Developing the Sectorial Innovation System of Estonian Biotechnology

Abstract

All the main innovation processes in the biotech sector from basic research to commercialisation on the market are represented in Estonia. There is no real data about the division of R&D expenses between the public sector (university) and industry in governmental policy documents. This indicates both a lack of relevant information and of innovation policy based on it. The aim of this article is to evaluate the structure of innovation expenditures in the Estonian biotech public sector and private SMEs, and to shape supportive measures for knowledge transfer and entrepreneurship in the biotechnology sector. Empirical research in the business sector was carried out in two sample groups, Estonian research based biotech companies with an independent strategy, and subsidiaries of foreign companies mediating imported goods or just carrying out services (clinical trials) for their foreign owners, and thus not working with Estonian research results. Productivity per employee in the first group of firms was nearly three times lower than in the foreign owned companies. The gross funding structure proportion of basic and applied research, and product or service development in the Estonian biotechnology sector was deduced according to the R&D ratio formula as 11:5:1, which demonstrated the strong imbalance of the sectorial innovation processes. The private sector value for the same indicator was 1:2:2. The research-based companies were poorly financed, and the main public support was channelled into university basic research. One of the results of the small local market and poor funding is that the Estonian biotech businesses are much smaller in size than American and European companies – one-tenth to one-hundredth of the size. A few suggestions for improving the sectorial innovation system (SIS) are made. The process of balancing the R&D ratio is seen as an iterative process.