Evaluation of the Innovation Programs Financed by World
Bank in Croatia
Activity A
Dr. Ivan-Damir Anić
Dr. Ljiljana Božić
Dr. Jelena Budak
Dr. Edo Rajh
Dr. Sonja Radas, team leader for Activity A
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Contents:
1.
2.
Introduction
Findings
2.1. RAZUM
2.2. IRCRO
2.3. UKF
3.
Overall conclusions
2
1. Introduction
 RAZUM, IRCRO and UKF financed by World Bank as a part of Science
and Technology Project
The goal of this research study:
 To assess the effectiveness of the programs RAZUM, IRCRO and UKF.
 To produce an insight into what would have happened with S&T output
of program recipients if they had not received this funding.
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RAZUM
 Administered by BICRO
 Ensures initial funding of newly established knowledge based companies
 Funding research and development of new products or services in
existing companies
 Conditional loans (company co-financing 30%)
 Goal to get the innovation to the prototype stage
IRCRO
 Administered by BICRO
The program stimulates:
 Cooperation between industry and technology institutions
 SMEs apply for grant
 Cofinancing by companies 50%
 General goals:
□
□
Maximum usage of infrastructure in scientific research centers
Support industrial companies to substantially increase their R&D activities
UKF Crossing borders grant
 Administered by Unity Through Knowledge Fund
 Targeted to scientists
 Collaborative projects with research institution from abroad (co-principal
investigator from diaspora)
 Partial funding from private sector desirable
 General goals:
□
□
Supporting research that is competitive on international level and creates
new values in Croatian economy.
Supporting projects that help the development of research infrastructure in
Croatia.
Standard rationale for R&D subsidies: Market failure
 The standard rationale for government support of R&D is market
failure (Arrow, 1962).
 Private companies can never fully appropriate the rewards of their
investments in R&D – underinvestment!
 Imperfect capital markets may inhibit firms from investing in socially
valuable R&D projects (Griliches, 1998; Romer, 1990).
 Public funding is needed to reduce the price of R&D
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Program assessment
 Is it in the government interest to stimulate subsidies?
 Firms may substitute the subsidy for their own R&D investment, thus
“crowding-out” private money
 It is crucial to determine whether the R&D subsidy programs
generate additional effects or cause “crowding-out”.
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Additionality
 Additionality refers to additional R&D activities which would not have
occurred in the absence of government support (Quintas and Guy, 1995;
Buisseret et al., 1995 ).
 Additionality - used to measure the additional work of firms participating
in R&D programs after public funding (Hsu et al., 2009).
 At the moment, additionality is a major general framework offered for the
evaluation of RTD programs within the EU (Luukkonen, 2000).
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How to measure additionality?
 Additionality concept consists of three types of additionality (Georghiou,
1994):
□ input additionality,
□ output additionality
□ behavioral additionality – the most recent concept
 Measures in different additionality (source Hsu et al., 2009)
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Input additionality
Complementary effect to R&D budget of the project
Accelerated execution of the project
More collaboration with others
Expanded scale
Expanded goals
More higher risk/return projects
Change in business strategy
Entrance to new technical domain
Behavioral additionality
More commitment of top manager
Reputation
Change in manufacturing process
Lower material use and energy consumption
Development of whole new product
Better innovation management capabilities
Prolonged/new collaboration
Upgrade of human resources/research equipment
New and improved products/processes
Larger market share
Output additionality
Better profitability
Increased competitiveness
Future innovation potential
Better image
New patents
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Methodology
 Each program (RAZUM, IRCRO, UKF) was evaluated separately using
exploratory/qualitative and quantitative research (Parasuraman, Grewal
and Krishnan, 2004)
 The insights generated by the exploratory research formed a crucial
input for quantitative survey.
 Goal: developing deeper understanding required for design of survey
instruments.
 Both qualitative and quantitative instruments designed based on:
□ project findings
□ literature review
□ documentation provided by BICRO
□ other research reports
□ knowledge of the researchers related to Croatian specifics.
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Figure 1. Logistics of the research project
RAZUM
IRCRO
EXPLORATORY
RESEARCH
EXPLORATORY
RESEARCH
QUANTITATIVE RESEARCH
SURVEY WITH
RECEPIENTS
QUANTITATIVE RESEARCH
SURVEY WITH
NON-RECEPIENTS
SURVEY WITH
RECEPIENTS
UKF
EXPLORATORY
RESEARCH
QUANTITATIVE RESEARCH
SURVEY WITH
RECEPIENTS
SURVEY WITH
NON-RECEPIENTS
SURVEY WITH THE SAMPLE OF
POTENTIAL USERS
13
2. Findings
14
Figure 1. Logistics of the research project
RAZUM
IRCRO
EXPLORATORY
RESEARCH
EXPLORATORY
RESEARCH
QUANTITATIVE RESEARCH
SURVEY WITH
RECEPIENTS
QUANTITATIVE RESEARCH
SURVEY WITH
NON-RECEPIENTS
SURVEY WITH
RECEPIENTS
UKF
EXPLORATORY
RESEARCH
QUANTITATIVE RESEARCH
SURVEY WITH
RECEPIENTS
SURVEY WITH
NON-RECEPIENTS
SURVEY WITH THE SAMPLE OF
POTENTIAL USERS
15
2.1. RAZUM
RAZUM
EXPLORATORY
RESEARCH
QUANTITATIVE RESEARCH
SURVEY WITH
RECEPIENTS
SURVEY WITH
NON-RECEPIENTS
16
RAZUM: exploratory reseach
 Four companies were selected for in-depth analysis and evaluation
□ In each of the analyzed companies RAZUM program helped
produce a prototype of a new product
□ All of these products are of high level of innovativeness
17
RAZUM: quantitative reseach
 22 recepients, 20 responded to the survey.
 All conducting in-house innovation and R&D activities prior to the
application, half of those companies had collaboration with research
institutions/universities prior to the RAZUM grant
Figure 2. Importance of RAZUM project
Source: EIZ, 2011.
18
Figure 3. Results of RAZUM
Source: EIZ, 2011.
19
Figure 4. Achieved or expected benefits of RAZUM grant
Source: EIZ, 2011.
Note: Respondents indicated benefits on the scale ranging from 1 (no benefit) to 5 (high benefit)
20
Additional effects
 Spill-over effects:
□ 11 companies generated new ideas while working on the RAZUM
project, but did not have enough capacity to work on other innovation
and engage in additional R&D, 7 companies generated new ideas
and pursued them
 Permanent increase of R&D capacity through hiring of highly educated
staff
 RAZUM grant improved the new product development process
21
Figure 5. Estimated impacts without RAZUM
22
Source: EIZ, 2011.
Financing
 Companies that received financing from RAZUM invested more that 30 %
of their own resources in the project:
□ most companies invested about 40 %, but 3 out of 20 companies
invested more than 80 % of their own money
 RAZUM grant will not be sufficient in 45 % of cases for project completition
□ Those firms anticipate having to put in on average additional 70 % of
the amount received by RAZUM (this is on top of what they already
invested).
□ Sources of additional financing:
 micro firms would resort to the venture capital funds or strategic
partnerships,
 small and medium firms plan to rely on their own resources
 Only medium firms would consider bank loans as a possible source
of finance.
23
Commercialization of the RAZUM results



Majority of the firms (85 %) will need additional financial resources for
commercialization
50% of firms expect commercialization to be somewhat difficult or very
difficult
Small firms may be stranded with prototypes that they would not be able to
commercialize
Figure 6. Main market
Source: EIZ, 2011.
24
Firms waiting for RAZUM funding
• 24 companies in the population, 14 respondents
• Very similar to RAZUM recipients
25
Source: EIZ, 2011.
Figure 1. Logistics of the research project
RAZUM
IRCRO
EXPLORATORY
RESEARCH
EXPLORATORY
RESEARCH
QUANTITATIVE RESEARCH
SURVEY WITH
RECEPIENTS
QUANTITATIVE RESEARCH
SURVEY WITH
NON-RECEPIENTS
SURVEY WITH
RECEPIENTS
UKF
EXPLORATORY
RESEARCH
QUANTITATIVE RESEARCH
SURVEY WITH
RECEPIENTS
SURVEY WITH
NON-RECEPIENTS
SURVEY WITH THE SAMPLE OF
POTENTIAL USERS
26
2.2. IRCRO
IRCRO
EXPLORATORY
RESEARCH
QUANTITATIVE RESEARCH
SURVEY WITH
RECEPIENTS
27
IRCRO: exploratory research
 Four case studies (knowledge-based SMEs)
□ Engaged in developing new products before appying to IRCRO
□ Had some kind of informal cooperation with scientific community,
mostly through personal contact
28
IRCRO: quantitative research
 20 projects financed within the IRCRO grant scheme, 18 companies
responded
 Majority conducted R&D activities in the past, but had no experience
with performing R&D in collaboration
 The main reasons for not cooperating with research institutions in the
past were the following:
□ not having sufficient information about these institutions (50 %)
□ not having the need for collaboration as they conducted R&D inhouse (50 %).
□ too busy with day-to-day operations (25 %),
□ the services of RI and universities are too expensive (25 %),
□ Lack of sufficient funds (38 %)
□ academia did not understand the needs of business sector (12.5 %).
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Figure 10: Output

18
Number of companies
16
14

12
10
8
Half of companies consider the
financial support provided sufficient
for successful completion of the
project, while the other half assess
the received funding insufficient.
Plan to get additional funding from
banks (44 percent) and venture
capital funds (44 percent)
6
4
2
0
Development of new
products and/or
services
Improvement of
existing processes
Improvement of
existing products
and/or services
Development of new
processes
Output
Source: EIZ, 2011.
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Figure 11. Benefits
Affordable financing of R&D project
Improved competitive position nationally
Improved competitive position internationally
Benefit
Increased capacity for R&D
Improved understanding of specific
issues/problems
Enhanced reputation and image of the company
Networking and development of collaboration
with new partners
Extended internal knowledge and capabilities
0
Source: EIZ, 2011.
2
4
6
8
10
Number of companies
12
14
31
Figure 12. Perceived situation without financing from IRCRO
Scope of our R&D activities would be lower
Duration of our R&D activities would be
considerably longer
We wouldn’t be able to invest in R&D
We wouldn’t be able to establish
collaboration with research institutions
(RIs) and/or universities
Source: EIZ, 2011.
1
2
3
4
5
Measured on the scale from 1-strongly disagree to 5-strongly agree
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General attitude about IRCRO



Financial support received from IRCRO program is very beneficial for
entrepreneurs.
Companies also express positive attitude towards IRCRO’s procedures of
evaluation, application and granting the funds.
Co-financing principle is acceptable for entrepreneurs although some changes
would be welcomed.
Figure 13. Co-financing
22,2%
27,8%
50,0%
Co-financing of at least 50 per cent of total amount is reasonable
Co-financing is reasonable, but the contribution of applicant should be lower
Source: EIZ, 2011.
Co-financing is acceptable, but applicants should be allowed to participate “in kind” as well
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Perceptions of RAZUM and IRCRO among potential users
RAZUM
IRCRO
EXPLORATORY
RESEARCH
EXPLORATORY
RESEARCH
QUANTITATIVE RESEARCH
SURVEY WITH
RECEPIENTS
QUANTITATIVE RESEARCH
SURVEY WITH
NON-RECEPIENTS
SURVEY WITH
RECEPIENTS
SURVEY WITH THE SAMPLE OF
POTENTIAL USERS
34
Potential users: sample
 The sample consists of 196 SMEs in technology intensive sectors
 46.4% of firms in the sample had some experience with various
R&D/innovation subsidies
 SMEs in Croatia rely more on R&D/innovation subsidies then on tax
incentives
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Figure 15. Grant/subsidy schemes for innovation and
R&D familiar to potential users, unaided recall
BICRO
RAZUM
MINGORP programs
Competitiveness through Innovation
Strengthening the Competitiveness of SMEs
Grant/subsidy schemes
IRCRO
PoC - Proof of Concept
FP7
State subsidy for R&D
HAMAG
Strengthening the International Competitiveness
TEHCRO
County subsidies
Eureka
HIT – Croatian Institute of Technology
Introduction of new technologies
CIP
VENCRO
KONCRO
0
Source: EIZ, 2011.
2
4
6
8
Percentage
10
12
14
36
Figure 16. Familiarity of respondents with BICRO, IRCRO and
RAZUM, aided recall
100

80
Percentage

60
40
Respondents were asked
whether they have ever heard
about BICRO subsidy programs
There is certain proportion of
those who have heard of BICRO
programs but are not familiar
with terms and conditions of the
schemes
20
0
BICRO
IRCRO
Yes
RAZUM
No
Source: EIZ, 2011.
37
Figure 17. Opinion of IRCRO program applicants and potential
users on IRCRO program
IRCRO program facilitates R&D
activities in SMEs
3,6
4,1
Program IRCRO reduces
expenditures on R&D in SMEs
3,5
4,0
IRCRO program facilitates
collaboration between SMEs and
scientific institutions
3,6
3,7
IRCRO program has good terms of
funding
3,4
3,8
IRCRO program fosters use of
infrastructure in scientific
institutions
3,4
3,6
Administration of IRCRO project is
time consuming
3,4
3,3
Project application for IRCRO
program is too demanding for
SMEs
3,2
2,9
1
2
3
4
5
Potential users, n=43
IRCRO program applicants,
n=11
Source: EIZ, 2011.
38
Figure 18. Opinion of RAZUM program applicants and potential
users on RAZUM program
RAZUM program facilitates R&D
activities in SMEs
3,5
4,3
Program RAZUM enables
modernization of technology
inside the firm
3,3
4,1
RAZUM program enables SMEs
to initiate more complex
innovation projects
3,3
4,2
RAZUM program has good terms
of funding
3,2
4,1
Project application for RAZUM
program is too demanding for
SMEs
3,1
3,6
Administration of RAZUM project
is time consuming
3,2
3,2
1
2
3
4
5
Potential users, n=38
RAZUM program applicants,
n=30
Source: EIZ, 2011.
39
Figure 1. Logistics of the research project
RAZUM
IRCRO
EXPLORATORY
RESEARCH
EXPLORATORY
RESEARCH
QUANTITATIVE RESEARCH
SURVEY WITH
RECEPIENTS
QUANTITATIVE RESEARCH
SURVEY WITH
NON-RECEPIENTS
SURVEY WITH
RECEPIENTS
UKF
EXPLORATORY
RESEARCH
QUANTITATIVE RESEARCH
SURVEY WITH
RECEPIENTS
SURVEY WITH
NON-RECEPIENTS
SURVEY WITH THE SAMPLE OF
POTENTIAL USERS
40
2.3. UKF: Crossing borders grant
UKF
EXPLORATORY
RESEARCH
QUANTITATIVE RESEARCH
SURVEY WITH
RECEPIENTS
SURVEY WITH
NON-RECEPIENTS
41
UKF: exploratory research
 Four case studies
□ Two with recipients
□ Two with non-recipients
 Project idea originated in researchers’ every-day research activities
 All had prior connections with the researchers from foreign institutions
42
UKF quantitative research: RECIPIENTS
 The population of researchers who received UKF grants numbers
26, out of which 20 responded to the survey.
Figure 19. Projects by field
Source: EIZ, 2011.
Figure 20. Type of UKF project
Source: EIZ, 2011.
43
Figure 21. Motives for application to UKF program
Source: EIZ, 2011.
• Perception of UKF is positive
44
Figure 22. Benefits of UKF projects
Source: EIZ, 2011.
45
Figure 23. Total output of finished UKF projects
46
Source: EIZ, 2011.
Figure 24. Respondents’ opinions of consequences of not
receiving the UKF grant
47
Source: EIZ, 2011.
Commercialization of the results
 Collaboration with business community was not seen as either a goal or
important benefit of the UKF grant
 Interest for commercialization of UKF research results low
 Business community signaled low level of interest
 Researchers themselves more interested in research than in business
aspect
 Main market for research results obtained from UKF project would be
global market (60%)
48
UKF quantitative research: NON-RECIPIENTS

79 researchers in population, 15 responded


Lack of grant has repercussions on the course of the project
More than a half would apply again to the UKF program
Source: EIZ, 2011.
49
3. Overall conclusions
 RAZUM
□ Additionality achieved
□ performs an important role in aiding small firms to innovate to the
prototype stage and in raising their innovation and R&D capabilities
□ RAZUM functions as an instrument that prevents market failure
□ RAZUM grants would not suffice for project completition in 45
percent of cases – considering lack of sources of finance firms could
be stranded with prototypes
□ need to assist small and medium firms at least partly through the
commercialization stage
□ need for stronger promotion in order to increase the awareness of
the program
50
Overall conclusions
 IRCRO
□ Additionality achieved
□ Helps SMEs finance collaborative projects with research
institutions
□ Supports projects of lower level of innovativeness
□ Increases innovation/R&D capability
 UKF
□ Additionality achieved
□ Largest impact on young researchers
□ Commercialization of results needs to happen outside of the
program (maybe through TTO?)
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Thank you for your attention!
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