Why obsession with exports is bad for aspiring innovative economy

At the beginning of March, Lithuania has launched a new round of the structural fund grants to the innovative companies – Intelektas and Intelektas+. On the surface it looks good public policy and proper use of public resources. This is what I thought until, I have been extensively involved with innovative business and prior to my academic inquiry into the matter. I used to think that these are great opportunities for startups and innovative SMEs, but not anymore.
After analyzing the terms of the said grants, I can conclude that these grants are completely inaccessible to most startups and innovative SMEs. Instead, they are tailored for big and conservative and traditional incumbent businesses, and demonstrate the industrial age mindset among the public policy makers. To support this, there are several reasons.
First and foremost, the principal requirement of said grants is that the grant shall be converted and result in export revenue. For many startups and small innovative companies this is just not the case. Moreover, it is not even desirable. In the field of IT many startups tend to focus on services, which can be scaled globally, rather than exported. A good example is Twitter, which is a multi-billion dollar company, albeit its exports are likely to be zero. Even better example is Instagram, which was valued at 1b$ at acquisition, however had zero sales and exports at the time of acquisition.
Among biotech startups, export focused model is even rarer. Export of biotech products or services only happens in large companies, which have converted their research into manufacturing capabilities. Most biotech startups tend to focus on the development of the unique intellectual property portfolio, which would make the startup interesting to the established players in pharmaceutical industry. Focusing on sales and exports in such startups, would detract valuable time and resources from research and development of the innovative technology, which is the principal source of longer term value in these enterprises. Administering external grants and funding is widely recognized as major burden for innovators, consuming time and money, which could have been spent on the innovation itself. For service focused startups and small innovative companies international scalability (which generally correlated to the innovativeness of the technology), rather than exports are much more important.
Moreover, rendering innovative services and selling innovative products to local recipients would likely create more local added value for the local economy, and disseminate innovation locally (instead of abroad), thus contributing to higher added value of the enterprises consuming such services.
In a short, the current grant scheme is nothing else but an export subsidy on low innovation products, which allows such low tech products to be competitive in the foreign markets.
Yet another argument against the export focusses grants is related to employment. Export and sales focused employment is arguably of lesser added value, compared to research and development jobs. The former essentially services the latter, rather than the opposite. Without innovative products in the longer term there will be nothing to export. Unfortunately, in Lithuanian innovation public policy, this is not understood and unsurprisingly the export profile of Lithuania does not shine with innovative products and services (with few exceptions).
Successful export focused startups also tend to emigrate from Lithuania if they are successful. There many examples of this happening, including Pixelmator, GetJar or ACDLabs. While these enterprises retain some presence in Lithuania, the bulk of their sales and most valuable employment is based outside. They also pay taxes to the UK, US or Canadian governments respectively, rather than in Lithuania.
For the Lithuanian society export is also unattractive way in order to convert public grants into lasting returns. Immediate tax revenue from export is immediately significantly lower that from local sales, first of all due to lack of VAT receipts. In case of services, pure export is generally impossible, instead export of services tends to rely on local (that is in the country to which the service is exported) subsidiaries – sales, support and maintenance units. While from the business perspective there is nothing wrong with it, such operating scheme is even desirable, however from the public perspective this also means exports of employment, taxes (tax revenue) and profits.
While exports are not entirely unimportant, in order not to become profit, tax revenue and employment export vehicles, the innovation supporting public policies shall equally focus on creating innovative employment in Lithuania, retaining research talent and top qualified researchers in Lithuania, also disseminating innovative products and services locally. Recent study done in Silicon Valley suggests that one high-tech employee essentially creates 5 additional employment places in the servicing industries. Unfortunately this is not yet understood in Lithuanian innovation supporting public policy.

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