Business incubators to boost Latvian industry

by Agris Ruperts, Liepaja

Business innovation support and organisation of industrial, technological and science parks has become a priority under the present Latvian industrial strategy and economic development

Cartoon: S. Tulenev, Chas

There are at present the following main industrial development problems in Latvia: 

• Limited consumer markets, leading to insufficient demand for Latvian goods which in its turn has become a key factor restricting further production growth;

• Relatively low income from sales of manufactured goods as most exports are either related to processing of natural resources (e.g. timber, food) or labour-consuming industries which do not require high technologies and qualified personnel;

• Uneven distribution of manufacturing industry on Latvian territory, resulting in the employment problem in many regions.

Strategy defined

National economic policy strategy plays an important role in solving these problems. Latvian Economic Ministry already in December 1999 developed a national industrial strategy forming a basis for specific economic measures and their implementation concerning manufacturing policy. The priorities included first of all construction and organisation of industrial, technological and science parks with the aim of rendering support to innovation activities. 

National program has been created

In order to ensure development of science-based industries and increase of overall added value, special attention is paid in Latvia to creating innovation-active environment and incentives for co-operation between industrialists and the science and research sector. On April 1, 2003, the Cabinet of Ministers approved the National Innovation Program for 2003-2006. The purpose of the Program was to facilitate innovation growth. The Program and other government documents call for purposeful and concerted action to promote innovation, including co-ordination of a common national innovation system, creation of innovation-friendly environment, development of mechanisms for co-operation in introducing innovative solutions into commercial operations and organisation of innovation infrastructure adequate to world standards.

The National Innovation Program envisaged several sub-objectives:

• creating the environment favourable for harmonisation and co-ordination of innovation activities;

• creating viable innovation businesses and laying the foundation for further growth promotion;

• �reating a unique and competitive economic framework.       

Organisational structures

Technological areas include industrial parks with a more extensive organisational structure representing all aspects of technological development and at least one science park. Industrial parks are defined within a broader concept area containing all industrial parks' functional types which co-operate closely both with research activities, industrial production and administration. Organisation of industrial parks on such economic and institutional scale requires highly developed educational, research and industrial environment.

An industrial park is a combination of industrial equipment and services where all necessary conditions have been created for use of modern technologies in modern top-level production by mostly small and medium-sized companies.

An industrial park provides companies with physical infrastructure (industrial works and administrative offices, warehouses as well as main utilities: electric power, gas, water, communications, etc.) required for industrial production. In addition, companies can use a variety of services or intellectual infrastructure (for example, management, financial administration, accounting, investments, consultations on development, and legal advice). Usually the park's territory is surrounded by a fence, and its administrative, commercial and strategic management is run by an individual company. In Latvia, such fenced-in parks can be found in Liepaja, Daugavpils and other places.  

Science parks are organised mostly with the aim of using modern knowledge and research facilities in order to develop progressive technologies. Such parks have been often found on the university campuses offering good facilities for use of scientific potential, bringing together researchers, laboratories, institutes and even small innovation-oriented businesses.

A "techno-polis" is a territory with infrastructure and legal status favourable for business growth, e.g. development and production of new, technology-based products. Usually such "techno-poles" comprise technological and/or industrial parks, innovation centres, a number of large businesses and many small and medium-sized technology-oriented companies.

Contrary to science parks, research parks perform mostly applied and less fundamental research. Such parks usually contain companies transforming new technologies into new products and services and research institutes specialising in development and introduction of specific technologies. Research parks are confined to a certain location and comprise companies with similar production, research or service's profiles.

A science and technology park occupies a defined territory with several buildings used for development, advancement and industrial application of research on scientific and technological basis. Such parks can house education and research institutes, technological and innovation centres, business incubators, consulting offices, service centres, etc. Its main function is to run the territory and buildings in the manner ensuring the most effective development of business based on high technologies and to offer long-term co-operation between technology-oriented laboratories and companies as well as to facilitate organisation and growth of new innovation companies, including joint ventures. Usually technological parks are situated near universities or research centres.

"Technological polis" is an industrial park with notably well-developed organisational structure, at the same time containing clear-cut features of research, technological and commercial "parks". Industrial parks of this kind handle the entire technological process, i.e. from applied research to production and introduction of products on the market based on modern technologies.

Commercial parks usually provide universal physical and intellectual infrastructure and are used as an instrument for industrial development where innovation centres (research and technological parks, for example) are producing on a broader economic scale products and services with high added value using modern technologies. Commercial parks together with innovation centres are often integrated in larger industrial parks and use various forms of co-operation under centralised organisation, creating institutional and economic environment favouring and encouraging innovation. 

Comparatively low costs, sufficiently developed infrastructure, availability and qualified labour force in Latvia have become incentives for business. But lack of co-ordinated state support and troublesome procedures for acquiring construction permits are hampering new innovative companies' development and foreign investments in this sector. Nevertheless, a number of problems related to starting new business can be solved by consulting various industrial parks.

State support instruments

Under the National Innovation Program and the Development Plan instruments of state support have been developed for further co-operation between companies and research facilities, development and introduction of new products and technologies, commercialization of scientific institutes and organization of new innovation businesses.

Bodies supporting innovation business in Latvia are divided into the following categories:

• Technological centres, technological parks, industrial parks, business parks and business incubators. Their distinguishing feature is real estate leased out to innovation companies for organisation of production and administrative functions. They also offer consulting services and infrastructure for business growth. Business incubators are parts of the park or separate companies with the primary goal of supporting business in its early stages in line with the government policy and within the limits of funding. 

• Innovation centres, business support centres, consulting and information companies, innovation application centres and regional development agencies. These bodies offering consulting services can take different legal forms: state-owned companies, municipal companies, non-profit limited liability companies, non-governmental organisations, limited liability companies, joint stock companies and private companies, private joint ventures.    

Innovators' own association

Latvian companies engaged in the innovation business have organised the Latvian Association of Technological Parks, Centres and Business Incubators. The association was founded on September 18, 1996, to bring together innovation experts and seek involvement of the state in development of the innovation business sector.

Private initiative

Describing the existing situation, it should be noted that Latvia has several industrial parks organised on a private basis, e.g. Nordic Industrial Park (a commercial park in Olaine) and Siva (a commercial park in Ogre). In addition, local governments in Ventspils and Daugavpils have organised their own industrial parks. The Latgale Development Agency (working in Latvia's eastern region) has applied for Phare funding to organise a wood-processing industrial park in the city of Jekabpils.

Analysis of the current situation shows that in the early 2002 Latvia had three business incubators: the Latvian Technological Centre (LTC), the Latvian Technological Park (LTP) and the Latgale Tool-making Technological Centre (LTTC). All of them were technology-based entities. LTTC was put into operation only at the beginning of 2001 and its development is still going on. Business incubators' work in Latvia is evident from operations by LTC and LTP:

• LTC is the oldest business incubator in Latvia, and the number of its member companies is growing every year. LTC management thinks that the company needs more space to expand its business. As soon as its current territory of some 2,200 square metres is expanded, LTC will meet the area qualifications for the technological park status. 

• LTP was rated as a technological park because it has come into possession of buildings with total area of about 12,000 square metres. But the floor space advantages are not used in full extent, which is due to business people low activity and comparatively poor infrastructure (premises need renovation, bad access roads, etc.).

Performance of the two oldest business incubators has shown the perspective path for their development in Latvia, i.e. increasing the number of companies, a business incubator can grow into a technological centre and later into a technological park, making additional investments in development of infrastructure and expansion of business support (raising risk capital, offering in-depth consulting, attracting scientific institutions). But this development trend is practically impossible without outside funding such as state subsidies, municipal subsidies, money from EU development funds.

Business incubators' development in Latvia, i.e. LTC, LTP, LTTC and the business incubator in Liepaja, has shown the following main state objectives towards knowledge society development based on new technologies:

• rendering support to existing technological parks and centres in view to develop infrastructure and expand the range of services available at technological parks and centres;

• rendering support for new technology-based business incubators' organisation in Latvian regions having certain industrial development potentials;

• creating risk funds in order to ensure availability of risk capital for newly-founded technology-based companies.

Innovation is a process during which new scientific, technical, social and cultural developments and technologies are transformed into marketable products and services. It requires development of the whole general economic structure in order to further innovation process, as well as talented people and specific enterprises within modern business infrastructure.

In order to create physical and intellectual (as well as social and cultural) infrastructure, one must do away with isolation of business from changes in the surrounding environment. Creative and innovative work is inspired by the creative environment, allowing free and intensive inter-reaction with all parties involved in the business processes.

Park in Olaine

Nordic Industrial Park (NIP) is one of the first and largest European level industrial park in the Baltic region. It is situated in the Olaine industrial zone some 25 kilometres from Latvian capital Riga. NIP offers production, warehousing and office space for rent as well as a broad range of various services.

From the beginning of 2000 the park has been the ground for successful initiatives in business development by 15 foreign and local companies, including Nord Plast, European Plastic Industries, MMT Industrial Plastic, Tipro Baltic, Tipro Nova, M�rupes Met�lmeistars and Baltic Seafood.

NIP territory covers an area of 14 hectares. The 15 structures adjusted for production and warehousing needs occupy 75,000 sq. m.

The target audience includes both companies that have already launched their business in Latvia as well as those which are only thinking about moving production to the Baltic. Labour costs look very attractive to investors. According to our assessments, labour costs as a share in total turnover fall in average by 30 percent as soon as a Scandinavian company moves its production to Latvia.

The main purpose of the industrial park is to create favourable conditions for business people, allowing them to do what they know best. NIP offers a whole range of services, including legal, financial, taxation and other form of advice. 

The industrial park has comfortable offices and modern conference rooms, a big car parking lot, a cafeteria and a recreation complex with sauna and a gym.

Olaine's park in future plans to work with companies from specific sectors, e.g. metal, plastic, wood and food processing, light industry, offering appropriate premises and growth opportunities.