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Domestic innovation performance in light of the European Innovation Scoreboard released in 2018
22 July 2018
Modified: 02 August 2018
Reading time: 15 minute(s)

In the European Innovation Scoreboard (EIS) compiled by the European Commission, Hungary, based on its total score, has made a slight improvement compared to last year. Last year significant changes were made to the methodology of the scoreboard, which are important to take into account when analysing the data in an informed way.

The impact  on research-development and innovation of the 5,700 projects granted funding in 2016 and 2017 and partly in 2018 will be reflected in the R&D expenditure-related data and innovation ranking in the next few years.

 

The global picture of innovation in the European Union as reflected in rankings

The European Innovation Scoreboard (EIS) compiled by the European Commission is one of those tools which are instrumental in interpreting the innovation performance of the EU and, more specifically, in individual Member States in an international context.  

Based on the results, Europe has a leading role in pharmaceutical industry, machinery, fashion industry, which account for 20% of global R&D investment and one-third of excellent publications. It is strong in the area of incremental innovation, i.e. innovation step-by-step, and makes progress in key technologies, such as photonics or biotechnology.  

The EIS of 2018 indicates an improving performance and shows a promising picture. However, whereas the innovation gap between Europe and the USA, Japan and Canada is expected to narrow, the performance of South-Korea remains outstanding and China is catching up very fast.  

Since 2010 the innovation performance of the EU has increased by 5.8 percentage points on average. At the same time, the results of Member States at a lower and higher level of innovation have not converged. Innovation performance has increased in 18 countries and declined in 10 Member States since 2010. Lithuania, Malta, the Netherlands and the United Kingdom are leaders in terms of innovation growth, while the greatest decline was measured in Cyprus and Romania.

 

An overview of domestic innovation according to EIS

In the scoreboard measuring the innovation performance of 28 Member States, Hungary - just like the V4 countries - is still one of the 14 Member States considered as “moderate innovators”. In the group of moderate innovators, Hungary is preceded by for example the Czech Republic, Spain and Portugal, whereas Slovakia and Poland among others are behind us.

 

European Innovation Scoreboard, EIS

The coloured columns represent the performance of Member States in the year 2017 in terms of the most recent data relating to 27 indicators, and compared to EU performance in 2010. Horizontal lines represent the performance of Member States in the year 2016 based on the second most recent data relating to 27 indicators, and compared to EU performance in 2010. Grey columns represent the performance of Member States in the year 2010 compared to EU performance in 2010. The same methodology of measuring performance was applied to every year. Broken lines indicate the thresholds in 2017 between different groups, comparing the performance of Member States in 2017 to the performance of the EU in 2017.

Innovation performance of EU Member States, 2018
Source: European Innovation Scoreboard 2018, Main Report, page 13

 

Compared to the EU average in 2010 (EU=100), the position of Hungary was 69.6 in 2017 and 67.7 in 2016. Based on the longer time series, we may say that by 2017 we managed to reach the 2010 level (69.7). After a decline in 2012 from 68.5 to 65.3 the index has been improving permanently.

 

 
 
Summary Innovation Index
Hungary
HU
2017
2016
2015
2014
2013
2012
2011
2010
Index compared to the EU average in 2010
 
69.6
67.7
66.8
66.1
65.4
65.3
68.5
69.7
Summary index
 
0.332
0.323
0.318
0.315
0.312
0.311
0.27
0.32


Summary Innovation Index compared to the EU average in 2010
Source: European Innovation Scoreboard 2018, EIS_2018_DB_Eng (Summary Excel spreadsheet)

 

Domestic innovation performance in light of the EU Innovation Scoreboard of 2018

According to the most recent European Innovation Scoreboard, the innovation performance of Hungary shows a smaller or bigger growth between 2010-2017 in more than half of the indicators (15 out of 27 indicators). These include output and input indicators, as well.

Input data include, for example, data relating to R&D expenditure, venture capital, the rate of employment, qualifications, as well as data relating to infrastructure or partnerships. These are the indicators whose improvement indicates that either indirectly (e.g to foster employment and the level of qualifications), or directly (for example, through expenditure) increasing resources are used in the entire innovation ecosystem. Output data describe the results of the entire innovation chain. This includes the most important indicator of R&D activity, which is also recognised internationally, namely the number of publications and the management of patents and intellectual property, or the export performance of businesses.

As for the input indicators, the highest growth in Hungary was recorded in the relative position of Hungary compared to EU performance between 2010 and 2017 (if the position in 2010 is 100). The year indicated behind individual indicators show the year of the most recent data available at the time when the EIS was compiled (e.g. 2016 next to the expenditure indicator shows that the indicator included in the EIS ranking of 2018 is based on R&D expenditure in 2016).

  • Venture capital investment (251.9%), 2017;
  • R&D expenditure of the business (private) sector (139.7%), 2016;
  • Broad-band internet coverage (177.8%), 2017;
  • ICT trainings by enterprises (133.3%), 2017.

As for input data, the greatest decline between 2010 and 2017 can be seen in the following indicators.

  • Ratio of those with degrees in tertiary education (taking Hungary’s performance compared to the EU in 2010 as 100: 77.1%), 2017;
  • R&D for the public sector (42.9%), 2016;
  • Co-financing R&D from private sources (63.4%), 2015;
  • Sales from innovation (novelty for the market or the enterprise) (70%), 2015.

The country report of the European Innovation Scoreboard using mostly research-development and innovation expenditure data of 2016 for Hungary underlines the indicator which shows the decline of Hungarian public R&D expenditure provided from the state budget. This data represent resources spent by research units in the given year, i.e. it is not identical with resources won by research units in the given year through calls for proposals, which are used throughout several years as projects are implemented. After a decline witnessed in 2016, R&D expenditure is expected to increase significantly in 2017. Data will be published by the Hungarian Central Statistical Office (HCSO) in July 2018.

As for R&D expenditure in 2016 the NRDI Office communicated earlier that the decline of budgetary expenditure in 2016, shown by statistics, is partly due to the fact that the data of the Hungarian Central Statistical Office could not have included in 2016 the funds provided during the 2007-2013 programming period, whereas the calls in the 2014-2020 EU programming period were not yet included in the data.

Several indicators are included in the innovation ranking, which have a significant impact on the functioning and competitiveness of the innovation ecosystem, but which cannot be influenced directly through an R&D&I policy instrument. One such example is, for example, the ratio of those holding tertiary degrees, or features that influence the macro-environment of businesses (sales and employment data).

As for the output data, the highest growth was observed in the following indicators.

  • Participation in international scientific publications (taking Hungary’s performance compared to the EU in 2010 as 100: 161.3%), 2017;
  • Trademark notifications (122.5%), 2017.

Publication activity is the most important measurement in science that is recognised and accepted internationally. Currently, there is no other data available, which would make an international comparison feasible. Particularly important is the improvement in publications which meet international standards because it clearly indicates a shift towards the qualitative improvement of research. Participation in international scientific publications is an indicator expected to further strengthen in the coming years. This has been facilitated by NRDI Office since 2017 through a new call for proposals by outstanding researchers working in Hungary and achieving results with significant international impact, who with their scientific publications have achieved a citation rate within two years after publication which make them belong to the upper 5 percent of their fields of research. 

The greatest decline in Hungary’s position compared to the EU between 2010 and 2017 is observed in the innovation performance of SMEs. In the case of SMEs product/process innovation, the relative position of Hungary compared to the EU in 2017 compared to that in 2010 (if the level in 2010 is taken 100) is 64.6%, the SMEs organisational/marketing innovation is 47%, while the in-house innovation of SMEs is 79.5%. As for the Innovators dimension of SMEs it needs to be emphasised that in this category data are collected only every other year1 and the report of this year covers the data of the period between 2009-2015, where the data of the 2014 survey were also used for 2015. Therefore, in respect of this data, it is even more important to note that due to the delays in international data collection, the scoreboard relies on previous data, which do not reflect the impacts of the most recent policy outcome.

In the coherent funding competitions system of research, development and innovation launched in 2015, schemes to foster cooperation between industry, higher education and academic research centres appeared as key targeted incentives.

These include the calls with the aim to establish Higher Education and Industry Cooperation Centres as a result of which in 2017 eight centres start to function with a total funding of HUF 35 billion and the contribution of businesses. Calls promoting the export activity of innovative businesses from domestic and EU funding also belong here, these had a budget of HUF 15 billion in 2016-2017.

Enhancing the SMEs competitiveness through adaptive technology innovation - GINOP-2.1.8-17 scheme was launched in 2017 as an RDI competitive call to promote the innovation performance of small and medium-sized enterprises. The aim of the call is to increase the competitiveness of domestic micro, small and medium-sized enterprises through the promotion of adaptive technological innovation activities. It promotes the purchase of tools and immaterial assets which previously were not available and the purchase of which may result in a new or significantly altered product, service, process or may enable the market entry of them.

The call Innovation ecosystem (startup and spinoff) GINOP-2.1.5-15 also aims to develop those areas of innovation in Hungary which are in need of development. This scheme provides incentives to the seed-phase of the players of the innovation ecosystem, including incubators assisting startups and spinoffs, accelerators and innovative startup businesses with a high growth potential in order to enhance their development and entry into international markets. 

Only one-fifth (HUF 424 billion) of EU funding available for SMEs until 2020 to improve their competitiveness serves the purposes of research-development and innovation, thematic grants in the figure below are expected to further strengthen small- and medium-sized enterprises.  

 

A KKV-k számára elérhető európai uniós források aránya tematikus célkitűzések szerint

 

As for domestic expenditure, the total budget of the NRDI Fund managed by the NRDI Office has significantly increased since 2015 to support businesses. In 2015 the NRDI Fund had HUF 15 billion disbursed in support of the innovative players of the private sector, whereas, by 2017 this amount had increased to nearly HUF 34 billion. 

In the system of competitive project funding renewed in 2015 the objective was the balanced use of available resources and  figures of funding decisions show that businesses and research units, programmes in fundamental research and innovation received funding in a balanced manner.

As of 2015 funding decisions were made on nearly HUF 685 billion, the impact of the 5,700 projects granted funding in 2016 and 2017 and partly in 2018 will be reflected in the R&D expenditure-related data and innovation ranking in the next few years.

The majority of research-development and innovation projects have been launched by innovative businesses since 2015:

  • Universities and research institutes so far have had nearly 2,000 awarded projects, whereas approximately 3,700 business projects have been granted funding.
  • Businesses received HUF 325 billion for the RDI related projects, whereas universities and research institutes received HUF 317 billion in funding from EU structural funds (Economic Development and Innovation Operational Programme, EDIOP/GINOP; Competitive Central Hungary Operational Programme, CCHOP/VEKOP), and also from the National Research, Development and Innovation Fund.
 
On the methodology of the European Innovation Scoreboard

The methodology of the scoreboard undergoes some slight changes nearly every year, however, the EIS published in 2017 was prepared based on methodology which underwent a comprehensive modification. The methodology was fully restructured, mostly driven by the OECD recommendation of 2016. In reaction to some of the recommendations, five new indicators were introduced last year, six indicators were altered and three were scrapped. In the case of new and altered indicators, the data series of the interactive tool found on the website of the scoreboard were also retroactively modified up to 2010. The fundamental objective of the modification was the even more accurate description and measurement of parts of the process to make it possible for the calculation methodology to take into account the structural differences of individual countries to a higher degree. In the EIS published in 2018 no more changes were made to the main measurement frames. At the same time, due to the revision of data, the data calculated retroactively until 2010 featuring in the report of 2018 are not comparable to the EIS data published last year (in 2017). In the course of analyses of previous years, data published in the EIS of 2018 may be used and compared to one another.

It still holds true that certain data are available only with some delay for the purpose of an international comparison. The report uses only information available for years 2015 or 2016 – in some cases 2014 – in respect of several groups of data as the most up-to-date. In the case of international sources of statistical data, the collection and harmonisation of statistical data at various national levels requires additional time.

EIS contains 27 indicators in 10 groups, the so-called innovation dimensions. The summary ranking is compiled by aggregating these data. The multifaceted character of data is also shown by the fact that the analysis and compilation of the ranking is coordinated by the DG Internal market, Industry, Entrepreneurship and SMEs in the EU.  

The methodology of the ranking, however met professional criticism. Charles Edquist and Jon Mikel Zabala-Iturriagagoitia economic researchers in their study published in Research Evaluation (Viewpoint: The latest EU innovation index is out. It’s flawed) argue that more emphasis should be placed on the fact that the EIS indicators include output and input indicators alike. In simple terms, the previous shows the outcome of innovation performance, whereas the latter describes the resources provided for the system. According to the authors, if a country provides a significant input for its innovation system, its innovation performance in the EIS will be outstanding, even if the country’s output is lower. And this cannot be considered as a high innovation performance. (At present all indicators carry the same weight in defining the summary score, regardless of the fact whether it is an input or an output indicator.) Member States that joined the EU later, including East European countries, have a lower input in the system, and compared to this, they have a higher output, which in total refers to a higher performance. They are of the opinion that the EIS cannot be interpreted to measure innovation performance in a reasonable way. Input and output indicators should be examined in relation to one another for the EIS to be able to measure real performance.

 

Further reading:


 

[1] The Community Innovation Survey (CIS) also coordinated by the European Commission.

Updated: 02 August 2018
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