- **<mark>Phase 1-- Structural Changes</mark>** <mark>: Budget reform (1); Intellectual Property Rights regime (5); Technology commercialization training (6); Enterprise survey (10)</mark>

- **<mark>Phase 2 – Capturing the Benefits of Knowledge and Innovation</mark>** <mark>: Millennium Science Initiative (2); Matchmaking database (4); Technology transfer center (7); MSTQ system (13); Skills development center (14)</mark>

- **<mark>Phase 3 – Integration and Consolidation</mark>** <mark>:  Matching grants for foreign links (3); SBIR program (8); Fund of funds (9); Matching grants for local industry (11); Market development initiatives (15).</mark>

<mark>As this hierarchy indicates, we propose focusing first on structural changes, next on establishing the institutional infrastructure and finally on implementing various matching grant schemes. However, many activities can be developed and implemented in parallel. For example, various matching grant programs can be discussed and studied in the context of the foresight and budget exercises proposed for Phase 1 and designed during Phase 2 so that they are ready for implementation during Phase 3.</mark> <mark>Finally, many of the recommendations can be categorized according to the eligible activities specified in Priority 2 of the Government’s draft proposal for using EU Structural funds. This would yield the following mapping of recommendations to eligible activities:</mark>

- <mark>Supporting linkages between companies and research institutes (3, 4)</mark>

- <mark>Support new and existing enterprises in the area of innovation (7, 8, 9)</mark>

- <mark>Financial support for companies with new product innovation capabilities in the priority areas of the economy (10, 11, 12)</mark>

- <mark>Reconstruction</mark><sup>38</sup> <mark>of sites and premises  (5, 6, 7)</mark>

- <mark>Provision of modern equipment and infrastructure to the leading research institutions with commercial potential  (2)</mark>

- <mark>Modernization and improvement of conformity assessment systems (13)</mark>

- <mark>Marketing Development Initiative (10, 15)</mark>

<mark>The draft Government proposal to the EU contains general objectives and lists of eligible activities. The next step is to convert these general concepts (e.g., provision of modern equipment for research institutes, support for small business with commercialization potential) into concrete, specific programs. The World Bank can help with this task. In addition, if requested, it could help the Government finance a portion of its 3-year, $100 million co-financing commitment.</mark>

> 38 We strongly disagree with the premise that Latvia’s innovation system needs new buildings and premises to operate more efficiently.  Oxford Innovation, for example, started operations in an old industrial warehouse and moved to new premises only after it had achieved substantial success in commercializing technologies and incubating new high tech companies. What Latvia is missing is not more buildings but technology commercialization processes.  Buildings without processes will be a waste of money.  Thus, the policy recommendations which we have associated with this bullet point refer to the establishment of improved commercialization processes, not to the construction or refurbishment of buildings.

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