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snezhinsk city
Page 68
Development of Small Innovative
Companies in Snezhinsk to Serve the Russian Market
Aleksei A.Kholodov and Yury Rumyantsev *
Snezhinsk International Development Center
During the next 10 to 15 years, trends indicate that annual
economic growth rates will generally average 3.5 to 4 percent
worldwide. With growth rates of 2 to 3 percent annually, as is
currently the case in Russia, the country will be lagging so far
behind by the year 2010 that it will be doomed to trail behind the
world economy for the next millennium.
What sort of growth rate is required for the next 25 years? Russia
must have 6 to 8 percent annual gross domestic product growth, and
in some industries, growth rates should be 16 to 18 percent
annually.
The current 2 to 3 percent growth rate has been achieved by
focusing top-priority development efforts on the fuel and energy
complex (raw materials sector). Small business growth will provide
for an annual rate of 4 to 6 percent, but in 7 to 12 years this
growth will stop due to the underdevelopment of the technological
base. Enterprises will not be able to compete without new
technologies. The only path to follow lies in developing the
technological base by using the potential of the defense complex
and small business, potential that makes it possible to
commercialize new inventions and technologies.
The commercialization formula is simple:
Funds1 → Development → Commercialization → Funds2.
Successful commercialization as expressed by the condition
Funds2—Funds1 > 0 is possible by pursuing the following
objectives:
1. initially focusing the research process on meeting the
economic and social demands of society
* Translated from the Russian by Kelly Robbins.
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2. creating mechanisms facilitating technology transfer from the
research sector to users by
creating databases to link technical ideas and the needs
of industry
creating a network of technology brokers, namely those who
can bridge the cultural gap between researchers who have
something to offer and industry and government entities
that need solutions to problems
developing technoparks and incubators for entrepreneurial
firms
organizing special divisions responsible for technology
transfer at universities and scientific-research centers
providing incentives for exchanges of personnel between
the scientific community and industry on joint research
and development projects
Undoubtedly the problem of developing technologies and new types of
products is within the powers of the major research and production
centers that are equipped with the appropriate research
infrastructure. This effort also requires significant financial
resources. The lion's share of potentially commercializable
technologies is concentrated in the defense sector, and immense
resources for conversion have been targeted in this field. However,
experience has shown that manufacturing new products requires not only
money, but also skill in handling all aspects of bringing competitive
products to the market on a tight schedule and meeting the demands of
the potential customer at an acceptable price. It is this stage—
commercialization—that has been practically absent. There are a
number of reasons for this, primarily including the following:
lack of motivation for companies to commercialize and
market their work and a desire to obtain stable funding
from the federal and municipal budgets
the structure of such enterprises, which does not meet
market demands
weak management and lack of experience in market
conditions
For these reasons, small innovative enterprises are best suited for
commercialization. Obviously such enterprises must have managers who
have both a technical background in the appropriate field and a fairly
broad scientific outlook on the one hand and the necessary knowledge
and practical skills for working under market conditions on the other.
As a rule, it is the formation of such a class of “technology
brokers” that represents the main obstacle to commercialization.
The problem of developing small innovative firms is especially
pressing for cities like Snezhinsk. This urgency is determined by
socioeconomic development conditions in the city, namely the
shortcomings in the city's infrastructure for energy, personnel,
and other resources; the
Page 70
lack of sufficient production facilities; and the fact that Snezhinsk
is a closed city, which makes the development of full-scale production
facilities inexpedient. On the other hand, the enormous
scientific-technical potential of the Russian Federal Nuclear
Center-All-Russian Scientific-Research Institute for Technical Physics
(VNIITF), having been accumulated during more than 40 years of
operation, provides a good prerequisite for the development of small
innovative companies. Other important factors include the presence of
highly skilled personnel, unique equipment, and a certain cultural and
technical environment that has been created in the city.
EXAMPLES OF SUCCESSFUL BUSINESSES
By now a number of enterprises have amassed a certain amount of
work experience in the field of commercialization. The following
examples of successful activity may be cited.
The Home Closed Joint Stock Company works mainly on the production
of energy-saving and heating equipment, assembly and installation
of individual heating systems, and fulfillment of municipal orders
in the public housing and utilities sector. It employs 19 people.
In 1998 the enterprise started manufacturing Uran [Uranium]
certified dual-flow heating boilers, which have heating efficiency
ratings from 10 to 1,000 kW and operate on either natural gas or
liquid fuel. The design for the boiler was developed by Home
specialists working jointly with counterparts from the Coral Closed
Joint Stock Company of Yekaterinburg. To date, an agreement has
been signed with the Korean company Olympia to establish assembly
production of small-power boilers from Korean components. In the
field of energy conservation, Home specialists have developed and
tested leakage detectors and automatic cutoff systems for natural
gas utilities. But the bulk of its efforts are focused on carrying
out municipal orders (production of benches, refuse bins, and
fencing). This is primarily because the enterprise currently cannot
operate on a commercially efficient basis solely by manufacturing
the products it has developed. Its present production capacity is
only one boiler per day. Therefore, Home has begun seeking
investors to launch the production of heating equipment and
energy-saving devices. An agreement has recently been signed with
the Russian State Committee for Construction on granting a credit
from the Energy Conservation Program. This loan, which is being
guaranteed by the Snezhinsk City Administration, will be used to
purchase $3 million worth of German equipment.
Another successful enterprise is the Bars-70 Research and
Production Association, a limited liability company. The main
activities of this enterprise involve developing, designing,
manufacturing, and installing industrial air and gas purification
equipment using electroionizing filters and
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cyclones. In addition, the enterprise renders services in applying
polymeric powder coatings on metal, ceramics, and glassware. It
employs 16 people.
Thanks to their work experience, Bars-70 employees have in short order
developed test samples of ionizing filters and tested their efficiency
in practice. The sanitary-epidemiological service has recently
authorized the use of these filters throughout Russia. Also, there is
a license for carrying out start-up and adjustment work on gas
purification equipment.
The enterprise has developed its own original ionization, power
supply, and precipitation units that are unlike models currently
available on the market. Bars-70 has pioneered the development of the
following devices:
a “pulsing” power supply unit with adjustable
voltage making it possible to increase efficiency and
ozone levels
multistage purification systems facilitating the quick
design of compact systems meeting specific customer
requirements but using standard component units
To date, the enterprise has launched small-scale production of
filtering equipment ranging from domestic filters to industrial
ventilation systems (up to 20,000 cubic meters of purified air per
hour).
Design of filters for the transportation industry is another area of
activity for the firm. An air purification system for use in railroad
cars has been developed. This project has been discussed with a
general customer, the Tver Railroad Car Plant, and it is under
consideration by the Russian Ministry of Railway Transport.
Filters produced by Bars-70 are being used at a number of enterprises
in the Urals and Bashkiria and at the Chelyabinsk Oblast
Sanitary-Epidemiological Station and Chelyabinsk regional hospital.
The enterprise owes the success of its activities primarily to its
fortunate selection of a market niche. The company built its marketing
policy on the flexibility of the equipment it produces, which makes it
possible to meet the requirements of specific customers to the
greatest possible extent. At present, production capacity stands at
three or four filters per month. To develop production further, design
new models, and move them to the marketplace, the enterprise has
purchased a powder paint line for applying polymer coatings, with this
service to be offered to construction, industrial, and other
organizations and to the general public.
EXAMPLES OF UNSUCCESSFUL BUSINESSES
The activities of the following enterprises can be cited as
unsuccessful examples.
Page 72
The SnezhinskTechService Research and Production Association, a
limited liability company, employs 43 people. The company's
primary activity is the production of nipple watering systems for
poultry farms. At the same time, it became involved in developing and
producing non-invasive technical diagnostic systems for high-power
transformer winding, as well as rendering diagnostic services on these
devices. During their research efforts, they managed to find a
technical solution that made it possible to provide qualitative
evaluation of the winding press force. Pilot samples of these DIK-S2
units were produced, and some were sold. However, because of a lack of
funds, all work in the diagnostic area was terminated in June 2001,
and some staff members were fired. Poor management and insufficient
market research were the most likely reasons for the failure. By
selling equipment to the power supply systems, this enterprise
deprived itself of the market for its own services. Equipment sales
alone could not support the costs of this area of activity, as sales
were low. This situation arose primarily because successful operation
in the equipment market requires attestation and certification of the
equipment, which must be then included in the official list of
approved measuring devices. The enterprise needed enormous amounts of
funds to meet these requirements; however, it did not take advantage
of opportunities to raise funds from various federal targeted
programs.
The Pulse Closed Joint-Stock Company has a staff of five. Since 1991
this enterprise has been developing and manufacturing on a
piece-by-piece basis medical equipment for use in functional
diagnostic consulting centers. The types of equipment produced include
hardware-software complexes used in cardiographic and stationary-cycle
testing, vascular examination of limbs and the brain (rheography), and
a number of procedures providing for enhanced diagnostics of the
cardiovascular system.
In 2000, work was initiated on the development of a new-generation
12-channel cardiorecorder for cardiodiagnostic and stationary-cycle
stresstest systems and a portable 12-channel cardiograph (with
capabilities for electrocardiogram [EKG] printout, storage of
examination data, and data transfer via telephone line to a hospital
for further analysis).
The passage of legislation on medical equipment certification and the
institution of a huge number of regulations by the Ministry of Health
made it impossible for uncertified medical devices to be used. The
procedures involved in obtaining the necessary permits are extremely
cumbersome (taking more than a year), and the costs are beyond the
capabilities of small innovative companies specializing in small-scale
production. Thus, the enterprise cannot sell its uncertified products
to get the money needed for certification. This negatively affects the
interest of potential investors, who are not ready to make long-term
investments in projects that already involve a high level of future
risk because they involve putting new technologies into production.
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An analysis of the current situation indicates the following:
Attempts by companies to fund commercialization at their
own expense do not lead to the creation of efficient
business.
As a rule, Snezhinsk enterprises dealing in innovations do
not have significant fixed assets, which makes the use of
venture capital unattractive because in this case the
share of founder-initiators becomes insignificantly small
and in fact leads to loss of the business.
To date the most realistic funding sources for small
business in Snezhinsk are the Snezhinsk Socioeconomic
Development Fund, which supports projects that enhance the
socioeconomic development of Snezhinsk, and the Foundation
for the Support and Development of Entrepreneurship in
Snezhinsk, which funds the development of small business.
However, the chances are slim for obtaining a loan for
innovation activity because of the high risks and long
payback terms of such projects. Almost all funds are
allocated to support businesses involving the service and
retail spheres or the manufacture of foodstuffs and
construction materials. For instance, Bars-70 got a loan
only to set up its power paint line. Thus, the innovative
enterprise had to diversify its own efforts and create
several divisions in its structure: some purely innovation
oriented, to carry out research and development, and
others production oriented, to ensure the day-to-day
viability and survival of the company.
There is a functionally complete lack of any sort of
government support.
Informational isolation is a problem. Most closed-zone
companies have no access to current information, without
which it is impossible to run a business in the
commercialization sphere.
Lack of management experience and knowledge, both in
business and commercialization, leads to wrong decisions.
In a typical case, poor research into existing
legislation, particularly in the field of certification
and licensing, causes subsequent failure of the
commercialization effort.
The defense enterprise around which the city of Snezhinsk
is based provides almost no support to innovative
companies.
In this situation, part of the above-mentioned problems can be solved
by more active involvement in the various programs and initiatives
aimed at developing innovation-oriented business offered through such
mechanisms as the Snezhinsk International Development Center (IDC)
Foundation.
The IDC is a nonprofit organization that began rendering services to
organizations and members of the public in Snezhinsk on June 14, 2000.
IDC's activities are funded by the U.S. government under the
Nuclear Cities Initiative (NCI) program.
The main objective of the IDC is to provide support and assistance for
entrepreneurial activity and the nongovernmental organization (NGO)
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sector in Snezhinsk during the course of integration into the market
economy.
Since the IDC began operating, 78 clients have been registered, of
which 55 percent are involved in business and 45 percent work in the
social sphere.
IDC's clients include state, municipal, and private enterprises
and organizations, nongovernmental associations, nonprofit companies,
and private persons. Organizations that play a significant role in
Snezhinsk also can be found among IDC's clients, namely, the
Academician E.A. Zababakhin Russian Federal Nuclear Center-All-Russian
Scientific-Research Institute of Technical Physics, the Snezhinsk
Physical-Technical Institute, the NGO Women of Closed
Administrative-Territorial Zones, and departments of the Snezhinsk
City Administration.
With the aim of effectively achieving its goals, the IDC strives to
establish and strengthen partner relationships with organizations that
could help promote the center's mission. To date, partner
relations have been established and cooperation is under way with the
Snezhinsk Socioeconomic Development Fund and the Foundation for the
Support and Development of Entrepreneurship in Snezhinsk, as well as
with the following organizations:
Snezhinsk City Employment Center, which provides
retraining and job placement services for unemployed
citizens
LT-Resource Limited Liability Company, which provides
support for investment projects carried out in the city
with funding from the external sources
During the year it has been in operation, the IDC has attained certain
successes in supporting Snezhinsk business.
TRAINING
Currently the IDC is the only organization in Snezhinsk that
provides targeted training to assist entrepreneurs and managers in
various types of activity of both a commercial and nonprofit
nature. The IDC is an Authorized Training Center for Pro-Invest-IT,
a company that is a Russian leader in the sphere of business
planning automation. Thus, the IDC is authorized to provide basic
and advanced training for specialists from various industries in
financial planning and analysis, marketing, and market forecasting.
In addition to providing training using its own staff resources,
the IDC has also attracted external organizations and trainers. In
this regard, the IDC has actively sought seminar subjects that
would interest both the business and nonprofit sectors in
Snezhinsk, and it has selected instruc
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tors who could conduct the most effective seminars. Examples of such
business seminars that were unanimously well received include the
following:
“Contemporary Information Technologies.”
Participants were acquainted with up-to-date information
resources, particularly the Questel-Orbit and Lexis-Nexis
systems, developed skills in creating information research
scenarios to optimize search efforts, and familiarized
themselves with specific operating features of
Lexis-Nexis. The skills gained have allowed VNIITF
employees to perform expanded searches under the Neutron
Therapy public project, which is of social value for the
city.
“Efficient Sales.” This 64-hour seminar was
conducted by a trainer from the Stockholm School of
Economics in St. Petersburg. The seminar curriculum
included three units: Increasing Sales Efficiency,
Business Management, and Marketing. The methods suggested
have been successfully tested in practice.
Above all, the IDC is an active participant in the Snezhinsk
Employment Program. In accordance with a partnership agreement signed
with the Snezhinsk City Employment Center, the IDC regularly conducts
courses on basic computer skills and seminars on the legal basics of
business. A total of 32 people have received training under this
program.
Overall, 38 seminars, courses, and training sessions have been
arranged by the IDC since it began operations, with 20 of the
activities being led by instructors from the IDC staff. As a result,
395 people have received training. Over the next year the IDC plans to
expand the number of regular seminars on such subjects as management,
marketing, and computer-aided design/computer-aided manufacturing
(CAD/CAM) and to continue organizing seminars with external trainers
on such subjects as certification and licensing, contemporary
information technologies, and applied marketing.
SERVICES
The day-to-day work of IDC involves providing services to support
and develop business and the nonprofit sector in Snezhinsk. The
center provides business administration capabilities that are often
unavailable to entrepreneurs and managers of conversion-oriented
production facilities and public works projects. Since its
establishment the IDC has rendered services in about 3,000 cases.
Consulting activity is one of the most efficient contributions in
support of project managers in various fields. The center has all
the necessary prerequisites for such activity at its disposal. The
IDC staff includes specialist practitioners in the law,
accountancy, economic and finance, sci
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ence and technology, and humanitarian fields. All IDC employees are
university graduates, and two have doctorate degrees. The following
types of consulting services are provided:
onetime consultations
consulting during project development
informational searches for clients or partners
conclusions and recommendations on various aspects of
projects
In the course of this type of activity, the IDC has carried out four
market research studies and prepared four business plans, six
feasibility studies, and three proposals to the International Science
and Technology Center (ISTC). The IDC has invested in and organized a
new enterprise that produces wall and paving stones. To date, this
project has resulted in the creation of two new jobs. Consulting and
expert support has been provided at all stages of implementation of
this project. With technical support from IDC, Bars-70 has won a
tender and received an order for the development and delivery of
air-purification systems for zinc-plating lines at the Thermoantikov
company in the city of Ufa.
IDC's plans for the current year include
arranging foreign language courses on a continual
regularly scheduled basis
creating an information center that will include an
electronic library of databases on various fields of
activity and will provide access to world databases via
the Internet
implementing the Open Design Bureau project to provide
enterprises engaged in developing and producing complex
new products with opportunities to work with up-to-date
CAD/CAM software, search for orders for design work, and
improve the professional skills of designers working on
civilian projects
INTERNATIONAL ACTIVITY
The international activity of the IDC has been focused on
supporting American NCI participants and the Snezhinsk business and
social sector in enhancing mutual understanding, expanding contacts
in search of potential partners, and disseminating information on
various programs in the spheres of business, education, and public
affairs.
In this regard, the IDC has provided the American and Russian sides
with operative and reliable information on joint activities,
prepared reference materials and reports at the request of
organizations participating in NCI programs, helped arrange and
stage visits by American delegations, and participated in various
other Russian-American activities.
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The IDC initiated the inclusion of four projects developed by
Snezhinsk enterprises in the Accelerated Conversion Plan for the city
that was prepared under the NCI program. During the visit of an
American delegation in November 2000, the center arranged a tour of
enterprises included in the plan for Ronald Nesse, senior project
manager at the Pacific-Northwest National Laboratory, who is a member
of the IDC Board of Trustees. Onsite meetings with senior managers of
the enterprises familiarized Nesse with Snezhinsk business
achievements and allowed him to make a more realistic evaluation of
the current situation.
IDC INITIATIVES
To increase the efficiency of its efforts aimed at developing a
favorable socioeconomic climate, the IDC has undertaken a number of
initiatives.
The center has developed and arranged its own website: www.snezhinsk.ru/idc . The
website is available in both Russian and English and includes all
basic information about the IDC's activities. The site also
provides informational resources to assist business and social
programs, including announcements of grant programs, plans for IDC
activities, and Internet resources (exhibitions, customs
legislation, patent and information systems, joint programs). The
website is frequently updated, thus providing operative information
for users.
The IDC has arranged a number of activities aimed at supporting
Snezhinsk business and science-technical projects, including the
following:
The IDC organized and cofunded (with the Snezhinsk City
Administration) the participation of Snezhinsk
enterprises in the exhibition High Technologies of the
Defense Complex—2001, which took place in Moscow
at the Expocenter on Krasnaya Presnya. More than 300
enterprises from 22 Russian regions and NIS countries
took part in the exhibition. The closed zones were
represented by two cities, Snezhinsk and Tryokhgorny.
Six enterprises represented Snezhinsk: the Avangard
Research and Production Association, Home, Bars-70,
SnezhinskTechService, the Spectrum-Conversion Research
and Production Association, and VNIITF. The status of
the forum was extremely high, which produced high
attendance and thus gave Snezhinsk enterprises a good
opportunity for efficiently addressing the problem of
finding partners and customers, advertising and
promoting their products, and doing related market
research.
September 24–27, 2000, the IDC held a meeting on
telemedicine in conjunction with an international
conference on medical research issues. The meeting
allowed representatives of Snezhinsk business and
conversion activities to present their projects.
Page 78
Thus, the IDC is today a well-developed structure with all the
resources needed for contemporary business activity. It can provide
substantial assistance and facilitate efforts under various
international programs as well as in all other cases of interaction
with foreign partners. To this end, the IDC offers the following:
For Snezhinsk Enterprises:
access to external information using IDC resources,
including the Internet and databases on various market
segments, legislation, funding sources (foundations,
investment structures, etc.), possible strategic partners,
equipment, and so on
targeted training focused on support for entrepreneurs and
managers in various fields of activity of both a
commercial and nonprofit nature
consulting and expert support in preparing and
implementing projects
assistance in making contacts with foreign partners
IDC equipment and services for use in proposal preparation
For External Partners:
contacts with Snezhinsk business
evaluation of the attractiveness of projects and of the
resources available for their implementation
selection and preparation of project proposals in
accordance with customer requirements
continuous supervision of project preparation and
implementation
operative and reliable information on joint activities
assistance to foreign partners in various aspects of
activity
communication facilities, office services, and other IDC
resources for foreign partners while in Snezhinsk
