New EU4Digital report and recommendations on Eastern partner innovation clusters

Article by:
EU4Didital

Key findings

CMOs, as legal entities, play a pivotal role in enhancing collaboration, networking and learning within innovation clusters and provide business support services to drive innovation, particularly among small and medium-sized enterprises (SMEs). The success of clusters therefore largely depends on the capacity of CMOs to facilitate their growth.

Cluster policies in the Eastern partner countries
All participating Eastern partner countries mention clusters in their broader economic development or innovation policy strategies, but national-level, systemic policy frameworks with dedicated resources and tailored support tools are still lacking. EaP CMOs have limited public funding and must earn budgets within projects for which funding is available— on a competitive base to all European NGOs—which hinders EaP CMOs’ adjustment of their value proposition to the specific needs of target sectors.

Cluster value proposition
Services are integral to value proposition for cluster members focusing on SMEs as well as universities, R&D centres and public organisations as partners. This report provides a detailed general and digitalisation service map of surveyed CMOs.

93% conduct annual studies to identify and prioritise members’ needs and provide relevant services
83% meet one of the eligibility criteria for the European cluster management excellence label, which is 5+services across 2+ strategic priorities.
Over 50% require additional resources to deliver other services effectively.
The most requested expertise is in strategic areas of supporting digitalisation, developing the cluster, improving cluster-specific framework conditions, and internationalisation.
CMOs possess important assets: established business networks and specific sectoral expertise. These equip them to customise the digitalisation support toolkit for their sector and become core actors within digital innovation hubs (DIHs). At the same time, 50–70% of CMOs detected members’ demand for specific services to support digital innovations, but lack the expertise, finance or other capacity to render these services.

Cluster size and composition
Most Eastern partner clusters are small: 88% have fewer than 100 members, compared to 61% in EU countries. Although 66% of clusters had more than 15 committed members, less than 50% fully meet the excellence label eligibility criterion that requires representation of industry, academia and government for ‘Triple Helix’ collaborations. Clusters across all sectors lack the participation of strong businesses and scientific organisations:

Compared to EU clusters—where 83% of members are SMEs—in Eastern partner countries just 38% of committed cluster members are SMEs, while 35% are micro-enterprises and individual entrepreneurs or individuals.
Large enterprises constitute only 9% of the committed members in Eastern partner countries, while universities and research organisations make up just 4%.

Cluster financial sustainability
Among EaP CMOs established for more than a year, 77% report budget shortages, with annual budgets below EUR 100,000, and 8% are operating on a voluntary basis with no budget. One third of clusters experience severe funding shortages even for operational priorities; 92% experience severe or small shortages for strategic priorities. Financial insufficiency is caused by a scarce palette of available budget sources: national support is unavailable or scarce and services are not monetised by 64% of CMOs. CMOs are heavily dependent on international funding.

Cluster management excellence
Team, governance, strategy and performance tracking define cluster management excellence. Most EaP CMOs operate with small teams, with only 20% employing more than five staff members, compared to 35% in the EU-27. Cluster management teams often have tertiary education and private sector experience, however there are gaps and upskilling needs in innovation, digitalisation tools, internationalisation and fundraising. Budget constraints exacerbate these challenges.
About 85% of CMOs have a dedicated cluster manager (≥0.5 FTE), fulfilling an excellence label eligibility criterion, but for the other 15% cluster leadership remains voluntary, which constraints impactful cluster initiatives.
Strategy has been documented by 75% of the CMOs, however, half of the strategies could benefit from specifying market challenges and critical actions, analysing value chains, partnerships etc.
Approximately 85% of CMOs use Key Performance Indicators (KPIs) to measure their success, however, 56% of KPIs focus on basic cluster development indicators such as funding and the number of members. Just around 10% of CMOs measure areas directly related to members’ satisfaction, services and value, and no CMOs track digitalisation support through KPIs.

Cluster achievements
Through all these constraints, CMOs in Eastern partner countries manage to achieve a positive impact for members with significant improvement in productivity (34%), business/commercial activities (41%) and especially internationalisation (44%). Specific achievements, key success stories and outcomes highlighted by the participating clusters are summarised in the report.

Cluster needs
A majority of EaP clusters struggle to progress along lifecycle stages:

10% achieved all criteria for maturity stage and 5% more achieved more than half of criteria.
70% do not yet comply with half of development stage features. Many clusters are locked in the vicious circle “few members -> small budget -> small team -> few services -> few members”.
Insufficient funding hampers mobilisation of human resources and expertise, which limits CMOs’ capacities to elaborate and provide member services or drive collaboration among members or internationally.

Overcoming the growth trap requires public support, which is justified according to the EU ‘Framework for State aid for research and development and innovation’ aid measure for innovation clusters, which “aims at tackling market failures linked with coordination problems hampering the development of clusters, or limiting the interactions and knowledge flows within and between clusters”.

Recommendations

The collected data evidence sets the ground for recommendations to address these gaps. The report elaborates a systemic cluster support programme, which is suggested for a state and donors’ intervention in the Eastern partner countries. This framework addresses clusters’ specific needs at various lifecycle stages and prepares for a gradual takeover of support by national/regional actors. It foresees:

financial and technical assistance to develop the capacity of the CMOs;

thematic and network programmes for joint progress and initiatives of cluster participants on value chains, innovation, digitalisation etc.;

technical assistance to develop the capacity of governmental authorities, SMEs and innovation agencies to implement cluster policy and support.

Conclusions

The report concludes with four appeals:

To EaP businesses and business networks: to actively identify gaps in the value chains they belong to and address them via technological progress and collaboration; to combine resources and achieve higher impact commercially and socially; to consolidate one voice for advancing the regulatory framework; to use the clusters’ organisational form for consolidation and to contribute actively to clusters’ evolution.

To governments, SMEs and innovation support agencies: to nurture business networks and innovation clusters as they consolidate expertise and ecosystem transformation; to listen to the consolidated voice of business networks and clusters and engage them in strategic economic development actions.

To international donors: to prioritise capacity building of business networks and CMOs, including competence building and leveraging the funding of cluster initiatives; to involve stakeholders in structuring specific programmes to cover country- and sector-specific gaps; to entrust stakeholders in implementing actions because the best learning is achieved by doing.

To all stakeholders: to coordinate and avoid duplication of efforts, ensure resources are allocated for impactful causes and efforts are coordinated to achieve tangible results.

EU4Digital welcomes discussions with current and potential donors in the Eastern partner countries regarding possible synergies and cooperation for fostering robust and sustainable clusters driving digital innovations.

Further information

The ICT Innovation stream of the EU4Digital Facility aims to connect the EaP and EU innovation and start-up ecosystems, promoting networking, sharing EU best practices and tools with EaP innovation stakeholders, supporting development of the EaP digital start-up ecosystem, and developing a framework and recommendations for digital innovation policy areas in the Eastern partner countries.