The Odds of Innovation in Romania

Septembrie 2008

DELOITTE ROMANIA

A general assumption seems to exist that the Romanian culture is not prone to innovation – due to its Communist past, the perceived traditionalism of people, or even to an inherited working attitude that promotes tranquility, avoiding responsibility and a “laissez faire” style. These can hardly be proxies for innovation, but rather generate a tendency to take things as they are (why fix it if it isn’t broken?) and to oppose vigorously any changes to the status quo. A report released by the Economist Intelligence Unit (EIU) in 2007¹ has sparked further discussions, because of Romania faring quite low in terms of innovation and innovation enabling factors. With the labor costs soaring, staying in the competition demands an advantage – which can be innovation. There are several innovation oases in Romania already, with the technological parks, some customized innovations of the banking sector, the potential for renewable energy generation, social innovation, web 2.0 development and the communication technologies, innovation areas which might prove to be Romania’s lifeboat in striving for competitiveness in Europe. The question is: what are the odds that the promise held by Romanian innovation will come true?

 

Brief introduction to innovation

Innovation in business is commonly understood as a process by which knowledge and ideas are converted into better ways of delivering business to the customer, in unusual ways that attract loyalty and deliver true value to the community they have originated in.

While innovation is commonly associated with creativity, a distinction should be made between the two. Successful innovation is the result of a conscious search directed towards a purpose. Opportunities nowadays are generated by factors both internal to a company, as well as changes in the external regulatory and macro economical environment. Some of the factors leading to innovation are various process adjustments required by mergers and acquisitions, market challenges, requests from customers, changes in brand equity etc. As a necessary management function nowadays, innovation requires tools and the discipline to transform the fruit of mind into reality. One of these tools is creativity; however it alone cannot generate valuable innovation. The financial costs cannot be overlooked, either – chances are that a company pays several hundred times the value of the initial prototype in order to bring it to market.

 

Innovation factors: Romania's case

According to a recent innovation survey done by the Economist Intelligence Unit², Romania ranks 53 in the expected innovation performance for the next 5 years, a +1 point change as compared to the previous period. EIU uses a proprietary instrument to measure innovation potential, taking into consideration a blend of several factors. The main drivers quoted by the EIU in assessing a country’s capacity to innovate are the following:

• Government policies and government R&D spending
• Education systems
• Proximity to high-tech clusters
• IT and communications infrastructure and broadband penetration

Many of the EIU study respondents mentioned macroeconomic stability, regulatory environment and the protection of intellectual property as enabling factors for innovation. Although there are many innovative companies in the region, it seems like their performance is inhibited by government regulations. A National Plan for Research, Development and Innovation does exist, and it does stipulate the need for the Romanian economy to be more innovative, however the ambitious goals set forth in this plan need financial backup as well as political – and at this point, Romania’s R&D spending is less than encouraging, with 0.46% of GDP³, compared with the medium value of 1.84% for EU27.

Just to see the difference, the two European “innovation champions”, Sweden and Finland, are spending 3.82%, respectively 3.45% of GDP on innovation. Sweden also ranks among the first four most innovative economies in the world, in such select company as Japan, Switzerland and the US.

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