EUCA-INVEST Project

Investing in Entrepreneurial Universities in Caucasus and Central Asia 2015-2018

Work Package 1: Preparation

Report 1.2

Report and Assessment of Legal and Economic Conditions Pertaining to Innovation and Entrepreneurship in Partner Countries

Lead Partner WP1: Vrije Universiteit Brussel, Brussels, Belgium

May, 2016

Content Introduction

Georgia 1. Bank of Georgia University, Tbilisi 2. Caucasus University, Tbilisi 3. ILIA State University, Tbilisi, Georgia 4. Kutaisi University, Kutaisi 5. Country Report

Kyrgyz Republic 6. International Ataturk Alatoo University, Bishkek 7. Issykkul State University, 8. Kyrgyz Economic Universiy, Bishkek 9. University of Economics and Enterprise, 10. Country Report

Introduction The institutional descriptions of the innovation and entrepreneurial context of and by the beneficiary country partners’ institutions, and their respective country reports, in the EUCA-INVEST project have been reproduced as such in this WP1.2 report. The format of these descriptions has been agreed upon during the Bishkek 16-17 March 2016 Kick-Off Meeting. This second report, WP1.2, will follow a somewhat different format than the WP1.1 report, more adapted to the specific situation in both beneficiary countries. As in WP1.1, also these descriptions will be reproduced in their original form. The above reports will be followed by a third synthesis report, WP1.3, “Development of CreaLab Model for Georgia and Kyrgyz Republic”, due mid-June 2016. Drafting WP1.3 will give the occasion to the WP1 lead partner to ask, if needed, complementary clarifications from the EU, GE and KZ project partners on their original descriptions. At the same time, all EUCA-INVEST project partners are invited to comment on the WP1.1 and 1.2 reports and suggest material for including in the concluding WP1.3 report.

Georgia

1. Bank of Georgia University, Tbilisi

1. What is the current situation concerning CreaLab-type of initiatives (if

any) already taken in the institution;

Since the EUCA-INVEST project was granted there have been some

restructuring of BOGUNI. Namely, Vega Startup Lab was removed from the

university structure. However, technical equipment of the lab remain in

university’s possession and can be directly used for the CreaLab.

Moreover, this equipment can be used not only for the current project, but

generally for the other students who are interested in entrepreneurship.

We still maintain close contacts with the people who worked at Vegalab, so it

will be easy for us to share the ideas or use their intellectual assets for our

projects.

2. What are the ambitions/expectations for the CreaLab (disciplinary

research priorities, why does the institution wants to establish a CreaLab);

Vegalab was to assist mainly outsiders to create and commercialize their

projects. CreaLab will help students directly to be involved in the whole

process from the idea generation to the commercialization of their products.

We also acknowledge importance of the entrepreneurship. The CreaLab also

will help professors to adapt the curriculum in a way that students can use in

practice the theories learned during the courses.

3. What are the (own) potential resources to be put at the disposal of the

CreaLab;

BOGUNI will allocate special space and equipment for individual and group

works; as well as allocation training facilities within the project.

4. What is the relevant education on entrepreneurship already available

and which connections are already established (or could be developed) with

industry;

BOGUNI as a new higher educational institution. This is why we do not have

programs teaching and assisting entrepreneurial activities. However, within

the strategic management course our students have developed projects to

help existing startups in the country in commercialization their products. The

projects are supported by Technology Park in Tbilisi, created by the Ministry

of Economics of Georgia. There are some investors who are already

interested in products created by startups and strategically planned by our

students. These projects and future planned activities will create a good

background for further cooperation between the university, entrepreneurs,

governmental agencies and investors.

5. Crucially: who will be the carriers, the “agents of change” in the

institution at decision-making level, teachers, researchers and students.

At the university level, we see academic department and management

professors as a main agents of change involved in creation of Crealab,

modernizing existing and creating new study programs emphasizing

entrepreneurship.

2. Caucasus University, Tbilisi

1. What is the current situation concerning CreaLab-type of initiatives (if any)

already taken in the institution;

At this stage, there is no CreaLab type structure at Caucasus School of Business.

Although many activities are carrying out, which facilitate the creation process of

CreaLab at CSB.

2. What are the ambitions/expectations for the CreaLab (disciplinary research

priorities, why does the institution wants to establish a CreaLab);

Caucasus School of Business has an ambition to create full scale business

incubator, which will cover all phases of start-up establishment by students. All

phases of this establishment should flow through the CreaLab by using different

mechanisms. Below you will see different stages of this process and different

mechanisms which will be elaborated by CSB:

1 - Idea Generation

and Screening

- CSB introduced mandatory course “Business

Plan Development” on the fourth year of

undergraduate program. During last two

months of studies students should come up

with an idea of a small to medium size

(Georgian standards) business.

- CreaLab will announce competition for

innovative business ideas

- Idea screening will be carried out by faculty

and independent experts

2 - Business Plan

development

- Ideas will be formulated into formal business

plan (taking into account lean start-up

practices) in the CreaLab. Students will do that

under the mentorship of CSB faculty and

independent mentor network developed by

Georgian Innovations and Technology Agency

(GITA)

3 - Prototype and

promotion material

development

- Students can develop a product/service

prototype using different equipment (3D

printer, high capability computers allowing

students create software and edit materials,

etc.)

- Creation promotional materials (shooting video

ad for social networks using equipment at

CreaLab)

4 Fund raising - GGSB-CSB alumni club will create seed-fund

which will finance the best projects developed

in CreaLab;

- Will work with different investors, angels,

companies to attract funds for the projects

developed in CreaLab

5 CreaLab Online Platform Create platform bringing together experienced

mentors, interested investors and enthusiastic

entrepreneurs. The new platform basically is a startup

validation and testing platform. It helps tests and

validate a startup idea and the business model in the

very initial stages to maximize startup success rate and

accelerates startups growth. It basically involves a short

term partnership of an entrepreneur, with little or no

business expertise, and an experienced guide/mentor to

rapidly accelerate the growth cycle of the startup. It

concentrates on rapidly transferring a startup from just

being an idea to a stage where it gets acceptance from

an accelerator/ incubator or the business world in

general. It is not a competition to accelerators and

incubators.

In order for the CreaLab to function as it is indicated above, certain resources

(equipment) should be purchase through the grant: 1. Laptop-computers for working in groups on the projects

2. Projector for presentations

3. Computer with high computing power for promotion material creation, editing

the movies and running sophisticated software

4. Smartboard

5. Camera for shooting video adds or photos for promotional purposes

6. 3D printer for creation prototypes (1 unit with basic capabilities)

7. Promo-materials basic printer

8. Software

3. What are the (own) potential resources to be put at the disposal of the CreaLab;

Caucasus School of Business will allocate space and furniture for individual and

group works; Also will involve its staff for the successful establishment and

operation of CreaLab.

4. What is the relevant education on entrepreneurship already available and which

connections are already established (or could be developed) with industry;

CSB admits the importance of entrepreneurship in identifying the market

opportunities and starting business venture for capitalizing on those opportunities.

This, in turn facilitates the development of certain business sectors, small and

medium enterprises, middle class and the overall economy of the country. Because

of this, CSB has been engaged in different activities of creation certain skills which

are necessary for entrepreneurs: offering courses, designing training programs and

running the research center.

CSB offers number of courses on entrepreneurship in its academic programs,

which develop certain set of skills: Entrepreneurship

Innovations Management

Leadership

Business Plan Development, etc.

CSB academic personal has developed tailor-made training programs for certain

target groups: Women Leadership Program

Management Development Program

CSB became a Member of the Microeconomics of Competitiveness (MoC)

Network at Institute of Strategy and Competitiveness at Harvard Business School

(Michael Porter's Institute). On the basis of this relationship CSB has founded

Georgia's Center for Strategy and Competitiveness, which is dealing with the

issues of competitiveness. One foundation block of the competitiveness is the

ability of the nation to innovate and be entrepreneurial. The research

methodology is completely based on Institute for Strategy and Competitiveness

methodology.

Caucasus School of Business become Global Entrepreneurship Monitor’s Georgian

National Team in 2014 and has conducted full cycle GEM research. Georgian

national team, which is composed with three researchers, Boris Lezhava, Paata

Brekashvili and Irena Melua were approved by GERA board. Three reports were

prepared: GEM Georgia National Report 2014, Report on Women

Entrepreneurship in Georgia and Report on Export Potential.

5. Crucially: who will be the carriers, the “agents of change” in the institution at

decision-making level, teachers, researchers and students.

SCB is planning to appoint person who will be only responsible to work in

CreaLab and contribute to its development and success. Also, Business School’s

academic personal will serve as the main change agents.

3. ILIA State University, Tbilisi, Georgia

NEEDS ASSESSMENT REPORT ILIA STATE UNIVERSITY

1. What is the current situation concerning CreaLab-type of initiatives (if any) already taken in the institution:

In support of the institutional goal to enhance an entrepreneurial culture at ISU and strengthen the role of the university as an active stakeholder that contributes to the socio-economic development of society and Georgia, ISU has several initiatives fostering the entrepreneurship ecosystem building on campus as well as cooperation with the industry.

Technology Commercialization Center (TCO) is the first TCO in Georgia established at ISU that has a team of professionals with experience in research and innovation, marketing, licensing, and intellectual property management, project development and management. It works to commercialize research and facilitate collaborations between the scientists and industry and work on business development and entrepreneurship potential of researchers and outputs.

Future Fabrication Laboratory FabLab based at Ilia State University is a small-scale workshop venue offering digital and general computer fabrication that will be equipped with a set of computer-controlled tools. FabLab serves as a platform for education, idea creation, and invention that supports and facilitates innovation infrastructure development process in Georgia. In the overall goal, such an infrastructural establishment equipped with new technologies will help to train new generation of designers, engineers, and inventor entrepreneurs, support the start-up proliferation and commercialization, and facilitate the positive impact on the economic growth.

Pre-accelerator–Innovation and Entrepreneurship Space at ISU is the first pre-accelerator place in Georgia that aims to facilitate innovation and build entrepreneurial ecosystem in the university setting through providing extensive assistance in formation of startup companies. It gears the first-time and potential entrepreneurs and offers startup pre-accelerator programme that provides all necessary knowledge and skills to make a startup ready for the early product launch or leading to the accelerator programs for initial investment.

Virtualization Lab (VR Lab)/ISU GameLab – is an innovative space in the gaming industry is a new medium in education, research, therapy, communication, etc.

All described above is part of ISU’s entrepreneurship and innovation space and all work on providing support to transform the ideas and innovations into commercially viable products and connect Georgian inventors and startup companies to bring their products to the market or find initial investment for the early product launch.

2. What are the ambitions/expectations for the CreaLab (disciplinary research priorities, why does the institution wants to establish a CreaLab)

The potential CreaLab space will be established as complimentary to the already existing initiatives at ISU as it already has several projects in place. It will not be a separate lab but will be a core initiative at the pre-accelerator space that will work on soliciting good and creative ideas from individuals or groups to design and launch creative products or know-how. In the pre-accelerator plan of the subsequent years especially in 2016 together with ISU FabLab and GameLab we are planning to launch Creathon events under the CreaLab programming that will function under this space. As for the identified needs, we would need staff training, job shadowing, site visits, design and financing of the events, equipment and software purchase, set up of small library resources, etc.

3. What are the (own) potential resources to be put at the disposal of the CreaLab

ISU will offer its existing facilities and furniture to strengthen the CreaLab resources in addition to the projected resources under the project budget.

4. What is the relevant education on entrepreneurship already available and which connections are already established (or could be developed) with industry?

At the initiatives at ISU to some extent have education component on entrepreneurship especially the pre-accelerator center that has a training center covering the series of lectures and speakers on various topics on entrepreneurship. These lectures involve speakers form the industry. One of the competitive advantages of the education on entrepreneurship at the Startup line of the pre-accelerator space is people, who will lead different directions each having professional and private contacts with the world-class specialists and professionals. These contacts are useful asset in the process of conducting workshops and master classes, which will be very interested not only for the students, but also for Georgian professionals that work in different areas. ISU has created a place, where interested individuals and groups are able to attend world-class workshops and meet professionals from different areas. Various interesting events have been already planned for 2016. This is a tentative schedule of the events covering education on entrepreneurship:

Name Topic

Palmer Luckey Founder of Oculus https://en.wikipedia.org/wiki/Palmer_Luckey

The future of VR

Esther Dyson Investor

Secrets of success of entrepreneurs from former Eastern Bloc countries

Daniel Cowen co-founder of Wobble works (3Doodler)

Secrets of successful Kickstarter campaign

Adam Kell StartX (Stanford Accelerator)

Why you need acceleration program

Felix Kochbeck Co-founder of Luuv

Why 90% of all kickstarter campaigns fail to deliver

Zack Bomsta Co-founder of OwletCare

Product management - from idea to retail shelves

Paul Holliman VP of Strategic Planning, Walt Disney Studios

Managing innovation at big corporation

Raph Crouan Startup Bootcamp London

Mix and learn among the best in Europe

Lucas Wang Founder of HWTrek

Design for manufacturability

Ami Dror Co-founder Zaitoun Ventures

How Venture Capital works

Kip Garland Founder of Innovation Seed

Innovation in Brazil

Kate Edwards CEO of IGDA https://en.wikipedia.org/wiki/Kate_Edwards

Georgia on game development map. Sharing experience of other IGDA Chapters.

Paul Bragiel Internet entrepreneur and a managing partner of i/o Ventures https://en.wikipedia.org/wiki/Paul_Bragiel

Heat-to-hear mentoring teams and startups.

Oscar Clark Evangelist at Unity https://www.linkedin.com/in/oscarclark

Unity, Games Games As A Service: How Free to Play Design Can Make Better Games

Aleksey Savchenko Evangelist (Eastern Europe) at Epic Games

Unreal Engine Unreal developer grants program and chance for Georgian developers.

Frank Lantz Director of the NYU Game Center

Workshop classes about game design.

Matt Parker Workshop classes about storytelling and

Game designer of the NYU Game Center gameplay.

CD PROJECT RED Success for small countries in Game development industry

5. Crucially: who will be the carriers, the “agents of change” in the institution at decision-making level, teachers, researchers and students

In support of the project goals the key agent of change will be ISU leadership led by ISU Vice-Rector for Advancement and Foreign Relations as well as relevant schools and faculty leadership, entrepreneurship teachers, practitioners and industry representatives. The direct beneficiaries will be students and interested individuals and groups in making their own start-up companies or launching and acquiring patents for the new and innovative products.

4 Kutaisi University, Kutaisi

Kutaisi University report

April 2016

1. What is the current situation concerning CreaLab-type of initiatives (if

any) already taken in the institution

Kutaisi University (KU) is a relatively young academic institution with only 24 years

of history. It was founded as a private higher educational institution. Since the

academic year 2006-2007, aiming to achieve optimum employment of its academic

and material resources the University has identified Economics, Business

Administration and Tourism Programs as its priorities.

At present Faculty of Social Sciences at KU provides educational programs at

all three (Bachelor’s, Master’s and PhD) levels. There are Majors in Business

Administration, Tourism, Economics; Minors in Business Administration,

Economics, Information Technology, English Language, Applied Mathematics.

Master’s Degree programs in Finances, Banking and Insurance, Accounting and

Audit; Doctor’s Degree programs in Finances and Economics. University has

authorization and all study programs are accredited. Accreditation has been granted

by National Center for Educational Quality Enhancement Georgia. Total number of

students is about 500 and 82 staff members.

The University strives to create the best possible environment for receiving

quality of education. It collaborates with various regional and national universities,

with local authorities in the areas of economic research and regional policy

development. The University closely cooperates with the foundation “Centre for

International Education”. From 2008 KU participates in TEMPUS, Tuning and

ERASMUS Projects. At the moment KU is involved in four ongoing TEMPUS

(ERASMUS+) and two ERASMUS Mundus projects. Within the framework of

TEMPUS IV Projects the partnership agreements are signed with the foreign

universities participated in consortiums. Joint Programs are being developed under

these projects.

Kutaisi University is in search of up-to-date methods and ways of meeting new

challenges, keeping up with the demands of the educational reform in Georgia and the

Bologna Process and coordinating its future development strategy with the main

tendencies in the world.

Kutaisi University tries its best to develop and constantly upgrade high quality

educational programs oriented towards the demands of the community and labor

market. Developing a viable new vision of teaching methods ensure the quality of

education, also development and adaptation of efficient and specific teaching and

assessment methods is very important for learning outcomes. This project is very

important for KU to train existing and potential professors for developing necessary

skills and knowledge for teaching effectively.

KU sees its role as participant in elaboration of the course materials, university

organize conferences and disseminate information on the results of the project in

Georgia, also provide cross-border dissemination of the recommendations.

The Career Services Center strives to provide the high quality comprehensive

career services to all matriculated undergraduate and graduate students and alumni of

the Kutaisi University. The Career Center functions as a vital component in the total

educational experience of students, primarily in the development and implementation

of career and educational plans. Career Services fosters partnerships with employers,

alumni, faculty, staff, administrators, and the greater community to increase their

participation in providing opportunities for the career development of students.

2. What are the ambitions/expectations for the CreaLab (disciplinary

research priorities, why does the institution wants to establish a

CreaLab);

University is an open knowledge center and communication platform between the

industry and the education, research and development programs. Establishment of

CreaLabs fosters innovation in the regional industry clusters by using all forms of

creativity, promotes multidisciplinary cross-sectoral collaboration. CREALAB is

contributing to a sustainable economic and societal growth in the city. It’s main goal

is to support entrepreneurs and SMEs in developing innovative ideas, services and

products in order to stay competitive. The promotion of ideas exchange, challenges

identification and development of new creativity initiatives foster student

entrepreneurship and start-up creation at university improving infrastructure,

entrepreneurial culture and skills. Setting up and equip labs at KU support students to

generate, develop and commercialize their own innovative ideas through

entrepreneurship and open innovation.

3. What are the (own) potential resources to be put at the disposal of the

CreaLab

A potential resource of CreaLab in KU is Entrepreneur Alumni Network center -

entrepreneurship-related association, a working international entrepreneurial

ecosystem of entrepreneur alumni and young founders. Main goals of this center that

university, companies and more students, graduates and HEI staff would be able to

get in contact with the entrepreneurial world.

4. What is the relevant education on entrepreneurship already available and

which connections are already established (or could be developed) with industry

Entrepreneurship education is a lifelong learning process. The Standards and their

supporting performance indicators is a framework for teachers to use in building

appropriate objectives, learning activities, and assessments for their target audience.

Using this framework, students will have: progressively more challenging educational

activities; experiences that will enable them to develop the insight needed to discover

and create entrepreneurial opportunities; and the expertise to successfully start and

manage their own businesses to take advantage of these opportunities. Nowadays

open discussions and lectures are provided for the student in this field. Staff

recruitment and training is needed to revise and adapt curricula to include

entrepreneurial skills and problem-based learning at KU.

5. Crucially: who will be the carriers, the “agents of change” in the institution at

decision-making level, teachers, researchers and students.

The “agent of changes” in the institution will be the team of the project: local

coordinator of EUCA INVEST project assoc. prof. Tea Kordzadze, professor Lela

Kelbakiani, assistant professor Robert Kamladze, assistant professor Otari Shengelia.

5. Country Report

Entrepreneurship Report

Caucasus University

1

Methodology

In order to provide reliable data, reports are based on a research methodology which

is used in Global Entrepreneurship Monitor Global Research. From 2014 Caucasus

University represents National Team of Georgia at Global Entrepreneurship Monitor

and has exclusive right to use GEM Methodology, data and reports in different

research and reports developed by CU. The data is gathered from two main sources:

Adult population survey (APS)

This data set is a survey of the adult population, namely people between the ages of

18 and 64 years. Survey sample size was 2 000 adults. The surveys was conducted

in eight different cities of Georgia using a standardised questionnaire. The data then

is immediately analysed by Caucasus University (CU).

Experts survey (NES)

The experts’ survey is an important component of research as it provides insights

into the entrepreneurial start-up environment. CU has a number of criteria which

must be met when selecting experts in order to construct a balanced and

representative sample.

Four experts from each of the entrepreneurial framework condition categories

must be interviewed, making a total of 36 experts.

A minimum of 25% must be entrepreneurs or business people, and 50% must

be professionals.

Additional aspects such as geographical distribution, gender, the public

versus private sector, and level of experience should also be taken into

account when balancing the sample.

2

CHAPTER 1 - The Rational and Structure of the Report

CU offers a unique opportunity to analyse and compare Georgian entrepreneurial

activity to entrepreneurial activities in different countries. The report includes relevant

indexes which allow the comparison of economic conditions in Georgia to those of

other countries worldwide. It can be concluded, that those economic conditions vary

dramatically according to the geographic locations and the economic development of

a country.

In order to receive more comparative power of the data, CU decided to compare the

relevant results and indexes to the results and indexes of the countries which have

certain similarities to Georgia. More specifically, we have chosen countries for

comparative analysis based on two factors:

- Geographic location: Europe (European Union and Non-European Union

Countries) and

- Level of economic development: efficiency-driven economies. Based on these criteria eight countries were identified (see table 1.1)

Economic Development

Geography

European Union Non-European Union

Efficiency-driven Economies

Croatia*, Hungary*, Lithuania*, Poland*, Romania Bosnia and Herzegovina, Georgia, Kosovo, Russian Federation*, Turkey*

* Countries in transition to Innovation-driven economies Source: GEM Executive Report 2014

Table 1.1 – Countries included in comparative study Certainly, during the analysis, the comparison between this group of countries to the

innovation-based European countries is frequently made in order to identify trends

and country-specific issues.

In addition to that, at the end of each section or chapter, a summary table compares

the indexes for Georgia to the median of similar indexes of European Union and

Non-European Union countries. Besides, we include indexes of Estonia as a

benchmark for Georgia. The choice of Estonia was based on the similarities between

these two countries: sizes of the countries, population size of the countries, both of

3

them were former Soviet Union countries, etc. Moreover, Estonia is an advancing

country in terms of entrepreneurship as its economy can already be considered as

innovation-driven.

The chapters in this report follow the logic of the modified GEM conceptual

framework:

Chapter 2 covers the Entrepreneurship profile of Georgia and consists of

three parts.

o Section 1 looks at values towards entrepreneurship in Georgia;

o Section 2 covers individual attributes that influence the possibility of

persons engaged in entrepreneurial activities

o Section 3 looks at different types of entrepreneurial activities in

Georgia;

Chapter 3 explores profiles of Georgian entrepreneur.

Chapter 4 is dedicated to the Entrepreneurship ecosystem in Georgia.

4

CHAPTER 2 - The Scale and Conditions of Entrepreneurship in

Georgia

2.1 Social Values Towards Entrepreneurship

Social values play a key role in determining whether individuals are behaving

entrepreneurially or not (Kwon and Arenius, 2010). Social values influence the

overall attitudes towards certain objects. In this survey social values are

conceptualised through three dimensions:

If people consider starting a new business a desirable career choice;

If those individuals who are successful in starting a new business enjoy a high

level of reputation and respect in the society; and

If media attention to entrepreneurship (by promoting successful ventures)

contributes to developing an entrepreneurial culture in a country.

Perceptions related to the above three features shown in Table 2.1

Region and Economies Entrepreneurship High status to Media attention as a good career successful for

choice entrepreneurs entrepreneurship All EU Average 56.9 66.6 53.3

Countries

Georgia 66 75.9 58.5 All Non-EU Average 63.3 72.9 51.3

Countries

Position of Georgia out of 9 6th 2nd 2nd

countries Table 2.1 – Perception of Social Values toward Entrepreneurship (% of Population aged 18-64) Georgia’s score in social values towards entrepreneurship is higher than the average

scores of EU and Non-EU countries in all three dimensions. Georgia is on 6th

place

in terms of perceiving creating of a business as a good career choice among

efficient-driven European countries. Although, the surveys showed that starting a

business is a desirable career choice more in factor and efficiency-driven economies

(see figure 2.1 – red columns represent efficient-driven EU countries and blue

columns innovation-driven) than in innovation-driven economies (GEM Global Report

2014, p. 30), it can be assumed that more people are willing to start business in the

countries with fewer job opportunities. Based on these observations, the low

5

standing of Georgia on this index can be interpreted in different ways. For a

comprehensive understanding of this issue more tailored research might be needed.

Figure 2.1 – Perception of Population regarding Entrepreneurship as Desirable Career

Choice (Comparison of Efficiency-driven and Innovation-driven EU economies)

Moreover, the high status of successful entrepreneurs within the Georgian society

(2nd

among efficiency-driven European countries and 6th

place among all European

countries) is a good starting point for promoting entrepreneurship because it can be

an essential motivating factor for Georgians to engage in starting new ventures (see

figure 2.2 – red columns represent efficient-driven EU countries and blue columns

innovation-driven). When it comes to the public perception of perceiving

entrepreneurship as a desirable career choice, Georgia ranks among countries such

as Finland, Norway, Germany, Romania, Ireland and the United Kingdom. The figure

is pretty high – almost 76% Georgians think that entrepreneurs in Georgian society

enjoy a high status. The highest figure in Europe is of Finland, with 84.4% of the

population admitting the high status of Entrepreneurs.

6

Figure 2.2 – Perception of Population regarding High Status to Successful Entrepreneurs

(Comparison of Efficiency-driven and Innovation-driven EU economies)

Media attention for entrepreneurship is perceived as high by the Georgian population

(age 18-64), ranking 2nd

among efficiency-driven European economies and 6th

among all European countries. This is a good tendency, because media plays a

crucial role in building an entrepreneurial culture within the society. However, the

proportion of the population who agrees entrepreneurship is paid high level of media

attention is not high enough (58.5% of the population 18-64 years). Therefore,

programs which will facilitate the process of promoting entrepreneurial activities

through the media have to be intensified (see figure 2.3 – red columns represent

efficient-driven EU countries and blue columns innovation-driven). Georgia ranks

among countries such as the United Kingdom and Sweden.

Figure 2.3 – Perception of Population regarding Media Attention to

Entrepreneurship (Comparison of Efficiency-driven and Innovation-driven EU

economies)

The gap between people’s respect for entrepreneurship as a profession (high status

of successful entrepreneurs) and their belief that entrepreneurship is a good career

choice (entrepreneurship as a good career choice) varies across countries and does

not show trend of any kind. In Georgia, we have a slightly positive correlation (0.357)

among these variables, meaning that the percentage of the population believing

entrepreneurs have a high status within the society is somewhat higher than the

percentage of the population thinking it is a good career choice (see table 2.2)

In table 2.2 there are correlation coefficients among these three variables Media

Attention for Entrepreneurship, High Status to Successful Entrepreneurs and Entrepreneurship as a good career choice. The correlation coefficients are very low

among these variable, except for the correlation between “status of successful

entrepreneurs” and “media attention for entrepreneurship”.

Media High Status EGCC

Media Attention for 1 .357 .032

Entrepreneurship

High Status to Successful .357 1 -.096

Entrepreneurs

Entrepreneurship as a good .032 -.096 1

career choice

Table 2.2 – Pearson Correlation

8

Figure 2.4 – Comparison of the Percentages of Population Perceptions regarding High Status

to Successful Entrepreneurs and Entrepreneurship as a Desirable Career Choice

Finally, in table 2.3 a comparison of the results for Georgia to indexes of EU and Non-EU countries averages is provided. Besides, indexes of Estonia as a

benchmark are included.

Region and Economies Entrepreneurship High status to Media attention as a good career successful for

choice entrepreneurs entrepreneurship

Georgia 66 75.9 58.5

All EU Countries 56.9 66.6 53.3

All Non-EU Countries 63.3 72.9 51.3

Estonia 55.6 64.9 43.3 Table 2.3 – Social Values Towards Entrepreneurship Georgia vs EU and Non-EU Countries

Averages vs Benchmark country - Estonia From this table we see that:

The proportion of the population who thinks that entrepreneurship is a good

career choice is higher in Georgia than the average proportion within EU and

Non-EU countries (66 vs 59.6 and 63.3). It is even higher than the proportion

received in the benchmarked country – Estonia (66 vs 55.6).

9

The proportion of the population who thinks that successful entrepreneurs

have a high status within the society is higher in Georgia than the average

proportion of EU and Non-EU countries (75.9 vs 66.6 and 72.9). It is higher

than the proportion received in the benchmarked country – Estonia (75.9 vs

64.9).

The proportion of the population who perceives that media attention is high for

entrepreneurship is higher in Georgia than the average proportion of EU and

Non-EU countries (58.5 vs 53.3 and 51.3). It is higher than the proportion

received in the benchmarked country – Estonia (75.9 vs 43.3).

2.2 Individual Attributes

Research provides insights in several individual attributes:

perception of opportunities reflects the percentage of individuals who believe

there is a chance to start a venture in the next six month in their immediate

environment;

perception of own capabilities to act entrepreneurially shows the percentage

of individuals who believe they have the required skills, knowledge and

experience to start a new venture;

fear of failure considers only those people who perceive opportunities to start

the business and measures how many of them have fear of failure;

entrepreneurial intentions are defined by the percentage of individuals who

expect to start a business within the next three years (those who are already

entrepreneurially active are excluded from this survey), These individual attributes, in a certain context, lead to a variety of entrepreneurial

activities. In order to compare those surveys across efficiency-driven EU countries,

research has to take into account the different contexts within different countries

(e.g. individuals might have different business opportunities in their minds in different

countries, etc.).

Table 2.4 shows the results regarding different individual attributes in efficiency-

driven European countries.

10

Region and Economies Perceived Perceived Fear of Entrepreneurial

opportunities capabilities failure intentions European Croatia 18.4 45.9 30.3 19.5

Union

Hungary 23.4 40.9 42 13.9

Lithuania 31.7 33.4 44.8 19.7

Poland 31.3 54.3 51.1 15.6

Romania 32.4 48.4 41.3 31.7 Non- Bosnia and

19.6 47.3 26.8 20.4 European Herzegovina

union Georgia 36.6 37.5 34.8 15.6

Kosovo 65.6 65.2 26.7 6.3

Russia 26.5 27.8 39.5 3.5 Average scores of

Efficiency-driven 31.7 44.5 37.5 16.2

European Countries Table 2.4 – Individual attributes in the efficient-driven European economies in 2014 (% of

population ages 18-64)

In almost all efficiency-driven European countries perceived capabilities are higher

than perceived opportunities. This means that in these countries, a higher proportion

of the adult population evaluate their capabilities (required skills, knowledge and

experience) sufficient enough for entrepreneurial activities, but at the same time a

smaller proportion of the population sees good business opportunities in the country

where they live. For Georgia these two proportions are almost identical: 37.5% of

adult population thinks that they are capable of performing entrepreneurial activities

and 36.6% sees opportunities in the Georgian business environment. This kind of

proximity can be observed in the case of Lithuania and Kosovo (see figure 2.5)

11

Figure 2.5 – Perceived opportunities and perceived capabilities in efficient-driven

European countries

37.5% of the Georgians think there are entrepreneurial opportunities in Georgia but

only 52% of them think they have enough skills, knowledge or experiencerequired for

starting new ventures. Accordingly, 48% think they do not have required capabilities;

the fact might suggest policy makers a direction in which to invest time and money.

If we look at all European countries, we will notice that in innovation-driven European

economies (which did not face economic crisis in recent past), in general, perceived

opportunities are higher than perceived capabilities. In the countries which faced

long-term economic trouble or belong to efficiency-driven European economies

perceived capabilities are higher than perceived opportunities (see figure 2.6).

12

Figure 2.6 – Perceived opportunities and perceived capabilities in European countries

The proportion of the population who perceives opportunities in entrepreneurial

activities is moderate in Georgia – approximately 1/3 of the adult population

perceives business opportunities in the Georgian environment. In comparison,

70.1% of the Swedish population, 63.5% of Norwegian population and 60% of

Danish population (2/3rd

) perceives opportunities for entrepreneurial activities in their

countries. Georgia holds a middle position within this index. In general, a low level of

perceived opportunities (especially in countries with low economic development or

with problems in economic development) provides relevant information not only to

governments (GEM Global Report, 2014, p. 33) but also to other institutions,

including education sector, which can help in building the individual’s capacity of

recognizing opportunities

Fear of failure and expected(legal and financial) consequences of failure may

prevent individuals from exploiting good business opportunities. According to results

of the present survey, 34.8% of the Georgian adult population experience fear of

failure (table 2.3). Within the group of respondents who perceives opportunities for

13

entrepreneurial activities, 37% have fear of failure, which in its turn might deter them

from opening up new ventures. However, 63% do not have any fear of this kind (fear

of failure).

In terms of perception of fear of failure, the Georgian population holds the middle

position (4th

place) among efficiency-driven European countries, right after the

Balkan states (see figure 2.7)

Figure 2.7 – Fear of failure among efficiency-driven European countries

Fear of failure might be a strong inhibitor for stopping transformation of

entrepreneurial intentions into entrepreneurial activities. Looking at the comparison

of results in terms of perception of opportunities and fear of failure in all European

countries (see figure 2.8) we see that the highest fear of failure can be found in

Greece - 61.6% and lowest is in Bosnia & Herzegovina – 26.8%. It should be noted

that the more a country can be described as innovation-driven country, the higher is

the proportion of people who perceive opportunities and the less is the proportion of

people who have a fear of failure. Therefore, in innovation-driven economies fear of

failure inhibits to a lesser extent entrepreneurial activities. For Georgia these two

proportions are almost equal, which might give a certain direction to policymakers.

14

Figure 2.8 – Perceived Opportunities and Fear of Failure in European countries

Georgia has the lowest difference between perceived opportunities and perceived

capabilities.

Figure 2.9 depicts Entrepreneurial intentions of the population in efficiency-driven

European countries. Georgia is on the sixth place among those countries. It is

estimated that the score on entrepreneurial intentions is the highest among factor-

driven economies and the lowest among innovation-driven economies, which

confirms the pattern that starting once own business is a dominant option there

where other options of getting income of any kind are rather limited (GEM Global Report, 2014, p.34).

15

Figure 2.9 – Entrepreneurial Intentions among efficiency-driven European countries

Table 2.5 the comparison of results for Georgia to indexes of EU and Non-EU

countries averages are provided. Besides, we included indexes of Estonia as a

benchmark.

Region and Economies Perceived Perceived Fear of Entrepreneurial

16

opportunities capabilities failure

Georgia 36.6 37.5 34.8 Average score of EU 34.8 42.3 40.7

countries

Average of Non- 42.6 41.7 32.4 European countries

41.8 Estonia 49.4 42.5

intentions 15.6

12.1

9.7

9.8 Table 2.5 – Individual Attributes: Georgia vs EU and Non-EU Countries Averages

vs Benchmark country - Estonia

From this table the following conclusions can be made:

The proportion of the population who perceives entrepreneurial opportunities

in the local environment is higher in Georgia than the average proportion of

EU countries (36.6 vs. 34.8), but lower in Georgia than in the average of Non-

EU countries (36.6 vs 42.6). Compared to the score of the benchmark country

Estonia, this proportion is lower in Georgia (36.6 vs 49.4).

The proportion of the population who perceives that they are capable of

engaging in entrepreneurial activities is lower in Georgia than the average

proportion of EU and Non-EU countries (37.5 vs. 42.3 and 41.7). Compared to

the score of the benchmark country Estonia, this proportion is also lower in

Georgia (37.5 vs 42.5).

The percentage of the population who admits experiencing fear of failure

while engaging in possible entrepreneurial activities is lower in Georgia than

the average percentage of EU countries and the benchmark country Estonia

(34.8 vs 40.7 and 41.8). However, this proportion is higher in Georgia than the

average proportion of Non-EU countries (34.8 vs 32.4)

The percentage of population who has entrepreneurial intentions in Georgia is

higher than the average proportion of EU and Non-EU countries (15.6 vs. 12.1

and 9.7). It is higher than the percentage of the population in the

benchmarked country – Estonia (15.6 vs 9.8).

2.3 Entrepreneurial Activities

17

For a better understanding of entrepreneurial activities, CU uses the organizational

life-cycle approach and differentiates across the following categories of entrepreneurs:

Nascent entrepreneurs are labelled as those who are committing resources to

start a business, but the business has not yet yielded wages or salaries.

New businesses are those managed by their owners and paying wages, up to

42 months of existence of the firm.

Established businesses are considered those businesses which have been

paying wages for more than 42 months. This cut-off point has been derived by

combining theoretical and practical considerations (Reynolds et al., 2005).

Discontinued businesses are considered those businesses which existed

once and now are discontinued for different reasons.

The GEM framework identifies three different indexes:

Total Early-Stage Entrepreneurial Activity rate (TEA) as a percentage of

individuals aged 18-64 in an economy who are in the process of starting

business and/or are already running a new business not older than 42

months.

Established Business Ownership rate is the percentage of individuals aged

18-64 in an economy who own and manage a business older than 42 months)

Discontinuation rate is the percentage of individuals aged 18-64 who owned a

business but discontinued it for different reasons during the last 12 months.

Table 2.6 shows rates for different phases of entrepreneurial activity in efficiency-

driven European countries. The first two phases constitute the central measure of

GEM – Total Early Stage Entrepreneurial Activity (TEA) – the most crucial stage of

entrepreneurship, because at this stage the most growth and innovation are

originated, which is decisive for new businesses survival. Based on table 3.6,

Georgians TEA holds the 7th

position out of 9 efficiency-driven European economies. This means that only 7.2% of the Georgian population is engaged in opening-up or

running a new venture. In comparison, in Lithuania and Romania 11.3% of the adult

population is involved in entrepreneurial activities.

18

Early-stage Established

Region and

Nascent New entrepreneurial business

entrepreneneurship business activity ownership

Economies rate rate (TEA) rate

Croatia 6 2 8 3.6

European

Hungary 5.6 3.9 9.3 7.9

Lithuania 6.1 5.3 11.3 7.8

Union

Poland 5.8 3.6 9.2 7.3

Romania 5.3 6.2 11.3 7.6

Bosnia and

Non-

Herzegovina 4.5 2.9 7.4 6.7

European Georgia 4.1 3.2 7.2 7.3

union

Kosovo 2.5 1.8 4 2.1

Russia 2.4 2.4 4.7 3.9

Position of Georgia 7th

Place 5th 7th

Place 5th

Place out of 9 countries Place

Table 2.6– Phases of entrepreneurial activity in the efficiency-driven European countries

In 2014, in general, African economies have the highest TEA, while European

economies (both EU and Non-EU) have the lowest.

Figure 2.12 – Nascent entrepreneurship, new business ownership and TEA

19

Figure 2.12 shows that in Europe the highest TEA rates were observed in efficient-

driven economies, namely in Romania and Lithuania. The lowest TEA rates were

observed in Italy and Russia. Georgia has the middle position among the European

countries.

Several correlations were calculated to underline the linkages between different

components needed to build entrepreneurial activity. Namely, perceived opportunity

(R2=0.3638) and perceived capability (skills) (R

2=0.4757) are positively correlated

with the level of TEA. Strong correlation between perceived capability (skills,

knowledge and experience) and TEA indicates that all forms of education (formal,

informal, non-formal) are important in developing entrepreneurial competencies

(GEM Global report, 2014).

Region and Nascent New Early-stage Established Economies entrepreneurship business entrepreneurial business

rate rate activity ownership rate

Georgia 4.1 3.2 7.2 7.3 Average score of EU 4.8 3.2 7.8 6.7

countries

Average of Non- 3.3 2.8 6.0 5.7 European countries

Estonia 6.3 3.5 9.4 5.7 Table 2.7 – Nascent entrepreneurship, new business ownership and TEA: Georgia vs

EU and Non-EU Countries Averages vs Benchmark country - Estonia

Table 2.7 indicates that:

The proportion of the population who are nascent entrepreneurs (those who

are committing resources to start a business, but the business has not yet

yielded wages or salaries) is lower in Georgia than the average proportion of

EU countries (4.1 vs. 4.8), but higher than the average proportion of Non-EU

countries (4.1 vs 3.3).

The proportion of the population who has new businesses (those managed by

their owners and which are paying wages, up to 42 months of existence of the

firm) in Georgia is equal to the average proportion of EU countries (3.2 vs.

3.2), but higher than the average proportion of Non-EU countries (3.2 vs 2.8).

The rate of TEA in Georgia is lower than the TEA rate of EU countries (7.2 vs.

7.8), but higher than the TEA rate of Non-EU countries (7.2 vs 6.0).

20

The percentage of the population who has established businesses of their

own in Georgia is higher than the average rate of EU and Non-EU countries

(7.3 vs. 6.7 and 5.7).

Figure 2.13 shows the comparison of these rates between Georgia and the

benchmark country – Estonia. All rates concerned with early entrepreneurial

activities are higher for Estonia, while the rate concerning established

business ownership is higher in Georgia.

Figure 2.13 – Nascent entrepreneurship, new business ownership, TEA and established

business ownership rate: Georgia vs Estonia

Established businesses are very important for the healthiness of the country, as it is

the logical sequence of business phases. Not all start-up companies continue

functioning after certain period. In general, in order to provide for stable economic

structures, the rate of early-stage entrepreneurial activity should always be higher

than the rate of established business ownership (because of the discontinuation

rate). These two rates are approximately equal in Georgia (7.2% Early-stage

entrepreneurial activity vs. 7.3% Established business ownership rate), which might

indicate to policy makers that promoting the early stage entrepreneurship is an

essential challenge.

21

When it comes to the rate of total entrepreneurs, Georgia holds the 5th

place within

efficiency-driven European countries (see table 2.7). The first place belongs to Lithuania and on the last places we see Kosovo and Russia.

Country Total

Entrepreneurs*

Lithuania 18.62

Romania 18.35

Hungary 16.93

Poland 15.99

Georgia 14.20 Bosnia and

13.95 Herzegovina

Croatia 11.44

Russia 8.63

Kosovo 5.93

Median 14.62

Position of Georgia 6th

/10

* “Total Entrepreneurs” include everyone that has identified themselves as nascent, new or

established entrepreneurs, with those subtracted who identified themselves as members of

mutual groups

Table 2.7 – The rate of Total Entrepreneurs in efficiency-driven European Countries

2.3.1 Motivation for starting a business CU looks at two different incentives for starting entrepreneurial activities:

1. Necessity-driven motivated entrepreneur is the one who indicates in the

survey that he/she started the business because there were no better options

to obtain resources for living;

2. Opportunity-driven motivated entrepreneur is the one who recognized an

opportunity in the environment and started their own business. The

22

improvement-driven opportunity is the type of opportunity-driven motive, in

which we include individuals who started business because they want to earn

money or to be more independent.

Region and Early-stage Necessit Opportuni improveme Motivation Economies entrepreneur y-driven ty -driven nt -driven al index*

ial activity (% of (% of opportunity

(TEA) (% of TEA) TEA) (% of TEA)

adult

population)

Europe Croatia 8 46.6 51.3 28.7 0.6 an

Hungary 9.3 33.2 64.7 36.3 1.1

Union

Lithuania 11.3 19.6 79.6 43.8 2.2

Poland 9.2 36.8 59.2 47.1 1.3

Romania 11.4 28.9 70.1 49.8 1.7 Non- Bosnia 7.4 50.8 48.5 25.2 0.5 Europe and

an Herzegovi

union na

Georgia 7.2 48.6 50.6 31.0 0.6

Kosovo 4 22 59.9 29.1 1.3

Russia 4.7 39 58.7 41.6 1.1

* Ratio between improvement-driven opportunity and necessity-driven entrepreneurs

Table 2.8 – Motivation for early-stage entrepreneurial activity in efficiency-driven

European Countries

Compared to efficiency driven EU and non-EU economies, early stage

entrepreneurship activities in Georgia are mainly necessity-driven rather than

opportunity-driven. Among the 9 selected countries, after Bosnia and Herzegovina

and Romania, Georgia takes the 3rd place among necessity-driven motivation to

engage in entrepreneurial activities. Compared to this, Georgia takes the 6th place

when it comes to opportunity-driven motivation. Taking this into consideration, we

can conclude that in Georgia, currently TEA is more driven by necessity than by

opportunity. These trends are presented in table 2.8 and figure 2.14.

The motivational index, as a ratio between necessity-driven entrepreneurs and

improvement-driven entrepreneurs, contributes to a better understanding of the

23

entrepreneurial capacity within a country. A high motivational index indicates a high

share of improvement-driven entrepreneurs which ensures more long-term and

ambitious expectations to the creation of a venture (GEM Global Report 2014, p.43).

Unfortunately, the lowest motivation index is observed in non-EU countries, including

Georgia. Moreover, Georgia has one of the lowest motivational indexes among

efficiency-driven European countries (table 2.8). The highest motivational index can

be found in Lithuania.

Figure 2.14 – Percentage of entrepreneurs motivated by Necessity and Opportunity in the

environment in Efficiency-driven European countries

Table 2.9 shows the comparison of Georgian rates to EU and Non-EU countries averages, as well as to the benchmark country – Estonia.

Region and Early-stage Necessity- Opportunity improvement Motivational Economies entrepreneurial driven (% -driven (% -driven index*

activity of TEA) of TEA) opportunity

(TEA) (% of (% of TEA)

adult

population)

Georgia 7.2 48.6 50.6 31.0 0.6 Average 7.8 22.8 73.4 47.9 2.1 score of

EU

countries

24

Average of 1.4 Non-

6.0 29.7 63.2 42.3

European

countries

Estonia 9.4 15.1 74.5 41.2 2.7 Table 2.9 – Motivation for early-stage entrepreneurial activities: Georgia vs EU and Non-

EU Countries; Averages vs Benchmark country - Estonia Table 2.9 shows that:

The percentage of the population who is motivated by necessity to engage in

early-stage entrepreneurial activities is higher in Georgia than the average

percentage of EU and Non-EU countries (48.6 vs 22.8 and 29.7).

The percentage of the population who is motivated by opportunities to engage

in early-stage entrepreneurial activities is lower in Georgia than the average

percentage of EU and Non-EU countries (50.6 vs 63.2 and 74.5).

In Georgia, the Motivational Index is lower than the average Motivational

Indexes of EU and Non-EU countries (0.6 vs 2.1 and 1.4).

Figure 2.15 shows the comparison of these rates between Georgia and the

benchmark country – Estonia. All rates, except the necessity-driven rate,

regarding the motivation to engage in early entrepreneurial activities are

higher for Estonia.

Figure 2.15 – Motivation for early-stage entrepreneurial activities:

comparison of Georgia to Estonia

25

2.3.2 Business Discontinuations

One important part of the business dynamics is when business discontinues its

operations. Table 2.10 shows discontinuation rates among efficiency-driven

European economies.

Region and Economies Discontinuation of businesses

(% of TEA)

Croatia 3.8

Hungary 3.1

European Union Lithuania 2.9

Poland 4.2

Romania 3.2

Bosnia and Herzegovin 4.5

Non-European union

a

Georgia 2.5

Kosovo 6.6

Russia 1.2

Position of Georgia out of 9 8th

Place countries

Table 2.10 – Discontinuation rates among efficiency-driven European countries

A too high intensity of discontinuation might be tracked back to several potential

reasons, like starting business venture which is not well prepared, bad management

of the venture, etc. –in any case this is an indicator of wasted resources. On the

contrary, a too low intensity of business discontinuation might be an indicator for low

dynamics within the economic system, which enables non-efficient businesses to

maintain (GEM Global report 2014, p. 47). The rate of business discontinuation in Georgia is the second lowest among efficiency-driven European countries. It is also

important to understand the reasons for business discontinuation. Figure 2.16 points

out such reasons for the Georgian case. In Georgia, the major reasons for

26

discontinuation of businesses are unprofitable businesses (48.9%) and personal

reasons (22.2%).

Figure 2.16 – Reasons for business discontinuance in Georgia

2.3.3 Ambitious early-stage activities

Not only entrepreneurial activity level matters per se for future economic

development of a given country, also the “quality” of entrepreneurial activities –

“ambitious entrepreneurial activities”. According to the definition of surveys,

ambitious early-stage entrepreneurs show aspirations to increase their number of

employees, to innovate (product or process) and to internationalize their enterprise.

Job creation

By asking early-stage entrepreneurs how many employees (other than the owner)

they currently have and how many they expect to hire in the next five years, CU

gives information on expectations for job creation (GEM Global report 2014). This

figure might determine the growth orientation of the business. In this regard, new job

27

creation is a crucial issue for policymakers. Looking at this figure, one should note

down that this measure reflects ambitions and may not be actually realized in reality. But we have to consider that without planning the growth, actual growth will not

happen. Table 2.11 shows the expected job creation rate (as a percentage from

TEA) in efficiency-driven European countries.

0 - 5 jobs (% Job 6 - 19 jobs (% Job 20 or more jobs (% growth as percent growth as percent of Job growth as

of TEA) TEA) percent of TEA)

Romania 31.08 26.67 20.50

Croatia 25.11 25.72 14.79

Bosnia and 53.35 23.14 9.73

Herzegovina

Lithuania 42.56 22.10 12.22

Hungary 47.79 22.06 19.26

Georgia 43.34 15.00 6.64

Poland 47.86 14.30 13.35

Russia 41.70 14.19 9.79

Kosovo 18.21 17.42 1.39

Position of

Georgia out 4th

place 7th

place 8th

place of 9

countries

Table 2.11 – Job creation expectations in efficiency-driven European countries

Out of nine countries Georgian early entrepreneurs take the 4th

place in creating 0-5

jobs in five years, 7th

place in creating 6-19 jobs and 8th

place in creating 20 or more

jobs.

If we look at the same metrics in comparison to average rates of EU and Non-EU

countries, we will notice that there is no significant difference in the expected

employment of 0 – 5 or 6 -19 jobs. However, when it comes to the expectation of

creating 20 or more jobs, Georgia displays lower rates than the average of EU and

Non-EU countries. (see table 2.12)

0 - 5 6 - 19 20 or

more

jobs

jobs

jobs

Georgia 43.34

15.00 6.64

EU Average 54.29

15.52 9.25

non-EU

Average 56.13 15.50 7.28

Estonia 58.85 15.63 6.77

Table 2.11 – Job creation expectation: comparison of Georgia to averages of EU and Non-

EU Countries Innovative orientation

GEM looks at innovation as the composite of two factors: the degree to which a

product or service is new to customers (product innovation) and the availability of

similar product on the market (market/industry innovation). When comparing

countries on these dimensions we have to be particularly careful because the

product or industry which is new in one country might be very common in another

country. It might be reasonably assumed that a high degree of innovation-orientation

of entrepreneurs is positively correlated with future growth of the economy. In table

2.12, one can find the comparison of these indexes to the average indexes of EU

and Non-EU countries, as well as to the benchmarked country – Estonia.

% within TEA: product is

new to all or some % within TEA: new to

customers market

Georgia 28.95 35.70

EU Average 47.24 49.75

non-EU Average 30.84 43.86

Estonia 46.88 57.29 Table 2.12 – Innovative Orientation: comparison of Georgia to averages of EU and

Non-EU Countries and Benchmark country - Estonia

The percentage of early-stage entrepreneurs who have new product to all or

to some customers is lower in Georgia than the average percentage of EU

and Non-EU countries (28.95 vs 47.24 and 30.84).

The percentage of early-stage entrepreneurs who have new product which is

at the same time new to the market is lower in Georgia than the average

percentage of EU and Non-EU countries (35.7 vs 49.75 and 43.86).

• Figure 2.15 shows the comparison of these measures between Georgia and benchmark country – Estonia. All rates are almost two times higher for Estonia.

29

Figure 2.17 – Innovative Orientation: comparison of Georgia to Benchmark country

- Estonia

International orientation

Georgia’s economy is part of the Global economy. Especially for countries like

Georgia with a small population it is vital to strive for having access to external

markets. In the study, this issue is captured by the level of internationalization which

is measured by the proportion of customers living outside the early-stage

entrepreneurs’ country. CU categorizes four levels of intensity in internationalization:

no customers outside country, 1-25%, 25-75% and 75-100% customers outside

country.

%TEA: %TEA: 1- %TEA: 25- %TEA: 75-

No 25% of 75% of 100% of

customers customers customers customers

outside outside outside outside

country country country country

Poland 16.79 68.71 8.88 5.63

Lithuania 24.70 52.14 14.36 8.80

Romania 23.96 46.71 20.68 8.64

Hungary 32.86 43.81 15.73 7.60

Croatia 20.53 41.09 14.9 23.48

Georgia 41.63 37.08 13.00 8.28

Bosnia and

Herzegovina 47.80 34.26 12.89 5.06

Russia 90.34 4.82 1.13 3.71 Table 2.13 – Level of Internationalization in efficiency-driven European Countries

30

In Georgia, 41.63% of early-stage entrepreneurial ventures have no customers

outside the country (On the other hand,Poland and Croatia have the highest

proportion of customers outside their countries.

%TEA: %TEA: 1- %TEA: 25- %TEA: 75- No 25% of 75% of 100% of customers customers customers customers outside outside outside outside

country country country country

Georgia 41.63 37.08 13.00 8.28

EU Average 41.98 37.27 12.51 8.23

non-EU

Average 69.07 19.54 7.01 4.39

Estonia 29.45 46.58 14.38 9.59 Table 2.14 – Level of Internationalization: comparison of Georgia to averages of EU

and Non-EU Countries and Benchmark country - Estonia

In terms of “no customers outside country”, Georgia has almost similar

percentage to the EU country average percentage (41.63 and 41.98) and

lower percentage than the average of Non-EU countries (41.63 and 69.07).

In terms of “1-25% customers outside country”, Georgia has almost similar

percentage to the EU country average percentage (37.08 and 37.27) and

higher percentage than the average of Non-EU countries (37.08 and 19.54).

In terms of “25-75% customers outside country”, Georgia indicates slightly

higher percentage in comparison to the EU country average percentage

(13.00 and 12.51) and higher percentage than the average of Non-EU

countries (13.00 and 7.01).

In terms of “75%-100% customers outside country”, Georgia has similar

percentage to the EU country average percentage (8.28 and 8.23) and higher

percentage than the average of Non-EU countries (8.28 and 4.39).

Figure 2.18 shows the comparison of these rates between Georgia and

benchmark country – Estonia. All rates concerned with level of

internationalization are higher for Estonia, except the category of “no

customers outside the country”.

31

Figure 2.18 – – Level of Internationalization: comparison of Georgia to Benchmark

country - Estonia

2.3.4 Relation of TEA and EEA to GDP per capita

In order to understand what impact different entrepreneurial activities have on the

economic well-being of the countrythe relationship between two measures of

entrepreneurial activity (Total Early-stage Entrepreneurial Activity - TEA and

Entrepreneurial Employee Activity - EEA) and level or economic development (GDP

per capita) must be analysed. Two important features emerge from this analysis:

TEA rate is decreasing along the development phases –innovation-driven

economies show the lowest TEA rate (see Figure 2.19)

EEA rate is increasing along with the development phases – in innovation-

driven economies, EEA rate is the highest (see Figure 2.20)

These features confirm that the entrepreneurial activity can be carried out in different

forms and in order to evaluate the level of entrepreneurial capacity of an economy it

is necessary to combine both indicators (TEA and EEA). By combining TEA and

32

EEA, it is possible to cover entrepreneurial behaviour within two major segments of

business sector (owners and employees) (GEM Global Report 2014, p. 52)

Figure 2.19 – TEA rate and GDP per capita source: GEM Global Report 2014, p. 53

33

Figure 2.20 – EEA rate and GDP per capita source: GEM Global Report 2014, p. 53

CHAPTER 3 – Profile of Georgian Entrepreneur Entrepreneurial activity is performed by people. Therefore, it is essential to

understand personal characteristics of people involved in entrepreneurial activities.

The framework gives us an opportunity to get an insight into certain demographic

characteristics, such as gender, age, education, income and place of residence. The

main goal of this chapter is to describe the profile of an average Georgian

entrepreneur and to determine his/her demographic characteristics. After this

analysis, we might define groups of people in Georgia, who are “under-represented”

in terms of entrepreneurial activity and, therefore, might be a good target for policy-

makers.

Division by gender

According to the figures provided by the National Statistics Department of Georgia,

the gender distribution in Georgia in 2014 was 52.2% female and 47.8% male. However, the distribution of early-stage entrepreneurs is 37.5% to 62.5%, with

34

female and male respectively. The situation is the same in most European countries,

where the entrepreneurial activity of women is significantly lower. However, the

results of the surveys show that the difference in entrepreneurial activity between

genders is slowly starting to decrease.

Men and women differ in evaluating their entrepreneurial skills. In Georgia, 43.3% of

men involved in early-stage entrepreneurial activities claim to have sufficient skills for

starting a business, compared to 26.7% of women. Likewise, 56.7% of early-

entrepreneur males admit they do not have sufficient skills compared to 73.3% of the

women interviewed.

The gender distribution based on the motivation to pursue entrepreneurial activity

among those people who are early-stage entrepreneurs is the following:

37.5% of the interviewed men engage in entrepreneurial activities because

they see opportunity in the environment compared to 11.1% of women.

45.8% of the interview men engage in entrepreneurial activities because of

necessity, compared to 66.7% of women. Age

The age distribution of early-stage entrepreneurs in efficiency driven European

economies is represented in Table 3.1

18 - 24 25 - 35 35 - 44 45 - 54 55 - 64 years years years years years

Poland 18% 36% 19% 16% 11% Bosnia and

Herzegovina 20% 35% 21% 19% 5%

Lithuania 19% 34% 23% 17% 7%

Croatia 16% 34% 29% 11% 9%

Russia 16% 33% 26% 16% 9%

Kosovo 19% 29% 20% 27% 5%

Norway 9% 28% 26% 25% 13%

Romania 27% 27% 23% 13% 10%

Georgia 15% 20% 22% 24% 18%

Hungary 20% 20% 26% 23% 11%

Switzerland 10% 19% 30% 21% 20% Table 3.1 – Age distribution of early-stage entrepreneurs

35

The largest part of all entrepreneurship in most European countries is spread across

the range of 25-44 years (more than 50%). In Georgia, this is the case for 42% of

entrepreneurial activity.

The results for Georgia are as follows (see Figure 3.1).

Figure 3.1 – Age distribution of early-stage entrepreneurs: comparison Georgia to Estonia

Education

On the basis of their education, CU classifies the respondents into four main groups:

1. Basic education or unfinished secondary education

2. Secondary education (including vocational)

3. Higher education (bachelor)

4. Masters’ degree or higher (MA, MBA, PhD, etc.)

Table 3.2 shows distribution of the people who are involved in early entrepreneurial

activities based on education. For Georgia, there is no such person who does not

have any level of education.

Basic education or unfinished secondary education 3.0%

Secondary education (including vocational) 51.5%

Higher education (bachelor) 19.0%

36

Masters’ degree or higher (MA, MBA, PhD, etc.) 26.4%

Table 3.2 – Education level of early-stage entrepreneurs

More than half of the respondents engaged in early-stage entrepreneurship donot

have more than secondary education. However, 26.4% of the interviewed early-

stage entrepreneurs have a Master’s degree or higher.

Basic education or unfinished secondary

education

Do you have the knowledge, skill and experience required to start a new business? No Yes

6.8% 1.3% Secondary education (including vocational)

52.5% 52.2%

Higher education (bachelor) 20.3

% 19.6%

Masters’ degree or higher (MA, MBA, PhD, etc.)

20.3% 26.8%

Table 3.3 – Relation between education level of early-stage entrepreneurs and perception

of their skills

In table 3.3 we can see how persons with different education levels, involved in

early-stage entrepreneurship, evaluate their skills, knowledge and experience in

performing entrepreneurial activities.

CHAPTER 4 – Entrepreneurship Ecosystem of Georgia

4.1 The Entrepreneurial Framework Conditions

The 2014 GEM Global Report illustrates the relevant national conditions that have an

overall impact on economic development and activity, as well as specific conditions

which facilitate to innovation and entrepreneurship in a society. Three sets of

Framework Conditions are expected to be of concern for policy makers at different

stages of economic development.

The basic requirements, namely a country’s macro-economic stability, institutions,

infrastructure, health and primary education, are the underlying fundamental

conditions required for a well-functioning business environment. These requirements

are usually the focus of development efforts in factor-driven countries. As these

factors become relatively established, and the economy moves toward the efficiency

stage, more funding and development efforts should focus on the efficiency

enhancers. These factors include higher education and training, goods and labour

market efficiency, financial market sophistication, technological readiness and

market size. The model then looks at factors aiming at stimulating and supporting

innovation and entrepreneurial activity. The features that are expected to have a

significant impact on the entrepreneurial sector are captured in the nine Entrepreneurial Framework Conditions (EFCs), which are described in Figure 4.1. Although the EFC’s can be addressed at any stage of development, these conditions

function best in economies with an underlying foundation of basic requirements and

efficiency enhancers. For example, it is unlikely that government entrepreneurship

programmes will be effective if the country provides inadequate health care and

primary education to its population.

The 2014 Georgian National Experts’ Survey (NES) provides insights into the ways

in which these EFCs either foster or constrain the entrepreneurial climate, activity

and development.

38

Figure 4.1 - The GEM Entrepreneurial Framework Conditions

4.2 An assessment of Georgia’s entrepreneurial environment

In order to assess the national conditions influencing entrepreneurial activity in

Georgia, experts were asked to complete a closed questionnaire consisting of 97

statements about factors related to Georgian entrepreneurial environment. Each

response was measured on a 5-point Likert scale (1= completely false, 2=partly

false, 3=neither true nor false, 4=partly true and 5=completely true). The statements

were phrased so that a score of 4 or 5 would indicate that the expert regarded the

factor as positive for entrepreneurship, while a score of 1 or 2 would indicate that the

expert regarded the factor as negative for entrepreneurship. The data obtained from

the 36 respondents was analysed in order to determine the mean score for each

category of questions. The results are depicted in Table 4.1 where Georgia is

compared and ranked among nine other countries. The table is organised according

to descending means – in other words, the highest ranked categories are those

about which the experts feel more positive, while the lowest ranked categories are

seen as the most underdeveloped. On the Likert scale of five, a median score of

three is regarded as average.

39

RUSSIA HUNGARY ROMANIA TURKEY LITHUANIA POLAND KOSOVO CROATIA BOSNIA & HZ GEORGIA Median Position of

Georgia

/10 Position of

Georgia

/10

Finance National National Government Education Education R&D Commercial Internal Internal Physical Cultural Policy - Policy - Programs - Primary - Post- Transfer Infrastructure Market - Market - Infrastructure and General Regulation & Secondary Dynamics Openness Social

Policy Secondary Norms

1 2a 2b 3 4a 4b 5 6 7a 7b 8 9

2.27 2.36 2.27 2.4 2.31 3.1 2.37 3.25 3.14 2.55 3.47 2.74

2.63 2.43 1.93 2.41 1.68 2.82 2.41 3.29 3.13 2.62 3.94 2.32

2.43 2.53 2.24 2.51 2.34 2.68 2.59 3.09 3.14 2.86 2.89 2.61

2.41 2.69 1.99 2.32 2.04 2.88 2.59 2.85 3.56 2.35 3.66 3.07

3.19 2.39 2.46 2.72 2.37 3.07 2.61 3.9 3.38 2.66 4.19 3.09

2.77 3.07 2.16 2.77 1.75 2.54 2.44 2.77 4.04 2.75 3.79 2.96

2.08 2.17 3.07 2.21 1.86 2.87 1.96 3.31 3.07 2.61 4.06 3.15

2.32 2.15 1.55 2.27 1.68 2.35 2.04 2.9 3.37 2.08 3.67 2.02

2.29 2.13 1.74 2.07 2.06 2.43 1.96 2.92 3.35 2.16 3.35 2.15

2.15 2.94 3.95 2.37 2.35 2.91 1.83 3.1 2.61 2.92 4.02 3.19

2.37 2.41 2.20 2.39 2.05 2.85 2.39 3.10 3.25 2.62 3.73 2.85

9th 2nd 1st 6th 2nd 3rd 10th 5th 10th 1st 3rd 1st

9 2 1 6 2 3 10 5 10 1 3 1

Table 4.1 – Summary of experts’ assessment of the entrepreneurial environment

As we see on figure 4.1, Georgian experts are quite critical about their

entrepreneurial ecosystem, but at the same time they recognize some strong points.

It is notable that, except government programmes and commercial infrastructure,

other items are evaluated either high among compared countries or low. From 12

items national policies, education, internal market openers and cultural and social

norms are evaluated as top categories and the rest (finance, R&D transfer, and

internal market dynamics) as bottom categories. The Georgian ranking with regard to

those 12 items is visually compared with median data on figure 4.2 below.

40

Figure 4.2 – Georgian NES ranking compared to median of selected countries.

As mentioned earlier in the report, Estonia was chosen as a benchmark country for

Georgia, because of its similar size and historical heritage. On figure 4.3 below,

Georgia is compared with Estonia across indicators on entrepreneurship framework

conditions.

Figure 4.3 – Indicators on entrepreneurship framework conditions – Georgia VS Estonia. As shown on figure 4.3 above, Georgia is only leading in National policy. In all other

items Estonia is ahead of Georgia with 2014 rankings. Estonia is especially far

41

ahead when it comes to finance, government programs, R&D transfer and internal

market dynamics. For a complete representation and composite analyses of Georgian EFCs figure 4.4

below presents Georgian EFC level and its position among 10 nations.

Figure 4.4 – Indicators on entrepreneurship framework conditions of Georgia with rankings.

Moreover, for a better visualization of EFCs scorings, figure 4.5 and 4.6 include

mean coefficients for each EFC. These figures show that EFCs do differ across all

12 items.

Figure 4.5 – Indicators on entrepreneurship framework conditions of Georgia with median of selected nations.

42

Figure 4.6 – Indicators on entrepreneurship framework conditions of Georgia with median of selected nations.

The items with the clearest differences in the 2014 Georgian NES results are

national policies (figure 4.6) and R&D transfer and internal market dynamics (figure 4.6). Conversely, not all EFCs have such clear differences.

43

CHAPTER 5 – Conclusion

Table 5.1: Recommendations for improving Georgia’s entrepreneurial capacity Category Recommendations for entrepreneurial development in

Georgia

Education and training In education and training we have two pillars, primary and

secondary and post-secondary. In both of them Georgia has

top positions residing 2nd

and 3rd

places respectively.

Although population responses show that education levels

are high, we suggest that special concentrations on

innovation and entrepreneurial activities should be

emphasized and encouraged by entrepreneurial incubators

and innovation research labs.

Government policies Both general and regulatory policies are ranked high by

national experts, with 2nd

and 1st

positions respectively.

Despite high rankings in this regard entrepreneurs still face

some extend of regulatory burden.

With a purpose to have efficient policy system, government

bodies are advised to have monitoring mechanism for policy

functioning on place. Monitoring could include assessment

of policy effectiveness in practice and adjustments for

improvement if needed.

Access to finance and Financial resource availability in the country is considered

financial support by national experts to be one of the least developed item.

Among the selected 10 nations, Georgia is ranked as 9th

.

Different studies have also shown that the lack of finance is

a main hindrance to economic development. As it is true for

general economic development, for a healthy

entrepreneurial ecosystem it is more important for

innovation to rely on adequate financial sources. Thus, we

suggest that cheap, available and accessible finance should

be offered in the country which should be supported and

motivated by public sector.

Government programs In general, government programs were ranked as average,

slightly below to median and on 6th

place among 10 nations.

44

Transfer of research

and development

Commercial

infrastructure

Openness of the domestic

market

Access to physical infrastructure

Social and cultural norms

We understand moderate expert emphases on this item as

their will to keep government less proactive with programs

rather than policies.

Among selected 10 nations Georgian experts reported

lowest research and development transfer rate. Although,

we have not measured real transfer of R&D, the perception

of experts shows the real urgency in this direction. We

suggest to more intensively supporting academic research

and innovation driven programs, which should be directed

both towards knowledge creation and knowledge transfer

for innovative research centers on university level.

Commercial infrastructure was considered by national

experts as about satisfactory. We consider that it could be

influenced by relatively positive standing of commercial

infrastructure compared to other dimensions. Although a

level of development in commercial infrastructure is good,

the relevancy and accessibility of this to existed business

environment is not high.

For internal market analyses we got contradictory response

from national experts. On the one hand, we have highest

rate in market openness, but on the other hand, we have

lowest rate in market dynamics. This represents a non–

healthy market environment. Natural question should arise,

if there is openness, why are dynamics lacking? One of the

potential responses can be natural or semi natural

restriction of market dynamics because of monopolies and

oligopolies. From this, we can suggest that there is explicit

need of anti-monopoly legislation and the implementation of

legislation.

Although physical infrastructure was reported by national

experts as one of the most advanced, there are still a lot to

be done in this regard. The development of number of

infrastructural complex which will be directed to support

efficiency of the operations and effectiveness should be

maximized.

National experts released supporting nature of social and

45

cultural norms to entrepreneurship. Here we may have

response bias, as they also represent the same group.

Factors like traditional customs, age of average

entrepreneurs and time orientation can be also considered

as a negative for entrepreneurship development.

46

REFERENCES Acs, Z.J. and J.E. Amoros (2008). “Entrepreneurship and competitiveness

dynamics in Latin America.” Small Business Economics, 31(3), 305-322. Bosma, N.S., Z. Acs, E. Autio, A. Coduras and J. Levie (2009). Global

Entrepreneurship Monitor 2008 Executive Report. London Business School:

London; Universidad del Desarrollo: Santiago, and Babson College:

Wellesley, MA. GEM Global Report 2014

Kwon, S- W. and P. Arenius (2010). “Nations of entrepreneurs: A social

capital perspective.” Journal of Business Venturing, 25(3), 315-330. Porter, Michael E., Jeffrey Sachs, and Klaus Schwab. Global Competitiveness

Report, 2001-2002. New York, NY: Oxford University Press, 2002. Report of World Bank (World Bank, 2012) on the

entrepreneurship in Georgia Reynolds et al., 1999, p.3 Schwab and Salari-Martin, 2009

Van Stel, A., M. Carree and R. Thurik (2005). “The effect of entrepreneurial

activity on national economic growth.” Small Business Economics, 24(3), 311-

321.

Von Broembsen, Marlese, Eric Wood, and Mike Herrington. "Global

entrepreneurship monitor: South African report 2005." The UCT Centre for

Innovation and Entrepreneurship (2005). Wennekers, S., A. Van Stel, M. Carree and A.R. Thurik (2010). “The

relationship between entrepreneurship and economic development: Is it U-

shaped?” Foundations and Trends in Entrepreneurship, 6(3), 167-237.

47

Kyrgyz Republic

6. International Ataturk Alatoo University, Bishkek

INTERNATIONAL ATATURK ALATOO UNIVERSITY

ERASMUS+ INSTITUTIONAL OFFICE

REPORT

Prepared by:

Dr. Bedelbai Mamdiev, Department of Industrial Engineering

Dr. Nurlan Atabaev, Department of Finance

Bishkek 14, 2016

1

CONTENTS

REPORT ON INSTITUTIONAL LEVEL 2

Question1 - What is the current situation concerning CreaLab? 2

Question2 - What are the ambitions/expectations? 2

Question3 - What are the (own) potential resources? 2

Question4 - What is the relevant education on entrepreneurship? 3

Question5 - Who will be the carriers? 3

LEGAL AND ECONOMIC CONTEXT AND MEASURES TAKEN AT

NATIONAL LEVEL TO PROMOTE ENTREPRENEURSHIP IN CASE OF

KG 3

ENTREPRENEURSHIP ATMOSPHERE IN KYRGYZSTAN 6

REFERENCES 8

2

Report on Institutional Level

Question1 - What is the current situation concerning CreaLab?

1. What is the current situation concerning CreaLab-type of initiatives (if any)

already taken in the institution;

Currently, International Ataturk-Alatoo Univeristy (IAAU) does not have its

Crea-Lab type facility because lack of professionals in this field. However, it is

closely working with 2 business startups (incubators) initiatives out of university:

Business Clinic of Central Asia (BCCA) and QooVee.

Several teams from IAAU participated in BCCA’s competition and 3 were

selected and went through incubation programme. 2 out of 3 teams were presented in

front of investors, and one of them had serious dialogues with them in order to

continue the business. This year, BCCA is about to announce Summer Programme,

where IAAU’s students are invited.

QooVee is mostly concentrated on IT industry. Several seminars and workshops

about increasing the entrepreneurship capacity of students. Several seminars are

planned about startups and introducing a business.

Question2 - What are the ambitions/expectations?

2. What are the ambitions/expectations for the CreaLab (disciplinary research

priorities, why does the institution wants to establish a CreaLab);

The main idea behind the establishment of CreaLab is to enhance the

entrepreneurship skills of both faculty members and students. Moreover, CreaLab will

be the meeting point of industry and university. The ambition is cooperation of above

mention bodies will create new ideas, products or services, and contribute to the

national economy. Furthermore, it is hoped that CreaLab will be initial steps of

Technopark’s establishment at the university.

Question3 - What are the (own) potential resources?

3. What are the (own) potential resources to be put at the disposal of the

CreaLab;

Currently, we have bright students, of whom IAAU is proud of. Some of them

have already shown that they can introduce something new.

Faculty members have enough technical skills. 3 computer labs and 2 electronics

labs are ready for service.

Together with KyrgyzPatent, the Center for Technology and Innovation was

established. There faculty members and students can access information about how to

protect their work, ideas and patents’ database for further research.

3

Question4 - What is the relevant education on entrepreneurship?

4. What is the relevant education on entrepreneurship already available and

which connections are already established (or could be developed) with

industry;

Currently “Innovation Management” and “Entrepreneurship” courses are taught at

several department. It is aimed to update those courses and make them available to all

departments.

Students usually have internships at companies, and if they are successful, they

are offered positions. Faculty members do cooperate with the industry to solve their

problems (usually these are technical problems). However, introduction of CreaLab

and transfer of experience from EU countries will enable to generate new ideas,

products and services together.

Question5 - Who will be the carriers?

5. Crucially: who will be the carriers, the “agents of change” in the institution at

decision-making level, teachers, researchers and students.

Deans together with the head of CreaLab will be agents of change. First of all, deans

already have good connections with institutions out of university; they can

disseminate information and attract representatives of industry to CreaLab. There,

head of CreaLab would further receive the duty of furthering the dialogue between the

university and industry.

Legal and economic context and measures taken at national level to promote

entrepreneurship in case of KG

In any market economy, the development of entrepreneurship plays an essential

role in promoting economic growth. However, in the case of Kyrgyz Republic, the

entrepreneurship has not made a significant contribution to sustainable economic

development. It serves for the rapid accumulation of capital without tangible

productive effect. The main field of its activity is trade mediation. The exception is

rural entrepreneurs that created peasant/ farms and its cooperatives.

Currently there are more than 12 thousand small and medium-sized enterprises. The

total number of workers employed in this sector is 417,3 thousand people (excluding

those employed in peasant/farm households). The volume of industrial output

produced by the small and medium-sized enterprises is 1828.8 million soms. A large

share of production concentrated in the agricultural sector of the economy (60.8% of

total output of production).

Entrepreneurship is defined as an initiative independent activity of legal entities or

private individuals aimed at gaining profits or personal income, carried out on the

rights of any form of ownership.

4

Under business entities are considered private individuals and legal entities,

registered in accordance with the law and involved in the activity, not prohibited by

the law, for extracting profit, regardless of their organizational-legal forms and forms

of ownership. ( Law of the Kyrgyz Republic "On protection of rights of

entrepreneurs" from 01.02.2001 No. 15)

Small entrepreneurship is defined as a set of economic units: small enterprises,

peasant/ farms and individual enterprises. In the Kyrgyz Republic for the period 1991-

2013, the number of small and medium-sized enterprises was increased (Table 1).

Table 1. Dynamics of development of small and medium enterprises in Kyrgyzstan

for the period 1991-2013

1991 1995 2000 2001 2006 2010 2011 2012 2013

Small

enterprises

2269 5433 5737 7555 8424 11338 11371 11125 11750

Medium-sized

enterprises

0 1160 1011 1024 843 825 840 807 797

Individual

entrepreneurs

7,7 42,4 101,4 111,3 179613 244950 267776 297895 329757

Source: National Institute of the strategic studies of the Kyrgyz Republic,

http://www.nisi.kg/ru-analytics-1319

In 2014 on the territory of the Kyrgyz Republic operated 13.5 thousand enterprises,

12.7 thousand of them - small enterprises and 0.8 thousand - medium-sized

enterprises. More than 25 percent existing enterprises operate in wholesale and retail

trade; repair of motor vehicles and motorcycles, 16.5 percent- in industry, 11,8

percent -in professional, scientific and technical activities.

The number of individual entrepreneurs, registered on 1 January 2015 was 350,7

thousand people.

On average, over 2010-2014, the share of gross value added produced by small and

medium-sized enterprises amounted to 40 percent of GDP. By the end of 2014 the

volume amounted to 155485,4 million soms, or 39 percent of GDP.

Average monthly wage of employees of small and medium enterprises is steadily

growing and in 2014 it amounted to 8581 soms. However, despite its growth, the

wage of employees is still below the average (12285 soms).

There still remain the obstacles impeding promotion of the entrepreneurship. There

is no effective cooperation between state institutions and business structures. Partial

or complete elimination of various bureaucratic restrictions such as a licensing

requirement, restriction on exports and imports, control of prices and profits,

limitations on access to credit would substantially contribute to the development of

the entrepreneurship. Another the main problem considered hampering the progress

of entrepreneurship is obtaining the Bank loans to finance the operations of

5

entrepreneurs. Unfortunately, the banks focus primarily on the commercial lending,

thus leaving the entrepreneurs without necessary funds for developing their activities.

However, the role of government does not remain inactive. It tries to create

favorable conditions for the development of entrepreneurship. This was reflected in

the creation of a legal base in the field of entrepreneurship and its further

improvement, attraction of investments in the private sector and reduction

government interference in the activities of entrepreneurs. In addition, it significantly

contributed to the reduction of procedure of registration of business (from 21 to 3

days).

In 2008 was adopted the Law of the Kyrgyz Republic "On protection of rights of

entrepreneurs", which implies:

1) regulatory consolidation of the variety of forms of relations, in which involves

entrepreneurs;

2) ensuring the implementation of differentiated state support to separate categories of

entrepreneurship;

2) legislative consolidation of principles that improve the conditions of

entrepreneurial activity.

The government of the Kyrgyz Republic has undertaken considerable efforts aimed

at fundamental change of the investment attractiveness of the country and creation of

favorable conditions for doing business. In 2009 it contributed to the adoption of a

new Tax code providing the optimization of the tax system (it reduced the number of

taxes) and the introduction of the modern principles of taxation, as well as modern tax

administration to reduce tax burden on businesses and achieve maximum efficiency of

tax administration.

This change resulted in the reduction of the total number of paid taxes from 15

taxes (8 national and 7 local taxes) to 8 taxes (6 national and 2 local tax).

Government abolished many local taxes, which significantly simplified the tax

system for most small and medium businesses. Moreover, the decrease in the tax rate

of single tax (1% -4%) contributed to increasing the attractiveness of the simplified

regime of taxation for business; the rate of value added tax (VAT) was also reduced

from 20% to 12%.

The state bears the obligation to support and promote the development of

entrepreneurship (the Law of KR " State support of small entrepreneurship",

"National sustainable development strategy of the Kyrgyz Republic for 2013-2017"

from January 21, 2013 No. 11). Reduction the frequency of reporting and payment of

taxes for all taxpayers, except for the large ones, is a significant step in promoting the

entrepreneurship in the Kyrgyz Republic.

6

Entrepreneurship Atmosphere in Kyrgyzstan

Kyrgyzstan for the second year ranked 67 among 189 countries at Doing

Business Annual Report 2016 by World Bank. The Report measures the ease of doing

business in economies and suggests policy changes. Project states its objectives as

“The Doing Business project provides objective measures of business regulations and

their enforcement across 189 economies and selected cities at the sub-national and

regional level. By gathering and analyzing comprehensive quantitative data to

compare business regulation environments across economies and over time, Doing

Business encourages economies to compete towards more efficient regulation; offers

measurable benchmarks for reform; and serves as a resource for academics,

journalists, private sector researchers and others interested in the business climate of

each economy.” Kyrgyzstan is ranked first among Central Asian countries.

As mentioned in the Doing Business Annual Report 2016 establishing a

company in Kyrgyzstan takes 10 days and total charges are 1364 KGS (approximately

20 USD). Here is glimpse of procedures:

No. Procedure Time to

Complete Associated Costs

1 Register at the One-stop shop 5 days

KGS 235 (registration fee) + KGS 9

(for printing certificate) + KGS 20

(bank processing fee)

2 Apply for “parameters” at the State Tax Service 3 days no charge

3 Obtain notification from the Social Fund 1 day no charge

4 Obtain permission to make company seal and

make a seal 1 day

KGS 1,100 (125 of permission cost +

service fees of 450-1,500).

In his blog Abhibshesh Adhikari (2012) shares his experience in Kyrgyzstan

and mentions entrepreneurship atmosphere in his blog. He pursued fellowship

program by Kiva “a non-profit organization with a mission to connect people through

lending to alleviate poverty”. Abhi (2012) believes that “one of the most exciting

things about Kyrgyzstan is the potential for the growth of entrepreneurship. “ He also

stresses that “just twenty years after the fall of the Soviet Union, there seems to be a

lot of enthusiasm in Kyrgyzstan for starting up small businesses.” Abhi (2012)

categorizes entrepreneurs into two categories “first, there are the young college

students and graduates from around Bishkek and other major cities who are interested

in starting service-oriented businesses. Second, there are entrepreneurs from the more

remote regions who want to start new farms and livestock businesses.” He also

believes that in Kyrgyzstan among youth there are a lot of enthusiastic to start

business. Abhi (2012) also shares his experience at Start Up event in Bishkek. He

(2012) mentions that event brought 80 young entrepreneurs with project and potential

investors.

Kyrgyzstan regularly hosts Entrepreneurship and Star-up Events organized by

international organizations, aid organizations, government agencies, embassies,

7

universities and business associations. In these events enthusiastic entrepreneurs

present their ideas as business plan and are enabled to meet potential investors or

receive financial assistance to start business. Here is the list of some prominent

regular events organized:

- http://bishkek.startupweekend.org/

Besides events some institutions also focus in training and educating

entrepreneurs. One such event was sponsored by OSCE to train rural youth on

entrepreneurial skills and starting business. "Through this particular initiative, rural

youth had an opportunity to collaborate with urban youth to develop their skills in

preparing small scale business plans. This exercise is mutually supportive since it can

help both to diversify the rural economy and to improve the understanding of urban

entrepreneurs in doing business in the regions" said Ambassador Andrew Tesoriere,

the Head of the OSCE Centre in Bishkek.

It is also getting popular of institutionalization of business incubation centers.

OSCE is among pioneer institutions supporting establishment of business incubation

centers. Here is the list of business incubation centers:

- https://www.facebook.com/kglabsbishkek

- https://www.startupgrind.com/bishkek/

- http://bdk.kg/

Among others, universities too are also holding academic conferences

focusing on entrepreneurship and business more regularly. It has become annual event

for Kyrgyzstan-Turkey Manas University to organize “International Congress on

Entrepreneurship” (Manas University, 2016).

Exciting news for Kyrgyzstan is EU has granted duty-free export of 6000

types of goods (Kabar, 2016). Agency reports that the economy ministry reminded

that Kyrgyz exporters paid customs duties of 14.6% for fruits and vegetables and up

5-9% for garments when exporting their products to EU which will be removed

enabling export these goods to EU member countries at zero rates, which also a good

indicator potentials of growth of entrepreneurship in Kyrgyzstan.

Many academicians and analytics also started to study the benefits for

manufacturers, producers and exporters of Kyrgyzstan after joinig Eurasian Customs

Unions which has opened vast market for Kyrgyzstan.

8

References

1. National Institute of the strategic studies of the Kyrgyz Republic,

http://www.nisi.kg/ru-analytics-1319

2. Small and medium enterprises in the Kyrgyz republic, www.stat.kg

3. I.N Zaiaraikina, “The current condition of small and medium enterprises of the

Kyrgyz Republic”, http://www.krsu.edu.kg/vestnik/2003/v1/a05.html

4. World Bank Group, Doing Business Annual Report 2016,

http://www.doingbusiness.org/, accessed April 2016

5. Adhikari, Abhinshesh, “A glimpse into Entrepreneurship in Kyrgyzstan,” Kiva

stories from the field (blog), Kiva, 6 December, 2012,

https://kivafellows.wordpress.com/2012/12/06/a-glimpse-into-

entrepreneurship-in-kyrgyzstan/, accessed April, 2016

6. OSCE Center in Bishkek, “OSCE Centre supports entrepreneurship training

for young people in Kyrgyzstan's rural regions”, press release, 27 July, 2009,

http://www.osce.org/bishkek/51205, accessed April 2016

7. 7th

International Congress on Entrepreneurship, conference website,

http://ice2016.manas.edu.kg/, accessed April 2016

8. Kabar News Agency, “Kyrgyzstan granted right to export goods to EU duty-

free“, 3 February 2016, http://kabar.kg/eng/economics/full/15123, accessed

April 2016

7. Issykkul State University

Issykkul State University report on WP 1.2.

1. What is the current situation concerning CreaLab-type of initiatives (if any) already taken in the institution;

Nowadays, IKSU did not have any structural unit such CreaLab. IKSU had PERSEUS TEMPUS project experience relevant to creation of the REDIC (Research and Development center). This center re-designed to Student Support center. Still support young scientists, develop linkages between different organization in government, NGO, business and industry. However, idea of REDIC was not totally as CreaLab. During the project life, we develop the database, which is useful, also we had re-trained staff in Brno- Check Republic in Technology Transfer, Technology Park development etc.

2. What are the ambitions/expectations for the CreaLab (disciplinary research priorities, why does the institution wants to establish a CreaLab);

IKSU would like to develop and establish CreaLab, which will be the structural unit at the university motivate students and staff to do research together with industry, develop their start-up ideas, business plans, marketing research, support any inventions and ideas. We interested on CreaLab development as the company producing some services such as consulting, development competences necessary to employments, teaching and trainings regarding to the needs, entrepreneurial school establishment (see the figure 1)

Figure 1. Main services provided at CREALAB at IKSU

Capacity development

• Consulting • Teaching and training • New competences development: enterpreneural school

Innovation Production

• Start-up and business plans implementation • Inventions (if any) and patient obtaining • Production development: promomaterials, video and presentation development

R&D

• Market research providing • Analize of stakeholders • Research on innovations • Publications • Working on database development

Meetings and discussions

• Round tables providing • Meetings and interview with employers • Participation on competitions, conferences etc

3. What are the (own) potential resources to be put at the disposal of the CreaLab Issykkul State University is one of the biggest university in Issykkul region. Nowadays, University has a great potential of human resources and material technical base. University has several virtual platforms: University website: http://www.iksu.kg/ Students’ services platform Moodle education platform (on the development) moodle.iksu.kg University has 277 staff with more than 70 PhDs, 10 DcS, 4000 students IKSU structure is as following 7 faculties, 1 college, 1 Long life learning center and provided 22 BA and 7 MA programs. As material technical base, university has 7 buildings, 5 educational buildings and 1 for entertainment (Cultural-aesthetical center), 1 Sport complex. Issykkul State University is the leader on the TEMPUS and Erasmus + projects. And we have 16 centers established by projects, they have different goals:

Chinese language Confucius center, Student Tourism Information Center English Language Lab and Recourse Center Arab Language and Culture center Korean Language Center Indian Study center Russian Language Center Kyrgyz Language Center Students Support Development Center Qualification Frameworks Development and IT implementation center Scientific Innovation Center Distance Education Center for Civil Servants Natural Science programs development center Automation of education process center Tuning education center E-learning center and studio

All these centers involved to the university life and education.

IKSU has several agreements with different organizations as with universities, also with companies, most of them for employment and practical trainings, but they also could be developed to joint research, capacity development etc.

4. What is the relevant education on entrepreneurship already available and which connections are already established (or could be developed) with industry

IKSU has the Economics Faculty where university provide course “Entrepreneurship” as elective course. This course still necessary to develop to modern standards. Each university faculty has agreements with industrial and business companies as base for practical trainings for students. Especially connections good developed in Tourism Faculty, because Issykkul is a touristic area. We have some plans to develop new Entrepreneurial School and provide course to all students who want to certified course “Entrepreneurship”. 5. Crucially: who will be the carriers, the “agents of change” in the institution at decision-making level, teachers, researchers and students.

IKSU develops working group for the EUCA project, which is as following: Sagyntay kyzy Elvira – project coordinator at IKSU Umetalieva Munara – assistant of coordinator Decision making group:

1. Akanov Doolot – Vice-rector on the Academic Issues 2. Karybaeva Cholpon – Dean of the Economics Faculty 3. Erkimbaev Maksat – Head of the Accounting and Audit Department 4. Omurkolova Florida – Head of the Finances and Credit Department

Teachers and researchers:

1. Beirmanov Asan 2. Takyrbasheva Zhyldyz 3. Sarbanova Archa

List of students will be complete later. Month ago we announced the competition to the best innovation ideas at the university. Students participated and nominated as leaders will be involved to the project. Apart from the above a brief description of each institution will be provided. This description can be the same as the one to be provided to Ednet for the project website. It was done above.

8. Kyrgyz Economic Universiy, Bishkek

Kyrgyz Economic University

Report on establishing CreaLab in KEU

Work Plan 1.2

1. What is the current situation concerning CreaLab-type of initiatives (if any)

already taken in the institution?

KEU has the following laboratories / centers: - Educational and methodical center of the department of "Finance and Credit" - Teaching and research laboratory of "Management, Hospitality and Tourism" -Training and industrial laboratory of «Accounting, analysis and audit" - Laboratory of "Chemistry" - Laboratory of "Food Technology" - Laboratory of « Cooking Technology» - Training and production workshops - Recording studio, webinar But these laboratories / centers do not work as expected and in many cases are used for theoretical studies. The reason: lack of adequate modern equipment, teaching materials, poor motivation of the staff, etc.

Therefore, it is possible to transform into a single large CreaLab by merging or synergy existing university laboratories based on innovations and apply an entirely new approach to the work oriented to result. 2. What are the ambitions/expectations for the CreaLab (disciplinary research priorities, why does the institution want to establish a CreaLab)? For a better functioning of the existing laboratories KEU needs new technical equipment. For example, it would be possible to carry out research works in creative labs for the business environment upon request. The establishment of this laboratory will contribute to the renovation and implementation of the courses into the curriculum of the specialty "World economy and foreign trade activities", "Foreign economic activity and international trade", "International Economics and Business." Besides during internship, students and undergraduates would give advice to local businesses on implementation of the principles and norms of the WTO. Within the frame of this laboratory, it is planned to invite experts/public officials from the Ministry of Economy of the Kyrgyz Republic, Investment Promotion Agency under the Ministry of Economy and business consultants.

The establishment of such a laboratory will serve as a single platform for research; identify startup ideas for its research, realization and implementation. It will give the opportunity to work together and get concrete results. Short overview of the future CreaLab in KEU Objectives:

* To foster entrepreneurial spirit among students/graduates (academic disciplines of business, economics, management, and tourism), as these people have untapped business potential * To enhance scientific entrepreneurship levels within KG Universities, decreasing over the long-term youth unemployment and boosting job creation and growth across the country * To open up new learning opportunities through the practical application of entrepreneurial skills, which will involve the creation of start-ups, commercialization of new services, products and prototypes Activities: * Conducting in-depth needs analysis; identify the obstacles that PhD students/graduates face in transferring their research findings into business ideas * Students involved in internships, working in interdisciplinary teams and under the guidance of academic faculty, managers, investors and entrepreneurs, having thus the unique opportunity to understand business needs and how their research can be applied in real business settings * Development and testing of a complete pre-accelerator programme offered in universities, research and entrepreneurship centres, accelerators and incubators Specialized areas: accounting & finance services; marketing; event management; management and service in tourism; restaurant business; catering; IT service; logistics; creative entrepreneurship; rural entrepreneurship

CreaLab academic and administrative staff: Teachers Professors Researchers Students (undergraduate, postgraduate) Manager (decision maker)

Expected Results/Outcomes: FOSTER ENTREPRENEURSHIP Foster the entrepreneurial spirit among students/graduates who have untapped business potential. DEVELOP BUSINESS SKILLS Develop business skills for students/graduates, creating new professional paths for them. BOOST JOB CREATION

Enhance scientific entrepreneurship levels within KG universities, decreasing over the long-term youth unemployment and boosting job creation and growth across partner countries. REMOVE OBSTACLES Identify and remove the obstacles that students/graduates encounter in transferring their research findings into business ideas. COMMERCIALISE RESEARCH Involve participants in internships and provide them with hands-on experience on how their research can be applied in real business settings FIND START-UP FUNDING CreaLab participants will be able to present their business plan in front of business angels and VCs for obtaining funding in order to create their start-ups. BUILD BRIDGES Support and stimulate the flow and exchange of knowledge between higher education and enterprises across partner countries. TEACH ENTREPRENEURSHIP Develop state-of-the-art teaching methods and techniques on entrepreneurship education for students/graduates. TRANSFER BEST PRACTICES Transfer best practices from EU countries that have long-term experience in entrepreneurship and accelerator programmes to partner countries. ESTABLISH PARTNERSHIPS Encourage and sustain long-term cooperative partnerships between universities and businesses. 3. What are the (own) potential resources to be put at the disposal of the CreaLab? There is an opportunity to use the research works of the students and teachers. It is possible to use webinar recording studio to record video lessons and research objectives undertake their dissemination through conferences and round tables involving government and business, ie as a whole will act a PPP program. There is an extensive library, departments and laboratories of the department, lecture halls with the organizational and technical equipment. There are conference facilities for conducting scientific and practical conferences and round tables. 4. What is the relevant education on entrepreneurship already available and which connections are already established (or could be developed) with industry? There is a course on "Fundamentals of Entrepreneurship" in all programs. There is a university Career Center and marketing which have contracts with enterprises and organizing internship for students. The Career center is working directly with small and medium-sized businesses as well as with an appropriate Kyrgyz ministries and agencies where the qualification improvement programs are developed.

Since 2015, KEU trains specialists on educational profiles (specializations) "The global economy and foreign trade activities" and "Foreign economic activity and international trade", besides the second education program taught in English. Implementation of the training program "International Economics and Business" will start on 2016-2017 school year. The cooperation can be established with industry structures of small and medium-sized businesses within the capital as well as in the regions of Kyrgyz Republic. In addition, it is planned to develop a bachelor program "Business Administration" at the Department of "Economics, Management and Marketing." 5. Crucially: who will be the carriers, the “agents of change” in the institution at decision-making level, teachers, researchers and students? Teachers, students, undergraduates, doctoral students, professor and manager-coordinator of the CreaLab.

6. Legal and economic context and measures taken at national level to promote

entrepreneurship

The state policies in Kyrgyzstan are aimed at creating favorable conditions for SME. This resulted by creation of the legal framework in the field of entrepreneurship and its further improvement, attracting private sector investment and reducing state intervention in economic activities of businesses.

In order to protect the citizens' rights established by legislation of the Kyrgyz Republic free use of their abilities and property for implementation of entrepreneurial activity as well as the establishment of forms and methods of state regulation and stimulation of the initiative of business entities, the Law of the Kyrgyz Republic "On protection of the rights of entrepreneurs" was adopted in 2008. This Law applies to relations where the business entities interact, created and operating in accordance with the legislation of the Kyrgyz Republic, regardless of their organizational-legal forms and forms of ownership.

The Government of the Kyrgyz Republic has made considerable efforts to a fundamental change of investment attractiveness of the country and creation of favorable conditions for business. In 2009, adopted a new Tax Code provides for the optimization of the tax system (the number of taxes was reduced) and the introduction of modern principles of taxation (tax audits based on risk assessment, the presumption of good faith of the taxpayer and etc.) as well as a modern tax administration to reduce the tax burden on business and maximize the effectiveness of tax administration. Thereby it created quite a liberal tax regime for subjects of the country's business and investors. Since 2006, the VAT on import of equipment is exempted which was intended for its own production use. The government lowered the income tax for enterprises from 20% to 10%.

Since the entry into force of the new edition of the Code, the total number of paid by business and / or collected from business taxes within the general regime of taxation fell from taxes 15 (8 national and 7 local taxes) up to 8 taxes (6 national and

2 local tax). In particular, it has been canceled most of the local taxes, which significantly simplified the tax system for the majority of small and medium businesses, as well as the administrative costs of the tax authorities themselves was significantly reduced. Moreover, the reductions of single tax rate by 1% - 4%, depending on the type of activity, enhance the attractiveness of the simplified tax regime for business; the rate of value added tax (VAT) has also been reduced from 20% to 12%.

In order to create maximal favor for business activity in the country and reduce tax burden of business entities, the Resolution of the Government of the Kyrgyz Republic "About the registration threshold of the value added tax" was adopted which provides for increased VAT registration threshold from 2.5 million up to 4 million soms for SMEs.

The State bears the obligation to support and develop small businesses, to stimulate and regulate the activities of small businesses (Law "On State Support of Small Enterprise", "National Sustainable Development Strategy of the Kyrgyz Republic for the period 2013-2017" dated January 21, 2013 №11). Reducing the frequency of reporting and payment of taxes for all taxpayers except for large is a significant step in supporting of small and medium-sized businesses.

The Kyrgyz Republic joined to EEU and the Common Economic Space (CES). Joining the EEU and the CES is necessary firstable for development of exports to EEU countries without customs borders:

no customs processing at the border;

VAT is not paid when crossing the border, the Customs Union standards allow paying VAT deferred to 1.5 months i.e. there will be preservation of working capital exporters;

common requirements for the products and all the documents confirming the safety of the product will be in a single sample;

cancellation formalities, duties and customs controls at the internal borders of the Customs Union and freedom of transit provides a reduction of costs of participants of foreign trade activities, and creates favorable conditions for the operation of wholesale markets of the country. The investor is interested to come to a more receptive market, rather than in one country.

The CES membership provides migrant workers with favorable conditions of stay and activities in terms of employment of the simplified procedures, reducing the length of stay in the country of migration, improvement of social living conditions for migrant workers and their families;

duty-free supply of strategically important goods such as petroleum products, lumber, metal which are very necessary during implementation of material-country projects in hydropower, oil and gas, construction of residential and transportation infrastructure.

In order to optimize license permitting system of the Kyrgyz Republic, there was adopted the Law "On licensing system in the Kyrgyz Republic" on October 19, 2013 №195.

The law assumes transparent and open principles of the licensing conditions for the issuance, suspension or cancellation of licenses and permits, the procedure for licensing control, measures of influence for violation of licensing requirements and provides an exhaustive list of all types of licenses and permits.

There are following organizational and legal forms of business in Kyrgyzstan with formation of legal entity business activities carried out in the form of: JSC - Joint Stock Company; OJSC - Open Joint Stock Company, CJSC - Closed Joint Stock Company, LLC - Limited Liability Company, SAL - a society with additional liability, Associations: Full and limited partnership, Cooperative - without establishing a legal entity in the form: the individual entrepreneur, who works under the certificate and individual entrepreneurs operating under the patent.

In addition, it is possible to do business forming farms and farms that can be registered as an individual if the founder is one person and as a legal entity if the founder is more than one person.

Non-profit organization has the right to engage in business / income-generating activities

The legislation assumes two conditions for the implementation of income-generating (business) activity of non-profit organizations:

• entrepreneurial NGO activities should not contradict the goals and objectives of the organization;

• the resulting profits should not be distributed among the participants (founders), members of the NGO.

• NGOs Entrepreneurial activity can be carried out:

(1) directly by the organization itself, or

(2) through the establishment of subsidiaries of commercial organizations. This subsidiary

commercial organization profits sends founder, i.e. NGOs, which in turn sends the funds to achieve the objectives of its establishment.

The procedure of registration of the legal entity

The deadline for registration of commercial legal person is 3 working days. Deadline for registration of non-profit legal entity is 10 days.

To address the shortcomings of procedure of registration of commercial and non-commercial entities it is necessary to be registered in many state agencies (the Ministry of Justice, the Statistical Committee, the Tax Service, the Social Fund, etc.), the Government of the Kyrgyz Republic made a decision to reform registration system of legal entities and transition to the registration system on the principle of "single window". As a result the new Law of the Kyrgyz Republic "On state registration of legal entities", was adopted on February 20, 2009 which came into force on 1 April 2009.

Under the new system for registration of legal persons, the applicants visited only one state body - the Ministry of Justice or its territorial divisions, and all other necessary operations must be carried out by the public authorities through the exchange of information. Entrepreneur creates one set of documents in one public body with simultaneous registration and registration with the tax authorities, statistics and the Social Fund. After the set period of time (from 3 to 10 days) he/she receives the registered constituent documents and a certificate of registration with the assigned all the numbers and codes (registration number, VAT number, Main code)

9. University of Economics and Enterprise

University of Economics and Enterprise

1. What is the current situation concerning CreaLab-type of

initiatives (if any) already taken in the institution;

At the University of Economics and Enterprise (UEP) study of more than 3,000

students annually. Of these, about 95% - from the Southern region of the country,

80% -Students from rural areas, more precisely 75% - because of Jalal-Abad region.

Referring to the above statistics we can see that the main contingent of students from

the region occupied by the most needy but promising in the development of socio-

economic nature.

In our university were carried out a number of activities to promote and familiarize

with the activities on the creation CreaLab. Such as:

• Information day for teachers, where they familiarized themselves with the purpose

of the project and a preliminary working group composed of four people was

established.

• In turn, teachers provide students with the purpose and activities of the project,

creative and prospective students were included in the working group.

• There were a number of proposals and ideas for the development CreaLab.

2. What are the ambitions/expectations for the CreaLab (disciplinary

research priorities, why does the institution wants to establish a

CreaLab);

• Meeting the needs of the individual in intellectual, social and material development

by working in CreaLab;

• Development of fundamental and applied sciences and arts by means of joint

creative activity of scientific and pedagogical staff and students, the use of the results

obtained in the process;

• Formation of students' citizenship and creative activity;

• Increase the amount of experience in the development of a strategy on the creation

of new jobs.

• Find and reinforce the skills and knowledge to form CreaLab full operation.

• Methods and directions to enter the new modern activities.

• Move to new levels of modern business and the provision of services taking into

account the creation of jobs.

• Since our present time and skills are studying theoretical knowledge, so expect to

review the structure of action.

• The project to create CreaLab assigns to each student a great responsibility, which

manifests itself in the development of socio-economic background on all States.

3. What are the (own) potential resources to be put at the disposal of

the CreaLab;

Our university provides CreaLab under the premise of 30 m2;

A working group of students and teachers;

at the disposal of the working group CreaLab University has a library with Internet

access.

4. What is the relevant education on entrepreneurship already available and

which connections are already established (or could be developed) with industry;

At the moment we have conducted training of students on the profile of Economy,

which is divided into the following areas:

- Finance,

- Banking,

- Tax and taxation,

- Insurance business,

- Accounting and analysis,

- Audit,

- Management.

Also, we have established relations with the following companies and organizations:

- Joint Stock Company "Kelechek"

- Joint Stock Company "Nur"

- Maylisu lamp factory,

- Joint Stock Company Gazprom Neft Jalal-Abad,

- Association of Young Entrepreneurs (JIA).

5. Crucially: who will be the carriers, the “agents of change” in the institution at

decision-making level, teachers, researchers and students.

The Project Manager will oversee the activities of the working group to engage in

logistics coordinator to help in making decisions on issues CreaLab.

10. Country Report

1

Information about authors

Takyrbasheva Dzhyldyz – is a teacher, economist, MA of public administration and local

self-government

Currently – teacher of "Economics, Finance and Taxation" in IKSU named after

K.Tynystanov.

Contact information: email - takyrbasheva@iksu.kg

Beirmanov Asanaly - is a teacher with 20 years’ experience. He has three high education

degrees - engineering, economic, legal.

Over 37 years total experience he has been working in both in production and in small

businesses, as well as in the municipal service.

Currently, he works as a lecturer in the department of "Accounting, analysis and audit" in

IKSU named after K.Tynystanov.

Contact information: asanbeirmanov@iksu.kg

Sarbanova Archa - Lecturer: Economist, Master of Public Administration and Local Self-

Government.

Currently occupied as a lecturer in the department of "Accounting, analysis and audit" in

IKSU named after K.Tynystanov.

Contact information: sarbanovaa@iksu.kg

2

TERMS

Innovation - the end result of the activities for the implementation of new or

improvement of the product which is being sold in the market, process, organizational and

technical measures used in practice.

Innovation activity - the process of innovation, including applied research,

experimental development, training and start-up of production, as well as activities to ensure

the creation of innovation - scientific and technical services, marketing research, training and

retraining of personnel, organizational and financial activities.

State innovation policy – is a part of socio-economical state policy, which represents

a set of objectives, principles, tools and general line of actions implemented by the

Government on behalf of the state in the field of innovation. National Innovation System (NIS) - a set of private and public sector organizations

that are in interaction with each other within the framework of legal and informal norms of

behavior and lead innovation in the state level. These organizations are active in all areas

related to the innovative process: research and development, education, manufacturing,

marketing and service innovations, the financing of this process and its legally legal support.

Innovation potential - set of different kinds of resources, including material, financial,

intellectual, scientific, technical and other resources required for the implementation of

innovation.

Innovative sphere – a sphere of activity of producers and consumers of innovative

products (works, services), including the creation and dissemination of innovations.

Innovative infrastructure - organization, facilitating the implementation of

innovation (innovation and technology centers, technology incubators, technology parks,

educational and business centers, and other specialized organizations).

Innovative active enterprises - enterprises engaged in the development and

introduction of new or improved products, processes or other types of innovation.

Innovatics - a field of knowledge, including methodology and organization

innovation;

Technology Transfer - is the transfer of scientific and technical knowledge and

experience to provide the scientific - technical services, application of technological processes

of production. Transfer - means, "to transfer, transmit," and under the technology in this

context, refers to the results of SRW & RCP and innovative products.

In English (technology transfer), technology transfer means:

1) Process of dissemination of scientific - technical knowledge;

2) Practical application of scientific knowledge obtained in another organization;

3) Transition from fundamental knowledge to the technical means;

4) Device of the prior art for a new use.

Center for Technology Transfer (CTT) - is an infrastructure organization,

production of which is a set of services to participants of the innovation process - TTC

customers. TTC united in a network of technology transfer. The main purpose of these centers

- improving the competitiveness of local industry by attracting technological innovations.

Process innovation - is the development of new or significantly improved methods of

production, changes in the equipment or the organization of production, or both. Such

innovations are aim, tend to create new or improved products, the release of which is

impossible when using existing equipment and manufacturing methods used, or a significant

increase in production efficiency becoming available products.)

3

Methodology

For the study were used a number of general and special methods that allow

quantitative and qualitative assessment of certain aspects of innovative activity of the Kyrgyz

Republic. We used techniques and scientific methods of research: statistical, horizontal,

vertical, method of logical information processing, comparison of indicators, graphic display

of results, etc.

Legal and economic conditions in Kyrgyzstan

Kyrgyz Republic - a country that has no outlet to the sea routes, with limited natural

resources and underdeveloped business sector. Underdevelopment of internal and external

transport links, combined with the small size of the domestic market, are an impediment to

the development of economic infrastructure.

Kyrgyzstan's economy does not have sufficient capacity to cope with the effects of

negative processes in the global financial and commodity markets. The ability of Kyrgyzstan

for adequately respond to the growing challenges of foreign trade is an essential condition for

economic development. The main problem is insufficient development of competition in

some sectors of the economy. The Kyrgyz economy loses its industrial component, with

significant disparities, both in industry and in the territorial structure.

Current structure of the economy is focus primarily on agricultural production,

mineral extraction, and production services. It also is not innovative, is not aim at creating

industries oriented to knowledge and technology. The economy has insufficient rate of capital

formation for the growth potential of the structural changes in favor of innovative and

technology-intensive industries. All key sectors of the Kyrgyz economy are technological

dependence on other countries. Strengthening the position of the Kyrgyz Republic in the

world requires intensive development of priority sectors of the economy. In such a key

industry for the country's energy, all production equipment imported from abroad. The

absence of its own innovation, constant technological dependence of Kyrgyzstan leads not

only to a decrease in the competitiveness of the economy, but also become a barrier to

achieving higher levels of social and economic development.

Today in the Kyrgyz Republic, problems in the field of innovation are wide enough -

from the legal framework, infrastructure and solutions to the problems of informational and

educational level. It reflects the educational level of creative ability of workers to accept new

ideas, which appeared on the market. The quality of the workforce determines the firm's

ability to carry out their own research, or copy the new products from other firms.

Company, which uses the principles of a learning organization, it is an attractive place

to work for highly skilled artists, improves relationships with customers and partners. A

special role in this belongs to science. Therefore, it must be closely integrate into production,

to become a party to the innovation of the development cycle, distribution and use of

innovation. Of particular note is the possibility of organizational culture in the promotion of

innovation and the role of strong leadership in the creation of such a culture.

Specifics of the socio-economic development of Kyrgyzstan in the last two decades is

the main focusing attention on the creation of the legal framework and the necessary

conditions for the successful promotion of market reforms. When the developed western

countries directed their main efforts and financial resources to ensure the transition to an

innovative path of development and progress evident in the way of technological renovation,

Kyrgyzstan was forced to concentrate on solving the problems of the transition from a

command to a market economy: on the development and adoption of the legislative

framework of radical economic reforms, privatization of state-owned enterprises the main

sectors of the economy, the formation of the foundations of market mechanisms, and others.

During independence years in Kyrgyzstan, mainly there were form and developed

individual public authorities, which features the development of innovations, laid the legal

4

framework. It should be note that the innovative direction of Kyrgyz enterprises is only in its

formative stages. It refers to large enterprises, financial resources that allow creating the

conditions for innovation in the workplace.

Legal regulation of innovative activity is essential for innovative development and

functioning. For several years, various laws and regulations determining the innovative

development of the basics have been adopt:

- Law of the Kyrgyz Republic "On science and about bases of the state scientific and

technical policy";

- Law of the Kyrgyz Republic "On innovation activity";

Other main legal acts of innovative development of Kyrgyzstan are:

- "On science and about bases of the state scientific and technical policy";

- "On the protection of the rights of entrepreneurs";

- "On state support of small business» and others.

In addition, approved a number of policy papers on innovation:

- National Sustainable Development Strategy of the Kyrgyz Republic for 2013-2017

- National Strategy for Intellectual Property and Innovation Development in the Kyrgyz

Republic for 2012-2016;

- State Program of Intellectual Property and Innovation Development in the Kyrgyz

Republic for 2012-2016;

- Concept of state innovation policy of the Kyrgyz Republic for 2003-2005;

- Concept technical and technological re-equipment of the Kyrgyz Republic for 1998-2000;

- State program of development of the intellectual property system of the Kyrgyz Republic

for the period 2000-2010, "Intellect";

- State program of reforming science in the Kyrgyz Republic for 2003-2005;

- State program of reforming science in the Kyrgyz Republic for 1999-2005;

- System Development Program for scientific and technical information in the Kyrgyz

Republic for 2004-2010;

- Development Program of scientific and innovative activities in the Kyrgyz Republic, and

others.

The above list of regulatory documents show that in Kyrgyzstan there is a certain legal

framework, developed and adopted to perform a number of strategic documents. However,

analysis of the qualitative state of the regulatory framework for innovative development and

its comparison indicates fragmented character, which is a consequence of the lack of

methodological approaches that allow for comprehensive formation of solid innovation model

of economic growth. Said fragmentation manifests itself only in the regulation of the

individual segments and use of innovative development of only certain levers of the entire

arsenal of incentives tested in world practice.

Legislation and regulations have mainly a framework character, setting only the most

general principles, objectives and tasks of innovative development, without determining

specific mechanisms and levers for their implementation.

Another distinctive feature of the regulatory framework innovation is lagging behind

legislative initiatives, as well as changes in legislation on the dynamics characteristic of the

transition to a society based on knowledge. Unfortunately, the legislation in this area is not

necessary pre-emptive nature.

Fundamental law of the Kyrgyz Republic "On innovation activity", adopted in 1999,

designed to speed up technological progress and create favorable conditions for business,

although still valid, but some of its rules are outdated and no longer meet the requirements of

the times.

However, the real action developed and adopted legislation in the sphere of innovation

to a large extent offset by the underdevelopment of market relations, a low degree of maturity

of the competitive environment, undue bureaucratization of the executive power, the limited

financial resources necessary to create favorable conditions for the functioning of innovative,

5

high risk, low involvement in international intellectual space, the lack of appropriate

infrastructure, low level of innovation culture and the inertia of economic thinking.

In 2012, National Institute for Strategic Studies of the Kyrgyz Republic conducted a

study on the use of innovation in the development of small and medium-sized businesses in

Kyrgyzstan. Based on this study were identified prospects of its further development in the

country and developed specific targeted recommendations for its strengthening.

On the base of the study incorporated the goals and objectives defined by the National

Strategy for Sustainable Development of the Kyrgyz Republic for 2013-2017 - creation of

favorable conditions for development of innovation, promote the modernization of the

economy through advanced technology.

According to the results of survey, it was reveal that the main problem of innovation

in enterprises of the republic is the low qualification and responsibilities of personnel, lack of

qualified personnel, lack of training of many specialties in vocational lyceums of the republic.

Thus, in the regulation of business activities, in addition to civil law are used norms of

many branches of law - constitutional, administrative, criminal and other.

Fundamental, guiding significance, as noted above, the rules of the constitutional and

civil law. It is difficult to overestimate the importance of the provisions in this respect, the

Constitution of the Kyrgyz Republic. In particular, the provisions on freedom of economic

activity, which are the basis of the business law.

Thus, the legislation on business are complex. In terms of sources (forms) of law - the

laws, including the Basic Law - the Constitution of the Kyrgyz Republic and regulations. The

Civil Code of the Kyrgyz Republic, as the largest codified law is of particular importance in

the regulation of business activity, containing the concept of business, organizational and

legal forms of its subjects, the legal regime of property, credit and settlement relations and

others. Legal regulation of innovative activity is essential importance for the innovative

development and functioning.

Main government body authorized to carry out the implementation of a unified state

policy in the field of innovation, is the State Service of Intellectual Property and Innovation

under the Government of the Kyrgyz Republic.

According to the Law "On innovation activity" in November 2012. It was created by

the Council of State for Innovation under the Government of the Kyrgyz Republic, which is

the coordinating body established to make recommendations and proposals in the field of

development of innovative activity in Kyrgyzstan. The Chairman - Vice Prime Minister,

heads the State Council.

Currently, the Kyrgyz Republic faces the task of creating an effective NIС, capable of

providing the task of economic development at the expense of existing scientific and

technological capabilities, taking into account the level of economic development and

business needs. Compliance selected NIС model, its goals and objectives of the possibilities

and interests of industry, business and the conditions of the country will determine its

effectiveness.

The main objectives of innovation management at the macro level can be represent as a

picture (see. Fig. 1.)

6

Fig. 1. Objectives in innovation management (macro level)

Thus the basic methods of implementation of the innovation policy of our state are:

1. Formation of institutional, regulatory and legislative conditions for positive changes in the

sphere of innovations. In the legislative plan should be included measures on the development

of legal acts in the first place the law on innovation policy, in terms of capital investment,

regulations of the Government on the development of intellectual property market, on the use

of scientific and technological activities, and others.

2. State support and encouragement of investors, investing in high-tech, high-tech

manufacturing, as well as the organization of various forms of property (in the period of

development of innovations) through the introduction of certain tax exemptions, government

guarantees and loans.

3. Improvement of the tax system in order to create favorable conditions for conducting

innovative activity by all subjects regardless of ownership and types of financing.

4. External Economic support, providing creation of conditions for the formation of joint

ventures with foreign partners for the production of domestic products and its implementation

in the foreign market, providing domestic innovation advertising abroad, improvement of

exhibition activity, participation in international information systems to exchange information

on innovative projects.

5. Providing foreign lines of credit quotas for the development of innovation infrastructure

purchase of equipment for the implementation of highly innovative projects under the state

guarantees and licenses high-performance technology and knowledge for the development of

the production of the latest products.

6. Consolidation of efforts of public authorities and private investors, aimed at the

organization of interaction with the countries members of the CIS, EurAsEC and other states.

7. The development of high-tech unique equipment leasing.

8. Participation of innovation-active organizations in international competitions.

9. Allocation of direct government investment for the implementation of innovative programs

and projects that have national scope, but unattractive to private investors.

Economic situation today is characterize, unfortunately, with the lack of interest of the

majority of producers in carrying out innovative activities. They are concerned about its

survival, i.e. on the face of a crisis of innovation, and it known, it is one of the factors

hampering the progressive economic development of the country.

Public policy objectives: growth of

production, budget replenishment through taxes

and contributions

Economic goals:

Maximization

Legal objectives:

obedience to the law

and executive discipline

Social objectives: satisfaction

the needs of society Research and

technological

objectives: search for new approaches

Ecological objectives:

waste minimization and

emissions into the environment

State

Market objectives: activization

of enterprise strategic behavior

and development of new markets

7

In the Kyrgyz Republic for the past 20 years, science has not been able to offer a

development that would have any significant impact on macroeconomic policy and the real

sector of economy of republic.

According to statistics in the Kyrgyz Republic, the proportion of funding for research

and development costs in GDP has steadily declined - from 0.23% in 2006 to 0.11% in 2013,

despite the fact that the rate of science intensive GDP below one percent is consider critical.

Innovation in Economy of Kyrgyzstan

Concept of innovation development of the Kyrgyz Republic is defined model of

innovative development of Kyrgyzstan until 2020, taking into account the capabilities of the

country and the current state of development of innovative activity. In the development of the

Project concept analyzed the world experience in the development of innovative activity, and

there have been investigated program documents of the Russian Federation, Kazakhstan,

Uzbekistan and Belarus in order to inform policy choices and innovative development of the

Kyrgyz Republic; The analysis of innovation based on the KR NSC data on the innovation

process in the industry of the Kyrgyz Republic for 2011 - 2012 identified the main problems

and ways to form and direction of innovation in the long term.

Over the past 20 years in the industry of the Kyrgyz Republic took place structural

changes, which were accompanie by a decrease in its effectiveness. The share of gross value

added of industry in the country's GDP decreased by 12.72% from 1990 to 2012 with 27.11%

and 14.39%, respectively (WDI, WB, 2014). The total number of workers employed in

industry in 2012 compared to 2008 decreased by 28.5%, which is mainly due to the reduction

in the number of employees (35.3%) in the manufacturing industry with 211 thousand. Up to

151 thousand human. (NSC, 2012)

It must be recognize that the economic policy of the state continues to have a negative

impact on the recovery and development of the industry, especially in the field of machinery

and equipment. Country of the agro-industrial turned into agrarian and raw materials. Decline

in production volumes in the industry as a whole was more than 50%. In 1991, the share of

industry in GDP was 46%, in 2012 it was reduced to the level of 16.8%. The de-

industrialization has led to the fact that out of 600 enterprises, more than 550 have been

privatize, and the 29 largest enterprises liquidated by Pijesak program.

Implementation of a large investment project on development of gold deposit

"Kumtor" stopped this trend. However, in the future the trend decline in the share of the real

economy sector in GDP continued. This process was accompanie by a steady growth of the

service sector, whose share in the GDP exceeded 45.9% in 2010. Thus, at present, taking into

account the share of all sectors of the economy of the Kyrgyz Republic can be mainly

attribute to the service. The structure of the GDP of the country according to the Ministry of

Economy for 2014 is as follows: services - 52.8%, industry - 16.2%, agriculture - 9.7%,

construction - 6.3%, net taxes on products - 15%. Nevertheless, 50% of the revenue provided

by the industrial sector, for comparison, the service sector provide - 35%, agriculture - 4 - 5%.

State economic policy is still focus on support and development of the agricultural and

service sectors of the economy, rather than industrial development, which has a negative

effect on the development of industrial production.

In the OECD countries, the share of innovative enterprises in the industry is more than

50%, in Russia - about 10%, in Kyrgyzstan the figure was about 1.6% in 2012.

Innovation activity of domestic enterprises is in the process of formation and

characterized mainly for large enterprises, since their financial resources allow creating the

necessary conditions for innovation. Kyrgyzstan is joining the Customs Union and the

8

Common Economic Space (CES) has opened new frontiers and prospects and, of course, new

tasks that are vitally important to solve. "

The quickest way to achieve this goal runs through effective scientific and industrial

policy, for which all preconditions have not completely lost. These include:

a) Presence of a powerful intellectual potential of the country, has formed system of

education and traditionally high level of scientific and technological culture;

b) Existing world and its experience in creating systems for disseminating

technological advances in the production of a lower technical level;

c) An ever-expanding variety of forms and business conditions, rules of their adjusting

regulatory developments (tax, customs, intellectual property rights, pricing, competition,

protection of the domestic market, etc.);

g) Potentially high demand for products of high technology industry from consumer

market and manufacturing sector;

d) Higher level of profitability (profitability) of science-intensive industries, compared

with resource extraction and processing.

During the research, it was reveal that the basic number of innovative enterprises are

in Bishkek (51% and 49%) and in Issyk-Kul oblast (19-20%). In Jalal-Abad region posted 7-

8%, Chui - 12%, in Osh - 3-2%, in Batken and Osh by 3%.

With different trends characterized the development of innovative processes in some

manufacturing industries. The third part of enterprises (33.3%) 6.6% produces innovative

products for the production of food; share of expenditure in the sector is 44.3%. In the steel

industry, the manufacture of electrical machinery and vehicles, the ratio is, respectively - 42.3,

91.6 and 53.5%.

Entire volume of innovative products and services produced and owned by private

property, and 99.5% private ownership of legal entities, their branches and representative

offices. While a small proportion of foreign legal entities (0.33%) and the private property of

citizens (0.1%).

Based on Kyrgyz National Statistics Committee data on innovation process in the

industry of the Kyrgyz Republic is the most active innovation featured on food production

enterprises, beverages, tobacco and other non-metallic mineral products (10 companies).

More actively innovative processes introduced in Bishkek and Chui oblast (14 companies).

By innovative enterprises mastered and produced 50 new products. It should be note

that 76.2% of the exported product is accounted for production of other non-metallic mineral

products, 13.8% - to enterprises for the production of electrical and optical equipment. It is

recognize that innovation enterprises of the republic remains extremely low and is dependent

on imports of foreign innovation in the form of equipment and technologies.

Domestic enterprises can be divide into 3 types depending on nature and scale of their

activities.

Type 1 - innovative enterprises operating at an international level. These individual

companies, primarily in the field of information technology.

Type 2 - innovative enterprises operating at the level of the CIS market requirements. There

are companies whose products are intend mainly for the market of CIS and only partially

selling their products abroad. The industrial base of such companies, as a rule, does not reach

international standards and innovate affect mostly not to upgrade production and to improve

the financial condition and other aspects of the work of enterprises (TD "Kulikovskii", JSC

"Shoro", JSC "Bishkeksut" and et al.)

Type 3 - companies that do not engage in innovation. Currently, this type includes most of

Kyrgyz enterprises. It is mainly small and medium enterprises with obsolete production

facilities and spare capacity, without departing from foreign market.

According to National Statistical Committee of the Kyrgyz Republic on the

background of steady decline in the number of innovation active enterprises in 2012 marked

their growth, which may be due to market conditions, are guided by the current demand. In

9

general, we can note that there are changes in the structure of industrial production, which

generally are negative. If in the field of electric, electronic and optical equipment in 2012

there has been a slight volume increase of 1.3% compared to 2011, in the field of machinery

and equipment has been reduced by 33.5%.

Number of enterprises, issued innovative products (un.) in 2007 – 2012.

In 2012, 27 enterprises were engaged in development and implementation of

technological and marketing innovations in the industry of the republic, or 1.6% of the

number of industrial enterprises.

In 14 industrial enterprises were produced industrial products, and the rest were

process innovations.

The most active innovation featured on food production enterprises, beverages,

tobacco and other non-metallic mineral products (10 companies).

More actively introducing innovative processes in the industrialized areas of Bishkek

and Chui oblast (14 companies).

Innovative enterprises mastered and produced 50 new products.

Volume of innovative products and exports in 2012 was estimated in the amount of

1,003,500,000 soms, or 69.2% of the total volume of shipped innovative products and

services (in 2011 - 27.0%). It should be note that 76.2% of the exported product is accounted

for production of other non-metallic mineral products, 13.8% - to enterprises for production

of electrical and optical equipment.

It should be recognized that the cost of technological innovation in the industry do not

meet actual needs of domestic economy in the renewal of fixed assets and increase in the

production of a fundamentally new competitive products.

In 2012, the cost of technological innovation reached 1,278,500,000 soms. There is a

tendency of growth of the types of innovation that are directly relate to the implementation of

innovations, the acquisition of hard technologies. Thus, the acquisition of machinery and

equipment in 2012 carried out by 16 enterprises, while expenditures amounted to

1,170,600,000 soms (91.6 percent of total expenditure on technological innovations).

Total expenditure on technological, marketing innovations 88.8% are own funds of

enterprises, 7.5% - foreign investments and 3.7% - other sources of funding.

Implementing Innovations by enterprises of the republic remains extremely low and is

dependent on imports of foreign innovation in the form of equipment and technologies.

Innovative activities of Kyrgyz enterprises is in the process of formation and is characterized

mainly for large enterprises, as their financial resources allow you to create conditions for

innovation.

10

Apparently, private entrepreneurs do not appreciate the value of innovation.

Private sector in the Kyrgyz Republic is not investing in innovation and research and

development activities, mainly due to lack of resources, lack of awareness of the importance

of innovation, and weak protection of intellectual property. While in other countries,

entrepreneurs implement innovations to improve the quality of their products or develop new

products, what we cannot say about the Kyrgyz entrepreneurs.

Low level of public research activities stifles innovation. According to the latest data

and estimates, the research work expenses in relation to GDP are close to zero.

With rare exceptions, the entrepreneurs in the Kyrgyz Republic carry out their

activities in "innovative vacuum", without relying on the diversity of public higher education

institutions and research institutes, during Soviet Union engaged in excellent research and

innovation activities. This separation between public and private sectors, mainly due to the

low capacity of these laboratories to provide reliable and innovative services. Expanding

innovation activities would enable to provide unprecedented opportunities for Kyrgyz

companies, especially in niche markets, where local businesses can derive from technological

innovations benefit, through a gradual build-up the value chain.

Low-quality system and infrastructure threaten innovation potential.

Standards - is set out in documentary form agreements containing technical

specifications, which used as rules, guidelines or definitions of the technical characteristics.

Since the standards are designed to ensure that materials, products, processes and services for

their purpose, they play a crucial role in ensuring the international exchange of goods and

services, as well as cooperation in the spheres of intellectual, scientific, technological and

economic activity.

Currently, the system of Kyrgyz standards are still based on outdated mandatory technical

standards, inherited from the Soviet system, and inadequate infrastructure of metrology,

standardization, testing and quality (SITC), consisting of poorly equipped laboratories, a wear

test and calibration equipment.

Measures of innovation policy

Taking into account existing capacities and innovative potential of the existing need to:

1. Develop a state support program aimed at promoting the modernization of industrial

enterprises, extensively using the possibility of integration process to provide access to new

markets domestic competitive products and creating a joint venture for future access to

international markets.

2. Establish institutional mechanisms to facilitate the use of resource-saving, import

substitution, environmentally advanced technologies. On this basis, it should implement in the

sectors of small and fast payback innovation projects with the participation of private big

business and the available opportunities for financing entrepreneurs and private investors,

with the support of the state.

In the first stage of innovation development, it is advisable to select a relatively small number

of most important basic technologies in the fields in which Kyrgyzstan has good potential.

These are the areas of science and technology as the use of chemicals in agriculture; the

creation of drugs (generic); development of high and new technical feasibility of renewable

and alternative energy sources.

3. To develop the infrastructure of the national innovation system (NIS) through creation of a

network of incubators (TISC) (including "virtual" for the region, using ICTs), technology

transfer centers; encourage and support the exchange between science and private sector (in

particular, association of Innovation Fair with International Industrial Fair).

4. Create a system of state support of new innovative companies in the initial stages and risk

insurance companies in the early stages of their development in the implementation of

technological investments

5. Develop a legal and regulatory framework, which provides favorable conditions for the

development of innovation through the actualization of the Law "On innovation activity",

11

adoption of the Law "On state support of innovation projects", the Regulation "On the fund to

stimulate innovative development" to encourage innovative entrepreneurship and ensuring

protection of intellectual property rights, as well as the revision of regulations hindering

innovation development.

6. Provide training and retraining for innovative specialties, including specialists in

innovation management; creation of conditions to ensure adequate mobility of technical staff

between the public and private sector research and development and production.

7. Continue and improve the tracking of innovative development through the

development of regulations and methods of statistics for business innovation. Develop

indicators of innovation development, comparable with international, and carry out regular

monitoring of the development.

8. Conduct research of innovation activities of economy spheres and industries in

regions, that allow giving scientifically based guidelines of innovative development.

9. Establishment of coordination and cooperation of all interested parties (national

enforcement authorities, local self-government bodies, organizations, enterprises, scientists

and entrepreneurs) in the implementation of national innovation system on the basis of State

Innovatics Council.

Creating a partnership between state and private business is becoming a major trend

foster innovation and solving actual problems of development of the republic's economy. The

basis of PPP mechanism is to organize joint activities of public research organizations, public

scientific and educational institutions, state unitary enterprises and private industry, financial

and business innovation.

Development of effective institutions for cooperation between state and private

business is one of the most important conditions for the formation of effective economic

policies to increase investment and innovation activity, increasing the competitiveness of the

country, as well as the development of industrial and social infrastructure.

Innovative processes in education

Innovation processes have long had a place in our system of higher education. The

transition to a multi-level system of training, computerization of educational process,

introduction of distance learning, introduction of credit hours play an important role in the

formation of a new image of the Kyrgyz Republic.

Need to introduce tiered university system was dictated by life itself.

In order to implement a multi-level system of higher education has developed and put

into action the State educational standard of "Higher Education. General requirements "and

State classifier of directions of higher professional education. There was formed the whole

structure of its component parts, that is, the basic state standards for all levels of higher

education: basic higher education (Bachelor), complete higher education (training of masters

and graduates). Nowadays in accordance with the Agreement on cooperation in the formation

of a common educational space of the CIS countries developed national professional

standards of the second generation of higher education.

State educational standards require a profound change of content of cultural training,

humanization of education, overcoming of technocratic trends in science and technical

education while strengthening the fundamental training in arts education.

In the practice of high school, it was possible to implement a program of the first level

of higher education, with mandatory state certification. At this level, there is general

scientific, humanitarian, socio-economic and fundamental scientific training of students,

including teaching of foreign languages and computer technologies, based on which formed at

undergraduate divergent professional training programs. The introduction of part-time higher

education saves solidity and equivalence of educational services in all higher education

institutions to provide students with the opportunity to change the trajectory of the least loss

12

of education. It is to some extent compensates for the lack of equivalence in terms of foreign

training of general education systems and creating an opportunity for our citizens to enter to

foreign universities.

The second level of higher education exists at all university faculties. Master's

graduates - are highly skilled generalists, able to work in their respective fields.

A kind of link between the educational systems of different countries was the

discovery of double subordination of universities that lead the educational process by means

of joint educational programs and award diplomas of two states, respectively, recognized in

both countries.

The country is working on the exchange of students and teachers of high school; it

offers a number of educational institutions established in cooperation with foreign countries

partners: Kyrgyz-Russian Slavic University, Kyrgyz-European Faculty of KNU, American

University of Central Asia, International University of Kyrgyzstan, and etc.

In the education system involved grants of following funds:

• Soros,

• Eurasia,

• EU;

foreign investment banks:

• European Bank for Reconstruction and Development,

• Asian Development Bank,

• Islamic Bank for Reconstruction and Development,

• Islamic Development Bank;

funds of international programs and organizations:

• IREX,

• ACXELS,

• UNDP,

• USAID,

• TEMPUS,

• TACIS,

• UNESCO,

• UNICEF,

• Peace Corps and etc.

Extension the use of information and communication technologies in education led to

better training of ICT professionals and provides educational conditions for the entry of

Kyrgyzstan into the global information society and joining the Bologna process.

There are take steps for establishment and application of distance learning. With this

goal are being developed computerization programs of higher education system, connection to

global information network Internet. Some universities of the republic has successfully used

new information technologies in the process of training and management, creating a modern

information-learning environment.

In some universities of KR is being implemented in the educational process the

distance learning. Its development - it is a necessary and natural process in the formation of a

unified system of continuous education. Distance learning - a new organization of educational

process based on the principles of independence, individuality and modularity of learning; it

is the most mobile, flexible, democratic form of training, which allows practically realizing

the right of everyone to education and information.

Particular importance the distance education has for the development of regional

higher education institutions, as well as to the scope of training and retraining of specialists.

The spread of distance education will contribute to the growth of virtual mobility and

transnational education.

Academic mobility - it is an opportunity for students and teachers, administrative staff

"to move" higher school from one institution to another to exchange experiences. According

13

to the recommendations of the Bologna Declaration, each student is desirable to carry out a

semester in a different institution, preferably abroad. The value of such contacts cannot

overestimated, especially in conditions of low availability of modern literature, often of

limited and outdated laboratory facilities, as is the case in many universities of Kyrgyzstan.

Currently, in Kyrgyzstan, even within the mobility is quite limited countries. Especially

without speaking yet about mass trips of students in European and other foreign universities

because of public resources deficit. Therefore, the concept of mobility of students, teachers,

researchers, graduates can transformed into a virtual and professional mobility. Virtual

mobility elements are the distance education and work at foreign companies via the Internet.

In recent years, a number of universities have started applying new teaching methods.

The most successfully assimilated technologies of modular training in many universities of

Kyrgyzstan, training credit hours system, the specificity of which is that teachers of subject

aside for self-study students to some of the topics in this section or discipline, creating the

conditions for this, taking into account the real possibilities. Tasks credit-hour system is to

activate and intensify the teaching and learning activities of students; creating optimal

conditions for a creative approach to personal fulfillment; transforms the relationship between

teacher and student in the context of democratization and humanization; improving the

economic effectiveness of the training.

The use of credit hours provides our students with the opportunity to continue their

education abroad and gain a postgraduate degree, equally recognized both in our country and

abroad. At the same time the introduction of credit hours in the educational process of our

universities, make more attractive for foreign students, which will lead to an increase in their

number in Kyrgyzstan and will lead to the export of our higher education. The Bologna

process also involves intensive processes of formation of the new methodology in the field of

education and science of characterizing the economies of developed countries. Information

technology, telecommunications, computer-based, advanced processing tools and data

reporting are the basis for the formation and development of new approaches to the

organization of educational process, scientific research and education management.

As a source of professional training preparation, updating knowledge and retraining

lifelong higher education institutions should systematically take into account the trends

emerging in the labor market, as well as in the fields of science, technology and economy. In

order to respond to the needs in the labor force, the higher education system and the labor

market must work together to ensure the development and evaluation of the educational

process, compensatory programs and certification programs and the recognition of prior

learning experience, combining together the theory and training in the workplace.

Unfortunately, low value of innovation in science, its isolation from the education

process invariably affects the quality of education. There are no incentives for the serious

pursuits of science and research faculty of higher educational institutions.

Currently, few universities of the Kyrgyz Republic may qualify to participate in the

global rankings due to the lack of significant scientific advances and research. At the same

time the largest universities in the world - are just not only the educational institutions, but

also above all the centers of science and education.

Major direction of creation and development of the national innovation system is to

strengthen the human potential. For this purpose, it is necessary to ensure the development of

a system that meets the requirements of an innovative economy.

It is necessary to involve the representatives of industry and business in the process of

formation and implementation of educational programs of higher education institutions in

order to take account of their interests and staffing requirements.

As part of a national training program to organize the preparation of a new generation

of managers in the field of innovation management.

14

In order to promote innovation in higher education institutions to ensure the provision

of additional tax incentives for small innovative businesses established for the purpose of

commercialization of the intellectual property of universities.

At the stage of higher vocational education improvement, the quality of training of

researchers should take place due to the expansion of scientific and educational laboratories

and scientific-educational centers, special university programs to attract students and graduate

students to practical research and innovation activities.

Modernization of personnel policy research and development includes the expansion

of existing and creation of new mechanisms to attract and retain science and innovation

activities of young professionals, for example through the introduction of a system of

individual grants for young scientists for the implementation of their own inventions.

Upgrade process requires the reduction of scientific personnel inefficient researchers

and departments. In order to improve workers' responsibility for the results of the work there

should be reviewed statutory regulations and the practice of holding regular certification of

the results of research with involvement of external expertise.

Development of fundamental science and the order of its funding should aimed at

ensuring the competitiveness of the national economy through development of a program to

modernize functions, structure and funding mechanisms of academic science sector.

Improving the quality and efficiency of basic and applied research as a source of new

ideas and innovative projects requires a gradual increase in the amount of funding for the

entire process chain from idea and design to the preparation for commercialization. Of

particular importance is the efficiency and control of the flow of funds, where the main

criterion for the effectiveness and relevance of the results.

For the realization of the development objectives of scientific and technical sectors of the

economy, governments need to:

develop a methodology to determine the need for scientific personnel and

specialists for the innovation-oriented economy;

create conditions for retraining and advanced training of scientific personnel and

senior managers of industrial enterprises in the field of innovation management,

technology transfer and commercialization, the theory and practice of legal

protection and use of intellectual property, management of innovative projects and

promote them on the market;

Improve the system of training, retraining and advanced training of scientific

personnel and specialists in the field of innovation management,

commercialization of intellectual activity results in the field of science, technology

transfer, legal protection and use of intellectual property, management of

innovative projects and promote them on the market;

provide organization in universities of an extensive system of training of

specialists in the field of innovation, management innovation, transfer and

commercialization of technology, the theory and practice of intellectual property

protection and use, management of innovation projects, promote them on the

market, which provide an appropriate course in educational postsecondary

programs educational institutions;

provide establishment of the Public Administration Academy under the President

of the permanent course of retraining and advanced training of senior scientific

staff on innovation management and strategic management; organize training and

retraining of specialists of enterprises and organizations, which are engaged in

innovative activities positions in specialized research institutions and employees of

15

scientific institutions - in enterprises and organizations, relevant scientific profile

Research Institute;

expand the scope of cooperation with foreign countries in the field of training on

innovation management.

Examples and cases

In order to build the infrastructure elements of innovation, as well as interoperability

with the regions of the country created branches of Technology and Innovation Support

Centers (TISC) in the Chamber of Commerce of the Kyrgyz Republic, Bishkek Research

Center of Traumatology and Orthopedics, Kyrgyz-Russian Slavic University, Kyrgyz

National University. Balasagyn, Issyk-Kul State University. K. Tynystanov.

Coordinators of TISC facilitate the search for technical and patent information on

international databases; provide advice relating to the management of rights of intellectual

property in the scientific community, inventors, students and representatives of the business

community. In order to create information products in support of innovation activity

continued the development of a database of the final systematic KR inventions pointer for

1995-2013. Issued bibliographic and abstract collections of "Young inventors - Innovative

Economy", "Agricultural machines and equipment", "Livestock", "Economic development of

regions and problems of economic growth in the Kyrgyz Republic (2005-2014)." Prepared

Overview "Priorities of development of the regions: Batken and Talas oblasts", "Improvement

of transport infrastructure in the Kyrgyz Republic." According to the needs of SMEs,

inventors and other interested parties are constantly consulting services for registration of

trademarks, the extension of trademark protection and re-registration, a patent search on the

inventions and etc.

Currently, all the changes and innovations in the areas of management, production,

marketing, engineering and technology being realized through the implementation of

innovative projects. Developed by the Regulation "On the criteria and requirements for

innovative projects in the Kyrgyz Republic", which is the legal basis for the selection of

innovative projects in the Kyrgyz Republic. In order to integrate domestic scientists, inventors

and entrepreneurs into the international system of innovative development, they need to

participate in international forums and contests.

So the inventor and leader of the project JSC "Aalam" Ryzhkov V.N. participated in

the II International Forum of technological development "Tehnoprom-2014", which took

place on June 5-6 in Novosibirsk. In Osh seminar "Actual problems of IP commercialization"

for inventors and stakeholders on the basis of Osh Technological University named M.

Adyshev. Together with the Ministry of Education and Science of the Kyrgyz Republic and

Kyrgyz-Russian Slavic University, National Contact KR center held a round table on

"National Innovation System: State of the prospects for the development." The main topic of

discussion was the implementation of Interstate program of innovation cooperation of CIS

member states for the period up to 2020.

Prospects for the development of innovative systems in the Kyrgyz Republic,

problems of investment in innovation, development of energy saving technologies and

environmental protection, development and technology in this area discussed at the seminar

"Green Innovations for Sustainable Development", organized jointly with the Ecological

Movement "BIOM". The seminar attended representatives of state bodies, NGOs and

international organizations, inventors and entrepreneurs.