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Activities of the Obninsk City Administration Aimed at Supporting Small Innovative Firms

Igor M.Mironov *

Obninsk City Administration


A total of 3,937 small businesses are registered in the city of Obninsk, accounting for 85 percent of the total number of all registered enterprises and organizations. The number of small enterprises that are actually operating is 1,228. The principal types of activities in which these firms are involved may be broken down as follows:

  • Some 17 percent are involved in manufacturing, including the hightech sector.

  • A total of 11 percent are engaged in construction work.

  • About 3 percent provide transportation and communications services.

  • More than 40 percent are involved in retail or wholesale trade or food service.

The small businesses of the city employ about 19,000 people, or 38 percent of the total working population. The charter-defined activities of 350 small firms (10 percent of all such enterprises) involve the scientific-technical innovation sphere. The number of small companies actually operating in the high-tech innovation area can be estimated as approximately 30 to 40. About 42 percent of all income from the sale of goods and services is earned by small businesses, and these enterprises provide about 30 percent of all city budget revenues.

* Translated from the Russian by Kelly Robbins.

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Page 167 Activities of the Obninsk City Administration Aimed at Supporting Small Innovative Firms Igor M.Mironov * Obninsk City Administration CURRENTSTATE OF SMALL- AND MEDIUM-SIZED ENTERPRISES IN OBNINSK A total of 3,937 small businesses are registered in the city of Obninsk, accounting for 85 percent of the total number of all registered enterprises and organizations. The number of small enterprises that are actually operating is 1,228. The principal types of activities in which these firms are involved may be broken down as follows: Some 17 percent are involved in manufacturing, including the hightech sector. A total of 11 percent are engaged in construction work. About 3 percent provide transportation and communications services. More than 40 percent are involved in retail or wholesale trade or food service. The small businesses of the city employ about 19,000 people, or 38 percent of the total working population. The charter-defined activities of 350 small firms (10 percent of all such enterprises) involve the scientific-technical innovation sphere. The number of small companies actually operating in the high-tech innovation area can be estimated as approximately 30 to 40. About 42 percent of all income from the sale of goods and services is earned by small businesses, and these enterprises provide about 30 percent of all city budget revenues. * Translated from the Russian by Kelly Robbins.

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Page 168 INFRASTRUCTURE FOR SMALL BUSINESSSUPPORT IN OBNINSK The existing city system for the support and development of small business includes a number of structures capable of rendering a wide range of services. Obviously there are also other structures in the city that support start-up companies. The organizations that I mention here are those that belong to the Regional Innovative Technology Center (RITC) consortium. RITC enterprises cover practically the whole range of city needs for innovation services. Any missing elements will be created or strengthened in the future. In particular this can be done using funds from the Obninsk science city program. In addition the Obninsk Center for Science and Technology (OCST) has been established by the Obninsk City Administration and all city research institutes to assist in integrating the capabilities and efforts of the institutes on matters regarding technology commercialization. The center also helps resolve similar problems for small enterprises, including by representing their abilities at various exhibitions within the framework of unified citywide displays. It should be noted that creation of the innovation infrastructure is one of the key elements of the Program for the Development of Obninsk as a Science City. This process is aimed at developing the existing infrastructure, creating new elements, and integrating them into a unified and coordinated system for innovation activity support. Meanwhile, the Obninsk Chamber of Commerce, which has a cooperative agreement with the city administration, lobbies for the interests of business and promotes the development of the business support infrastructure, thus fulfilling its primary ideological objective of serving as a link between entrepreneurs and the city authorities. Near-term plans call for establishing a system under the chamber's auspices for representing the interests of small innovative firms and integrating their public affairs activities. ACTIVITIES OF THE CITY ADMINISTRATION IN SUPPORT OF SMALL INNOVATIVEBUSINESSES First of all, I would like to note that all city administration activities in support of small innovative businesses were undertaken by the previous team, which was headed by former Mayor Mikhail Vladimirovich Shubin. Credit and Financial Support In November 1992 the Fund for the Support of Small Business was established by the city administration. According to the Federal Law on

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Page 169 State Support for Small Business in the Russian Federation, the fund is a nonprofit organization that provides funding to implement city administration policies in the area of business support and development. The Obninsk City Administration is the founder of the fund, the main objective of which involves financing projects for small business in Obninsk. This financing is made in the form of loans of up to 250,000 rubles for up to one year at annual interest rates of 10–15 percent. Over the past nine years, more than 90 projects have been financed for a total of more than 3.5 million rubles. The fund can render support both by direct credit in the form of preferential loans and by guarantees provided at the time the recipient obtains credit through another lending institution. In this manner the fund provides a guarantee if the borrower lacks sufficient collateral. To date, the fund has already provided four such loan guarantees. The practice of giving guarantees has recently been successfully introduced in collaboration with Sberbank. In 1999, three guarantees were given to the Obninsk branch of Sberbank for project loans, including to enterprises in the scientific-technical sphere. Preferential loans are the most common way in which the fund provides financial support. While the average interest rate for loans in Obninsk banks is 25–30 percent, the fund grants loans at 10–15 percent. The lowest rate is applied for projects in which the funds are to be used for industrial development and equipment purchases as well as projects of high social and innovation significance. Preferential loans are granted both on a competitive basis and in the course of normal operational activity. Competitions are held at least twice a year. The last was held in August 2001, with four projects receiving financial support in the total amount of 850,000 rubles. Unfortunately the city cannot afford to invest directly in high-tech production projects, no matter how significant they may be to us. In particular the city administration's Fund for the Support of Small Business is currently stepping back from the practice of operating as a financial structure. The reorganization of the fund is intended to create a guarantee fund that would provide collateral for bank loans granted to projects on a competitive basis. In addition the fund is expanding its activities in providing various types of consulting and information support services to small companies. Such support for enterprises is the most effective and is becoming a regular element of the existing infrastructure for investment activities. To make our city truly attractive for investments, we are using our main advantages, namely our highly qualified labor force and its intellectual potential, innovation opportunities primarily in high-tech products, and the availability of the principal institutions of the market economy. However, the imperfection of the current Russian tax system is hindering

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Page 170 active investment activity. At the same time, effective development of the manufacturing and innovation spheres is impossible without creating favorable conditions for attracting investments. This task is one of the most important in the Program for the Development of Obninsk as a Science City. It involves a number of measures for the support of investment activity to be undertaken at the city level, specifically in the area of providing appropriate laws and regulations. Legal and Regulatory Support for Small Business Temporary Resolutions on Support for Investment Activity and on the Investment Council The Program for the Development of Obninsk as a Science City includes measures aimed at developing legal and regulatory documents determining procedures for investment activity and outlining a system of incentives and guarantees for investments in Obninsk. In conjunction with these measures, the Resolution on Support for Investment Activity in the City of Obninsk was adopted. It establishes tax benefits for legal entities that invest in the development and expansion of their own enterprises and create new jobs. The tax burden on these enterprises is cut almost in half by exempting them from taxes paid directly to the local government. However, under the new Russian Tax Code that went into effect on January 1, 2001, the tax for housing stock maintenance and the social infrastructure as well as the value added tax are no longer considered local taxes. Therefore, the city can no longer create incentives in the form of exemptions on these particular taxes. The Obninsk Investment Council was formed as another element of the development program. Chaired by the mayor, its membership includes representatives from the public and private sectors of the economy. The investment council was established in 1999 to develop and implement investment policy in the city. It makes decisions on granting tax incentives according to the Temporary Resolution on Support for Investment Activity and supervises implementation of city investment projects and application of incentives for investors. Three main areas of the investment council's activities should be specially noted in addition to those listed in the resolution: marketing and promoting the city, developing the technology for working with investors, and taking measures to improve the business image of the city. Obninsk actively strives to establish good business contacts at all levels. This is illustrated by constant visits by foreign guests and representatives of Russian business circles; by the special attitude towards Obninsk taken by various foundations, in particular the Eurasia Foundation; and by the support provided to Obninsk by the Tacis Program.

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Page 171 As previously mentioned, when the second part of the new tax code and a number of laws on taxes and revenues went into effect on January 1, 2001, the value-added tax and the tax for housing stock and social infrastructure were no longer considered local taxes. Therefore, the city could no longer institute preferential rates or exemptions on these taxes. As a result, changes were made in the Resolution on Support for Investment Activity. The resolution might now be somewhat less attractive to enterprises, although preferential rates are still in effect for certain substantial taxes, including property tax and income tax. In addition, as a result of elections, the city leadership changed in March 2001. The composition of the investment council is therefore under review, with the new membership expected to be confirmed by the Obninsk City Council and begin work in the near future. Other Legal and Regulatory Documents At present, efforts are being made under the auspices of the program to improve city laws and regulations regarding land use and construction. A decision was made to prepare sites for construction and determine their necessary technical parameters. Potential investors will be able to inspect the sites to determine their attractiveness. Resolving issues connected with real estate and other property will represent another incentive in attracting investors. Support for Small Innovative Enterprises Under the Comprehensive Small Business Support Program In 1998 the city administration together with the Chamber of Commerce and a number of innovation infrastructure companies developed the Small Business Support Program in Obninsk. The program was largely oriented to the priorities of the Program for the Development of Obninsk as a Science City, which was being developed at that time. Therefore, once the Science City Program was launched, there was no further need for the Small Business Support Program, and its planned activities were taken over by the Science City Program. RESULTS OF CITY GOVERNMENT SUPPORT FOR SMALL INNOVATIVE BUSINESSES Results of Legal and Regulatory Affairs Support In accordance with the Temporary Resolution on Support for Investment Activity and the decision of the Investment Council of Obninsk, tax agreements were concluded with three city companies in 2000. Two of the

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Page 172 companies are currently making use of the agreements, while the third enterprise is just starting its operations and will receive the tax benefits as soon as it receives investment capital. Example The support given to the Rastr-Technology company can be considered successful, although the incentives themselves did not play a significant role in the company's expansion and development. The enterprise's success was due to its long and painstaking work with its partner and the scrupulous fulfillment of its commitments. As a result, in the initial phase of project implementation, the enterprise already saw its cash flow significantly exceeding planned levels. However, it was the city administration's policy of supporting small innovative businesses, its efforts to assist firms, and its favorable attitude towards business development that attracted Rastr-Technology to Obninsk. The example of this firm shows that Obninsk's status as a science city (“intelligent” business, a highly-skilled workforce) plays a substantial role in attracting small business and investments to the city. Successes Rastr-Technology works in cooperation with the large state enterprise Technology in replacing foreign nonmetallic materials with Russian ones in the production of forms for the packaging and printing industries, thus taking advantage of the scientific and industrial potential of Obninsk. By using its experience in developing packaging materials, including those intended for use with unique made-to-order scientific instruments, the company facilitates small shipments for other local firms, which in turn helps these firms get their products to the market, as packaging plays one of the key roles in product promotion. The company chose to locate in Obninsk because of its science city status, as well as the possibility of hiring highly qualified specialists and the availability of tax incentives. The company provides staff development opportunities, attracts young workers, and keeps people from leaving the city for jobs elsewhere. At any given time, Rastr-Technology hosts five or six students from Obninsk universities for practical training and internships. Problems Currently Faced by the Enterprise High import duties for technological equipment Customs delays in importing raw materials and other supplies from abroad, leading to delays in filling orders

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Page 173 Complete lack of state support regarding product exports to nearby countries (including members of the Commonwealth of Independent States) The company is currently striving to find customers in Ukraine, Uzbekistan, Kazakhstan, and the Baltic states. It surpasses its competitors from Germany, Poland, the Czech Republic, and Turkey in the time it takes to fill orders (orders are executed within a week). However, customs procedures then take three weeks, nullifying the enterprise's competitive advantages. Unfortunately the city administration cannot provide effective help with such issues. To a certain extent the problems have been eased by cooperation with the firm's foreign partner, which has a better understanding of the problems than the federal government. Results of Credit and Financial Support Inasmuch as the main problems were caused by the shortage of circulating capital in the Fund for the Support of Small Business, the city administration focused its efforts on increasing the amount of such funds available. A total of 850,000 rubles were obtained from the Program for the Development of Obninsk as a Science City under the program component entitled “Development of the Fund for the Support of Small Business, Augmentation of Turnover Funds, and Creation of a Collateral Fund.” Owing to the increase in its assets, the fund can grant larger sums to projects and for longer periods. A competition for investment projects was held in July-August 2001, and the fund's credit committee recently selected the winning projects to be supported. The size of the loans offered this time was four times higher than in the last competition, with each of the projects selected receiving 200,000 rubles for one year. At present the fund has assets of 700,000 rubles, which are used for operating activity. Together with additional funds from the Science City Program, the fund's total assets exceed 1.5 million rubles. With these assets, the fund serves as a guarantor for loans obtained from commercial lending institutions. Thus, a solid foundation has been established for the creation of a guarantee fund, which will facilitate the attraction of nongovernmental funds for project financing. A successful example of collaboration along these lines already exists in the form of efforts involving Sberbank. Example In 1998–1999, the Obninsk branch of the Kaluga division of Sberbank provided credit to the Eridan-1 Science and Technology Center, a limited liability company. Sberbank initially provided the credit for export orders. Later on (in 2000–2001), after the enterprise had established a credit history, further loans were made for the firm's innovation project

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Page 174 on trace gas analyzers. The project involves developing, certifying, and launching small-scale industrial production of new environmental monitoring devices. The Fund for the Support of Small Business played the deciding role in securing approval for the first credits from Sberbank, as it served as a guarantor for the enterprise and risked its own assets. Thanks to these loans, Eridan-1 was able to complete the very complex and highly technical work needed to fill six contracts with customers from South Korea, China, Portugal, and Kyrgyzstan. Successes The project for production of gas-analyzing devices was successfully completed, and a small batch of finished products was manufactured. The characteristics of the devices are unique and the best in the world. State product quality testing was successfully completed, and procedures for equipment certification were developed. The total sum of Sberbank loans was 7 million rubles, which Eridan-1 is currently repaying. Problems Currently Faced by the Enterprise Eridan-1 is encountering two main difficulties hindering the further development of export shipments as well as efforts on the trace gas analyzer project: 1. All loans are given for a short term, only one year. It is very hard to carry out a lengthy innovation project with such a short time limit. 2. The rate of interest on the loans is rather high, so they can be repaid only if the project is very profitable. RESULTS OF THE CITY ADMINISTRATION'S ACTIVITIES AIMED AT SUPPORTING SMALL INNOVATIVE BUSINESSES Successes Thanks to the assistance of the city administration, a diversified infrastructure for the support of small high-tech businesses has been created in Obninsk. The city is a cofounder of a number of innovation infrastructure enterprises (OCST, the Obninsk Regional Agency for the Promotion of Investment and Technology [RAPIT], the Technopark, the Fund for the Support of Small Business). Judging from the experience of the Fund for the Support of Small Business, the lack of coordination in business support efforts represents a substantial obstacle to the city administration in implementing its sup

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Page 175 port measures. But without this support, entrepreneurs would face great difficulties and costly mistakes and losses in overcoming the administrative barriers along the path from enterprise establishment to the production of finished goods. As a result of the creation of the RITC consortium, which united the enterprises making up the innovation infrastructure, the problem related to lack of coordination has been overcome. Plans for the Obninsk City Development Program included a package of 104 investment proposals at various stages of preparation and implementation. These proposals formed the basis for the creation of the city portfolio of investment projects. As a result of the measures taken by the city administration to build the city's image, Obninsk has become an attractive relocation site for small innovative businesses based elsewhere. Enterprises are eager to be registered in the Science City of Obninsk, thus attracting investments to the city, keeping qualified personnel employed, augmenting the tax base, and creating good new jobs for city residents. Business management has improved substantially. Until recently, many leaders of small high-tech companies lacked knowledge and skills in business planning, despite their high level of academic achievement. Thanks to the activities of the city administration, the Franco-Russian Institute of Business Administration (FRIDAS), the Fund for the Support of Small Business, other institutions, and foreign specialists, a number of workshops and consultations were organized and have produced positive results. Owing to implementation of the Program for the Development of Obninsk as a Science City, the circulating capital of the fund was significantly increased, making it possible to provide increased financing for investment projects selected on a competitive basis. The situation has been fundamentally changed, as the main “sore point” for the Obninsk business sector was the unavailability of loans and investments, as revealed by the activities of the city Fund for the Support of Small Business. Most entrepreneurs need sums of 200,000 to 300,000 rubles for a term of more than one year. The initial experience of the Fund for the Support of Small Business in working with Sberbank on loan guarantees has shown that such activities are promising. Bankers are favorably inclined to work with the city administration, as its guarantees on loans carry substantial weight. In the future the administration plans to put even greater emphasis on attracting nongovernmental funds for loans to small innovative companies. Plans call for the guarantee fund to increase to 2 million rubles in the next year. Failures Unfortunately there has been no spark of interest among entrepreneurs in the opportunities offered by the Temporary Resolution on Support for Investment Activity, despite the fact that this resolution played

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Page 176 the most important role in creating favorable conditions for business development in the city. It seems that one important reason why entrepreneurs have viewed the resolution unenthusiastically lies in its requirement that information about their business activities must be open to the city authorities. Furthermore, a survey of members of the business community has revealed that 84 percent of respondents have never heard of the resolution, and the 15 percent who are aware of it are rather skeptical. One-third of those questioned do not believe that the tax benefits set forth in the resolution will be a real incentive for business development and for the attraction of investments to the city. By the way, such skepticism is often caused by the lack of information about the Temporary Resolution. All in all, many entrepreneurs are simply not aware of the business support opportunities offered by the city administration. The capabilities of the city administration for supporting small business by granting tax incentives were substantially decreased if not eliminated by the recent changes in Russian tax legislation. It is now possible that the Temporary Resolution will not be able to play an important role in the support of small business. Due to a lack of funds, the city administration has been unable to fully implement all possible types of credit and financial support. This primarily affects start-up companies with no liquid assets that could be used as collateral for bank loans. To obtain instruments or equipment that could then be sold or used as collateral, a company needs credit so it can convert its ideas or patents into state-certified devices, equipment, or technological processes. On the other hand, banks have no right to lend money without collateral, which start-up innovative companies generally lack. Thus, the enterprise finds itself in a vicious circle. The problem of finding available space for small innovative companies (especially within the city limits) has not yet been overcome. Private businesses are not eager to be placed on state-owned property because there is no possibility for them to buy the facility later. Meanwhile, there is a catastrophic shortage of available municipal space in the city. The reason for this situation lies in the fact that Obninsk was founded as a “nuclear city,” and almost all its territory belonged to the various state research institutes. PROSPECTS FOR THE DEVELOPMENT OF SMALL INNOVATIVE BUSINESSES IN OBNINSK Long-Range Plans of the City Administration for the Support of Small Innovative Businesses These plans are defined in the Program for the Development of Obninsk as a Science City, the entire strategy of which is of course devoted to

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Page 177 supporting innovative business. The concept of Obninsk as a science city has been based from the beginning on the idea of promoting the stable development of the city on the basis of high-tech resources. Bringing the results of scientific and technological research into fruition in the form of manufactured products will give the city a good footing in the marketplace and help to increase revenues for the city budget. It is this sort of innovation model at which the Program for the Development of Obninsk as a Science City is aimed. To implement the model, conditions are being created for the development of high-tech enterprises as outlined in subprograms 2, 3, and 5 of the program. Subprogram 2 is designed to develop the innovation infrastructure, one important element of which involves the creation of a business incubator. During the course of this project, facilities will be remodeled for use as office and manufacturing space by small innovative firms on the basis of five-year leases on favorable terms. For the first year the rent will be 50 percent of the standard municipal price; for the second year, 70 percent; for the third year, 80 percent; and for the fourth and the fifth years, 100 percent. The premises will be fully outfitted with everything necessary, from office equipment to specialized machine tools—everything will be provided as a complete package to the small innovative enterprises. A competition for placement in the business incubator was recently concluded, so the facility will begin operating shortly. However, the business incubator is only the first step in the development of the enterprise. Its further growth will inevitably be hindered by the lack of space for hightech production facilities in the city. The empty space at our research institutes unfortunately cannot be used, as these facilities are federal property. The idea of launching production under the state's “roof” does not appeal to the managers of small innovative enterprises, as they inevitably encounter problems with property rights that are unregulated in the existing legislation. Therefore, our main objective now is to build our own production facilities, connect them with the appropriate public utility networks, and provide enterprises with the space they need to launch high-tech production along with the possibility of buying these facilities later on. These goals represent the focus of our projects on creating a technopark and a municipal industrial zone. The technopark project calls for the construction of an industrial complex under the auspices of the Science City Program and using program funds. It is designed so that enterprises that have outgrown the business incubator can lease municipal space where they can grow to maturity. The city will own the engineering networks, utility lines, and 1,400-square meter industrial complex at the technopark. Space will be leased on a competitive basis to the most promising science-intensive enterprises that have graduated from the incubator. The enterprises that have gathered

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Page 178 steam and are preparing to expand production will then move from the technopark to the municipal industrial zone. In contrast to the technopark, this zone will have no standing production shops—the firms will have to construct everything they need except the public utility lines, which will be provided as in the technopark. In general the technopark is a component of the municipal industrial zone, which has been assigned a 50-hectare site located around the 102-kilometer marker on the Moscow-Kiev rail line. Thus, there is a simple but effective chain of assistance from the business incubator to the technopark to the municipal industrial zone. The first one prepares the start-up enterprise, the second provides ready production facilities after the enterprise has had some time to get on its feet, and the third provides land for the establishment of serial production. PROPOSED SUPPORT ACTIVITIES The situation in the high-tech business sector developed in such a way that in the early 1990s, investors were attracted only by short-term projects because of the extremely high inflation rate. However, the innovation business requires long-term investments with a high degree of risk. Nevertheless, high-tech production is, at the same time, among the most profitable of all types of business, so interest in it has increased noticeably of late. A great number of institutions have recently been created to support the high-tech business sector, including different agencies, technoparks, business innovation centers, and business incubators. Such a comprehensive innovation infrastructure provides effective support for innovative businesses, but only in those locations where the innovation business itself is highly developed—namely the major scientific industrial centers, such as Moscow, St. Petersburg, Kazan, Novosibirsk, and Samara. A paradoxical situation has been created in Obninsk: The innovation infrastructure is much better developed than the high-tech production sphere this infrastructure is intended to serve. The reason for this situation lies in the fact that opportunities for investment support for science-intensive enterprises are much greater in the major cities. Obninsk, like other science cities, lacks the financial potential that would make it possible to organize broad and systemic support for small innovative businesses. However, in my opinion, Obninsk can serve as an example of real attempts to organize such activity. What then is necessary to support science cities in the development of small innovative businesses? Creation of a Material Infrastructure As mentioned previously, the quest for available space is one of the main issues that arise in organizing the production of high-tech goods. At

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Page 179 the same time, a large amount of space is sitting empty at research institutes. Some of this space is being rented to innovative enterprises. However, it is understandable that the heads of these institutes prefer renting space to highly profitable manufacturing firms instead of innovative enterprises that face a long and difficult stage of getting up to speed. The state system of preferential terms for the rental of institute facilities to small innovative enterprises could serve as a substantial stimulus to the development of high-tech production. There is still a complete absence of federal regulations on the rental of empty facilities by research institutes. On the other hand, laws and regulations on the transfer of such facilities to municipal ownership are also lacking. After the need for finding space, the second problem for small innovative enterprises involves the acquisition of equipment. Purchasing equipment requires loans, which are difficult to “work off” in the initial stage of production. Meanwhile, equipment leasing could provide a way out of the situation. However, Russia lacks a system for leasing machine tools, equipment, and measuring instruments. I believe that efforts to resolve this problem can be made at the regional level. For example, the government of Kaluga Oblast and the Obninsk City Administration could jointly establish an institution that would buy unused equipment from enterprises and then lease it to small innovative companies at reduced rates. Investment Support There is still no investment mechanism in our country. Our first attempt in this regard was undertaken at the oblast level. We presented the Kaluga Oblast Legislative Assembly with a project calling for the oblast government to provide investment guarantees. However, given the extremely risky nature of investments in the innovation business, the Kaluga Oblast government refused for understandable reasons. Moreover, private investors will not accept the project either, even on the condition that they would own all present and future research results of the enterprise. Consequently, a system is needed for insuring the risks of such investments, and this system must be under the auspices of the federal government, as no bank would undertake to finance such insurance. According to international business practices, high-tech investments are made through venture funds. The creation of such a fund was initially proposed as part of the Science City Program. Using venture financing, we intended to develop a mechanism for bringing inventions to the market. This process involves scientific research, design work, and the manufacture of test samples. However, there is currently no law on venture financing. Meanwhile, using our own funds by way of an experiment, we could develop a model for the operation of such a fund, which could

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Page 180 serve as the basis for the passage of a Russian law on venture financing. Efforts to develop this model should include specialists from the Ministry of Economics and the Ministry of Science. After all, this is necessary for the entire country, not just our city. Nevertheless, we are applying our own efforts to push this idea through. We are currently planning to develop a draft resolution on venture financing and submit it to the federal government with a request that we be allowed to implement it in Obninsk within the framework of our development program. Training of Specialists In recent years, enterprise managers have been striving to acquire new business skills. Not long ago, businessmen refused offers to participate in seminars and training courses with the response “I know how to do business.” But now, business management training services are in great demand, including training services oriented to the needs of hightech businesses. Businessmen have also changed their approach to staff recruitment, with the main criterion no longer being based on family ties, but on the educational level and skills of the employee. However, high-quality training is costly, and as a rule, businessmen feel the costs are unnecessary. A system for providing professional training in high-tech business management can only be organized with state support. Obninsk can provide an example of the efficient organization of this kind of training. Under the auspices of the Nuclear Cities Initiative project, a training center is currently being created in Obninsk to train managers of hightech companies. Established with the participation of the Obninsk Institute of Nuclear Power Engineering, the Franco-Russian Institute of Business Administration, and the Minatom Central Institute for the Improvement of Professional Skills, this training center could offer educational services to high-tech business specialists from all the nuclear cities. Infrastructure Support Despite the well-developed nature of the innovation infrastructure network, the services it offers are too expensive for the majority of innovative start-up companies. A system is needed for providing innovation-related services on a reduced-fee basis, including business planning, personnel training, research management, marketing, and patent services. At the city level, we are already working to resolve this problem under the Science City Program. However, a state system of support in this field is needed. Furthermore, it is necessary to bring order to the organization and financing of efforts to establish business incubators.

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Page 181 Resolution of Intellectual Property Issues The intellectual property question remains unresolved at the federal level, which means that the owners of such property are not completely free to dispose of it as they see fit. Many of our small innovative enterprises got their starts within the walls of research institutes. However, the intellectual property that formed the basis for their activities was created using federal funds. While this question would not have been so controversial five years ago, today the institutes are unwilling to give their research results to private businesses. It is completely understandable that our institutes take such a position, as they must be compensated as organizational developers for the alienation of their intellectual property. Meanwhile, the technology cannot be developed, improved, or implemented without the small innovative enterprises that use it. Consequently, the first thing that is needed is a mechanism for providing research institutes with incentives for transferring technologies to private businesses. Second, conditions must be created so that intellectual property valuation is accessible to the majority of inventors. For this purpose, the regulatory basis for such valuations must be developed in appropriate form, and a system for training licensed evaluators must be established. Support for High-Tech Product Exports Commercializing our scientific achievements in foreign markets is of great significance in solving the problem of maintaining Russia's enormous scientific-technical potential. To sharply increase the export of hightech services, equipment, instruments, licenses, and patents, scientists need favorable financial conditions for exports. The state could provide Sberbank with the guarantees for loans on export contracts with documentary letters of credit. These loans would be collateral-free, as scientists do not generally have the appropriate assets. All high-tech services rendered to foreign customers should be exempt from the value-added tax. Purely bureaucratic obstacles represent an enormous hindrance in export-related activities, with the arbitrariness and incompetence of customs officials being especially troublesome. Customs documentation regarding the export of instruments and equipment should be minimized, and customs activity in general should be strictly regulated.