Innovation Policy Challenges in

Transition Countries: Foreign Business

R&D in the Czech Republic
Balazs Lengyel / Vladislav Cadil
Transit Stud Rev (2009) 16:174188

Multinational enterprises (MNEs) became the major actors in

business R&D in these countries (Czech Republic and
Hungary), universityindustry relations are also led by MNEs.
In our paper, we focus on the following research questions:
What were the main motives for MNEs to invest in these
innovation systems?
Which innovation policies or tools strengthen R&D
investment of MNEs and MNEsuniversities cooperation?
What are the characteristics of the new university-MNE
connections in these innovation systems?

R&D started to be outsourced and located overseas in

the cost-minimizing trends of the global competition
(UNCTAD 2005). The core competence of the leading
companies remained the capacity to absorb the
knowledge created by their business partners, their
global network etc. (Prahalad and Hamel 1990). To build
these competences, companies had to maintain
significant R&D potentials. Global competition makes the
companies outsource and integrate R&D on an
international level (Archibugi and Michie 1995; Cantwell
1995), after the period of recentralization of
research activities the era of globally integrated
research networks started (Kuemmerle 1997).

 Since that time, Hungary and the Czech Republic have

emerged from European countries in terms of foreign
The Czech Republic has traditionally been an important
car manufacturer in Central Europe covering passenger
cars, trucks, lorries, buses, coupling vehicles, vehicle
parts and accessories (Pavlinek 2002). Receipts in
automotive industry have increased by 50% in the last
5 years. Seven hundred thousand cars, 88% of the
annual production were exported in 2006, out of which
Skoda Auto Inc. privatised by VW Group represented
more than 9%.

At the end of 1980s, almost each automotive

company had its own R&D department, and Skoda
Auto alone increased the number of R&D employees
from approximately 600 in 1991 up to more than
1,500 in 2007.
Many other companies privatized by national capital
were forced to either terminate or considerably
restrict their own R&D activities as a result of their
business troubles (e.g. CZ Strakonice, Jawa Tynec
nad Sazavou) (Kucera et al. 2006).

Localisation motives for setting up R&D activities have changed significantly in

the transition period.
1. Privatization was the crucial localization factor for R&D provided by MNEs in
the early 1990s.
2. Other motives resulted from the countrys long industrial tradition: highly
qualified and cheap labour force and technological development of local
producers.
3. With respect to the economic and social progress of the transformation, the
importance of localization motives has shifted from this rather extensive low
cost strategy to the more sophisticated intensive strategy: high
quality of domestic R&D, large network of excellent technical
universities (Cadil et al. 2007).
4. Government initiatives also have helped these trends since 2000, foreign
investors were promoted to invest in technology centres built on
university industry co-operation.

The first major step of NORT was the adoption of

the Hungarian Innovation Act, which was
approved by the Hungarian Parliament in 2004
as a general legal framework for innovation
policy.
This law made universities and public research
institutes free to establish spin-off firms and
utilize their immaterial goods and research
results following the US experiences of the
famous BayhDole act

The High-Tech Equipment Program launched in 1999, 2001 and 2002

encouraged foreign-owned firms to establish laboratories, research
units in Hungary.
Eighteen companies (General Electric, Denso, AUDI, W.E.T.
Automotive Systems, Samsung, Zenon Visteon etc.) won 444,000
EUR on average (KPMG 2007). The Focus Sector Innovation Program
(FSIP, 2005) supports the establishment of research and development
networks in focused industries at an international level.
Regional Knowledge Centers (RET, 2005) consist of university-led
consortia joined by mostly MNEs working on long-term R&D projects.
New institutional units were established at universities in the capital
and in the regional centres. RET is rooted in Cooperation Research
Centres (19992004) programme that similarly helped university
industry research cooperation. NORT supports long-term basic
research projects in various fields of science (from life sciences to
social
sciences),
where
industryuniversity
co-operation
is
encouraged in order to generate effective technologies and products.

Despite
the
different
institutional
backgrounds, universityindustry relations
show similar patterns in both countries
due to the strategies of MNEs. To show
these patterns, we have chosen two short
examples from the automotive industry:
the relations of Audi and University
of Gy}or (Hungary), and the Skoda
University (Czech Republic).

Audi established its site in Gy}or (North-Western Hungary) in 1993 led by motives of
effective manufacturing possibilities. Counting 5,845 employees and realizing 5872 million
euro income in 2007, this is the second biggest private company in Hungary. Initially, the
profile of the site was mechanical manufacturing producing engines for the global network of
Audi.
The cooperation with the local university started in the field of recruiting human
resources, experts from the university helped to work out the process of appraisal
(Lengyel et al. 2006) The university proved to be very open to company needs. Audi had
subjects and even classrooms in the university building. Moreover, Audi launched a grant for
PhD students. In the course of time, close personal connections, mutual trust, was developed
among the company and university leaders. Audi began to locate R&D projects in Gy}or in
2001.

he projects are focused on

engine-development. Since December 2006, the R&D cooperation
Involving university researchers, t

between Audi and the university has been enhanced by qualitative changes in existing
mutual relations.
Audi Hungary established one institute at the University of Gy}or. This step suits the
global strategy of Audi, which already has institutes at German universities. In addition to
this, the Hungarian subsidiary has begun development of common projects with
Budapest universities as well.