Over the past fortnight, Budapest has been abuzz with talk about research and innovation. The second annual international, high-level Conference on Cyberspace took place in the Hungarian capital at the beginning of October, focusing on the increasingly critical issue of digital security. From the host country, Viktor Orbán, the Hungarian prime minister, stressed the value of cyberspace as a ‘world without walls’, where freedom could flourish.d central and eastern European countries.

William Hague, the British foreign secretary, who was behind the first conference in London last year, called for improved international co-operation to protect internet security and to combat cyber-crime.

But the event also provided an opportunity to showcase Hungarian IT innovators and start-ups, from the social jukebox Mixgar – which enables party-goers to shuffle music ‘democratically’ via their smart-phones – to the computer-based natural science teaching tool, WebCam Laboratory.

In contrast, the more down-to-earth Swedish-Hungarian Innovation Forum highlighted Sweden’s status as a world leader in innovation, with discussion focused on innovation strategies.

On top of all this, we have just had design week throughout Budapest, featuring the most creative Hungarian designers alongside some of the best from around Europe.

Gone are the days when central and eastern European countries only provided what some used to call the “verlägerter Werkbank” – an extended assembly line for putting product parts together for western European companies. Today, for example, the Swedish telecom giant Ericsson – one of the world’s most innovative companies – employs 70 per cent of its 1,700 strong Hungarian staff at its Budapest research centre.

However, it is in pharmaceutical companies where the greatest growth in research and development jobs in Hungary has taken place in recent years. Currently, around one third of total corporate investment in R&D in Hungary is in pharmaceuticals. Only in the past few months, home-grown companies Richter and EGIS and the global player Teva Pharmaceuticals have opened new facilities for high-quality research and production.

While the number of newly created jobs in R&D is still small in comparison to manufacturing, improving the research and innovation climate is critical to the ability of CEE countries to catch up with the core of Europe.

Innovation means moving up the global value chain to secure long-term competitiveness. Stan Shih, founder of Acer, the Taiwanese computer maker, once drew a ‘smiley face’, showing how investing in brand development and services on one side of the smile, and in research and innovation on the other side, increases value when companies are looking to expand beyond simple manufacturing.

And this is what Swedish companies were looking for in Hungary at their innovation forum, where it is not only big businesses which innovate but also, crucially, small companies. The tremendous success of the Hungarian start-up prezi.com, which has developed original and creative presentation software attracting venture capital funding from Silicon Valley, is one of the best examples of this.

The availability of funding streams and investment capital is critical to creating a strong and resilient innovation culture. Within Europe, there has been dire under-investment in R&D, which stands at just 1.9 per cent of GDP across the EU, compared to 2.7 per cent in the USA and 3.4 per cent in Japan. This is in sharp contrast with the stated aim of the European Commission, which targets spending of 3 per cent of GDP on R&D by 2020.

Central and eastern Europe needs to rise to the challenge of investing in and delivering on innovation and Hungary is taking some steps in the right direction. Last year, expenditure on R&D reached the highest level this millennium, although at 1.2 per cent of GDP it remains clearly below the EU average. However, there has been a change in the structure of spending, with 60 per cent now originating from corporate sources. In fact, prezi.com was born from a media innovation lab supported in part by Magyar Telekom, the largest Hungarian telco.

Moreover, support for innovation is equally vital both for the recovery of Europe as a whole and for its competitiveness on the global stage. As the next planning period (2014-2020) is approaching, it is critical that the EU takes the widening of participation in EU-funded measures more seriously, and that new co-operation and new partnerships are fostered, especially between the leading EU innovators and central and eastern European countries.

(Financial Times)