Friday, December 28, 2012

Budapest: Central and Eastern Europe’s innovation hub?

Budapest: Central and Eastern Europe’
s innovation hub?

by Péter Csárdás

            A number of books and scientific articles deal with the evolution and functioning mechanism of clusters, but they fail to give a general definition which encompasses all aspects of these unique institutions. They agree however that a cluster is a great number of actors which operate closely together which grasps the essence of them: you know it when you see it. After the bust of Zsámbék, the „Hungarian Silicon Valley” whose story was discussed in this blog earlier, it makes sense to have a closer a look on a rather success story next door, namely the evolution of Budapest as an ideal location for IT giants as well as innovative tech start ups.

It all started in 1999 when the first building of Infopark was opened. The government and the private sector had a number of plans concerning the area between Petőfi and the then constructed Lágymányosi Bridge on both side of the river, and the establishment of the office park played a key role in the further development. In 2001 the new campus of Eötvös Loránd University (ELTE) was finished which together with the adjacent buildings of Budapest University of Technology (BME) formed a new center of scientific education in the Hungarian capital. 

These all fit well the seven determinants of a cluster: (1) it is spatially concentrated since the now eight towers of the park and the university campus are in walking distance from each other; (2) it is specialized, primarily for IT, telecommunication and software development companies. The cluster has diverse participants besides multinationals (3), including two universities, venture – capital companies, and now it hosts the European Institute of Innovation and Technology, an EU agency that was established in 2008 and choose Budapest for headquarter because of its leading role in innovation in the region. Furthermore, the participants compete and cooperate (4) with each other and now created a critical mass (5) of interests and ideas for the long run (6). Lastly, there is no doubt that residing institutions are active proponents of innovation (7). The success of Infopark led to the construction of two other entities: Science Park Budapest, an office park directly next Infopark, with Ericsson and Tata as its flagship research renters, and Graphisoft Park which offers research and development facilities and office spaces for Microsoft, SAP, Graphisoft, and other smaller innovative companies. A positive externality of the Budapest based R&D ventures is the boom of internationally acclaimed start ups which started their career in the city. Talented and well-educated people, who do not lack entrepreneurial spirit, have the chance to go big. Prezi and Ustream are just two examples of two ventures whose products are used by millions around the world.

In the location choice of the developers and the residing entities was most probably affected by a number of key factors. Innovation and technological education have had long history in Hungary which have been hurt partially during communist time, but gained momentum after the collapse the Iron Curtain, and they both have high potential in hand with talented youth. The country has a favorable location for multinationals and it has relatively cheap and well trained labor market. The actual government always has some kind of strategic plan about R&D, but the precious efforts sometimes lead to unwanted results (see the Zsámbék case). 

Currently the revised New Széchenyi Plan deal with the issue of innovation and sustainability that wants to achieve “competitiveness”, “jobs higher value added” and “sustainable economic and social development”. Furthermore it even specifies quantitative targets, namely to spend 1,5% of GDP on innovation by 2015, and 2% by 2020. The government can provide direct cash subsidy, tax allowance, training subsidy and job creation subsidy to achieve these goals. Despite of the ambitious plans private sector remains a key factor of the organizational and financial processes which hopefully can lead to the expansion of the now existing parks, and attract more innovative companies.  


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