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OCR for page 223
Page 223
Small Innovative Business in the
Nuclear Cities
Aleksandr P.Sorokin *
Obninsk City Science and Technology Council and Russian Federal
Nuclear Center—Institute for Physics and Power Engineering
As highlighted in government documents such as the comprehensive
program for the development and state support of innovative
business, the regulation of innovation-oriented processes is
subordinate to tasks of preserving scientific-technical potential
and mobilizing it for the structural reorganization of the economy.
The formation of market relations in the scientific-technical
sphere is carried out through the following actions:
supporting and developing the infrastructure for
innovative business
encouraging competition by attracting financial
resources and using them in a focused and efficient
manner to implement innovation programs and projects
aimed at creating capacities for the production of
science-intensive products
To these ends, measures are being carried out at the regional and
industry levels aimed at
increasing innovation activity in the
scientific-technical and industrial spheres
promoting qualitative changes in the organizational
structures of these sectors
* Translated from the Russian by Kelly Robbins.
OCR for page 224
Page 224
increasing the innovation-oriented returns derived from
research efforts
creating additional funding sources for science
fostering a competitive environment
filling the market with goods and services
increasing employment opportunities for the population by
attracting laid-off scientific personnel to the innovative
business sector
developing a system of services for the innovation sphere
The role of the state lies in creating the following elements:
favorable conditions for entrepreneurial innovation
activity through the concentration of small amounts of
resources in points of growth
science and technology parks
innovation centers
business incubators
special legal and regulatory acts aimed at supporting
activity in the scientific-technical services sphere
Unfortunately support programs have remained only on paper. Matters
have not yet reached the point of radical reform of the
scientific-technical sphere (the formation of joint-stock companies),
a situation that can be considered an unrealized opportunity. Without
the widespread practice of establishing participatory stock-based
ventures in the scientific-technical sphere, the problem of the
development of innovation-oriented business takes on great urgency.
The nuclear cities provide a cross-section view of the high-tech
sphere in general. The cities of the Russian Ministry of Atomic Energy
(Minatom) have accumulated a great deal of scientific-technical
potential supported by a powerful industrial base and an enormous
amount of operational experience in areas requiring specific knowledge
and skills. With the new economic reforms, these cities have faced a
serious problem:
how to use their potential effectively
how to form successfully operating businesses on the basis
of the innovative technologies they have produced
how to provide employment for the highly skilled workers
who have lost their jobs at the main defense enterprises
as a result of cuts in defense orders and the
diversification of the firms' activities
The situation in the closed nuclear cities has essentially been no
less harsh than in other science- and technology-oriented cities
(science cities).
OCR for page 225
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About 10,000 Obninsk residents work outside the city, and science has
served as a donor promoting economic development not only for the city
but also for the region in general.
Minatom pursues a targeted policy of promoting major defense
conversion activities and implementing large projects. This policy is
aimed at supporting conversion and enterprise restructuring and
reducing and subsequently eliminating defense-related activities. This
policy is well justified. To achieve results within an optimal period
of time, Minatom must focus on carrying out just such major projects
that are directly oriented towards conversion and associated with the
primary activity of the enterprises.
However, insufficient attention is being paid to the conversion
activities that may be small in scope but might result in very
successful businesses based on high technologies developed at the
enterprises.
Following are several objective preconditions for the development of
small innovative business in the nuclear cities:
1. the great amount of scientific-technical potential
amassed during the operations of the main enterprises in
these cities
developments in various fields of science and engineering
highly professional engineers and scientists
well-organized industrial base
2. a well-developed system for professional training
3. a well-developed financial infrastructure
4. good social welfare conditions for city residents.
City budget expenditures per resident are several times
higher than in nearby regions, and the social
protection system is operating.
5. acceptable living conditions. Public utilities and
other elements of the urban infrastructure are
maintained at a good level. Work is constantly being
done to repair and renovate utility lines, plant and
maintain trees, and otherwise clean and beautify the
city. There is a well-established intra- and intercity
transportation system, and the telephone system is well
developed. Residents of the cities never face the
problem of having their water or power supplies
switched off.
The task of the city administrations and the enterprises lies in
utilizing this potential and creating successfully operating
businesses on the basis of innovative technologies and products.
Despite the lack of favorable conditions for bringing innovation
potential to bear, this process is beginning to become active, as
directly confirmed by the examples cited. In addition, the examples
also illustrate that much depends on efforts and initiatives at the
local level.
OCR for page 226
Page 226
In each of the nuclear cities, dozens of science-intensive conversion
projects have been carried out at the city-forming enterprises. Small
innovative businesses are not yet making a defining contribution to
the economy of these cities, but their impact is beginning to be felt.
Figures for small business-related employment, high-tech production
output, and tax revenues have already climbed far above the single
digits as percentages of overall indicators for the research and
production sector as a whole.
The city-forming enterprises play a very significant role in
developing small high-tech businesses. For example, this is
illustrated by the activities of VNIIEF-Conversion, an open
joint-stock company founded by the Russian Federal Nuclear
Center-Scientific-Research Institute of Experimental Physics (VNIIEF)
in cooperation with Minatom and the Sarov City Administration.
VNIIEF-Conversion is a sort of holding company that manages conversion
projects that have evolved to the point of operating as independent
legal entities.
A great deal of focused work is being done in the closed nuclear
cities and substantial experience has been accumulated regarding
support for the development of small innovative businesses. Such
development measures may be divided somewhat conditionally into three
groups:
1. Normative:
development of programs to support small innovative
businesses
various types of activities
resolutions on investment activity
2. Financial:
investment zone (Zheleznogorsk)
funds and foundations (municipal, nongovernmental, etc.)
tax incentives
use of lines of credit
venture capital activity (Zarechny, at the regional
level), and so forth
3. Organizational:
international support programs (Nuclear Cities, Tacis,
etc.)
creation of an infrastructure for innovation activity
(technoparks, business incubators, industrial zones)
training and professional development programs
exchanges of operational experience (conferences,
seminars, etc.).
OCR for page 227
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The difficult and unstable nature of the economic and political
situation, the crisis phenomena in the Russian economy, and the long
and drawn out economic reform process have occasioned a number of
serious problems facing the innovation business:
There is a lack of targeted stable sources of financing
for innovation projects and conversion activities.
Financing of these activities is carried out
unsystematically, on a case-by-case basis, mainly with
money from special Minatom funds.
There is also no mechanism for commercializing projects
and creating effectively functioning enterprises on their
basis. The majority of projects stall at the research and
development or experimental sample stage.
The market infrastructure is underdeveloped and consistent
sources of market information are lacking.
The legislative and regulatory base is unstable and
imperfect:
problems in the tax sphere (frequently changing rates and
collection provisions), causing difficulties in predicting
costs
difficulties for innovative businesses, including
commercialization of intellectual property
hindrances to the quick and efficient development and
implementation of targeted joint programs at various
levels (federal and regional, interregional, regional and
local, especially involving the closed
administrative-territorial zones)
The economy is highly bureaucratized, with much overlap
between the authorities of government and regulatory agencies
and a complex system for obtaining permits and
certifications.
Industrial equipment throughout the country is substantially
obsolete and physically deteriorated.
Russia and its various regions have low investment appeal.
Foreign investors are extremely reluctant to invest in new
fields of activity, especially in the regions.
There are not enough experts able to meet current market
demands (marketing, analysis of current market conditions,
development of marketing strategies, sales, and midlevel
management).
The communications infrastructure is outdated and of poor
quality.
The structural units manufacturing high-tech products lack
independence and are in need of restructuring.
In the course of carrying out innovation projects, individual
enterprises encounter a large number of very specific problems, the
most ur
OCR for page 228
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gent of which is that of obtaining investments in the necessary amount
and for the necessary duration. Even today the Russian banking system
offers unfavorable loan conditions for the implementation of
investment projects:
high interest rates
no system of long-term investment loans with reduced
servicing requirements
impossible collateral requirements
How should the strategy for developing small innovative businesses be
approached?
1. the targeted program approach (focused on
scientific-technical development priorities)
2. selective support (competitive selection)
3. market regulation (orientation to solvent demand)
What role should be played by regulation at the federal, regional, and
industry levels? Innovation strategy within each industry should be
designed with an eye to
setting technological development priorities in order to
determine the areas that should receive priority financing
creating an intellectual and informational infrastructure
for innovation project design
creating conditions for the development of
innovation-oriented management
updating the legislative base for the innovation sphere
restructuring the scientific sphere with special focus on
the innovation sector and the search for the most
effective projects
The fact that innovation activity involves representatives of various
specialties and various government agencies complicates coordination
efforts. It seems that creating a working group (“brain
center”) could accelerate the process of creating a strategy for
the development of small innovative businesses, including the
following:
principles for the restructuring of the science sector
measures for intensifying innovation activity at the
intersection of science and industry
sources of financing
OCR for page 229
Page 229
A systematic analysis of the information contained in reports
presented at this seminar specifies steps that seem necessary for the
development of innovation activity in the nuclear cities:
1. Innovation activity should be supported at the federal
level, including passage of a federal law and accompanying
regulations governing innovation processes. A mechanism
for the implementation of state innovation policy should
also be created.
2. A focused policy is needed for maintaining and
stimulating the development of innovative technologies and
products developed at the city-forming enterprises. These
projects should be developed separately but with the
active participation of the base enterprises, which
provide the premises, equipment, and specialists. Minatom
should provide targeted support and incentives.
3. The innovation infrastructure, including technology
incubators, technoparks, and innovation zones, requires
targeted support and development. Such structures should
be provided with special tax incentives.
4. Targeted investment funds should be created with
support from the federal budget (Minatom) for the
development of small conversion-oriented and innovative
activities. Procedures for obtaining support from these
funds should be simplified. Financing should be of a
strictly focused nature with investment results to be
closely monitored.
5. Innovation-oriented venture capital funds should be
established. They would participate as investors in
projects involving increased risks and long recoupment
periods.
6. Simplified procedures should be instituted for
transferring state property into other forms of ownership,
including opportunities for price reductions during the
sale or leasing of property if it is connected with
innovation-oriented activities. A mechanism should be
developed for transferring equipment and production
facilities on favorable terms if they are to be used in
promising conversion-related activities.
7. An enterprise restructuring program should be
developed, with separate activities to be spun off into
separate independent enterprises.
Representative terms from entire chapter:
nuclear cities
