PESTLE Sti Hungary PDF

Regional ICT Foresight exercise for
Southeast European countries
National innovation system and national PESTLE & SWOT analysis

Hungary
Relevant WP: WP3- Context Analysis and Taskforce Formation
Activity: 3.3 (National Innovation Systems study and synthesis) and 3.4 (National PESTLE & SWOT
analysis and synthesis)
Iteration: Toc + Instructions
Responsible organisation: UoM
Author: Attila Havas, IQ-TANOK bt

Section 2.1 by Pál Tamás, Institute for Sociology, Centre for Social Sciences, HAS
Version: v02
Date: 20/02/2012
FORSEE WP3-National ICT innovation systems studies and National PESTLE &SWOT Analysis 1/39
Table of contents
1 THE HUNGARIAN NATIONAL INNOVATION SYSTEM ................................................................. 3
1.1 INTRODUCTION ....................................................................................................................................... 3
1.2 GOVERNANCE STRUCTURE OF THE HUNGARIAN INNOVATION SYSTEM ................................................... 4
1.2.1 Institutional set-up of innovation policy ........................................................................................ 4
1.2.2 Main national innovation-related organisations ............................................................................ 5
1.2.3 General policy considerations ....................................................................................................... 5
1.3 PRIORITY SETTING AND PUBLIC POLICIES ................................................................................................ 7
1.4 MAPPING THE MAJOR ACTORS IN ICT R&D .......................................................................................... 13
1.4.1 Overview of main actors and partnerships................................................................................... 13
1.4.2 R&D infrastructure ...................................................................................................................... 14
1.4.3 Digital agenda progress ............................................................................................................... 15
1.5 THE ICT SECTOR AND ICT R&D SECTOR ............................................................................................. 16
1.5.1 Overview ...................................................................................................................................... 16
1.5.2 Trade and financial aspects of ICT .............................................................................................. 16
1.6 MAIN COMPONENTS AND INTERACTIONS OF INNOVATION SYSTEMS (BARRIERS AND DRIVERS) ............ 17
1.7 CROSS-CUTTING ISSUES AND CHALLENGES ........................................................................................... 20
1.7.1 Human resources and the education system ................................................................................ 20
1.7.2 Links between education, R&D and innovation ........................................................................... 21
1.7.3 Access and use of international knowledge and the internationalisation of R&D ....................... 22
1.7.4 Further challenges ...................................................................................................................... 22
2 NATIONAL PESTLE AND SWOT ANALYSIS ................................................................................... 24
2.1 POLITICAL, ECONOMIC, SOCIAL, TECHNOLOGICAL, LEGAL AND ENVIRONMENTAL ANALYSIS OF THE
NATIONAL INNOVATION SYSTEM ................................................................................................................ 24
2.2 STRENGTHS, WEAKNESSES, THREATS AND OPPORTUNITIES OF/ FOR THE HUNGARIAN NATIONAL
INNOVATION SYSTEM .................................................................................................................................. 26
2.3 SELF ASSESSMENT TOOL: FEATURES OF WELL PERFORMING NATIONAL AND REGIONAL RESEARCH AND
INNOVATION ............................................................................................................................................... 28
3 REFERENCES .......................................................................................................................................... 31
4 APPENDIX ................................................................................................................................................ 33
4.1 STRUCTURAL ASPECTS OF THE HUNGARIAN ECONOMY ........................................................................ 33
4.2 COMPETITIVENESS ASPECTS ................................................................................................................. 34
4.3 R&D AND INNOVATION ACTIVITIES IN INTERNATIONAL COMPARISON.................................................. 37
4.4 INNOVATION IN ENTERPRISES ............................................................................................................... 39
1 The Hungarian National Innovation System
1.1 Introduction
Hungary, with its population of 10 million (2% of the EU27 total) is a medium-sized EU member
state. Its GDP was 1.26% of the EU27 total in 2010 (fluctuating between 1.25-1.30% in 2004-
2010). As for economic development, measured by GDP per capita (in PPS), the country ranked
22 in the EU27 in 2010, with 63.52% of the EU27 average. In comparison with the EU27 average,
the Hungarian GDP grew slightly faster in 2008 (0.9% vs. 0.3%), the contraction was more
dramatic in 2009 (-6.8% vs. -4.3%), the recovery was slower in 2010 (1.3% vs. 1.9%), and the
Eurostat forecast slower growth for 2011, too (1.4% vs. 1.6%).
This paper follows the systems of innovation approach when analysing the Hungarian national
innovation system (NIS). (Edquist 1997; Fagerberg et al. 2005; Nelson 1993; Lundvall 1992) An
innovation system encompasses the broad array of organisations [actors] involved in scientific
research, education, technology development, and the development and distribution of new
products and processes, as well as the and relationships among them, and the rules of the game.
In brief: when analysing a NIS, all factors – activities, actors and rules –should be considered that
shape the accumulation, diffusion, and exploitation of knowledge.
The notion of innovation is used in various ways in Hungarian policy documents. The
government’s STI policy strategy (2007-2013) stresses that „Science and innovation are essential
factors in competitiveness and sustainable growth. At the same time, knowledge has become an
important factor in quality of life.” (Government 2007, p. 1) Two policy documents, both
published in early 2011, apparently speak of ‘R&D’ and ‘R&D and innovation’ as interchangeable
terms. The Science – Innovation Programme, launched in January 2011, stipulates that R&D and
innovation expenditures (that is, not GERD) should reach 1.5% of GDP by 2015, and „approach”
2% by 2020. (Government 2011, p. 234)
The National Reform Programme, launched in April 2011, sets yet again different quantitative
targets: „Hungary intends to achieve an increase in the level of research and development
expenditures up to 1.8 per cent of GDP by 2020, in such a way that the share of corporate R&D
spending should rise relative to overall research and development expenditures. As an
intermediate target, the New Széchenyi Plan aims to achieve an R&D expenditure rate of 1.5 per
cent by the middle of the decade.” (NRP 2011, p. 21; emphasis in the original)1
The Innovation Union self-assessment tool lists the major features of successful innovation
systems. (EC 2010) One of these features is that „ *i+nnovation policy is pursued in a broad sense
going beyond technological research and its applications” (item 3). It is telling that the major
Hungarian fund, set up in 2004 to support RTDI activities, was named Research and
Technological Innovation Fund, although several experts suggested to embrace the broader
concept of innovation. Similarly, the relevant government agency, set up in 2004, was called
National Office for Research and Technology. It was reorganised in January 2011 and renamed as
National Innovation Office. Although it might sound as a step in the right direction, in fact, the
office now has lost a significantly share of its former staff, as well as its competences in the
funding decisions or in managing STI policy support measures. Several schemes, co-funded by
1
Lack of a consistent terminology makes any attempt to analyse the Hungarian STI policies a
rather hard task: the New Széchenyi Plan – only available in Hungarian – speaks of R&D and innovation
expenditures, while the NRP 2011 refers to the New Széchenyi Plan as if it speaks of R&D expenditures.
the EU Structural Funds, have been launched since 2007 to promote improvements of processes
and organisational change, introduction of new business models, and marketing.
1.2 Governance structure of the Hungarian innovation system

1.2.1 Institutional set-up of innovation policy
Hungary has all the major elements of a potentially successful national innovation system,
notably a fully fledged education system; internationally recognised research units both at
universities and the institutes of the Academy of Sciences; an increasing number of business R&D
units, several of them operated by multinational firms and thus integrated into international
networks; a number of government bodies engaged in science, technology and innovation (STI)
policy-making and a considerable number of policy schemes in place; various types of
professional associations and chambers; a functioning capital market, complete with venture
capital funds; a legal infrastructure up to international standards; norms and values compatible
with the requirements of a market economy based on private property; and last but not least,
creative people.
The major actors of the Hungarian NIS (as of 2011) are depicted by Figure 1.
Figure 1: The structure of the Hungarian National Innovation System
LEGEND
PARLIAMENT
(and its standing committees)
Political level
Government National
Research,
Innovation
Ministry Higher Ministry for National Ministry of National and Science Hungarian
of Education Economy Development Policy Academic
National and Research Council of
Resources Council Sciences
Operational level National National Government Offices for:

Innovation Regional Development Intellectual Property
Development
Office Councils Standards and Measurement
Agency
Regional Regional
Hungarian Economic Development Centre (MAG Zrt) Development Innovation
Implementing Agencies Agencies
agencies
Professional associations, NGOs

RTDI e.g. Hungarian Innovation Association,
Universities, Public R&D institutes
performers (including HAS institutes) Innovation intermediaries Federation of Technical and Scientific Societies
S&T parks, incubators,
innovation service providers,
Firms; etc. Business associations, chambers
Professional their R&D units and RTDI networks
and business
associations
Financial system
Financial commercial banks, Hungarian Development Bank,
system venture capital funds, business angels
Source: compiled by the author

Note: The institutes of Hungarian Academy of Sciences conduct research, and hence the dual role of HAS is indicated
by a combination of colours in the figure.
The Education, Science, and Research Committee, together with the Economic and Informatics
Committee of the Parliament are the highest-level political bodies in the field of STI policy.
The National Research, Innovation and Science Policy Council, chaired by a deputy prime
minister, co-chaired by the president of the Hungarian Academy of Sciences, has the mandate to
co-ordinate governmental STI policy decisions. The members include three ministers with key
responsibilities in devising STI policies, that is, the politicians heading the Ministry of National
Development, the Ministry for National Economy, and the Ministry of National Resources.
The National Innovation Office (NIH) is responsible for the government’s technology and
innovation policy. Funds allocated through the Operational Programmes of the New Hungary
Development Plan (2007-13) are managed by the National Development Agency (NFÜ). Both the
NIH and NFÜ schemes are administered by an implementing organisation, called the Hungarian
Economy Development Centre (MAG Zrt.).
1.2.2 Main national innovation-related organisations

Hungary is a unitary state with a centralised decision-making system with regard to major policy
domains, including STI policies. Although there has been a gradually growing emphasis on the
regional levels of policy-making in general, mainly due to external pressures (EU initiatives,
guidelines, etc.), the central government’s role in STI policy-making is still dominant.2
Businesses have maintained their position as the largest employer of (FTE) researchers since
2006, reaching 48.1% in 2010, and had the biggest share in performing GERD (59.8%), too. Both
R&D and innovation activities of firms are highly skewed by size, ownership and sector.
The largest number of research units is operated at higher education organisations (1,394 of the
total 2,898 in 2009), but the average size of these units is rather small: 4.3 FTE researchers. The
HE sector performed 19.9% of the Hungarian GERD in 2010, slightly below the EU27 average
(24.2%). The weight of this sector was 28.3% in 2010 in the employment of FTE researchers.
The government sector’s share was 23.6% in 2010 in the total number of (FTE) researchers. This
figure reflects a high weight of PROs in the Hungarian NIS compared to the EU27 average (12.5%
in 2009). The most important player is the Hungarian Academy of Sciences (MTA). The MTA still
has a substantial – albeit declining – weight in the Hungarian research system: its share was
13.3% in the total R&D personnel (FTE), and 11.6% of the GERD in 2010.
1.2.3 General policy considerations

Hungarian STI policy documents rarely use the notions of „systemic and market failures”. Yet,
considering the STI policy support measures,3 one can identify several systemic and market
failures that public policy aims at: insufficient private investment in RTDI activities; poor
innovation capacities of firms, especially that of SMEs; unsatisfactory RTDI co-operation,
especially among the industry and academia, but also among large firms and SMEs, as well as
among domestic and foreign partners; low supply of human resources for RTDI activities; low
2
The EU Structural Funds regulations have demanded to create larger units compatible with the
NUTS2 regions. As a result of the 1998 National Regional Development Concept, seven regions have been
formed in Hungary, but mainly serving statistical-planning purposes, capable of administering the EU
Structural Funds. Regions have neither democratically elected leaderships, nor any power to raise
revenues.
3
For a detailed description of the current STI policy measures, see
http://erawatch.jrc.ec.europa.eu/
mobility of human resources (between RTDI sectors and internationally); insufficient access to
capital; unsatisfactory legal and physical infrastructure for RTDI activities (and hence the need to
promote IPR protection abroad, and to support the establishment of science and technology
parks, and incubators).
A new science and innovation policy document, entitled Science – Innovation Programme, was
published in January 2011. It is a chapter in the broader New Széchenyi Plan (Hungarian
acronym: ÚSzT), often referred by politicians to as the basic development strategy document of
the second Orbán government.4 Most likely, however, priorities set for the planning period of
2007-2013 – already approved by the European Union – cannot be altered in 2011-2012.5
The Science - Innovation Programme offers an overview of the Hungarian national innovation
system, highlights strengths and weaknesses – based on the 2009 European Innovation
Scoreboard indicators, as well as on the OECD review of the Hungarian innovation policy (OECD
2008) –, sets STI policy goals, and identifies thematic/ sectoral priorities. The latter ones are as
follows: mobility,6 automotive industry, and logistics; health industries (pharmaceuticals, medical
biotechnologies and instruments, balneology); ICT; energy and environmental technologies;
creative industries.7
The Science - Innovation Programme highlights the role of tax incentives, favourable loans, and
seed capital in advanced countries. On that basis it stipulates that the Hungarian STI policy mix
should be reconsidered, e.g. tax incentives, vouchers for innovation services, loans, guarantees,
and seed capital should play a more prominent role in the innovation policy toolbox than it is the
case currently. Since the launch of this document, however, no such changes have occurred.
There have been no noteworthy changes in the STI policy mix since 2009. There was an abrupt
disruption in using domestic public funds for promoting RTDI activities: ~€58.2m (HUF16b) were
„blocked” in June 2010, that is, 36.6% of the 2010 budget of the Research and Technological
Innovation Fund (RTIF). To achieve this target, all disbursements from the RTIF were suspended;
and new project proposals were not accepted, either. The law on the central budget for 2011
(Act CLXIX OF 2010) also stipulated that new commitments to finance RTDI projects from the
RTIF were not allowed to be made in 2011, that is, new calls of the on-going STI policy support
schemes were not allowed to be launched, let alone new schemes.8 As for the STI policy support
4
In 2002-2010, governments were supported either by a coalition of the socialist and a liberal
party, or the previous one (in minority in the Parliament). The 2010 elections brought a fundamental
change: a coalition of two right wing parties obtained a two-third majority in the Parliament. The current
prime minister was office in 1998-2002, and hence the current government is the second Orbán
government.
5
It is telling that not even the previous acronym in the codes denoting these schemes have been
changed: the ones launched in 2011 are called GOP-2011-1.1.1; GOP-2011-1.2.1., etc.
6
Mobility is to be understood here as transport, that is, not as researchers’ mobility.
7
Agriculture is also mentioned briefly as an important field for R&D and innovation, but unlike in
the case of the other sectors/ technologies, no sub-section is devoted to these technologies.
8
In more details, it was allowed to use the RTIF in 2011 to finance (a) on-going RTDI projects – that
is, to meet contractual obligations, based on previous funding decisions –; (b) the activities of S&T
attachés; (c) the creation and operation of databases, as well as analyses and monitoring activities to
underpin STI policy decisions; (c) the domestic co-funding of STI policy schemes financed by the EU SF and
research infrastructure development projects in EU co-operation; (d) membership fees/ contributions
stemming from international STI co-operation agreements, organisations and research infrastructure; (e)
the operation of the RTIF; (f) other relevant international commitments, especially those related to the EU
membership of Hungary.
schemes co-financed by the EU Structural Funds (as part of the Economic Development
Operational Programme, GOP), three of them were suspended in 2010, and two of these were
not re-launched in 2011, either. The other major GOP schemes were continued in 2011.
In sum, practically ‘freezing’ the main domestic fund to finance STI policy support schemes has
hindered the launching of any new measures, while previous commitments – both in terms of
actual granting decisions on-going RTDI projects and the Operational Programmes stipulating the
types of schemes co-financed by the EU Structural Funds – impeded the reallocation of available
funds. Due to these financial constraints, it has not been possible to amend the policy mix.
From a different angle, although the so-called New Széchenyi Plan sets several new thematic/
sectoral priorities for STI policy – as already mentioned –, there are no new schemes to support
RTDI activities in these S&T domains/ sectors.
1.3 Priority setting and public policies

The Government’s mid-term STI policy strategy (2007-2013) defines six priorities:
„Expansion of companies’ research and development activities;
Establishment of internationally recognized research & development, innovation centres and
research universities;
Enhancing of the regions’ research & development & innovation (R&D&I) capacity;
Establishing a knowledge market which works on the principles of performance recognition
and competition through the globalization of knowledge production and dissemination;
Investment in large scientific facilities, primarily in the regional centres and the development
poles, reducing regional differences (regional cohesion);
The dynamic increase in yearly R&D expenditure, above all as a result of growth in corporate
expenditure.” (Government 2007, p. 3)
The other multi-annual strategy documents are the Operational Programmes (OPs) of the New
Hungary Development Plan, setting priorities for 2007-13. From the point of view of funding
RTDI activities the most important OP is the Economic Development Operational Programme
(EDOP). The budget of its Priority 1, called R&D and innovation for competitiveness, is €990m.9
To compare, its yearly allocations (on average) roughly correspond to the funds available from
the Research and Technological Innovation Fund. Within the RTDI priority of the EDOP, primarily
aimed at boosting market-oriented RTDI activities of firms, the following objectives have been
set:
promoting the demand for R&D results
developing R&D supply by providing the necessary human resources and infrastructure
increasing „the effectiveness of the research and innovation market” (p. 51) by developing a
network of bridging organisations, technology parks and incubators as well as technology
transfer offices
achieving a more effective utilisation of research results through enhanced co-operation
between different domestic and foreign actors
improving the access to financial resources.
The Social Infrastructure OP (SIOP) also contains measures relevant for research, e.g. for
upgrading research infrastructure at higher education institutes (HEIs). Though the EDOP also
9
Figures on OPs include 15% national contributions.
supports research infrastructures, the focus of that OP are projects carried out by firms, whereas
the SIOP is dedicated exclusively to HEIs. In total, €310m is earmarked for these purposes in
2007-2013.
The Social Renewal OP’s 4th Priority Axis („Developing the content and organisation of higher
education to create a knowledge-based economy”) partly supports the „Expansion of the
capacities of R&D&I&E [Research and development, innovation and education] of tertiary
education, thus supporting the enhancement of institutional co-operation with businesses”. This
amounts to €507m in 2007-2013, mainly with the objective of establishing „the HR and
organisational conditions necessary for the enlargement of higher education’s Research &
Development capacities in the interest of institutional co-operation with businesses.” (p. 144)
The Hungarian GERD was oscillating between 0.9-1.0% of the GDP in 2001-2008, increased to
1.17% in 2009, and then stayed at that level (1.16%) in 2010, way below the EU average (2.0%).
In absolute terms it increased from €1059m in 2008 to €1,126m in 2010. The total government
funding for R&D was practically stagnating at around €443m in 2008-2010, or between 0.42 and
0.49% of the GDP, while funding by business enterprises rose from €511.6m (0.48% of the GDP)
in 2008 to €533.5m (0.55% of the GDP) in 2010. Government funds accounted for 41.82% of
GERD in 2008, declining to 39.34% in 2010, while the share of business funding in GERD was
48.31% in 2008, decreasing to 47.37% in 2010. In line with funding figures, the share of R&D
activities performed by the business enterprise sector also increased, reaching 59.81% of GERD,
approaching the EU average (61.51%) (Table 1)
Table 1: Selected indicators, Hungary (2008-2010), and the EU (2010)
2008 2009 2010 EU average 2010

GERD (€ million) 1,059.2 1,067.2 1,126.1 236,637.9 (total)
GERD as % of GDP 1.0 1.17 1.16 2.0
GERD per capita (€) 105.4 106.4 112.4 490.2
Government-financed GERD (€ million) 442.9 448.0 443.0 82,629.9 (total)
Government-financed GERD as % of GDP 0.42 0.49 0.46 0.7*
Industry-financed GERD (€ million) 511.6 495.5 533.5 127,939.2 (total)
Industry-financed GERD as % of GDP 0.48 0.54 0.55 1.09*
Share of government in funding GERD (%) 41.82 41.98 39.34 34.92*
Share of business enterprises in funding GERD (%) 48.31 46.43 47.37 54.07*
R&D performed by HEIs (% of GERD) 22.04 20.94 19.93 24.22
R&D performed by PROs (% of GERD) 23.39 20.06 18.52 13.27
R&D performed by business enterprises (as % of GERD) 52.57 57.24 59.81 61.51
Source: Eurostat
Notes: * 2009 data; „industry-financed” means funding provided by the business enterprise sector
No aggregate funding figure for ICT R&D is readily available. Two types of data can be used to
estimate the weight of ICT R&D funding in the Hungarian GERD and BERD. Data on R&D funding
by fields of science show that several fields of science that are relevant for ICT are receiving non-
negligible funding in Hungary, with a significant increase in 2010. (Table 2)
Table 2: ICT and ICT-related R&D expenditures, Hungary, 2008-2010 (m HUF)

2008 2009 2010
Total R&D funding 266,388.0 299,158.7 310,210.5
Natural sciences 65,860.9 79,565.0 75,550.6
of which
Mathematics and statistics 2,465.9 2,864.6 3,616.8
Computer and information sciences 28,342.2 37,941.3 33,524.6
Engineering and technology 121,533.7 138,615.5 154,090.0
of which
Electrical, electronic, and information engineering 16,147.6 21,320.4 44,940.0
Source: Central Statistical Office
Data on government funding is only available for 2008, when funding for ICT and related R&D
activities by businesses was almost two times higher than public funding. (Table 3)
Table 3: ICT and ICT-related R&D expenditures by funding sources, Hungary, 2008 (m HUF)
Business Funds from
Total Government Non-profit
enterprises abroad
Total R&D funding 266,388.0 128,682.7 111,400.7 1,600.4 24,704.3
Natural sciences 65,860.9 198,476.2 36,332.9 253.3 9,427.1
of which
Mathematics and statistics 2,465.9 131.3 2,063.9 6.0 264.6
Computer and information
sciences 28,342.2 14,223.953 7,977.2 115.7 6,025.3
Engineering and technology 121,533.7 94,336.9 16,845.0 154.8 10,197.0
of which
Electrical, electronic, and
information engineering 16,147.6 4,819.7 2,882.7 81.9 8,363.37
Manufacturing BERD is around one third of GERD, and in terms of R&D expenditures the most
important manufacturing industry is pharmaceuticals, by far. Although manufacture of transport
equipment is regarded as a mid-tech sector, slightly more funds are spent on R&D in Hungary by
these firms than the ones producing of computers, electronic and optical products (HUF 14.2bn
vs. HUF 13.5bn). As for services, sector J, called information and communication is an important
player (spending HUF 13.6bn on R&D activities), and probably non-negligible ICT-related
activities are conducted in sector M, too, that is, „professional, scientific and technical activities”
(spending altogether HUF 86.8bn on R&D, but the share of ICT-related R&D activities cannot be
even roughly estimated). (Table 4)
Table 4: R&D expenditures by economic activities, selected sectors, Hungary, 2008-2010 (m

HUF)
2008 2009 2010
Total 266,388.0 299,158.7 310,210.5
C Manufacturing 93,618.3 103,919.9 104,458.1
CE Manufacture of chemicals and chemical products 1,803.4 2,152.2 1,746.8
CF Manufacture of pharmaceuticals, medicinal chemical and
botanical products 46,407.8 49,050.8 50,022.0
CI Manufacture of computer, electronic and optical products 8,151.9 11,156.2 13,457.8
CJ Manufacture of electrical equipment 7,015.3 5,809.7 5,249.5
CK Manufacture of machinery and equipment n.e.c. 3,336.7 5,557.9 7,187.6
CL Manufacture of transport equipment 16,160.4 14,291.4 14,234.3
J Information and communication 5,464.6 10,335.9 13,635.8
M Professional, scientific and technical activities 73,538.2 81,816.1 86,848.4
There are around two dozens of Hungarian STI policy schemes as of 2011, and practically all of
them are coherent with EU STI policy goals.10 The most important ones are briefly introduced in
Table 5. There are hardly any thematically or sectorally focused support schemes in the
Hungarian STI policy mix.
Table 5: Major Hungarian STI policy schemes
Support scheme Major goals
Support to market-oriented R&D activities Support R&D projects that build on research results and are
expected to develop prototypes of marketable products, services
or processes representing high added value.
Foster the feedback from business demand towards R&D and
strengthen technology transfer by stimulating co-operation
between the actors of the innovation system, especially between
publicly financed R&D organisations and businesses. Since
projects must be based on the direct needs of businesses, only
firms are eligible for support.
Development and strengthening of research and Strengthen business enterprises established as R&D centres,
development centres which were originally set up as so-called Co-operative Research
Centres (KKK) and Regional Knowledge Centres at Universities
(RET). These KKKs and RETs were originally created with public
funding with the aim of strengthening co-operation between
publicly financed research organisations and firms and carried
out collaborative research, and have by now research results
that can be developed into marketable products.
Support to accredited innovation clusters Support the joint projects of innovative companies co-operating
within the so-called “pole programme”. The basis of joint
technological development shall be independent project-firms
owned jointly by several members of the given cluster.
The target group of this measure are the so-called accredited
clusters, which have gone through a selection and accreditation
process and have thus become entitled to apply for specifically
dedicated schemes, such as this one.
10
Consult http://erawatch.jrc.ec.europa.eu/erawatch/opencms/index.html for a detailed
description of these support schemes.
Support to innovation and technology parks Facilitate the establishment of innovation and technology parks
(research and innovation service centres) in the so-called pole
cities (identified in the Economic Development OP, 2007-2013),
which provide unique and customised RTDI and incubation
services for enterprises and innovation clusters. To do so, they
should establish appropriate research and ICT infrastructure, a
competence centre, technology incubator and platform to assist
research activities of co-operating SMEs. It is expected that
businesses will settle in the parks, which are capable of
developing and introducing state-of-the-art, high added-value,
new or improved products, services, and technologies to the
market. Further, these results are expected to be achieved in co-
operation with other businesses, HEIs or PROs. These parks
should operate on a for-profit basis.
Support to innovation activities of firms Motivate successful SMEs to increase and intensify their RTDI
activities, and improve their competitiveness by supporting the
following activities:
introduction of new or improved products, technologies and
services;
development of absorptive and innovation capabilities of
SMEs;
RTDI activities of SMEs;
strengthening the growth potential of innovative companies;
foster experimental development activities and the
exploitation of R&D results.
Special preference is given to medical sciences, pharmaceuticals,
biotechnology, agricultural sciences, health sciences, energetics,
transport, electronics, control systems, waste management,
environmental protection, waste water treatment,
environmental safety, chemistry, IT hardware, database
management, digital systems, IT programming,
telecommunications, material technologies, nanotechnology,
etc.
Technological upgrading of firms Support projects targeting business development based on
complex technological development and upgrading so as to
enhance profitability of businesses. More specifically, strengthen
SMEs' innovation and adaptive capabilities, increase value
added, facilitate market entry, increase international
competitiveness, enhance energy and environmental efficiency,
strengthen their position in supplier networks by supporting
technological development and upgrading of export-oriented
companies and/or suppliers, with significant growth potential.
National Technology Programme - Support for Strategic Support application-oriented R&D projects that apply cross-
Research disciplinary technological solutions in order to improve quality of
life and promote long-term economic development and
competitiveness in Hungary. Project proposals should provide
complex solutions for economic, social and environmental
challenges by concentrating material and intellectual resources.
Annual calls of the scheme define various thematic priorities
(sub-programmes). The most recent calls of, published in
February and December 2009, respectively, invites project
proposals in the following fields: 1. Life sciences; 2. Competitive
Industry; 3. Competitive Agriculture and Food Industry; 4.
Liveable and Sustainable Environment; 5. Security and safety.
Support to basic research underpinning innovation Support excellent mission-oriented basic research projects, the
objective of which is to achieve economic or social benefits, and
the expected results of which underpin exploitation-oriented
RTDI and address current or expected socio-economic
challenges. Applications may be submitted in the fields of life
sciences, technical- and natural sciences.
Infrastructural and ICT development for raising the quality of Develop the infrastructure of higher education institutes (HEIs)
education and research activities of HEIs which are related to the organisation's educational, RTDI and
entrepreneurial activities in order to meet the requirements of
the knowledge-based society and economy, and to enhance
global competitiveness of the HEIs. As a result, the HEIs are
expected to provide internationally competitive services. The
measure supports the expansion of sectoral and regional
capacities which contribute to outstanding RTDI activities, co-
operate intensively with the industry, foster the economic and
technological development of the region, and improve the
competitiveness of Hungarian higher education within the fields
of science and engineering, thus contributing to the country's
enhanced competitiveness. The programme aims to contribute
to the increase of the number of students enrolled in
mathematics, technical-, natural- and information sciences.
Corvinus Venture Capital Fund - Corvinus First Innovation Finance innovative start-up SMEs with a large growth potential,
Venture Capital Fund (CELIN) in their current phase ineligible for bank credit, and unable to
start operation or develop without drawing in external
resources. The Corvinus Venture Capital Fund-managing Ltd
operates capital funds for these purposes, and the following
priority areas/ sectors have been defined: processing industry,
logistics, environmental protection, biotechnology, and the
development of renewable energy sources. The Fund gathers
resources from public as well as private sources.
Start Equity Guarantee Fund Promote the equity financing of primarily innovative, risky SMEs
which are in their early stage.
New Hungary Enterprise Promotion Loan Programme Improve competitiveness of SMEs, enhance their role in
employment and in supply chains, foster their activity in the field
of innovation and provide supplementary resources for calls for
applications aiming to implement infrastructural and
technological development investments. The scheme provides
preferential loans to SMEs.
200 per cent of R&D expenditures deductible Promote R&D activities of companies, by allowing them to
deduct 200% of their R&D expenditures from their taxable
income.
Hungarian Scientific Research Fund (OTKA) Provide support for (i) the personal and material costs of basic
research projects that have a high potential to generate
outstanding results, (ii) scientific schools and workshops led by
internationally recognised researchers, and (iii) young
researchers.
Support to IPR protection for Hungarian inventions abroad Foster innovation processes within the Hungarian economy,
boost its competitiveness, facilitate export by supporting
international Intellectual Property Rights (IPR) protection
activities of Hungarian SMEs, individuals, PROs and higher
education organisations. Financial resources are provided for
acquiring, renewing and maintaining utility models, designs and
international IPR protection. The scheme also supports
enforcement of international IPR.
"Bolyai Janos" Research Scholarship Create more favourable conditions for R&D and provide
motivation and acknowledgement for outstanding research
activities by support young researchers (under the age of 45
years) for the duration of one, two or three years. Applications
may be submitted in all fields of research.
Hungarian Eötvös Scholarship Provide financial assistance for outstanding young Hungarian
graduate (preferably post-doc) researchers under the age of 40
to participate in training and education programmes at foreign
universities, research institutes and workshops. Applications are
invited from every fields of science under two sub-categories:
pre-doctoral applications (PhD students) and post-doctoral
applications (PhD or DLA graduates). Scholarships are granted
for the maximum period of 3-8 months and can be renewed for
another 6 months.
Mobility Promote the scientific careers of experienced researchers with

PhD degree or at least 4 years of full-time employment as
researchers by supporting their mobility and gaining
international experience, as well as the Hungarian exploitation of
experience acquired in third countries by supporting researchers
returning to Hungary.
The three sub-programmes are:
A) Outgoing mobility (HUMAN-MB08-A): Support to researchers
with Hungarian citizenship in order to promote their
international activities at excellent international research
organisations.
B) Incoming mobility (HUMAN-MB08-B): Support to non-
Hungarian researchers for their employment at Hungarian
research institutes in order to promote international scientific
co-operation and knowledge transfer
C) Reintegration (HUMAN-MB08-C): Support to researchers who
have been working for at least three years in a third country to
establish a research unit in Hungary. Under this sub-programme
citizens of EU or associated countries may apply.
Source: compiled by the author, relying on the ERAWatch database
(http://erawatch.jrc.ec.europa.eu/erawatch/opencms/index.html)
In sum, Hungarian STI policy support measures aim at promoting:

knowledge transfer (between academia and industry, as well as across borders)
cluster development
public investments in education, research and innovation
research funding by businesses (by both direct and indirect measures)
entrepreneurship and innovativeness of companies
increased supply of human resources for RTDI activities
more intense mobility of human resources (between RTDI sectors and across borders)
easier access to capital
the development of legal and physical infrastructure for RTDI activities (e.g. via IPR protection
abroad, and the establishment of science and technology parks, and incubators).
1.4 Mapping the major actors in ICT R&D

1.4.1 Overview of main actors and partnerships
The most important, and most prestigious, universities and public research centres, relevant for
ICT R&D are the Budapest University of Technology and Economics; Eötvös Loránd University,
Budapest; and the Computer and Automation Research Institute of the Hungarian Academy of
Sciences. Major business actors include Ericsson, Nokia, Siemens (telecom equipment
manufacturers, also developing software packages); Flextronics, Videoton (hardware producers);
BalabIT, evosoft Hungary Ltd, evopro Informatics and Automation Ltd, Graphisoft, Microsoft,
MorphoLogic, Nuance-Recognita, SAP, VirusBuster (software development); BULL Hungary
Information System Ltd (hardware and software consultancy services); T-Home, Telenor,
Vodafone (telecom service providers). Further relevant actors are included in the separate report
on stakeholders.
There are long-established partnerships between higher education institutes and businesses. The
Budapest University of Technology and Economics together with Eötvös Loránd University,
Budapest set up the Egyetemközi Távközlési és Informatikai Központ (Inter-university Centre for
Telecommunication and Information Sciences) in 1998, and six businesses have also joint since
then.
The Mobile Innovation Centre was set up in 2005 by 17 consortium members, including the
Budapest University of Technology and Economics; Eötvös Loránd University, Budapest; Péter
Pázmány Catholic University, Faculty of Information Technology; Computer and Automation
Institute, Hungarian Academy of Sciences; Ericsson Hungary Communication Systems Kft.,
Hewlett-Packard Hungary Kft., Magyar Telekom Rt. (PKI Telecommunications Development
Institute); Nokia Hungary Kft.; Pannon GSM Telecommunications Rt.; Siemens PSE Kft.; Siemens
Communications Rt.; Sun Microsystems Kft.; T-Mobile Hungary Rt.
The major partners in setting up the Advanced Vehicle Control Knowledge Centre have been
including the Budapest University of Technology and Economics and Knorr-Bremse.
In case of common interest, there are no legal obstacles to set up and operate transnational
partnerships and collaborations. Funding for such collaborations is provided by various domestic
STI policy measures to a certain extent, but additional funding from private partners – especially
provided by foreign ones –, and/or by foreign governments and international organisations, such
as the EU (e.g. EUREKA, RTDI Framework Programmes), is crucial.
1.4.2 R&D infrastructure

A strategy-building process was launched in 2008 to underpin policy proposals aimed at
developing the R&D infrastructure (RI), also emphasised by the National Lisbon Action Plan
(2008-10). Its Hungarian acronym is NEKIFUT (“Take-off”), derived from Nemzeti Kutatási
Infrastruktúra Felmérés és Útiterv (National Research Infrastructure Survey and Roadmap). It
would suggest a roadmap for building new RIs and upgrading existing ones in Hungary, as well as
those areas of specialisation where participation in new transnational infrastructures is
favourable.
The project – devising and following a very detailed assessment method, relying on a two-round
on-line survey to collect data from individual RIs – has identified some 80 Hungarian RIs of
strategic relevance (strategic RI, in short). Given the strict assessment criteria, altogether
hundreds of RIs have formed networks to be qualified as strategic RIs. Hence, the ~80 strategic
RIs are actually composed of over 400 individual RIs. These strategic RIs have been selected from
all fields of sciences: physical and engineering sciences, life sciences, as well as social sciences
and humanities. A web-based, bi-lingual register presents all the relevant data of these RIs for
potential users and co-operation partners, while other types of data pertinent to STI policy-
makers are available only for them.
NEKIFUT had been mainly financed from the Research and Technological Innovation Fund until
June 2010. As already mentioned, unused funds were frozen by the incoming government in
June 2010, and thus a new decision is needed if the project is to be completed, i.e. to update the
register – updating would be crucial in 2012 as most of the currently independent institutes of
the Hungarian Academy of Sciences are going to be merged into research centres in January
2012 –, and devise the RI development roadmap (covering both national and transnational RIs).
As of December 2011, there was no decision on the completion of the NEKIFUT project, although
it was presented to the EU Competitiveness Council in April of 2011.
1.4.3 Digital agenda progress
Source: ICT Country profiles –Commission staff working document volume 2, European Commission SEC )2010) 627
(http://ec.europa.eu/information_society/digital-agenda/documents/countryprofiles.pdf)
ICT – representing about 6% of the total Hungarian economy – is one of its most dynamic
sectors. Broadband internet is widely available, mainly in urban areas. Broadband penetration is
lower than the EU average, but has increased considerably (from 16.3% in 2008 to 18.7% in
2009). Internet use has expanded in Hungary in recent years and the percentages of regular and
frequent internet users are more or less equal to the EU averages. The use of a number of
internet services is also similar to the EU average. However, some services show greater
differences. Hungary has progressed on most Information Society and eGovernment indicators,
though it is still behind the EU average on all but the sophistication of services for citizens. While
usage by citizens has remained at 25% since 2007, enterprises have made advances. The
Hungarian government has recently consolidated the number of committees and departments
involved to concentrate its eGovernment efforts in the Prime Minister’s Office, making it a key
element of administrative reform. For citizens, both the availability and use of eGovernment
services are around the EU average. For enterprises, however, the rates are lower, especially for
availability.
1.5 The ICT sector and ICT R&D sector

1.5.1 Overview
Manufacturing industries accounted for 21.6% of the GDP in 2008, declining to 20.1% in 2009
(when the GDP contracted by 6.8%, as Hungary, being a small, open, export-oriented economy,
was hit hard by the global financial and economic crisis), and then this share increased to 22.3%
in 2010. Five branches accounted for 59% of the total manufacturing value added in 2009,
including the manufacture of computer, electronic and optical products (with a 9% share). Four
of these sectors – like most manufacturing branches in Hungary – are dominated by foreign
firms, again including the manufacture of computer, electronic and optical products (foreign
firms producing 93.5% value added in this industry). (Table 6)
Table 6: Major sectors of manufacturing industry, 2009

Share in manufacturing Share of value added
value added (%) produced by foreign
firms (%)
CL Mf of transport equipment 14.5 94.4
CK Mf of machinery and equipment n.e.c. 13.3 25.6
CA Mf of food products, beverages and tobacco
12.8 48.7
products
CG Mf of rubber and plastics products, and other
9.4 67.3
non-metallic mineral products
CI Mf of computer, electronic and optical
9.0 93.5
products
Source: Author's calculation based on KSH data
As already shown section 1.3, R&D expenditures in ICT hardware manufacturing is not negligible,
but several sectors are ahead of ICT hardware manufacturing in this respect, and some of them
have even a smaller economic weight (e.g. pharmaceuticals).
1.5.2 Trade and financial aspects of ICT

Overall, Hungary is an open economy, characterised by a high share of exports and imports
relative to the GDP. The ICT sector is an important player in foreign trade.
Table 7: Selected trade and financial indicators, EU27 and Hungary

European Union (EU27) Hungary
2007 2008 2009 2010 2007 2008 2009 2010
Average of FDI inflows and
4.4% 3.1% 2.4% 0.9% 2.6% 2.0% 1.9% 0.6%
outflows, relative to GDP
Imports of goods and
39.6% 41.0% 35.6% 39.7% 79.7% 81.1% 72.2% 79.1%
services, relative to GDP
ICT goods imports (% of
20.64% 18.83%
total goods)
Exports of goods and
40.2% 41.3% 36.6% 40.6% 80.8% 81.6% 77.4% 86.5%
services, relative to GDP
ICT goods exports (% of
total goods exports)
ICT service exports (% of
7.4% 8.2% 8.8%
service exports, BoP)
Total high-tech trade as a
19.0% 17.2% 19.8%
percentage of total imports
Total high-tech trade as a
16.1% 15.3% 16.9% n.a. 21.4% 20.2% 22.3%
percentage of total exports
Knowledge intensive
services exports as % of 48.8% 49.43% 28.30% 28.08%
total services exports
Sources: Eurostat and World Bank
1.6 Main components and interactions of innovation systems (barriers

and drivers)
Main sources of funding for R&D and innovation activities have already been discussed in section
1.3.
Innovation processes draw on different types of knowledge and skills, often possessed by various
types of actors. Co-operation among them is, therefore, indispensable for successful exploitation
of knowledge. At an aggregate level, the frequency of innovation co-operation reported by
Hungarian firms is higher than in most EU countries (Hungary is ranked 6 with 41.3% in CIS 2008;
the EU average is not available). Yet, only 6.5% of innovative firms reported any form of co-
operation with Hungarian public research institutes, and with that figure Hungary ranked 16
among the EU countries. Moreover, the occurrence of this type of co-operation has declined
from 8.6% in 1999-2001. (It was 6.4% in 2002-2004, and 6.1% in 2004-2006.) Further, the weight
of the public research institutes is high in Hungary, albeit declining: this sector accounted for
23.4% of GERD in 2008; and still for 18.5% in 2010, while the EU27 average was 13.3%. (Eurostat)
Thus, the low intensity of co-operation in this category is certainly issue that policy-makers
should address.
As for SMEs, only 7.1% of them were engaged in innovation collaboration with other partners in
2006-2008, while the EU average was 11.2%. Similar data are not available for large firms. As for
innovative firms – those with technological innovation –, co-operation patterns of SMEs and
large firms can be compared. The share of large innovative companies co-operating with
suppliers of equipment, materials, components or software was 43.2% in 2006-2008, and thus
Hungary ranked 15 among the EU countries. The same figures for small innovative firms (with
10-49 employees) and medium-sized ones were 24.8%, and 26.7%, respectively. It is even more
worrisome that only 16.2% of small innovative firms were co-operating with their clients or
customers, and 18.5% of the medium-sized ones did so.
Given the decisive role of large foreign-owned companies in the Hungarian economy, this issue –
which can be taken as a specific feature of a broader challenge, that is, the dual economy –
would need attention.
Several STI policy support measures have been launched to address this issue since the late
1990s. many schemes supporting private sector RTDI activities give preference to, or require
mandatory, co-operation between private and public sector organisations with the aim of
facilitating knowledge circulation (including mobility of researchers) and the exploitation of
research results. Furthermore, a number of schemes are in place with the primary objective of
facilitating collaborative RTDI. The most important policy development in this respect has been
the financing of joint university-industry research centres. There are 38 such centres, each
located at a university.
As to their impacts, available evaluation reports offer somewhat contradictory assessments.
Ernst & Young and GKI 2010b concludes that industry-academy co-operation has strengthened
(pp. 87-90), while foreign experts have claimed that business-academia linkages are weak
primarily due to the mismatch in the incentive structures of these different types of players, as
well as the insufficient understanding of the industry’s needs in academic circles. (Arnold et al.
2007)11 This issue needs to be revisited when CIS 2010 data become available.
Attempts have also been made to create a more favourable regulatory environment and
incentives for PROs to accelerate their IPR activities and produce exploitable knowledge. The Law
on Research and Technological Innovation (effective as of 2005) has introduced the notion of
spin-offs into the regulatory framework. Publicly financed HEIs and PROS (henceforth, publicly
financed research units) are obliged to have their own internal regulation on IPR issues (since
2006), which contains instructions on valuation, reporting, rights and obligations, as well as
levels of responsibility, and devise an IPR management strategy. Furthermore, in order to be
eligible for funding, beneficiaries of the Research and Technological Innovation Fund are obliged
to submit their internal IPR rules (regarding IPR utilisation and procedures, researcher
motivation, licensing) to the funding agency. The National Office for Research and Technology, in
co-operation with the Hungarian Patent Office and the Hungarian Academy of Sciences devised
guidelines, which the individual organisations could (and in most cases did) use as a blueprint.
In many cases, technology transfer offices have been established at publicly financed research
units to deal with these obligations. Some of them are part of the university’s organisation (e.g.
at the University of Debrecen it is supervised by the Rector), whereas in other cases these tasks
are carried out by an organisation set up jointly by the university and a number of other regional
players, such as PROs and regional authorities (e.g. Biopolisz in the case of the University of
Szeged).
In order to facilitate the establishment of spin-offs, the Parliament amended the Law on Higher
Education in June 2007. From September 1, 2007 higher education institutes can establish
business entities for commercialising their intellectual assets without any formal consent of
11
Similarly, a report by the Ministry of Economy and Transport points out that despite the
relatively good performance of public research institutes (in terms of scientific output, in international
comparison), there is a weak or no consideration for industrial needs in these units. Scientific excellence is
still considered the first and foremost criterion for advancement in the HE and government research
sector; economic relevance of research is given far less attention. Economic aspects are not considered in
the management of such institutes, whereas knowledge transfer is impeded by an alarmingly low level of
researcher mobility between research performing sectors. (GKM 2008 p. 43-44)
government authorities. The Act CVI. of 2007 (25 September) on State Property amends the Law
on Research and Technological Innovation: it stipulates that, as opposed to the general
regulations of the Act, publicly financed research units shall be the owners of acquired IPR and
be entitled to a share of the spin-off firm emanating from it. IPR regulation has become more
favourable for the exploitation of R&D results by giving property rights to the publicly financed
research units and by allowing the establishment of business entities (spin-offs) for the
commercialisation of HEIs’ intellectual assets.
As shown in section 1.4, industry-academia collaboration seems to be a lesser concern in the
field of ICT R&D. It should be added, however, that several electronics firms – with a significant
weight in manufacturing value-added and experts, see section 1.5 – mainly conduct assembly
operations without major R&D efforts. Their new products are designed by their parent firms,
and their own innovation activities focus on process innovations. This important segment of the
ICT sector, therefore, has hardly any co-operation with the domestic universities and public
research institutes.
As for the regulatory framework, the Hungarian competition and IPR rules are in accordance
with the EU legislation and international treaties. (OECD 2008) It seems, however, that
regulation is a necessary but not sufficient condition for an intense market competition, inducing
innovation. Most firms do not feel the pressure to innovate. When asked about the factors
hampering innovation, financial constrains are mentioned with the highest frequency by
Hungarian respondents, but market conditions also play a non-negligible role.12 (Table 7)
Table 8: Major factors hampering innovations, 2004-2006

Enterprises with Non-innovative
technological innovation enterprises
Lack of funds within enterprise or enterprise group 28.8% 25.5%
Lack of finance from external sources 19.9% 17.0%
Innovation costs too high 27.3% 28.2%
Lack of qualified personnel 14.0% 8.9%
Markets dominated by established enterprises 15.4% 17.6%
Uncertain demand for innovative goods or services 14.0% 20.4%
No need to innovate because no demand for
4.0% 10.5%
innovations
Source: Eurostat, CIS 2006
Notes: 1) These replies refer to those firms that selected these factors as highly important ones.
2) Not all hampering factors are included in this table.
3) These questions were not included in the CIS 2008 questionnaire, and thus more recent data are not available.
There are several STI policy measures in place in Hungary to foster venture capital markets, ease
access to finance, and seed capital. (section 1.3) Recent data are not available to judge the
effectiveness of these measures. (The most recent available data date back to 2004-2006, and
reported in Table 7.)
Some measures are in a preparatory phase both at a regional and national level to introduce pre-
commercial procurement as a policy tool. The Public Procurement Council considers this issue as
a priority, and aims at disseminating relevant information among stakeholders. Further, the
Science and Innovation Programme of the New Széchenyi Plan highlights pre-commercial
procurement among the priorities, with proposed actions including: (i) dissemination the culture
12
There are no readily available analyses on the impacts of competition on innovation, only those
on R&D. (Halpern and Muraközy 2011)
of pre-commercial procurement, and (ii) application of pre-commercial procurement in

tendering in order to enhance developments in the ICT sector.
No lead market initiatives exist in Hungary.
In the field ICT companies’ capacities to absorb and exploit knowledge seem to be adequate.
1.7 Cross-cutting issues and challenges

1.7.1 Human resources and the education system
The future of R&D and innovation activities is predetermined by the quality and quantity of
scientists and engineers, and the level of skills more generally. Yet, both the share of S&E
graduates and the rate of participation in life-long learning are rather low in international
comparison. A significant gap might be opening between the supply and demand for qualified
science and engineering (S&E) personnel in the near future. The number of graduates (ISCED 5-6)
in mathematics, science and technology per 1 000 of population aged 20-29 grew from 5.1 in
2004 to 7.5 in 2009, that is, 52.4% of the EU27 average (14.3) The share of doctoral graduates in
the 25-34-year age group increased from 0.6 (per 1,000 people) in 2006 to 0.9 in 2009, but it was
still only 60% the EU27 average (1.5). Even though the trend shows improvement, the number of
PhD degree holders is forecast to be insufficient in the medium run for maintaining the quality of
the Hungarian research system. (Tamás et al. 2005) The share of population aged 30-34 having
completed tertiary education increased from 14.8% in 2000 to 23.9% in 2009, reaching 74% of
the EU average (32.3%). Further, brain drain seems to be an element of this broad challenge: it is
primarily the highly qualified, young workers, especially those with S&E degrees that are
overrepresented within the group of Hungarians working abroad. (Csanádi et al. 2008)
Recent interview evidence – albeit drawn from a very small, non-representative sample –
suggests that finding and retaining highly skilled labour for ICT R&D, and especially software
development is major concern in Hungary.
To pursue a research career is less attractive for young talents than becoming a professional
(medical doctor, lawyer, manager in large public or private organisations, etc.), which can be
achieved in many cases without a PhD degree, i.e. better paid jobs can be taken up even earlier,
and thus life-time earnings would be definitely higher. Further, general working conditions for a
researcher, e.g. access to funding, journals, books, and modern equipment – especially in the
public sector – are not satisfactory, either.
There are policy efforts to increase the supply of (post)graduates with science degrees. As a
result, both the absolute number and the share of S&E students (all levels) has increased in
recent years, from 76,217 (18.0%) in 2005 to 82,196 (22.8%) in 2010, while that of S&E graduates
from 7,227 (10.3%) to 10,786 (16.4%) in the same period. (KSH) A ,desirable’ ratio of S&E
students, however, cannot be achieved in the short-run: it is not a question of mechanically
increasing the number of enrolled students at the relevant faculties. First, as a basic
precondition, S&E education has to build on high-quality primary and secondary education.
Second, more attractive job prospects are needed to lure young talents towards S&E careers.
Government policies alone can create these prospects in the public research sector only. When
economic development, education, employment, and STI policies are pooled together, devised
and implemented in an orchestrated and effective way, they can also induce businesses to
create this type of jobs, but the actual decisions and investment should be made by businesses.
Thus, a much wider policy perspective is needed, as well as concerted public and private efforts,
sustained for a longer time-horizon, to deal with this complex challenge.
International mobility of researchers has stagnated since 2006. The number of foreign
researchers employed in Hungary was 630 in 2010, and accounted for only 3% of the total
number of researchers. Most of them are likely to be of Hungarian origin from the neighbouring
countries where overall working conditions and earnings are roughly at the same level or slightly
less favourable. Regulation does not allow flexibility in wages paid by PROs, and hence
researchers from countries with better working conditions and significantly higher salaries are
not attracted to take up positions in Hungary. As for he private sector and private non-profit
research organisations there are no such restrictions, it is up to their budget if they can pay
higher wages for foreign researchers coming from more affluent countries.
The vast majority (68%) of foreign researchers were EU citizens, and 16%-16% came from other
European countries and other continents. An additional 196 foreign researchers stayed in
Hungary for shorter periods as grant holders (as opposed to staff members), just over half of
them from other EU countries. Outward mobility has also been relatively stable. In 2010, 398
Hungarian researchers stayed abroad for more than six months (of which 299 with employment
contracts, the rest as grant holders). (KSH) Four hundred and fifty one foreign citizens were
registered as PhD and DLA students at Hungarian HEIs in 2009/2010 (corresponding to 6.6% of all
doctoral students), though the vast majority of them were Hungarians from neighbouring
countries. (NEFMI 2010, p. 148)
1.7.2 Links between education, R&D and innovation

Several STI policy measures promote inward and outward mobility, some of them directly, as
their main objective. The Mobility scheme provides support to three target groups: (i) Hungarian
researchers carrying out research at outstanding foreign research institutes or universities; (ii)
foreign researchers coming to Hungary, (iii) Hungarian researchers currently working outside
Europe returning to Hungary.
Hungarian university-level graduates have the highest earnings advantage among OECD
countries: those with below upper secondary qualifications earn 73% of national average, while
those with tertiary education 217% of that.13 (OECD 2007) Unemployment figures also show a
much more favourable position compared to lower qualifications: 2.6% among ISCED 5-6 vs. 16%
for ISCED 0-2 level. (KSH)14 This difference is smaller in many other countries.
The demand for PhD degree holders is strongest in the HE sector.15 (Felvi 2007) In general, the
activities of doctoral schools are still not sufficiently aligned with the needs of businesses, given
the lack of mutual understanding of each other’s activities. More than two-thirds of those
holding a doctoral degree work in the public research sector. These findings, especially the need
to improve dialogue between HEIs and the industry regarding the economic relevance of
curricula, have also been stressed by the OECD’s Review of Innovation Policy in Hungary (OECD
2008). The responsiveness of the education system (including higher education) to the changing
demand of firms varies across disciplines and by HEIs.
Entrepreneurship and innovation management courses are widely available from private training
companies, and also included in the curricula of some universities.
13
These data refer to the 25-64 years old age group of the population in 2004.
14
One also has to bear in mind that Hungarian employment rates are significantly below the EU
average in all qualification groups.
15
The study was conducted by the National Higher Education Information Centre in 2002 and 2007,
based on in-depth interviews and surveys, using a representative sample of degree holders.
1.7.3 Access and use of international knowledge and the internationalisation

of R&D
Hungarian STI policies are designed through joint initiatives to a limited extent, and there has
been no co-operation with other countries explicitly aimed at joint policy design. Hungarian
partners are involved in several Joint Technology Initiatives (JTIs), such as ARTEMIS, ENIAC, and
IMI, as well as in joint programmes: Eurostars and AAL. There has been an intention to
participate in Joint Programming Initiatives, supported by preparatory activities via various ERA-
NET projects. Further, Hungarian National Technology Platforms have co-operated with 24
European Technology Platforms in identifying their strategic research agendas, which – in
principle – are to be considered when devising new STI policy measures.
As to the delivery of these policies, most Hungarian support schemes are open to non-nationals,
and some of them, e.g. the second sub-programme of the “Mobility” scheme, explicitly identify
foreign researchers as one of their target groups. In most cases, however, the supported
research project should be carried out at a Hungarian facility (and the grant holder should be
employed by that organisation).
Foreign legal entities can join RTDI consortia co-financed by Hungarian STI policy schemes, but
are not eligible for funding from Hungarian public money. Hungarian funding can be used abroad
only by Hungarian researchers who are supported by a mobility scheme.
Hungary holds the EUREKA chairmanship in July 2011 –June 2012; and the main priorities for this
period are outlined in a 10-page work programme. Some 80 EUREKA projects with Hungarian
participants have been completed by February 2012, and at that time there were 15 on-going
projects involving Hungarian participants from 25 organisations. Five of these on-going projects
were co-ordinated by Hungarian organisations. Besides, Hungarian partners contribute to 7
strategic cluster projects.
Hungarian researchers have been involved in 133 COST actions (as of February 2012),16 and 51
ERA-NET projects.17
1042 Hungarian applicants, participating in 834 FP7 projects have been granted €168.3m as of 19
October 2011. (NKTH)
1.7.4 Further challenges

An intriguing puzzle can be observed in Hungary: whereas there are a large number of
apparently relevant policy schemes to foster RTDI activities, innovation performance is
‘moderate’. Two main reasons have been identified by independent analysts. One of these
points outside the narrowly defined STI policy domain: the framework conditions for innovations
influence firms’ behaviour with such a power that STI policy schemes cannot offer strong enough
incentives to overrule those unfavourable effects. Thus, major policy efforts are needed to
create favourable framework conditions, notably a stable macroeconomic environment;
endurable administrative and tax burdens on firms; strong demand for new products; a sufficient
supply of skilled people for RTDI projects; appropriate regulations and standards; effective IPR
policies; etc. Further, policies affecting these conditions need to be aligned with STI policy efforts
to make a difference.
16
The complete list, the distribution of actions by fields, and data on Hungarian participation in
previous years can be accessed at the NIH website.)
17
A full list can be accessed at the netwach website.
The second set of factors can be grouped together as shortcomings in STI policy-making,
including lack of political commitment. R&D and innovation is not understood as a major
contributor to socio-economic development by politicians. These activities perceived – although
implicitly – as a burden on the budget, and thus become the first ,victim’ when budget problems
must be solved.
Frequent changes in the structure of the STI policy governance sub-system has lead to
organisational instability, which, in turn, affects negatively policy formation and implementation
as it hampers organisational learning and imposes unnecessary burdens on RTDI performers,
too. (Ernst & Young and GKI 2010a; Havas 2009; Havas and Nyiri (eds) 2007; OECD 2008) This
instability “has arguably had detrimental effects on the ability of agencies to implement
measures consistently, thus blurring signals and creating a good deal of uncertainty among
beneficiaries of the policy measures. Moreover, excessive instability is a serious obstacle to
institutional learning and to the adoption of an evidence-based approach to STI policy making in
Hungary”. (OECD 2008, p. 15)
2 National PESTLE and SWOT Analysis

This section is aimed at identifying innovation barriers as well as success factors. In other words,
PESTLE and SWOT analyses are supposed to assist stakeholders to better understand the “big
picture” of the innovation environment as generic “orientation” tools.
2.1 Political, Economic, Social, Technological, Legal and

Environmental analysis of the national innovation system
A standard PESTLE analysis identifies “drivers” – those factors/ forces that are likely to influence
future developments in the mid- or long-term – in a systematic manner. This technique is used
here in a somewhat different way. First some of the major drivers are identified that shape the
current situation or short-term developments, and then those that influence the longer term.
Short-term drivers: 2012
Social, cultural, Technological Environmental Economic and Political, legal,

and demographic market issues and institutional
Opening gap in Low level of Climate change is Open economy, Low level of
income distribution innovation highlighted in foreign-trade plays willingness for
given the new activities, government important role meaningful
personal tax system especially that documents and High share of foreign- strategic dialogues
introduced in 2011 of the SMEs communications, owned companies, among major
Severely reduced Low share of but not much especially in terms of political actors on
unemployment science and actual producing value- issues with long-
benefits engineering government added and exports, term nature,
students in actions less in employment including STI
Many people feel less
international Floods put water policies
secure in various Low employment ratio
respects comparison disaster A highly active
Unstable,
Fast increase in management government since
Ageing society unpredictable
internet use high on the June 2010: a
Low level of mobility macroeconomic
agenda mixture of
STI policy environment
Low level of solidarity Several NGOs are re/regulation and
priorities are High administrative
Increasing active in de/regulation in
set in strategy and tax burdens on
individualism, less pursuing various policy
documents, firms
cohesive society environmental domains and
but not all of
issues High level of budget sectors
Inflexible labour these are
deficit and Heavy centralisation
force given housing backed by
government debts, of decision-making
conditions and skill support
and slow economic in the public
levels measures
growth; and hence administration
the overriding
Recent legislation
importance of fiscal
and government
policy
policy measures
Dual economy: a small are increasingly
group of highly criticised by
productive and international and
technologically European bodies
intensive foreign-
Social media,
owned companies;
e/government
fragile indigenous
SMEs
Market conditions are
not conducive to
innovation
Social, cultural, Technological Environmental Economic and Political, legal,

and demographic market issues and institutional
Business spending on
R&D is low in
absolute terms and as
a percentage of GDP,
but increased
significantly in recent
years ⇒the share of
business enterprises
in funding GERD is
approaching the EU
average
Sources: ??; Havas 2011b, 2011c; ??
Long-term drivers: 2020
Social, cultural and Technological Environmental Economic and Political, legal,

demographic market issues and institutional
„Underclass“ Dilemmas of The way out from Open economy, Principally new
problem, technological nuclear high share of forms of state
reproduction of originality on the technologies foreign-trade regulation,
poverty (also related peripheries of the Strong demand for High share of transnational
to educational world economy environmental foreign-owned governance
opportunities, see
Low level of local innovations companies Dismantling the
below)
knowledge Hydrogen Brain drain welfare system
Community building, content in many
old and new economy Emergence of new New types of
sectors emerging
redistribution Resilience R&D strategies
New forms of concepts of multinationals peripheral
Segregation in space, community populism
lifestyles, and life International trade in Central and
media, Eastern Europe Upgrading of direct
strategies with water and
information as democracy forms
Strong segregation in air in Central and Evolving new
public good and solutions
educational Eastern Europe environmental
Active and wide use industries
opportunities and of new forms of
capabilities web
Multi-culturalism, Teleworking
integration of
migrants
Sources: ??;
2.2 Strengths, weaknesses, threats and opportunities of/ for the

Hungarian national innovation system
Strengths Weaknesses
STI governance A high-level body to co-ordinate STI Major economic and STI policies are not
and policy policies in place co-ordinated
system A solid legal basis for STI policy (until Instability of the STI policy governance
2011) system
IPR rules are in accordance with the EU Some important STI policy decisions are
legislation and international treaties not discussed by the high-level co-
ordinating body
STI priority A large number of STI policy support Lack of political commitment
setting, public measures, aimed at appropriate Shortfalls in implementation
objectives
policies and Unsystematic, scarce use of up-to-date
actors decision-preparatory methods
(monitoring, evaluation, foresight,
technology assessment)
Lack of regular, systematic dialogue with
stakeholders
Severe cuts in public R&D expenditures
since mid-2010 ⇒no new STI policy
schemes introduced since mid-2010
RTDI sector Long tradition of excellence in science Poor innovation performance in
features Publication output per researcher and international comparison
quality of publications are closer to the Low level of innovation activities,
EU average than the level of funding especially that of the SMEs: only one-
might suggest fifth of enterprises introduce product or
Active participation in international RTDI process innovations in Hungary, with no
co-operation major change since 2002
The business sector is the largest R&D and innovation activities of firms are
employer of (FTE) researchers highly skewed by size, ownership and
sector
BERD increased considerably recently,
approaching the EU27 average Low occurrence of co-operation in
innovation activities among businesses
An increasing number of indigenous
and academia
firms are integrated into international
production and – to a lesser extent – Uneven performance of HE organisations
innovation networks Insufficient RTDI management
Venture capital funds are available capabilities in higher education and
public research organisations
An uneven technical level of research
infrastructure: a mix of up-to-date and
outdated facilities
Uneven geographical distribution of RTDI
activities
Cross-cutting Internationally respected S&E education Insufficient quantity of human resources
issues system in several fields for R&D and innovation is forecast by
2015
Research is not an attractive career
Mismatch between the incentives of
academic researchers and the interests
of businesses
Opportunities Threats
Effective policies to promote structural A loss of dynamism with a
change and specialisation towards a marginalisation of Hungary as a location
more knowledge-intensive economy for internationally mobile investment
Effective and efficient use of the and innovation: slipping back towards a
substantial EU funds available for the low-cost production site
new planning period (2014-20) Failure to adapt to increasingly
New markets opening up due to innovation-driven competition, in
globalisation, internal EU markets and particular from emerging economies,
economic development in Eastern and and to exploit new opportunities in the
South-Eastern European emerging global economy
economies ⇒strong demand for new Brain-drain: drying up of the pipeline for
products human resources for science and
Intensified, mutually beneficial technology, due to growing global
international RTDI co-operation, e.g. competition for talent
deeper and more profitable Volatility of global capital markets
integration into the international Further delays in joining the euro-zone,
production and innovation systems, and hence focus on fiscal targets
due to the increasing share of sidelines innovation policy issues
knowledge-intensive activities of the
Hungarian partners (firms, R&D units,
others); closer integration into RTDI
networks of MNCs (stronger horizontal
integration of Hungarian subsidiaries
of MNCs into the NIS; more intense
participation of major European MNC-
driven RTDI initiatives)
Sources: Havas 2011a, 2011b, 2011c; Havas and Nyiri, 2007; OECD 2008
2.3 Self assessment tool: Features of well performing national and

regional research and innovation
This section will be provided by UoM. Please do not fill in.
Indicators for the innovation Union 2010 Data Source

ENABLERS –Human Resources
New doctorate graduates (ISCED 6) per 1000 population aged 25-
Eurostat
34
Percentage population aged 30-34 having completed tertiary
Eurostat
education
Percentage youth aged 20-24 having attained at least upper
Eurostat
secondary level education
ENABLERS-Open, excellent and attractive research systems
International scientific co-publications per million population Thomson/Scopus
Scientific publications among the top 10% most cited publications
Thomson/Scopus
worldwide as % of total scientific publications of the country
Non-EU doctorate students32 per million population Eurostat/OECD
ENABLERS -Finance and Support
Public R&D expenditures as % of GDP Eurostat
Venture capital (early stage, expansion and replacement) as % of

EVCA/Eurostat
GDP
FIRM ACTIVITIES-Firm Investments
Business R&D expenditures as % of GDP Eurostat
Non-R&D innovation expenditures as % of turnover Eurostat
FIRM ACTIVITIES-Linkages & entrepreneurship
SMEs innovating in-house as % of SMEs Eurostat
Innovative SMEs collaborating with others as % of SMEs Eurostat
Public-private co-publications per million population Thomson/Scopus
FIRM ACTIVITIES-Intellectual Assets
PCT patents applications per billion GDP (in PPS€) Eurostat
PCT patent applications in societal challenges per billion GDP (in
OECD
PPS€) (climate change mitigation; health)
Community trademarks per billion GDP (in PPS€) OHIM/Eurostat
Community designs per billion GDP (in PPS€) OHIM/Eurostat
OUTPUTS –Innovators
SMEs (more than 10 employees) introducing product or process
Eurostat
innovations as % of SMEs
SMEs (more than 10 employees) introducing marketing or
Eurostat
organisational innovations as % of SMEs
High-growth enterprises (with more than 10 employees) as % of
all Eurostat
enterprises3
OUTPUTS -Economic effects
Employment in Knowledge-Intensive Activities (manufacturing
Eurostat
and services) as % of total employment
Medium and High-tech manufacturing exports as % total product
UN/Eurostat
exports
Knowledge-Intensive Services exports as % total service exports UN/Eurostat
Sales of new to market and new to firm innovations as % of
Eurostat
turnover
Licence and patent revenues from abroad as % of GDP Eurostat
3 Summary
Hungary is squeezed in a ‘nutcracker’ formed by advanced countries, on the one hand, and
dynamic industrialising countries, on the other. The former ones are capable of controlling
international production networks and markets via new technologies, financial muscles, and
superior business models, while the latter ones are characterised by extremely low wages and
highly disciplined work forces. It is crucial for Hungary to escape from this trap. That requires all
sorts of innovations to raise productivity and find new markets. Yet, Hungary is a ‘moderate
innovator’, that is, belongs to a group of countries characterised by an overall innovation
performance below that of the EU27.
Hungary, with its population of 10 million (2% of the EU27 total) is a medium-sized EU member
state. Its GDP was 1.26% of the EU27 total in 2010 (fluctuating between 1.25-1.30% in 2004-
2010). As for economic development, measured by GDP per capita (in PPS), the country ranked
22 in the EU27 in 2010, with 63.52% of the EU27 average. In comparison with the EU27 average,
the Hungarian GDP grew slightly faster in 2008 (0.9% vs. 0.3%), the contraction was more
dramatic in 2009 (-6.8% vs. -4.3%), the recovery was slower in 2010 (1.3% vs. 1.9%), and the
Eurostat forecast slower growth for 2011, too (1.4% vs. 1.6%).
The Hungarian GERD was oscillating between 0.9-1.0% of the GDP in 2001-2008, increased to
1.17% in 2009, and then stayed at that level (1.16%) in 2010.
Businesses have maintained their position as the largest employer of (FTE) researchers since
2006, reaching 48.1% in 2010, and had the biggest share in performing GERD (59.8%), too. Both
R&D and innovation activities of firms are highly skewed by size, ownership and sector. BERD
increased considerably – by 9.7% in 2009, and 10.27% in 2010 – and thus the BERD/GERD ratio
jumped from 52.57% in 2008 to 59.81% in 2010, approaching the EU27 average (61.51%). This
increase was financed mainly by public and foreign funds.
The higher education sector performed 19.9% of the Hungarian GERD in 2010. The weight of this
sector was 28.3% in 2010 in the employment of FTE researchers. The government sector’s share
was 23.6% in 2010 in the total number of FTE researchers.
The Government’s mid-term STI policy strategy (2007-2013) defines six priorities: (i) expand
business R&D; (ii) establish internationally recognised RTDI centres and research universities; (iii)
enhance regional RTDI capacities; (iv) establish a knowledge market; (v) invest in large scientific
facilities; (vi) increase R&D expenditures, especially BERD. The STI policy support schemes in
place have further objectives, too, and on the whole those objectives seem to be appropriate.
Two main reasons of the poor innovation performance have been identified by independent
analysts. One of these points outside the narrowly defined STI policy domain: the framework
conditions for innovations influence firms’ behaviour with such a power that STI policy schemes
cannot offer strong enough incentives to overrule those unfavourable effects. Thus, major policy
efforts are needed to create favourable framework conditions, notably a stable macroeconomic
environment; endurable administrative and tax burdens on firms; strong demand for new
products; a sufficient supply of skilled people for RTDI projects; appropriate regulations and
standards; effective IPR policies; etc. Further, policies affecting these conditions need to be
aligned with STI policy efforts to make a difference.
The second set of factors can be grouped together as shortcomings in policy-making, including
lack of political commitment. R&D and innovation needs to be perceived by politicians as a
major contributor to socio-economic development, as opposed to the current – although implicit
– understanding, when it is taken as a burden on the budget, and thus becoming the first ‘victim’
when budget problems must be solved.
Frequent changes in the structure of the STI policy governance sub-system has lead to
organisational instability, which, in turn, affects negatively policy formation and implementation
as it hampers organisational learning and imposes unnecessary burdens on RTDI performers,
too. Hence, this sub-system needs to be stabilised.
Combining these explanatory factors, there seems to be no ‘panacea’ or a simple ‘quick fix’ to
improve RTDI performance. Conscious co-ordination of major economic and STI policies is
needed, guided by an overarching socio-economic development strategy. Foresight processes
would be useful to underpin these strategies. These dialogues can also highlight how RTDI
processes – advanced by appropriate STI policies – can contribute to overall socio-economic
development. Policies affecting RTDI processes and performance need also to be orchestrated.
Up-to-date decision-preparatory methods – most notably thorough analyses of innovation
performance, combining census, R&D and innovation data; evaluation of individual policy
measures, as well as that of the policy mix as a whole; and technology assessment – should be
relied upon when devising and implementing STI policy measures, also assisted by recurring
consultations with the major actors of the national innovation system.
4 References
Arnold E., Busch N., Fayl G., Guy K. (2007): Programme Monitoring at NKTH: Principles and a Pilot
Exercise
ÁSz (2008a): Jelentés a gazdaságfejlesztés állami eszközrendszere működésének ellenőrzéséről
(Report on the audit on the operation of government tools for economic development),
Állami Számvevőszék (State Audit Office)
ÁSz (2008b): Jelentés a Kutatási és Technológiai Innovációs Alap működésének ellenőrzéséről
(Report on the audit of the financial management of the Research and Technological
Innovation Fund), Állami Számvevőszék (State Audit Office)
Csanády, M.Z., Kmetty, Z., Kucsera, G., Személyi, L., Tarján, G. (2008): A magyar képzett migráció
a rendszerváltás óta (Migration of the qualified Hungarian workforce since the transition),
Magyar Tudomány, 2008/5
EC (2010): Europe 2020 Flagship Initiative, Innovation Union, Communication from the
Commission to the European Parliament, the Council, the European Economic and Social
Committee and the Committee of the Regions, COM(2010) 546 final Brussels: 6 October 2010
Edquist, C. (ed.) (1997): Systems of Innovations: Technologies, institutions and organizations,
London: Pinter
Ernst & Young and GKI (2010a): Comprehensive assessment study about the operation of the
Research and Technology Innovation Fund (KTIA) 01.01.2004 - 31.12.2009 – Executive
summary. http://www.nkth.gov.hu/english/evaluations/comprehensive
Ernst & Young and GKI (2010b): A Kutatási és Technológiai Innovációs Alap 2004.01.01. –
2009.12.31. közötti működésének átfogó értékelése (Comprehensive assessment study about
the operation of the Research and Technology Innovation Fund (KTIA) 01.01.2004 -
31.12.2009). http://www.nkth.gov.hu/innovaciopolitika/publikaciok-tanulmanyok/kutatasi-
technologiai-100803-1
Fagerberg J., Mowery D.C., Nelson R.R. (eds) (2005): The Oxford Handbook of Innovation, Oxford:
Oxford University Press
Felvi (2007): Doktoráltak és a munkaerőpiac (Doctoral degree holders on the labour market)
Results of a survey by the National Association of Doctoral Students and the Universitas Press
Higher Education Research Workshop
Government (2006): New Hungary Development Plan 2007-2013: Employment and Growth
Government (2007): The Government’s mid-term (2007-2013) science, technology and
innovation policy strategy
Government [2010]: A Nemzeti Együttműködés Programja: munka, otthon, család, egészség,
rend (The Programme of National Co-operation: work, home, family, health, order)
Government [2011]: Új Széchenyi Terv (New Széchenyi Plan), January 2011
Halpern, L., Muraközy, B. (2011): A verseny és az innováció összefüggései: elméleti
megközelítések és számszerű eredmények (Competition and innovation: theoretical
approaches and quantitative results), in: Valentiny, P. (ed.): Competition and regulations,
Budapest: Institute of Economics, Hungarian Academy of Sciences, forthcoming
Havas, A. (2006): Knowledge-intensive Activities versus High-tech Sectors: Learning options and
traps for Central-European Policy-makers, in: Piech, K., Radosevic, S. (eds): Knowledge-based
Economy in Central and Eastern Europe: Countries and Industries in a Process of Change, pp
259-279, Palgrave
Havas, A. (2010): A vállalatok és a közfinanszírozású kutatóhelyek K+F és innovációs

együttműködése Magyarországon (Industry-academia co-operation in Hungary), Felsőoktatási
Műhely, 4(4): 57-72
Havas, A. (2011a): A Hungarian paradox? Poor innovation performance in spite of a broad set of
STI policy measures, paper presented at Triple Helix 9 International Conference, Silicon Valley:
Global Model or Unique Anomaly? 11-14 July 2011, Stanford University
Havas, A. (2011b): Mini Country Report/ Hungary, 2010-2011, INNO Policy TrendChart
Havas, A. (2011c): ERAWATCH country reports 2010: Hungary
Havas, A., Nyiri, L. (eds) (2007): National System of Innovation in Hungary, Background Report for
the OECD country review 2007/2008
Lundvall, Bengt-Åke (ed.) (1992): National Systems of Innovation: Towards a theory of innovation
and interactive learning, London: Pinter
MORE Report (2010): Study on Mobility Patterns and Career Paths of EU researchers, Technical
Report 2, Part I: Mobility Survey of the Higher Education Sector, IDEA Consult, Brussels
Nelson, R.R. (ed.) (1993): National Innovation Systems: A comparative study, New York: Oxford
University Press
NKTH (2007): Nemzeti Kutatási és Technológiai Hivatal – Intézményi Stratégia 2007-2010
(National Office for Research and Technology – Institutional Strategy 2007-2010), December
2007
NRP (2011): National Reform Programme of Hungary, Based on the Széll Kálmán Plan, April 2011
OECD (2007): OECD Science, Technology and Industry Scoreboard, 2007 edition, Paris: OECD
OECD (2008): Reviews of Innovation Policy – Hungary, Paris: OECD
OECD (2010): Measuring Innovation: A new perspective, Paris: OECD
Tamás, P., Csizmady, A., Schmidt, A. (2005): Kompetenciák a magyar kutatás-fejlesztésben és a
tudományos életpályák 2005-2015 – Hazai előreszámítások és nemzetközi minták
(Competences in the Hungarian R&D and scientific carriers 2005-2015 – Forecasts and
international examples), mimeo, Institute of Sociology, Hungarian Academy of Sciences
5 Appendix
5.1 Structural aspects of the Hungarian economy

Poverty, low employment rates, high government debt, inflation and high energy intensity of the
economy are among the major societal and economic challenges.
Table 9: Major societal challenges
2007 2008 2009 2010 2007 2008 2009 2010
Rural population (% of total
32.90% 32.50% 32.10%
population)
Inequality of income distribution
4.9 5 4.9 N/A 3.7 3.6 3.5
(income quintile share ratio)
Population at risk of poverty or
24.5 23.6 23.1 N/A 29.4 28.2 29.9
exclusion
Net migration 3.9 2.9 1.7 1.8 1.4 1.6 1.7 1.2
Energy intensity of the economy -
Gross inland consumption of
168.7 167.4 165.2 N/A 414.3 408.61 413.48
energy divided by GDP (kilogram
of oil equivalent per 1000 Euro)
Sources: World Bank, 2011 and Eurostat, 2011
Table 10: Structural indicators of the Hungarian economy

Indicator European Union (EU27) Hungary
2007 2008 2009 2010 2007 2008 2009 2010
GDP at market prices (% 100 100 100 100 40 42 39 40
and per capita) 25000 25000 23500 24500 10000 10600 9300 9800
Real GDP growth rate (%) 3.00% 0.50% -4.30% 1.80% 0.8% 0.8% -6.7% 1.2%
General government
gross debt, relative to 59% 62.30% 74.40% 80% 66.1% 72.3% 78.4% 80.2%
GDP (%)
Public expenditure on
4,96% 5.07% N/A N/A 5.2% 5.1%
education (as % of GDP)
Gross capital formation
22.5% 21.99%
(% of GDP)
Inflation rate (%) 7.9% 6.0% 4.0% 4.7%
Employment rate (20-64) 70.0% 70.4% 69.1% 68.6% 62.6% 61.9% 60.5% 60.4%
(Total, male and female) 77.8% 78.0% 75.8% 75.1% 70.2% 69.0% 67.0% 66.0%
62.2% 63.0% 62.5% 62.1% 55.5% 55.1% 54.4% 55.0%
Employment growth (%) 1.8% 0.9% -1.8% -0.5% -0.3% -1.3% -2.8% 0.2%
Labour productivity 100.0 100.0 100.0 100.0 68.4 71.9 72.7 70.9
Unemployment rate 7.2% 7.1% 9.0% 9.6% 7.4% 7.8% 10.0% 11.2%
(total, male, and female) 6.6% 6.6% 9.0% 9.7% 7.1% 7.6% 10.3% 11.6%
7.9% 7.6% 8.9% 9.6% 7.7% 8.1% 9.7% 10.7%
Source: Eurostat - Structural Indicators and World Bank
5.2 Competitiveness aspects

Table 11: Ranking of Hungary in the Doing business scoreboard (total: 183 economies)
2011 2010
Starting a Business 35 36
Dealing with Construction Permits 86 86
Registering Property 41 60
Getting Credit 32 30
Protecting investors 120 119
Paying Taxes 109 118
Trading across borders 73 73
Enforcing contracts 22 22
Closing a business 62 58
Total rank 46 52
Source: World Bank
Table 12: Corruption index
Greece 3.5
Serbia 3.5
Hungary 4.7
Austria 7.9
Romania 3.7
Bulgaria 3.6
Slovenia 6.4
Source: Transparency International
Note: 9-10: the cleanest
Table 13: Innovation Capacity Index of Hungary

Pillars General Rank and Sub-indicators
Institutional General Rank Good Governance Policy Assessment
Environment 50 39 109
Human Capital, General Rank Education Social inclusion and equity policies
training and social
inclusion 28 18 31
Regulatory and General Rank Doing Business

legal Framework 53 53
General Rank R&D infrastructure Patents and trademarks
R&D 29 30 26
Adoption and Use General Rank Internet, computers Government Quality of
of ICT and TV ICT usage infrastructures
39 34 26 77
General ICI rank
Source: ICI rankings, in Augusto Lopez-Claros and Mata, N Yasmina; Policies and institutions underpinning country
innovations: Results from the ICI The innovation for Development Report 2010-201118
18
ICI is built upon 61 pillars composed of a total of 61 variables. For synthetic purposes only, the variables are
grouped into conceptual subsections, which may be thought of as subindexes. ICI ranks countries according to their
overall performance and also provides scores by pillars and subindexes which give a general idea of performance in
those areas. Variable definitions are presented in the Appendix.
Table 14: Hungary's Global Competitiveness Rank

Hungary
Source: to
Public institutions 77 be added
Private institutions 89 Notes: The
Infrastructure 51 definitions
of the
Macroeconomic environment 69
various
Higher education and training 34 categories/
Quality of education 42 aspects can
On the job training 60 be found at
…
Goods market efficiency 67
“Institution
Competition 51 s” are to be
Quality of demand conditions 94 understood
Labor market efficiency 62 as ...
Efficient use of talent 69
Financial market development 68 Hungary
Technological readiness 37 ranked
Technological adoption 49 52 out of
Availability of latest technologies 47 139 in
Firm level technology absorption 70
the
FDI and technology transfer 25
“Global
ICT use
competiti
37
veness
Internet users 33
rank” in
Broadband internet subscriptions 35
2010-
Internet bandwindth 38
2011.
Innovation and sophistication factors subindex 51
Business sophistication 69
Innovation 41
Capacity for innovation 46
Quality of scientific research institutions 18
University industry collaboration in R&D 75
Government procurement of advanced technological products 106
5.3 R&D and innovation activities in international comparison
Note: These projections do not take into account the cuttings in public R&D expenditures applied in 2010-2011, and
planned for 2012. (A.H.)
Table 15: International knowledge and the internationalisation of R&D

2007 2008 2009 2010 2007 2008 2009 2010
International scientific co- 266 328
publications per million
populations
Public-private co-publications per 36.1 36.2 19.2 19.6
million populations
Innovative SMEs collaborating with 9.5 11.16 6.5 7.15
others as % of SMEs %
Intellectual assets and patents
High-tech patent applications to 20.21 10.8 N/A N/A 3.8 2.1
the EPO by priority year
ICT patent applications to the EPO 28.84 16.51 N/A N/A 5.1 2.3
by priority year at the national
level IPC: Total ICT
Trademark applications, direct
3615 3291 3240
resident
Community designs 121.2 19.5
PCT patents applications per 4 1.54
billion GDP
PCT patent applications in societal 0.64 0.39
challenges per billion GDP

License and patent revenues from 0.21 0.62
abroad as % of GDP
Sources: Innovation Union Scoreboard 2010; European Innovation Scoreboard 2009; Eurostat; for trademark
applications: World Bank Statistics
5.4 Innovation in enterprises

Table 16: Innovation in Hungarian enterprises
Indicator 2008 2010
Innovation in high-tech sectors - Share of enterprises with
21%
innovation activities
Innovative enterprises engaged in intra mural R&D expenditure as a
27%
% of innovative enterprises
Innovative enterprises engaged in extra mural R&D expenditure as a
26%
percentage of innovative enterprises
Innovative enterprises involved in all types of co-operation as a
41%
percentage of innovative enterprises
Innovative enterprises, process and product oriented, as a
8%
percentage of total number of enterprises
Innovative enterprises that receive public funding as a percentage of
27%
innovative enterprises
SMEs introducing marketing or organizational innovations as % of
39.09%
SMEs
SMEs introducing product or process innovations as % of SMEs 16.84%
Source: Service Innovation Yearbook 2009-2010, ??
Table 17: Innovation stimulators

Europe27 Hungary
Knowledge management systems in support of innovation 35% 15%
Internal mechanisms for employees to submit innovative ideas 46% 27%
Staff rotations and secondments 40% 30%
Creation/participation in internet-based forums in support of
13% 5%
innovation
Allow free access to test products or services to users 26% 17%
Involving potential users in in-house innovative activities 24% 9%
Share/exchange of intellectual property in support of innovation 22% 6%
Str. Relationship with specific customers 39% 22%
Str. Relationship with suppliers 42% 19%
Str. Relationship with other companies active in their field 29% 13%
Str. Relationship with research institutes 15% 9%
Str. Relationship with educational institutes 24% 19%
Outsourcing tasks to enterprises located in other countries 10% 3%
Making investments in enterprises in other countries 6% 3%
Other forms of cooperation with local partners in other countries 17% 12%
Recruiting employees from other countries 16% 4%
Market testing innovative products in other countries 13% 5%
Source: Service Innovation Yearbook 2009-2010, ??

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Regional ICT Foresight exercise for

Southeast European countries

National innovation system and national PESTLE & SWOT analysis

Relevant WP: WP3- Context Analysis and Taskforce Formation

Responsible organisation: UoM

Author: Attila Havas, IQ-TANOK bt

1 The Hungarian National Innovation System

1.2 Governance structure of the Hungarian innovation system

Operational level National National Government Offices for:

Professional associations, NGOs

Source: compiled by the author

1.2.2 Main national innovation-related organisations

1.2.3 General policy considerations

1.3 Priority setting and public policies

Table 1: Selected indicators, Hungary (2008-2010), and the EU (2010)

2008 2009 2010 EU average 2010

Table 2: ICT and ICT-related R&D expenditures, Hungary, 2008-2010 (m HUF)

Table 4: R&D expenditures by economic activities, selected sectors, Hungary, 2008-2010 (m

Mobility Promote the scientific careers of experienced researchers with

In sum, Hungarian STI policy support measures aim at promoting:

1.4 Mapping the major actors in ICT R&D

1.4.2 R&D infrastructure

1.4.3 Digital agenda progress

1.5 The ICT sector and ICT R&D sector

Table 6: Major sectors of manufacturing industry, 2009

1.5.2 Trade and financial aspects of ICT

Table 7: Selected trade and financial indicators, EU27 and Hungary

1.6 Main components and interactions of innovation systems (barriers

Table 8: Major factors hampering innovations, 2004-2006

of pre-commercial procurement, and (ii) application of pre-commercial procurement in

1.7 Cross-cutting issues and challenges

1.7.2 Links between education, R&D and innovation

1.7.3 Access and use of international knowledge and the internationalisation

1.7.4 Further challenges

2 National PESTLE and SWOT Analysis

2.1 Political, Economic, Social, Technological, Legal and

Social, cultural, Technological Environmental Economic and Political, legal,

Social, cultural, Technological Environmental Economic and Political, legal,

Long-term drivers: 2020

Social, cultural and Technological Environmental Economic and Political, legal,

2.2 Strengths, weaknesses, threats and opportunities of/ for the

2.3 Self assessment tool: Features of well performing national and

Indicators for the innovation Union 2010 Data Source

Venture capital (early stage, expansion and replacement) as % of

Havas, A. (2010): A vállalatok és a közfinanszírozású kutatóhelyek K+F és innovációs

5.1 Structural aspects of the Hungarian economy

Table 10: Structural indicators of the Hungarian economy

5.2 Competitiveness aspects

Table 12: Corruption index

Table 13: Innovation Capacity Index of Hungary

Regulatory and General Rank Doing Business

Table 14: Hungary's Global Competitiveness Rank

5.3 R&D and innovation activities in international comparison

Table 15: International knowledge and the internationalisation of R&D

challenges per billion GDP

5.4 Innovation in enterprises

Table 17: Innovation stimulators

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