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learn how to begin conducting R&D in that country. The Forum was judged a success because some 20 local laboratory directors became acquainted for the first time and found that they shared many common problems in carrying out R&D in that unique environment, so remote from their R&D facilities in other parts of the world. The lab directors are already networking on some of these issues before the second CTO Forum meets in September 2001 in Shanghai.

Survey of S&T Resources and Processes
A survey to identify current S&T resources in China will be undertaken in the first half of this year by the Ministry of Science and Technology, the State Statistics Bureau and other agencies. It will be the most comprehensive study of the national strength in S&T since the first survey in 1985.
Data on R&D spending and S&T personnel at the end of the 9th five-year plan are expected to present a systematic picture of China's S&T resources, especially its industrial R&D centers, and provide information for developing S&T policies during the 10th five-year plan. Results will be published in September. (Identification of R&D capabilities in Chinese universities was one of the concerns raised at IRI's CTO Forum.)

Science Brain Bank
The Chinese Academy of Sciences has begun developing a "National Scientific Brain Bank" to promote a democratic, scientific and legal decision-making process for China. The development of this "bank" has been designated as a major component of CAS's phase II knowledge innovation project.
At the plenary session of CAS academicians on June 5, 2000, CAS President Lu Yongxiang said academicians should pay consistent attention to national development and propose strategic solutions. One of their concerns will be S&T demands in China after it enters the World Trade Organization. CAS has also developed 654 research projects in new cutting-edge disciplines since its knowledge-based innovation experiments were started two years ago. Of these projects, 81 are intended to achieve major breakthroughs in line with global S&T and China's future strategic needs. Eleven projects are directed toward such major technical and scientific areas as biochips, mini-satellites, nanometer materials, animal cloning, and the environmental evolution of China's western regions.
A reformed system for assessing the results of national R&D projects was initiated during 2000. The Ministry of Science and Technology has developed "Methods of S&T Results Assessment," to be used in helping ensure that R&D projects are conducted effectively. Reviewers will follow the assessment methods for all future S&T efforts except those associated with national security.

Information Technology Key to Growth
China is attaching great importance to its IT industry as an area of economic growth. Wu Jichuan, Minister of Information Industry, observed at the opening ceremony of the 2000 International Forum on the Information Industry last August that China's information industry faces both development opportunities and fierce competition. He indicated the information industry was expected to grow at an annual rate of 20 percent over the next five years and that total sales of IT products would double by 2005, with industry's value-added output accounting for 5 percent of that year's GDP.
Priority is to be given to the development of the software, microelectronics and networking industries to meet the demands for building an IT infrastructure, upgrading traditional industries and developing e-commerce. Indeed, China already claims to be the world's third largest Internet user, with 16.9 million subscribers as of June 2000.
In accord with this emphasis on IT, China's National Parallel Computer Science Engineering Center has developed the capability of producing high-performance computers. Last year saw the introduction of the Shenwei I, ranked 48th among the top 500 high-performance computers for commercial operation in the world. A second Shenwei I system was expected to go into operation in November 2000.

Universities Stimulate Innovation
Universities will play a major role in China's economic development. During 1999-2000, 15 new university-based S&T parks were approved to promote interaction between S&T and education, as well as economic development. Such parks have already been built at Tsinghua University, Peking University, and Shanghai Jiaotong University. It is China's intent to use these parks as bases for technological innovation, the creation of high-tech business incubation, innovation expertise training, and demonstration of combined industry, academic and learning research.

IBM Innovation Institutes
Peking University and Tsinghua University signed an agreement with IBM in July 2000 to establish IBM Innovation Institutes. IBM is to provide the software and hardware needed for research on leading issues such as e-commerce, knowledge management, and in-depth computing.
The creation of these two institutes will offer more opportunities for university faculty and students to understand big business and cutting-edge technologies.

275,000 Contributors
At present, 275,000 people are involved in S&T activities at Chinese universities. These institutions spent Tech Talk "One of the great strengths of American-style capitalism is its ability to finance crazy ideas-because every now and then, those ideas have a very, very big payoff."

University of California economist
Hal R. Varian in The New York Times, Dec. 14, 2000

March-April 2001
Rmb 9.5 billion (equal to $1.2 billion on a direct-conversion basis, but worth considerably more in purchasing power due to lower salaries and other costs) for research in 2000, up 21.3 percent over 1999. Tsinghua University, generally considered to be "the MIT of China," was in first place with Rmb 551 million, followed by Zhejiang University with Rmb 500 million.

Small Companies Multiply
The number of small and medium Chinese S&T enterprises has exceeded 70,000, with 3.3 million employees. A series of policies has been developed to further support the development of such enterprises, such as a technological innovation fund that has provided financial support for more than 1,000 projects. Chinese authorities will also create a pioneering board for small-and medium-sized businesses in the Chinese stock market.
China has also created over 100 high-tech business incubators, more than 30 university-based S&T parks, described above, and over 500 productivity promotion centers for small-and medium-sized businesses.

Patent Law Changed
Amendments to China's Patent Law will come into effect during 2001, bringing the country more in line with international standards. New provisions have been added to the law in accordance with the agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS).
The amended law will allow patent holders who believe their rights are being infringed to ask people's courts to intervene. However, enforcement of intellectual property rights has been weak due to poor coordination between state and provincial authorities, light penalties, poor training of enforcement officials, and influence from neighboring nations.

Mobile Valley Challenges Silicon Valley
Cold, dark Stockholm, of all places, is emerging as a serious rival to California's hot, sunny Silicon Valley. The Nordic city is evolving into the world's wireless technology hot-spot, the place to be for startups and entrepreneurial-minded corporations wishing to capitalize on the potential of nascent wireless Internet.
Indisputably the leader in personal computer and Internet technologies, the United States appears to have become the Old World when it comes to wireless communications-which many analysts and entrepreneurs see as the next big wave of technology. Market researchers are nearly unanimous in predicting that in three years, more people around the world will gain access to the Internet through mobile devices than through personal computers.
According to the market research company International Data Corp. (IDC), Sweden has meanwhile passed the U.S. to become the world's dominant "information economy," measured in terms of the percentage of citizens who have access to computers, the Internet, wireless phones, and other information technologies. And the country isn't resting on its laurels. For instance, Bjorn Rosengren, the Minister for Industry, Employment and Communications, recently promised a broadband connection in every home by 2005, at the very latest.
As a result, American technology companies and venture capitalists are rushing to set up or expand their offices in and around Stockholm's fast-growing high-tech center. Every major U.S. information technology company, it seems, is here-from Intel and Microsoft to Motorola and Oracle. Not surprisingly, Stockholm now boasts the highest concentration of wireless Internet companies in the world. Microsoft CEO Steve Ballmer, in fact, has referred to the city as the "mecca" of mobile communications.

1,000 IT Companies
The number of IT companies setting up shop in Stockholm increased by 100 percent to more than 1,000 during the first half of 2000 compared to 1999. At the same time, the number of foreign investments and acquistions also doubled through June, equaling the amount for the whole of 1999.
Another indicator of the wireless startup buzz in Stockholm is the growing accessibility of venture capital. In the early 1990s, only six private VC firms operated in the city. Now there are more than 100. And despite the current turbulence of Internet stocks on capital markets, money is still flowing to the Nordic high-tech hub.

Why Stockholm and not Paris or
Rome-where the climate, culture and cuisine are arguably more enticing? A major reason is Ericsson, one of the world's big three mobile communication suppliers and considered by many to be the leading builder of wireless infrastructure. The company has spurred a number of startups and drawn others to set up shop nearby. Ericsson has wireless development activities spread throughout the metropolitan area, but its major presence is a few miles outside central Stockholm in the northern suburb of Kista, which has a rich tradition of research and development in the high-tech sector.
The Kista Science Park has been Sweden's high-tech center for 20 years. Today, Ericsson employs around 12,000 of the park's some 28,000 tech staff and dominates wireless R&D. In addition to the more than 500 high-tech companies, the park has its own Royal Institute of Technology.

Craving Mobility
Another reason for Stockholm's magnetic growth as a high-tech To be sure, the Nordic countries, led by Sweden, have a long history of wireless communications, beginning in the early 1980s when they agreed to establish a cross-border analog standard. That move created a market of more than 25 million users. Toward the end of the decade, the Nordic countries were also a major force driving the development of the pan-European digital mobile standard, called Global System for Mobile communications (GSM).
More recently, Sweden and Finland have become a hot bed of activity for developing the latest mobile technology, called third-generation (3G), which promises to deliver data 40 times faster than present GSM systems. The first 3G network is expected to go live in Japan shortly, followed by Europe later this year or early in 2002. The U.S. has yet to set a date for launching 3G services. That's one of the big reasons why Americans are flocking to Stockholm, according to Mark Anderson, an independent technology analyst. "They have no choice," he says. Since the 3G wireless market in the U.S., he reckons, "won't appear for years," the Asians and Europeans will have a big head start.
Interestingly, far more wireless firms have come to Stockholm than to neighboring Helsinki, which is home to Nokia, the world's leading mobile communications manufacturer, and Sonera, the innovative mobile operator. One would think that these two cutting-edge companies would be magnets for Internet startups. Although they have been able to attract a few, several obstacles prevent them from luring more. For one, Helsinki, which is closer to Moscow than London, is even more isolated than Sweden. For another, the ability to offer stock options-a primary tool for attracting talented managers and engineers-is even more difficult in Finland than it is in Sweden.

Brains No Longer Draining
That said, Sweden's high 60-percent personal tax rate is a problem. Until recently, Sweden's left-leaning government kept businesses happy by buying their products and maintaining a low corporate-tax rate of around 28 percent. But now, with global competition for investors and engineering talent soaring, Sweden is struggling to remain an attractive place to live and work. The tax situation, in fact, has prompted Ericsson to move its European headquarters to London to lure top managers, and has been a factor in the exodus of homegrown talent. According to a study by the Federation of Swedish Industries, some 800 engineers, or roughly one quarter of the country's engineering graduates, emigrated in 1998.
That's changing-thanks, in large part, to Sweden's love of Internet-based wireless gadgets and, more importantly, to exploding global demand for this technology. The love story has sparked the creation of so many new startups offering so many new options to make money and develop skills over the past two years that many Swedish engineers are now deciding to stay home and take advantage of the local opportunities.
There's also another less conventional reason why many talented engineers are willing to stay despite the high income taxes. It's rooted in Sweden's collective, team-driven work philosophy. Kjell Nordströ m, a member of the board at Spray, which is one of Europe's largest Internet portals, attributes some of Sweden's technology success to the freedom of thought nurtured by the country's social experiments in the 1930s and to its more recent sensitivity to local issues. At many subsidiaries of U.S. tech firms, he says, employees are still sticking to their manuals and "reporting to Santa Clara." He claims that the Internet wireless business "is growing too quickly to be closely managed from the center," requiring companies "to pick the people carefully, then leave it to trust." And what type of Stockholm-based enterprises are most likely to succeed? Sven Christer Nilsson, who spent 17 years at Ericsson including 16 months as its CEO before leaving to launch Startupfactory, an early-stage investment firm specializing in wireless companies, believes components and application companies have excellent chances.

High-tech "made in Sweden" is also fostering industry-wide collaboration. A primary example is Bluetooth, a wireless technology that was first conceived in Ericsson laboratories and is now the focus of a global consortium of tech companies, from
Intel and IBM to Nokia, Sony and Microsoft. The consortium hopes to create a common signal for the entire world.
Bluetooth, named for a 10th-century Viking king, is a short-range radio hookup that resides on a microchip. It enables users to zap data from a cell phone to a nearby printer or to use a handheld Palm computer to control a DVD player. The strong infrared signals go through walls, carrying one megabyte of data per second, or about 20 times the speed of a dial-up modem. The technology will not only replace cables, but will Tech Talk "The companies that succeed will be the ones that make their ideas real, that stand for what is true, and that employ great metaphors and analogies to define their businesses and tell their stories."

March-April 2001
also spread to virtually every appliance, from cars to gas meters. It is giving birth to startling new home networks-which are themselves fostering new joint ventures.

For instance, in Varmdo, another Stockholm suburb, Ericsson and Swedish appliance manufacturer
Electrolux are building six model "homes of the future" through a joint venture called e2 home. The homes are equipped with e-mail service via a screen built into the fridge and other appliances connected directly to the Internet.

New Breed of Risk-Takers
For many Swedish officials, it seems almost too good to be true. The country, not too long ago in danger of becoming an economic backwater because of the exodus of big companies, is rebounding. Though still struggling to lower taxes and retain big Old Economy-companies, its capital city, Stockholm, has become fertile ground for a new breed of managers and engineers willing to take risks and invest their time and energy in smaller, more flexible startups. In fact, many young Swedes who once aspired to jobs at big companies, now consider it "uncool" to work for a company founded before 1990, claims Spray's Svensson. "Living here," he says, "makes you realize that your next competitor is only a click away." In 1994, the Russian government created the Federal Fund for Assistance to Small Innovative Enterprises ("The Fund for Assistance"). The Fund grants preferential credit (at 50 percent of the standard bank rate) to small innovative firms that are entering the market with high-tech products. Over the past six years, the Fund has supported about 600 projects and has received a rate of return on its loans of between 50 and 70 percent. However, as a governmental foundation, it has been rather conservative and has not supported the most risky stages of innovation.

First Venture Capital Fund
In 1997, the Russian government, working together with the Fund for Assistance, announced plans to create the first venture capital fund, with the government providing 30 percent of the capital as an inducement for other potential participants. In March 2000, the new fund, named "The Russian Venture Foundation," was officially created by presidential decree and given an initial government investment of $4 million. The Venture Foundation will be responsible for developing regional venture foundations. So far, six regions of Russia are participating in this program: St. Petersburg, Samara, Saratov, Nizhny Novgorod, Novgorod, and Tatarstan.
In addition to these new funding agencies, several new types of R&D organizations supporting small innovative firms have also emerged. One of the most interesting, also promoted by the Fund for Assistance, is the Innovation Technology Center (ITC), where small innovative enterprises are housed under one roof. Being in such close proximity, these small firms can benefit both from central services (lower-than-average rent, modern telecommunication networks, information support, consulting services) and also have better protection against crime through a central security service. Today there are 38 ITCs, financed from both federal and local sources (approximately 50 percent each).

However, a number of factors still hamper high-tech business in Russia.
These include: underfinancing of innovation, especially by private sources; the underdevelopment of a legal basis for private business; inadequate protection of intellectual property; and the continuing threats of crime and corruption. These obstacles explain why the number of small innovative enterprises in Russia is actually decreasing, from 38,800 in 1998 to 31,000 in April 2000. The ability of the Fund for Assistance to halt this decline is limited by its modest financial resources; in 1999 it provided support to only 245 firms.

Management Training
In order to assist managers of small firms to overcome the formidable obstacles they face, the ITCs are supplying managerial training, a service also being provided by several foreign or international organizations, including the United Nations Industrial Development

Opportunities for U.S. Firms
These developments show that Russia today has considerable potential for high-tech business. Both native firms and the foreign firms that work with them are beginning to find ways to succeed in a new commercial culture. For instance, it is now possible in carefully selected instances for U.S. companies to forge relationships with small, skilled Russian teams.
Good places to start looking for such possibilities include the 38 ITCs, the firms listed as "most successful" in the annual reports of the Fund for Assistance (there were 19 in the 1999 report), and finally, the "Next Steps to the Market Program" of the CRDF. References to these sources are listed below.

Where To Find Help
The Fund for Assistance web page (in English and Russian) is: The Russian Venture Capital Association web page (in English and Russian) is: The Industry Programs of the CRDF are described on: The ITCs and the "most successful" small firms are listed in the annual reports of the The increase is largely driven by industrial support, which continues to dominate both the amount and growth of R&D spending. However, the growth is also tempered by the unpredictable and sometimes skittish state of the "dotcom" world and stock market fluctuations, which can influence near-term spending, such as on R&D.
Industry will increase its R&D spending-at a rate that significantly exceeds inflation-by about 6.5 percent to $190 billion. Spending by the federal government will increase slightly by 1.3 percent to $72 billion, a rate that is not quite keeping pace with inflation. Academic institutions and other non-profit organizations will spend about $15 billion in 2001, which is about 6.2 percent more than last year.
"It is important to note that industry is continuing to promote research and development at a healthy rate, even though the growth is less than what we have experienced in recent years," according to the report. "In addition, the role of government cannot be under-emphasized, both for the investment that the federal agencies make and the growth environment that has been fostered."

Tech Talk
"The primary source of competitive advantage is simply to be riding the new technology wave as it enters into its tornado phase." Geoffrey A. Moore in his latest book, Living on the Fault Line: Managing for Shareholder Value in the Age of the Internet (HarperCollins Publishers, 2000).

March-April 2001
Industrial Outlook "R&D will continue to provide the underpinning of the economy, on both the national and international scene. And it is not just the high-visibility communications, computers and information technologies, and the entire area of health care-it is also the technology that leads to more efficient industrial processes, improved transportation, and production and use of all manner of energy resources," said Jules Duga, a Battelle senior researcher and co-author of the report.
As also indicated in the Industrial Research Institute's latest R&D trends forecast (RTM, Jan.-Feb. 2001, pp. 17-21), industry will continue to emphasize various forms of partnering and collaborations, including relationships with other industries, federal laboratories and international facilities. Many of these partnerships will most likely continue to concentrate on those aspects of basic and applied research that are far from commercialization but which are necessary for the establishment of stronger platforms for future technology growth.
Throughout 2001, industrial support of R&D will continue to increase, rebounding from a combination of cost-cutting and organizational structure modifications, and benefiting from the recent strong expansion of the national and international economy. However, significant upheavals in foreign economic or political stability could influence U.S. business positions and have an ancillary effect on R&D funding, the report cautions.