1 May 2010
Russian R&D in Transition

"Russia's R&D Sector has six main challenges the country needs to resolve if it is to be a world leader in technology:"

By: by Nicholas Newman

Russian Dispatches A Puzzle Inside A Conundrum  


Today, Russia is rarely out of the news. It is either stories about Russians busy buying up parts of London, Chechen terrorists’ attacks on Moscow’s Domodedovo airport or news of the latest Russian owned mega yacht. We rarely hear about the Russian Federation’s recent technological and innovative successes. In the Soviet era, Russian innovators had much to be proud, from the AK-47 Kalashnikov machine gun to the Soyuz rocket. Such products are still in high demand by customers around the world, in part because of their innovative design, reliability and low costs.  


Nowadays, for these very same reasons foreign high tech companies are actively recruiting Russia’s creative innovative talent. The results of the country's innovation are all around us, from much of the tiresome spam that arrives at our computers daily to the latest in biomedical equipment. However, difficulties with the past poor reputation of some Russian products and the multinational nature of much innovation may mean users, are quite unaware that they are using the results of Russian innovation. 


Last February, I visited several major research and innovation centres in the Saint Petersburg and Moscow regions to discover the current state of technological progress in the country. What I found surprised me, Russian scientists and engineers are not the melancholic and dour people characterised by Tolstoy. Instead, I found many of them to be very optimistic, people full of boundless new ideas and energy. 


Russia’s Innovation Stagnation 

Russian trains 

Russia is a vast land and train journeys can often take days. Herds of reindeer crossing the tracks or the permafrost melting can delay trains. Last February, I travelled on Russian Railway’s (RZD) first high-speed train service, the Sapsan (Russian for Peregrine Falcon), that links Moscow with Saint Petersburg. It is the latest in German train technology, built by Siemens Mobility, and it is far superior to what Russian rail technologists could themselves provide. The Sapsan has already substantially cut journey times from five hours to three-hour forty-five minutes between the two cities.  However, most of the rail system is still using Soviet era technology, and clearly, there is considerable room for improvement with trains crawling across this vast country at stately 60 kilometres an hour.   


Today, Russia’s profitable railways prefer to rely on imported technology as part of their modernisation plans. At present, Russia’s railway engineers, scientists, production and operating companies are busy in joint technological sharing deals with foreign companies. For instance, Siemens Mobility has registered 35 patents as the result of co-operation with its partners on several rail related projects to make its products more suitable for the harsh Russian operating environment. Germany’s railway company, DB Schenker, in conjunction with Russian Railways and St. Petersburg State Railway University has set up an International Logistics Supply Chain Management Centre aimed at encouraging innovation and modernisation in the rail sector. However, clearly it will be many years before the Russian train builders, will be able to compete on an equal footing against foreign firms such as Siemens Mobility and Alstom. 


Russian Innovation Progress 

Space Technology 

Today, Russia is acknowledged as pioneers of space tourism, what is less well-known is the vital role Russian technology plays in the World’s space research effort, including the launching of satellites into orbit and delivering supplies to the International Space Station. Today, Russia’s approach to space technology is best described as a program of gradual development marked by upgrades of existing equipment, reapplication to new goals of hardware designed for other purposes, rapid recovery from failures, and constant experimentation. This contrasts with the USA, which tends to seek technological solutions that are often overcomplicated and have become too expensive for the taxpayer.   


The European Space Agency (ESA) has been so impressed with its experiences in using the services of the Russian Federal Space Agency. That ESA has invested in a new Soyuz launch site at Kourou in the middle of the French Guinean jungle, next to where it launches its own heavy lift Arianespace rockets. ESA has bought 14 Soyuz rockets able to lift packages up to three tonnes, with the first one due to be launched in August or September this year from Kourou.   




Russia’s To Build Its Own Silicon Valley! 

Since the days of Stalin, there have been what Russians calls science cities known as ‘naukograds’. Ivory towers of innovation located often in the remotest parts of the country, closed to the outside world. Somewhat like the science fiction town portrayed in the American comedy television series ‘Eureka’. As a result, such restrictions hampered the ability of such naukograds to innovate.  


Today, the Russian government as part of its innovation strategy has opened most of its naukograds. However, as Sergey Konovalov, expert at the Department for International Cooperation at the Russian Federation’s Ministry of Education and Science has observed that Russian design needs to do better, though its R&D is quite strong, especially in the fundamental sciences, though, applied science and innovation, in Sergey’s view, are in need of improvement! 


In February 2010, President Medvedev announced ambitious plans to build the equivalent of America’s Silicon Valley in the Moscow region at Skolkovo in Odintsovo County. Already, several major foreign investors, including Intel, Microsoft and Matsui have expressed interest in the project.  It will have its own golf course built by Chelsea Football Club owner Roman Abramovich. When I visited the site last February, the temperature was minus six degrees, and construction had started despite the snow. However, such cold weather did not stop Finland from becoming a major world centre of research and technological innovation. In Russia, the winter weather has not prevented people playing golf, as I soon discovered when I visited, with several Russian friends the nearby Nakhabino golf club. Golf in Russia has its rather unique innovations; you play with red balls, and negotiate the course using snowmobiles and ice skates. However, for many Russian golfers, there are additional hazards, including drunken snow mobile drivers, being attacked by a bear and even falling through the ice! 


President Medvedev’s ambitious technological policy plans are much more practical than they first appear. Sergey Konovalov, suggests that: ‘Basically, the government has tried to create a favourable business climate for hi-tech industry, granting certain privileges to the key players and investing huge amounts of taxpayers' money into these projects. Sergey, though suggests that traditional attitudes towards treating knowledge as a spiritual human virtue, some kind of a gift that was not for the commercialization purposes, will have to change. 


Doubts are being expressed that Russia technological ambitions could fail! Sergey Konovalov admits, such policies face problems, including the key issue of a shortage of experienced and effective leaders who would transform the oil-based economy into a somewhat modernized technology based economy. For many big potential investors, despite the already generous incentives on offer to participate, the Kremlin will have to prove it can protect intellectual property rights and improve governance standards. 


However, I think the critics of the Kremlin’s ambitions to create a Russian Silicon Valley are wrong; it has the backing of Russia’s elite, including the likes of Eugene Kaspersky, the founder of Kaspersky Labs and billionaire Viktor Vekselberg. It has a good location, in the most prosperous and accessible region in the country, which should aid success. No, the real question that will determine the success of this project will be how well the Kremlin manages to reform its business, innovative and education environments. Even so, Sergey Konovalov suggests that state-controlled companies will dominate Russia’s high technology sector, simply because modernization is the country’s strategic project. In the long-run, the role of SME will be increasing. I do not see Russia as the world leader in high-tech. Nevertheless, as a smart and committed follower, it should stand in the top-20 countries by the percentage of GDP generated in the innovative sector.   


Russia’s Innovation Ability 

There is a saying in the world of innovation that you give the urgent projects to the European’s the big projects to the Indians and the impossible projects to the Russians! Certainly, the Kremlin’s ambitions for Russia to be the leading country in nanotechnology look, at first glance, unlikely. Russian's have a  habit not to believe every word the government says about a project. It is not surprising there are many cynical observers who regard the Kremlin’s nanotech project as just a fresh opportunity for the Russia’s business elite to enrich themselves from state funds. Dr. Andrey Gidaspov, Russian Telecoms consultant suggests that observers have reason to be sceptical given that Russian inventors face an environment where: ‘the process of commercialization of technology and its practical implementation is in the infancy stage.  Product commercialization is practically undeveloped in Russia!’ In addition, there are issues of a lack of a competitive market environment. Much, if not everything, depends on connections and, sadly, corruption.  Most business is concentrated in corporations, while start-ups are suffering from a lack of financing.  The Russian banking system is clearly not ready to lend credit for new ideas; they are sceptical toward risky ventures. In addition, Andrey Gidaspov suggests many civil servants themselves are skeptical about the necessity for economic diversification and investment in new technology when the country has so much wealth.  


However, as I discovered talking to my fellow passenger Alexander Nabakov, a hedge fund manager, on the Saint Petersburg Sapsan express. Alexander thought the prospects that Russia will be amongst the top five countries in the world for nanotechnology looked promising. There are a number of reasons for this; the first is that nanotechnology appears to be a technology that lends itself to Russia’s innovative culture of being evolutionary in approach as exemplified by the popularity in usage of the TRIZ (Teoriya Resheniya Izobretatelskikh Zadatch) approach to solving engineering and scientific problems. The second is Russia’s long-term investment in military technology has provided much of the necessary R&D infrastructure and, lastly, the massive backing of government resources to this project. 


These advantages have certainly encouraged major international firms like INTEL, Microsoft and Boeing to invest millions of dollars in new research establishments in Russia concerned with nanotechnology. Therefore, as to the question, will Russia succeed? Alexander proposes that Russia should be viewed as an exciting environment, full of potential opportunities for the investor in high technology. However, success will depend on how effectively the Kremlin will be able to reform all aspects of its rather chaotic economy.  




Russia’s Human Condition 

Today, Russia presents a rather confusing situation to the outside world. In some areas of R&D, it is amongst the leaders in technological innovation, yet in other sectors, it lags far behind. Russian society has a strong collectivist tradition that has discouraged individual initiative. In addition, it has had societal attitudes that tend to venerate pure knowledge for its own sake, and deplore any attempts to commercialise information. Such attitudes have produced an educational system that has tended to focus on the training of excellent scientists, rather than that of technologists and business graduates. This, perhaps, explains the failure of the elite to create an environment that is favourable to innovators. It is not surprising that often Russia’s brightest and best graduates are seeking remunerative opportunities elsewhere. 


Consequently, the country’s elite has tended to be more motivated to exploit the massive profits that are available from Russia’s energy and resources boom, rather than investing in more uncertain technological ventures. Therefore, it is not surprising that the Kremlin has not been able to gain sufficient support from Russia’s elite for its past technology policies to be implemented. As a result, this lack of support has meant the Kremlin has been unable to remove many of the barriers to innovation that face both investors and innovators. However, because of the recession, the Kremlin has now gained sufficient backing from the country’s elite to tackle the barriers to innovation caused by its inadequate infrastructure, problematic business climate and uncertain legal environment.  





In fact, the Russian software industry tends to be very creative. It is perhaps not surprising there is an increasing number of Russian leading edge companies’ software companies’ operating in world markets. Such firms include Kaspersky Labs, maker of anti-virus software and linguistics software provider ABBYY. 


In fact, take ABBYY as a typical example of what is best in creative software companies. Its development history is virtually identical to the Silicon Valley model for advanced technology companies. A group of students at one of the countries leading research universities the Moscow Institute of Physics and Technology, the Russian equivalent to Stanford University got together to form a software company led by its current chairman David Yang. Their first product was a Russian – English dictionary software called Lingvo in 1989. Since then the company has grown producing an ever-wider range of quality versions and products. Today ABBYY is in a leading provider of enterprise content management (ECM) and document management markets as a provider of high-quality optical character recognition (OCR), data capture and form processing solutions in over 130 markets. 


In fact, when I visited ABBYY in Moscow, I found its creative culture and attitudes to work and innovations are comparable to successful software companies worldwide. Nastasya Savina, ABBYY vice-president on corporate communications says: ‘It’s a good place to work; it’s very democratic and flexible.’ The company like all similar companies in Russia has to be adaptable while it can attract the countries best innovators, from its premier schools in software development. ABBYY believes in investing in the future. It sponsors students at the Moscow Institute of Physics and Technology and is allocating 27% of its revenue in research and development into breakthrough products. That's five times the industry average.  


Russia’s Automotive Sector 

Local drivers have devastated the Russian owned automotive industry by their preference for expensive international brands. This has resulted in an increasing number of foreign owned assembly plants being built in Russia to meet rising domestic demand and overcome high import tariff barriers. 


The domestically owned car industry ability to compete has been disadvantaged by a shortage of financial resources for investment and research. Today, the Russian car industry is beginning to fight back as it has become involved in joint ventures and amalgamated with larger conglomerates. Russia’s technological expertise is much sought after by car importers eager to adapt their vehicles for the harsher road and weather conditions of Russia. The results of such developments include the AvtoVaz’s Cheverolet Niva, the GAZ’s Siber saloon and the Chrysler Sebring. In fact, the creative genius of Russian engineers is beginning to make its presence felt from armouring and customising of clients’ luxury vehicles to the development of boutique car-makers like Nikolay Fomenko’s Marussia Motors, plans to roll out new products including a coupe, SUV, sedan and a city car at this year’s Frankfurt Motor Show.  




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