Achilles and the Turtle of Russian Innovation

Innovative business: What is innovationIgor Fedyukin, Maria Gorban, Ekaterina Shapochka, Leonid Kostroma, Sergey Guriev

Vedomosti, 06/18/2010
Published on the website "Like news"

A tiny startup company invents a unique device somewhere in the garage that promises to turn the world upside down, create whole new sectors of the economy and doom the old ones to extinction - such an idea of innovation seems to be firmly established in the Russian mass consciousness. It is precisely to support and stimulate such innovative activity that many measures of state policy in Russia have been focused recently.

Such an idea of innovation is not wrong, but it is unreasonably narrow. Of course, innovations are breakthrough "inventions", i.e. fundamentally new products. But innovations are also new technologies and even business processes. Yes, innovation can be global when a company does something for the first time in the world. But products, technologies and processes can also be innovative within a single market and even within a single company. In other words, innovation is not only the invention and introduction of an absolute new, but also the borrowing and adaptation of an existing one. They do not necessarily have to lead immediately to global leadership, but they are vital for the continuous improvement of the company's efficiency and competitiveness. Finally, if in the countries at the forefront of productivity, innovations are largely carried out in small businesses, then in the countries of catch–up development, to which Russia belongs, it is large companies that are the main engine of productivity growth - mainly due to the borrowing and adaptation of advanced technologies and business processes.

A study of the innovation activity of large businesses conducted in May 2010 by PricewaterhouseCoopers and the Russian School of Economics in cooperation with a Russian venture Company and the Russian Nanotechnology Corporation fully confirms these provisions. During a survey of high-ranking representatives of 100 large (with an annual turnover of over $ 100 million) companies operating in Russia, a third of respondents (39%) said that their companies in 2008-2010 launched the production of new products that they had never produced before. However, twice as often innovations are associated with the introduction of innovative technologies and business processes (73% and 66% of respondents, respectively). Some of these companies claim global leadership of their innovations: accordingly, 14%, 17% and 18% of respondents stated that the products, technologies and business processes they implemented were innovative on a global scale. However, twice as often respondents admitted that these innovations were new only for their companies, i.e., in fact, they represented adaptation and borrowing. As a result, the innovative activity of companies on the scale of the Russian national market turns out to be quite comparable with the corresponding global indicators, but in terms of the intensity of innovations on a global scale, Russian companies lag behind companies in developed countries by at least three times.

Many companies are quite critical of innovation activity in their industries and in Russia as a whole. Only 9% of respondents believe that their industry as a whole is "ahead or significantly ahead" of foreign colleagues in this indicator, and only 5% considered that the Russian economy is ahead of the leading economies of the world in terms of innovation activity. None of the respondents claimed that the Russian economy is "significantly ahead" of world leaders. At the same time, speaking about the barriers preventing the increase of innovation activity in the Russian economy as a whole, most companies confidently put the problem of excessive bureaucratization in the first place. In second place, representatives of all companies, again, regardless of the form of ownership of the company, its industry affiliation and its experience in innovation, put the problem of imperfect legislation and the problem of general living conditions in the country, unattractive for creative people and entrepreneurs. At the same time, looking into the future, 23% of respondents considered it "very likely" that by 2020 the innovative component of the Russian economy will increase significantly; another 60% consider it simply "probable". Skeptics, thus, there are only 17%. It is characteristic that, all other things being equal, those companies that have already implemented globally innovative technologies themselves respond more positively to this question.

The level of innovation activity strongly depends on the characteristics of the companies themselves. In particular, the probability of introducing new technologies and business processes was significantly higher in the largest companies. Thus, the probability of introducing new technologies in the largest companies (with sales over $ 1 billion per year), other things being equal, is a third higher than in companies with sales from $100 million to $500 million. The probability of introducing new business processes in the largest companies (other things being equal) is 46% higher than in companies with sales of $100-500 million.

The higher innovation activity of the largest companies is quite understandable, given that most often (in almost 80% of cases) new products and technologies are developed and financed within the companies that have implemented them. Only a small proportion of companies (no more than 20%) applied to external contractors in Russia for this, and few companies used foreign contractors. At the same time, the most common way to finance the development of new products (87% of respondents mentioned it) is the use of companies' own funds. Approximately one in five companies (18%) used RVC and Rusnano funds, and only one in ten (10%) used foreign investments. Thus, the vast majority of innovations are developed within the companies themselves, with virtually no involvement of intellectual and financial resources from outside. It seems that companies with revenues of $1 billion a year are more likely to introduce innovative products and technologies, largely because large companies are more likely to be able to afford to develop and finance innovations on their own. The question, accordingly, is not that Russian large companies are more innovative by nature, but that smaller companies simply do not have the necessary resources. The absence of developed capital markets, human capital and products, the generally weak development of innovation infrastructure, as well as the importance of political ties give large business in Russia significant advantages when it comes to innovation (including borrowing and adaptation).

However, not all large companies are equally innovative. In 2008-2010, the share of companies introducing new products among private companies was four times higher than among companies with state participation and fully state-owned companies. As the econometric analysis shows, even taking into account the differences in the size and industry affiliation of public and private companies, private companies introduce new innovative products at least one and a half times more often than fully and partially state-owned. The probability of introducing new technologies in fully state-owned companies, other things being equal, is 1.7 times lower than in companies with partial state control. Moreover, state-owned companies and companies with state participation that took part in the study in 2008-2010 did not introduce innovative products new to global markets at all. Perhaps this result is to some extent explained by the fact that the largest Russian state-owned companies represent mainly extractive industries. The share of those who introduced globally innovative technologies among private companies is twice as high as among fully and partially state-owned companies.

Another key factor of innovation activity is access to international markets. It is not surprising that international companies are innovating significantly more actively than Russian ones. However, it turns out that Russian companies operating in international markets introduce new technologies and business processes no less often than international ones, although they lag significantly behind their international colleagues in introducing innovative products. Conversely, Russian companies that have gone beyond the Russian market are several times more likely to introduce global innovative technologies and global innovative business processes than their counterparts operating only within the national market. Such a conclusion may seem obvious, but it is worth repeating: in Russia, private property and global competition are still the main engines of innovation.

Authors – Director of Applied Research at NES; Economist CEFIR NES; Director of Marketing, Business Development and Corporate Communications at PwC in Russia; Senior Research Manager at PwC in Russia; Rector of NES

Portal "Eternal youth" http://vechnayamolodost.ru18.06.2010