Technological Cooperation Netherlands-Russia Quick Scan Final Report
TNO Innovation Policy group Govert Gijsbers Johannes Roseboom Geert Schoch November 2006
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Table of contents Executive Summary ................................................................................................................... 5 1. Introduction .......................................................................... Error! Bookmark not defined. 1. Introduction .......................................................................... Error! Bookmark not defined. 2. Overview of economic and technological cooperation .......................................................... 9 2.1 Economic cooperation.......................................................................................................... 9 2.2 Technological cooperation ................................................................................................. 14 3. Sector Analysis..................................................................................................................... 23 4. Options and obstacles for technological cooperation........................................................... 29 5. Policy options and recommendations................................................................................... 33 References ................................................................................................................................ 37 Annex I: List of companies and institutes interviewed ............................................................ 38 Annex II: Collaboration between Dutch and Russian knowledge institutions in the context of FP6 projects.............................................................................................................................. 39
Tables Table 1: Export from the Netherlands to Russia Table 2: Import of the Netherlands from Russia Table 3: The most attractive location for future investments Table 4: Investments by foreign companies in Russia Table 5: Major Dutch companies active on the Russian market Table 6: FP6 research projects involving Dutch and Russian partners Table 7: Dutch export of agricultural inputs to Russia Figures Figure 1: Types of technological cooperation between the Netherlands and Russia
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Executive Summary This report aims to provide a concise overview of the technological cooperation between the Netherlands and the Russian Federation. Technological cooperation can take several forms. The report starts by putting it in the perspective of economic relations between the two countries, reviewing the trade balance and the pattern of foreign direct investment in Russia by Dutch companies. This is followed by an overview of the main programmes available to promote cooperation between the two countries. These include bilaterally funded programmes from the Netherlands as well as a number of multilateral programmes, which provide opportunities for technological cooperation between companies, research institutes and universities from the Russian Federation and the Netherlands. The analysis continues with a review of five important sectors where Dutch companies are actively involved in Russia. These include: (1) agricultural and food; (2) chemistry; (3) machinery and equipment; (4) oil and gas; and (5) services. Technological cooperation differs markedly between the sectors. In some sectors such as food and agriculture and in services, where Dutch companies are world leaders, technological cooperation takes the form of upgrading of local production facilities or greenfield investments where technology is transferred as an integral part of foreign direct investment. In chemistry and in machinery and equipment Russian research institutes and companies have strong technology positions and companies from the Netherlands can benefit substantially from cooperation with organisations in the Russian Federation. The analysis of sectoral patterns is followed by a presentation of strengths and weaknesses of the innovation systems of the Netherlands and the Russian Federation. The main message is that there are important complementarities between the innovation systems of the two countries and that both can benefit from exploiting the opportunities this provides. The report concludes with a review of policy options, discussing briefly the current policy instruments in the Netherlands and the rapidly changing situation in Russia where funding is increasingly available to finance international technological cooperation activities. Finally, some issues that require a more in-depth analysis are presented.
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1. Introduction The Ministry of Economic Affairs of the Netherlands has requested TNO to conduct a quick scan of the technological cooperation between the Netherlands and Russia. The purpose of this document is to report on the different types of cooperation, the main actors involved, the strengths and weaknesses of this cooperation, and the possibilities for more adequate policy support. This report starts with an overview of economic and technological cooperation, followed by a review of the most important economic sectors for cooperation between the Netherlands and Russia. Next, options and obstacles for expanding technological cooperation are identified. The final section presents conclusions and recommendations. The report was prepared by a TNO team consisting of Govert Gijsbers (Innovation Policy Group), Johannes Roseboom (consultant), and Geert Schoch (TNO Central Office).
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2. Overview of economic and technological cooperation 2.1 Economic cooperation The transition of the Russian economy from ‘central planning’ to ‘open market’ in the early 1990s has created many new opportunities for foreign (and thus also Dutch) companies to develop activities on the Russian market. In first instance these activities consisted primarily of exports to Russia. Increasingly, however, Dutch companies are also involved in setting up production facilities in Russia – either alone or in cooperation with Russian counterparts. Such investments usually involve transfer of technology (embodied in new machinery and equipment) as well as knowledge and experience. Trade balance As shown in table 1, the Dutch export to the Russian Federation concentrates in three major product groups, namely: a. Agriculture: vegetables and fruits, meat and dairy products, flowers and plants, and processed food products; b. Chemical industry: medicines, soap and cosmetics, detergents, and plastic and plastic products; and c. Machinery and transport equipment industry: computers, telecom equipment, electrical products, machinery, and transport equipment. The export to Russia in recent years shows a steady and double digit growth, after a drop in the export to Russia in the late 1990s as a result of the economic and financial crisis in Russia at that time (table 1). In 2005, the Dutch export to Russia grew with 29%.1 This growth in export is due mainly to a growth in the export of industrial products (and in particular computers and computer components). While agricultural and food products were good for half of the Dutch export to Russia in the mid-1990s, by 2005 its share had dropped to below 20%. This very positive development of the Dutch export to Russia is exceeded by an even faster growth of Dutch imports from Russia in recent years (table 2). This is due mainly to the sharp rise in the oil price. The Netherlands imports mainly fuels from Russia (85% of all imports from Russia in 2005) and metals and metal products (10% of the import). Looking at the trade balance between the Netherlands and Russia from a knowledge perspective, then one notices that the Netherlands imports mainly raw materials and semiprocessed metal products, while Russia imports from the Netherlands a very diverse set of high-quality and knowledge-intensive products like fine chemicals, machinery, computers and electrical equipment. The knowledge embodied in these products is in part of Dutch origin, but in part also imported by the Netherlands in the form of high-tech components (like in the case of computers). As mentioned earlier, the picture that the Netherlands exports mainly agricultural and food products to Russia needs to be adjusted.
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Total import by Russia grew with 40% in 2005. This suggests that Dutch companies have benefited less of the emerging trade opportunities than other countries. It may be worthwhile to analyse the structure of Russian import in more detail – for which products is there a strong demand?
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Table 1: Export from the Netherlands to the Russian Federation SITC
Product category
1996
0
Food and living animals Animal husbandry (living animals, meat, dairy and eggs) (0.0+0.1+0.2) Vegetables and fruit (0.5) Processed food products (0.6+0.7+0.9) 1 Beverages and tobacco 2 Crude materials, inedible, except fuel Flowers and living plants (part of 2.9) 3 Mineral fuels, lubricants, and related materials 4 Animal and vegetal oils, fats and waxes 5 Chemicals and related products, n.e.s. Medicinal and pharmaceutical products (5.4) Essential oils and resinoids and perfume materials; toilet, polishing and cleansing preparations. (5.5) Plastics in primary and non-primary form (5.7-5.8) 6 Manufactured goods classified chiefly by material 7 Machinery and transport equipment Machinery and equipment (7.1-7.4) Computers, telecom and electrical products and components (7.5-7.7) Road vehicles and transport equipment (7.8-7.9) 8 Miscellaneous manufactured products Professional, scientific and controlling instruments; photographic equipment; watches and clocks (8.7+8.8) 9 Commodities and transactions not classified elsewhere Total Source: CBS database.
1999
518 153
2002 2003 2004 (million Euros) 305 541 513 538 102 120 74 84
2005
199 114 79 49 31 1 36 156 43 14
97 66 15 34 21 4 139 143 19 20
227 130 9 158 128 5 89 308 58 84
268 123 8 178 142 7 59 401 65 131
225 147 9 176 127 9 49 449 76 118
213 142 15 182 138 11 52 583 109 143
28 79 300 46 205
29 56 459 77 351
45 135 1066 197 724
65 139 1314 257 868
83 174 1587 282 1137
118 196 2263 375 1691
49 168 82
32 60 26
144 156 60
189 169 72
169 226 74
196 295 109
3 1388
1 1215
1 2467
1 2789
1 3219
2 4159
561 113
Table 2: Import of the Netherlands from the Russian Federation SITC
Product category
0 1 2
Food and living animals Beverages and tobacco Crude materials, inedible, except fuel Cork and wood (2.4) Metalliferous ores and metal scrap (2.8) 3 Mineral fuels, lubricants, and related materials Petroleum, petroleum products and related materials (3.3) Gas, natural and manufactured (3.4) 4 Animal and vegetal oils, fats and waxes 5 Chemicals and related products, n.e.s. 6 Manufactured goods classified chiefly by material Iron and steel (6.7) Nonferrous metals (6.8) 7 Machinery and transport equipment 8 Miscellaneous manufactured products 9 Commodities and transactions not classified elsewhere Total Source: CBS database
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1996
1999
17 1 215 31 108 728 723 0 0 85 226 27 191 15 6 1 1293
15 1 239 51 140 721 706 0 0 90 413 23 373 26 5 1 1510
2002 2003 (million Euros) 14 9 1 1 136 131 64 55 47 52 2984 3825 2810 3511 151 294 0 0 198 150 411 431 63 66 315 336 30 60 10 11 0 0 3784 4618
2004
2005
7 1 212 54 138 5141 4740 309 1 184 518 139 350 39 13 0 6117
12 0 247 49 185 7099 6366 610 0 233 683 265 396 36 12 0 8324
Foreign direct investments Not only trade flows provide insight into the exchange of knowledge and technology, also capital flows (and in particular direct investments) can provide an indication of how strong an economy is integrated with other economies and the underlying knowledge base. The stock of Foreign Direct Investment (FDI) in the Netherlands is equivalent to 74.2% of Gross Domestic Product (GDP), in the European Union 31.7%, and in Russia 16.9% (UNCTAD 2005). This indicates that foreign companies have a relatively low share in the Russian economy. This is primarily due to historic reasons – in the past foreign companies were not allowed (or only very limited) to operate in Russia. In recent years, however, Russia is quickly catching up. The total stock of FDI in Russia increased from US$ 32.2 billion in 2000 to US$ 98.8 billion in 2004 (UNCTAD 2005). In 2005 another US$ 16.7 billion was added to the FDI stock in Russia (FAIC 2006). This was the highest volume of FDI in the Russian history. A recent international survey regarding the attractiveness of a country for future investment shows that Russia scores very well at this moment (table 3). In particular the energy sector attracts a lot of foreign capital. At the same time there is a lot of capital that is leaving Russia. In the late 1990s, capital export exceeded import. For the past few years, however, this trend has been reversed. In terms of integrating the Russian economy more into the world economy, the fact that Russian companies invest abroad should be seen as a positive sign. Table 3: The most attractive location for future investments According to experts: 1. China (85%) 2. USA (55%) 3. India (42%) 4. Brazil (24%) 5. Russian Federation (21%) 6. United Kingdom (21%) 7. Germany (12%) 8. Poland (9%) 9. Singapore (9%) 10. Ukraine (9%) Source: UNCTAD (2005)
According to multinationals: 1. China (87%) 2. India (51%) 3. USA (51%) 4. Russian Federation (33%) 5. Brazil (20%) 6. Mexico (16%) 7. Germany (13%) 8. United Kingdom (13%) 9. Thailand (11%) 10. Canada (7%)
In both 2004 and 2005, Russia ranked fifth in terms of FDI destination. Only China, India, USA, and the UK scored higher (OCO 2005). A recent survey (April 2006) conducted by the Foreign Investment Advisory Committee (FAIC) confirms this very positive picture – it reports a very strong expansion of FDI into Russia in 2005 and predicts further expansion in the coming years. The two most important reasons for foreign companies to invest in Russia are the size of the Russian market and strong economic growth. The Netherlands has become one of the bigger investors in Russia in recent years. This is due mainly to the large investments by Shell in the Sakhalin project and some other Russian projects. The investment in the Sakhalin project alone is estimated at some US$ 20 billion, in which Shell has a stake of 55%. This is most likely the biggest investment by a foreign company in Russia. Heineken is also a big investor in Russia – it has spent some US$ 1.5 billion on acquiring a string of Russian breweries and has built up a strong position on the Russian beer market. With this, these two Dutch companies belong to a small select group of foreign companies that have invested more than US$ 1 billion in Russia (table 4). The
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impression is that all other investments by Dutch companies are of a considerably lower volume. Table 4: Investments by foreign companies in Russia Investments in 2005 < US$ 10 million US$ 10-50 million US$ 50-100 million US$ 100-200 million US$ 200-500 million > US$ 500 million
Number of companies 36 28 13 6 6 5 94
Accumulated investments < US$ 50 million US$ 50-100 million US$ 100-200 million US$ 200-500 million US$ 500-1000 million > US$ 1000 million
Number of companies 25 13 13 15 16 10 92
Source: FAIC (2006)
Presence of Dutch companies on the Russian market Table 5 provides an overview of major Dutch companies active on the Russian market. To the extent possible we have tried to identify whether they have invested in local production capacity or merely export to the Russian market. In addition, we have tried to identify whether they conduct R&D in Russia. Not mentioned in this table are Dutch companies that collaborate with Russian R&D institutes but do not target the Russian market, like ASML and Stork Aerospace.
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Table 5: Major Dutch companies active on the Russian market Company
Product(s)
Shell Heineken Philips
Oil Beer Electrical household goods; mobile phones; medical equipment; computers; computer components Food products; personal care products; detergents Dairy products Fine chemistry and pharmaceuticals Fine chemistry Banking Insurance Banking Filtering, water treatment equipment Baby food and clinical nutrition Gas transport Consultancy Consultancy Consultancy Consultancy Enzymes Animal feed Animal feed ingredients Animal feed ingredients Window coverings Flooring Pharmaceuticals Consultancy Publishing Computer processor manufacturing Defense Poultry processing systems Office furniture Potatoes: processing systems, equipment Tea Food processing systems
Unilever Campina AKZO-Nobel DSM ABN-AMRO ING Rabobank Norit Numico Gasunie Arcadis DHV Tebodin Haskoning Genencor Provimi Nutreco Fontanka Hunter Douglas Forbo Intermarc BV Petro Engineering Independent Media ASML Stork Aerospace Stork Food Systems Ahrend Ruskar International Van Rees Convenient Food Systems NMA (ex Philips Electronics) KLM Mov’ on Logistics TNT Express Rossia Frans Maas Voerman International ARL Consulting Direct Star Erik van Egeraat Architecten Lighthouse Business Management ECORYS NEI Juralink
Investment in local production Yes Yes No
R&D in Russia Yes ?? Yes
Yes Yes Yes No No No No No Yes No No No No No No Yes No No No No No No Yes No No No No No No No
Yes No Yes (?) Yes No No No No ?? Yes No No No No Once Yes No No No No No No No Yes Yes (?) No No No No No
Technical systems airport terminals, warehouses and distributing centres Transport Transport (logistics services) Transport (mail, express and logistics services) Transport (logistics services) Transport (relocation)
No
No
No No No No No
No No No No No
IT consultancy Call Center Service Consultancy
No No No
No No No
Consultancy
No
No
Consultancy Consultancy
No No
No No
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2.2 Technological cooperation Scientific and technological cooperation between the Netherlands and Russia is being stimulated through a number of bilateral and multilateral instruments (table 6). They can be grouped into three categories: (1) Support to collaboration in fundamental and strategic research; (2) Support to collaboration in innovation by the business sector; and (3) Financial and technical assistance for economic development. Table 6: Bilateral and multilateral instruments to support scientific, technological and economic cooperation between the Netherlands and the Russian Federation Objective 1. Support to collaboration in fundamental and strategic research
Bilateral NWO: Scientific Cooperation Programme Netherlands-Russian Federation
2. Support to collaboration in innovation activities by businesses 3. Financial and technical assistance for economic development
SenterNovem: Innovation Subsidy for Collaborative Projects EVD: Programme Cooperation Emerging Markets (PSOM)
Multilateral Sixth EU Framework Programme (FP6) INTAS ISTC EUREKA EU: TACIS
. Bilateral programmes (1) The Netherlands Organization for Scientific Research (NWO) operates, on behalf of the Dutch Ministry of Education and Sciences, a bilateral scientific cooperation programme between the Netherlands and the Russian Federation. Over the past ten years it has financed more than 350 research projects. The budget of this programme for the period 2004-2007 is about € 8.3 million (or some € 2.1 million per annum). This four-year programme operates the following five competitive funding windows: a. Collaborative research projects: Funding about € 150,000 for a 3-year project. Budget available for some 40 project proposals. b. Long-term Collaboration in Centres of Excellence: Funding about € 500,000 per centre for a period of five years. Budget available for 3 proposals. c. Fellowships for Russian post-docs: Funding about € 15,000 for 2 years. Budget available for 25 candidates, which usually have been involved in DutchRussian projects. d. Training and subsidy for integration into European programmes: Funding available for 10 applications of € 10,000 each. e. Innovation subsidies: Five subsidies of € 10,000 each available to promote further development, application and marketing of research outcomes from the Dutch-Russian scientific cooperation programme. The project database of NWO reports some 167 research projects under the “Scientific Cooperation Programme Netherlands-Russian Federation” that have been completed after 1999 or are still active. Of these projects, 137 have been or are being implemented by Dutch universities and 40 by Dutch research institutes and the like. The on-line project database does not provide information about Russian counterparts (more about this later).
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Long-term collaboration in centres of excellence is a new funding window. To date, one proposal has been funded, which is led by Wageningen University and Research and deals with plant bacteria and sustainable agriculture. NWO subsidizes one-third of the eligible costs (Dutch salaries are excluded) up to half a million Euros for five years. The innovation subsidy component is a relatively small window and targets universities and knowledge institutions rather than enterprises. (2) SenterNovem operates, on behalf of the Dutch Ministry of Economic Affairs, a subsidy scheme ‘Innovation Subsidy for Collaborative Projects.’ The aim of this scheme, which in its current setup started in 2004, is to encourage Dutch businesses to conduct joint innovation projects with other businesses, research institutes and universities. The subsidy ranges from 25 to 50 percent of the eligible project costs. The scheme explicitly supports the participation of foreign partners as well as public research organizations and universities. In both instances, a 10% higher subsidy is being provided. Participating SMEs can get an additional 10% subsidy for their costs. In 2006, the government provided a budget for this subsidy scheme of € 61 million, of which € 25 million was reserved for projects with one or more foreign partners and the remainder (€ 36 million) for projects with national partners only. The former component of the subsidy scheme is the Dutch contribution to EUREKA, which is a pan-European network of 37 European countries (including the Russian Federation) and the European Union to facilitate cross-border collaboration in market-oriented, industrial R&D. The Dutch EUREKA funding only finances activities that take place in the Netherlands. Foreign partners have to seek a subsidy from their own government or pay for themselves. This seems to limit Russian participation in EUREKA projects considerably as there is apparently no equivalent instrument (and hence finance) on the Russian side.2 The EUREKA database (which records projects since its establishment in 1985) reports only five projects in which Dutch and Russian participants collaborate. Looking closer at these five projects, in three instances either the Dutch or the Russian participant withdrew from the project before it started. The two remaining EUREKA projects with both Dutch and Russian participants were large international projects led by other countries and completed before 1996. In other words, over the past 10 years this instrument has not facilitated any collaboration in innovation between the Netherlands and the Russian Federation. Three observations can be made regarding the lack of collaboration between Dutch and Russian partners within EUREKA: (i) Physical (and perhaps also cultural) distance plays an important role in the selection of partners within EUREKA projects. DutchGerman and Dutch-Belgian partnerships are far more common than Dutch-Greek partnerships; (ii) Lack of interest and funding on the Russian side. Particularly during the economic crisis in the late 1990s, Russian participation in EUREKA has been minimal. Of the 2026 completed and 826 ongoing EUREKA projects, only 77 projects report Russian participation and only four were led by Russia. In recent years, however, Russian participation seems to have improved due to the improved economic situation; and (iii) The innovation strategy of most Russian businesses at this moment is to buy 2
At least such an instrument is not listed on the EUREKA website, which provides an overview of all such instruments in the different member countries.
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technology (look for example at the enormous import of equipment and machinery) rather than to develop it. To date, tenders for the Dutch EUREKA subsidy have been fully bottom-up. This will most likely change in the future as the Dutch government intends to adopt a more programmatic approach to its innovation policies. This will most likely result in more targeted tenders also for EUREKA funding, targeting specific programme areas. (3) The Programme Cooperation Eastern-Europe (Dutch acronym: PSO), which is financed by the Dutch government, has recently been transformed into the Programme Cooperation Emerging Markets (Dutch acronym: PSOM). This programme, financed jointly by the Ministry of Economic Affairs and the Ministry of Development Cooperation, is being implemented by the EVD, which is an executing agency of the Ministry of Economic Affairs. Between 1994 and 2004, PSO has financed some 191 projects in Russia, with a total value of € 105.6 million (roughly € 10 million a year). About half of the funding went into projects focusing on agriculture and food processing. Projects usually dealt with the transfer of knowledge, not with the creation of new knowledge. Technological cooperation is not the main purpose of the programme, but it has operated in the past programmatic tenders that had a technological assistance component to it. 3 Multilateral technical cooperation programmes (1) The Sixth Framework Programme “Towards an European Research Area” (FP6) promotes collaborative research within the European Union. The total budget for this programme is approximately € 17.5 billion, covering the years 2002-2006. Although the primary objective of the programme is to facilitate further integration of European research, it also has set aside a substantial budget for international scientific cooperation. To date, 75 projects have been funded under FP6 that involve both Dutch and Russian partners (Table 6). They usually also involve other European partners, but they are not included in the table. Cooperation is the most intensive for the following five FP6 priority themes: (a) life sciences, genomics and biotechnology for health; (b) information society technologies; (c) nanotechnology; (d) aeronautics and space; and (e) sustainable development, global change and ecosystems. Involvement of Dutch companies in these FP6 research projects is rather limited. Only 13 projects involve Dutch companies (excluding research or consultancy companies). Philips is involved in three projects, while another 17 companies are involved in only one project each. Of the EU budget for international scientific cooperation under FP6, a substantial part goes to Russia (about 20%). In certain priority areas, however, the share of Russia is far higher: 95% in aerospace, 75% in nanotechnology and 30% information society technologies. In the case of EURATOM, 100% of its international scientific collaboration budget goes to Russia and the Newly Independent States (NIS). These are scientific areas in which one can consider Russia to be particularly strong (Aguilar 2006).
3
PSOM has stopped programmatic tenders in 2005.
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As highlighted earlier, NWO operates a funding facility to assist Dutch and Russian knowledge institutions in developing joint proposals for the EU Framework Programme. Table 6: FP6 research projects involving Dutch and Russian partners
1 2 3
4 5 6 7 8 9 10 11 12 13 14
Priority theme Life sciences, genomics and biotechnology for health Information society technologies Nanotechnologies and nanosciences, knowledge-based multifunctional materials and new production processes and devices Aeronautics and space Food quality and safety Sustainable development, global change and ecosystems Citizens and governance in a knowledge-based society Euratom Horizontal research activities involving SMEs Human resources and mobility Policy support and anticipating scientific and technological needs Research infrastructures Specific measures in support of international cooperation Support for the coordination of activities
Projects 7 11 9
Dutch budget € 8,780,807 € 8,700,124 € 3,490,178
Russian budget € 1,624,468 € 1,677,548 € 1,773,843
11 1 12
€ € €
8,783,289 400,024 9,012,512
€ € €
5,342,580 186,000 3,033,400
3 4 1 5 3
€ € € € €
2,445,384 268,481 258,440 1,199,749 592,174
€ € € € €
194,730 1,321,079 58,545 29,100 67,353
4 3
€ €
8,790,430 462,920
€ €
1,073,000 1,309,469
1
€
67,800
€
87,600
Total 75 € 53,252,312 € 17,778,715 Source: SenterNovem database. Note: The budget figures do not include the participation of other European partners in these research projects.
(2) INTAS, the International Association for the Promotion of Co-operation with Scientists from the New Independent States (NIS) of the Former Soviet Union, is an independent International Association formed by the European Community, European Union Member States and like-minded countries to promote East-West scientific co-operation between INTAS members and INTAS-NIS partner countries. It receives most of its funding (88%) from the EU through the Framework Programmes. The remainder (12%) is coming from member states, partner countries and European organisations. Since its establishment in 1993, INTAS has spent some € 230 million. In 2003, INTAS had a budget of € 26.0 million, of which € 23.1 million was provided by the EU through FP6.4 The bulk of its budget (92%) goes into joint research projects and research networks. The remainder is spent on grants to young NIS scientists, regional workshops, summer schools, etc. INTAS operates both thematic and country-specific calls for proposals. It also has introduced joint funding schemes with specific partner countries. Selection is highly competitive, only 15% of the proposals get funded. Some 65% of the funded projects are with Russian scientists. This funding window for scientific cooperation between the Netherlands and Russia is roughly in the order of € 1 million a year. Since 1996, some 50 projects with Dutch and Russian participation have been funded by INTAS (CORDIS database). Nearly all these projects have been 4
The INTAS projects are not included in the SenterNovem database that provided the data for table 6. The INTAS project database is currently not accessible on the Internet, so we have no clear picture of the Dutch participation in INTAS. Wageningen University and Research Centre reported participation in three INTAS projects involving Russia since 1995.
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completed and only two projects are currently running. Funding for INTAS by the EU will stop by the end of 2006. No budget has been set aside under FP7 for INTAS. (3) The objectives of the International Science and Technology Center (ISTC) are to provide opportunities to former weapons scientists to dedicate themselves to peaceful activities. It supports basic and applied research and technology development. Since programme inception in 1994, its partners have provided $207 million in project funding. In 2005 partners provided $ 21.5 million for 56 projects for Russia and CIS countries. The participation of the Netherlands in ISTC projects appears to be small. (4) Eureka is the market-oriented R&D network of the EU. Since its establishment, the 37 member countries in the network have implemented some 2200 projects with a total budget of over €21 billion. The Russian Federation became a member in 1993. Since then, participation of Russia in on-going and completed projects has amounted to € 37.5 million.5 Completed projects have a total budget of € 22.7 million and involved 76 Russian organizations (19 SMEs, 35 research institutes, and 12 universities). On-going projects involve 8 Russian SMEs, 12 research institutes, and 5 universities with a budget of € 14.8 million. Russian participation is strong in industrial manufacturing, new materials, information technology, medical and biotechnology, chemistry and robotics. For more specific information regarding Dutch-Russian cooperation within EUREKA see the Innovation Subsidy for Collaborative Projects managed by SenterNovem. (5) Technical Aid to the Commonwealth of Independent States (TACIS) Programme is funded by the European Union. The total budget for the Russian Federation for the period 2004-2006 is € 392 million, targeting the following priority themes: a. Support for institutional, legal and administrative reform: administrative reform, judicial reform, fight against organized crime and terrorism, migration issues and support for the civil society (€ 122 million); b. Support to the private sector and assistance for economic development: Integration of Russia into the international economy, reform of the financial sector, policy dialogue in specific domains, and infrastructure masterplanning (€ 120 million); c. Support for addressing the social consequences of transition: social and health sector reform, labour policy and social dialogue, education, and municipal services (€ 125 million); and d. Special Programme for Kaliningrad Oblast. In 2001-2003, over €50 million in general technical assistance was committed to the Kaliningrad Oblast, and a further € 50 million earmarked for the period 2004-2006 under the Special Programme for Kaliningrad. Projects cover institution building, energy, transport, enterprise restructuring, management training, and environment. This technical aid budget is in particular interesting for Dutch consultancy firms like Arcadis, DHV, Tebodin, and Haskoning. Also some Dutch research institutes and universities have been involved in implementing projects under the TACIS programme. TNO, for example, has participated in a European consortium that implemented a project on S&T commercialisation and benchmarking of Russian innovation policies with European ones. 5
http://www.eureka.be/contacts/member.do?memId=RU, accessed September 2006
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Collaboration between Dutch and Russian knowledge institutions In order to get a better picture of which Dutch knowledge institutions are most active in scientific collaboration with the Russian Federation, we analyzed the project databases of the two most important funding sources of Dutch-Russian scientific cooperation, namely FP6 and the Scientific Cooperation Programme Netherlands-Russian Federation of NWO. The result of this analysis is summarized in table 7. NWO projects only report the Dutch lead agent of the project, so the number of participants is equivalent to the number of projects. FP6 projects, however, report all project participants and so the number of participants (103) is larger than the number of projects (75). Moreover, FP6 projects tend to be substantially larger than NWO projects and so it is quite common for projects to have multiple participants. Only NWO projects active after 1999 have been included in the analysis. The FP6 projects cover the period 2002-2006. Table 7: Participation of Dutch knowledge institutions in collaborative research projects with the Russian Federation. FP6 projects (75)
NWO projects (167)
Total (242)
Universities Technical University Delft Wageningen University and Research Centre Leiden University Utrecht University Technical University Eindhoven Radboud University University of Amsterdam Free University (Amsterdam) Groningen University Twente University Erasmus University Maastricht University Tilburg University Subtotal
7 10 9 9 5 5 6 5 3 2 2 2 0 65
20 17 15 14 16 12 11 11 9 9 1 0 2 137
27 27 24 23 21 17 17 16 12 11 3 2 2 202
Research institutes Stichting voor Fundamenteel Onderzoek der Materie TNO Stichting Nationaal Lucht- en Ruimtevaart Laboratorium Energieonderzoek Centrum Nederland Nederlands Instituut voor Ecologie KNMI Nuclear Research and Consultancy Group RIVM Koninklijk Nederlands Instituut voor Onderzoek der Zee Stichting Centrum voor Wiskunde en Informatica Stichting Telematica Instituut Stichting Waterloopkundig Laboratorium Institutes with one project only Subtotal
3 2 8 3 1 2 3 3 1 1 2 2 7 38
9 7 0 1 3 1 0 0 1 1 0 0 7 30
12 9 8 4 4 3 3 3 2 2 2 2 14 68
103
167
270
Total
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Among the five Dutch universities most active in scientific collaboration with the Russian Federation, we find three specialized universities – two dealing with technology and one with agriculture. The universities of Leiden and Utrecht score high because of medical research. Among the Dutch research institutes, the Foundation for Fundamental Research on Matter (Dutch acronym: FOM)6 stands out as the one with the most intensive scientific collaboration with research institutes and universities in the Russian Federation. TNO follows in second place and the National Aerospace Laboratory in third place.7 To sketch an overview of the Russian partners in these collaborative research projects, only the FP6 projects provided such information. Based on 75 FP6 projects, we identified 69 Russian knowledge institutions that participated in one or more of these projects (table 8). Moreover, FP6 projects have been labelled according to one of the 13 FP6 priority themes, which helps us to see in which areas the collaboration is most intensive. Table 8: Participation of Dutch and Russian knowledge institutions in FP6 projects by priority theme Dutch knowledge institutions Uni’s RIs Total (12) (20) (32) 14 3 17
Russian knowledge institutions Uni’s RAS Other Total (19) RIs (22) RIs (28) (69) 2 1 4 7
Priority theme 1.Life sciences, genomics and biotechnology for health 2.Information society technologies 4 4 8 3 7 1 11 3. Nanotechnologies and nanosciences, 8 0 8 2 9 0 11 knowledge-based multifunctional materials and new production processes and devices 4. Aeronautics and space 4 10 14 0 0 11 11 5. Food quality and safety 0 1 1 0 1 0 1 6. Sustainable development, global 14 10 24 4 5 3 12 change and ecosystems 7. Citizens and governance in a 7 0 7 2 0 0 2 knowledge-based society 8. Euratom 1 4 5 0 0 6 6 9. Horizontal research activities 1 0 1 0 0 0 0 involving SMEs 10. Human resources and mobility 5 0 5 3 2 0 5 11. Policy support and anticipating 1 2 3 0 0 1 1 scientific and technological needs 12. Research infrastructures 4 3 7 0 5 4 9 13. Specific measures in support of 2 1 3 7 0 1 8 international cooperation Total 65 38 103 23 30 31 84 Note: See annex A for detailed listing of Dutch and Russian universities and research institutes that participate in FP6 projects. 6
In particular two institutes belonging to FOM: Institute for Plasma Physics 'Rijnhuizen' and Institute for Atomic and Molecular Physics. 7 The institutes with only one project are: International Institute for Social History, KNAW, Leids Instituut voor Chemisch Onderzoek, National Archive, Instituut voor Hersenonderzoek, Instituut voor Visserij Onderzoek, Nederlands Instituut voor Zuivelonderzoek, Nederlands Kanker Instituut, Netherlands Geomatics & Earth Observation B.V., Research Instituut voor Materialen, Rijksinstituut voor Kust en Zee, RIKILT, Stichting Academisch Rekencentrum Amsterdam, and Stichting Astronomisch Onderzoek in Nederland.
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In order to understand the Russian data, some important differences with the Dutch situation should be considered: 1. Russian universities are teaching institutions rather than research institutions. It is only in recent years that universities have started to become more actively involved in research. 2. With more than 463 research institutes and 62,000 researchers, the Russian Academy of Sciences (RAS) represents a major chunk of Russia’s scientific capacity and covers a wide spectrum of sciences. 3. However, there are also many Russian research institutes that do not belong to the RAS. They vary widely in the way they are being governed and financed. Some of the better institutes receive special federal support; others have to depend on funding coming from local authorities, industrial associations, or generate their own revenues. What really stands out is that most of the research related to aerospace, defence and nuclear science is organized outside the RAS. The R&D budget of the Russian Space Agency, for example, is nearly as big as that of the RAS. Some of the aerospace R&D budget goes to RAS institutes, but on a contract basis.8 The summary statistics in table 8 illustrate the above observations. The Dutch participants in the FP6 projects are predominantly universities, while the Russian participants are predominantly research institutes. Russian universities are only strongly present in priority theme 13, which targets specific Russian problems. Priority themes 4 (aerospace) and 8 (atomic energy) illustrate the fact that these research fields are taken up on the Russian side by research institutes outside the RAS and the university system. Most of the research collaboration between the Netherlands and the Russian Federation takes place in priority themes 1-4 and 6. Each of these priority themes has a different constellation of Dutch and Russian participants. Annex A provides a detailed listing of the Dutch and Russian knowledge institutions that participate in each priority theme. Of the Russian universities, the Moscow State University stands out as the most active participant. Universities based in Moscow and Saint Petersburg make up for more than half of the Russian universities listed. Of the RAS institutes, the A.F. Ioffe Physical-Technical Institute (Saint-Petersburg), the A.V. Topchiev Institute of Petrochemical Synthesis (Moscow), and the Petersburg Nuclear Physics Institute (Saint-Petersburg) stand out as the most active participants. Of the non-RAS research institutes, the Federal Aerohydrodynamic Institute stands out as an active participant. Patent patterns Both the Netherlands and the Russian Federation have all the relevant patent legislation in place9 and both score relatively well in terms of numbers of patents filed per R&D dollar spent (WIPO 2006). However, we have not been able to find data on Dutch residents filing patents in the Russian Federation and vice versa. Let alone royalty payments that may be derived from such patenting and flow between the two countries. If such information were available, it may give a good indication of an important component of technology exchange. 8
For a more detailed description of the Russian innovation system see Ivanova and Roseboom (2006). A major revision of the Russian patent law is currently under discussion in the Russian parliament. However, the biggest bottleneck in Russia is not legislation, but the enforcement of legislation in court. The number of judges and lawyers specialized in intellectual property matters is very low. 9
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3. Sector Analysis Dutch companies in Russia can be clustered in five major sectors of activity, namely: (1) agricultural and food; (2) chemistry; (3) machinery and equipment; (4) oil and gas; and (5) services. In this chapter we provide an overview of the most important Dutch companies active in these sectors in Russia and the way they operate on the Russian market, including scientific activities and cooperation. Agriculture and food industry The classic picture of Dutch export to Russia is that of dairy and meat, fruit and vegetables, processed foods, and flowers and living plants. However, the growth in the first three export categories stagnates already for some years and only the export of flowers and living plants still shows double digit growth. This slowdown in the agricultural export to Russia is due in part to a relocation of agricultural and food production from the Netherlands to Russia. The Russian market has proven to be large enough for Dutch companies such as Unilever, Campina and Numico to invest in local production capacity. Unilever, for example, produces nowadays margarine, mayonnaise, tea, and savoury products in Russia, while Campina produces yoghurt and drinks based on milk. Numico entered into two joint ventures in which it has a majority stake. High import tariffs applied by Russia to food products (30%) also make it more attractive to produce locally rather than to import. Heineken followed a different strategy – it bought various Russian breweries and maintained their brand names. Local production facilities usually trigger the need for local R&D activities. Unilever, for example, conducts some research in Russia, which is related to the introduction of its ‘health’ products on the Russian market. It collaborates in this area with the Cardiology Research Centre of the Ministry of Health, the Russian Food Institute, and the Russian Scientific Union of Cardiologists. Unilever expects that health standards will improve quickly in Russia in the coming years and that there will be a huge demand for health products. Campina, Numico and Heineken, however, do not have any R&D capacity or activity of importance in Russia. The main reason for this is that the Russian innovation system has traditionally been quite weak in R&D for consumer products including food and beverages. In addition to Dutch companies entering the Russian market, one can notice a recovery of the Russian food processing industry in recent years. During the 1990s, Russian companies were hardly able to compete with imported products. However, in recent years, a growing number of companies have invested in new production facilities imported from advanced industrial countries and have adopted modern marketing strategies. Ten years ago, Campina was number one on the Russian yoghurt market, now they are in the third position. Also Unilever experiences considerable local competition. Technology transfer in the food processing industry follows the following three routes: (1) Dutch companies, like Campina, Heineken and Unilever, that set up production capacity in Russia (or buy existing production capacity, which they subsequently modernize); and
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(2) Sales of machinery and other high-tech equipment to Russian food processors. Dutch export of food processing machinery to Russia, for example, increased from € 5 million in 1996 to € 55 million in 2005 (CBS). A recent study by the EVD, lists some 27 Dutch companies selling food processing machinery and equipment to Russia (EVD 2003). Examples are Stork Food Systems, Meyn Food Processing Technology, and Convenience Food Systems. These three have their own sales offices in Moscow, which may indicate a substantial turnover in Russia. The other companies work through agents or sell to Russia directly from the Netherlands. The EVD study sees excellent opportunities for Dutch food processing machinery businesses in Russia. (3) Sales of enzymes, food additives, vitamins, minerals, activated carbon, etc. Dutch companies like DSM Food Ingredients, Fromatech Ingredients, Norit, and Genencor are active on the Russian market. In addition, the Netherlands is active in helping to improve the quality of the agricultural production chains in Russia – the organisation of markets, transport, storage, quality control, etc. A large number of the PSO projects,10 as well as various TACIS projects, implemented by Dutch companies or organisations, have been focusing on these issues.11 Most of these projects have an important technology transfer component, but very few have actually developed new technology. In the scientific sphere some collaboration between Wageningen University and Research Centre (WUR) and Russian research institutes and universities has taken place, although modestly: only 10 projects over the past 10 years. Most of them have funded with EU money (i.e., INTAS and FP). Dutch export of agricultural inputs to Russia is rapidly expanding as export statistics for agricultural machinery and animal feed show (table 7). Nutreco and Provimi dominate the animal feed export. In the case of agricultural machinery no dominant players could be identified. Table 7: Dutch export of agricultural inputs to Russia 1996 Agricultural machinery (including tractors) Animal feed Source: CBS database
6.8 20.2
1999
2002 2003 2004 (million Euros) 3.5 9.7 15.7 21.0 28.7 56.6 34.2 63.1
2005 35.8 82.1
Other important agricultural input exports to Russia are: seed (Royal Sluis and Bejo Seeds), veterinary products (Intervet), and animal feed additives (DSM, Nutreco, and Fontanka). Unfortunately no specific export statistics are available on these. Also in the agricultural input industries one can notice some relocation of production to Russia. Provimi (animal feed) has production facilities in Russia as well as an experimental farm. Another initiative has been the establishment (with PSO support) of the Dutch-Russian joint venture Wilarus, which is specialized in building cowsheds and milking systems.
10
The Programme Cooperation Eastern Europe (PSO), funded by the Dutch Government, has financed between 1994 and 2004 a total of 191 projects in Russia, with a value of € 105.6 million. Of these, 88 projects are related to agriculture or the food processing industry, with a total value of € 51.5 million. 11 Arcadis-Euroconsult, for example, has implemented various agriculture-related TACIS projects in the past.
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Chemistry Dutch chemical exports to Russia show very steady overall growth – from € 156 million in 1996 to € 583 million in 2005. The most important product categories are: (a) cosmetic and personal care products; (b) plastics and plastic products; and (c) pharmaceuticals. A fourth category, which cannot be identified in the trade statistics, is that of food additives and nutritional products. The Dutch export in this market is dominated by three Dutch multinationals, namely: Unilever (cosmetic and personal care products), AKZO-Nobel (pharmaceuticals, plastics and chemicals), and DSM (food additives and nutritional products, plastics and chemicals). Both Unilever and AKZO-Nobel own production plants in Russia. AKZO-Nobel, for example, has recently opened two new plants in Russia – one to produce medicines and another to produce special coatings. The company has around 500 employees in Russia and a turnover of more than € 200 million. This may look as relatively small on a worldwide turnover of € 13 billion, but growth in Russia has been in the double digits for the past five years. AKZO-Nobel is active in a wide range of market segments, ranging from pharmaceuticals (through its subsidiary companies: Organon and Intervet), to coatings, to all kinds of chemical products and ingredients. DSM has only a sales office in Russia and no production facilities. It had some in the past in bulk chemistry, but these have been sold off. Although smaller than Unilever and AKZONobel, with a worldwide turnover of € 8.2 billion it is certainly an important player in the chemical market. DSM produces life science and nutritional products, performance materials and industrial chemicals. Unilever reported that it does not conduct research in Russia regarding its personal care products. AKZO-Nobel and DSM, however, do conduct research in Russia and collaborate with Russian research institutes. AKZO-Nobel spent € 834 million on R&D worldwide in 2005, of which half was spent by Organon.12 We have no exact information on the research activities of AKZO-Nobel in Russia, but given the size of its R&D budget and its international orientation it seems reasonable to assume that such activities do exist. Also because DSM, with a far smaller R&D budget (€ 290 million in 2005), is involved in two research joint ventures in Russia – one conducting research on materials and the other on food additives. The research joint venture on materials is the oldest (since 1997) and most developed. Currently, DSM is involved in some 15-20 research projects in Russia. DSM also foresees in the future important opportunities for scientific collaboration with Russian scientific institutes and universities. Machinery and equipment This product category is good for more than half (54%) of the Dutch export to Russia in 2005. It is dominated by one cluster of products, namely computers, telecom, audio and electrical products and their components. With a total value of € 1.7 billion, these products were good for 40% of all Dutch export to Russia in 2005 (up from 15% in 1996).
12
R&D expenditure as a percentage of sales was 18% for Organon, 10% for Intervet, 3% for special coatings, and 3% for chemicals.
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At present, Philips does not own any production plants in Russia. It bought a television factory in Russia in 1995, but sold it just a few years later. With an R&D budget of some € 2.5 billion a year worldwide, it is almost inevitable that there is some collaboration between Philips Research and Russian research institutes and universities. We identified three research projects funded under FP6, which include both Philips and a Russian partner. Two of the projects focused on information technology and one on nanotechnology. [further information needs to be obtained from Philips] Another fast growing product category is that of machinery for different industries. Its export volume, however, is relatively small compared to computers (€ 375 million in 2005). Moreover, it seems to be fragmented over a large number of relatively small companies, each targeting a specific niche market. Stork is probably the largest and is operating in various segments of the market. Except for Wilarus (stables and milking systems), there are no other examples of Dutch machinery companies with production facilities in Russia. R&D activities in Russia by these industries are believed to be negligible. An exception is SKF Research and Development which has several project to source new technology for high-tech bearings and sealings in Russia. Road vehicles and transport equipment is the third category in terms of export volume. A major player in this category is DAF Trucks. We have not identified any R&D cooperation in this category. Oil and gas The Russian oil and gas industry is one of the most important ones in the world. Dutch companies like Shell, Gasunie, SBM Offshore, Vopak and Petro Engineering are active on the Russian market. Shell is by far the largest Dutch player in this field. It has a majority share (55%) in the Sakhalin Project II, which will require a total investment in the order of US$ 20 billion. Shell also participates in several other oil and gas fields in Russia and is (one of) the biggest foreign direct investors in Russia. Technologically, the Sakhalin project is quite a challenge and requires a substantial amount of R&D. A large portion of this research is contracted out to Russian research institutes. This is estimated to be in the order of € 10 million a year. IP of the research usually remains with the local research institutes, but Shell has a royalty-free right to use it. In addition to buying a lot of Russian gas, the Gasunie is closely collaborating with Gazprom in the area of technology development. This focuses in particular on energy saving. Losses in the extraction and transportation of gas are huge in Russia. Gasunie works in this field together with Promgaz, the technical arm of Gazprom. The costs of this cooperation exceed € 1 million a year. Gazprom and Gasunie are likely to deepen their relations in the future, of which technology development will be one dimension. The oil and gas industry being such a booming business in Russia creates all kinds of opportunities for Dutch companies providing inputs and services to this industry, like SBM Offshore, Vopak and Petro Engineering.
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Service sector Dutch companies are active in the Russian service sector is areas such as banking (e.g., ABNAMRO, Rabobank), insurance (e.g., ING), transport (e.g., KLM, TNT, Frans Maas, Van Ommeren, Mammoet Transport, Voerman), and consultancy (e.g., Arcadis, DHV, Haskoning, and Tebodin). These companies do not bring hard technologies to Russia, but more soft technologies in the form of management and organization, marketing, and logistics.
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4. Options and obstacles for technological cooperation Types of technological cooperation In the area of technological cooperation between the Netherlands and Russia, it is possible to distinguish three main types which are schematically shown in Figure 1. The first is a technology flow from the Netherlands to Russia that goes with exports and direct investment by Dutch companies in Russia. The technologies and innovations in this model mostly transferred in two ways: as embodied technology in the form of machinery and equipment, and as knowledge of improved practices often in combination with new technology. The benefits for Russia are substantial and come in the form of new or higher quality consumer goods, new types of services, more efficient ways of doing business, upgrading to international standards, etc. The benefits for the Netherlands are obvious: Russia is increasingly seen as an attractive market and a place that companies cannot afford to neglect in their foreign investment decisions. This model is increasingly focused on the high tech end of low technology sectors e.g. specialized equipment for greenhouses. Figure 1: Types of technological cooperation between the Netherlands and Russia Cooperation type
Netherlands
Russia Technology flow
Exports / investments
Outsourcing / contract research
Joint technology development
The second type of cooperation involves outsourcing and contract research commissioned by companies in the Netherlands and performed by Russian research institutes. The purpose is to access specific knowledge and technology in Russia, to benefit from cost advantages of doing research in Russia, or a combination of the two. The benefits for Dutch companies and for the Dutch innovation system can be quite substantial: obtaining innovative and sometimes unique technologies at competitive prices especially in areas where Russia has a strong competence: aerospace, nanotech, computing, modelling, etc. The benefits for Russian research institutes are also very significant: revenues for research institutes and scientists, working for demanding international customers which leads to quality improvement and higher standards. Increasingly, as technologies become more complex, simply buying research results is no longer feasible. Research on complex questions does not lend itself to a straightforward outsourcing model, instead it requires joint definition of research questions methodologies and integration of skills from different partner organisations. This leads to the third model of technological cooperation. Joint technology development is increasingly the norm in open innovation systems that are rapidly becoming more international. Innovation is a global business where companies characterized by a division of labour based on comparative and competitive advantages. In the 29
case of Russia joint technology development is also required in order to benefit from strengths in the Russian basic science and technology system, while overcoming Russian weaknesses in applied research and commercialization. Internationally, a large number of programmes have been established to integrate Russian R&D in the international innovation system: they include the EU framework programme, personnel oriented programmes such as INTAS and US-funded programmes such as the Civilian Research and Development Foundation (CRDF) and the International Science and Technology Center (ISTC). Some Dutch companies, mainly the large multinationals that have substantial R&D departments, have established collaborative research programmes with Russian research organizations, aimed at joint development of new technologies, based on combining the relative strengths of the Russian and Dutch partners. Dutch companies, such as Shell Global Solutions, DSM and Philips, have indicated that they see Russian scientific knowledge as a key resource in developing their technology portfolio. Based on several years of joint work with Russian institutes, TNO has developed the concept of “shared labs” to combine Russian strengths in fundamental science with applied research and commercialization experience from TNO. While there is a lot of potential to expand this type of cooperation, the number of successful experiences is limited. Smaller companies especially find it difficult to engage in this type of activity. The following section will explore the strengths and weakness of the Dutch and Russian innovation system in order to identify in a generic manner where comparative advantages may be found. This will be followed by a discussion of possible high tech areas for joint technology development, and a presentation of some models and mechanisms for improving joint technology development. However, this Quick Scan can only offer indications, not fully researched observations. Strengths and weaknesses of the Dutch and Russian innovation systems According to two recent studies (Ivanova and Roseboom [2006] and Gijsbers and Roseboom [2006]) the main strengths of the Russian innovation system can be summarized as follows: • • • • •
Strong positions or leadership in many fields of basic science; Developed system of R&D institutes in different areas of R&D; Internationally strong positions in some technological fields such as aerospace, metallurgy, heavy energy engineering; Well educated human resources; and Raising entrepreneurial activity in small high-tech industry, including software development and biotechnology.
Weaknesses of the Russian innovation system include: • Most Russian businesses have no clear innovation strategy and are not used to investing in their own R&D capacity; • The government has not moved yet towards an integration of the S&T, economic, industrial, and education policies into an overall, long-term innovation strategy; this requires a lot of coordination and consensus building among the different ministries as well as with partners in the economy and the society at large; and • The Russian innovation system continues to be based on a science – push model and has a relatively poor record in turning knowledge into economic or social benefits.
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• Delayed restructuring of public research organizations has affected effectiveness and efficiency. Too many institutes with too many staff make it difficult to participate effectively in technology initiatives. At present, the much improved economic situation allows the Russian government to invest heavily in new innovation programmes and to push for a much needed reform of the innovation system. On various fronts progress can be noted. A number of studies have been published on the strengths and weaknesses of the innovation system in the Netherlands (Projectbureau Innovatieplatform [2004]). The Netherlands is an above average performer in the OECD set of countries when it comes to innovation. Specific strengths include: • High quality knowledge infrastructure (universities, technology organizations and leading multinationals) • Open economy • Strong performance in scientific publications • Availability of public funding for R&D and for innovation • Above average number of patents • Strong ICT infrastructures and high broadband penetration • Effective partnerships between universities, R&D institutes, and companies in the leading technology institutes (LTI) Weaknesses include: • • •
Low levels of science and engineering graduates. Innovation is concentrated in the larger companies and is low in SMEs. Somewhat below average performance on business funded R&D.
Options for technological cooperation between the Netherlands and Russia Russia is strong in a number of generic science and technology fields that can be applied to broad variety of sectors. These include nanotechnology, new materials, metallurgy, some biotechnology fields, heavy engineering, software, and modelling. Strong sectors are aerospace and energy. The Netherlands is strong in a number of areas such as life sciences, agriculture and food, transport and logistics, creative industry, financial services, consumer products innovation, energy, and water. Russia’s innovation system is strongly science driven and weak at the application and demand side. The Netherlands lacks capacity in a number of science and engineering disciplines and its innovation system is oriented towards application and services, both areas in which Russia is weak. As such there are important complementarities between the innovation systems of the two countries and both can gain significantly by intensifying technological cooperation based on exploiting complementarities and comparative advantages Russia can benefit from using Dutch technology and marketing skills in a number of areas such as: agriculture, food and biotechnology, transport and logistics, ICT, oil and gas, and services.
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Dutch companies have indicated that – in their global search for technology – they find that Russian institutes often have unique approaches to R&D and to problem solving, leading to unique technologies not available in other countries. This combines very well with the capabilities of Dutch companies to turn technologies into products and services and their knowledge of markets and consumers. Obstacles for increasing technological cooperation If there are potentially large benefits to be gained from expanded cooperation between the two countries, why is it that the number of initiatives is still small and often linked to the availability of some type of national or international subsidy or programme? Moreover, Dutch companies often complain that S&T subsidy schemes are overly complex and bureaucratic. Some of the more general difficulties of doing business in Russia are well known and have been reported in the FAIC report: bureaucracy and administrative procedures, property rights, a weak judicial system, etc. In addition, the following points on research and technological cooperation should be highlighted. One of the crucial bottlenecks in the Russian innovation system at present is the insecurity of ownership of intellectual property rights (IPR) on research results funded by the government and the lack of an effective strategy of establishing and commercializing such rights. The fact that Russia has had three different IPR laws in ten years has created much uncertainty. Nevertheless, Russia scores well above world average in terms of the number of patents registered per research dollar spent (WIPO 2006).13 Another issue relates to establishing public-private partnerships, which are an essential element in international technology cooperation. In Russia such partnerships are often very much hindered by complex legal issues regarding ownership and responsibilities. Information on possibilities and opportunities for collaboration in the field of innovation is not easy to obtain. The sheer size of the Russian innovation system as well as communication difficulties due to language and cultural barriers, make it difficult for all (even for big international companies with a strong local presence) to access Russian sources of R&D. At the same time, many Russian institutes have to overcome problems if they want to engage with international partners in an effective manner. Several important initiatives are under way to improve this situation, but it remains a difficult proposition in particular for small institutes and companies.14 At the same time it is clear that many joint projects have produced very positive rewards. On the demand side a stronger presence of the Russian business sector in the national innovation system will be necessary for them to improve the quality of products and processes through the application of new technology, whether developed nationally or obtained from international sources. Russian industries upgrading to international environmental and quality standards provide an important market. 13
Worldwide, 81 patents are filed on average for every US$ 100 million spent on R&D. In the Russian Federation, 146 patents are filed on average for every US$ 100 million spent on R&D. This is an interesting finding, also because in the RF most R&D is in the public rather than the private domain. 14 For example the Pilot Commercialisation Centers developed under the TACIS project Research Commercialisation Russian Federation. ISTC, the US Dept. of Commerce, the UK DTI and the Netherlands Ministry of Economic Affairs are involved in partners and brokerage events
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5. Policy options and recommendations Current policy instruments in the Netherlands There are three main bilateral policy instruments to promote scientific, technological and economic cooperation between the Netherlands and the Russian federation, namely: 1. The Scientific Cooperation Programme Netherlands-Russian Federation, financed by the Ministry of Science and Education and implemented by NWO; 2. The EUREKA component of the Innovation Subsidy for Collaborative Projects, financed by the Ministry of Economic Affairs and implemented by SenterNovem; and 3. The Programme Cooperation Emerging Markets (PSOM), financed by the Ministry of Economic Affairs and the Ministry of Development Cooperation and implemented by the EVD. Each of these instruments targets a different part of the agenda, although they sometimes overlap slightly. For example, the NWO programme focuses primarily on scientific collaboration, but also has a small innovation subsidy. What is most striking, however, is that the instrument that should facilitate joint innovation projects between Dutch and Russian industrial and scientific partners (i.e., EUREKA) has been ineffective for the past 10 years. The instrument seems to work perfectly well for collaboration with partners in other EUREKA member countries. Possible reasons for the lack of Dutch-Russian collaborative innovation projects are: (a) Distance; (b) Language and cultural barriers; (c) Weak innovation culture in most Russian companies; and (d) Lack of funding on the Russian side. In that sense, participation of the Russian Federation in the EUREKA network in general is weak. Of the 77 EUREKA projects in which the Russian Federation has participated since 1993, only four were initiated by the Russian Federation. In other words, the lack of collaboration in this field is not a typical Dutch problem. With regard to constraints (c) and (d), the economic situation in the Russian Federation has improved considerably in recent years. This will most likely also lead to an improvement of the Russian participation in the EUREKA network in the coming years. A prerequisite, however, is that the Russian Federation introduces a specific funding facility that supports national participation in the EUREKA network. At the moment, such a facility does not seem to exist. With regard to constraints (a) and (b), these are less easily to be resolved. It just means that more effort has to be invested in order to develop collaborative innovation projects than say with partners in the UK or Germany. It is often a matter of years to build up the necessary contacts and reach a point of sufficient trust to collaborate. These pre-project issues are generally ignored by most funding facilities.15 If we want the EUREKA funding facility to work, we have to consider what we can do to resolve these pre-project issues. One option is to create platforms for Dutch and Russian partners to meet on a regular basis. Another option is to create a Technical-Scientific Attaché (TWA) position at the Netherlands Embassy in Moscow. This person could function as a broker or facilitator between Dutch and Russian partners.
15
An exception is NWO’s funding facility for Russian integration into European FP projects. It acknowledges the fact that there are substantial pre-project costs to develop collaborative projects.
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In order to strengthen the technology dimension of the PSOM projects, members of the Mixed Commission on Economic Cooperation (with participant of both the Netherlands and Russia) has discussed already a few years ago the option to reserve part of the PSOM funding for innovation projects in which technology development plays a more prominent role. But as far as can be judged from the list of PSOM projects approved in recent years, such a reorientation has not taken place. Finally, it is worth noting that until recently there was only very limited financial participation from the Russian side in any of these instruments. This situation is changing rapidly though with substantial increases in Russian budgets available for research and technology development. New developments in Russia Since the creation of the present policy instruments by the Dutch government (dating back to the early 1990s), important new developments have taken place in Russia. The most important one is the enormous increase in energy prices, which has created major economic windfalls for Russia and the Russian government. The Russian Government intends to invest part of these windfalls in major innovation projects and in transforming the Russian economy into a knowledge economy. The Russian authorities are fully aware of the scattered and rather outdated character of the Russian research infrastructure. The Ministry of Education and Science and the Russian Academy of Sciences have recently implemented a number of measures to improve the accessibility by creating commercialisation centres connected to research institutes and by providing grants to innovative projects. The creation of the Federal Agency for Science and Innovation (FASI) under the chairmanship of Dr Mazurenko (who is currently also a member the Netherlands-Russia Mixed Commission of Economic Cooperation) is a clear sign of the change in emphasis from the ‘promotion of science’ to the ‘promotion of innovation.’ Another example is the Foundation for Assistance to Small Innovative Enterprises (FASIE), which is a non-commercial state organization set up by the Russian government in 1994. The Foundation (which is more widely known as the Bortnik Fund for its Director Dr. Ivan Bortnik) is responsible for implementing the government policy regarding the development of small innovative enterprises (SME). The fund offers direct financial assistance to small innovative enterprises to develop and produce new high-tech products. Since its creation, more than 4,000 SMEs have applied to the foundation. The foundation’s tender commission and experts have selected around 2,000 projects for funding. The Russian counterparts are looking for opportunities to create a more equal bilateral relationship and at the same time stressing more and more the positive opportunities of cooperation in innovation. They are willing and able now to fund joint innovation projects as far as the costs of the Russian participation are concerned. In combination, the increased availability of funding from the Russian side and the gradual adoption of an innovation policy make Russia an increasingly important and attractive partner in technical cooperation.
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Policy options A key policy question is how the Dutch economy can make better use of Russia’s comparative advantages in science and technology, taking into account the recent policy developments at the Russian side. As the statistics show, the Netherlands has invested heavily in scientific collaboration with the Russian Federation (NWO and FP6), but very little in industry-led, collaborative innovation projects (EUREKA). The latter is caused to a large extent by weak contacts between partners at both sides and financial constraints on the Russian side. Rather than creating a new instrument, we suggest that steps should be taken to improve the effectiveness of the EUREKA instrument. As mentioned earlier, some problems need to be resolved on the Russian side (in particular funding national participation), but most importantly we have to bring down the (pre-project) costs of collaboration. This could be done by: 1. Instituting science, technology and innovation (STI) brokers or facilitators that can overcome the physical, cultural and language barriers that presently hold back industrial and scientific partners in both countries to collaborate. Such brokers or facilitators need to have a good knowledge of the relevant Russian knowledge institutions and industries and provide interested Dutch parties with the relevant contacts in Russia. They should also advise on Russian laws and regulations in the innovation sphere and on differences in culture and economic practices. It is important that such brokers or facilitators have a good personal knowledge of the Russian innovation system. Creating a Technical Scientific Attaché (TWA) position in Moscow would be one step in the right direction, but you need a network of brokers or facilitators to cover a country and innovation system as large as the Russian Federation.16 The TWA would be the person to coordinate such a network. 2. Organizing brokerage events as they are an effective instrument to build relationships. They can serve as a starting point for potential partners to get more in-depth knowledge about each other and their assets, objectives and expectations. Brokerage events should be organised alternatively in the Netherlands and Russia on a yearly basis. 3. Developing links with Russian S&T commercialisation centres, which are now being created at a number of Russian R&D institutions. They will experiment with a number of instruments such as brokerage and partnering events, information dissemination and the establishment of databases. This information should be complemented by personal knowledge of facilitators/brokers. 4. Making use of relevant experience with similar cooperation promotion schemes such as the US-based Civilian Research & Development Foundation and the International Science and Technology Centre in Moscow. These organisations are targeted to foster application of Russian R&D in industry mainly in Western countries. Lessons learned in these and other technology cooperation programmes should be reviewed and built upon. 5. Creating a focal point where Dutch companies and knowledge institutions can share their Russian experiences and contacts. 16
Interestingly enough both TNO and Philips have a local person in Moscow who helps them with making the right contacts.
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Summary of Conclusions and Recommendations • • • • • •
• • •
•
Cooperation making use of comparative advantages in R&D and innovation capacity benefits the Netherlands as well as the Russian Federation. The existing Dutch policy instrument to promote Dutch-Russian cooperation in industrial innovation (EUREKA) has been ineffective for the past ten years. There is a clear willingness at the Russian side to cooperate with the Netherlands and Russian counterpart funding seems to become less of a constraint. The Russian knowledge infrastructure is highly developed in specific areas but difficult to access. Russia lacks experience in applied research, commercialization of research results and innovation processes. Multinational companies and Dutch knowledge institutions have created joint research cooperation with knowledge institutions in Russia. They also found their way to establish outsourcing and subcontracting projects. There are only a few examples of collaborative research projects which involve companies as well as knowledge institutions from both sides. Rather than creating a new policy instrument, focus on the bottlenecks that make the EUREKA facility an ineffective instrument in the case of the Russian Federation. Most importantly, a network of STI brokers or facilitators is needed in order to help interested Dutch parties to find the right partner(s) and to make the first steps on the road towards collaboration. These brokers/facilitators can be free lancers or employees of Russian or Dutch knowledge institutions The Ministry of Economic Affairs should consider the creation of a TechnicalScientific Attaché (TWA) position at the Netherlands Embassy in Moscow. The activities of brokers/facilitators should be coordinated by the TWA.
Some issues for further research This report has presented a brief overview of technological cooperation between the Netherlands and the Russian Federation. The scope of a quick scan is necessarily limited and some important issues have not been covered. First, increasingly multilateral programmes are important mechanisms to promote technological cooperation. Both Dutch and Russian organisations participate actively in programmes such as Eureka. However a more in-depth analysis is needed of the cooperation between Russia and the Netherlands in these types of programmes. It would also be very useful to identify options for organisations from the two countries to use multilateral instruments more effectively. Second, the study has identified important complementarities between innovation systems of the two countries which can be used to mutual advantage. But a more in-depth review will be needed to build up a complete picture. Third, although we have briefly reviewed the different instruments to promote technological cooperation a more comprehensive evaluation falls outside the scope of the quick scan. Such an evaluation and recommendations will be useful to improve the effectiveness of instruments used in technological cooperation.
36
References Aguilar, A. INCO Target Country Participation in FP6 (2002-2006). PowerPoint Presentation, European Union, Brussels, 13 June 2006. Centraal Bureau voor de Statistiek (CBS). On-line database accessed June 2006. EVD. Survey of the Food Processing and Packaging Machinery Market in the Russian Federation. The Hague, EVD, December 2003. Foreign Investment Advisory Council (FIAC). Russia Investment Destination 2006. Moscow: FIAC, May 2006. Gijsbers, G., and J. Roseboom, eds. The Russian Innovation System in International Perspective: A Critical Analysis. Moscow: EuropeAid Project “Science and Technology Commercialisation in the Russian Federation”, March 2006. Ivanova, N., and J. Roseboom. A Functional Analysis of the Russian Innovation System: Roles and Responsibilities of Key Stakeholders. Moscow: EuropeAid Project “Science and Technology Commercialisation in the Russian Federation”, March 2006. OCO Consulting. “Prime Locations: Strategic Investment Location 2005.” FDI Quarterly Issue 3, Qtr 4 (2005). Projectbureau Innovatieplatform. Reflectie op het Nederlandse innovatiesysteem: Verslag ontwerpatelier van internationale experts mei 2004. Den Haag: Innovatieplatform, 2004. Rogacheva, E., and J. Mikerova. European FDI in Russia: Corporate strategy and the effectiveness of Government promotion and facilitation. Belfast and Bruxelles: OCO Consulting, September 2003. Schoch, Geert, and Simaranov, Sergey. Methodological Recommendations for Organisation of a Shared Lab, Moscow: EuropeAid Project “Science and Technology Commercialisation in the Russian Federation”, November 2006. UNCTAD. World Investment Report 2005: Transnational Corporations and the Internationalization of R&D. New York and Geneva: UN, 2005. WIPO. WIPO Patent Report 2006: Statistics on Worldwide Patent Activities. Geneva: WIPO, 2006.
37
Annex I: List of companies and institutes interviewed Companies interviewed 1. Arcadis 2. Campina 3. DHV 4. DSM 5. Gasunie 6. Genencor – Danisco 7. LogicaCMG 8. Ministry of Economic Affairs 9. Norit 10. NWO 11. Royal Haskoning 12. SenterNovem 13. Shell Global Solutions 14. SKF R&D 15. Stork Aerospace 16. Tebodin 17. TNO Science and Industry 18. TTA Acquest B.V. 19. Unilever - Russia 20. Wageningen University
38
Annex II: Collaboration between Dutch and Russian knowledge institutions in the context of FP6 projects Table A: Dutch Knowledge Institutions FP6 Priority Themes:
1
2
3
4
5
6
7
8
9
10
11
12
13
Total
Universities Erasmus University
1
Free University (Amsterdam)
1
1
Groningen University Leiden University
4
Maastricht University
1
Radboud University
2
Technical University Delft
1
Technical University Eindhoven
1
2
1
1
2
2
1
Utrecht University
2
2
1
3
1
9 5
1
1
7
1
1 8
1
5
1 4
2
1
2
1
Wageningen University and Research Centre 14
1
1
1 2
5
1
Twente University
Subtotal
1 1
1
University of Amsterdam
2
1
4
1
1
4
2
2 1
9
4 0
14
7
6
1
1
2
1
5
1
4
2
10
2
65
Institutes Energieonderzoek Centrum Nederland Het Nederlands Kanker Instituut
2
1
3
1
1
KNMI
1
1
2
Koninklijk Nederlands Instituut voor Onderzoek der Zee Nederlands Instituut voor Ecologie
1
1
1
1
Nederlands Instituut voor Visserij Onderzoek
1
1
Netherlands Geomatics & Earth Observation B.V. Nuclear Research and Consultancy Group
1
1 3
Rijksinstituut voor Kust en Zee;
1
RIKILT
Stichting voor Fundamenteel Onderzoek der Materie Stichting Waterloopkundig Laboratorium TNO
1
1
RIVM Stichting Academisch Rekencentrum Amsterdam Stichting Astronomisch Onderzoek in Nederland Stichting Centrum voor Wiskunde en Informatica Stichting Nationaal Lucht- en Ruimtevaart Laboratorium Stichting Telematica Instituut
3 1
2
1
3 1
1
1
1
1
1 8
8
1
1 2
1
1
1 1
3 2
1
39
2
2
FP6 Priority Themes: Subtotal Total
1 3
2 4
3 0
4 10
5 1
6 10
7 0
8 4
9 0
10 0
11 2
12 3
13 1
Total 38
17
8
8
14
1
24
7
5
1
5
3
7
3
103
3
4
10
11
12
13
Total
1
4 2 1 1 1
Table B: Russian Knowledge Institutions FP6 Priority Themes: Universities Moscow State University Yaroslavl Demidov State University Inanovo State Power University Irkutsk State University; Moscow School of Social and Economics Sciences Moscow State Regional University Moscow State University of Economics, Statistics and Informatics Moscow State University of Environmental Engineering Moscow State University of Railway Engineering Nizhny Novgorod State University of Architecture and Civil Engineering Perm State University Saint Petersburg Electrotechnical University "LETI" Saint Petersburg State Polytechnic University Saint Petersburg State University Saratov State Agrarian University Saratov State Socio-Economic University Tomsk State University Tver State Technical University UFA State Aviation Technical University Subtotal RAS Institutes A.F. Ioffe Physical-Technical Institute A.V. Topchiew Institute of Petrochemical Synthesis Petersburg Nuclear Physics Institute Institute of Microelectronics Technology Center of Bioengineering Energy Research Institute Institute of Bio-organic Chemistry Institute of Chemical Problems for Microelectronics Institute of Control Sciences Institute of Crystallography Institute of Mathematical Problems of Biology
1
2
5
6
7
8
9
2
1 2 1 1 1 1
1
1 1
1
1
1
1 1
1
1 1
1 1 1 1 1 1
2
1 1 2
3
2
0
0
1 2
4
2
0
0
3
0
0
1 1
1 2
7
1 1 1 1 1 1 1 23
4 3 1
1
1 1 1 1 1 1 1
40
1
3 2 1 1 1 1 1 1 1
FP6 Priority Themes: 1 Institute of Solid State Physics Institute of Spectroscopy Institute of Structural Macrokinetics and Materials Science Keldysh Institute of Applied Mathematics Landau Institute for Theoretical Physics Laser Chemistry Laboratory P.P. Shirshov Institute of Oceanology Puschino Radio Astronomy Observatory of the P.N. Lebedev Physical Institute Saint Petersburg Institute for Informatics and Automation Water Problems Institute Zoological Institute Subtotal 1 Other research institutes Federal Aerohydrodynamic Institute Central Institute of Aviation Motors; Institute of Theoretical & Applied Mechanics All Russian Scientific Research Institute of Aviation Materials Center for Energy Efficiency Central Aerological Observatory Electrogorsk Research and Engineering Center on Nuclear Power Plants Safety Federal Research Institute of Atomic Reactors Gromov Flight Research Institute Hydrometeorological Research Center of the Russian Federation Institute for High Energy Physics Institute of Carcinogenesis Institute of Environmental Economics and Natural Resources Accounting "Cadaster" Institute of Operating Systems Joint Institute for Nuclear Research Kurchatov Institute M. P. Chunakov Institute of Poliomyelitis and Viral Enceohalitides, Russian Academy of Medical Sciences N.N. Blokhin Cancer Research Centre National Research Center for Hematology Russian Institute of Space Device Engineering Scientific Institute of Theoretical and Experimental Physics; Skobeltsyn Institute of Nuclear Physics Southern Urals Biophysics Institute State Oceanographic Institute State Research Center "Institute of Immonology"
2 1 1
3
4
5
6
7
8
9
10
11
12
13
1 1
Total 1 1 1 1 1 1 1 1
1 1 1 1 1
1
7
9
0
1
1 1 5
0
0
0
2
0
5
0
4 2 2 1
4 2 2 1 1 1 1
1 1 1
1
1
1
1 1
1
1 1 1 1 1 1 1
1 1
1 1
41
1 1 1 1 1 1 1
1 1 1
1
1
1 1 30
1
1
1
1 1 1 1
FP6 Priority Themes: Uralsky Nauchno-Praktichesky Tsentr Radiatsionnoi Meditsiny Subtotal
1
2
4
1
Total
7
11
3
4
5
0
11
0
11
11
1
6
7
8 1
9
10
11
12
13
Total 1
3
0
6
0
0
1
4
1
31
12
2
6
0
5
1
9
8
84
Note: FP6 priority themes are: (1) Life sciences, genomics and biotechnology for health; (2) Information society technologies; (3) Nanotechnologies and nanosciences, knowledge-based multifunctional materials and new production processes and devices; (4) Aeronautics and space; (5) Food quality and safety; (6) Sustainable development, global change and ecosystems; (7) Citizens and governance in a knowledge-based society; (8) Euratom; (9) Horizontal research activities involving SMEs; (10) Human resources and mobility; (11) Policy support and anticipating scientific and technological needs; (12) Research infrastructures; and (13) Specific measures in support of international cooperation.
42
