. Consequently, improving the exploiting the opportunities offered by EU member- overall security of Internet use (E-security) should ship is critical for successfully advancing the be considered a key priority for the development of knowledge economy. Good practice example: estonia's iD-program Good practice example: tallinn technical university innovation centre (estonia) The purpose of the Estonian ID-program is to use nationwide electronic identity and develop a new personal identification A number of specific initiatives have been taken in Estonia to card that would be a generally acceptable identification docu- encourage the development of new knowledge-based busi- ment and contain both visually and electronically accessible nesses, including the Tallinn Technical University Innovation information. On January 28, 2002, the first ID-cards were issued Centre (TUIC). The TUIC seeks to promote linkages between to Estonian citizens. the R&D base of Tallinn Technical University and businesses. Its activities include active marketing of R&D projects that have The output of the ID-program is the ID-card, which functions on market potential; providing assistance to university staff seeking an electronic crypto-processor, based on smart-card technology. to cooperate with industry; managing the spin-off program, and It includes personal certificates and private keys of the card developing incubation services for knowledge based start-up owner. 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 The Estonian `Tiger leap' is a national target program launched access to significant EU Funds for supporting research and by the Ministry of Education of Estonia, with the objective of innovation. lithuania provides an illustrative example of how EU modernizing the educational system in the country by introducing membership gives rise to new opportunities to support research information and communication technology. Initiated by Estonia's and innovation. EU accession in May 2004 was followed by a President lennart Merti and sponsored in part by the UNDP, Ti- first round of implementation of the EU's Structural Funds, which ger leap is based on cooperation between schools, universities, allowed lithuania to double the amount of funding available for private enterprises and public institutions. The program builds innovation. Several measures directly addressing innovation are up structures for distance learning and continuous learning for currently implemented to strengthen the innovation support infra- teachers and students. Estonian teachers are provided training in structure and develop its institutional capacities; to improve R&D computer skills and the use of educational software. The program and business co-operation in innovation development; to improve has ensured that 98 percent of Estonia's schools have access to the quality of human resources for R&D and innovation; and to the Internet, with more than one computer per 20 students. It has strengthen the public and private R&D base. Direct support for created a national learning network for teachers and trained 40 innovation in firms was also offered. percent of Estonian teachers in "advanced computer skills." 1.11.5 Strengthening Competition gence of ICT, with the new technologies enabling Ensuring that the ICT markets are competitive is learning in a range of new ways and environments. critical for lowering connectivity prices and increas- ICT is thus said to offer a host of new e-learning ing take-up. The liberalization of the telecommuni- opportunities. In order to exploit the new education cation market is therefore a critical priority for the and training possibilities offered and necessitated by successful furthering of the information society. A ICT, governments need to increase levels of invest- more open and competitive telecommunication ment in human capital in general, and in ICT- market will also ensure that new technologies are related skills in particular. Moreover, the policy and rolled out quickly, as competitive pressures provide regulatory environment should encourage firms and the incentive to develop better and more efficient private individuals to invest in their human capital. 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 1.12 Recommendatons for services. Frms In addition to the policy recommendations, the findings and conclusions of this study also have Good practice example: estonia's liberalization of the telecommunications market implications for firms and their efforts to introduce and utilize ICT for competitive advantage. The key Estonia has been one of the first countries among the CEE countries to open the telecommunications market for liberaliza- recommendations for firms are as follows: tion, 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 1.12.1 The Introduction of ICT Needs the telecommunications market since 1991 resulted in a 50­80 to be Well Prepared and Fit with the percent reduction in the price of international long-distance calls, lower prices on national long-distance calls, and price reductions Overall Business Strategy of 50 percent for Internet connections. When introducing ICT into the production process of a firm, it is important that the new technologies 1.11.6 Underpinning Developments in are introduced with a view to supporting the overall business strategy. This involves identifying the Skills and the Labor Market appropriate technologies and suppliers that are It is widely recognized that success in the era of the suitable for the particular needs of the company. knowledge economy is dependent upon the avail- While this may seem an obvious point, many new ability of appropriate skills, so that the workforce can technologies are often introduced as a result of deal effectively with technological innovation in ICT prevailing `hype' about their importance rather than and organizational change. Meanwhile, the opportu- on the basis of a strategic assessment of the compa- nities for learning are also enhanced by the emer- ny's needs. Executive Summary 17 1.12.2 ICT Needs to be ICT interacts with other factors in shaping improved Complemented with a Range of economic performance. In other words, is ICT a other Factors critical ingredient for facilitating the contribution of other factors or merely one of several substitutable ICT rarely results in enhanced competitiveness and factors that contribute to economic performance? For improved performance in isolation. Rather, the example, is it possible to initiate successful organisa- successful utilization of ICT often requires organiza- tional change for improved economic performance tional change and training of staff that allows the without ICT, or is ICT a critical enabler or perhaps business to change production processes in a manner even the trigger of such organizational change? that leads to a more efficient operation. Depending on the type of activities for which ICT is intended In view of such questions, it would thus be of to be used, there may also be other changes required, interest to disentangle the relationship between ICT such as a new marketing strategy etc. Hence, if firms and the other factors to identify the exact role of are to realize the true potential of ICT, the required ICT. This could be explored by complementing the investment is larger and more comprehensive than questionnaire with in-depth interviews or work- the expenditure on ICT itself. shops to explore, for example, the counter factual 1.12.3 Use ICT for Product Innovation question of what would have happened in the organization if ICT had not been adopted and used? It appears as if ICT is currently not optimally used In general, a more detailed and nuanced picture of to facilitate process of product innovation in the the impact of ICT could be achieved by including transition countries. Companies should explore more in-depth questions about the nature of use, its possibilities for integrating ICT more effectively into purpose and the type of equipment available. efforts to develop new and better quality products to increase the value added of their activities. 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 organiza- 1.13 Implcatons and tional change, investment in other equipment etc. Questons for Further Research 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 This study has found a number of interesting issues internal reorganization? Are there any general lessons pertaining to the take-up, use and impact of ICT learned about these-processes that can be applied among firms in transition countries. However, in more generally among firms operating in transition many ways the value of the study lies as much in the economies? Answering these questions will allow us questions raised by its findings as the questions to draw conclusions about and develop more answered. In particular, the methodological ques- detailed recommendations for firms operating in tions that come to light from this study are mani- transition economies. Such conclusions and fold. In light of the attempt to develop a more recommendations can be translated into practical nuanced perspective on the role of ICT at firm level, guidance for firms about the take-up and use of ICT a number of issues came to the fore, meriting further for improved economic performance. analysis. In this section we outline some of the key questions emerging from the study, and make Furthermore, this study found significant sectoral suggestions for further research. differences in the impact of ICT in transition econo- mies. However, the differences between sectors did First and foremost, this study has shown that ICT not necessarily follow any traditional distinctions works in combination with other factors in generating between sectors of economic activity, such as improved economic performance among firms. manufacturing vs. services or tangible vs. intangible. Hence, it was evident that the economic impact from Rather, service sectors such as financial services and ICT use emerged when the new technologies were ICT services coupled with manufacturing sectors combined with other factors such as organizational such as heavy machinery were all found to make change, investment in new equipment and new effective use of ICT for improved economic marketing strategies. However, it remains unclear how 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 determine the impact of ICT on economic transition economies, where the role of ICT in the performance, such as education and training. For manufacturing sectors has been found to be limited. example, when comparing countries or sectors, Such differences in findings suggest that further there may be significant differences in the skill- research on the role of ICT within individual sectors levels of employees in the firms surveyed, creating is called for. In particular, it is of interest to explore a bias in the results. This suggests that it would be whether it is the more nuanced approach to worthwhile developing the survey methodology exploring the impact of ICT used for this study that such that it is possible to take account of key uncovers a different role for ICT in certain sectors, factors, such as skills, that have been found to have or whether it is merely a result of the particular an influence on the ability of individuals and firms sample used for this study. to make effective use of ICT. More specifically, it is important to note that the Finally, this study identified a number of issues sample for the current study is limited to "front- pertaining to the enablers, barriers, and obstacles runners" in the take-up and use of ICT. Such an that firms in transition countries are faced with. approach was taken because we wanted to explore the The results suggest significant differences in overall dynamics and impact of ICT use in firms where the performance of and the type of barriers facing new technologies had existed for some time. However, different countries. However, the study did not only focusing on front-runners may well have given provide an in-depth comparative analysis of policy rise to a positive bias in the results with respect to approaches adopted in the different countries impact, explaining why firms in heavy machinery explaining these differences. In light of the findings report a higher impact of ICT than other studies. of this study, it would be of interest to further Accordingly, it would be of interest to expand the develop the analysis to get a better picture of the scope of this study to encompass firms that operated types of policies that are conducive for the take-up further behind the technological frontier. and utilization of ICT among firms. This would involve examining the links between performance by Also, the current study does not control for some firms and particular types of regulation and policy of the other factors that have been found to instruments in greater detail. Executive Summary 1 20 ICT, Innovation, and Economic Growth in Transition Economies Chapter 2 Background and Methodology 2.1 ICT, Innovaton and for which each decline in price appears to bring Economc Growth n Transton forth new uses, one that can spark off a long-lasting Economes major economic transformation. Such general purpose technologies are, as Bresnahan and Trajtenberg (1995)7 say, `engines of growth': 2.1.1 ICT, Innovation and Economic precisely because they have a wide range of Growth potential uses, and are complementary to a large The New Economy paradigm has emerged as an proportion of other inputs, their price elasticity of attempt to understand the changes to modern demand is likely to be high" (DeLong and economies caused by the introduction and wide- Summers, 2001).8 spread diffusion of ICT. Crucial to the New Economy paradigm is the understanding of ICT as 2.1.2 ICT, Innovation and Economic not only new products, but also as acting as catalysts Growth in Transition Countries for the transformation of fundamental economic The transition economies of Central and Eastern and social processes and activities. Rather than Europe face considerable challenges in adapting merely being a new additional product to businesses their economies to compete effectively in regional and households, the utilization of information and and global markets. Among the challenges facing communication technology constitutes a change in these countries is the need to increase their produc- the way producers and consumers conduct their tivity, adapt the structure of their economies to business. It is thus argued that these new technologi- global competition in an increasingly knowledge- cal developments are of a significantly different intensive global economy, foster innovation and new nature than other improvements in products and business creation, and develop new goods and processes that industrialized economies have services that respond to changing domestic and experienced since the end of World War II. international demand. ICT can help address all of these challenges by: First, ICT increases the speed and number of ways in which electronic information can be transferred increasing productivity; from one person or machine to another. Second, increasing the knowledge component of goods, developments in ICT have made it possible to store services and production processes; and transfer many different types of information increasing the capacity of firms to identify electronically that previously took a non-electronic quickly, and respond to, changing domestic and form. These two aspects of ICT combine into a international markets; forceful alteration of the ways in which informa- facilitating innovation in products and services, tion can be used in production and consumption and new business creation; processes. By increasing the speed at which increasing the skills and adaptability of the work electronic information can be transferred and force; and processed, and giving a number of different types by opening new markets for ICT-enabled of information and knowledge an electronic form, production and services at a distance. ICT enhances the role of electronic information in economic processes. This has led some observers to regard ICT as a `general purpose technology'--"one 7 bresnahan, t. F. and trajtenberg, M. (1995), General purpose technolo- useful not just for one narrow class but for an gies: `engines of growth'? Journal of econometrics (65), 1, pp. 83-108 extremely wide variety of production processes, one 8 Delong, J. b. and Summers, l. H. (2001), How important Will the infor- mation economy be? Some Simple Analytics. Background and Methodology 21 ICT, in short, can help workers be more effective above-mentioned issues in all sectors and regions of and competitive. It can help existing firms be more these countries. It provides an in-depth survey and innovative and responsive, and help new firms analysis of a reasonably representative sample of emerge exploit new market opportunities and firms in several regions and sectors so that broader promote innovation. conclusions can be drawn with a certain degree of confidence. The study draws conclusions not only While some research has been done on the uptake about individual sectors but also about individual of ICT as tools of productivity, competitiveness, countries, and, most importantly, about conditions and innovation at the industry level in these and challenges common to several or all of the countries, there is so far little rigorous data on the countries in the study. adoption of ICT at the firm level in key sectors of the economy that have the greatest opportunity to The study aims at assessing the diffusion and impact be sources of country's innovation and competi- of ICT at the firm level and the related policy tiveness. Nor is there adequate knowledge of the implications. It also gives some specific recommen- key enablers of ICT take-up, and ICT-driven dations on what each country, sub-region and region innovation, in existing or new firms. There is also a could do to better promote/support ICT usage to great need for better understanding of the con- improve competitiveness and new business creation. straints facing entrepreneurs and innovators in These recommendations concern the enabling these countries, and the opportunities and environment and point to some specific lessons challenges facing firms and industries as they learned and best practices at the firm level. increasingly integrate with the regional and global economies (including the particular challenges The study examines traditional and new sectors. It facing the countries now joining the European explores whether and under what conditions Union.) It is important to better understand how traditional sectors, such as the food industry, have ICT can help firms and innovators address these been successful in harnessing ICT. It also identifies challenges. new opportunities and sectors that have emerged, thanks to ICT. More substantial and rigorous data, as well as analyses of these issues are valuable in efforts to The study intends to serve as an important element better understand, and provide policy guidance on, of infoDev's broader attention to the challenges how to create the conditions for ICT-enabled facing developing and transition countries in growth and competitiveness in the transition promoting ICT-enabled innovation, growth and economies. It also contributes to a better under- competitiveness. standing, more generally, of the impact of ICT on innovation and competitiveness. 2.3 Survey Methodology 2.2 Scope of the Study A key objective of the study was to analyze and assess the diffusion and impact of ICT at the firm The overall objective of the study is to advance under- level in relation to productivity, competitiveness, standing of the relationship between ICT, innovation, and innovation in selected key sectors. To show and economic growth in transition economies. where and how actual productivity and performance Commissioned by the Information for Development gains occur within firms as a result of ICT adoption, Program (infoDev), the study focuses on firm-level it is important to identify adoption rationales, key survey data collection and analysis framed by a clear enablers and inhibitors of ICT take-up, as well as of articulation of the constraints and enabling condi- the relation between ICT take-up and: tions at the industry and country level. cost structures; With a focus on five countries--Estonia, Latvia, revenue generating capacity; Lithuania, Poland, and Russia--the study is not innovation (product, process innovation); designed to be a comprehensive analysis of the relationships with suppliers and customers; 22 ICT, Innovation, and Economic Growth in Transition Economies business organization and strategy; and Centre of the EU) and the Belgian Central Plan external factors (economic and regulatory Bureau. conditions). The EBS methodology adopts a "business" rather Furthermore, as these variables are subject to than a "technology" perspective, by focusing the various other forces, it is important to determine data gathering and analytical processes on the the extent to which the effects are substantially or evolution of business as such. EBS can be adminis- uniquely attributable to ICT. This is an important tered in a qualitative, quantitative, or mixed form condition for determining the additionality of ICT. that captures great amounts of detail. In qualitative Therefore, parameters and benchmarks can vary not form, the method is applied via case studies based only for each country, but also for each industry on in-depth "audits" of firm level ICT application and firm. activities, using a standardized data gathering and analytical format. The audit includes sub-routines to 2.3.1 A New, Tested Approach to gather detailed information on investment patterns Data Collection and Analysis (similar to "readiness" studies), adoption-application The project team based its approach on the EBS processes and impacts on innovation. The quantita- methodology. A major advantage is that the EBS tive form, which is used in this study, embeds these approach has already been well tested in previous routines into a conventional survey instrument.9 international studies. EBS was developed by TNO- (See Annex 1) STB, in collaboration with the OECD, the Telematica Instituut (a Dutch government-industry research initiative), the Institute for Prospective Technological Studies (IPTS, a Joint Research 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 23 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 Growth potential and/or strategic importance transition economies in the north-eastern part of for economic development of the country. Europe: Estonia, Latvia, Lithuania, Poland, and Potential for cross-country comparisons and Russia. These countries share not only a common extrapolation of findings to other sectors. past legacy, but also a similar need for adapting and ICT and innovation content. transforming their economies. For the purpose of our analysis, Annex 2 provides an overview of 3.2.2 The List of Sectors economic and ICT key characteristics of each of the Based on the above criteria, at least five sectors were countries. 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 3.1 Selected Regons product categories ready for surveying has been put aside, as no adequate and precise data for this purpose could be retrieved. In order to provide a more focused and in-depth study, the analysis was narrowed further to a The current choice was made on the basis of existing selection of regions. The following survey regions statistical data, results of earlier country studies, and have been selected: expert judgements of the local survey managers. Estonia ­ country as a whole, prime focus on the For each of the chosen sectors per region or country, Tallinn and Tartu regions. key company data were collected, such as products Latvia ­ country as a whole, prime focus on the or services segment (NACE code), a short descrip- Riga region. tion of the products and/or services produced/ Lithuania ­ country as a whole, prime focus on marketed, and company size (small, medium, or the Klaipeda-Kaunas-Vilnius west-east corridor. large, based roughly on number of employees). This Poland ­ Pomorskie (Gdansk and surroundings), also applies to other useful company details, such as Mazovieckie (Warsaw and surroundings) and a contact person for each company, addresses (actual Slaski (Katowice and surroundings). and postal), telephone and fax numbers, and e-mail Russia ­ the city of Moscow and the city of St. addresses. Petersburg. The resulting long lists of firms for each country and Annex 3 provides a descriptive profile of the selected region, covering the full scope from micro-enter- regions from Poland and Russia. prises to large firms, were processed and have been replaced by practical country shortlists for the purpose of interviews. 3.2 Selected Sectors In Annex 5 we provide more information on the distribution of companies per country/region and 3.2.1 Selection Criteria sectors for the sample of 620 firms. In addition, Key sectors have been targeted in each of the there is more detailed information on the sectors in countries. The selection has been based on three sets each of the countries. of criteria (for more details on the selection criteria please see Annex 4): The Selection of Regions and Sectors 25 TABlE 3.1. Final Lists of Sectors & Aggregate Product Categories to be Surveyed country region primary sector Secondary sector tertiary sector Estonia Tallinn and Tartu regions Food Retail Furniture (wood value chain) Banking ICT equipment ICT services latvia Riga region Food Retail Furniture (wood value chain) Banking Chemicals ICT services light machinery ICT equipment lithuania Klaipeda-Vilnius corridor Food Banking Furniture (wood value chain) Retail Automotive industry ICT services Textiles ICT equipment Poland Mazowieckie (Warsaw) 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 Pomorski (Gdansk) Petroleum refining Food Banking Shipbuilding Transport ICT equipment ICT services Russia Moscow city 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 26 ICT, Innovation, and Economic Growth in Transition Economies Chapter 4 Survey Results and Analysis This chapter provides a detailed analysis of the number of customers and suppliers; results of the survey. The chapter gives an overall change in sales value per customer; picture of the scale of ICT usage and its business value of purchases per supplier; applications. Further, it discusses firms' performance share of retained customers; in relation to ICT usage. The performance of firms number of repeat suppliers; is based on a combination of four sets of indicators: changes in sales value per retained customer; and productivity, growth, innovativeness, and competi- value of purchases per repeat supplier. tiveness. The following indicators are looked at: The issue of innovation is analyzed across the whole Labour productivity sample of firms as well as across different sizes of Operational costs companies and sectors. Revenues from sales Profitability Finally, the chapter discusses obstacles and enablers Investment in innovation for ICT usage. Internal and external factors for the Investment in ICT company are taken into account. Special attention Competition on price is paid to the regulatory and policy context, where Competition on quality. other relevant information from the countries is included to support (or not) the results of the study. The above indicators are analysed across the whole The role of the government is looked at on a sample as well as across large, medium, micro, and country-by-country basis. small companies, and sectors. Following the discussion on firms' performance, the analysis moves on to the innovativeness of compa- 4.1 ICT Usage Profile nies. The effects of ICT on different types of innovations are considered, such as process and This section presents an overview of the type of product innovation and relational innovation. Internet connections, computer networks used, and Process innovation covers: the presence of information technologies within firms, including their integration and electronic speed and reliability of business processes; linkages with other (automated) systems. It identi- automation; fies the types of business activities that are supported information management; and by the ICT usage: how firms use information organizational change. technologies in buying and selling products and services, and how customers and suppliers are Product innovation considers: approached and serviced. The section provides information on how inter-firm and customer new products and services; relationships have changed, or continued, over time. customization; and Finally, it gives an insight in the way firms com- new bundling offerings. municate and deal with government organizations. Relational innovation looks at a number of indica- It should be noted that our sample only comprises a tors describing innovations in relationships with selection of proactive ICT users. It is therefore not customers and suppliers. These include: representative of the sectors as a whole, let alone of Survey Results and Analysis 27 the regions surveyed. However, it does allow a 4.1.2 Business Use and Applications forward-looking analysis of the evolution of the of Computer Networks leading sectors and regions concerned, and with that of the economy at large. Computer networks are used for internal and external communications with business or govern- Throughout the text, tables will be repeatedly mental parties. The need for intensifying external referred to. These tables are included in Annex 7 of communications stimulates the use of intra-firm the present report. computer networks. The results referring to technol- ogy usage show that electronic systems are intro- 4.1.1 Scale of Internet Connections duced very much alongside the value chain starting and ICT Use from supply, production, and logistics; moving to purchasing and procurement; marketing and sales; Unsurprisingly, the use of Internet and computers is and some financial administration services mainly widespread among the surveyed companies. This is related to invoicing. (See Figure 4.2 and Figure 4.3) only to be expected, as the companies had in part The results also provide a picture of the electronic been selected on the basis of them being at the links between computer networks introduced to forefront of ICT use in the countries included in support and serve particular business areas with the study. Hence, all of the surveyed enterprises used other automated systems within the firm. The latter one or more computers, while 99 percent used the shows the intention of the companies to automate, Internet during the last three years. as much as possible, interrelated business activities. Some business areas though stay outside the However, as is evident from Figure 4.1 below, attention of the companies for the time being. These connections to the Internet vary widely, both in type include human resource management, including and intensity. While connections to the Internet training and asset, and inventory management. among firms may thus be increasing, significant qualitative differences in the nature of the connections From Figure 4.2 it is evident that firms relate the use are of increasing importance to an analysis of access. of ICT technologies with their aim to become more competitive and productive. The initial signals from In addition, 98 percent of all enterprises used e-mail the companies sampled indicate that market related and 44 percent availed of an Intranet provision. business activities are high on their agenda. This can Local area networks were rather popular with 74 be observed in this part of the study and confirmed percent of all enterprises. Twelve percent of the later on. surveyed firms indicated that they use other computer networks than the Internet. (See Table 2) Figure 4.2. Electronic Links between Computer Networks Used to Place Figure 4.1. Specifics of Internet Orders for Goods and Services and connection other Automated Systems within the Firm Cable Modem Computer system(s) for (>2Mbps) No internet receiving orders not linked to any of the above Systems for ordering Cable Modem or stock control (<2Mbps) DSL (<2Mbps) Other internal DSL (>2 Mbps) or external systems Analogue Other Marketing and Systems for invoicing customer customers relations systems Other broadband (> 2Mbps) Systems for delivery Systems for production ISDN of products (including Other broadband (< 2Mbps) electronic delivery) 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: their orders via a more advanced online ordering Purchasing and Procurement and Marketing and facility. Fifteen percent of the firms sold their Sales. products through a third-party Website, and 8 percent via Electronic Data Interchange (EDI) over Fifty-two percent of all firms actively use computer proprietary networks. (See Table 6) networks to buy goods and services. Almost 95 percent of these firms use the Internet to do so. (See Sales transactions via the Internet and other com- Table 4) Most firms that use computer networks for puter networks are in a number of ways electroni- placing orders for goods or services have in some cally linked to other systems within the company. Of way established an electronic link with existing the 247 firms selling via computer networks, 35 automated systems within their firms. Most percent had established an electronic link with a frequently observed is a link with an invoicing system for invoicing customers. Almost 28 percent system. Thirty-three percent of all firms that said had an automatic link to an internal customer they place orders via a computer network had an system, and another 29 percent to a marketing or operational link to an invoicing system. Almost a customer relations system. Forty percent of the firms third of these firms used a system for ordering or that received orders via computer networks, however, stock control. (See Figure 4.2 and Table 4) did not have electronic links to internal systems whatsoever. (See Figure 4.3 and Table 7) Selling via the Internet is slightly less popular than buying. Forty-seven percent of all firms placed It is rather common to use the Internet for servicing orders using the Internet. Almost 40 percent customers, not only by attracting them by present- received and processed orders over the Internet. Five ing catalogues, price lists, or product specifications, percent of all firms used (also) other computer but also by providing contact facilities and even after networks for selling their products, whereas 5 sales support. The more passive, "simple" forms of percent placed orders via other computer networks customer services like the first few mentioned appear than the Internet. (See Table 5) The majority of to be more popular. (See Figure 4.4) firms that received and processed orders via the Internet did so by means of an e-mail link on their More demanding forms of customer contact, such as Website. Thirty-six percent of the firms received 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 25 50 75 100 Survey Results and Analysis 2 Figure 4.4. Use of the Internet or other Computer Networks for Providing the Customer Services 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 25 50 75 100 the firms surveyed. Thirty percent of the firms mental (public) level rather than at firm level, collect customer information online. More sophisti- especially in the case of SMEs. Introduction of cated forms of customer services are less frequently modern HRM approaches, such as recruitment, observed, yet not uncommon: almost 13 percent assessment, human resource development, planning, provide order tracking online and 19 percent etc., within firms, and SMEs in particular, will provide after-sales support. (Table 8) require automation and therefore use of ICT. To summarize, Internet connections and ICT use Another area with a high potential for ICT use within the companies in the sample are concentrated within firms is in asset, inventory and logistics in market or customer-related activities, where management. Although not related directly to the buying goods and services, placing orders, and customer, improvement in the above areas would providing customers with information on products result in higher efficiency and quality of services. It is and services are automated in approximately half of our judgment that inventory and logistics manage- the firms. Further, in order to support the above ment as concepts are less known and understood in activities, firms have introduced automated systems the countries studied, than for example, marketing. in areas such as invoicing, production and service ICT usage comes when the need is there but also the operations, and delivery of products and stock understanding of the importance of the business control. (See Table 9) Areas where computer activities it supports. The gaps described above networks did not play any role are training, human indicate ample room for progress in, first of all, resources, and asset and inventory management. The spreading ICT use and secondly, integrating various explanation one can attach to these results is closely systems within the firm and achieving future linked to the phase of the business development in efficiency benefits. (See Table 10) the countries within the study. Companies were also asked to comment on using The fast growth of the domestic markets, coupled ICT to access government resources. Fifty-five with the dynamic processes of their integration into percent of all enterprises used the Internet or any the European and international markets, make other computer network for obtaining information Purchasing and Procurement and Marketing and Sales from the government. Downloading of and request- primary business functions at firm level. In many of ing government forms were equally popular. Almost the transition countries, human resource manage- one-third of all firms did not use the Internet at all ment (HRM) systems were introduced at a govern- 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 e- BOx 4.1. Some Statistics on ICT and government and the services offered by government Labor Productivity organizations. We provide more information on this issue in section 4.4 on Obstacles and Enablers. 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 4.2 Frm Performance n three years. (See Table 12) Of the firms that observed productivity increases over the last Relaton to ICT Usage three years, 35 percent report a 0­10 percent increase; 37 percent estimate the increase to lie between 10 percent and 25 percent and 19 percent have faced an increase of 25­50 percent. (See Table 13) A particular emphasis of the study has been placed The vast majority of firms (74 percent) that report a decrease in on the issue of how ICT influences the performance productivity attribute this mainly to other factors than ICT. (See Table 14) of firms. Being aware that ICT as a performance- stimulating 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. increase is caused by a combination of factors where The concept of performance is operationalized, ICT usage is one of them. Of all firms reporting using four sets of indicators on productivity, growth, productivity increases, 13 percent attribute these innovativeness and competitiveness: increases to ICT and 47 percent to ICT in combina- tion with other factors. This is a rather high Productivity changes are estimated by relating attribution score compared to the other performance gross outputs to changing labor costs and other indicators in our survey. These findings seem to (operational) costs. counter the thesis of Solow's productivity paradox, Growth is estimated on the basis of changes in which holds that ICT investment has not produced revenues from sales as well as changing profit significant improvements in productivity in margins. industrialized economies. However, it should be Innovativeness is assessed by estimates on the added that our sample is atypical for industrial relation between capital investments in innova- economies. The firms investigated are all part of an tion in general and in ICT specifically. economy in rapid transition, involving a number of Competitiveness is assessed by relating the factors, including firm specific issues and broader importance of competition on quality and on market conditions (e.g., business and investment price in relation to changing market shares. climate, political and macro-economic environment, etc.). This is illustrated by the fact that 50 percent of For each of these indicators, firms were asked to the firms report significant productivity increases assess the importance of ICT usage in affecting and only 5 percent report decreases. It should also observed changes. The estimates produced by our be noted that firms have been selected because they respondents allow us to make an assessment of the belong to the more proactive ICT users. In light of importance of ICT in relation to other factors that this, it is equally relevant to note that 40 percent of affect the performance of firms. firms with productivity increases report that ICT usage did not at all contribute to this performance. 4.2.1 Productivity, Growth, Innovation and Competitiveness However, it is of interest to note that the companies reporting a decrease in productivity attribute this to labor productivity factors others than ICT. The results of the study show that there has been a substantial increase in productivity in the last three The findings reported above place the contribution years among the firms surveyed. There are also of ICT to productivity in perspective and call for an significant opportunities for further increases in the examination of other factors that contributed to coming years. The results show that productivity productivity gains. The other key other factors that Survey Results and Analysis 31 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 ensu- ing 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 compe- tence. 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 factors. In general, ICT has a stronger effect on organizational change, investment in equipment, and decrease rather than increase of operational costs. training of staff. ICT influence on costs should be looked at in the context of a wider set of measures and efforts. The importance of these other factors indicates that ICT usage is important, but has to be looked at in Capital investment in equipment, organizational the context of a more generic set of measures and change, and changes in the salary structure are the efforts to increase productivity. It also indicates that other factors that most strongly influence cost companies' expectations to improve productivity reduction. Change in salary structure differs from through ICT alone would be wrong. When the other set of factors influencing productivity. We planning to increase usage of ICT, one should place attribute this to the overall trend in Central and it in the context of whether the company is organi- Eastern Europe of faster growth in salaries in zationally prepared for this, and whether it has the comparison to productivity growth. It may partly possibility to invest in equipment and develop the indicate an increased need for more skilled (and capacities of its human resources accordingly. more expensive) staff due to ICT usage. operational costs revenues from Sales Although few firms report a decrease in costs, this Again, almost half of the companies experienced an decrease can be attributed to the ICT usage alone or increase in revenues due to ICT and other factors. in combination with other factors. At the same time, The three other factors are the same as those ICT contributed to the opposite--increase in influencing productivity. Interestingly, companies costs--although to a much lesser extent than other reporting a decrease in revenues do not relate this BOx 4.3. Some Statistics on ICT and Operational Costs 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 0­10% increase. Thirty-two percent notes an increase between 10 percent and 25 percent, and 16 percent note a 25­50 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) 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. 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 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 experi- ence increases up to 10 percent, 38 percent experience increases in the range of 10­25 percent, and 18 percent experience revenue rises of 25­50 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. Decreases in revenue are more modest. Fifty-eight percent of the firms with a decrease can be found in the 0­10 percent range and 31 percent in the 10­25 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 driver of change, namely the introduction of "new many more firms report increased revenue (55 marketing strategy." Thus, as with productivity, the percent) than firms reporting cost reductions (19 contribution of ICT to profitability seems to be percent). Slightly more than half of the firms report positive on average, but this contribution needs to be a positive effect on revenue attributable to ICT (7 seen in a broader perspective. percent mainly to ICT and 43 percent to ICT in conjunction with other factors). By comparison, Fifty-nine percent of firms mention ICT as a this is significantly less than the 67 percent of the contributing factor to favorable developments in firms that mentioned ICT in the context of profitability, which includes those firms that believe decreasing costs. It also leaves 50 percent of firms ICT is the main factor (11 percent) and those that for which ICT usage did not contribute to increas- believe it is one of several factors (48 percent). For ing revenue. However, the negative effect of ICT 41 percent of the firms, ICT did not significantly on revenue is minimal. No firms attribute revenue contribute to improving profitability. decreases to ICT usage, and only 6 percent hold ICT partially responsible. In contrast, 33 percent These figures on profitability are comparable to of firms saw ICT as a contribution to increasing those on productivity, albeit with effects that are costs. slightly less positive. For example, 44 percent of firms indicate an increase in profitability, compared Along with investment in equipment, organizational to 50 percent of firms with productivity increases. It change and training of staff are the main contributing is striking that 16 percent of the firms indicate a factors to increasing revenue. decrease in profitability against only 5 percent that It is interesting to note that the effect of ICT as the indicate a loss in labor productivity. A possible dominant `stand-alone' factor on decreasing costs explanation for these differences is the increase in (mentioned by 16 percent of the firms) is more than operational costs (other than labor costs) reported double the effect of ICT on increasing revenue (7 by 41 percent of firms. Moreover, it is important to percent). Interestingly, investment in equipment note that the profitability of firms is largely ex- (other than ICT) is seen as the other main other plained by the extent of competition and the pricing contributing to increasing revenue. Hence, the effect power of firms. If the firms operate in competitive of ICT as a stand-alone factor is limited in general, markets, the productivity gains will in part be but in particular on increasing revenue. translated into lower prices for consumers rather than increased profitability of firms. profitability In more than half of the total sample of firms in the As with productivity, the contribution of ICT to study, ICT, mostly in combination with other factors, profitability seems to be positive on average, but this has contributed to the increase of profitability in the contribution needs to be seen in a broader perspec- last three years. Although similarities in figures can be tive. Firstly, the amount of firms that do not seen with the performance indicators discussed above, mention ICT as a contributing factor remains a new important contributing factor appears here as a significant. Secondly, the vast majority of firms that Survey Results and Analysis 33 regard ICT as a contributing factor still see this Pricing and quality improvements are the essential mainly in conjunction with other factors. parts of any marketing strategy. As other factors, new marketing strategy is mentioned In the end, the effect of a new or improved marketing most frequently, followed at great distance by capital strategy is in the intensified link between the investment in equipment and organizational change. producer and the customer. The latter should result in better economic performance, including higher The significance of new marketing strategy as a factor revenues and increased profits, but this often does not for profitability may indicate that the positive effects show immediately. Since the efforts of CEE compa- to which ICT usage contributes are not only to be nies to introduce new marketing strategies (or situated in efficiency gains, but also in increased marketing strategies at all) are relatively recent, outputs and/or higher profits per unit of output. broader effects may be expected at a later stage. What is surprising though is that new marketing strategies was not perceived as one of the top investment in innovation responsible factors for productivity or revenue Capital investment of firms in innovation is broadly increases, nor cost reduction. Perhaps, the increase in defined for the purposes of this study as expenditure profit can be attributed to the reduction in opera- on R&D, technology renewal, and re-engineering of tional costs reported earlier, which provides an almost business processes and organization. The results immediate effect on a company's results. show that firms are mostly keeping up or increasing investment levels. Only 4 percent of the interviewed If linked to ICT usage, new marketing strategies firms report decreasing investment in innovation may be related to (among others): over the last three years. Fifty-eight percent of the respondents mention ICT as one of the reasons for new or improved customer systems; increased investment. For 16 percent, it is even the systems of invoicing customers; and main factor. new or improved marketing or customer relations systems. The top three other factors explaining a changing pattern of investment in innovation are not surpris- As we discussed before, the Internet is used for ing, with capital investment in equipment being by far servicing customers, which is a new development in the most important category, followed by new the transition economies and can also be considered a marketing strategy and organizational change. new marketing approach. Customers get more information about the products/services offered, The important investment levels and the nature of higher level of product specifications, and are offered the other factors, which along with ICT influence contact information and after-sales support. In the investment, suggest again an economy in addition, as the results of the study reveal later on, transition that is making substantial efforts to quality and price (in this order of priority) are seen as modernize and introduce new and more effective important factors to increasing market presence. approaches in attracting customer. BOx 4.5. Some Statistics on ICT and Profitability 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) Forty-six percent of the firms with higher profits experienced an increase between 0­10 percent; 32 percent report an increase of be- tween 10­25 percent, and 10 percent noted an increase of 25­50 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. Of the firms with lower profits, 37 percent put themselves in the 0­10 percent range, 34 percent in the range 10­25 percent and 19 percent in the range 25­50 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 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) Of firms with increased investment in innovation, 40 percent report spending between 0­10 percent more, 34 percent report between 10­25 percent more, and 16 percent report between 25­50 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. 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 shares. They also report results of increased market The results of the study confirm the finding that shares as a consequence of engaging in price ICT investment takes up a substantial part of the competition. Price competition is not much efforts of firms to modernize. The fact that 30 related to ICT; rather it is related to a set of other percent of the firms say that ICT usage itself factors where marketing strategy is the number one generates increases in ICT investment also indicates factor followed at great distance by organizational that engagement in ICT usage is to a certain extent change. a self-sustaining process that requires cumulative investment. When we look at the other factors that Only 34 percent of firms perceive ICT as one of the motivate ICT investment, we see that investment in factors that contributes to increasing market share ICT is related to a production technology (capital through price competition. This figure contrasts investment in equipment), in ICT usage as process with the 67 percent of firms that mention ICT as technology, (organizational change) and in ICT one of the factors that contributes to the reduction usage as a transaction technology (new marketing in operational costs. Accordingly, although ICT can strategies). significantly contribute to reducing operational costs, this is seldom a decisive factor among firms The other factors influencing increases in ICT when it comes to competition on price per se. It investments are the same as those motivating should also be noted that the importance of price investment in innovation in general. Again, capital competition does not automatically mean that prices investment in equipment is by far the most important are declining. factor, followed by new marketing strategy and organizational change. Forty-two percent of all enterprises saw an increase in sales prices compared to three years ago. Forty- competition on price four percent of the respondents indicate that prices More than half of the firms realize that price have stayed the same; 15 percent state that prices competition plays a crucial role in gaining market actually declined. (See Table 33) The attribution of BOx 4.7. Some Statistics on Investment in ICT 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) Most increases in ICT investment fall in the 0­10 percent range (40 percent) and the 10­25 percent range (37 percent of firms); 10 percent fall in the 25­50 percent range. Decreases are mostly situated in the 0­10 percent range (67 percent of firms). (See Table 28) 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 35 BOx 4.8. Some Statistics on ICT and Competition on Price 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). Fifty percent of firms that engage in price competition have increased their market share by 0­10 percent, 30 percent believe the increase is in the range of 10­25 percent and 15 percent indicate a 25­50 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 competi- tion 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. 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 4.2.2 Differences in Company Size ICT is very high (72 percent and 73 percent, and Overall Performance respectively), again indicating a weak relation between ICT usage and price levels. Size matters, as is illustrated by the tables below.10 Large firms seem better able to utilize ICT to competition on Quality generate performance improvements compared to Firms grant more importance to ICT as a driving smaller ones. More specifically, large companies force for competition on quality (50 percent) than score substantially better than medium, small, and they do for price competition (34 percent). At the micro enterprises on all selected indicators. On same time, the loss of market share as a result of specific indicators, the results of the study show the competition on quality is in 67 percent of the cases following: associated with other factors, similar to what was observed for competition on price. This finding a. For productivity and profitability the attribution supports the proposition that ICT is one of the deci- of positive effect to ICT (mainly or along with sive factors in generating efficiency gains, but is not other factors) ranges between 77 percent and 71 a distinguishing factor in effectively attaining a percent for large firms and between 55 percent competitive edge over other companies. and 53 percent for micro and small enterprises. b. Micro and small enterprises score relatively Again, new marketing strategies are mentioned as by better for revenue increases attributable to ICT far the most important factor (by half of the respondents), followed at a distance by organiza- 10 in conformity with the applicable eu definitions, i.e. 0-9 employees: tional change and investment in equipment. 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 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) 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) 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. 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 profitability increases: Mainly ict and Mainly increases: Mainly ict and Mainly attribution to ict ict other other attribution to ict ict other other large 11% 66% 23% large 8% 63% 29% Medium 18% 40% 42% Medium 6% 52% 42% Micro and Small 12% 41% 47% Micro and Small 14% 41% 45% TABlE 4.2. ICT, Costs and Revenues operational cost revenue reduction: Mainly ict and Mainly increases: Mainly ict and Mainly attribution to ict ict other other attribution to ict ict other other large 15% 63% 22% large 3% 61% 36% Medium 12% 64% 24% Medium 3% 44% 53% Micro and Small 21% 32% 47% Micro and Small 12% 35% 54% (mainly or with other factors) than for cost of ICT. Although some sectors have been analyzed reductions. For revenue increases, the difference for all five countries, this does not apply to all between micro, and small and large enterprises is sectors observed. As a result, not all sector datasets of 64 percent vs. 47 percent (17 percent-point are sufficiently large to be analyzed in their own difference) but for cost reduction this is reduced right. Our analysis will therefore be limited to the to 68 percent vs. 53 percent (15 percent-point largest sectoral datasets. difference). On a more substantial level, sectors were selected to The possible explanation for why company size constitute a sufficiently diverse set to reveal which matters in relation to the use of ICT and general industry characteristics primarily affect ICT usage. performance is that larger organizations benefit This selection is based on previous research that more from economies of scale and scope in applying revealed that it is not sector specificity per se that ICT than micro and small companies. determines ICT usage, but specific product and market structure characteristics that may be 4.2.3 Sector Differences in ICT Use common to very different sectors.12 and Overall Performance For a number of years, it has been increasingly In particular, the way product characteristics and recognized that sector differences are important in related market structures affect transaction costs understanding the potential effects and benefits of appears to be a determinant of the effects of ICT ICT usage. The ambitious European Commission's usage. In this context, literature on ICT and E-Business Watch, for example, is almost entirely business development often distinguishes between sector-based11 The size of the sample of the present tangible and intangible products. It is then assumed 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 coun- 11 http://www.ebusiness-watch.org/ 12 Verhoest, p., Hawkins, r, Desruelle, p. et al (2003). Electronic Business tries and regions under scrutiny, with the additional Networks: An assessment of the dynamics of business-to-business electronic commerce in eleven OECD countries: A Summary Report of the e-Business criteria of being significant sectors in their respective Impacts Project (EBIS). brussels: european commission, on-line: http://www. economies and relatively proactive in their adoption jrc.es/home/publications/publication.cfm?pub=1122. Also available in print (report eur 20776) Survey Results and Analysis 37 that because of their very nature, intangible products (almost 85 percent) than for ICT services and retail offer more possibilities for ICT-based production and wholesale. and transactions. For similar reasons, many studies start out by distinguishing service and goods- Retail and wholesale shows a much lower rate of producing sectors. The six sectors selected for attribution to ICT as a main factor (7 percent for analysis in this chapter can be categorized along productivity and 9 percent for profitability) than the these lines (three per three), but as it is demon- four other sectors already mentioned (which range strated, both distinctions are misleading in that they between 17 percent and 31 percent). only reveal part of the relevant factors with regard to the effective usage of ICT. Furniture manufacturing and food processing close the ranks with a significantly lower attribution of The rankings below have been obtained by sorting positive effect to ICT for around 50 percent of data on the basis of positive effects of ICT (`mainly firms. ICT and ICT and other factors taken together). On the basis of the analysis, the most revealing and/or The attribution of positive effect to mainly ICT, inclusive indicators were selected. For performance, however, is markedly higher for furniture (10 these are productivity, profitability, operational percent and 17 percent for productivity and costs, and revenues from sales. profitability, respectively) than for food processing (0 percent). performance indicators for Selected Sectors Both for productivity and profitability heavy The financial sector by far exceeds the other sectors machinery is the lead sector in terms of attribution in terms of positive attribution to ICT of both cost of positive effects to ICT usage, with almost 75 reductions for 100 percent of firms and revenue percent of firms attributing positive effects to either increases for 82 percent of firms. The difference ICT or ICT and other factors. The direct attribu- between both categories is accentuated by a very tion of effects to ICT, however, is much higher for high direct attribution to ICT of 57 percent for cost productivity (31 percent) than for profitability reduction. (17 percent). ICT services, finance, and retail and wholesale form a trio with around 70 percent of For heavy machinery the positive attribution of the firms attributing positive effects to ICT or ICT effects to ICT is higher for cost reduction (67 and other factors. percent of firms) than for revenue increases (58 percent). Most significantly, the direct attribution of For profitability, however, the attribution of positive effect to ICT for revenue increased is nil (compared effects to ICT (mainly ICT and ICT and others to 17 percent for cost reduction). jointly) of the financial sector is significantly higher TABlE 4.3. Sector Findings on ICT, Productivity and Profitability productivity profitability increases: Mainly ict and Mainly increases: Mainly ict and Mainly attribution to ict ict other other attribution to ict ict other 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% Retail & Wholesale 7% 60% 33% Retail & Wholesale 9% 55% 36% Food Processing 10% 43% 48% Furniture 17% 33% 50% Furniture 0% 42% 58% Food Processing 0% 41% 59% 38 ICT, Innovation, and Economic Growth in Transition Economies BOx 4.10. Case Study Furniture is the only sector where the positive rate of attribution to ICT is higher for revenue BankServiss (Latvia) ­ The importance of preparation increases (46 percent of firms) than for cost reductions (33 percent of firms). 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, The figures confirm that the distinctions between clearing and settlement with domestic and international banks and payment schemes. In 2005 the company introduced two tangibles and intangibles, or services and goods are new e-commerce solutions to ensure reliable and secure Internet rudimentary when it comes to predicting the payments for banks, merchants, and cardholders. A central lesson emerging from the experiences of BankServiss is the importance potential of ICT to increase economic performance. of choosing the right supplier. When selecting the supplier, the The number one ranking of heavy machinery for emphasis should be on their experience and knowledge rather both productivity and profitability increases, wholly than price and quantity, since the new technologies are likely to be extensively used for a long period of time. Moreover, it or partially attributable to ICT, confirms this. We is important to ensure the compatibility of the different types of may confidently assume that the explanation for this software. Proper preparatory work and background research on the products are therefore important, including the consultation of high ranking is to be found in product characteris- other users to assess their experiences. tics 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. For retail and wholesale the contribution of ICT is This involves costs related to coordination, contract markedly higher for cost reductions (88 percent) and/or control costs, internal to the firm and/or than for revenue increases (56 percent), with also a between the supplier and the customer. This significant difference in direct attribution (33 assumption is confirmed by the higher attribution percent for cost reduction and 0 percent for of ICT-related effects on cost reduction than on revenue increases). revenue increases and a direct attribution to ICT as main factor which is significantly higher for cost ICT services show a relatively even distribution reduction than for revenue increases. As will be (56 percent for cost reduction and 46 percent for shown in the following section, revenue increases revenue increases). The same accounts for food for heavy machinery can at least partially be processing (55 percent and 46 percent, respec- explained by factors relating to product innovation tively) but with a much lower rate of attribution to and customer relations. ICT as main factor (0 percent both for costs and revenues). Based on these observations, it is more accurate to posit that the potential effect of ICT on the firm's TABlE 4.4. Sector Findings on ICT, Costs and Revenues operational cost revenue reduction: Mainly ict and Mainly increases: Mainly ict and Mainly attribution to ict ict other other attribution to ict ict other other Finance 57% 43% 0% Finance 24% 59% 18% Retail & Wholesale 33% 44% 22% Heavy Machinery 0% 58% 42% Heavy Machinery 17% 50% 33% Retail & Wholesale 14% 42% 44% ICT Services 11% 44% 44% ICT Services 14% 40% 46% Food Processing 0% 55% 46% Furniture 0% 46% 55% Furniture 11% 22% 67% Food Processing 2% 32% 66% Survey Results and Analysis 3 performance will be determined by the information 4.2.4 Country Differences in ICT and intensity of the product. This involves both product Economic Performance characteristics as well as transaction characteristics. For example, the number two and three sectors in While it is not the aim of this project to conduct a ranking, finance, and ICT services are products that comprehensive comparative analysis of the five have a high informational component and can be countries included in the study, the data set allows traded electronically as well. Financial products have us to identify some tentative findings pertaining an even higher informational nature than ICT to ICT use and its impacts in individual countries. services, which is expressed in the higher average However, these findings should be interpreted ranking of finance and in particular a higher with great caution. Our regional samples have attribution for revenue increases. The latter subject been constituted to be representative of the will be touched upon again in the section on geographical area under scrutiny. Sectors were relational innovation. chosen that are important for the economies of those regions. As a consequence, the industrial Furniture manufacturing and food processing are composition of our sample varies considerably per undoubtedly the sectors with the lowest information country, leaving little scope for rigorous compara- intensity, both in the product and transaction area. tive analysis. It may seem paradoxical that samples Logically, both close the ranks in all categories under that are more or less representative of regional scrutiny: productivity, profitability, and cost and economies cannot be compared but, as is demon- revenues. However, furniture scores relatively better strated in this study, the rate of adoption and for revenue increases. This result, as will be demon- potential effects of ICT usage on firm perfor- strated in the following sections, can be related to mance vary significantly per sector, and differences the usage of ICT for customization and the effect in the sectoral composition of the economy in the this has on customer relations. different regions may therefore determine regional outcomes. Finally, retail and wholesale hold a middle position in general, but score significantly above average on Proof of this was obtained by comparing the the cost reduction category. Contrary to heavy different regional samples. Many differences were machinery, finance, and ICT services, the informa- found, but most of them could not be explained tion intensity of these products generally does not without taking into account the incidental influence provide much potential for spectacular performance on a given regional sample of non-comparable improvements through ICT usage. The gains of ICT sectors. The proper way to infer regional or country usage are to be situated in the area of transactions differences is thus to operate by triangulation, i.e. to and can be due either to the high frequency of find out about residual differences by comparing transactions and/or the amount of customers and identical sectors or industries in different countries. suppliers that are involved. 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 percent of firms percent of firms percent of firms with reported with reported with reported with reported increase in labor reduction in increase in increase in productivity operational costs revenues profitability Estonia 58 18 58 40 Poland 38 15 34 28 Russia 41 24 63 43 40 ICT, Innovation, and Economic Growth in Transition Economies TABlE 4.6. Factors Responsible for Improved Productivity percent of firms percent of firms percent of firms that attribute it that attribute it that attribute it mainly to ict to ict and other to mainly other Don't know or n/A Estonia 9 55 36 0 Poland 9 33 45 13 Russia 16 60 24 0 countries (Estonia, Poland and Russia). In the table below, the trends in economic performance among BOx 4.11. Case Study the firms operating in these three sectors and countries are shown. Estonia ­ `clean sheet' advantage The findings from this study have revealed that a strong technological heritage does not necessarily translate into suc- When the data for the individual countries is broken cess in the application and use of ICT. While countries with down further, we see that the contribution of ICT a relatively strong technological heritage such as Russia and lithuania have only made moderate steps towards establishing to the economic performance of firms differs an ICT infrastructure, Estonia is at the forefront of ICT develop- significantly between countries. ment 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 productivity increases ICT is a contributor for Estonia as most of the companies have bought new and mainly together with other factors. However, the modern ICT technology in part because they did not have older technologies available. impact of ICT is far greater in Estonia and Russia than in Poland. TABlE 4.7. Factors Responsible for Reduced Operational Cost percent of firms percent of firms percent of firms that attribute it that attribute it that attribute it mainly to ict to ict and other to mainly other Don't know or n/A Estonia 0 67 33 0 Poland 17 25 42 16 Russia 17 55 28 0 TABlE 4.8. Factors Responsible for Increased Revenue percent of firms percent of firms percent of firms that attribute it that attribute it that attribute it mainly to ict to ict and other to mainly other Don't know or n/A Estonia 0 45 50 5 Poland 11 11 71 7 Russia 13 40 47 0 Survey Results and Analysis 41 TABlE 4.9. Factors Responsible for Increased Profitability percent of firms percent of firms percent of firms that attribute it that attribute it that attribute it mainly to ict to ict and other to mainly other Don't know or n/A Estonia 12 44 44 0 Poland 9 9 77 5 Russia 20 60 20 0 For cost reductions, ICT is again only one of several altogether are the main cause of improved contributing factors, with a far bigger contribution performance. The effects of ICT are most signifi- of ICT for firms in Russia and Estonia compared to cant for productivity and somewhat less for Poland. profitability. Similarly, ICT is making a larger contribution The other main factors contributing to performance towards revenue increases in Russia and Estonia besides ICT usage--being organizational change, than Poland. However, rather than being the main new marketing strategies, and investment in contributing factor, ICT contributes together with equipment--indicate that ICT usage is part and other factors. 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, One important question that remains to be firms in Poland appear less able to translate the use addressed is whether the firms for which ICT is not of ICT into greater profitability. a contributing factor have failed to sufficiently or adequately use ICT, or whether this `non-contribu- It is evident from the above that the overall role and tion' was inherently due to the limitations of ICT impact of ICT in the transition countries differ itself. For firms that mention ICT as one of the significantly between countries. This should perhaps main contributing factors, the question may be not surprise us, as the diverse overall socio-economic asked how ICT usage is articulated vis-à-vis other and political contexts of the different countries will factors and where the benefits of ICT usage are create varied environments for ICT adoption and (predominantly) located. In this respect, an utilization. We explore these issues further in a interesting observation is that ICT is contributing subsequent section of the study (see section on relatively more to reducing costs than to increasing Barriers and Enablers). revenue. 4.2.5 Conclusions on ICT and In addition, it is also evident from the findings Performance of Firms outlined above that both the size of the company All findings indicate that ICT is a substantial and the information intensity of the product are contributor to productivity, profitability, and important for the possible contribution of ICT for growth. Simplified, the average scores lead to a performance. Hence, larger firms are better placed 10­50­40 division of scores. Hence, on most indi- to exploit the benefits of ICT, while greater overall cators, around 10 percent of firms on average state information intensity of the product also provides that ICT is the main factor of improved perfor- greater opportunities for using ICT for improved mance while in roughly 50 percent of cases, ICT is economic performance. We discuss these findings, mentioned as contributing to better performance and their implications, in greater detail in subse- only along with other factors, leaving about 40 quent sections of the study. percent of firms reporting that other factors 42 ICT, Innovation, and Economic Growth in Transition Economies 4.3 Effects on Innovaton and the decline of business process costs. (See Table 37) In firms where costs went down, 85 percent So far, our survey has provided estimates of the relate this change to ICT usage alone or in combina- contribution of ICT in improving the performance tion with other factors. In firms where improved of firms in the regions and industries studied. It left speed and reliability led to increased costs, the unanswered the question of how the enterprises in connection with ICT was far less pronounced but the sample obtained these results. Our survey still significant. The study shows that: addresses parts of this issue by investigating the effects on different types of innovation at business Forty-six percent of the enterprises that increased process level. speed and reliability also increased their business process costs. Only 31 percent actually saw a The ambition of this study is not to identify all cost decline as a result of increased speed and possible effects of ICT at the business process level. reliability. For 23 percent within this group, This would require a study in its own right. Instead, business process costs remained about the same. this study concentrates on a number of effects that (See Table 38) have been observed in previous studies and are Of all firms that improved their speed and known to be significant.13 These effects are the reliability of business processes, 15 percent following: attribute this mainly to ICT, 50 percent to ICT and other factors, and 36 percent mainly to other factors. The attribution to ICT is signifi- Process innovation: speed and reliability, automa- tion of tasks (production as well as administra- cantly higher for firms that have lowered process tion), information management and the costs by increasing speed and reliability: 38 overarching category of organizational change. percent mainly to ICT, 47 percent to ICT and other factors, 15 percent mainly to other factors. Product innovation: new products and services, customization and bundling of goods and (See Table 39) services. The most important other factors are organizational Relational innovation: number of customers/ suppliers, value of sales/purchases per customers/ change, followed by new marketing strategies and suppliers, repeat customers/suppliers, value of capital investment in equipment. sales per repeat customers/suppliers. The presence of new marketing strategies as one of Process and product innovation are well-known the important contributing factors indicates that concepts, but the concept of relational innovation speed and reliability improvement is not only just may require some explanation. The concept of oriented towards internal business processes, but relational innovation describes the way firms also contributes to handling operations with innovate in the way they are conducting business customers and suppliers. with suppliers and customers. It is narrower than the Automation concept of strategic innovation, which is sometimes Almost 60 percent of the contacted firms managed used to indicate the way firms reposition themselves to automate tasks over the past three years. This has vis-à-vis other players in the field, including for had a largely positive effect on reducing overall example government. Rather, the concept of business process cost. Only 28 percent of the firms relational innovation concentrates on the relations report increasing costs over the past three years and between suppliers and customers and more specifi- ICT is reported relatively more often in the context cally the transactional aspects of these relations.14 of cost reduction (81 percent) than in the context of 4.3.1 Process Innovation 13 Verhoest, p., Desruelle, p., Hawkins, r. et al (2003). Electronic Business Networks: An assessment of the dynamics of business-to-business electronic Speed and reliability commerce in eleven OECD countries: A Summary Report of the e-Business Not only did a majority of firms manage to improve Impacts Project (EBIS). brussels: european commission, on-line: http://www. jrc.es/home/publications/publication.cfm?pub=1122. Also available in print the speed and reliability of business processes (68 (report eur 20776) 14 Hawkins, r. & Verhoest, p. (2002). `A transaction structure approach percent), but there is also a positive relationship to assessing the dynamics and impacts of `business-to-business' electronic between ICT usage, improved speed and reliability, commerce', Journal of Computer-Mediated Communication, 7(3), on-line: http://www.ascusc.org/jcmc/vol7/issue3/hawkins.html Survey Results and Analysis 43 BOx 4.12. Some Statistics on information Management Automation A large majority (75 percent) of all firms report improvements in information management. (See Table 43) As could be expected, the contribution of Fifty-nine percent of firms report having automated tasks and 41 percent report not to have done so over the past three ICT usage to this improvement is significant. years. (See Table 40) Eighty-four percent of firms consider that ICT For 50 percent of the firms that automated tasks, this change led to a lowering of overall business process costs; 22 percent contributed to this in one way or another. Forty- report no cost change. one percent of firms say improved information For 28 percent of the firms, task automation led to higher busi- management has contributed to cost reductions, ness process costs. (See Table 41) 14 percent of the firms attribute higher costs due to task while 28 percent report increasing costs. Thirty- automation mainly to ICT usage, 58 percent to ICT usage and eight percent see ICT as the sole main factor for other factors, and 28 percent to entirely other factors. Firms that automated tasks and have lower costs in the context lowering costs through better information manage- of task automation point relatively more often to ICT as a con- ment and more than 46 percent report positive tributing factor: 38 percent state that mainly ICT is responsible, 43 percent say ICT and other factors are responsible, and 19 effects of ICT usage as one of the contributing percent attribute mainly other factors. (See Table 42) factors. Organizational change is (again) the most often mentioned other factor, followed by training of staff, capital investment in equipment and new marketing strategies. cost increases (72 percent) related to task automa- tion. But the association of ICT as the sole main Noteworthy, but logically, training of staff reappears factor of change is much higher among firms that here as one of the leading contributing factors. That were able to reduce costs through task automation the category of new marketing strategies also than those that saw their costs increase (38 percent appears in the top three of other factors indicate versus 14 percent). As for other contributing factors, that information management is also oriented automation is mostly associated with capital towards managing relations with suppliers and investment in equipment, followed by organiza- customers. tional change. 4.3.2 Organizational Change Along with ICT, the most important other factors A substantial number of the firms have gone are capital investment in equipment followed at a through organizational changes (63 percent). (See distance by organizational change. 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 4.13. Some Statistics on Information Management BOx 4.14. Some Statistics on For 41 percent of all firms that improved information manage- ment, this improvement led to a decrease in business process Organizational Change cost. For 31 percent of the firms, business process costs remained the same, and for 28 percent of the firms, costs Of firms that decreased costs, 10 percent regard ICT increased. (See Table 44) usage as the main contributing factor to organizational Among firms that have decreased cost through better informa- change; 47 percent state that ICT and other factors to- tion management, 46 percent attribute this mainly to ICT gether were responsible, and 43 percent say other factors usage, 38 percent to both ICT usage and other factors, and triggered organizational change. 16 percent mainly to other factors. For firms that increased costs through organizational Among firms that report an increase in cost, 25 percent held change, ICT was the driving force in only 4 percent of mainly ICT responsible; 60 percent point to a mix of ICT and cases. Forty-six percent saw ICT as one of the contributing other factors, and 15 percent to mainly other factors. (See factors and for 51 percent said other factors were the main Table 45) drivers. (See Table 48) 44 ICT, Innovation, and Economic Growth in Transition Economies Business process costs have decreased (in 43 percent 4.3.3 Product Innovation of all cases) rather than increased (in 30 percent of cases) as a result of the introduction of organiza- new products and Services tional changes. (See Table 47) More companies that The companies in the sample give new products decreased costs as a result of organizational changes and/or services an important role (70 percent, Table find ICT usage as the main factor. For firms that 49). In 73 percent of the companies that have increased costs through organizational change, ICT introduced new products/services, this has driven was the driving force in only 4 percent of the cases. the sales substantially up in the last three years (by 2005) (See Table 50). More than half of the firms By far, most respondents point to a failing internal associate these trends with other factors and very few organization as the main driver of organizational attribute them to ICT only (9 percent, Table 51) change, followed by new marketing strategies and New marketing strategies influence the growth of less so training of staff and investment in equipment. new products/services, meaning that product innovation is very much market driven. Overall, this analysis confirms some of the main propositions formulated in the previous main customization section on performance indicators. The application The study shows that new products/services go hand of organizational change and its effect as observed in in hand with customization. More than half of the our sample are indicative of economies in transition firms have launched customized products in the that are undergoing processes of rapid moderniza- market for the reporting period. This also is the tion. Of great significance in the context of this cause in many cases for the increase of sales volumes. survey is that ICT is relatively less often seen as ICT comes out as one of the factors behind the contributing to organizational change compared to above trends, but as before, it is more powerful in a other categories of process innovation. On average combination with other factors. Similar to the 46 percent mention other factors as the main cause introduction of new products, new marketing of change compared to 7 percent that see ICT as the strategies are playing an important role. main factor. However, where ICT was the main driver of organizational change, this resulted more The contribution of ICT to the customization of often in cost reductions (10 percent) than cost products is marginally higher than its contribution increases (4 percent). to the creation of new products and services, and the BOx 4.15. Case Study Electropribor (Russia) ­ 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 organiza- tion. 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 start- ing 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 Electropribor'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 45 attribution to ICT is similar. It is significant that almost 54 percent of all firms say they have intro- BOx 4.16. Some Statistics on duced customized products and almost 61 percent Product Innovation have introduced new products and/or services in a relatively short period of three years. It points to Nine percent of the firms that have increased the value of rapidly changing markets in terms of product types sales of new products mention ICT as the main driver behind the creation of new products and services, and 43 percent of and quality offerings that--with caution--might firms mention ICT and other factors. Forty-eight percent of the serve as a sign of still relatively immature markets firms thought that mainly other factors were responsible. Of firms that have increased value of sales by offering custom- and economies. What it also emphasizes is the ized products, nine percent say ICT is the main driver of cus- highly proactive nature and behavior of the firms tomization. For 46 percent of firms this is ICT in combination with other factors. Forty-six percent held mainly other factors surveyed. The latter indicates an increasing outward responsible. (See also Table 54) looking (e.g. customer-related) behavior of the Thirteen percent of all firms that increased the value of sales companies. 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. 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 The finding that new marketing strategies are by far customized products. That comparatively few firms the main triggering factor for the new products and (35 percent, Table 55) offer bundled services and services indicates that product innovation is mostly that the attribution rate to ICT is moderate may be market-driven. The score of investment in equip- an indication of the development and integration of ment, which would indicate supply-led strategies, is Internet in business processes thus far. almost four times lower. Congruent with this finding, ICT scores moderately as a driver of new Like other types of ICT-based product innovation, product offerings compared to, for example, the offering of bundled products and services different categories of process innovation. typically requires a high level of integration of ICT Interestingly, introducing new products and services in internal and external business processes. The is a rather popular form of serving markets. At the relatively low direct attribution of product same time, it is a very effective sales strategy when it innovation to ICT may therefore suggest that a comes to increasing turnover, surpassing in this significant proportion of firms still have to come to respect both customization and--to a lesser terms with ICT and process innovation, before extent--also bundling. being able to effectively engage in ICT-based product innovation. It is important to point out 4.3.4 Product and Process Innovation that in 69 percent of the firms that offered new for Different Sectors product/service bundling, the share of bundled More than 90 percent of the firms in the heavy offerings as a percentage of total sales increased machinery, retail and wholesale sectors that have (See Table 56 and 57). The latter shows that this reduced costs by increasing speed and reliability of new commercial strategy offers economic advan- operations and/or automated tasks attribute this tages to the companies. gain mainly to ICT or to ICT and other factors. Effects on product/services innovation are attributed Still in the domain of process innovation, finance to ICT alone in a small proportion of the cases, but and ICT services hold middle positions but follow in more than half of the companies ICT in combi- closely with scores between 80 percent and 90 nation with other factors played an important role. percent of the surveyed firms. Food processing and New marketing strategies is by far the most quoted furniture close the ranks with scores below 50 other factor, followed at great distance by organiza- percent. tional change and investment in equipment. Training of staff is in some cases seen as important as the orga- In the domain of product innovation, finance and nizational change. 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 the firms with an increase in the number of custom- have increased revenue by launching new products ers, ICT usage is regarded as the main responsible or customizing products attribute this mainly to factor while 44 percent noted that ICT and other ICT or to ICT and other factors. factors played a role. Furniture and retail and wholesale hold the two change in Sales Value per customer middle positions with scores around 50 percent. The contribution of ICT to increasing the value of Food processing and heavy machinery score the least sales per customer lies in the same range as its on product innovation. Heavy machinery scores contribution to attracting more customers. Seven higher on customization even though it has the percent of the firms that increased their sales value lowest score of all for new products. per customer say that ICT was the main contribut- ing factor while 41 percent stated that ICT and Findings concerning product and process innovation other factors are jointly responsible. Again, in confirm the conclusions formulated with regard to comparison with process and product innovation, the role of information intensity of products and this may point to a relative under-utilization of the transactions as determinants of effective ICT usage. Internet as a transaction tool to increase customer Finance and ICT services both have a high potential loyalty. for ICT usage as both products and transactions have high information intensity. Share of retained customers ICT is an appropriate tool to increase customer The assumption that the tangible nature of products loyalty and can be effectively used to lock-in offers only a partial explanation for the potential of customers. Figures indicate that most firms were ICT usage to increase performance is confirmed by successful in keeping the share of retained custom- the top positions of heavy machinery and retail and ers as a percentage of total customers at least wholesale in the process innovation categories. The stable--with total customer numbers going up-- product characteristics, in particular of heavy or even increase this share. This can be interpreted machinery as a complex product often produced to as a significant improvement in firm-customer customer specification, explain its relatively good stability and trust relationships. The low score of potential for customization. This contributes to ICT (7 percent) as a tool to increase the share of understanding the relatively good score of heavy retained customers, however, at least in comparison machinery on increased revenues. But the majority to other scores in the survey, may indicate that the of performance increases lie in the area of process usage of ICT as a transaction tool is still very much innovation based on transaction cost reduction. in development in the studied sample and has not lived up to its potential. This indicates that there is In line with the formulated expectations, furniture ample room for growth in this area. and food processing show the least potential for cost reductions through process innovation because of changes in Sales Value per retained customer the relatively low information intensity of transac- Similar to the share of retained customers, the tions. However, in the area of product innovation, contribution of ICT to increasing the sales value per furniture has a distinct potential for customization, customer is low and it is again possibly indicative of which helps explain why it also score higher on the an underdeveloped usage of ICT as transaction category of revenue increases. technology with customers. This is largely confirmed by the fact that throughout, new marketing 4.3.5 Innovation in Customer strategies score more than 60 percent as the single Relationships most important factor in improving customer relations and related revenue effects. In addition, number of customers observations show that most growth in sales value The combination of new products and customiza- per customer stems from new customers rather than tion as well as the influence of the factor "new existing customers. marketing strategies" contributes to explaining why the number of the customers increased in the last In comparison with product innovation and three years (61 percent, Table 58). For 6 percent of certainly in comparison with process innovation the Survey Results and Analysis 47 BOx 4.17. Some Statistics on Innovation in Customer Relationships 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) 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) 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) 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 percent of firms that faced an increase in the value customers, retaining the customers and increase sales of purchases per supplier stated that this was due value per customer (retained) customer is small mainly to ICT usage (35 percent). (See Table 69) compared to other possible drivers. The most frequently quoted other factor causing positive number of repeat Suppliers effects of innovation on customer relationship is new Not many firms (26 percent) show an increase of marketing strategy. This factor accounts for almost repeat suppliers. Sixty-seven percent of the firms half of all quotes--followed by organizational change report that the number of repeat suppliers remained and capital investment in equipment. about the same and 7 percent report a decrease. (See Table 70) 4.3.6 Innovation in Supplier Relationship Increases were predominantly attributed to ICT by 5 percent of the firms, to ICT usage and other 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 BOx 4.18. Some Statistics on other factors than ICT usage. The relation between Innovation in Suppliers' Relationship ICT usage and doing business with more suppliers is markedly more positive, with almost 50 percent of Forty percent of the firms reported an increase in the number of suppliers. 54 percent of the firms indicate that the number firms mentioning ICT usage as one of the contribut- of suppliers had remained the same and 7 percent claim to ing factors. This attribution rate is comparable to have witnessed a decrease. (See Table 66) 6 percent of firms that witnessed an increase in the number of suppliers attribute that reported with regard to the number of custom- this mainly to ICT usage, 44 percent to ICT usage and other ers. factors and 51 percent mainly to other factors. Decreases are attributed to mainly other factors by 77 percent of firms. (See Value of purchases per Supplier Table 67) Forty-one percent of the firms indicate that the purchase value The relation between the use of ICT and a decreas- per repeat supplier increased. 53 percent declare that it ing value of purchases per supplier is negligible. The remained the same and 7 percent that it decreased. (See Table 72) relation between ICT and increased value of Five percent of firms that faced an increase of the value of purchases is significant but weak. Of the 43 percent purchases per repeat supplier stated that this was due mainly to ICT, 36 percent to ICT and other factors and 60 percent of firms for which the value of purchases had pointed to mainly factors. Firms that faced a decrease pre- increased, almost 62 percent stated that this was due dominantly pointed to mainly other factors (84 percent). (See Table 73) to factors other than ICT. (See Table 68) The 3 48 ICT, Innovation, and Economic Growth in Transition Economies factors by 36 percent and to mainly other factors by Finance and ICT services consistently figure in the 60 percent. (See also Table 71) top positions for increasing the amount of custom- ers, the sales per customer, the amount of repeat Value of purchases per repeat Supplier customers and the sales per repeat customers. Remarkably, there is little difference between the Hence, attribution of ICT usage to increasing evolution of value of purchases per supplier (general) revenue is between 54 percent and 68 percent. and per retained supplier. The number of firms reporting increased sales is slightly over 40 percent, Retail & wholesale consistently holds a middle with ICT playing no determining role in increasing position with scores between 52 percent and 41 value of sales per supplier as yet. percent. Still in the middle range, furniture manu- facturing scores better for the categories relating to In about half of the surveyed firms, the most quoted customer loyalty and sales, namely between 53 factor contributing to the suppliers relationships of percent and 63 percent, but worse for its capacity to any kind is new marketing strategy, followed by other use ICT for attracting more customers (42 percent) reasons of much less importance. by using ICT. 4.3.7 Relational Innovation for Food processing on average scores the lowest on all Different Sectors accounts. Heavy machinery has a top score of above 60 percent of firms, linking ICT usage to more revenue Figures on relational innovation provide no counter generated by attracting more customers. In the evidence for the conclusions made so far. They categories of customer loyalty and revenue per confirm some earlier findings and provide additional customer, this sector has among the lowest attribu- information. The good score of heavy machinery for tion rates. attracting new customers can be explained by the TABlE 4.10. Sector Findings on ICT and Relational Innovation number of Sales per customers & customers & revenue increases: Mainly ict and Mainly revenue increases: Mainly ict and Mainly attribution to ict ict other other attribution to ict ict other other Heavy Machinery 15% 46% 39% Finance 24% 47% 29% ICT Services 18% 39% 43% ICT Services 31% 34% 34% Finance 11% 37% 51% Furniture 0% 63% 38% Retail & Wholesale 2% 44% 54% Retail & Wholesale 3% 50% 47% Furniture 0% 42% 58% Food Processing 0% 37% 63% Food Processing 2% 35% 63% Heavy Machinery 0% 21% 79% repeat Sales per repeat customers & customers & revenue increases: Mainly ict and Mainly revenue increases: Mainly ict and Mainly attribution to ict ict other other attribution to ict ict other other ICT Services 19% 46% 35% ICT Services 26% 42% 32% Finance 4% 50% 46% Finance 13% 50% 38% Furniture 0% 53% 47% Furniture 0% 63% 38% Retail & Wholesale 6% 39% 56% Retail & Wholesale 0% 42% 58% Heavy Machinery 17% 17% 67% Heavy Machinery 0% 38% 63% Food Processing 0% 27% 74% Food Processing 0% 16% 84% Survey Results and Analysis 4 fact that this sector is strongly export-oriented and relational innovation. The same order of intensity has internationalized in recent years. The weak applies to the capacity of ICT to contribute to lower scores for customer loyalty are perhaps surprising for costs or higher revenues. This is a marked difference a sector that offers customized products and uses with observations using a partially similar question- ICT to do so, but it is logically explained by the naire in the Belgian economy15, indicating impor- nature of the market: heavy machinery is not sold to tant differences between Western and Eastern the same customers on a regular basis. Europe. Western European companies report a higher contribution of ICT to product innovation The counter example of furniture shows a product and relational innovation than East European firms where the link between the number of customers in the sample. This is consistent with earlier findings and level of ICT usage in customer relations is weak revealing important lock-in effects in OECD but where product innovation, and in particular countries.16 In the Western European study, customization, is a good basis for increasing relatively fewer firms also reported decreasing costs17. customer loyalty and revenue per customer. This finding also contributes to explaining the good score The comparison makes it clear that the East of furniture for revenue increases observed in the European companies are rapidly developing previous section. organizations with frequent changes in processes and structures. Companies that already have a highly In line with earlier findings, finance and ICT services streamlined internal organization and are well score high on all categories of relational innovation. adapted to the market, like the Western European Significantly, they are the only sectors with substan- firms, would observe only a marginal effect of ICT tial scores for positive effects on customer loyalty and on their internal organization. It is also easier for revenue that can be attributed mainly to ICT. This is firms that are structurally modernizing to integrate consistent with the market structure and transaction ICT in the workings of their organizations. patterns of these sectors. Both sectors also benefit from some lock-in effects and both sectors dispose of However, it also leads to the conclusion that ICT a relatively large and stable customer base that usage is comparatively less mature in the Eastern performs regular transactions. European firms. Reaping the full benefits of ICT usage requires streamlining external and internal The latter is particularly the case for the financial transaction processes. sector. This is expressed in the higher scores of finance vis-à-vis ICT services for customer loyalty Our findings indicate that Eastern European firms and associated revenue effects. ICT services is a find it comparatively more difficult to enter that relatively new sector with an expanding customer stage. Several forms of ICT-driven product innova- base. This is expressed in its higher score for tions, particularly for intangible products, are increasing revenue by attracting new customers conditional upon, or will only significantly pay-off with the support of ICT. when external and internal processes are mutually integrated. Our findings indicate that many if not Food processing closes the ranks on all categories of most Eastern European companies have not yet relational innovation. This is congruent with the reached that stage. However, in time they may observation that this sector has the lowest degree of benefit from being "second" here as well. integration of ICT in internal transaction processes and the weakest uplink to production processes. 15 Verhoest, p., Huverneers, c. & Hawkins, r. (#00#). `economic impacts This finding also illustrates the systemic linkage of e-business', in p. cunningham & M. cunningham (eds.) eAdoption and the between process, product and relational innovation, Knowledge economy: issues, Applications, case Studies. Amsterdam: ioS press, ###-##0. and how one is conditional upon the other. 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 4.3.8 Conclusion on Effects of impacts project (ebiS). brussels: european commission, on-line: http://www. jrc.es/home/publications/publication.cfm?pub=####. Also available in print Innovation (report eur #0###) 17 note that the belgian sample was composed of representative samples ICT usage appears to have substantial effects on 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 re- process innovation, yet a limited effect on product gions. Assuming that our eastern european firms are also pro-active on other innovation and a moderate result with respect to 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 BOx 4.20. Case Study WebService ­ Capacity for change To further complete our picture of key enablers, WebService is one of Poland's fastest growing interactive agen- barriers, and obstacles to introducing and using ICT cies. Established in 1996, the company has implemented almost 300 integrated marketing, consulting, and IT projects for the within firms, firms were asked to comment on a biggest Polish and foreign companies. Accordingly, the services range of contextual factors. Some of these factors are provided by WebService include e-marketing, e-consulting and e-technologies (content solutions). In their work, WebService has firm-specific and relate to the firm's strategy, culture, encountered a number of factors that inhibit the easy introduction and positioning towards the use of ICT. It addresses and utilization of ICT in organizations. In particular, the fear of the question of how internal resources are deployed change and lack of time/resources to adapt are primary barriers to the successful application and utilization of ICT. The experi- to stimulate and harness ICT use within the firm. A ences of WebService therefore suggest that a suitable integration second, separate cluster of contextual factors relates of current and new processes and routines is of great importance for companies aiming to exploit the advantages of ICT. 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 of five firms stated that they did not have sufficient environment in which firms have to operate. Firms in-house know-how to support the uptake of new were asked to evaluate existing policy rules and ICT. Similar figures applied to the question whether regulations as well as policy instruments in relation available staff skills and training were sufficient to to the investment, uptake, and use of ICT within support effective ICT usage. the firm. readiness towards ict 4.4.1 Factors Internal to the Enterprise Two-thirds of all firms had no problem in justifying For the majority of firms, in-house know-how, skills, ICT investment costs, whereas for almost one-fifth and training appeared sufficient to support the of the firms, ICT investment costs could not be uptake and effective use of ICT. However, one out 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 BOx 4.19. Case study ICT usage had made it easier or more difficult for them to switch between suppliers. An overwhelm- Case study: Epicor ­ Fear of change ing majority indicated that ICT usage had in fact The work of Epicor in Poland provides an illustrative example of how the fear of change can impede the application and utiliza- made it easier. Yet 37 percent of firms answered tion of ICT in organizations. For 20 years, the company has "don't know" or "not applicable" (37percent). (See been a recognized leader in the provision of integrated solutions Table 78) for Enterprise Resource Planning (ERP), Customer Relationship Management (CRM) and Supply Chain Management (SCM). Focusing on companies operating in manufacturing, distribution, outsourcing and "in-sourcing" of Activities enterprise service automation and hospitality, Epicor leverages Thirty-nine percent of all firms indicated that ICT innovative technologies, like Web services, in the development of end-to-end industry-specific solutions. In order to improve transpar- usage had encouraged the outsourcing of activities, ency and control of the company's performance, software was and 37 percent said that ICT usage had encouraged introduced that would allow for easier accountancy, client rela- tionship management, and project management. However, a key the "insourcing" of activities. Again, 50 percent of barrier to the effective introduction and use of the new software firms indicated that they either didn't know, and 53 has been the difficulties of some staff to adapt to and accept the percent said that insourcing or outsourcing did not changes and novelties associated with the new technologies. Consequently, the new technology was not as rapidly adopted apply (distributed rather evenly among the two as it could have been. Notwithstanding these barriers, however, categories). When leaving out the categories not the company has still managed to use the new technology to increase revenue, efficiency, and profitability. applicable, don't know and refusal, 84 percent indicated that ICT usage had encouraged the Survey Results and Analysis 51 outsourcing of activities. An equal percentage firms are the most satisfied, while the highest level applies to insourcing. (See Table 79 and Table 80) of dissatisfaction is observed in Lithuania. This finding is perhaps surprising, as telecommunication 4.4.2 Regulatory and Policy Context costs are often seen as a major impediment to the take-up of ICT. However, telecommunication prices telecommunications infrastructure in all the countries have declined significantly in The uptake of investment in and use of ICT by recent years. This has particularly been the case in firms could potentially be hampered by factors Estonia, where efforts to liberalize the telecom- relating to the quality and costs of using the existing munications market have been most pronounced. telecommunications infrastructure. For most of the Moreover, it is important to stress that the survey respondents such infrastructural factors appeared was of leading firms, with respect to ICT adoption not to play a role of importance. Seventy percent of and use, in the countries included in the study. all respondents stated that telecommunication costs Prices that are not seen as major impediments for did not in any way inhibit the use of ICT, and only ICT take-up among these firms may be a significant 19 percent said that it did (see Table 81 and Annex 2 barrier for other firms. for telecommunication prices). For network reliability the position of the Likewise, more technical infrastructural properties, Lithuanian firms is reversed. They are the firms with like network reliability, network flexibility, and the the highest degree of satisfaction. For the other range of (available) services or geographic coverage countries, satisfaction levels are in the same range as were not seen as obstacles to the use of ICT by a for costs. majority of firms. For 17 percent of the firms, network reliability was a problem. (See Table 82) On network flexibility and range of services, Only 8 percent of the firms indicated that geo- Lithuania is still the most positive country, followed graphical coverage was insufficient (see Table 84), by Estonia. But it has not been a major problem in whereas network flexibility and services appeared a any other country either. Latvians are the least problem for 11 percent of the firms surveyed. (See satisfied. Table 83) Geographic coverage is perceived as good in all Asked to state the most important information countries. On this account, Estonians are the most technology to their firm, 23 percent of respondents satisfied, closely followed by Lithuania. Latvians are mentioned e-mail, and 28 percent mentioned the least satisfied. general Internet access, percentages that even lie somewhat higher than mobile (20 percent) and fixed Perhaps surprisingly, the regions observed in telephony (22 percent) (See Table 85) Poland and Russia reveal a relatively positive evaluation of firm's satisfaction with telecommuni- As far as telecommunication prices are concerned, cation prices and quality of services. The main the firms surveyed are generally positive. Estonian 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 russia Average Telecommunication costs 12.60 3.85 1.88 2.65 4.54 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 Existing authentication and certification systems 9.5 4.00 14.5 3.00 2.39 3.47 Here perceptions suggest that there is a tension and Latvia. Poland and notably Russia receive a less between low telecommunication costs and a high positive evaluation on this account. quality of service, whereby a good quality of service is obtained only at the expense of high Findings on security are consistent with the findings prices. regarding quality of service. These findings should, however, not only be interpreted in technical terms e-security but also in terms of the regulatory incentives given Fifty-seven percent of all enterprises indicated that to and obligations imposed on service providers by the available level of transaction security encouraged regulation. In this respect, it is revealing that the ICT usage, 14 percent stated the opposite and ranking of countries in this category remains about almost 30 percent responded that it either did not unchanged in the next sections dealing with the apply or they did not know. (See Table 86) On the regulatory environment. impact of authentication and certification systems on ICT usage, enterprises were less outspoken and commercial law and intellectual property certain. Although a large number of firms thought rights the existing system did encourage ICT usage (44 Forty-one percent of the firms claimed that com- percent), an almost similar percentage indicated mercial law was sufficient to encourage the use of "don't know" or "not applicable (43 percent)." A ICT, and 42 percent claimed that protection of remaining 13 percent stated that existing authentica- intellectual property rights was sufficient to encour- tion and certification actually discouraged ICT age ICT use. Compared to other factors, 23 percent usage. (See Table 87). of firms indicated that commercial law was not sufficient and 20 percent said the protection of intel- Available levels of network security were most lectual property rights was not sufficient. Thirty-four positively evaluated in Estonia, followed by percent of all enterprises indicated a "don't know" Lithuania and Latvia. Poland and Russia display the and 40 percent said "not applicable" (see Table 88 greatest levels of dissatisfaction. and Table 89). Existing authentication and certification systems are Prevailing commercial law is most appreciated in most positively evaluated in Estonia and Lithuania Estonia and Lithuania. Polish firms are very TABlE 4.13. Commercial Law and Intellectual Property country ratios: appreciation of policy and regulatory factors estonia latvia lithuania poland russia Average Commercial law in place 20.33 3.33 5.50 1.42 ­1.10 1.85 Protection of intellectual property 3.71 2.77 8.25 2.65 1.07 2.02 Survey Results and Analysis 53 TABlE 4.14. Tax and Financial Incentives country ratios: appreciation of policy and regulatory factors estonia latvia lithuania poland russia Average Taxation measures 14.33 1.57 2.86 ­5.81 ­5.0 ­2.02 Public financial support for R&D. diffusion or uptake 2.25 -­4.56 ­1.71 ­4.94 ­7.5 ­3.85 moderately positive. Russia is the only country in state that they are dissatisfied with taxation and which negative scores exceed the positive ones. financial incentives. Only in Estonia a majority of Protection of intellectual property is evaluated firms judged that public financial support for R&D, mildly positively overall. It is most positively diffusion and uptake was sufficient. evaluated in Lithuania, then Estonia and Latvia; Poland and Russia close the ranks. These findings are consistent with other levels of satisfaction with government intervention in, The regulatory regimes of the Baltic States are amongst other things, ICT regulation. In that sense, consistently perceived by our respondents as being they are revealing of the governments' attitudes the most favorable to electronic trade. The regula- towards ICT. However, another correlation can be tory measures of the Polish government are more established, namely with GDP per capita and often evaluated as being insufficient, but it may be available public funds to support industrial policies, hoped that the continuous efforts of the European thus revealing (inherited) material boundaries to Commission to harmonize regulations will have a proactive ICT policies. Accordingly, for the new EU positive effect. Particularly with regard to commer- member states in the survey, streamlining some of cial law, the Russian situation is a cause for concern. the EU structural funds towards innovation and stimulation of ICT will be highly appropriate in tax policy and Financial incentives light of previous relevant experience of the EU-15. On average, neither tax measures nor (direct) financial support for R&D were perceived sufficient Use of international loans can also be an option to encourage firms to engage in the use of ICT. although many of those are seen as too expensive in Forty-two percent of all enterprises even indicated light of the financial capabilities of the countries at that existing tax measures discouraged them to this stage. engage in ICT usage. For only 10 percent of all firms, public financial support was perceived sufficient to education encourage ICT usage. (See Table 90 and Table 91). About 44 percent of the firms indicated that the current education system delivered adequately The Russian and Polish firms are the most dissatis- trained personnel to engage in ICT usage and 28 fied with taxation policy. A significant majority of percent stated that the system delivered inadequately firms support the statement that taxation discour- trained personnel. Compared to existing staff skills aged the adoption of ICTs. By contrast, a majority and training of firm personnel, which for 69 percent of Estonian firms evaluate taxation policy positively, of all firms appeared sufficient to support the uptake followed by the Lithuanian and, at some distance, of ICTs, newcomers to the labor market still have a the Latvian enterprises. learning trajectory to go through. (See Table 92) A vast majority of the Russian firms, closely In all countries, except Poland, the education system followed by Polish firms, state that public financial is positively evaluated as adequately preparing for support was insufficient to support R&D, diffusion ICT usage by a significant but moderate majority of and uptake of ICTs. A smaller but still significant firms. In Poland, the number of firms stating that proportion of firms in Latvia and Lithuania also 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 estonia latvia lithuania poland russia Average Education system 2.19 1.33 2.2 1.03 1.89 1.55 usage is almost as important as the group that agrees the firms agree that the online provision of services with the statement that it is adequate. by government made ICT usage more attractive. The opinions of the Russian firms are more Figures on education deviate from the traditional divided. pattern with regard to the government's role in promoting ICT. For obvious reasons, ICT policies National differences in the appreciation of e- are not the only factor affecting this score, which is government services as a stimulating factor for the dependent on overall levels of pedagogical quality as uptake of ICT in the economy correlate relatively well. Most of all the speed of response of the well with other governmental efforts to stimulate educational system in the surveyed countries is still ICT. However, overall levels of appreciation are insufficient to accommodate the dynamism and the significantly lower than for other factors, indicating requirements of the businesses. This stems, in part, that the provision of online services is a relatively from the weak relationship between the business and weak stimulus for the uptake of ICT services in the education and R&D communities. It is the obliga- business community. tion of the government to create an environment that stimulates this relationship and hence makes Awareness, training and Demonstration the educational system more adaptive and flexible to programs the requirements of the businesses. Private programs to raise awareness of (the useful- ness of) ICT in firms and private demonstration e-government Services programs did on average contribute more to For 38 percent of all enterprises, government improve ICT usage than public programs. Almost provision of online electronic services made it more 21 percent of all firms indicated that private attractive to engage in ICT usage. Yet even more awareness raising and demonstration programs were firms did not know or stated that government online not sufficient. In other words, they could be e-services did not apply (altogether 49 percent). improved upon. Curiously, almost 13 percent of the firms stated that government online electronic services made it less This figure was almost 23 percent for public attractive to engage in ICT usage. (See Table 93) programs. 45 percent, respectively 41percent indicated a "don't know" or "not applicable" (See In all new EU member states and particularly in Table 94 and Table 95.) Estonia and Lithuania, a significant majority of TABlE 4.16. E-government country ratios: appreciation of policy and regulatory factors estonia latvia lithuania poland russia Average Government provision of online 17.5 3 9.33 3.29 1.28 3.03 electronic services Survey Results and Analysis 55 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 14.00 1.65 2.50 1.61 ­1.59 1.36 programs Private awareness raising & demonstration 9.00 1.60 4.67 2.24 ­1.02 1.79 programs 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 demonstra- positive in Russia with Lithuania, Latvia and Poland tion programs vary among countries, from very posi- in decreasing order on the middle positions. tive in Estonia to very negative in Russia. Overall, the role of government is more appreciated Scores for private awareness and demonstration with respect to awareness and demonstration programs are not significantly better in the top three programs than for training programs. Differences countries (the Baltic countries). In Poland, the between countries are following the general patterns: evaluation is slightly more positive for private both government and private programs score better programs than for public programs. In Russia, scores in countries that have higher average scores. are markedly better for private than for public programs. However, in its own right the score for In analysing and explaining these findings, it is private programs is not good either. Indeed, the necessary to link them to the wider policy environ- number of firms that state that private programs are ment for ICT and innovation. Accordingly, in the sufficient is approximately equal to those that said section below, we provide a more detailed analysis of they are insufficient. the relevant policy environments in the countries included in the study. Government training programs score negatively in all countries, with a majority of firms agreeing with 4.4.3 Policy Environments the statement that they were insufficient to support The enabling environment for ICT should be the uptake of ICT. The Estonian and Russian firms looked upon more broadly: the overall economic are the least negatives of all. The number of Russian and business environment and the government firms that reply "non-applicable" is markedly lower policy towards innovation and development of the than for Estonia, possibly indicating that participa- knowledge economy are contributing factors. A tion in government training activities is much case in point is Estonia where, alongside with the higher in Russia. efforts for economic transformation in the early 1990s, there has been a clear focus on innovation Private training programs are perceived far more and high-tech industries. In 1998, the Estonian adequate in supporting the firm's capacity in ICT parliament approved the Principles of Information usage. The contrast with government ICT training Policy that provided the basis for the Information programs is particularly striking (respectively 15 Policy Action Plan for establishing an information percent and 43 percent). Similarly, government society. Estonia has carried out among others ID, training programs are generally rated insufficient in public key infrastructure, state register reform and supporting the enterprise, against 19 percent for document management programs. Estonia has private training programs. (See Table 96 and Table 97) been using digital citizen ID cards to communi- cate with government agencies, for online bank- Private training programs are positively evaluated on ing, and for digital signatures since the beginning average, from very positive in Estonia to moderately 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 latvia's national e-government strategy was set out in the countries, and notably Estonia, is in part the result of concerted ef- document "latvia's e-Government Conception" adopted by the forts by the national governments to create business environments Cabinet of Ministers on 20 August 2002. In February 2005, more conducive to innovation and technological development the draft Information Society programme "e-latvia 2005­2008" and diffusion. Notably, the Estonian Research and Development was presented. The aim of the programme is to ensure the Strategy 2002­2006 represents a deliberate attempt to transform dynamic development and competitiveness of the country in the the Estonian economy from relying on cheap labor as a source knowledge-based economy. Priority areas include e-government, of competitiveness towards an innovation-based economy with e-learning, e-business and welfare, e-health, broadband and ac- high-quality human capital and innovation systems that support cess to services, and security. The 2004­2006 Structural Funds R&D, and the application of new knowledge in the interest of are currently supporting a program aimed at the development cultural, social, and economic development. This has included and improvement of e-government infrastructure at both state the facilitation of cooperation between traditional industry and and municipal levels, which also aims at providing the basis for new-economy sectors. The strategy builds on extensive R&D and e-government systems in rural areas.21 education reforms during the 1990s, which set in motion institu- tional 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. difficult to commercialize this potential. The Russian part in the world knowledge-based production is about 0.3 percent compared to about The Lithuanian e-government strategy was laid 36 percent of the United States and 30 percent of down in the Position Paper on E-Government Japan. The government of Russia has taken adopted on Dec. 31, 2002. On Dec.14, 2004, the innovation and technological development seriously Lithuanian Parliament endorsed the Program of the on its policy agenda. Since 2002 a number of policy Government of the Republic of Lithuania for 2004­ papers, laws and regulations have passed the 2008. One of its key aims is to "encourage the devel- Parliament and President Putin has personally opment of the IT and telecommunications sectors initiated some of them. The objectives in the field and to put the Lisbon strategy and e-action plan of ICT are to achieve ICT contribution to the GDP into practice." It also intends "to arrange for e- of 10 percent by 2008 and 5 percent contribution government services to be provided for both private to Russian exports (against about 0.3 percent at individuals and legal entities and to link state present). registers and information systems into a secure public institution network".18 An E-Gate for the Russian companies in the present study identify the government providing a one-stop shop to public following areas where improvements can be made: information was launched in 2004.19 public awareness and government support (espe- cially financial support) to ICT, and government Latvia is lagging behind not only the EU-average, regulations in the field of intellectual property and but its neighboring Baltic countries in a number of taxation. At the same time, it seems that private key indicators such as access to broadband, e- initiatives in the field of awareness raising and commerce and e-business development, low relative training are not filling the gap. It is important to rates of Internet usage at home and even in work- mention that Russia, unlike the other four countries places. "Observers point to problems related to in the study, is relatively far ahead with venture higher relative prices, low connectivity outside urban capital development, especially for high-tech, areas, as well as need for training related to new innovative companies. This fact is not reflected in Internet and information technologies. ICT related the results of the study for Russia. It can be due to innovation is largely confined to software applica- tions and systems, with ICT manufacturing 18 european commission (2005) "e-Government in the Member States of confined to assembly".20 the european union". Available at: http://europa.eu.int/idabc/en/docu- ment/4370/254. 19 policy brief: lithuania ict performance, europa.eu.int/comm/regional_ policy/ sources/docconf/gothenburg/doc/briefl_lithuania.pdf Although Russia contributes with about 12 percent 20 idem. to the world R&D potential, it appears still quite 21 policy brief: latvia ict performance, europa.eu.int/information_society/ activities/ gothenburg_conference/doc/pdf/brief_latvia.pdf Survey Results and Analysis 57 BOx 4.23. Case Study BOx 4.24. Case Study Barriers to innovative companies in Russia (the Key findings from case studies of innovative com- case of North-West Region)22 panies in Poland24 Results of a number of studies within the project show that there There is high potential for spin-offs from Academy of Sciences, are three main barriers for innovative SMEs: other R&D institutes and universities. Entrepreneurship is the main driving force to commercialize an 1. Weak and ineffective innovation infrastructure. innovative idea. 2. Insufficient skilled experts for innovation activities. Start up financed by the founders; in some cases public 3. lack of or difficult access to financial resources for innovation. research institutions play the role of incubators. Public funds for R&D in industry ­ limited; too long-term; evalu- The innovation infrastructure includes relevant training opportuni- ated on their R&D merits only; often bureaucratic procedures; ties, information sources, advisory services in marketing, finances, more applicable to public R&D units. commercialization of science, tendering, etc. The links between Financing in development phase ­ a problem: expensive innovative SMEs and R&D units or other companies are seen as credits of commercial banks; no venture capital for high risk insufficient and hamper the transfer of knowledge and information activities (such as R&D); PARP25 is the only source to support a along the entire innovation process. limited scope of activities. Need of intermediaries for: searching for foreign partners and Although there is a choice of R&D and highly qualified local international markets; export opportunities; participation in EU experts, there are additional qualities needed from the staff mem- programs. bers of innovative SMEs. These are: high professional culture and Cooperation with R&D public units and universities ­ a must: moral, entrepreneurship, commercial feeling. These qualities will there is a lag in practical orientation and commercial attitude need to be developed through relevant training courses. (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. 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 innova- the set up of the questionnaire where private tion in companies. funding is not explicitly mentioned. An e-government action plan for 2005­2006 was Polish companies miss almost the same stimulating adopted in October 2004 that is an outcome of the factors as the Russian companies do--namely tax broader e-Poland strategy for 2004­2006. Targets incentives, public financing/incentives, pubic include broad Internet access for all of the public awareness raising and training organized by public administration, providing local governments with institutions. Polish companies also find the educa- access infrastructure during 2004­2006 and tional system inadequate for the fast development of supporting local initiatives for broadband access their businesses. At the same time, the Polish through exchange of best practice. A key current government has been concerned with the promotion project is the "Gateway to Poland" (Wrota Polski), a of ICT and innovation in general. Promoting central e-government portal in Poland. It will be an information technology is described as an essential integrated platform supporting a number of task under the government program Improving interactive services, with user identification/ Innovation of the Economy in Poland by 2006.23 The authentication, electronic case handling and e- program was adopted by the Council of Ministers payments when needed. Pilot implementations are on July 11, 2001. Among the government information technology plans it is important to note the Plan of IT 22 Djarova. J, executive Summary in: White paper How to develop SME innovation business in Russia, Recommendations to Federal and Regional Implementation in Administration drawn up by the authorities, St. petersburg, 2004; withih the project "Promotion of Innovative SMEs in the Baltic Region of the Russian Federation" (financed by the ec) Minister of Interior and Administration that is 23 polish council of Ministers 2002 "improving innovation of the economy divided into five structural areas: telecommunica- in poland by 2006" 24 Djarova, J. conference presentation within the frame of the project tions, information technology, law, organization and `Strengthening government policy and institutional cohesion to enhance inno- vativeness of Polish economy before accessing the European Union' (financed safety. It should also be mentioned that Poland has by the Dutch Ministry of economic Affairs), 17 February 2005, Warsaw prepared an Innovation Act submitted to the 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 In interpreting these findings, it should also be taken `Malopolska Gateway').26 into account that even though they have been positively evaluated on average, many of these 4.4.4 Conclusions on Enablers and factors have also been obstacles for firms to engage Obstacles of ICT Usage in or to intensify ICT usage. Surmountable obstacles The observation of considerable outsourcing and for proactive players may be insurmountable for the insourcing of activities, as well as the absence of lesser players. Our findings therefore indicate an lock-in effects, are all indicators of an economy in order of priority (established by experienced users) motion and in which value chains are being re- but do not allow conclusions about levels of engineered. ICT plays a role as facilitator of this satisfaction in general. dynamism but, as explained in the previous sections, the usage of ICT as a tool for streamlining With regard to policy, along with education and commercial relations still holds a lot of unused training, taxation and fiscal policy was most potential. negatively looked upon. The provision of online government services may be considered an area to Considering that our sample is constituted of improve upon. Commercial law, intellectual proactive ICT users, it is not surprising that in- property and security policy are generally evaluated house know-how, skills and management attitude relatively positively. Telecommunication prices and are generally favourably looked upon. However, the quality of service are well appreciated. quality of public education and of public training is evaluated more negatively when it comes to preparing the workforce for ICT. 26 poland brief: poland ict performance, europa.eu.int/information_soci- ety/activities/ gothenburg_conference/doc/pdf/brief_poland.pdf Survey Results and Analysis 5 60 ICT, Innovation, and Economic Growth in Transition Economies ANNExES Annexes 61 62 ICT, Innovation, and Economic Growth in Transition Economies Annex 1 EBS Methodology 5.1 General Descrpton Bureau in collaboration with TNO and the OECD, involving a sample of 220 enterprises in four The EBS methodology was first applied in a mainly different sectors of the Belgian economy (for a qualitative form by the OECD in 2001 and formed summary see Verhoest et al 200328). the basis for the Electronic Commerce Business Impacts Project (EBIP). This study included 217 case studies covering 20 industry sectors spread out 27 Verhoest, p., Hawkins, r., Desruelle, p. et al. (2003) Electronic Business among 11 participating countries (Canada, France, Networks: An assessment of the dynamics of business-to-business electronic business in eleven OECD countries: A Summary Report of the e-Business Italy, Korea, Mexico, the Netherlands, Norway, Impacts Project (EBIS). Seville: iptS. (also available on-line: http://www.jrc. Spain, Sweden, and the UK). A summary of the es/home/publications/publications.html) 28 Verhoest, p., Huveneers, ch & Hawkins, r. (2004) e-business and enter- research findings has been published by the IPTS27 . prise's performances. paper for the echallenges e-2004 conference sponsored by the european commission, Vienna 27­29 october 2004 (http://www. A fully quantitative iteration of the EBS methodol- echallenges.org/2004/). preliminary findings presented at the oecD's Work- ogy was then applied by the Belgian Central Plan ing party on the information economy, paris 5­6 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 A: What are the characteristics of the enterprise? Module B: Which ICT applications are available in the enterprise? Module C: How are these applications being used in distinct business processes? Module D: To what effect are these ICT applications being used? Module E: How does the usage of these applications relate to the enterprise's business environment? Module 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 rela- tion 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 63 The big advantage of the EBS methodology is that it by comparison over time; before and after the ICT explores productivity and performance impacts of take-up. This method is more efficient and more technical change--ICT for this case--from the effective than using control groups, both in terms of general perspective of how businesses and industries resources used and results obtained. evolve relative to their specific product and/or service groups and markets. EBS therefore does not impose any a priori assumptions about how any 5.3 Talorng the EBS particular technology investment and any particular productivity or performance outcome are linked. Instead, the survey question routine is set up such 5.3.1 Adaptations to Previous Iteration that firms enumerate the impacts of ICT within the of the EBS business dynamics and within their own firm- For this study, we have adapted the basic EBS logic supplier-customer context. We believe that this and question structure of the EBS research instru- approach is especially appropriate for transition ment to the term of reference provided by the World economies, as it can both fill the existing data gaps Bank. In particular, we have specified new indicators and highlight its evolutionary development path at that are specific to labour productivity and competi- the same time. tiveness. We have also adapted EBS questions on the effects of innovation in business processes such that the responses will fit into the new scheme. 5.2 How to Deal wth the "Addtonalty" Problem? 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 A principal problem with all ICT impact measure- Information Economy Indicators to use OECD ment is how to separate the effects of ICT from all survey instrument questions on technology usage. of the other factors and forces that affect productiv- These have been used for survey calibration pur- ity--in other words, to show the additionality of poses, and to provide a baseline to compare results ICT as a specific outcome. In qualitative analysis of our survey with OECD data as possible and this can be determined to an extent through appropriate. The following changes have, inter alia, examples. But in quantitative analysis, these been added to the questionnaire: Limitations to the determinations are difficult, often requiring long initial length of the questionnaire which was data time series that typically are unavailable. In its considered far too long, accomplished by reducing quantitative form, therefore, a specific protocol is the OECD part of the questionnaire, in particular used during the data gathering process to check for (i) the questions on security, and (ii) the questions additionality (i.e. to establish the correlation on effects on performance, since we evaluate these between how technology has been applied and its effects in our own module D. effects). Respondents are asked to: Module D is based on categories and indicators used identify normally expected performance in the previous TNO study in Belgium. Module C parameters for specific business segments or was designed by TNO especially for this study. It product areas (e.g. expected growth rates, cost has not been tested but it is based on vested reductions, etc.); techniques and categories and indicators that derive benchmark themselves against these parameters directly from observations in our previous studies. during the period in which ICT applications Modules F and G are based on categories and were made; and techniques previously used by TNO in its OECD estimate the degree to which positive or negative studies. The World Bank added section G. outcomes could be attributed to ICT invest- ments. 5.3.2 Sampling Procedures It is important to note that the firms in our sample In other words, rather than benchmarking with a are not representative of the sector as a whole. control group of firms with no or low-level ICT, Instead firms were selected that can be labelled as additionality effects are determined on the firm level 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) looking at forerunners and therefore is representative intensely, successfully and for a period of time of of trends that are likely to affect the industry or minimally three years. In other words, our study is 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 How was IT investment Which factors facilitated What barriers were Output per worker replacing labor with capi- linked conceptually to the implementation of IT? encountered that delayed labor costs tal and/or increasing the productivity, competitive- (e.g. price of technology, or prevented implementa- Higher overall output per worker. ness and innovation? availability of solutions, tion or exploitation of IT production government assistance at the desired levels? Total revenues and How did IT investment (subsidies), policy and business costs impact (re)organization? regulatory impediments, (e.g. high technology Did the firms adjust their inward investment and software prices, lack competitiveness operations to utilize the of in-house implementa- Price levels Determined in terms IT? Or was it reorganiza- tion knowledge, lack of Sales volumes of price, quality, sales tion that promoted the IT government assistance, Market share volumes, market shares, investment? lack of inward investment Capital expenditure or access to domestic etc.) Number of `new' and global markets. Which internal and exter- customers nal factors influenced the Market access / decision to invest in IT? expansion (do the firms serve customers What were the expecta- in new regions tions? /countries, etc.?) innovation New or improved Determined in terms of products ability to establish new New or improved or improved products, processes processes and relational/ New or improved organizational structures business models 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. Annex 1: EBS Methodology 65 66 ICT, Innovation, and Economic Growth in Transition Economies Annex 2 Country Characteristics 6.1 Estona taking an increasing role and a more export-oriented focus. Estonia has been able to respond and adapt to Estonia has undergone significant socio-economic the process of globalization, and is one of the front- changes and experienced an average annual eco- runners of the 10 new EU member states in terms of nomic growth rate of 5.7 percent during the period e-connectivity with an overall Internet penetration 1994­2004. During this period, the structure of the rate of almost 50 percent. These trends also manifest Estonian economy significantly shifted, with services 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 0,07911 unit estonia Source remarks 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 month 7.91 Starman contractual download speed < 2Mbps Cable modem with month 79.11 Microlink contractual download speed >= 2Mbps E-mail month 3.88 Elion 5 email addresses Website month 7.83 Zone Mobile phones subscription per month 4.67 EMT minute 0.14 EMT Fixed telephony subscription per month 9.49 Elion minute 0.02 Elion Annex 2: Country Characteristics 67 Moreover, ICT has been given high priority by the employing over 4,000 people in the period 2001­ Estonian government, with a score of 5.3 out of 7 2002. on the latest World Bank benchmark. In addition, Estonia has a relatively sound R&D basis, with a Latvia was one of the most advanced regions in the comparatively high proportion of scientists and former Soviet Union in terms of telecommunica- engineers working in R&D. tions development. Today the country ranks 39 out of 75 of overall Readiness for the Networked World, which is significantly below Estonia, but above 6.2 Latva neighboring Lithuania. Internet penetration reached a little more than 35 percent in 2005. The relatively weaker ICT infrastructure is also evident in the Latvia faced an average annual economic growth prices of connectivity. rate of 5.9 percent in the period 1994­2004. The rapid rate of economic progress has been associated The relatively weak ICT infrastructure is in part the with a significant structural change, with services outcome of frequent changes in the government, taking on an increasingly dominant role in the and less priority given to ICT than in neighbouring economy as in Estonia. ICT is the fastest-growing Estonia. sector in the country and is among the three top national economic priorities, alongside timber and Moreover, the basis for innovation is rather weak in light industry. Hardware and services have Latvia compared to its Baltic neighbours, with a traditionally been stronger, but the total number of limited number of scientists and engineers working software development companies, some ISO- in research and development. certified, has grown to more than 100 and 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 month 70.95 latellekom etc) < 2Mbps DSl (ADlS,SDSl, VDSl month 229.95 latellekom etc) >= 2Mbps 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 Fixed telephony subscription per month 6.31 lMT GSM minute 0.32 lMT GSM 68 ICT, Innovation, and Economic Growth in Transition Economies 6.3 Lthuana 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 Notwithstanding these difficulties, the basis for decade, with an average annual economic growth innovation in the country is fairly good, with a rate of 5.1percent in the years 1994­2004. Again, comparatively large number of scientists and this economic progress has been accompanied by engineers working in research and development. structural change in the economy, with services taking on a more dominant role. However, the structural change in Lithuania is less pronounced 6.4 Poland than in the other Baltic countries. This may partly be the result of Lithuania's role as a leading manu- Although Poland was one of the better performing facturer of electronics in the former Soviet Union. transition economies in the 1990s, recent years have proven more difficult with lower growth and high Although the technological heritage provides the levels of unemployment. In the years 1994­2004, country with a favorable infrastructure for ICT Poland thus had an average annual economic growth development, notably hardware, the research of rate of 4.1 percent. The structural change accompa- Readiness for the Networked World conducted in nying the transition process has been characterized 2001­2002, ranked Lithuania 42nd of 75 countries. by a growing services sector. In addition, the Moreover, the study ranked Lithuania 58th in the e- economy has become more open, with significant commerce micro-index, while the country's ranking increases in trade as indicated by an average annual on ICT policy was 67. Such rankings are reflected in growth in exports of 10.8 percent from 1994­2004. indicators of the ICT infrastructure, with--for example--an Internet penetration of approximately With regard to the ICT infrastructure of Poland, 28 percent in 2005. Accordingly, Lithuania has had there has been a significant increase in ICT expendi- greater difficulties than both Estonia and Latvia in ture 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 0,35858 unit price remarks Source Analog modem minute 0.01 AB lietuvos Telekomas ISDN month 7.17 For 40 hours of con- AB lietuvos Telekomas nectivity Other narrowband Kb 0.0032 Omnitel DSl (ADlS,SDSl, VDSl month 13.63 70 USD installation AB lietuvos Telekomas etc) < 2Mbps costs DSl (ADlS,SDSl, VDSl month 41.95 90 USD installation AB lietuvos Telekomas etc) >= 2Mbps costs Mobile phones subscription per month 0.72 Omnitel minute 0.10 Omnitel Fixed telephony minute 0.14 AB lietuvos Telekomas Annex 2: Country Characteristics 6 TABlE 6.4. Overview of all Prices in Poland All prices quoted in USD poland unit price Source remarks Analog modem minute 0.013 Telekomunikacja Polska S.A DSl (ADlS,SDSl, VDSl month 25 Telekomunikacja Polska 25 USD etc) < 2Mbps installation costs DSl (ADlS,SDSl, VDSl month 92.25 Telekomunikacja Polska 130 USD etc) >= 2Mbps installation costs Cable modem with month 27 UPC Telewizja Kablowa 92 USD contractual download installation costs speed < 2Mbps Cable modem with month 50 UPC Telewizja Kablowa contractual download speed >= 2Mbps Mobile phones GPRS 10 kb of data 0.0738 Polska Telefonia Cyfrowa operating Era GSM network (WAP ­ Wireless Ap- plication Protocol) 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 infrastruc- 3.2 percent. As with other transition economies, the ture in Poland is relatively poor, as evidenced by an decade of change has also seen significant structural Internet penetration of only 28 percent in 2005. changes, with services becoming more dominant. The relatively poor ICT infrastructure is in part However, it should be noted, that the manufactur- related to the low government prioritization of ICT ing sector was, and remains, more significant in in Poland, with the World Bank estimating a score Russia than in the other countries included in this of only 3.6 on a scale of 7 in 2002. The prices for study. connectivity in Poland are presented below. A relatively slow pace of ICT development is In addition, the country has a comparatively low reflected in the comparatively weak ICT infrastruc- number of scientists and engineers working in ture in Russia. Hence, Internet penetration reached research and development, suggesting that the only a little more than 15 percent in 2005. As for overall foundation for developing, applying and the ICT sector, it contributes to approximately utilising ICT for innovation and economic growth 1 percent of GDP, and according to some assess- is weaker in Poland than in some of the other ments, the development of ICT in Russia is lagging countries that are analysed in this study. behind that of the leading Western countries with some 5­10 years. The prices for connectivity in Russia are presented in the table below. 6.5 Russa The number of people employed in scientific jobs was significantly reduced in the period 1990­2001, Among the countries included in this study, the with an associated significant reduction in spending Russian economy has experienced the most difficult on science. In addition, the foundation for innova- transition process in the last decade. These difficul- tion in Russia is further limited by the poor ties are reflected in the comparatively low average commercial application of scientific knowledge, with annual economic growth rate from 1994­2004 of 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 price remarks Analog modem minute 0.01 month 20 ADSl < 2Mbps month 30 ADS >= 2Mbps month 150 Cable modem with contractual month 50 download speed < 2Mbps Cable modem with contractual month 150 download speed >= 2Mbps Other broadband with contractual 200 some users of broad- download speed >= 2Mbps band connections are instead charged 0.02­0.07$/Mb E-mail month 10 minute 0.02 Fixed telephony subscription per month 50 applied in commercial settings during the last 10 successfully developing, applying, and utilizing ICT years. Accordingly, of the countries included in this for economic growth. study, Russia appears to have the weakest basis for Annex 2: Country Characteristics 71 72 ICT, Innovation, and Economic Growth in Transition Economies Annex 3 Regions 7.1 Poland (almost 17,000 students); Pomerania Pedagogical Academy in Slupsk (almost 10,000 students); and 7.1.1 Pomorskie Region the Marine University in Gdynia (more than 8,000 students). The Pomorskie Region in Poland is located in the Northern part of the country. The regional economy 7.1.2 Mazowieckie Region is dominated by shipbuilding, oil refining, electrical, The Mazowieckie Region is located around the transport, fishing and tourism. According to the capital city of Warsaw. The regional economy is latest official data of Polish Official Statistics (GUS), dominated by food, automotive, oil, chemical there were 226,329 business entities in the region29. (mainly pharmaceutical), publishing, energy, Roughly 3,221 of these enterprises had a share of telecoms, banking, finance, insurance and IT. foreign capital30. According to the latest official data of Polish Official Statistics (GUS), there were 575,598 business The region benefits from a number of advantages, of entities in the region. Roughly 17,090 of these which the most important are: enterprises had a share of foreign capital31. a diversified economy; The region benefits from a number of advantages, of a developed SME sector; which the most important include the following: the tri-city metropolitan area (Gdask, Gdynia and Sopot) is one of Poland's main centers of It is an area with a large concentration of economic growth, and an important transporta- companies and the highest level of income per tion junction; capita. a maritime location; It is in the trans-European transport corridors; the presence of high-tech industries; has well-developed railway network and the strong agricultural potential of the ulawy largest airport in the country, ensuring connec- region; tions with large cities in the country and in a young, well-educated labor force; Europe. a large and differentiated raw material resource It is an area with the highest innovation levels. base; Outlays on R&D activities are one of the highest export capacities of the shipbuilding industry; in the country. and The region is often visited by foreign tourists, an attractive region for tourism. thanks to advantageous connections with other European cities, high quality of hotel, transport, Notwithstanding such advantages of the regional telecommunication and financial services. economy, there is a high unemployment rate of In economic and cultural terms, the voivodship more than 20 percent. Among the employed, almost is dominated by Warsaw--capital of the country 23 percent work in industry and more than 15 and the region, as well as city of international percent in trade and repair. importance. The regional innovation system benefits from several universities, of which the most important are 29 GuS ­ Statistical yearbook of the regions 2004 ­ poland. See page 637. the University of Gdask (more than 27,000 30 pomorskie region profile. See http://www.paiz.gov.pl/index/ students); the Technical University of Gdask ?id=f2fc990265c712c49d51a18a32b39f0c. 31 GuS ­ Statistical yearbook of the regions 2004 ­ poland. See page 637. Annex 3: Regions 73 Warsaw is characterized by high levels of inward It has active cross-border cooperation, thanks to investment, a large pool of qualified labor and the proximity of the Czech and Slovak borders. high rate of privatizing the state sector. The Warsaw Stock Exchange is the largest bourse Despite these advantages, the regional unemploy- in Central Europe. ment rate is more than 20 percent. Among the people employed, almost 30 percent are working in Compared to the country as a whole, the region has industry, and a further 16 percent are employed in a fairly low unemployment rate of approximately 16 trade and repair. percent. Among the employed, more than 30 percent are employed in either industry or trade and The regional innovation system benefits from several repair. universities, of which the largest are the Silesian University in Katowice (more than 40,000 stu- The regional innovation system benefits from several dents), the Technical University of Czstochowa universities, of which the largest are Warsaw (more than 22,000 students), the Technical University (more than 50,000 students), Warsaw University of Silesia (almost 30,000 students), the University of Technology (more than 30,000 Academy of Technology and Arts (more than 5,000 students), Kazimierz Pulaski Technical University in students), the Karol Adamiecki Academy of Radom (almost 20,000 students), Warsaw School of Economics (more than 12,000 students) and the Economics--number of students (more than 12,000 University of Marketing Management and Foreign students), Warsaw Agricultural University (almost Languages in Katowice (more than 11,000 stu- 18,000 students) and University of Commerce and dents). Law in Warsaw (more than 10,000 students). 7.1.3 Slaskie Region The main city of the lskie region is Katowice. The 7.2 Russa regional economy is dominated by mining, iron, lead and zinc, metallurgy, power engineering, 7.2.1 Moscow automotive, chemicals and textiles industries. The regional economy around the capital city of According to the latest official data of Polish Official Moscow is dominated by mechanical engineering, Statistics (GUS), there were 424,031 business the food industry, the electric power industry, the entities in the region. Roughly 4,105 of these fuel industry, the chemical and petrochemical enterprises had a share of foreign capital32. industry and forestry, wood processing and pulp- and-paper. The region benefits from several advantages, the most important of which are listed below: In 2004, the fastest growing sectors were food (7.7 percent), light (15.9 percent), non-ferrous metal- It is the most industrialized and urbanized region lurgy (21.7 percent), mechanical engineering & of Poland. metal working (21.4 percent), building materials It has a large market--almost 5 million consum- industry (2.9 percent), forestry and wood processing ers and many large companies. (4.2 percent). It has a comparatively good road, railway, and telecommunications infrastructure; The level of registered unemployment is 0.6 percent International airport "Katowice" in Pyrzowice (February 2005), while an employment study done ensures domestic and international flight by Moscow Statistical Committee showed that the connections. real unemployment rate is higher, at around 1.1 It has a broad range of sectors where investment percent. Among the people employed in large and opportunities exist: industry, services, develop- medium-sized enterprises, 12 percent were em- ment and modernization of infrastructure, ployed in processing industries, 12 percent in tourism, agriculture. education, 11 percent were working in transport It has a well-developed and diversified R&D base (over 30 universities, numerous R&D units, 200 000 students). 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 percent of the total sum of profits received in the performing research and development, 10 percent in economy of the city. health and social care, 8 percent in wholesale and retail trade and 6 percent in construction. The basis of the industry of Saint Petersburg is dominated by mechanical engineering enterprises, Among the large- and medium-sized enterprises, the producing technically complex high technology largest increases in the number of employees production, and enterprises from the food industry. between February 2004 and February 2005 were in There are about 700 large industrial enterprises and wholesale and retail trade, financial services and more than 12,000 thousand medium and small construction. enterprises. 7.2.2 Saint Petersburg Approximately 39 percent of all industrial produc- Saint Petersburg is the largest industrial center of tion in Saint Petersburg is produced by private Northwest Federal district that accounts for 30 companies, while more than 31 percent is by joint percent of the total amount of the industrial output Russian and foreign companies, more than 18 of this district. The city is one of the largest diversi- percent by foreign enterprises and 5 percent by fied industrial complexes of Russia. The industry of mixed Russian (without foreign capital) firms. The Saint Petersburg employs more than 20 percent of share of the state-owned enterprises represents the population and contributes 26.3 percent of tax slightly more than 6 percent of the total volume of revenues in the budgetary system and almost 45 industrial production. Annex 3: Regions 75 76 ICT, Innovation, and Economic Growth in Transition Economies Annex 4 Selection Criteria for Sectors A. Growth Potental and/ information component products; simple and/or or Strategc Importance for standardized products versus complex products and/ Economc Development or variable product specifications. Sectors have been selected on the basis of an assessment of their current and future importance C. ICT and Innovaton Content for the national economy, taking into consideration and Intensty sectors with a particularly high growth potential and/or strategic importance for general economic Past experience indicates that it is important to development in the country concerned. select firms where the level of ICT application is known already to be reasonably extensive and where Current sector performance and growth potential the applications are diverse enough to encompass were taken as a point of departure for the selection SMEs as well as large companies. The supply chain of key sectors. Not only economic performance and (value system) dynamic is known to be a key growth per se (i.e. income and wealth creation), but component of productivity effects. Firms that have also employment growth potential (including which been using ICT actively, for a relatively long period quality segments) are important variables, viz. the and success are more indicative of future trends and phenomenon of "jobless" growth. Indeed, improved possibilities. The selection of sectors was made overall labor participation is a key factor to develop- having in mind a more or less comparable distribu- ment, particularly so in transition economies. tion between sectors in terms of ICT intensity and assets between the countries. Both ICT-producing and ICT-using firms have been taken into account, B. Potental for Cross-country with an emphasis, however, on ICT-using manufac- Comparsons & Extrapolaton turing and services. of Fndngs 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 TABlE 9.1. Sector/product Category all five countries. The basis for comparison lies in Selection Matrix shared product characteristics. To this end, our ict producing ict using sampling method uses matrices comprising different Manufacturing A C dimensions such as: goods and/or low information component products versus services and/or high Services B D Annex 4: Selection Criteria for Sectors 77 78 ICT, Innovation, and Economic Growth in Transition Economies Annex 5 Selected Sectors .1 Dstrbuton by Country/ A good fit with the final pre-specified list of Regon product groups/sectors in each of the countries and regions. Balanced and representative representation of The table below shows the distribution of companies firms according to size (micro, small, medium per country/region and sectors over the whole and large enterprises) and in accordance with the sample of 620 firms. structure of the sector concerned. Adequate attention for foreign direct investment The final selection of firms and the downsizing of and foreign-owned enterprises, but an emphasis the long list to practical shortlists for interviewers on domestic enterprises. are based on a number of criteria: TABlE 10.1. Distribution of Companies per Country/Region and Sectors country region Secondary sector tertiary sector Estonia Tallinn and Tartu Food ­ 17 Retail ­ 11 (69) region Furniture (wood value chain) ­ 12 (incl. 9 wood products, Banking ­ 7 3 furniture) ICT services ­ 12 ICT equipment ­ 4 transport ­ 1 others ­ 5 total 69 33 36 latvia Riga region Food ­ 7 Retail ­ 7 (70) Furniture (wood value chain) ­ 15 (incl. 5 wood products, Banking ­ 17 10 furniture) ICT services ­ 5 Chemicals ­ 2 publishing ­ 2 Heavy machinery ­ 1 construction services ­ 1 light machinery ­ 1 transport ­ 1 ICT equipment ­ 0 others ­ 5 construction materials (incl. basic metals) ­ 6 total 70 32 38 lithuania Klaipeda-Vilnius Food ­ 8 Banking ­ 12 (57) corridor Furniture (wood value chain) ­ 0 Retail ­ 6 Automotive industry ­ 10 ICT services ­ 0 Textiles ­ 9 construction services ­ 2 ICT equipment ­ 1 others ­ 1 construction materials (incl. basic metals) ­ 3 light machinery ­ 3 Heavy machinery ­ 2 total 57 36 21 Poland Mazowieckie Food ­ 5 Banking ­ 7 (Warsaw) (63) Automotive industry (manufacturing and repair) ­ 0/4 Retail ­ 21 Construction materials ­ 7 ICT services ­ 15 ICT equipment ­ 1 construction services ­ 1 Heavy Machinery ­ 2 (continued on next page) Annex 5: Selected Sectors 7 TABlE 10.1. Distribution of Companies per Country/Region and Sectors (continued) country region Secondary sector tertiary sector Poland Slaskie Food ­ 4 Banking ­ 0 (Katowice) (60) Automotive industry (manufacturing and repair) ­ 4/9 ICT services ­ 9 ICT equipment ­ 0 retail ­ 5 Machinery/light machinery ­ 6/3 transport ­ 20 Poland Pomorski Food ­ 17 Banking ­ 0 (Gdansk) (77) Shipbuilding ­ 20 Transport ­ 17 ICT equipment ­ 0 ICT services ­ 9 Chemicals ­ 5 retail ­ 2 Machinery/light machinery ­ 1/1 construction services ­ 1 other ­ 4 total 200 89 111 Russia St Petersburg Food ­ 18 Transport ­ 9 city (124) Furniture (wood value chain) ­ 17 (incl. 5 wood products, ICT services ­ 15 12 furniture) retail ­ 14 Paper (wood value chain) ­ 1 publishing ­ 5 Machinery / light machinery 20/1 construction services ­ 1 Construction materials ­ 13 others ­ 4 ICT equipment ­ 0 Motor vehicles incl. shipbuilding ­ 2 chemicals ­ 4 Russia Moscow city Food ­ 13 Transport ­ 1 (100) Furniture (wood value chain) ­ 8 (incl. 6 wood products, 2 furniture) ICT services ­ 16 Paper (wood value chain) ­ 3 retail ­ 16 Machinery / light machinery 14/1 construction services ­ 1 Construction materials ­ 19 others ­ 4 ICT equipment ­ 2 repair motor vehicles ­ 3 total rF 224 136 98 total 620 326 294 Pro-activeness of firms as measured by degree of Estonia, the food sector benefits from opportunities innovativeness and (a priori assessed) successful- for expanding business activities across borders and ness in applying ICT over the last three years. increase exports to other EU countries. Indeed, with the new opportunities arising with EU membership, coupled with increasing domestic .2 Selected Key Sectors: demand, the future prospects for the Estonian food sector are generally considered good. However, in some Stylzed Facts and order to fully exploit the opportunities associated Fgures by Country with EU membership, the sector must address some critical weaknesses, such as the limited number of suppliers and the problem with rapidly aging and 9.2.1 Estonia occasionally infected products that have a negative impact on sales and the reputation of the Estonian Food food sector. The Estonian food sector has undergone a compre- hensive renewal process during which equipment Furniture (Wood) for production processes has been modified to meet Wood is the number one export article and the most the EU requirements. The biggest production shares valuable natural asset to Estonia. Almost 25 percent in the food sector are dairy and drink products. of all exports are wood and wooden products--i.e. Those two types of products also represent the best furniture. A very large investment has been made in export articles. With the recent EU membership of the center of Estonia, where the biggest sawmill is 80 ICT, Innovation, and Economic Growth in Transition Economies country region primary sector Secondary sector tertiary sector Estonia Tallinn and Tartu region Food Retail Furniture (wood value chain) Banking ICT equipment ICT services situated. Furthermore, furniture producers have Sweden--the growth of retail business is unlikely spent a lot of time on design and testing to fulfill the to slow down. Besides, the Estonian population is needs of clients. Over the past few years, more and saving less and spending nearly all of their in- more Estonian-made furniture has been used all over comes, which, in part, explain Estonia's economic the country (private and public office spaces, growth. schools, universities etc.). As a result, the volume of sales and exports has increased more than other banking production categories. Accordingly, the future The banking sector is of critical importance to the prospects of the furniture (wood) sector are gener- Estonian economy, as a well functioning economy ally considered bright and promising. However, as requires a sophisticated and functioning banking with other sectors in Estonia, the furniture sector system. The Estonian banking sector has developed struggles with a limited number of suppliers. fast internally and externally. Services have reached Moreover, the sector suffers to some extent from a high levels, with competition now increasingly based reputation of producing goods of low reliability and on the interest offered on loans. Externally the durability. development is mainly about opening new branches in the Baltic States and in Russia. As for the future ict equipment of the sector, the main threat to the domestic banks ICT equipment has only been of significance to is the potential entry of European competitors into the Estonian economy in the last five years. Due to the Estonian market. Estonia's status as a pioneer among transition countries in the field of ICT, that sector has ict Services experienced significant growth during the last five The ICT services sector does not differ much from years. The sector has, in particular, gained a the ICT equipment sector, in so far as it is often the competitive advantage from low prices combined same companies that are involved in the two with good know-how in building computers, sectors--e.g. Microlink Computers and Fujitsu- servers and other equipment compared to Western Siemens. The last 5­10 years have seen a noticeable Europe. With Estonia's membership of the EU, the increase of companies that are oriented towards ICT opportunities for exploiting this competitive services. Those firms are mainly micro-enterprises advantage have improved. However, the future and do not have a substantial influence on the growth of the sector is constrained by a lack of market. The level of ICT knowledge of Estonian affordable skilled labour, with skilled workers companies (i.e. employees) is comparable to Western becoming more expensive or even leaving the European countries. Although a key threat for the country. sector is the attraction of higher salaries abroad, there is no reason to predict a shortage in IT retail personnel during the next few years. Rather, the For the retail sector, success is mostly dependent future prospects for the sector look good and the on best location, rental prices, and potential demand for ICT services is continuing to increase clients. During the past years several new shopping due to the technological developments and growing areas have been constructed and more internation- use of ICT. ally 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 Annex 5: Selected Sectors 81 9.2.2 Latvia It is of interest to note that every year the share of higher value-added products in total exports Food increases. Until the collapse of the Russian economy in the late 1990s, this sector was the largest part of Latvia's chemicals manufacturing total, with nearly 45 percent of total The chemical industry in Latvia has a long tradition, production. The food-processing sector has been hit and the sector contributes 5.5 percent of industrial heavily by the adverse economic situation in Russia, production and employs 6,500 people. The main upon which it relied heavily for exports. However, areas of manufacturing of the Latvian chemical according to the forecasts of a study ("The overview industry are fibres, pharmaceuticals, paints, var- of food trade market in Latvia" by Marketing a nishes, soaps, cosmetics, rubber and plastic prod- Konsultaciju Centers SIA), the food industry in ucts. More recently, oil and natural gas chemistry, Latvia has a bright future in the long-term and there which is supported by the stable transit of oil and are good prospects. gas through Latvia, are becoming areas of impor- tance to the chemicals sector. The positive outlook for the sector is further indicated by the attraction of foreign investments, The Latvian chemical industry has been attractive to and till the end of the year 2001 the sector received many companies around the world, and has already 70 million from foreign investors, mainly Swedish, invested 41 million. In addition, the largest British and Finish. pharmaceutical companies in Latvia aim tot serve international distribution channels, for which they Furniture (Wood) have an advantageous position in the center of Furniture manufacturing makes up 36 percent of Europe. Latvia's timber industry. The value of the furniture manufactured in Latvia for 2003 in comparison light Machinery with 2002 has increased by 11.3 percent, and the There has been considerable restructuring in the sector employs approximately 12,900 people in machinery and electrical equipment sectors in Latvia about 400 mainly small and medium-sized enter- over the past decade. The region was heavily prises. Almost 80 percent of the furniture was dependent on trade with Russia and foreign exported, mainly to Denmark, Germany, and companies have taken the opportunity to supply United Kingdom. There are good opportunities for machinery and equipment to the country, and to the development of furniture manufacturing in identify and use Latvian subcontractors. Latvia, but the main priorities for the realization of these opportunities are investments in human Latvia has a long tradition of mechanical engineer- resources and technologies. ing and metalworking, with many such companies having been established to use Latvia as a route to Latvia's forest sector is explicitly focused on the the Russian market. The output of machinery and external market, since it exports approximately 70 electrical equipment in Latvia has been approxi- percent of the production to more than 50 different mately 60 million per annum, representing some countries all over the world, but mostly to the EU. 6 percent of total manufacturing output, though country region primary sector Secondary sector tertiary sector latvia Riga region 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 loans since 1996. Experts estimate that the financial reduced demand from Russia. This further illustrates market in Latvia will maintain the same growth the continued dependency of the sector on the speed, considerably higher than average indicators Russian market. on the EU, for at lest 3­8 more years (as of 2005). ict Sector ICT equipment and services is the fastest growing The Latvian banking and insurance market is economic sector in Latvia with a yearly growth rate dominated by important regional players (e.g. of 20­30 percent during the last decade. Exports of Förenings-Sparbanken, SEB, Nord/LB, Nordea) the sector have been rapidly increasing in recent who are present either as owners of, or important/ years with an annual growth rate of approximately majority shareholders in banking operations initially 15 percent. The industry's main asset is highly established locally. However there are still a number qualified human resources with more than 8,000 of niche opportunities within the domestic financial graduated ICT specialists and an additional 6,000 in services market, especially in the field of corporate universities and colleges. The key competence area banking. Particular growth within the banking of the Latvian ICT industry includes customized IT sector is expected in the financing of loan opera- solutions, financial applications, localization, tions, export/import deals and online banking. It is implementation of large-scale projects, and applica- expected that the most rapidly growing insurance tion services. Besides the development of software, markets will be services related to corporate and Latvian ICT companies offer integrated solutions in social insurance. Growth is expected also in new and complex areas like project implementation, business yet not thoroughly explored areas such as pension process engineering and business strategy. The and investment funds. The most important driving competence of Latvian ICT sector has been proven force for further growth remains the constants by the successful outsourcing activities of IT giants increase of purchasing power and overall economic like IBM, Microsoft, Unisys, Sybase, Lotus, and activity in the country. This, in combination with Sun, as well as by the acquisition of Latvian the stable, conservative monetary policy of the Bank companies by Exigen, TietoEnator and others. of Latvia makes Latvia an attractive financial environment. Key advantages of the sector are the These developments also reflect Latvia's full embrace stable monetary policy, constantly growing purchas- of the Information Age. Latvia has embarked on an ing power and demand for financial services (source: ambitious plan to become the recognized regional LIDA). leader in the information technology and telecom- retail munications sector. Latvia offers a wide range of opportunities for ICT businesses, with Latvian The retail sector in Latvia has been growing steadily software companies having developed excellent skills during the last few years with a growth rate of in developing major systems, and is successfully around 12 percent per year on average. The struc- providing ERP (enterprise resources planning system) ture of the sector has changed dramatically, as five implementation services to Western companies. years ago more than half of the turnover came from food-products, but now around 65 percent of the The unique mix of strong industrial traditions in retail turnover comes from non-food products advanced systems and software engineering, well- (Ministry of Economics of Latvia). Some of the developed transport infrastructure and skilled IT retail sub-sectors like textile and clothing, building, professionals, suggests Latvia is the ideal hub for and household goods and appliances had a growth high-tech manufacturing. Latvia is thus an attractive of around 30 percent last year (Central Statistical location for outsourcing the development of E- Bureau of Latvia). commerce solutions, and for the development of web-design and web hosting. The high growth in retail trade in Latvia in the last few years is explained by the growth if people's banking incomes and by the development of crediting and Constituting almost 16 percent of the FDI stock leasing services. Also development of retail trade (2003) the banking (financial services) sector has networks and distribution of bigger quantities of experienced remarkable growth rates with tripled goods through retail companies have influenced the commercial bank assets and a six-fold increase in growth of retail trade in Latvia. The changes of the Annex 5: Selected Sectors 83 structure of the retail sector are linked with changes total value of 825 million Euros. Exports from the in consumption structure triggered by the growth of ICT equipment sector amounted to 350 million people's incomes. However, the majority of changes Euros in 2004. in the retail trade structure were determined by difference in the dynamics of consumer prices in The internationalization of the secondary sector is various groups of products. The turnover has further reflected in increasing foreign direct increased most rapidly in enterprises trading clothes, investment, with the manufacturing sector receiving footwear and textiles comprising 36 percent, and cumulative foreign direct investment (as of 2002) of household goods up by 32 percent (www.ambriga. almost 600 million Euros. um.dk). Key advantages of the sector are rapid real- estate development; continuously growing purchas- tertiary sector (banking, retail, ict Services) ing power, demand for more qualitative better Banking and ICT services belong to the classifica- products and services and competition among big tion of financial intermediation and business retail and wholesale chains. services activities that has 8,573 companies and constitutes a share of 14 per cent of the total, and 9.2.3 Lithuania contributes 2 billion Euros to the economy, equivalent to approximately 11 percent of total Secondary Sector (Food, Furniture, Automotive GDP. The retail sector is part of wholesale and retail industry, textiles and ict equipment) trade section, which has the most number of Manufacturing in Lithuania comprises some 9,000 enterprises--24,804 that is equivalent to a share of companies (14.8 percent of total), of which 24 are 40.6 percent of the total. larger than 1000 employees, which is remarkable for Lithuania compared to other Baltic States. Industry, As with the secondary sector, the tertiary sector is which includes furniture, automotive industry and becoming more internationalized. This is primarily textiles, contributes 4.2 Billion Euro to the national reflected in significant amounts of foreign direct GDP, equivalent to 23.5percent of total GDP. The investment, with wholesale and retail receiving total productive activities, which include the food sector, cumulative foreign direct investment (as of 2002) ICT equipment and retail sector contribute 5.3 of more than 450 million Euros, equivalent to billion Euros, approximately 30 percent of total almost 20 percent of the total foreign direct GDP. investment to Lithuania. The equivalent figure for financial intermediation is almost 500 million The secondary sector is also becoming increasingly Euros, while post and telecommunication received internationalized, with growing exports. Hence, the more than 350 million Euros in foreign direct food industry exported a total 693 million Euros in investment. 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 primary sector Secondary sector tertiary sector lithuania Klaipeda-Vilnius corridor 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 annually (e.g. Zafira). Fiat has been manufacturing its cars in the southwestern region of Tychy (lskie Food Sector Region) for several years now and will continue The blossoming of the food sector began at the start activities here (the new Cinquecento model will be of the 1990s when the role played by private capital assembled only in Poland). Other car companies increased significantly33. In the 1980s, the state presently assembling cars in Poland include controlled 80 percent of the food industry. This fell Volkswagen, in Pozna. in the 1990s to 15 percent. Inflows of the foreign capital helped to accelerate development and lift the Machinery standards of companies in the sector. By the end of In the 1990s the highly centralized bureaucratic 2000 about $5 billion in foreign investment had machinery industry was reorganized into a large been directed to the sector (by comparison, the number of small and medium-sized private firms. whole Polish industry in this period accumulated The reorganization targeted mainly but not solely at about $20 billion). Investors were mainly interested expansion of the housing construction industry. The in the Polish sugar production, tobacco, beer second goal of this reorganization was to revive companies and meat industry. The largest foreign demand for relatively modern and sophisticated investors in the food sector are: Coca Cola Hellenic construction machines that Polish industry was able Bottling Company, Germany's Reemtsma to produce. Currently this sector becomes subject of Cigarettenfabrik GmbH, the U.S.'s Philip Morris, many foreign investments, e.g. Whirlpool invested in Swiss Nestle, U.S. Pepsico and Dutch Harbin BV Polar in Wroclaw, Merloni, Bosh and Siemens in the and Heineken. neighborhood of the second Polish town--Lód, etc. Automotive industry ict Sector Poland has become one of the most attractive Some Polish computer companies have developed markets in Europe for companies engaged in the strongly: Prokom, ComputerLand, Softbank and automotive industry34 (however, competing strongly Comarch are among the biggest companies. All are against Slovakia, Czech Republic and Hungary). listed on the Warsaw Stock Exchange and are also Several multinational auto companies are manufac- investing abroad. turing or have announced firm commitments and plans to open their factories in Poland. General The value of the Polish IT market is estimated at Motors' Opel Division has completed construction about $2.7 billion, excluding telecom operators. The of modern car manufacturing operation in south- western Poland, in Gliwice near Katowice, where it manufactures approximately 140,000 latest models 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 85 dynamic growth in the value of this market is Norway, Denmark. Stocznia Szczeciska Nowa, over therefore huge, the largest in the Polish economy 50 years old, has built more than 600 ships. It and many times higher than the rate of the national specializes in building large chemical tankers and GDP growth. container ships. The IT branch structure has also changed, with the banking share of hardware production and sell falling--from Most banks in Poland operate as multipurpose 62 percent in 1997 to almost 43 percent in 2000, institutions. They are involved in various types of with sales of services and software growing, respec- deposit taking and financing activities, offering a tively, from 38 percent to more than 57 percent. wide range of commercial and personal banking services. Many of them are also active on the Internet is another factor that makes the IT sector capital markets through their own brokerage growth even more dynamic. It is estimated that houses. Some of the banks are involved in invest- between 6 and 8 million people in Poland have ment banking activities, such as underwriting access to the Internet (while in 2000 it was 1 issues of bonds and stocks, or advisory services. million). Additionally, as research centre findings The number of banks offering i-banking services indicate, the number of connections to the has also increased. Internet is rising very rapidly, both among private and corporate users. Results of the research show The banking network has been developing very fast that about 60 percent of the Polish enterprises for a few years. In 2000, the domestic office network thought they could not develop without the of commercial banks (excluding head offices and Internet. representative offices) comprised over 2,400 branch offices and over 8,600 other offices (sub-branches, Shipbuilding customer service offices, etc.). Moreover, co- Polish shipbuilding expanded rapidly in the 1960s operative banks operated just over 2,000 offices, and 1970s, spurred by the Soviet drive to become a including 1,148 branch offices. Investments in maritime "superpower"35. In the 1980s the industry ATMs (Automatic Teller Machines) are progressing included six shipyards, 21 equipment factories and at an even swifter rate. By the end of 2003 their three research and development centres, altogether number exceeded 6,000. employing about 57,000 people. In that decade, Poland became the fifth largest producer of ships in To meet the challenges of growing competition, the world, exporting most of its products to the Polish banks are investing heavily in their network, Soviet Union. At the end of that decade, however, as well as in automation and information technol- the industry suffered greatly from drastic reduction ogy. There are already very strong Polish virtual in orders from the Soviet Union and other custom- banks operating on the market as well as bank ers, the loss of government subsidies in the midst of services available via the Internet and cellular production, and a rapid rise in domestic material phones using WAP technology. Some of the banks costs for ships already contracted. are considering their development of Internet banking in other central and eastern European Poland is now still one of the largest ship makers in countries. the world, successfully competing with the Asian shipyards. In 2000, Poland was in "fourth spot," The banking sector has also been dominated by after South Korea, Japan and China, in the world foreign investors, which have acquired majority ranking of shipbuilding, with 5.7 percent of world stake in almost all top Polish banks (with exception orders on trading vessels36. of state owned Pekao BP): UniCredito Italiano (Peako SA), Commerzbank (BRE Bank), ING Today, Poland has two main centers of shipbuilding: (Bank lski), Allied Irish Bank (Bank Zachodni Gdynia and Szczecin. Grupa Stocznia Gdynia S.A. Wielkopolski Bank Kredytowy), etc. (to date, about 550 ships built there, a hundred different types for fleets from 20 countries) and in Gdask (the largest repair yard in Poland; its main clients are fleets from the Baltic region: Germany, 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 services and also provides tourist transport. Poland's central location in Europe means that Integration with the European Union contributes to transport, especially surface transport, plays an further growth of road transit through Poland and important role as the country is crossed by many of increase of income from this source. important transport routes connecting Western and Eastern Europe37. 9.2.5 Russia In total, there are 357, 700 kilometres of roads or Food Sector 114, 4 kilometres of roads per 100 square km. The The food sector accounts for more than 15 percent network and its quality still require a lot of invest- of Russia's output (2004), with annual growth of ment in order to put its density and quality on the approximately 4 percent in 2003­2004. The sector European standards. is mainly producing for the domestic, with its contribution to total exports falling from 2.5 An extended railway network (23,420 km in total) percent in 2002 to 1.8 percent in 2003. links all the major cities and towns. The density of that network, 7.5 km per 100 sq km, is lower than Furniture and paper (Wood) in Germany, Switzerland, and Belgium, but higher The forestry, wood-processing and pulp-and-paper than in the United Kingdom, Italy, and France. sectors account for a little more than 4 percent of Approximately 95 percent of railways lines are GDP in Russia, and experienced growth of approxi- standard-gauge lines of the same track width as in mately 3 percent in 2003­2004. The sector accounts Western Europe and over 50 percent of the total is for approximately 4 percent of Russian exports. electrified. Machinery The mechanical engineering and metal working There are 3, 812 km of navigable waterways. The best sector is the most important part of the Russian opportunities for inland navigation can be found on economy, accounting for more than 20 percent of the Odra River and its tributaries, while the largest GDP, and experiencing a growth rate of almost 12 ports in Poland are Gdask, Szczecin, Gdynia and percent in 2003­2004. The sector accounted for less winoujcie and the main airports are situated in than 8 percent of exports in 2003, down from 9 Warszawa, Kraków, Katowice, Pozna and Wroclaw. 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 primary sector Secondary sector tertiary sector Russia Moscow city 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 87 construction Materials According to various research data, the most The construction materials sector accounts for less profitable of the medium Russian ICT companies than 3 percent of Russian GDP and grew by more are those offering IT services (from 35 percent to 42 than 5 percent in 2003­2004. percent) and software (20 percent-34 percent). On the other hand, the profitability of the equipment ict Sector and telecommunication services markets is respec- Russian ICT developed into an independent tively 12 percent and 20 percent. But, they differ industry in the beginning of the new century. It is from the IT and software market because they are one of the youngest industries in the Russian more stable and not so risky. In general, after 10 economy (the first companies emerged in 1987­ years of development of the ICT industry there are 1988), and key features of the sector are the 15,000 companies in Russia. It is noticed that 20 dominance of private capital, absence of influence of percent of the participants in the market are the government and strong dependence on the producing 80 percent of the gross product. Next to foreign suppliers. As part of country's economy, ICT it, private capital is the leading type of capital in this is almost not consolidated. It is a fragmented mass industry. It stays far ahead of the state; foreign and of small companies permanently struggling with the mixed types of capital and major users of ICT lack of reserves necessary for their future develop- services are big private companies. They account for ment. The volume of the Russian information more than 50 percent in all sub-industries (for communication technologies industry equals USD example in telecommunications the division is 12,130 billion, where 72 percent accounts for 60/40 for the private enterprises). 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. 88 ICT, Innovation, and Economic Growth in Transition Economies Annex 6 Properties of the Dataset 10.1 General Propertes 10.2 Company Sze Classes The dataset contains information on 620 firms. It The average company size in 2004 was 215 employ- has 989 variables, which are all uniquely defined and ees with a minimum of one employee and a labelled so that the answers of each question and maximum of 7,000. Median value for employment each option can be traced easily in the dataset. The size was 48 persons. The next table provides an information has been stored in the most disaggre- overview by size class and country. In total, 24 firms gate form possible, and in a simple and logic did not provide an answer on the employment size manner, namely each variable corresponds to a data in 2004, of which 11 were located in Latvia and 9 in entry field. Separate country and region variables Poland. The distribution across the four SME classes were added on the base of the uniquely defined is relatively balanced for the sample as a whole. Yet identification variable ID. The next table provides for individual countries some significant variances an overview of the observations by region and remain. country. The Russian sample is more skewed towards the From the 620 firms, 47 acquired other firms or medium-sized and large enterprises, with virtually merged with other firms in the past three years. For no micro firms. Poland is the opposite case with a about 80 firms the name of the holding company firm size distribution that is skewed towards micro was provided. The dataset also contained informa- and medium enterprises. The Baltic States have a tion of the business incubators in Latvia and strong representation in the small and medium-sized companies located at the business incubator in SME classes. Estonia, Latvia and Poland. TABlE 11.1. The Distribution of Firms in the Sample by Country region/country number of observations percent share in total cumulative percentage Estonia 69 11 11 lithuania 57 9 20 latvia 70 11 32 Mazovia 63 10 42 Pomorski 77 13 54 Silezia 60 9 64 Poland 200 32 64 St.-Petersburg 124 20 84 Moscow 100 16 100 Russia 224 36 100 Total 620 100 Annex 6: Properties of the Dataset 8 TABlE 11.2. Distribution of Firms in the Sample Across Size Classes and Countries estonia lithuania latvia poland russia total Micro 6 8 14 101 3 130 (8,96) (14,29) (23,73) (52,9) (1,34) (21,81) Small 23 16 23 58 51 172 (34,33) (28,57) (38,98) (30,4) (22,77) (28,86) Medium 21 18 11 24 98 172 (31,34) (32,14) (18,64) (12,6) (43,75) (28,86) large 17 14 11 8 72 122 (25,37) (25,00) (18,64) (4,2) (32,14) (20,47) Total 67 56 59 191 224 596 (100) (100) (100) (100) (100) (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 More than half of the micro enterprises are only in three sectors, computer and related activities, retail The number of respondents is not equally divided trade and transport. among sectors. Sectors with the most respondents include manufacturing of food products (89), retail trade (82) and ICT services (81) followed by trans- 10.4 The Respondents port (48), heavy machinery (46) and finance (43). Respondents in the food sector, retail trade are fairly Who answered the questionnaire? This can be equally divided among Russia, Poland and the Baltic analyzed by looking at question A5 that inquired States but for the other sectors one or two countries about the position of the interviewee in the dominate the sample. Textiles and pulp and paper enterprise. 159 respondents indicated that they products are concentrated in one country had ICT-related positions. An ICT-related position (Lithuania, respectively Russia); shipbuilding, was defined as a position where the terms "IT", transport and repair of motor vehicles mostly from "information", "computer", "network", "system" or Poland; building materials, heavy machinery, and "programmer" were included. The other respon- furniture from Russia; and motor vehicles and dents were mainly directors, proprietors or financial services mostly from the Baltic States managers. aggregated. 0 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 estonia latvia lithuania poland russia total Unknown 0 2 0 2 2 6 Food products and beverages 17 7 8 26 31 89 Textiles and textile products 0 0 9 0 0 9 Wood and wood products 9 5 0 0 11 25 Pulp, paper and paper products 0 0 0 0 4 4 Publishing, printing and reproduction of recorded media 0 2 0 0 5 7 Chemicals and chemical products 0 2 0 5 4 11 Non-metallic mineral prod. (inc. building materials) 0 2 1 7 29 39 Basic metals and fabricated metal products 0 4 2 0 3 9 Machinery and equipment 0 1 2 9 34 46 Computers (inc. info processing equipment) 4 0 1 1 2 8 Electrical machinery and apparatus 0 1 3 4 2 10 Motor vehicles 0 0 10 4 1 15 Other transport equip. (inc. shipbuilding; repair) 0 0 0 20 1 21 Furniture 3 10 0 0 14 27 Construction (services) 0 1 2 2 2 7 Sale, maintenance; repair of motor vehicles and parts 1 1 0 13 3 18 Retail trade 11 7 6 28 30 82 Transport 1 1 0 37 10 49 Post and telecommunication 4 2 1 2 5 14 Financial intermediation (inc. banking; lending) 7 17 12 7 0 43 Computer and related services (inc. activities) 12 5 0 33 31 81 Total 69 70 57 200 224 620 Annex 6: Properties of the Dataset 1 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 3 2 1 0 6 Food products and beverages 6 17 28 34 85 Textiles and textile products 0 1 4 4 9 Wood and wood products 1 8 11 3 23 Pulp, paper and paper products 1 0 2 1 4 Publishing, printing and reproduction of recorded media 0 0 3 2 5 Chemicals and chemical products 4 2 3 1 10 Non-metallic mineral prod. (inc. building materials) 7 5 22 5 39 Basic metals and fabricated metal products 3 3 2 1 9 Machinery and equipment (referred to as heavy machinery) 6 7 15 18 46 Computers (inc. info processing equipment) 2 3 3 0 8 Electrical machinery and apparatus 0 7 2 1 10 Motor vehicles 3 6 3 1 13 Other transport equip. (inc. shipbuilding; repair) 6 7 4 0 17 Furniture 1 9 7 10 27 Construction (services) 1 1 2 3 7 Sale, maintenance; repair of motor vehicles and parts 6 8 3 1 18 Retail trade 27 29 17 7 80 Transport 16 21 8 3 48 Post and telecommunication 2 1 5 6 14 Financial intermediation (inc. banking; lending) 10 9 9 11 39 Computer and related services (inc. ICT activities) 27 25 18 10 80 Total 132 171 172 122 597 2 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 43 5.4% DSl (ADSl, SDSl, VDSl etc) with contractual download speed < 2Mbps 161 20.2% DSl (ADSl, SDSl, VDSl etc) with contractual download speed >= 2Mbps 56 7.0% Cable modem with contractual download speed < 2Mbps 53 6.6% Cable modem with contractual download speed >= 2Mbps 45 5.6% Other broadband with contractual download speed < 2Mbps 92 11.5% Other broadband with contractual download speed >= 2Mbps 74 9.3% Not applicable 5 0.6% Don't know 18 2.3% 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% Other computer (proprietary or closed non-IP based) networks than the Internet 77 12.7% TABlE 3. Purchases and Procurement of Goods and Services Using Computer Networks How orders for goods and services are placed of which via computer Via computer networks of which via the internet networks other than the internet Yes 322 (51.9%) 294 48 No 287 (46.3%) NA NA Don't know / NA 11 (1.8%) NA NA Annex 7: Results of the Survey ­ Tables 3 TABlE 4. Electronic Links between Computer Networks Used to Place Or- ders for Goods and Services and other Aautomated Systems within the Firm (March 2005) Systems for ordering or stock control 99 27.9% Systems for invoicing customers 117 33.0% Systems for production or service operations 82 23.1% Systems for delivery of products (including electronic delivery) 78 22.0% Marketing and customer relations systems 103 29.6% Other internal or external systems 18 5.1% Computer system(s) for receiving orders not linked to any of the above 26 7.3% 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% No 362 58.3% 35 48.3% Don't know / NA 11 1.8% 26 4.1% 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 91 35.5% Through a third party website 37 14.5% Via EDI over the Internet 20 7.8% Don't know / NA 11 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) 70 27.5% Systems for ordering or stock control 70 27.5% Systems for invoicing customers 90 35.3% Systems for production or service operations 62 24.3% Systems for delivery of products (including electronic delivery) 46 18.5% Marketing or customer relations systems 75 29.4% Suppliers' computer systems 36 14.1% Computer system/s for receiving orders not linked to any of the above 16 6.3% Other internal or external systems 8 3.1% Don't know / NA / Refusal 103 40.4% 4 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 79 12.8% Customer information collected on-line 186 30.2% After sales support 118 19.2% Other 7 1.1% Don't know / NA / Refusal 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 3 0.5% Don't know / NA / Refusal 64 10.3% Annex 7: Results of the Survey ­ Tables 5 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 39 6.3% Selling goods and services to government organizations 36 5.8% Making online payments to government organizations 155 25.0% Other dealings with government 30 4.8% Don't know / NA / Refusal 23 3.7% TABlE 12. How are Outputs per Employee Different from What they were Three Years Ago? Frequency percent lower 28 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 0­10% 10­25% 25­50% 50­75% 75­100% 100­150% >150% total lower Count 7 10 5 1 3 0 0 26 % within C1 26.9% 38.5% 19.2% 3.8% 11.5% 0.0% 0.0% 100.0% % of Total 2.6% 3.8% 1.9% 0.4% 1.1% 0.0% 0.0% 9.8% Higher Count 84 88 49 7 0 5 6 239 % 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% 90.2% Total Count 91 98 54 8 3 5 6 265 % 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% 6 ICT, Innovation, and Economic Growth in Transition Economies 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 Mainly ict ict and other Mainly other total lower Count 2 5 20 27 % within C1 7.4% 18.5% 74.1% 100.0% % of Total 0.7% 1.8% 7.2% 9.7% Higher Count 33 118 100 251 % within C1 13.1% 47.0% 39.8% 100.0% % of Total 11.9% 42.4% 36.0% 90.3% Total Count 35 123 120 278 % within C1 12.6% 44.2% 43.2% 100.0% % of Total 12.6% 44.2% 43.2% 100.0% 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 0­10% 10­25% 25­50% 50­75% 75­100% 100­150% >150% total lower Count 55 20 9 2 0 0 0 86 % within C5 64.0% 23.3% 10.5% 2.3%t 0.0% 0.0% 0.0% 100.0% % of Total 20.1% 7.3% 3.3% 0.7% 0.0% 0.0% 0.0% 31.4% Higher Count 93 60 30 2 1 1 1 188 % within C5 49.5% 31.9% 16.0% 1.1% 0.5% 0.5% 0.5% 100.0% % of Total 33.9% 21.9% 10.9% 0.7% 0.4% 0.4% 0.4% 68.6% Total Count 148 80 39 4 1 1 1 274 Annex 7: Results of the Survey ­ Tables 7 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 Mainly ict ict and other Mainly other total lower Count 14 46 29 89 % within C5 15.7% 51.7% 32.6% 100.0% % of Total 4.9% 16.1% 10.2% 31.2% Higher Count 10 55 131 196 % within C5 5.1% 28.1% 66.8% 100.0% % of Total 3.5% 19.3% 46.0% 68.8% Count 24 101 160 285 Total % 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 59 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 0­10% 10­25% 25­50% 50­75% 75­100% 100­150% >150% total lower Count 26 14 4 1 0 0 0 45 % within C9 57.8% 31.1% 8.9% 2.2% 0.0% 0.0% 0.0% 100.0% % of Total 8.8% 4.8% 1.4% 0.3% 0.0% 0.0% 0.0% 15.3% Higher Count 83 94 45 9 4 6 8 249 % within C9 33.3% 37.8% 18.1% 3.6% 1.6% 2.4% 3.2% 100.0% % of Total 28.2% 32.0% 15.3% 3.1% 1.4% 2.0% 2.7% 84.7% Total Count 109 108 49 10 4 6 8 294 % 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% 8 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 Mainly ict ict and other Mainly other total lower Count 0 3 45 48 % within C9 0.0% 6.3% 93.8% 100.0% % of Total 0.0% 1.0% 14.7% 15.7% Higher Count 18 112 128 258 % within C9 7.0% 43.4% 49.6% 100.0% % of Total 5.9% 36.6% 41.8% 84.3% Total Count 18 115 173 306 % 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 85 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 0­10% 10­25% 25­50% 50­75% 75­100% 100­150% >150% total lower Count 25 23 13 4 1 1 0 67 % within C13 37.3% 34.3% 19.4% 6.0% 1.5% 1.5% 0.0% 100.0% % of Total 10.0% 9.2% 5.2% 1.6% 0.4% 0.4% 0.0% 26.9% Higher Count 83 59 19 8 2 5 6 182 % 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% Total Count 108 82 32 12 3 6 6 249 % within C13 43.4% 32.9% 12.9% 4.8% 1.2% 2.4% 2.4% 100.0% % of Total 43.4% 32.9% 12.9% 4.8% 1.2% 2.4% 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 Mainly ict ict and other Mainly other total lower Count 1 8 63 72 % within C13 1.4% 11.1% 87.5% 100.0% % of Total 0.4% 3.0% 24.0% 27.4% Higher Count 20 92 79 191 % within C13 10.5% 48.2% 41.4% 100.0% % of Total 7.6% 35.0% 30.0% 72.6% Total Count 21 100 142 263 % 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 24 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 capital invested in innovation increased/decreased compared to three years ago? in innovation 0­10% 10­25% 25­50% 50­75% 75­100% 100­150% >150% total lower Count 11 5 2 2 2 0 0 22 % within C17 50.0% 22.7% 9.1% 9.1% 9.1% 0.0% 0.0% 100.0% % of Total 4.2% 1.9% 0.8% 0.8% 0.8% 0.0% 0.0% 8.4% Higher Count 95 81 38 9 6 3 8 240 % 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% Total Count 106 86 40 11 8 3 8 262 % within C17 40.5% 32.8% 15.3% 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 Mainly ict ict and other Mainly other total lower Count 1 4 17 22 % within C17 4.5% 18.2% 77.3% 100.0% % of Total 0.4% 1.5% 6.3% 8.1% Higher Count 40 103 106 249 % within C17 16.1% 41.4% 42.6% 100.0% % of Total 14.8% 38.0% 39.1% 91.9% Total Count 41 107 123 271 % within C17 15.1% 39.5% 45.4% 100.0% % of Total 15.1% 39.5% 45.4% 100.0% TABlE 27. How is the Amount of Capital Investment in ICT Different from Three Years Ago? Frequency percent lower 20 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? 0­10% 10­25% 25­50% 50­75% 75­100% 100­150% >150% total lower Count 12 1 2 1 2 0 0 18 % within C21 66.7% 5.6% 11.1% 5.6% 11.1% 0.0% 0.0% 100.0% % of Total 5.2% 0.4% 0.9% 0.4% 0.9% 0.0% 0.0% 7.8% Higher Count 85 79 22 11 8 1 7 213 % within C21 39.9% 37.1% 10.3% 5.2% 3.8% 0.5% 3.3% 100.0% % of Total 36.8% 34.2% 9.5% 4.8% 3.5% 0.4% 3.0% 92.2% Total Count 97 80 24 12 10 1 7 231 % 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% 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 Mainly ict ict and other Mainly other total lower Count 2 1 15 18 % within C21 11.1% 5.6% 83.3% 100.0% % of Total 0.9% 0.4% 6.4% 7.7% Higher Count 65 99 51 215 % within C21 30.2% 46.0% 23.7% 100.0% % of Total 27.9% 42.5% 21.9% 92.3% Total Count 67 100 66 233 % within C21 28.8% 42.9% 28.3% 100.0% % of Total 28.8% 42.9% 28.3% 100.0% TABlE 30. How is the Amount of Capital Investment in ICT Different from Three Years Ago? Frequency percent less important 34 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? 0­10% 10­25% 25­50% 50­75% 75­100% total less important Count 20 7 0 0 0 27 % within C25 74.1% 25.9% 0.0% 0.0% 0.0% 100.0% % of Total 7.5% 2.6% 0.0% 0.0% 0.0% 10.1% More important Count 120 72 36 8 5 241 % 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% Total Count 140 79 36 8 5 268 % within C25 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 ict and other Mainly other total C25 less important Count 3 5 20 28 % within C25 10.7% 17.9% 71.4% 100.0% % of Total 1.0% 1.7% 6.8% 9.6% More important Count 14 77 174 265 % within C25 5.3% 29.1% 65.7% 100.0% % of Total 4.8% 26.3% 59.4% 90.4% Total Count 17 82 194 293 % 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 92 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 percent less important 8 1.4 Remained the same 197 34.8 More important 361 63.8 Total 566 100.0 Annex 7: Results of the Survey ­ 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? 0­10% 10­25% 25­50% 50­75% 75­100% >150% total less important Count 3 2 0 0 1 0 6 % within C29 50.0% 33.3% 0.0% 0.0% 16.7% 0.0% 100.0% % of Total 1.1% 0.7% 0.0% 0.0% 0.4% 0.0% 2.2% More important Count 128 94 38 8 2 1 271 % 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% Total Count 131 96 38 8 3 1 277 % within C29 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 Mainly ict ict and other Mainly other total C29 less important Count 0 2 4 6 % within C29 0.0% 33.3% 66.7% 100.0% % of Total 0.0% 0.7% 1.3% 2.0% More important Count 29 115 147 291 % within C29 10.0% 39.5% 50.5% 100.0% % of Total 9.8% 38.7% 49.5% 98.0% Total Count 29 117 151 297 % 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 No 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 ­ Effect on Overall Business Process Costs? What was the effect of improved speed and During the past three years, has your reliability on your overall business process costs, company increased the speed and compared to three years ago? reliability of business processes? lower equal Higher total Yes Count 114 87 171 372 % within D1 30.6% 23.4% 46.0% 100.0% % of Total 30.6% 23.4% 46.0% 100.0% Total Count 114 87 171 372 % 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, improved process speed and reliability was due to compared to three years ago? Mainly ict ict and other Mainly other total lower Count 43 54 17 114 % within D2 37.7% 47.4% 14.9% 100.0% % of Total 15.4% 19.3% 6.1% 40.7% Higher Count 24 83 59 166 % within D2 14.5% 50.0% 35.5% 100.0% % of Total 8.6% 29.6% 21.1% 59.3% Total Count 67 137 76 280 % 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 No 238 41.0 Yes 343 59.0 Total 581 100.0 Annex 7: Results of the Survey ­ Tables 105 TABlE 41. What was the Effect of Task Automation on your Overall Business Process Costs, Compared to Three Years Ago? During the past three years, has your costs company automated tasks? lower equal Higher total D5 Yes Count 161 70 89 320 % within D5 50.3% 21.9% 27.8% 100.0% % of Total 50.3% 21.9% 27.8% 100.0% Total Count 161 70 89 320 % 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? Mainly ict ict and other Mainly other total lower Count 59 67 29 155 % within D6 38.1% 43.2% 18.7% 100.0% % of Total 24.2% 27.5% 11.9% 63.5% Higher Count 12 52 25 89 % within D6 13.5% 58.4% 28.1% 100.0% % of Total 4.9% 21.3% 10.2% 36.5% Total Count 71 119 54 244 % within D6 29.1% 48.8% 22.1% 100.0% % of Total 29.1% 48.8% 22.1% 100.0% TABlE 43. During the Past Three Years, has your Company Improved Information Management? Frequency percent No 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? What was the effect of improving information During the past three years, has your management on your overall business company improved information process costs, compared to three years ago? management? lower equal Higher total D9 Yes 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% Total 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 improvement in information information on your overall business process management can be attributed to costs, compared to three years ago? costs Mainly ict ict and other Mainly other total lower Count 78 64 27 169 % within D10 46.2% 37.9% 16.0% 100.0% % of Total 27.7% 22.7% 9.6% 59.9% Higher Count 28 68 17 113 % within D10 24.8% 60.2% 15.0% 100.0% % of Total 9.9% 24.1% 6.0% 40.1% Total Count 106 132 44 282 % 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 No 223 37.2 Yes 376 62.8 Total 599 100.0 Annex 7: Results of the Survey ­ Tables 107 TABlE 47. Organizational Change ­ Effect on Overall Business Costs What was the effect of these organizational changes During the past three years, has your on your overall business process costs, company been through organizational compared to three years ago? changes? lower equal Higher total Yes Count 148 94 106 348 % within D13 42.5% 27.0% 30.5% 100.0% % of Total 42.5% 27.0% 30.5% 100.0% Total Count 148 94 106 348 % 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 organizational changes were driven by costs, compared to three years ago? Mainly ict ict and other Mainly other total lower Count 15 69 64 148 % within D14 10.1% 46.6% 43.2% 100.0% % of Total 6.0% 27.5% 25.5% 59.0% Higher Count 4 47 52 103 % within D14 3.9% 45.6% 50.5% 100.0% % of Total 1.6% 18.7% 20.7% 41.0% Total Count 19 116 116 251 % within D14 7.6% 46.2% 46.2% 100.0% % of Total 7.6% 46.2% 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 No 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. compared to three years ago, has the value of sales Have you placed new or substantially of new or different products/services as a percentage new products and/or services in the of total sales revenue? market during the past three years? lower equal Higher total Yes Count 7 84 242 333 % within D21 2.1% 25.2% 72.7% 100.0% % of Total 2.1% 25.2% 72.7% 100.0% Total Count 7 84 242 333 % within D21 2.1% 25.2% 72.7% 100.0% % of Total 2.1% 25.2% 72.7% 100.0% TABlE 51. New Products and/or Service Developments are Driven by ICT or others compared to three years ago, has the new products and/or service value of sales of new or different products/ developments are driven by services as a percentage of total sales revenue? Mainly ict ict and other Mainly other total lower Count 1 3 4 8 % within D22 12.5% 37.5% 50.0% 100.0% % of Total 0.4% 1.2% 1.6% 3.3% Higher Count 22 102 114 238 % within D22 9.2% 42.9% 47.9% 100.0% % of Total 8.9% 41.5% 46.3% 96.7% Total Count 23 105 118 246 % 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 No 279 46.4 Yes 322 53.6 Total 601 100.0 Annex 7: Results of the Survey ­ Tables 10 TABlE 53. Change in the Value of Customized Products and Services Offered compared to three years ago. has the value of sales of customised products as a percentage of Do you offer customized goods or total sales revenue? services to your customers lower equal Higher total Yes Count 10 146 141 297 % within D17 3.4% 49.2% 47.5% 100.0% % of Total 3.4% 49.2% 47.5% 100.0% Total Count 10 146 141 297 % 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 changes in the value of sales of customized sales of customized products as a percentage goods and services are due to of total sales revenue? Mainly ict ict and other Mainly other total lower Count 2 1 3 6 % within D18 33.3% 16.7% 50.0% 100.0% % of Total 1.4% 0.7% 2.1% 4.2% Higher Count 12 63 63 138 % within D18 8.7% 45.7% 45.7% 100.0% % of Total 8.3% 43.8% 43.8% 95.8% Total Count 14 64 66 144 % 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 No 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. compared to three years ago, has the value of sales of new bundled offerings as During the last three years, have you a percentage of total sales revenue? started offering new bundled offerings? lower equal Higher total D25 Yes Count 3 58 138 199 % within D25 1.5% 29.1% 69.3% 100.0% % of Total 1.5% 29.1% 69.3% 100.0% Total Count 3 58 138 199 % within D25 1.5% 29.1% 69.3% 100.0% % of Total 1.5% 29.1% 69.3% 100.00% TABlE 57. Value of New Bundled Offerings ­ New Bundled Product and/or Service Offering are Driven by ICT or Others compared to three years ago, has the value new bundled product and/or service of sales of new bundled offerings as offering are driven by a percentage of total sales revenue? Mainly ict ict and other Mainly other total lower Count 0 1 1 2 % within D26 0.0% 50.0% 50.0% 100.0% % of Total 0.0% 0.7% 0.7% 1.4% Higher Count 18 59 61 138 % within D26 13.0% 42.8% 44.2% 100.0% % of Total 12.9% 42.1% 43.6% 98.6% Total Count 18 60 62 140 % 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 38 6.5 Equal 192 32.9 Higher 353 60.5 Total 583 100.0 Annex 7: Results of the Survey ­ 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 is change in the number of customers due to your enterprise Mainly ict ict and other Mainly other total D29 Increased Count 0 1 36 37 % within D29 0.0% 2.7% 97.3% 100.0% % of Total 0.0% 0.3% 9.4% 9.6% Decreased Count 22 154 171 347 % within D29 6.3% 44.4% 49.3% 100.0% % of Total 5.7% 40.1% 44.5% 90.4% Total Count 22 155 207 384 % 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 Frequency percent Valid Decreased 53 9.9 Remained equal 238 44.7 Increased 242 45.4 Total 533 100.0 TABlE 61. Value of Sales in Your Customer Base ­ Change in the Total Value of Sales per Customer in due to ICY and Others compare the value of sales in your customer change in the total value of sales base to three years ago. Has the value of per customer in due to sales per customer Mainly ict ict and other Mainly other total Decreased Count 1 3 46 50 % within D32 2.0% 6.0% 92.0% 100.0% % of Total 0.3% 1.0% 16.0% 17.4% Increased Count 16 98 123 237 % within D32 6.8% 41.4% 51.9% 100.0% % of Total 5.6% 34.1% 42.9% 82.6% Total Count 17 101 169 287 % 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 percent Decreased 36 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, change in the share of retained customers is due to the share of retained customers has Mainly ict ict and other Mainly other total Decreased Count 0 2 32 34 % within D35 0.0% 5.9% 94.1% 100.0% % of Total 0.0% 0.7% 10.9% 11.6% Increased Count 18 108 133 259 % within D35 6.9% 41.7% 51.4% 100.0% % of Total 6.1% 36.9% 45.4% 88.4% Total Count 18 110 165 293 % 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 Frequency percent Decreased 39 7.9 Remained the same 236 47.9 Increased 218 44.2 Total 493 100.0 Annex 7: Results of the Survey ­ Tables 113 TABlE 65. Change in the Value of Sales per Retained Customer compare the value of sales per retained change in the value of customer to three years ago. Has the sales per retained customer is due to value of sales per retained customer Mainly ict ict and other Mainly other total Decreased Count 0 3 35 38 % within D38 0.0% 7.9% 92.1% 100.0% % of Total 0.0% 1.2% 13.8% 15.0% Increased Count 12 86 118 216 % within D38 5.6% 39.8% 54.6% 100.0% % of Total 4.7% 33.9% 46.5% 85.0% Total Count 12 89 153 254 % 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 percent Decreased 36 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 is the change in the number of supplies due to of suppliers of your enterprise Mainly ict ict and other Mainly other total Decreased Count 3 5 27 35 % within D41 8.6% 14.3% 77.1% 100.0% % of Total 1.2% 2.0% 10.8% 13.9% Increased Count 12 94 110 216 % within D41 5.6% 43.5% 50.9% 100.0% % of Total 4.8% 37.5% 43.8% 86.1% Total Count 15 99 137 251 % 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 percent Decreased 34 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 change in the total value of purchases supplier base to three years ago. Has the value per supplier is due to of purchases per supplier Mainly ict ict and other Mainly other total D44 Decreased Count 1 3 28 32 % within D44 3.1% 9.4% 87.5% 100.0% % of Total 0.4% 1.2% 11.3% 12.9% Increased Count 6 76 134 216 % within D44 2.8% 35.2% 62.0% 100.0% % of Total 2.4% 30.6% 54.0% 87.1% Total Count 7 79 162 248 % within D44 2.8% 31.9% 65.3% 100.0% % of Total 2.8% 31.9% 65.3% 100.0% 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 Decreased 6.8 Remained the same 3.6 67.0 Increased 358 26.1 Total 528 100.0 Annex 7: Results of the Survey ­ 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 change in the number of repeat suppliers is due to of repeat suppliers of your enterprise Mainly ict ict and other Mainly other total Decreased Count 1 3 30 34 % within D47 2.9% 8.8% 88.2% 100.0% % of Total 0.6% 1.8% 17.9% 20.2% Increased Count 6 48 80 134 % within D47 4.5% 35.8% 59.7% 100.0% % of Total 3.6% 28.6% 47.6% 79.8% Total Count 7 51 110 168 % within D47 4.2% 30.4% 65.5% 100.0% % of Total 4.2% 30.4% 65.5% 100.0% 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 percent Decreased 32 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 change in the value of purchases per repeat supplier base to three years ago. Has the supplier is due to value of purchases per repeat supplier Mainly ict ict and other Mainly other total Decreased Count 1 4 27 32 % within D50 3.1% 12.5% 84.4% 100.0% % of Total 0.4% 1.7% 11.7% 13.9% Increased Count 9 71 118 198 % within D50 4.5% 35.9% 59.6% 100.0% % of Total 3.9% 30.9% 51.3% 86.1% Total Count 10 75 145 230 % 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 34 5.5 Don't know 31 5.0 Refusal 13 2.1 Multiple options 618 99.7 Total 2 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 25 4.0 Don't know 19 3.1 Refusal 10 1.6 Total 620 100.0 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 27 4.4 Don't know 67 10.8 Refusal 15 2.4 Total 620 100.0 TABlE 77. Management Attitude number of firms % Management was reluctant in promoting ICT 58 9.4 Management was proactive in promoting ICT 455 73.4 Not applicable 61 9.8 Don't know 26 4.2 Refusal 18 2.9 Multiple options 618 99.7 Total 2 0.3 Annex 7: Results of the Survey ­ Tables 117 TABlE 78. Lock-in Effects in Relations with Suppliers number of firms % My enterprise finds it more difficult to switch between suppliers because of ICT usage 61 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 Refusal 21 3.4 Total 617 99.5 Missing 3 0.5 Total 620 100.0 TABlE 79. Outsourcing of Activities number of firms % Was discouraged by ICT 45 7.3 Was encouraged by ICT 240 38.7 Not applicable 150 24.2 Don't know 158 25.5 Refusal 26 4.2 Total 619 99.8 Missing 1 0.2 Total 620 100.0 TABlE 81. Telecommunication Costs number of firms % Was discouraged by ICT 43 6.9 Was encouraged by ICT 227 36.6 Not applicable 142 22.9 Don't know 184 29.7 Refusal 23 3.7 Total 619 99.8 Missing 1 0.2 Total 620 100.0 118 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 25 4.0 Don't know 33 5.3 Refusal 10 1.6 Total 620 100.0 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 24 3.9 Don't know 24 3.9 Refusal 11 1.8 Total 620 100.0 TABlE 83. Network Flexibility and Range of Services number of firms % Was insufficient to engage in ICT usage 70 11.3 Was sufficient to engage in ICT usage 482 77.7 Not applicable 22 3.5 Don't know 36 5.8 Refusal 10 1.6 Total 620 100.0 TABlE 84. Geographic Coverage of the Network number of firms % Was insufficient to encourage the enterprise to engage in ICT usage 47 7.6 Was sufficient to encourage the enterprise to engage in ICT usage 485 78.2 Not applicable 34 5.5 Don't know 43 6.9 Refusal 10 1.6 Total 619 99.8 Missing 1 0.2 Total 620 100.0 Annex 7: Results of the Survey ­ Tables 11 TABlE 85. Which Iinformation Technology is the Most Important to your Enterprise? number of firms % E-mail 142 22.9 Website 36 5.8 Mobile phones 126 20.3 Fixed telephony 139 22.4 General internet access 176 28.4 Total 619 99.8 Missing 1 0.2 Total 620 100.0 TABlE 86. Available Level of Transaction Security number of firms % Discouraged the enterprise to engage in ICT usage 85 13.7 Encouraged the enterprise to engage in ICT usage 351 56.6 Not applicable 58 9.4 Don't know 108 17.4 Refusal 18 2.9 Total 620 100.0 TABlE 87. Existing Authentication and Certification Systems number of firms % Discouraged ICT usage 79 12.7 Encouraged ICT usage 273 44.0 Not applicable 93 15.0 Don't know 150 24.2 Refusal 22 3.5 Total 617 99.5 Missing 3 0.5 Total 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 55 8.9 Don't know 139 22.4 Refusal 21 3.4 Total 619 99.8 Missing 1 0.2 Total 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 Not applicable 88 14.2 Don't know 136 21.9 Refusal 21 3.4 Total 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 74 11.9 Don't know 124 20.0 Refusal 31 5.0 Multiple options 1 0.2 Total 619 99.8 Missing 1 0.2 Total 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 % Was insufficient to encourage ICT usage 250 40.3 Was sufficient to encourage ICT usage 65 10.5 Not applicable 133 21.5 Don't know 144 23.2 Refusal 20 3.2 Multiple options 2 0.3 Total 614 99.0 Missing 6 1.0 Total 620 100.0 TABlE 92. Education System number of firms % Provided inadequately trained personnel 176 28.4 Provided adequately trained personnel 272 43.9 Not applicable 62 10.0 Don't know 89 14.4 Refusal 19 3.1 Multiple options 618 99.7 Total 2 0.3 Missing 620 100.0 Total 176 28.4 TABlE 93. Government Provision of On-line Electronic Services number of firms % Made it less attractive to engage in ICT usage 79 12.7 Made it more attractive to engage in ICT usage 238 38.4 Not applicable 80 12.9 Don't know 197 31.8 Refusal 24 3.9 Total 618 99.7 Missing 2 0.3 Total 620 100.0 122 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 91 14.7 Don't know 173 27.9 Refusal 17 2.7 Total 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 Not applicable 80 12.9 Don't know 164 26.5 Refusal 12 1.9 Total 620 100.0 TABlE 96. Government Training Programs number of firms % Insufficiently supported the enterprise 247 39.8 Sufficiently supported the enterprise 93 15.0 Not applicable 107 17.3 Don't know 159 25.6 Refusal 14 2.3 Total 620 100.0 TABlE 97. Private Training Programs Insufficiently supported the enterprise 119 19.2 Sufficiently supported the enterprises 265 42.7 Not applicable 75 12.1 Don't know 149 24.0 Refusal 12 1.9 Total 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 13.2 The Case of BankServss Telecom OÜ ­ Estona ­ Latva Data Telecom OÜ, is a company offering informa- BankServiss is the leading company for payment card tion technology and telecommunication services to data processing services in the Baltic States. The the Estonian business. The quality and reliability company was the first multiple-bank owned related issues of the services are of paramount payment card data processing center in Latvia and importance. The services are delivered under the started operations in 1992. The company has been trademark Data Telecom. certified to process transactions for the world's foremost payment card networks: Europay/ The company offers high-quality communications MasterCard, VISA, American Express and Diners and server related services, tailored to the individual Club. Besides these international cards BankServiss customer's necessities. A considerable amount of operates proprietary cards for several local banks and turnover comes from providing local telecom fuel companies such as Shell and Neste. operators with international IP connectivity with superb parameters. The company's services are: The main operations of the company are issuing processing, acquiring processing, clearing and Communication services (Business Connect, IP settlement with domestic and international banks Transit, ATM services, Traveller) and payment schemes. The high technological level E-mail and professionalism of employees in the company Web hosting (Administration Interface, allows for running large projects and BankServiss Database Support, Resource Utilisation) was the first payment card-processing center in the Hosting and housing services (Server Housing, Baltics to entirely prepare its card processing systems Public FTP Server, Entry Level Housing) for the issuing and acquiring of chip cards. Multimedia Streaming (Video Archives in the Internet, Digitalising Service) In 2005 BankServiss started two important proj- ects--payment authentication through 3 D Secure It has been proven to be very useful to dispose of a and EMV smart card personalization center. wide area network from bureaus serving technical Implementation of 3 D Secure will stimulate banks infrastructure (servers). This is positive at least in and merchants participation in e-commerce. two ways--first, the easy movement for offices and BankServiss implements these e-commerce techno- workspaces is guaranteed and second, the possibility logical solutions to ensure reliable and secure of working at home is much more enhanced. Thus Internet payments for banks, merchants and clients can save considerable resources. cardholders. BankServiss processes more than 1,300, 000 cards (international and local debit and credit When working home or abroad, the company uses cards) per month and over 4 million issuing and VoIP technology for calling (telephoning). This acquiring authorizations38. ensures considerable savings on communication expenses. 38 http://www.bankserviss.lv/en/about/ Annex 8: Company Case Studies 125 The company's recommendation to all companies company have been modified in order to supply the that are working almost exclusively with processing required information with a minimum of manual of data is to choose the right supplier. Here work. For example, taxes and fees can be paid experience and knowledge is more important than online. All information on servers and computers is price or quantity, because one is going to work with safe-copied on data-carriers that ensure the backup the selected hard- and software presumably for a database. very long time. In addition, compatibility of programs is very important so that cooperation with or competition over potential clients would be possible. 13.4 Implementaton of a New IT Product ­ Russa ICT also has a major role in our quality manage- ment system as well. The registration of customers' Established in the 2000, company Industrial problems, requests and new tasks and the tracing of Information System, is engaged in development the executive process are essentially improved by and promotion of new administrative technologies implementing a new task executive process tracing and automated systems. The basic activities of system. The quality documentation is established in Industrial Information System include: an electronic form that ensures rapid document turnover and links between documents exploiting development of technology Business Reality and e-mail. Business Reality Suite platform; development of typical and custom-made software products and decisions on basis of 13.3 The Case of AB proprietary technology Business Reality TM; training and support of the partners developing "Klapedos Duona" (KD) and delivering finished decisions based of our ­ Lthuana technologies; customized exploitations and support of corporate systems of various purpose; AB "Klaipdos duona" (KD) is one of the largest consulting services in the field of construction of and most modern baking enterprises not only in the effective control systems and carrying out of Klaipda district but also in Lithuania. Every 24 organizational changes; hours the company bakes about 50 tons of bread performance of complex projects on automation and cake, confectionery products, and wafers. The of control systems of corporations "on a turn-key enterprise can offer such an abundant--over a basis"; hundred names--assortment of bread, cake, information audit; confectionery products, and wafers. Over 90 integrating the hardware-software systems; and percent of production is packed at the request of management of projects of system integration. customers either in loaves, split into several parts, or sliced. In May 2004 OAO "Industrial information systems" released a new system of electronic document KD has developed its own programs for taking and circulation called Globus, based on the platform accepting of orders online, which enabled to increase Business RealityTM. This system has received favorable the number of clients without any increase in the assessment at the international exhibition CeBIT number of employees. This improves several aspects 2004. of the company's competitiveness and efficiency-- productivity, lower prise, less time-consuming sale- GlobusTM takes into account specific needs of Russian process, lower labor costs etc. enterprises. This technology includes personnel training, consulting, and technical support. Using ICT technologies, KD improved the obliga- tory document processing. As authorities removed Although there is still great interest in electronic strict requirements for reporting and reporting document circulation, the market is still not yet became possible, the internal programs of the mature. There is no infrastructure, and there are no 126 ICT, Innovation, and Economic Growth in Transition Economies qualified experts capable of rendering professional 13.5 Integraton of ICT services. Therefore, in many cases, the type of a document circulation system is determined by n a Large Company ­ availability of a strong support team. Frequently, "Electroprbor", Russa customers reject more advanced technologies or systems because of the lack of appropriate support The State Centre of Science of the Russian services. Until recently, even the largest providers Federation "Electropribor" is a leading centre in were unable to provide support. Russia in the area of development and production of sea and space navigation, radio communications, Three key lessons can be learned from the experi- and wind energy In many of its fields the company ences of Russian companies with the introduction of is internationally competitive. IT systems: The problems of the effective utilization of ICT in a The client should be sufficiently mature to company having more than 2,000 employees were establish the system. In this case, the director that from the point of view of functional application takes care of all the problems related to worker the company can be distinguished in three groups of resistance. The role of IT advisers in the given users: situation is not to persuade personnel. It is appropriate to begin introduction of the 1. High-level developers, using in their work most new technologies at the highest levels of a advanced IT systems for designing and manag- company's hierarchy, where there is the highest ing projects and life cycle of products, and visible effect. Further actions will pass more focusing on IT systems of leading global firms, easily. particularly Windchill. It is expedient beforehand to determine the 2. Production-workers of pilot production which degree of computer literacy of the personnel and work is under the management of an "internally- to determine the terms and the times they are developed" Management Information System available for training. Pre-design inspection is that is outdated and is supported by a special very important at this stage where both the group of programmers. customer and the executor formulate the answers 3. The financial-economic block of the company to various questions: What is necessary to also using "internally-developed" financial-- introduce the program? Which problems is it accounting system of a low level. solving? In the Russian example, there is the possibility to save considerable amount of Electropribor has a network of a few hundred resources without having to obtain a program computers. Key problems include maintenance of with an excess of functions (for example SAP), these computers and low qualification of the but at the same time bearing in mind that the personnel operating the technical equipment. development of the company will influence the use of the program. The management of the company had in very short time to solve the problem of development Major mistakes and failures of the introduction of and implementation of a plan for the integration of IT systems are connected with prolonging the ICT that would move the company at a principally deadlines of the project, political intrigues, and new usage level of ICT and allow its integration insufficient political will of the management. In into the global environment of development and this case, the program is bought already, but there production. is a huge resistance to introduction and its purchase is seen as mistake. In the worst case there The solution to the problem can be developed in a few are two programs working at the same time--the stages within the framework of the general strategy old and the new one. This situation reduces the for integrating ICT.: overall performance of the company instead of increasing it. 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 5. In the field of financial accounting, planning, systems for ICT tasks. ICT service was created and control: the preference will be probably in 2004 and united the isolated IT experts given to the Russian ERP-system "Galaxy" solving problems of creating and maintaining which to a bigger extent meets the needs of the databases, supporting management information financial administration of the enterprise and systems, purchasing hardware, and maintaining allows to keep the accounts, in Russian, as well networks. However, in the future, some of these as in international accounting and reporting tasks will be outsourced, because having an systems. extensive IT services division within the company is too expensive. Conclusions 2. Development of ICT rules that determine what Introduction of ICT completely from scratch in an software should be installed, location of the already working environment under Russian software, how many workplaces should exist in a conditions is impossible. At the moment there are certain divisions, what tools (applied software) no large enterprises in which all the processes are should be available, qualification of personnel automated. In first instance key business--processes and certification of users. Other rules should be determining the quality of the end production developed about the relationship between the IT should be automated. service and its users, and general rules for the workplace, etc. This stage is completed. There In large Russian companies, developing and are more than 1,200 workplaces operating that producing innovative products, distinguished by are equipped with modern computers, 70 different target requirements; different levels of percent of which are incorporated into the readiness to use ICT; and already having "island" corporate network. automation of separate processes; an integrated 3. Creation of an integrated dialogue environment of approach for the use of ICT are necessary. Such an ICT users by replacing communication through approach using the experience of "Electropribor" circulating paper documents with information can be generalized in few strategic principles: interchange through a computer Intranet-- network with a speed of data transmission up to Dedicated top management to a fast and complete 100 Mb / sec. This leads to improvement in the introduction of ICT. skills of all workers in the company, including Concentration of staff responsible for managing ICT personnel. the process of ICT introduction in one com- 4. Selecting a proper ERP-system: Electropribor is in mon, qualified ICT division with authority and the stage of choosing a proper ERP-system. a budget. Contrary to other large industrial enterprises, Careful analysis and reengineering of key business where the implementation of the Western ERP- processes for the preparation of complex automa- systems takes very long due to the enterprises tion, and regulation of workplaces and processes. being unprepared and the relatively low qualifi- Continuous target preparation of the personnel for cation of the personnel of partner firms (the overcoming the natural resistance to ICT implementation of SAP R/3 at "Electrosila" lasts introduction. already three years), "Electropribor" is making its Orientation to the best ICT-solutions with strict choice of ERP-system according to criteria such selection of suppliers. as cost, speed of introduction, integration oppor- Maximum outsourcing of ICT support and tunities, and experience of the partner company. introduction processes. 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 13.6 WebServce ­ Poland about 10 key business-processes. Basic require- ments for the introduction include: full testing The WebService Internet company is one of of all the operations on key users, and a constant Poland's largest and fastest developing interactive presence of the IT company-partner during the agencies. Established in 1996, the company has introduction. implemented almost 300 integrated marketing, 128 ICT, Innovation, and Economic Growth in Transition Economies consulting, and IT projects for the main Polish and IP telecommunication foreign companies. VPN ­ Virtual Private Network Office applications WebService provides solutions based on the Project management systems knowledge and experience of experts in consulting, CRM ­ Customer Relationship Management IT, programming, graphics, Internet services and Intranet (work flow, organizational structure, multimedia presentations. address e-book, access to files) Extranet (communication client support, after A key competence of WebService is the skill to sales support, orders, etc). develop consistent concepts of distinguishing the client's company and building its brand. The compa- In terms of internal costs of using new technologies, ny's offering goes far beyond standard proposals of the time and tools of implementation are covered by interactive agencies and includes: the company and its staff. The total cost of imple- mentation for WebService clients is not revealed. E-marketing ­ developing Internet services, Asked about the barriers to ICT introduction preparing advertising campaigns, loyalty (internal and external) the company points to the programs, eCRM, multimedia presentations and following: NetPR activities. E-consulting ­ consulting on the implementa- 1. Barriers to ICT introduction ­ people: tion of Internet solutions and the application of They have their daily duties and they do not new technologies. want to participate in new activities, which E-technologies ­ developing and implementing would mean another duty for them. Content Management Systems (CMS), They are afraid of changes. e-learning, Internet and extranet solutions and Communication problems between client corporate portals, developing applications upon representatives and consultant/ implementer. request, developing visualization systems of the 2. Barriers for implementation ­ Client: Corporate Identity type, creating the presenta- After the implementation process every tion layer for advanced e-commerce applications, organization has to work normally while every e-learning platforms and electronic banking. implementation of new technologies brings WebService e-competences: period of training during which problems with using those technologies may appear. 1. Focus on network application solutions Integration of new and old processes is a 2. Internet systems solutions time-consuming process. 3. Internet strategies solutions The implementation process must take into 4. Advisory solutions ­ communications consideration possible requirements from the 5. Advisory solutions ­ technology client side. 6. Corporation portals The implementation process of new ICT 7. Multimedia solutions tools requires some specific changes (in 8. Extranet service process, contacts with IT users, etc.). 9. Dedicated solutions 3. Barriers for implementation ­ technology: WebService Uses Many Different ICT Based on users' needs--not always easy to be incorporated into the new technologies. Solutions in its Business: Integrated with present technologies. Tools for presentations Reliability of new technologies is usually E-mail boxes lower than after few months of getting Internet chat experience in using them. Internet communicators Flexibility and graduation of new technolo- Video-conferences gies is required and these two factors are not Broadband access to the Internet (headquarter always possible to predict during the and local offices) introduction phase. Mobile access to the Internet (GPRS, WAP, WiFi solution) Annex 8: Company Case Studies 12 13.7 Comarch ­ Poland3 supply chain management (SCM) software solutions to mid-market companies around the Comarch is an international software house and world. systems integrator that provides innovative IT solutions to telecommunications, finance, banking, Epicor leverages innovative technologies like Web service sector companies and public administration. services in developing end-to-end, industry-specific The IT solutions cover billing, ERP systems, IT solutions for various sectors such as: security, CRM and sales support, electronic communication and business intelligence. Comarch manufacturing; also offers outsourcing and consulting services. distribution; enterprise service automation; and In 1993, a group of the most gifted telecommunica- hospitality. tions experts at the Kraków University of Science and Technology, led by professor Janusz Filipiak Motivation for ICT Implementation (Comarch's founder, president, and CEO), was Include: commissioned to conduct analysis, expertise, and control and transparency of company's perfor- feasibility studies for TPSA (a Polish incumbent mance; operator and part of the France Telecom Group). need of transparency and complete picture of This was, in effect, the birth of Comarch. Less than who is earning and spending how much, for one year later, the group, know as the "COMputer what, and when; ARCHitects", was awarded a contract to implement with numerous built-in key performance a billing system for TPSA's satellite service. indicators (KPIs), the company wants to measure Following the success of this first project, TPSA internal process performance and suppliers' extended its relationship with Comarch by imple- performance. menting other billing and network management systems. How was ICT Used to Resolve Internal Problems: In 2000, Comarch expanded its solutions to offer The company implements and uses its business new modules based on different technologies for software to supply its own needs in such fields as: new types of customers. In 2001 the telecommuni- cation unit was awarded its first international accountancy; contract. Development of new services and modules client relationship management (CRM); and continued. 2002 saw the expansion of the group's project management. client base to Latin America, the Middle East and the United States. As result of using ICT technologies, the company dramatically increased both profits as customer The background of one of the services of Comarch satisfaction. was a gap in the emerging IT market in Poland, i.e., the need for a network inventory management Barriers to ICT Introduction: solution. The main barrier relates to the human factor-- general fear of change and introduction of new things. This requires time as well as internal 13.8 Epcor ­ Poland attention and a positive management attitude. Introduction For 20 years, Epicor has been a recognized leader dedicated to providing integrated: 39 this case has been adapted from the project "Strengthening govern- enterprise resource planning (ERP); mental policy and institutional cohesion to enhance innovativeness of polish economy before accessing the european union" under ppA (Dutch bilateral customer relationship management (CRM); and 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 Methodologcal Remarks have to receive appropriate training. Experience has shown indeed that researchers need extensive The EBS methodology has been designed to allow training in order to be able to understand the comparisons between industries, sectors, countries scientific principles underlying the questionnaire and regions. In order to encourage its worldwide and its formal rationale in order to be able to use it usage infoDev has decided to make the EBS in practice. `Baseline Questionnaire' available on-line. Its usage and the sharing of results by different parties Sampling throughout the world will lead to more diverse and As mentioned above, the EBS methodology has richer datasets, and this to the benefit of all been designed to allow comparability between participants. different types of economic activity and geographical settings. Cross-industry and geographical compari- Before applying the methodology, however, sons, however, require different sampling proce- candidate users need to be cautioned about some dures, which can be combined. Sampling procedures of its characteristics, in particular relating to the may also differ depending on the scope of the usage of the baseline questionnaire, the sampling project. Is it to be representative nationally or procedures and the need to update and adapt the regionally, or does it need to reflect a specific type of questionnaire. These different aspects are briefly economic activity? outlined below. For more details and assistance, as well as to obtain access to the datasets contact info Updates and Adaptations Dev (info@infodev.org). Part B of the questionnaire on technology usage is a selection of questions originally designed for an Baseline Questionnaire OECD questionnaire. This questionnaire has As its denomination indicates, the baseline substantially evolved since we used it. Consequently, questionnaire is not the actual questionnaire, but a Part B of the EBS questionnaire needs to be substan- standard from which the actual questionnaire(s) tially revised if it is to remain comparable with will be inferred. The questionnaire has been OECD data. constituted with scientific rigor. Even though exces- sive economic jargon has been avoided, certain The core of the EBS questionnaire is sections C and terminology may not be accessible to interviewees. D, which deal with the effects of innovation in Moreover, the questionnaire is generic and has to relation to the usage of ICT in different business be adapted to the different settings (industries, processes. Both sections have been duly tested and sectors, etc.) to which it will be applied. For repeatedly improved. Nevertheless, the application example, some industries will prefer the term of each new iteration of the questionnaire reveals service to the term product. As trivial as they may possible improvements. This is not different for this seem, such small changes have a major impact on version. The same applies to section E and F. the comprehensibility of the questionnaire. Finally, users need to be aware that the question- In sum, research teams and interviewers will have to naire is modular. Which modules to use will adapt the questionnaire to context and circum- depend on the aim of the project and the resources stances. To be able to make this conversion, they will available. Annex 9: Electronic Business Survey (EBS) Baseline Questionnaire 131 ICT Usage/Electronc A9. What was the total number of employees in Commerce n Enterprses your enterprise in 2002, 2003 and 2004? Survey n Eastern Europe December 2002 .............................................. This survey consists of the following modules: December 2003 .............................................. December 2004 ............................................. Module A: General Information A10. Has your company acquired or merged with Module B: ICT Usage in the Enterprise other companies in the past three years? Module C: Productivity and Competitiveness [ ] Yes [ ] No Module D: Effects of Innovation A11. Total turnover of the enterprise in 2004 Module E: Strategic Factors In national currency, excluding value added taxes Module F: Policy and Regulatory Factors ........................................................................ Module A: General Information A12. Value of goods and services purchased in 2004 A1. Unique Survey Identification Number 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 ........................................................................Module B: ICT Usage in the Enterprise A4. Name of the interviewee 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. A5. Position of interviewee in the enterprise ........................................................................ B1. Did your enterprise use computer/s during the past three years? A6. Telephone number of the interviewee A computer includes: a personal computer, laptop, personal digital assistant (handheld ........................................................................ computer), minicomputer, mainframe. A7. Activity of the enterprise. Please specify [ ] Yes [ ] No ........................................................................ [ ] Not applicable A8. Name of enterprise [ ] Don't know ........................................................................ [ ] Refusal 132 ICT, Innovation, and Economic Growth in Transition Economies B2. Did your enterprise use the Internet during A modem which uses cable TV lines for connec- the past three years? tion to the Internet. Contractual download speed Internet refers to Internet Protocol (IP) based is equivalent to advertised speed. A 1.5Mbps cut- networks: WWW, Extranet over the Internet, off may be used in those countries (e.g. US, EDI over the Internet, Internet accessed by Canada) where this is more applicable than 2 mobile phones, Internet email. Mbps. [ ] Yes [ ] No [ ] Cable modem with contractual down- load speed >= 2Mbps [ ] Not applicable [ ] Other broadband with contractual [ ] Don't know download speed < 2Mbps [ ] Refusal Likely to include technologies such as leased lines, optic fibre cable, some mobile phone access (such as UMTS), satellite and fixed wireless. B3. How did your enterprise connect to the Contractual download speed is equivalent to Internet during the past three years? advertised speed. A 1.5Mbps cut-off may be used Tick all which apply in those countries (e.g. US, Canada) where this is more applicable than 2 Mbps. [ ] Analog modem (dial-up via standard phone line) [ ] Other broadband with contractual An analog modem converts a digital signal into download speed >= 2Mbps analog for transmission by traditional (copper) telephone lines. It also converts analog transmis- [ ] Not applicable sions back to digital. [ ] Don't know [ ] ISDN (Integrated Services Digital [ ] Refusal Network) ISDN is a telecommunication service that turns B4. Which of the following information a traditional (copper) telephone line into a higher technologies, if any, did your enterprise use speed digital link, typically 64 Kbps or 128 Kbps. during the past three years? It is generally regarded as narrowband. Tick all which apply [ ] Other narrowband [ ] Internet email Includes mobile phone access. Electronic transmission of messages, including text and attachments, from one computer to [ ] DSL (ADSL, SDSL, VDSL etc) with another by the Internet. contractual download speed < 2Mbps Digital subscriber line; it is a high-bandwidth, local [ ] Intranet within your enterprise loop technology carrying data at high speeds over traditional (copper) telephone lines. Contractual A network using the same protocol as the Internet download speed is equivalent to advertised speed. A and allowing communication within an 1.5Mbps (megabits per sec) cut-off may be used in organisation. It is typically set up behind a those countries (e.g. US, Canada) where this is firewall to control access. more applicable than 2 Mbps. [ ] Extranet between your enterprise and [ ] DSL (ADSL, SDSL, VDSL etc) with other organisations (including related contractual download speed >= 2Mbps enterprises) A private, secure extension of the intranet running on Internet protocol [ ] Cable modem with contractual down- that allows selected external users to access load speed < 2Mbps Annex 9: Electronic Business Survey (EBS) Baseline Questionnaire 133 some parts of an organisation's intranet. [ ] Not applicable [ ] Don't know [ ] Local area network (LAN) [ ] Refusal Local area network: a network connecting computers within a localised area such as a single purchases/procurement of goods or services building, department or site; may be wireless. via computer networks [ ] Wide area network (WAN) B7. Did your enterprise place orders for goods or services (that is, make purchases) via any Wide area network: a network that connects computer networks during the past three computers over long distances. years? Including: the Internet and other computer [ ] None of the above information tech- networks (e.g. EDI over proprietary networks) nologies. Specify [ ] Yes [ ] No If no, go to B11 ........................................................................ [ ] Not applicable [ ] Not applicable [ ] Don't know [ ] Don't know [ ] Refusal [ ] Refusal B5. Did your enterprise use computer networks B8. Did your enterprise place orders for goods other than the Internet during the past three or services (that is, make purchases) via the years? Internet during the past three years? This includes proprietary or closed networks Refers to purchasing/procurement which are not IP based (for example, the closed Including: via Web sites, specialised Internet computer networks originally set up to facilitate marketplaces, extranets, EDI over the Internet, Electronic Data Interchange ­ EDI). 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 [ ] No Excluding: orders submitted via conventional [ ] Not applicable email [ ] Don't know Excluding: orders which were cancelled or not [ ] Refusal completed B6. Did your enterprise have a Web presence [ ] Yes [ ] No during the last three years? [ ] Not applicable Web presence includes your own Web site/home [ ] Don't know page as well as a presence on a third party's site (including a related entity) where your [ ] Refusal enterprise has full control over the content of the site/page. It excludes a listing in an on-line B9. Did your enterprise place orders (make directory or other Web pages where the enter- purchases) for goods or services via com- prise does not have full control over the page's puter networks other than the Internet content. during the past three years? For instance: EDI over proprietary networks [ ] Yes [ ] No 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 Including: orders placed via the Internet completed whether or not payment was made on-line Excluding: orders submitted to your enterprise [ ] Yes [ ] No via conventional email. [ ] Not applicable Confirm the exclusion of email orders. [ ] Don't know Excluding: orders which were cancelled or not [ ] Refusal completed. B10. Did the computer system/s used by your [ ] Yes [ ] No If no, go to B18 enterprise to place orders via the Internet or other computer networks link electronically [ ] Not applicable with any of the following as at March 2005? Tick all which apply [ ] Don't know [ ] Refusal [ ] Your enterprise's systems for ordering or stock control B12. How were those (Internet) orders received? [ ] Your enterprise's systems for invoicing Tick all which apply customers [ ] Your enterprise's systems for production or [ ] Via Website with an email link service operations [ ] Via an online ordering facility on your [ ] Your enterprise's systems for delivery of website products (including electronic delivery) [ ] Through a third party website e.g. [ ] Your marketing or customer relations specialised Internet marketplace systems [ ] Via EDI over the Internet [ ] Other internal or external systems (please [ ] Not applicable specify) [ ] Don't know ........................................................................ [ ] Refusal [ ] Computer system/s for receiving orders B13. What proportion of your enterprise's total not linked to any of the above turnover during the past three years (exclud- ing value added taxes) did Internet orders [ ] Not applicable (sales) represent? [ ] Don't know Internet orders are as defined in B7. [ ] Refusal .......% Selling goods and services via computer networks [ ] Not applicable [ ] Don't know B11. Did your enterprise receive orders (make sales) via the Internet during the past three years. [ ] Refusal Including: via Web sites, specialised Internet marketplaces, extranets, EDI over the Internet, Note: For Internet orders received on behalf of Internet-enabled mobile phones e.g. WAP other organisations, include only fees or Including: orders received on behalf of other commissions earned on those orders. However, organisations and orders received by other include the value of Internet sales orders received organisations on behalf of your organisation 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 [ ] Your customers' systems (including related Internet. enterprises) [ ] Your enterprise's systems for ordering or B14. Please provide a percentage breakdown of stock control the value of Internet orders (sales), by location of customer: [ ] 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 [ ] Not applicable [ ] Your suppliers' computer systems [ ] Don't know [ ] Computer system/s for receiving orders [ ] Refusal not linked to any of the above [ ] Other internal or external systems (please B15. Did your enterprise receive orders (make specify) sales) for goods or services via computer networks other than the Internet during the [ ] Not applicable past three years? [ ] Don't know For instance: EDI over proprietary networks [ ] Refusal [ ] Yes [ ] No use of ict for other business processes within [ ] Not applicable your enterprise [ ] Don't know B18. Did your enterprise use the Internet or [ ] Refusal other computer networks for dealing with government organisations during the past B16. What proportion of your enterprise's total three years? turnover during the past three years (exclud- Note that government organisations are defined ing value added taxes) did those orders per the SNA93. They include government (sales) represent? organisations at local, regional and national level. See http://unstats.un.org/unsd/sna1993/ .......% glossform.asp?getitem=219 [ ] Not applicable Tick all which apply [ ] Don't know [ ] Refusal [ ] Did not use the Internet or other com- puter networks for dealing with govern- ment organisations B17. Did the computer system/s used by your Go to B19 enterprise to receive orders (make sales) via theInternet or other computer networks [ ] For obtaining information link electronically with any of the following [ ] For downloading or requesting govern- systems as at March 2005? ment forms e.g. taxation forms Tick which apply 136 ICT, Innovation, and Economic Growth in Transition Economies [ ] For completing or lodging forms on-line [ ] Inventory management e.g. applications, claims for grants, tenders [ ] Production or service operations [ ] For purchasing goods and services from government organisations, [ ] Selling goods and services [ ] For selling goods and services to govern- [ ] Processing orders ment organisations, [ ] Delivery and logistics [ ] For making on-line payments to govern- [ ] Customer service ment organisations. [ ] Finance [ ] Other dealings with government (please [ ] Budget and account management specify)....................................... [ ] Asset and facility management [ ] Not applicable [ ] Payroll [ ] Don't know [ ] Human resource management [ ] Refusal [ ] Training [ ] General management and decision B19. Did your enterprise use the Internet or making other computer networks for providing the [ ] Sharing and distribution of information following customer services during the past or data three years? Other, specify [ ] Providing product catalogues or price lists ........................................................................ [ ] Product specification or configuration on- line [ ] Not applicable [ ] Inquiry or contact facility on web site [ ] Don't know [ ] Customised web page for repeat clients [ ] Refusal [ ] Order tracking on-line Module C: PRODUCTIVITY [ ] Customer information collected on-line [ ] After sales support C1. How are the outputs per employee different [ ] Other. Specify 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 [ ] Not applicable services. [ ] Don't know [ ] Refusal [ ] More or less equal (go to C5) [ ] Higher B20 Did your enterprise use internal or external [ ] Lower computer networks in any of the following areas of your business during the past three [ ] Not applicable years? [ ] Don't know [ ] Marketing [ ] Refusal [ ] Purchasing / procurement Annex 9: Electronic Business Survey (EBS) Baseline Questionnaire 137 C2. With what percentage have outputs per C5. How are your average operational costs per employee increased/decreased compared to unit of output different from three years three years ago? ago? This includes depreciation, maintenance and [ ] 0­10 % operational costs, but excluding labour costs. [ ] 10­25 % Units of output can be measured in terms of items sold, services delivered, customers con- [ ] 25­50 % tracted. [ ] 50­75 % [ ] 75­100 % [ ] More or less equal (go to C9) [ ] 100­150 % [ ] 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 C6. With what percentage have your operational business is due: costs per unit of output increased/decreased compared to three years ago? [ ] Mainly To ICT usage (go to C5) [ ] To ICT usage and other factors [ ] 0­10 % [ ] Mainly to other factors [ ] 10­25 % [ ] 25­50 % [ ] Not applicable [ ] 50­75 % [ ] Don't know [ ] 75­100 % [ ] Refusal [ ] 100­150 % [ ] more than 150 % C4. What is the most important of these other factors? [ ] Not applicable [ ] ................................................................. [ ] Don't know [ ] Organisational change [ ] Refusal [ ] Capital investment in equipment C7. Change in operational costs per unit of [ ] Changes in salary structure output is due: [ ] Training of staff [ ] New marketing strategy [ ] Mainly To ICT usage (go to C9) [ ] To ICT usage and other factors [ ] Not applicable [ ] Mainly to other factors [ ] Don't know [ ] Refusal [ ] Not applicable [ ] Don't know [ ] Refusal 138 ICT, Innovation, and Economic Growth in Transition Economies C8. What is the most important of these other C10. With what percentage have total revenues factors? from sales increased/decreased compared to three years ago? [ ] ................................................................. [ ] Organisational change [ ] 0­10 % [ ] Capital investment in equipment [ ] 10­25 % [ ] Changes in salary structure [ ] 25­50 % [ ] Training of staff [ ] 50­75 % [ ] New marketing strategy [ ] 75­100 % [ ] 100­150 % [ ] Not applicable [ ] more than 150 % [ ] Don't know [ ] Refusal [ ] Not applicable [ ] Don't know C9. How are total revenues from sales different [ ] Refusal 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 [ ] Not applicable [ ] Don't know [ ] Don't know [ ] Refusal [ ] Refusal C9b. Please provide a percentage breakdown of the value of revenue, by location of cus- C12. What is the most important of these other tomer: factors? Customers within your country .................. % [ ] ................................................................. [ ] Organisational change Customers outside your country ................. % [ ] Capital investment in equipment [ ] Changes in salary structure =100 [ ] Training of staff [ ] Not applicable [ ] New marketing strategy [ ] Don't know [ ] Not applicable [ ] Refusal [ ] Don't know [ ] Refusal Annex 9: Electronic Business Survey (EBS) Baseline Questionnaire 13 C13. How are profits from sales different from C15. Change in the profits from sales is due: three years ago? Pre-tax profits but excluding other profit sources [ ] Mainly To ICT usage (go to C17) such as financial investments. [ ] To ICT usage and other factors [ ] Mainly to other factors [ ] More or less equal (go to C17) [ ] Higher [ ] Not applicable [ ] Lower [ ] Don't know [ ] Refusal [ ] Not applicable [ ] Don't know C16. What is the most important of these other [ ] Refusal factors? [ ] ................................................................. C13b. Please provide a percentage breakdown of the value of profits from sales, by location [ ] Organisational change of customer: [ ] Capital investment in equipment Customers within your country .................. % [ ] Changes in salary structure [ ] Taining of staff Customers outside your country ................. % [ ] New marketing strategy =100 [ ] Not applicable [ ] Don't know [ ] Not applicable [ ] Refusal [ ] 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 C14. With what percentage have profits from of technology and the re-engineering of business sales increased/decreased compared to three processes and organisation. years ago? [ ] 0­10 % [ ] More or less equal (go to C21) [ ] 10­25 % [ ] Higher [ ] 25­50 % [ ] Lower [ ] 50­75 % [ ] Not applicable [ ] 75­100 % [ ] Don't know [ ] 100­150 % [ ] Refusal [ ] more than 150 % C18. With what percentage has the amount of [ ] Not applicable capital investment in innovation increased/ [ ] Don't know decreased compared to three years ago? [ ] Refusal [ ] 0­10 % [ ] 10­25 % 140 ICT, Innovation, and Economic Growth in Transition Economies [ ] 25­50 % [ ] Not applicable [ ] 50­75 % [ ] Don't know [ ] 75­100 % [ ] Refusal [ ] 100­150 % [ ] more than 150 % C22. With what percentage has the amount of capital investment in ICT increased/ decreased compared to three years ago? [ ] Not applicable [ ] Don't know [ ] 0­10 % [ ] Refusal [ ] 10­25 % [ ] 25­50 % C19. Change in the amount of capital investment in innovation is due: [ ] 50­75 % [ ] 75­100 % [ ] Mainly To ICT usage (go to C21) [ ] 100­150 % [ ] 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 C23. Change in the amount of capital investment C20. What is the most important of these other in ICT is due: factors? [ ] Mainly To ICT usage (go to D1) [ ] ................................................................. [ ] To ICT usage and other factors [ ] Organisational change [ ] Mainly to other factors [ ] Capital investment in equipment [ ] Changes in salary structure [ ] Not applicable [ ] Training of staff [ ] Don't know [ ] New marketing strategy [ ] Refusal [ ] Not applicable C24. What is the most important of these other [ ] Don't know factors? [ ] Refusal [ ] ................................................................. C21. How is the amount of capital investment in [ ] Organisational change ICT different from three years ago? [ ] Capital investment in equipment This is all investment in ICT, regardless of [ ] Changes in salary structure whether it is innovative or not. [ ] Training of staff [ ] More or less equal (go to D1) [ ] New marketing strategy [ ] Higher [ ] Lower Annex 9: Electronic Business Survey (EBS) Baseline Questionnaire 141 [ ] Not applicable C28. What is the most important of these other [ ] Don't know factors? [ ] Refusal [ ] ................................................................. [ ] Organisational change C25. How important is competition on price for gaining market share compared to three [ ] Capital investment in equipment years ago? [ ] Changes in salary structure [ ] More or less the same (go to C21) [ ] Training of staff [ ] More important [ ] New marketing strategy [ ] Less important [ ] Not applicable [ ] Not applicable [ ] Don't know [ ] Don't know [ ] Refusal [ ] Refusal C29. How important is competition on quality for gaining market share compared to three C26. With what percentage has competition on years ago? price increased/decreased your market share compared to three years ago? [ ] More or less the same (go to C21) [ ] 0­10 % [ ] More important [ ] 10­25 % [ ] Less important [ ] 25­50 % [ ] Not applicable [ ] 50­75 % [ ] Don't know [ ] 75­100 % [ ] Refusal [ ] 100­150 % [ ] more than 150 % C30. With what percentage has competition on quality increased/decreased your market [ ] Not applicable share compared to three years ago? [ ] Don't know [ ] 0­10 % [ ] Refusal [ ] 10­25 % [ ] 25­50 % C27. Change in the intensity of competition on price is due: [ ] 50­75 % [ ] 75­100 % [ ] Mainly To ICT usage (go to C21) [ ] 100­150 % [ ] 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 142 ICT, Innovation, and Economic Growth in Transition Economies C31. Change in the intensity of competition on [ ] Not applicable quality is due: [ ] Don't know [ ] Mainly To ICT usage (go to C21) [ ] Refusal [ ] To ICT usage and other factors C35. Change in your average sales prices is due: [ ] 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 C36. What is the most important of these other C32. What is the most important of these other factors? 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 Module D: EFFECTS OF INNOVATION from three years ago? effects of process innovation [ ] more or less equal (go to Q X) D1. During the past three years, has your [ ] higher company increased the speed and reliability [ ] lower of business processes? C34. With what percentage have your average [ ] Yes [ ] No If no, go to D5 sales prices increased/decreased compared to three years ago? [ ] Not applicable [ ] Don't know [ ] 0­10 % [ ] Refusal [ ] 10­25 % [ ] 25­50 % D2. What was the effect of improved speed and [ ] 50­75 % reliability of business processes on your overall business process costs, compared to [ ] 75­100 % three years ago? [ ] 100­150 % Costs (i.e. all costs including operational and net [ ] more than 150 % labour costs) Annex 9: Electronic Business Survey (EBS) Baseline Questionnaire 143 [ ] Increased D6. What was the effect of task automation on [ ] Decreased your overall business process costs, com- pared to three years ago? Costs [ ] Remained about the same (i.e. all costs including operational and net labour costs) [ ] Not applicable [ ] Don't know [ ] Increased [ ] Refusal [ ] Decreased [ ] Remained about the same D3. Improved process speed and reliability was due [ ] Not applicable [ ] Mainly to the usage of ICT [go to D5] [ ] Don't know [ ] To ICT usage and other factors [ ] Refusal [ ] entirely to other factors D7. Improvements in task automation can be attributed [ ] Not applicable [ ] Don't know [ ] Mainly To ICT usage [go to D9] [ ] Refusal [ ] To ICT usage and other factors [ ] Mainly to other factors D4. What is the most important of these other factors? [ ] Not applicable [ ] ................................................................. [ ] Don't know [ ] Organisational change [ ] Refusal [ ] Capital investment in equipment D8. What is the most important of these other [ ] Changes in salary structure factors? [ ] Training of staff [ ] New marketing strategy [ ] ................................................................. [ ] Organisational change [ ] Not applicable [ ] Capital investment in equipment [ ] Don't know [ ] Changes in salary structure [ ] Refusal [ ] Training of staff [ ] New marketing strategy D5. During the past three years, has your company automated tasks? [ ] Not applicable [ ] Yes [ ] No if no, go to D9 [ ] Don't know [ ] Refusal [ ] Not applicable [ ] Don't know D9. During the past three years, has your company improved information [ ] Refusal 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 if no, go to D 13 D13.During the past three years, has your company been through organisational [ ] Not applicable changes? [ ] Don't know [ ] Yes [ ] No if no, go to D17 [ ] Refusal [ ] Not applicable D10.What was the effect of improving informa- [ ] Don't know tion management on your overall business process costs, compared to three years ago? [ ] Refusal Costs: That is all costs including operational and net D14.What was the effect of these organisational labour costs changes on your overall business process costs, compared to three years ago? Costs: [ ] Increased (i.e. all costs including operational and net labour costs) [ ] Decreased [ ] Remained about the same [ ] Increased [ ] Decreased [ ] Not applicable [ ] Remained about the same [ ] Don't know [ ] Refusal [ ] Not applicable [ ] Don't know D11.Improvements in information management can be attributed [ ] Refusal [ ] Mainly to the increased usage of ICT [go D15.Organisational changes were driven to D13] [ ] to increased ICT usage and other factors [ ] Mainly to the usage of ICT [go to D17] [ ] Mainly to other factors [ ] To increased ICT usage and other factors [ ] Mainly to other factors D12.What is the most important of these other factors? [ ] Not applicable [ ] ................................................................. [ ] Don't know [ ] Organisational change [ ] Refusal [ ] Capital investment in equipment D16.What is the most important of these other [ ] Changes in salary structure factors? [ ] Training of staff [ ] ................................................................. [ ] New marketing strategy [ ] Organisational change [ ] Not applicable [ ] Capital investment in equipment [ ] Don't know [ ] Changes in salary structure [ ] Refusal [ ] 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 Effects of product innovation [ ] Not applicable D17.Do you offer customised goods or services to [ ] Don't know your customers? [ ] Refusal [ ] Yes [ ] No if no, go to D21 D21.Have you placed new or substantially new products and/or services in the market [ ] Not applicable during the past three years? [ ] Don't know [ ] Yes [ ] No if no, go to D25 [ ] Refusal [ ] Not applicable D18.Compared to three years ago, has the value of sales of customised products as a percent- [ ] Don't know age of total sales revenue [ ] Refusal [ ] Increased D22.Compared to three years ago, has the value [ ] Decreased of sales of new or different products/services as a percentage of total sales revenue [ ] Remained about the same [ ] Increased [ ] Not applicable [ ] Decreased [ ] Don't know [ ] Remained about the same [ ] Refusal [ ] Not applicable D19.Changes in the value of sales of customised goods and services are due [ ] Don't know [ ] Refusal [ ] Mainly to the usage of ICT [go to D21] [ ] To increased ICT usage and other factors D23.New product and/or service developments are driven [ ] Mainly to other factors [ ] Mainly to the usage of ICT [ go to D25] [ ] Not applicable [ ] To increased ICT usage and other factors [ ] Don't know [ ] Mainly to other factors [ ] Refusal [ ] Not applicable D20 What is the most important of these other factors? [ ] Don't know [ ] Refusal [ ] ................................................................. [ ] Organisational change [ ] Capital investment in equipment 146 ICT, Innovation, and Economic Growth in Transition Economies D24.What is the most important of these other D28.What is the most important of these other factors? 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 Effects of innovation on customer offering new bundled offerings relationships (i.e. linked the purchase of one good or service to the purchase of another good or service?) D29.Compared to three years ago, has the number of customers of your enterprise [ ] Yes [ ] No (if no, go to D29) [ ] Increased [ ] Not applicable [ ] Decreased [ ] Don't know [ ] Remained about the same [go to D32] [ ] Refusal [ ] Not applicable D26.Compared to three years ago, has the value [ ] Don't know of sales of new or different products/services [ ] Refusal as a percentage of total sales revenue [ ] Increased D30.Is change in the number of customers due: [ ] Decreased [ ] Mainly to the usage of ICT [ ] Remained about the same [ ] To increased ICT usage and other factors [ ] Mainly to other factors D27.New bundled product and/or service offerings are driven [ ] Not applicable [ ] Mainly to the usage of ICT [ ] Don't know [ ] To increased ICT usage and other factors [ ] Refusal [ ] Mainly to other factors D31.What is the most important of these other [ ] Not applicable factors? [ ] Don't know [ ] ................................................................. [ ] Refusal [ ] Organisational change 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 D35.Compared to three years ago, the share of [ ] Not applicable retained customers has [ ] Don't know [ ] Increased [ ] Refusal [ ] Decreased [ ] Remained about the same [ go to D38] D32.Compare the value of sales in your customer base to three years ago. Has the value of sales per customer [ ] Not applicable [ ] Don't know [ ] Increased [ ] Refusal [ ] Decreased [ ] Remained about the same [go to D35] D36.Change in the share of retained customers is due: [ ] Not applicable [ ] Mainly to the usage of ICT [ ] Don't know [ ] To increased ICT usage and other factors [ ] Refusal [ ] Mainly to other factors D33.Change in the total value of sales per customer is due [ ] Not applicable [ ] Don't know [ ] Mainly to our ICT capability [ ] Refusal [ ] To our ICT capability and other factors [ ] Mainly to other factors D37.What is the most important of these other factors? [ ] Not applicable [ ] ................................................................. [ ] Don't know [ ] Organisational change [ ] Refusal [ ] Capital investment in equipment D34.What is the most important of these other [ ] Changes in salary structure factors? [ ] Training of staff [ ] ................................................................. [ ] New marketing strategy [ ] Organisational change [ ] Not applicable [ ] Capital investment in equipment [ ] Don't know [ ] Changes in salary structure [ ] Refusal [ ] Training of staff [ ] New marketing strategy 148 ICT, Innovation, and Economic Growth in Transition Economies D38.Compare the value of sales among retained [ ] Training of staff customers to three years ago. Has the value of sales per retained customer [ ] New marketing strategy [ ] Increased [ ] Not applicable [ ] Decreased [ ] Don't know [ ] Remained about the same [ ] Refusal [ ] Not applicable D42.Compare the value of purchases in your supplier base to three years ago. Has the [ ] Don't know value of purchases per supplier [ ] Refusal [ ] Increased Effects of innovation on supplier [ ] Decreased relationships [ ] Remained about the same [go to D45] D39.Compared to three years ago, has the number of suppliers of your enterprise [ ] Not applicable [ ] Don't know [ ] Increased [ ] Refusal [ ] Decreased [ ] Remained about the same [go to D42] D43.Change in the total value of purchases per supplier is due [ ] Not applicable [ ] Mainly to our ICT capability [ ] Don't know [ ] To our ICT capability and other factors [ ] Refusal [ ] Mainly to other factors D40.Is the change in the number of suppliers due: [ ] Not applicable [ ] Don't know [ ] Mainly to the usage of ICT [ ] Refusal [ ] To increased ICT usage and other factors [ ] Mainly to other factors D44.What is the most important of these other factors? [ ] Not applicable [ ] ................................................................. [ ] Don't know [ ] Organisational change [ ] Refusal [ ] Capital investment in equipment D41.What is the most important of these other [ ] Changes in salary structure factors? [ ] 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 14 D45.Compared to three years ago, the number of D48.Compare the distribution of the value of repeat suppliers has purchases among repeat suppliers to three years ago. The value of purchases per repeat [ ] Increased supplier has [ ] Decreased [ ] Increased [ ] Remained about the same [go to [ ] Decreased [ ] Not applicable [ ] Remained about the same [ ] Don't know [ ] Refusal [ ] Not applicable [ ] Don't know D46.Change in the number of repeat suppliers is [ ] Refusal due : D49.Change in the value of purchases per repeat [ ] Mainly to the usage of ICT supplier is due: [ ] 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 D47.What is the most important of these other [ ] Refusal factors? [ ] ................................................................. D50.What is the most important of these other factors? [ ] Organisational change [ ] Capital investment in equipment [ ] ................................................................. [ ] Changes in salary structure [ ] Organisational change [ ] Training of staff [ ] 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 Was sufficient to Were insufficient to No effects know-how support the uptake of support the uptake of new ICTs new ICTs Existing staff skills Were sufficient to Were insufficient to No effects and training support effective ICT support effective ICT usage usage Investment costs in Could easily be Could not easily be No effects ICT justified justified Management attitude Management was Management was No effects proactive in promot- reluctant in promoting ing ICT ICT Other (please specify)................................................................................................................................... Strategic factors Choose the statement that best applies. Tick only one answer per row. Lock-in effects in My enterprise finds it My enterprise find it No effects relations with more difficult to easier to switch suppliers switch between between different different suppliers suppliers because of because of ICT usage ICT usage Outsourcing of Was encouraged by Was discouraged by No effects activities ICT usage ICT usage `In-sourcing' of activi- Was encouraged by Was discouraged by No effects ties ICT usage ICT usage Lock-in effects in My enterprise uses My enterprise uses No effects customer relations ICT to make it more ICT to make it easier difficult for its for its customers to customers to switch switch between between different different suppliers suppliers 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 Did not inhibit the Inhibited the success No effects costs ICT usage initiative of the ICT usage initiative Network reliability Has not been a Has been a problem No effects problem to ICT usage to ICT usage Network flexibility Was sufficient for the Was insufficient for No effects and range of services enterprise to engage in the enterprise to ICT usage engage in ICT usage Geographic coverage Was sufficient to Was insufficient to No effects of the network encourage the enter- encourage the enter- prise to engage in ICT prise to engage in ICT usage usage Other (please specify)................................................................................................................................... regulatory factors Choose the statement that best applies. Tick only one answer per row. Available in- house Encouraged ICT usage Discouraged ICT No effects know-how usage Existing staff skills Encouraged ICT usage Discouraged ICT No effects and training usage Investment costs in Was sufficient to Was insufficient to No effects ICT encourage ICT usage encouraged ICT usage Management attitude Was sufficient to Was insufficient to No effects encourage ICT usage encourage ICT usage 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 Discouraged the firm No effects to engage in ICT usage to engage in ICT usage Public financial Was sufficient to Was insufficient to No effects support for R&D, encourage the firm to encourage the firm to diffusion or uptake engage in ICT usage engage in ICT usage Education system Provided adequately Provided inadequately No effects trained personnel to trained personnel to engage in ICT usage engage in ICT usage Government provi- Made it more attrac- Made it less attractive No effects sion of on-line tive to engage in ICT to engage in ICT usage electronic services usage Other (please specify)................................................................................................................................... Support measures Public awareness Contributed suf- Contributed insuf- No effects raising & demonstra- ficiently to the success ficiently to the success tion programmes of ICT usage of ICT usage Private awareness Contributed suf- Contributed insuf- No effects raising & demonstra- ficiently to the success ficiently to the success tion programmes of ICT usage of ICT usage Government training Sufficiently supported Insufficiently sup- No effects programmes the firm's capacity to ported the firm's engage in ICT usage capacity to engage in ICT usage Private training Sufficiently supported Insufficiently sup- No effects programmes the firm's capacity to ported the firm's engage in ICT usage capacity to engage in ICT usage Other (please specify)................................................................................................................................... Annex 9: Electronic Business Survey (EBS) Baseline Questionnaire 153 What is the most useful measure the government Measure 3 ............................................................... can take to stimulate the uptake of ICT usage? Give a brief description and context of the ................................................................................. proposed measure(s). ................................................................................. ................................................................................. Measure 1 ................................................................ ................................................................................. ................................................................................. ................................................................................. ................................................................................. ................................................................................. ................................................................................. ................................................................................. 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 donors--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 Informaton for Development Program www.nfoDev.org www.infoDev.org