Service Communautaire d'Information sur la Recherche et le Développement - CORDIS

Restructuring of production and technology networks in CEE

Given the collapse of S&T systems in CEE countries, the internationalisation of production and sales networks in CEE became an important, if not the most important, factor in the emergence of new enterprise and innovation networks. National S&T systems did not play an important direct role in sector and enterprise restructuring in CEE. The sources of innovation and the patterns of technical change have dramatically altered in all the sectors studied, but the new role for industrial R&D organisations has not become clear.

Industrial transformation in the CEECs has changed not only the organisation of the innovation process but also the entire production network, which formed the basis of the sector. The main feature of the socialist production networks was a deep vertical integration, which was unsuitable under new conditions. The disintegration of vertical production networks and their reorganisation, very often led by foreign enterprises, has also changed the nature of the innovation process.

The radical change in the industrial structure of individual sectors led to changes in supply and demand for S&T and to a complete change of the position of enterprises in the innovation process. For example, CEE telecom equipment producers have gone from being producers of outdated switching equipment to becoming dependent subsidiaries localising state-of-the-art technologies. Computer producers had to completely abandon the idea of producing their own mini-computers, becoming transformed instead into PC assemblers.

New software firms have become customisers of generic solutions in close co-operation with foreign software providers. Car complexes of the former socialist period have been transformed into networks led by foreign assemblers and reorganised with the help of first-tier foreign suppliers. Domestic car part producers have become subcontractors serving foreign-controlled assemblers.

As a result of ‘de-verticalisation,’ which went hand in hand with the opening of domestic markets and foreign investments, the local value- added has been drastically reduced. However, competitiveness and productivity have improved dramatically, especially in enterprises benefiting from foreign investment. The focus of the technology effort has moved from R&D towards technological intra-firm improvements, where R&D, especially the imitative type, has become much less prevalent - if, indeed, it still exists. This has led to a drastic fall in demand for domestic technology and to a devaluation of domestic S&T assets. However, in some cases, due to the availability of skilled engineers, these assets were successfully re-employed in the same or in other sectors. In that context, the key issue is to understand which factors prevent the re-deployment of the inherited socialist S&T potential into new areas.

Sectoral studies undertaken within this project suggest that market demand is essential for the restructuring process. In those sectors, or subsectors, where domestic demand is growing, progress in industrial modernisation is more likely. However, demand alone is not sufficient for restructuring as, in that case, rising demand could also be satisfied through imports. Sectoral studies suggest that the pace of this process is also likely to be determined by gaps in technology and finance. If both financing and technology gaps are small, as in the case of PC assembly, customised software, and, to a certain extent, in the food processing industry, restructuring can be expected to take place. If, on the other hand, technology and/or financing gaps are a problem, difficulties in modernisation, or more significant country differences like in telecommunications services or car assembly are likely.

The market, technology, and financing are not the only determinants of restructuring, however. Whether similar structural situations will result in similar outcomes also depends on other factors, including management capabilities and political control of the process. However, in all of the six industry sectors studied, the issue of access to markets, technology, and finance plays an important role. In that respect, these three elements seem an important structural feature of industrial modernisation in CEE.

Industry studies also show that the growing demand for products or services does not automatically also generate demand for domestic S&T and for S&T links. For central and eastern European S&T systems, the growth of demand for S&T is essential. The break-up of large firms in CEE has reduced demand for innovation to levels lower than product demand would suggest. Also, the proliferation of new small firms probably generates a different type of demand for R&D and innovation, to which domestic R&D cannot respond immediately. This may partly explain why, despite the recovery in the CEECs, the emergence of dynamic sectoral innovation systems is not discernible. In addition, innovation systems almost everywhere are ‘hybrid’ systems, embodying complex public/private interdependencies. This suggests that, even where there is a critical mass of demand for domestic innovation and technology, a plethora of other missing factors may be related to a hybrid character of systems of innovation that may prevent its emergence.

In the most restructured sectors in CEE, emerging structural barriers to further industrial upgrading are becoming evident. In these sectors, CEECs may reach the limits of industrial upgrading based only on foreign direct investment or foreign-led modernisation, which are characterised by intra-firm productivity improvements in foreign investment enterprises but not yet by increasing foreign-domestic innovation linkages. The majority of CEECs are still struggling to integrate into international production networks, and integration at any technological level is, albeit temporarily, a solution. However, the evidence of some sectors suggests that industrial upgrading is a continuos process and that today’s specialisations may not be sustainable or economically profitable in the medium or long term unless improvements in local production and innovation networks are made. And such improvements cannot be driven entirely - and in all CEECs - by foreign investments. The examples of structural problems in the sectors studied suggest the importance of a diversified knowledge base and the importance of constructing sectoral and national systems of innovation. Indeed, the CEECs may not be able to overcome future structural barriers unless they develop strong public R&D systems and enhance their links to industry.

Reported by

Mantell Building
BN1 9RF Falmer - Brighton
United Kingdom


Evaluation - Policies