Skolkovo Foundation Russia and Skolkovo’s attractiveness as an R&D destination

Skolkovo Foundation and PwC are pleased to present the results of Russia and Skolkovo Innovation Center attractiveness as an R&D destination.

Multinational companies (MNC) are looking to go international for additional R&D capabilities. Nowadays, leading MNCs driven by the needs of global markets are intensively looking for unique R&D capabilities that can generate new technologies, products and know-how with strong commercial potential in their respective industries. Russia is a potentially attractive R&D destination for MNCs as a country with an extensive historical legacy in science and huge market potential. From 2002 to 2011, at least 15 MNCs established R&D centres in Russia. Among the main reasons why MNCs decide to establish R&D centres in Russia are the following:

1) Extensive talent pool available in Russia, ensured by:

• High level of education
• Long standing scientific and engineering culture and tradition, especially in aerospace, nuclear science, engineering and software
• Renowned universities and research centres
• Strong track record in international educational competitions

2) Commercial opportunities driven mainly by attractive domestic market:

• B2C market: Russia is one of the largest consumer markets in Europe
• B2B market: industrial output with a 5% annual growth rate is among the highest in the world
• B2G market: the Russian government is pursuing an ambitious modernisation programme covering such diverse industries as healthcare, energy, aviation, transport and utilities

However, the number of foreign corporate R&D centres in Russia is very small in comparison with such countries as China and India, which have attracted the majority of total outbound R&D centres over the past 10 years, at least 224 and 95 centres, respectively. The average number of foreign R&D centres established annually in Russia per total number of researchers in the country is the lowest among the BRIC countries: two times lower than in Brazil, six times lower than in China, and 18 times lower than in India, meaning that Russia’s R&D environment is relatively less penetrated by MNCs. Meanwhile, the Russian market is also relatively untapped as the average number of foreign R&D centres established annually in Russia per average annual GDP is also times less then in China and India. In particular, this is the result of the low level of integration of Russian science into the global scientific community and a lack of entrepreneurial culture in Russia, which is due to historical factors. Among other obstacles preventing MNCs from establishing R&D centres in Russia is the country’s outdated or underdeveloped R&D infrastructure, especially in the Biomedical and Industrial Machinery industries, and administrative barriers, which partially result from investors' unfamiliarity with Russian legislation and business practices. Currently, the Russian government is focused on improving the country’s R&D environment to increase its attractiveness as an R&D destination.

The Russian government is implementing a policy of economic modernisation and support for innovation. R&D support measures include:

• Tax incentives for R&D: Russia provides a favourable tax regime for R&D activity compared to other countries, including lower rates for major taxes and accelerated depreciation of R&D expenditures at the federal level and/or within SEZs and Skolkovo clusters
• Public funding of science, including grants and venture capital through special development institutions
• Technological platforms aimed at uniting key stakeholders on a specific R&D task: industry (large, medium and small companies), public authorities, research institutions, civil society and the academic and financial communities; such platforms are supported by Russian Foundation for Technology Development providing preferential loans for R&D expenditures
• Organising innovation clusters: the cluster approach to organising R&D allows for creating an innovation ecosystem that offers participants, including MNCs, easy access to partners, financial sources, professional services, infrastructure facilities, etc. Skolkovo has successfully attracted MNCs to its R&D clusters as it addresses the key issues such corporations face in Russia’s R&D environment. Skolkovo represents the Russian government’s most successful initiative for creating R&D clusters. It has already established partnerships with several MNCs that plan to set up R&D centres at Skolkovo.

MNCs see Skolkovo as a particularly attractive R&D location for the following reasons:

• Access to a talent pool through the country’s leading universities and research institutes located in the greater Moscow area that specialise in Skolkovo’s foresight industries (IT, Space and Telecom, Biomedical, Energy Efficiency, Nuclear)
• Availability of public financial support for start-ups and access to high-technology partners
• Cost effectiveness (tax incentives, large-scale construction of infrastructure)
• Absence of bureaucracy and red tape

For more details please see the attached files