What has happened to the Estonian (ICT) innovation?

As was published in the spring, the Estonian position in the global IT ranking compiled by the World Economic Forum, is steadily decreasing. Later, it was also mentioned at the international meeting of Estonian friends that “Estonia cannot ride on the success of Skype for too long” (Estonian National Broadcasting ERR, 19th August 2010).
What could be done in the long term to improve the situation? How could more export led technology and innovation solutions be developed in Estonia? How could Estonia become an exporter of technologies instead of consuming new technologies? I will try to address this from the perspective of information technology, though I think my point of view could be extended to other fields, as well.
It has been claimed that there is no point for Estonia to strive towards exporting new technologies, as new technologies are not created here. This statement is only partially true. A significant part of technological innovation enhances combining new technologies, creating prototypes, testing, and first-time application.
I have worked in the field of information and computer technology (ICT) as a researcher in two very different states – Finland and Australia – which are quite similar in their approach to innovation. For about eight years, I was working in the information technology department of the Technical Research Centre of Finland (VTT), and subsequently for three and a half year in Australia, at the University of Melbourne. Efficient structures have been established in both states for promoting innovation through the co-operation of undertakings and research establishments.
In the light of Australia and Finland, I could not help but notice the divide between research and innovation and the weak co-operation between universities and undertakings when I returned to Estonia. Here, they primarily talk about universities in the context of teaching and of the preparation of the labour force. On the other hand, the innovation projects financed in Estonia are primarily targeted at developing specific products. Universities as the “theorists” are somewhat excluded from such projects. In the sense of innovation, however, they are already late in developing specific products! For example, the conclusions of the ICT development monitoring of the Estonian Development Fund claim that the majority of technologies that will reach the mass usage by 2018 are already in the world’s top laboratories. Even if we do not apply for creating those technologies ourselves, the key issue of innovation in Estonia is how to be among the first ones to combine and apply of new technologies, and to develop and test prototype solutions based thereupon.
They also talk about little co-operation in a recent study published under the aegis of the Tallinn University of Technology “Analysis of 15 Estonian IT export cases”. The authors of the study, Marko Rillo and Madis Talmar, aptly note about Estonian ICT companies, “if competitors are not initially trusted, it is worth contacting a university or other suitable foundation who try promoting such co-operation on a daily basis”.
A significant obstacle to innovation in Estonia seems to be the financing of research and product development by various organisations. As a result, research projects are often too theoretical and impracticable, and product development projects cannot rise to a higher abstraction level from developing specific products to determining where the research and development is heading in this particular field in the world in the first place. I will bring an example of a project conducted in Australia in which I participated as a guest researcher. An Australian company that deals with the manufacture of air traffic simulation systems for airports chose the University of Melbourne as their research and development partner in order to reach a new quality level in air traffic simulation systems by applying multiagency system technology, which, to date, has not completely left the laboratory, and not to just “repair” the existing products.
Also, Finland, and I again rely on my own experience, is undoubtedly a technology exporting country. What is behind it? Firstly, as in the case with VTT, Finnish companies co-operate significantly more with universities and other research establishments than those of other European Union Member States. According to the data of the Statistics Finland, 36 per cent of undertakings co-operate with universities in Finland, and 28 per cent with other research establishments. According to the Eurostat data, the respective figures in Estonia are between five and ten. In the field of ICT, the situation is even worse: according to a study compiled by Praxis, the Centre for Policy Studies, regarding companies in the Estonian information and communications technology sector, only 5% of companies operating in the field of product development considered co-operation with universities very important. Most of the joint projects of Finnish companies and universities are financed by the Finnish Agency for Technology (TEKES) through its various programmes. Some of its most recent programmes include, for instance, “Climate economy”, “Revolution of wireless data communication” and “Learning environments based on social networks”. It is very important that the TEKES research programmes are prepared in open seminars and workshops with participants from employer organisations and professional unions, companies, universities and research institutions, and public authorities. As a rule, the consortiums of the joint projects performed within the framework of study programmes consist of one or two universities or research establishments, and three or more companies. Through the support of TEKES primarily, but also through the aid of other organisations such as Sitra (Finnish Innovation Fund) and Finnvera (the Finnish equivalent to Enterprise Estonia), innovative solutions have already been favoured in Finland for several decades. Nokia did not appear in an empty vacuum either, as behind it there was intense radio technology applied research performed at the Helsinki University of Technology.
Also, significant brain potential has been accumulated in Estonian universities that should be used more productively in developing innovative solutions and not just for preparing the labour force. Current co-operation forms do not favour it. Only a small amount of companies fit in research and development centres (TAK) and the circle of projects are fixed already at the time of the foundation of TAK. On the other hand, the projects financed by Enterprise Estonia (EAS) are too attached to specific products.
In Australia, effective co-operation between undertakings and universities is encouraged through research grants from the Australian Research Council designed for co-operation with the industry (Industry Linkage Grant), through which a university or a research establishment jointly work with one or several companies at a problem. A comparable co-operation form in Finland is the joint projects of research establishments and undertakings financed by TEKES. In the case of both project formats, a significant objective is the development of “proof of concept” type prototypes comprising new technologies. The current financing scheme of Enterprise Estonia does not allow for the application of such projects. There is an applied research project type, but EAS does not facilitate the creation of prototype solutions in those projects, as in the opinion of EAS, that would already be product development. But would it? Pursuant to the European Union Commission Regulation 800/2008 (General block exemption Regulation), product development includes “the development of prototypes used for trading purposes and the development of test projects if the prototype is necessarily a commercial end product…”. As the prototype created as a result of an applied research project is not a commercial end product, the problem could lie solely in a wrong interpretation of the above-mentioned regulation.
In conclusion, I think that a dynamic innovation support structure through the co-operation of companies and research establishment should also be established in Estonia. A simple way for that seems to be the amendment of the financing schemes of EAS so that the “proof of concept” type prototype could be the result of the applied research. Also, the joint applied research of Estonian universities and companies should be favoured, as there are too few of them at present. Furthermore, the Estonian Science Fund could think of implementing a grant format with a condition to include one or more companies.
In order to achieve something significant, the objective should be set further. One way to increase Estonian exports is to find new co-operation forms for universities and companies in order to promote technological innovation in Estonia in the field of information technology and beyond.

(The author expresses his personal opinions in this article, which may not necessarily coincide with the official position of the Tallinn University of Technology.)