Can the Three Seas become technologically fastest developing region in the world?

Can Central and Eastern Europe become a technological hub for the rest of the world, and can Poland inspire other states with its idea of digital transformation? According to the participants of a meeting hosted by Bank Pekao in Davos, it is possible provided that all the states from the region work closely together. The President of the Republic of Poland, Andrzej Duda, was the special guest of the event. Polish Deputy Prime Minister Jacek Sasin also attended the meeting. The discussion participants included Professor Mariana Mazzucato, Professor Nouriel Roubini, Paweł Surówka, President of PZU S.A., Ralph Haupter, President of Microsoft for EMEA, Gene Reznik, responsible for Accenture’s strategy and Jurica Novak, Managing Partner at McKinsey in CEE.

The meeting’s contributors agree that far-reaching changes in the economies of the CEE states are crucial for these countries to achieve technological success. Entirely new approach towards the implementation of digital technologies in the region is one of the required elements, since, as stressed by the experts, true innovative activity remains extremely limited in CEE. Investments in R&D-GDP ratio for this region is still only half the EU average. According to a research carried out in April 2019 by IDC analytical company for Microsoft, only 13% of companies from CEE declare to have a strategy of digital transformation for the entire organization or is advanced in its implementation. However, the fact that for instance 75% of Polish business leaders perceive digital transformation to be the key pillar of strategy* testifies to the high awareness of the necessity of changes. Thanks to the successful adoption of essential improvements, Poland, as the largest country in CEE, stands a chance to be at the forefront of digital changes.

“Although our region can boast of numerous advantages and there are many reasons predisposing us to become true technology centres, there still remain significant economic and regulatory factors, which effectively prevent us from pursuing these ambitions”, said Marek Lusztyn, President of the Management Board of Pekao S.A., in Davos. He believes it will be impossible to overcome these difficulties without the integration of the states in the region. Only then, will CEE begin to evolve towards becoming the new Silicon Valley, instead of being a popular outsourcing location for global companies. 

“Our main challenge is to stop being an ‘assembly facility’ and to develop strong specialisations in prospective high-tech niches, where companies from the CEE region can play the part of not only subcontractors, but also of true leaders. Only then, can the companies from our region become global champions”, stressed Lusztyn and added that a new economic model is required. One which will allow to unlock full potential of human capital, attract high-quality foreign investments as well as provide optimal regulatory and financial conditions, which will trigger the growth of the economy.

Marek Lusztyn believes that CEE states are now facing similar challenges and their economic ambitions are alike. Therefore, they could join forces to stimulate faster development of what we can call “regional technological centre”. Such cooperation would be possible in various fields. Firstly, we need a common strategy to promote the region as a final destination for investments, and to attract financial investors. Secondly, inter-regional acceleration programmes are required. Thirdly and finally, we should also consider the provision of favourable conditions for the development of regional M&A market, which would support the transformation of local or regional leaders into true global champions – said the CEO of Bank Pekao.

PZU’s Paweł Surówka, who participated in the discussion, paid attention also to the necessity to change the approach of the CEE states towards funding of research activities and R&D sector. Currently, the so-called R&D Intensity indicator (R&D expenditure as a percentage of GDP) varies in CEE states between mere 0.5% and 1.8%. Meanwhile, EU average reaches 2.1%, while European innovation leaders, such as for instance Sweden, Austria, Denmark and Germany, exceed 3%.

“It’s true that CEE countries are becoming ever more attractive location for knowledge-based sectors, whose role in the region’s economy has been growing. However, we are engaged mainly in less complicated processes in  industries generating relatively low added value, based to greater extent on manual operations and cheap labour force”, emphasised Paweł Surówka, President of PZU. He urged the meeting participants to make common efforts to transform CEE into technological hub. He noticed that the sector of advanced technologies may become the driving force behind the economic development of the entire Three Seas region. According to Paweł Surówka, the #GrowingEurope leitmotiv, which is promoted during the meetings held in Davos in the Polish House, is also reflected in the growing significance of technologies in the economies of all 11 states of the region.

Examples supporting the opinions of the Davos meeting participants are aplenty. Chinese city of Shenzhen, and the role it has started to play in the Greater Bay Area (GBA) region thanks to the investments in new technologies, was one of the invoked examples. Back in the 1970s, the city was a small fishing village, and in 1980 it acquired the status of a special economic zone. Now, it is a modern, vibrant city and in 2018 it overtook Hong Kong in terms of the size of the economy. In H1 2019, the value of its high-tech industry production reached ca. USD 150 billion. Shenzhen has developed a complete ecosystem for the production of electronics at all stages of the process, as well as competences in respect of the innovativeness centre. Numerous start-ups (including nearly 100 start-ups from the AI industry) as well as big companies, such as Huawei, ZTE and Tencent, have their seats there. In early 2020 official general outline of a Chinese megalopolis, which would surpass the American Silicon Valley, was presented – the Great Bay Area would be made up of 11 interconnected cities (including Hong Kong, Macau and Shenzhen).
Decisions made by the CEE states within the next few years will determine whether we will be able to compete with China in whatever way and build our own European technological hub.

* Digital Business Transformation. Survey prepared by Neurohm for CIONET and Microsoft in 2018.