The national context
Over the recent decade, there has been a rapid increase in Hungary in the number of innovation-oriented small and medium size enterprises, which are spatially less concentrated and their needs are not necessarily concerned with high tech industry developments. These new demands and the change of paradigm going on in the innovation concept place a much bigger emphasis, besides the R & TD activity, on the establishment of the wide and decentralised institutional network promoting knowledge and technology transfer. In addition to the revitalisation of the traditional network of R & D institutional systems, a multi-polar innovation system with much more actors is needed, in which the distribution-oriented "knowledge bases" co-operate in a network. The elements of this institutional network, on the basis of the science and technology parks, innovation and technology development centres and the smaller transfer centres, realise a connection and network building among the economic actors which is more and more wide-ranging and better adapts to the conditions of the local-regional environment.

A critical component of the innovation system of a region is the infrastructure of R & D institutions located within it as well as the internal and external networks of relationships within and between public agencies and private actors. For the decentralisation of the institutional system of innovation, it is necessary to create the regional innovation strategies for the regions. Taking the European experiences and the Hungarian experiences gathered so far, and also the trends, the change of technology, the establishment and modernisation of the innovation system should be done in Hungary, including South Transdanubia, at a regional scale.

The endowments of the South-Transdanubian region
South Transdanubia, as a region with one of Hungary's most important higher education centres and research bases, set as an objective, in order to alleviate the catching up with the developed Western European regions, the establishment of an effective innovation support system and the development of modern services promoting the industrial structure building on the well-trained labour force and the competitiveness of the SMEs of the region. The bases of this work are the own internal resources of the region and a well-elaborated regional development programme. At the level of the development programme, the definite intention for the improvement of the innovation development and adaptation is an integral part of the whole of the economic development chapter; this intention is based on the co-operation within the framework made by the university-higher education, the research and development bases and the SMEs.

Looking at the total of the historical advantages and disadvantages, South Transdanubia is a region in an average or better position by Hungarian standards. If we want to evaluate briefly the economic potential and relative development of the region, we can say that the competitive endowments of the region are not bad, but the peripheral transportation situation is a serious obstacle to development at present.

As regards the number of businesses compared to the population, South Transdanubia is the second in the order of the Hungarian regions, but the organisational structure is fragmented (dominated by small enterprises) and the SMEs are badly equipped with capital. However, the region can only assert a moderate attraction for the external, mostly foreign inward capital, and this is one of the main reasons why South Transdanubia is lagging behind in the field of economic performance measured by regional GDP. The most serious structural growth problem is the weakness of manufacturing industry, which can be seen in the regional GDP and the industrial export capacity. South Transdanubia, the region with one of the most important higher education centres and research bases of Hungary, is in a favourable situation in terms of the culture, skills, education and quality of the people.

The situation of innovation in South Transdanubia
The key to the structural transformation, sectoral rearrangement, the establishment of a competitive structure lies in the strengthening of the innovation potential of South Transdanubia, the technical and technological renewal, the creation of the service background of product and process innovation.

In the economic development of South Transdanubia after World War II, industrialisation had a leading role. Following the typical peripheral model of de-industrialisation, the structural transformation of the region took place from external resources, by extra-regional (central and business) decisions. In the de-concentration of the industry of Budapest - which also affected the industrialisation of South Transdanubia -, the few innovative, vertically organised large businesses located up-to-date technology into the big towns of the region, but these only specialised in the manufacturing of components, or the strategic decision-making competencies of product development and marketing remained in the capital city. It was a rare exception if the units of the same large company in the different counties established production links with each other. The internal economic cohesion of South Transdanubia was weak. Technological skills were absents, there was no interest in the new technologies, the technical level of the goods produced here was low and the proportion of quality and designed products was negligible. The small enterprises almost exclusively produced for the domestic and the Eastern European markets. By the figures of R & D, the lagging behind of South Transdanubia is obvious. Until the mid-1990s, South Transdanubia had the weakest R & D capacities among the Hungarian regions (in 1995, only 3.5% of the Hungarian R & D employees worked in South Transdanubia and only 1.5% of the inputs were spent here; also, the full-spectrum technical higher education is missing).

Basic data of R&D institutions in South Transdanubia, 1999
Over the last decade, some improvement has taken place in a few areas. As a result of the strengthening of university and business researches, by 1999 South Transdanubia increased its share from the number of employees to 5.7% and to 3.2% as regards expenditure, however, it is still the one before last in the latter respect.

In 2000 more than 500 innovation-oriented companies (firms with 'presumably' innovative profile) were selected according to the database of the Statistical Office and the Chamber of Commerce. This relatively large number of firms only represents hypothetical and predominantly pure statistical database, which has to be revised. The development of innovation is now among the activities of not only manufacturing firms but also an increasing number of other firms (e.g. services) involved in innovation development. The number of institutions (and organisational units) supporting and organising innovation in the region has increased and so has that of the industrial parks and incubators, and the first innovation centres have been founded.

The region has a good higher education background, ambitious and innovative research staff (2 universities, 5 public research institutes), which is a huge potential for R & D especially in certain segments (biotechnology, environmental research, laser physics). Some commitment has already occurred in the region in order to develop closer ties between firms and research institutes. The region is able to learn, it has a relatively well-trained labour force and a population whose language skills are better than the national average.

Recently three innovation and transfer centres have started their operation in the region from Phare resources. The innovation centres, connected to the already existing industrial parks, organise the implementation of R & D, meeting the demands of the economy, and carry out innovation services. In Pécs, a regional Co-operation Research Centre was founded on the university research base in 2000, which, building on the close relation with the Innovation and Technology Development Park, has created a potential research base in the field of laser technology, immune diagnostics and micro-analytics, but environmental protection, the use of alternative energies and electronic developments also receive selected support. The centre considerably strengthens the technical and natural science research and its business relations are underrepresented in the region, but first of all it can evoke the conscious interest of the SMEs in the new technologies.

Related websites:
http://www.deldunantul.com/

http://europa.eu.int/eures/main.jsp?catId=2770&acro=lmi&lang=en&countryId=HU®ionId=HU-4

http://www.dti.rkk.hu/kiadv/angol/portrait.html

http://www.south-transdanubia.hu/index.html

http://www.innovating-regions.org/network/whoswho/regions_search.cfm?region_id=150