Russia in need of Foreign Tech.

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Technologically, Russia is some 20 years behind developed countries in many sectors of its economy. It applies even to aircraft and machine-tool building that have been a matter of national pride to Russians. Experts from largest enterprises doubt it is possible to narrow such a considerable gap soon relying entirely on Russia's own efforts. Import of foreign technology can be of help here. Yet, foreign companies are in no hurry to sell their innovations either.
Who to Catch Up with?

Russia’s ratio in world turnover of high technology products makes up 0.3% so far. It means Russia develops 20 times less innovative technologies than China whose ratio is 6%. It should seem strange—considering that 12% of world’s scientists live in Russia, according to Russian Ministry of Foreign Affairs. One of the reasons why Russia lags behind in its technological development is that the ideas of Russian engineers are seldom transformed into technologies. Moreover, many Russian scientists still have the Soviet type of thinking, when the main national goal was to develop the defense industry.

Now, when business needs up-to-date equipment to produce competitive goods, it has turned out this is exactly what Russian science cannot invent. Perhaps it can, but the process will consume too much money and time. So it is easier and more profitable for Russian entrepreneurs to buy necessary technologies abroad. In fact, this is what they do.

Russian companies buy more innovations than there are offered by Russian scientists. In 2004, technology export earnings, or payments on license contracts and various copyright assignment agreements, made up nearly $350 million. However, Russian companies spend twice as much on foreign innovations as they earn by technology export, according to the Federal State Statistic Service of Russia.

Yet, even here Russia is way behind China. According to China’s Ministry of Commerce, total cost of technology import contracts signed in China in 2005 exceeded $19 billion. Contracts with the EU only make up over $9 billion of the total cost. Chinese businessmen apply foreign technologies especially to railway sector. The total cost of these contracts is almost $3 billion.

The U.S., Japan, and South Korea have always adopted foreign innovations as well, and not only by purchasing these innovations, but also by means of brain drain—of Russian scientists too. Other methods were also used. For instance, South Korea cancelled the obligation to report on the import of any technologies except for nuclear ones as early as in the 1990s. Such national policy gave results very soon. South Korea, which used to rake up innovations of other countries, managed not only to catch up with the West, but also to become one of the world leaders in the export of high-technology products.

Where Russia Falls Behind?

Experts believe that foreign innovations would be of use to Russia practically in all sectors of its economy, including nanotechnology and biotechnology, even though Russian scientists have achieved some success in these two fields. However, most scientific knowledge have not been applied to Russia’s industry yet. “In this case we simply generate knowledge, forming something like a databank of which we can’t make good use,” said Sergey Chuklinov, deputy director general of Saturn scientific development and production center. “Despite the fact that there is some progress in these fields, Russia’s technological lag is so obvious that it needn’t be proved.

One of the main criteria now for assessing Russia’s technological development is the competitiveness of machine-building products and military-industrial complex output at the world markets. According to Sergey Chuklinov, everything is not so good if taking this criterion into account: “For instance, Russia doesn’t produce high-power gas turbines (400-500 megawatt) which are now used by all major fabricators of energy-generating machines. Russia makes turbines with maximum capacity of 110 megawatt only. These are just average at the world market.”

Besides, experts point out that Russia lacks in resource preservation technologies of its own. Russian enterprises need both energy-saving and cost-reduction technologies to level down production costs.

Experts also say that instrument making of new products is in depression as well. Russia does not produce a modern element base which would match the universal technical standards. “Russia have made no technological breakthroughs since the year when Zhores Alferov received the Nobel Prize for his work on semiconductor elements used in super-fast computers and fiber-optics communication, and for developing the basis for the theory and technology of heterostructures,” said Sergey Chuklinov. His colleague Roman Bododko, head of corporate development department of Sitronix Group, agrees saying that “Technology for automobile construction and aircraft building obviously falls behind as well.”

Yet, there are some instances of successful cooperation with foreign partners in the spheres of automobile and aircraft construction. For example, Saturn scientific development and production center collaborated with French company Snecma and produced the SaM146 engine. This engine will be used in middle-range aircrafts holding up to 100 passengers. Another example is that the technology of Italian Fiat was used in the first model of Lada car nicknamed “kopeck” by Russians. However, Russia did not adopt many foreign innovations which resulted in the creation of specific national products.

“We still preserve our conventional technologic leadership in several military industry sectors now. Yet, the economy mostly absorbs the investments made in the Soviet times,” said Roman Bododko. Nevertheless, aggravation in military sector is quite possible soon. “Unless this field is modernized, Russian companies will fall far behind foreign ones in their output,” said Sergey Chuklinov.

Enterprises Need State Support

All the same, Russia has a chance to overcome innovation standstill, investing into its own technology and purchasing foreign production methods. Roman Bododko believes the last few years put Russia into a unique position where it is possible to secure the country’s future well-being: “Russia has a considerable amount of money in its stabilization fund. It is high time to spend this money to support the economic growth. The only question is which particular sectors and projects should be invested.”

Roman Bododko thinks the State should have two priorities here. First, social projects, because the business will not support them. Second, economy—the State should invest into the sectors which will secure long-term strategic advantages for Russia. The State is able to provide this support independently. “Yet, practice shows that authorities aren’t the best owners,” said Roman Bododko. “Thus the State could cooperate with the business of Russia to finance the projects. Russian business now really needs technologies, experience, partnership, and support of foreign leaders of the market. At least not to be inventing the bicycle again, in fact burying millions of investment money.”

Meanwhile, it is not so easy to buy foreign innovations, and foreign partners are in no hurry to import them to Russia. “No one will sell advanced technologies to us,” explained Alexander Suvorinov, head of innovative development and infrastructure department at the Russian Federal Agency for Science and Innovations. “When we speak of technologies and facilities which would let Russia take the leading position, we come within various limitations on their sale, either directly or indirectly. And we encounter huge difficulties. This can be illustrated by the microelectronics example.” On the whole, Alexander Suvorinov believes that each suggestion to import foreign technology should be backed with an absolutely selfish calculation: “What is Russia getting with it?”

“Before we discuss how to import best foreign technologies and what the State should do for it, we must decide which particular foreign technologies we need,” said Boris Novikov, head of Transfer company. “If by technologies we mean ready facilities, machines, and knowledge how to use them, then our industry is quite all right in this sense. It’s another matter that no one will sell the real technologies, or innovations, or know-how, to us.”

How to Buy Foreign Innovations

Roman Bododko of Sitronix group understands that foreign companies will not engage in benefaction, simply importing their technologies to Russia. However, he believes the problem can be solved: “Western corporations will sure demand access to the market. And, after all, we needn’t be afraid to provide this access to them. The State should encourage Russian and foreign companies to create joint enterprises and locate production here in Russia.” Experts believe there are many methods to do this—from taxation to direct sharing in the capital of these joint enterprises.

Boris Novikov thinks Russia should learn from the West to adopt foreign experience in attracting foreign technology. He knows whereof he speaks: one of the aims of his company Transfer is to assist the technology transfer from Russian educational and scientific centers abroad—actually, quite the opposite aim to the import of foreign innovations. “Western countries have long ago figured out how to import technology. So they successfully do it, although at the expense of brain drain from Russia,” said Boris Novikov. “Western corporations take our best heads, or buy our best scientists—the bearers of a key idea, of a certain basic technology. And then they use the knowledge of such people to make the end product which, in fact, would be in demand at the market.”

So, if western countries buy Russian innovations by means of head-hunting, then why can’t Russia do the same? In this case, according to Boris Novikov, Russia should encourage the influx of foreign scientists in the sectors especially important to Russian industry. But these scientists will need special conditions, actually better conditions than those they have at home.

Besides, Boris Novikov says that most sectors of Russian industry do not need foreign ideas: “We have enough ideas of our own. The end product is bought anyway. It’s another matter to create research laboratories here in Russia, attracting foreign scientists in the spheres where we lack in innovations of our own. For example, we are far behind in microelectronics. Yet, first of all we must decide which key enterprises will be buying new technologies developed by foreign scientists. And, beside that, whether they will co-invest this process together with the State.”

Business Looking for Landmarks

Enterprises are ready to invest projects for foreign innovation import. However, the representatives of largest companies declare that they need the support of the State. “Now Russia needs national programs to define the priorities—what particular kind of products Russia needs, what sectors of industry should be developed,” said Sergey Chuklinov. “No one can define it, beside the State. National programs are, first of all, long-term landmarks given to business by the State. They also function as indicators able to change the investment constituent. If the State plans to invest into a certain sector in order to achieve some qualitative results, it should declare its intentions.”

According to Petr Zolotarev, head of Russkie Mashiny company, now the State should clearly formulate its scientific-technical policy: “Activities and competitiveness of the country depend on it. The State should define priorities for research, finance it, provide grants, and support engineering initiatives. The society, in its turn, should understand what these priorities are, and how much they cost the taxpayer.” Petr Zolotarev believes that the assistance to commercialization of science is another goal set to the authorities. He suggests that Russian Ministry of Education and Science should create a center for connecting science and production, and for buying and selling licenses and developments, within its structure.

So far, Russia has been investing into scientific research and development several times less money than China. According to the annual report of Global R&D in 2006 (World’s R&D) prepared by American research organization Battelle Memorial Institute and R&D magazine, China spent almost $109 billion on research and development, while Russia spent only some $20 billion. But it is known that who invests little, gets little. “Technology lags behind in many sectors, the product quality worsens, technical characteristics do not meet the standards of the international market. There is 1.5 trillion in Russia’s stabilization fund, just laying there doing nothing, and an immense amount of gold and foreign currency reserves at that,” resents Sergey Chuklinov.

Most enterprises organize the import of foreign technology themselves. Yet, only large-scale business and raw material corporations like Norilsky Nikel, Gazprom, Rusal, and others, actively import innovations. According to the recently published report on innovative development by the Russian Managers Association, some of these companies spent on innovations almost as much as European raw material companies in 2004. The review by the Institute for the Economy in Transition claims that international competition between large businesses becomes the incentive for such investments.

Who Invests into Foreign Innovations...

SUAL Group signed cooperation agreement with Alu Menziken Aerospace/UAC and Corus Aluminium Rolled Products, world leading suppliers for aerospace complex, in February 2006. These companies plan to develop and create innovative products made of alloys based on aluminum and lithium. The partners intend to focus on the aerospace market. SUAL Group, together with Alu Menziken Aerospace/UAC and Corus Aluminium Rolled Products, will develop new designs for high-efficiency aircraft parts using their aluminum-lithium alloys.

Russia’s natural gas industry applies foreign technology as well. The reason is that raw material base worldwide runs out, and it becomes more and more difficult to discover new oil and gas fields. So alternative carbohydrate resources, especially of coalbed methane, gain in importance. The U.S. is the world leader here. It extracts nearly 50 billion cubic meters of coalbed methane per year. Americans began to develop the necessary technology back in 1997, but the extraction of coalbed methane was started only in the early 1990s.

Russian Gazprom also explores this resource.
It carries out experimental extractions of coalbed methane in Kuzbass beginning from 2003. Promgaz research and development center conducts the extractions, using foreign innovations to intensify methane influx from coal-beds. The project aims at enlarging Gazprom’s raw material base in the south of Western Siberia by means of methane resources which are estimated at 13 billion cubic meters. In order to reduce extraction time and R&D costs, Gazprom involved Schlumberger Corporation in its experimental works. Schlumberger Corporation is a major world supplier of services, solutions, and technologies for finding and producing oil.

“No doubt, it is profitable to adopt foreign innovations if the total economic effect of the innovation during its life cycle exceeds that of domestic technology,” said Tatyana Lobanova, head of innovative development department of Gazprom. “It is also necessary to take into account R&D costs, commercialization costs, production prototype cost, and preparation of serial production.” Gazprom expects to get the results of Kuzbass project in a short time and with minimal expenditures by means of adopting foreign technologies which have already been tested in various coal fields of the world. However, Gazprom also works on development of domestic technologies using foreign experience, in order to gradually replace the import at the stage of commercial production of methane.

...and Who Adopts Experience of Technology Implementation?

The experience of Norilsky Nikel is interesting as well. The company implements its own project for hydrogen energy sector, power of the future. At first only Russian scientists took part in developing the project. Now the company will involve foreign partners, although mostly to adopt their commercialization experience. “In the hydrogen energy sector, we can buy only basic foreign technologies which we have in Russia as well. We’ll have to spend exorbitant amounts of money on purchasing advanced innovations,” explained Norilsky Nikel vice-president Vladimir Pivnyuk. “That is why we took Russian technologies for the basis, and involved all education and science centers that study hydrogen. We have provided them with analytical equipment and scientific instruments.” At the first stage, Norilsky Nikel invested $30 million into basic scientific research and development.

Last year the company began to commercialize several fundamental hydrogen technologies and to create power systems and power packs on the base of fuel elements. New Energy Projects national innovative company was established to control this process. The amount of financing of the commercialization process reached nearly $20 million last year. According to Vladimir Pivnyuk, the same amount is budgeted for 2006.

“From the scientific-technical and technological points of view, our innovations are as good as the western ones,” said Vladimir Pivnyuk. “Yet, we are far behind in moving these innovations on to the market.” So now Norilsky Nikel intends to establish partnership with western companies leading in the hydrogen technology sphere. Norilsky Nikel plans to organize modern industrial production of stationary electrochemical power plants of different classes based on fuel elements. “The U.S. and other western countries have national programs for the development of hydrogen technologies and fuel elements. These countries budget hundreds millions dollars for such programs,” said Vladimir Pivnyuk. Just like most representatives of largest companies with active innovative policy, he believes the State could “co-invest” and support such programs not only by word of approval but also by financing them.

Mikron’s Experience

Mikron factory has recently carried out smart card production project in cooperation with German company Giesecke & Devrient GmbH. Russian smart card market has been actively developing, especially the market of cell phone smart cards, according to Gennady Krasnikov, director general of Mikron factory and head of Microelectronic Components division. Russian cellular operators will need around 100-120 million smart cards in 2006, according to different estimates. Mikron experts have counted up that if their company enters this market, it will be able to cover up from 20 to 30% of the market due to the competitiveness and advantageous location of production in Russia and simplified logistics for its customers.

Mikron intends to build a complete chain—from chip production to smart card creation. The first important step in this chain will be the production of chips with topologic size of 0.22 microns. “This is the most complicated and high-tech process which we have to master,” said Gennady Krasnikov. “The next step is to organize the production of chip modules. Now companies in Russia use foreign-made chips to produce plastic cards. Gennady Krasnikov promised Mikron would offer its own chip modules for smart cards by mid-2006, becoming equal to world leaders of this market.

German company Giesecke & Devrient (G&D) was involved as partner to implement this project. G&D is a leading world designer and producer of smart cards and solutions. Equipment for smart card production was neither designed nor made in Russia. “Yet, we believe technology purchasing makes sense if it serves to create Russia’s own technologies,” said Gennady Krasnikov.

G&D have gained access to the promising CIS market as a result of such cooperation. Mikron has already signed contracts to supply SIM cards to Russian MTS and Ukranian UMS cellular operators. Mikron experts count on producing 30 million SIM cards annually.

Sitronix Group (of which Mikron is a part) has 65% of the joint enterprise for smart card production. The other 35% belong to the German partner. Sitronix invested €16 million. Less than a year has passed between signing the contract for joint enterprise creation and the first SIM card output. Gennady Krasnikov believes it was a short period to implement such a project.

Mikron-G&D joint enterprise will first produce traditional cards for GSM network and SIM cards with R-UIM components which secure subscriber’s mobility within the network of CDMA. Beside that, the partners will make USIM cards which let the subscriber alternate GSM, CDMA, and UMTS networks and will not require subsequent change when moving to 3G network. Also, the enterprise will begin bank card production by the early 2007.



agonist.org/20060516/russia-in-need-of-foreign-technology-48k-24jan2007