PwCInnovation by Large Companiesin RussiaMechanisms, barriers, perspectives
The survey was completed by the New Economic School, PricewaterhouseCoopers Russiaand the PwC Center for Technology and In...
ContentExecutive summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....
Executive summaryIn May 2010, PricewaterhouseCoopers, the New                                 Products, technologies, and ...
for companies in state ownership (companies in partial        the companies that ultimately implement them (almostor full ...
Introduction    The need for innovative development in Russia is                          to implementation of new or sign...
innovation is especially significant in Russia, in view                     in innovation, and the share of companies that...
Data description    This report is based on responses provided                                with revenues of more than U...
The sample is not large enough and it is not representative               The share of machine-building companies in our s...
Level of innovation activity Many of the survey participants carry out innovation          said that their companies intro...
Figure 3.   What percentage of revenues did your company invest in R&D in 2009 and what percentage does it intend         ...
Figure 4.   How would you rate your company with respect to innovation activity against your direct competitors in Russia ...
This is in line with answers to another survey question:                    of companies) consider these technologies to b...
Innovation factors The survey’s findings reveal that a company’s appetite               factors into account, still shows ...
State-owned and partly state-owned companies, which                      approximately 1.5 times as many international com...
The share of companies that have launched globally                  already entered global markets, these indicators are i...
It is also notable that the largest companies are much               What are the characteristics of foreign innovativemor...
Innovation mechanisms Survey data show that, as a rule, innovation is initiated                an incentive system to enco...
The survey findings justify the important observation                        corporations. Companies with annual sales of ...
Barriers to innovation Barriers facing companies Respondents were asked to rate the significance of various               ...
A score of 5 points was most frequently given to two                   seem to have solved this problem: this barrier is o...
Barriers facing the Russian economy in general     The list of possible barriers to innovation facing the Russian economy ...
Respondents rated “difficulties in obtaining financing       Looking at average scores assigned by all respondentsfor inno...
Figure 14.   What measures by government would, in your opinion, help to foster innovation in your company?               ...
Prospects for innovation in RussiaMany companies are critical of current levels of innovation    However, looking to the f...
ANNEX 1.             New products, technologies and business processes by industry, % of the total number                 ...
ANNEX 3.                       Barriers to innovation for surveyed companies.(Each barrier was evaluated by companies usin...
ANNEX 4.                          Barriers to growth of innovation in Russia. (Each barrier was evaluated by companies usi...
Innovation by large companies in Russia
Innovation by large companies in Russia
Innovation by large companies in Russia
Innovation by large companies in Russia
Innovation by large companies in Russia
Innovation by large companies in Russia
Innovation by large companies in Russia
Innovation by large companies in Russia
Innovation by large companies in Russia
Innovation by large companies in Russia
Innovation by large companies in Russia
Innovation by large companies in Russia
Upcoming SlideShare
Loading in...5
×

Innovation by large companies in Russia

1,752

Published on

Published in: Business
0 Comments
2 Likes
Statistics
Notes
  • Be the first to comment

No Downloads
Views
Total Views
1,752
On Slideshare
0
From Embeds
0
Number of Embeds
0
Actions
Shares
0
Downloads
47
Comments
0
Likes
2
Embeds 0
No embeds

No notes for slide

Transcript of "Innovation by large companies in Russia"

  1. 1. PwCInnovation by Large Companiesin RussiaMechanisms, barriers, perspectives
  2. 2. The survey was completed by the New Economic School, PricewaterhouseCoopers Russiaand the PwC Center for Technology and Innovation in cooperation with the Russian Venture Companyand Russian Corporation of Nanotechnologies, and was specifically timed to arrive beforethe commencement of St Petersburgs 2010 International Economic Forum.Moscow 2010
  3. 3. ContentExecutive summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6Data description . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8Level of innovation activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10Innovation factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14Innovations mechanisms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18Barriers to innovation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20 Barriers facing companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20 Barriers facing the Russian economy in general . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22Fostering innovation: proposed policy measures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23Prospects for innovation in Russia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25Annexes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26The questionnaire . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30 Innovation by Large Companies in Russia 3
  4. 4. Executive summaryIn May 2010, PricewaterhouseCoopers, the New Products, technologies, and processes that are newEconomic School, the Russian Venture Company, to global markets account for a significant shareand the Russian Corporation of Nanotechnologies of innovation activity: the shares of respondentsconducted a survey of 100 large1 companies operating implementing products, technologies, and processes,in Russia in order to assess the level of innovation which are new to global markets, were 14%, 17%among large corporations. The survey was also and 18% (of all respondents), respectively.designed to explore the key factors which determinethe level of innovation and the key barriers to innovation However, twice more respondents admit that their(both for the companies themselves and for innovative products, technologies and businessthe economy in general). Finally, the survey seeks processes were new only to their companies (26%, 27%to identify government policies which would, in the and 35%, respectively) and not to the global or evenopinion of large business, be most effective in fostering Russian markets. Thus, adaptation of existing innovativeinnovation in Russia. products, technologies and processes represents a substantial segment of corporate innovations inThe study uses a broad definition of “innovation” based Russia. According to recent economic studies3, imitationon methodology adopted by the Organization for and adaptation can be the main source of rapidEconomic Co-operation and Development.2 According efficiency improvements for countries that are belowto this definition, “innovation” includes both implementation the technological frontier.of products and services, production methods andbusiness process that are essentially new to the global Companies implementing technologies or introducingmarket or represent significant improvements (innova- products that are new to the global, post-Soviet,tion in the narrow sense), and replication and adaptation Russian, and regional markets, are 18%, 31%, 49%of existing innovation products, technologies and and 53% of all innovators, respectively. Innovationprocesses (which could be broadly referred to as activity of companies in Russia on the domestic market“modernization”). is comparable with respective indicators on national markets world-wide. But companies in Russia areThe survey results show that companies who innovate at least three times less active than their peersmost actively are the largest ones, especially foreignand those Russian companies that are present on global in developed countries in terms of global innovation.markets. More than one-third of respondents (39%) Levels of innovation depend to a large extent onreported that their companies launched new products characteristics of companies. The survey found thatin 2008-2010. However, the shares of respondents large private companies operating beyond their domesticwho said that they implemented new technologies and markets are most likely to be active innovators.business processes were twice as high (73% and 66% In 2008-2010, the probability of launching a new productof respondents, respectively). was four times higher for private companies than1 Half of our sample are companies with annual turnover in excess of USD 1 billion, the other half are companies with annual turnover from USD 100 million to USD 1 billion.2 Oslo Manual – Guidelines for Collecting and Interpreting Innovation Data (OECD, Paris, 2005).3 Philippe Aghion and Peter Howitt, The Economics of Growth (Cambridge, MA: MIT Press, 2009).4 Innovation by Large Companies in Russia
  5. 5. for companies in state ownership (companies in partial the companies that ultimately implement them (almostor full state ownership, which took part in the survey, did 80% of the companies surveyed reported that theynot report a single instance of introducing products that develop their innovations internally). Only a small shareare new to global markets in the relevant period). of companies (less than 20%) employed external RussianThe effects of private ownership are mostly confirmed contractors for development purposes, and just a handfulby econometric analysis, controlling for differences of companies employed foreign contractors. The mostin industry, company size, and the presence common way for companies to finance developmentof international capital (though the scale of the effect of new products is to use their own capital (87% of theis significantly smaller). respondents). Nearly one fifth (18%) of respondents used funding provided by Russian Venture Company andThe survey results also show that international companies RUSNANO, and a mere 10% of the companies usedoperating in Russia are more active innovators than foreign investments.Russian companies, and that Russian companies whichhave entered global markets are more active innovators The biggest barriers to innovation activity, accordingthan Russian companies, which operate only on the to companies, are difficulties in financing developmentdomestic market. of new products and bureaucratic obstacles. Respondents said that the most useful actionsIt is also notable that the largest companies are much by government to stimulate innovation would bemore likely to introduce new technologies and new improvement of higher education, increased statebusiness processes. Other things being equal, companies financing of R&D, tax incentives for innovation,with annual sales of over USD 1 billion are 30% more and improvements to legislation.likely to introduce new technologies than companieswith sales of USD 100-500 million. The largest companies Most company respondents believe that the innovative(with sales of over USD 1 billion) were, ceteris paribus4, component of the Russian economy will expand46% more likely to introduce new business processes significantly by 2020. Companies that have alreadythan companies with sales of USD 100-500 million. implemented globally innovative technologies are much more optimistic in this respect.The greater intensity of innovation among the largestcompanies can be explained by the fact that companiesare developing innovations internally, without usingexternal intellectual or financial resources. New productsand technologies are commonly developed within4 i.e. according to results of the regression analysis Executive summary 5
  6. 6. Introduction The need for innovative development in Russia is to implementation of new or significantly improved particularly relevant in light of key challenges facing products or services, new production technologies or the national economy today. Shrinkage of manpower new business processes. Secondly, innovations can be (due to population contraction), low labour productivity, of a global nature when a company is a global pioneer low energy efficiency, and the economy’s dependence in a certain field. However, products, technologies and on natural resources mean that stimulation of innovation processes can also be innovative within a specific (in a broad sense) is a key task for Russia’s economy market (this survey focuses on the Russian and CIS and society. market), and within a specific company. Innovation also includes a broad range of activities focused not only This research attempts to assess the level of innovation on inventing and implementing something new, but also activity by large companies inside Russia. Using a replicating and adapting something that already exists. unique survey of executives representing 100 large Innovation does not necessarily result in direct global corporations (annual turnover in excess of USD 100 leadership, but it is vital for continuous improvement million each), we try to assess the extent of innovative of company performance and for retaining competitive product development and implementation of innovative advantages. production technologies and business processes, as well as levels of optimism among companies about As shown by data gathered in OECD countries, the their ability to achieve global or domestic leadership. majority of multinational firms implement all of the types of innovation listed above. This is also true for Russia, The survey also seeks to explore the mechanisms and results of our survey show that among companies of innovation in Russian corporations: what are the main in Russia, innovations at the level of regional markets drivers of innovation within companies; how is innovation or even individual companies (companies oriented financed; who develops new products and technologies; to replication and adaptation) account for a large part and how important are innovative products, technologies of innovative activity. This is not surprising: as suggested and processes for company business? Finally, the survey by recent economic studies6, replication and adaptation looks at how companies themselves assess their own can be the main source of rapid efficiency gains level of innovation and the level of innovation in their in countries with relatively low levels of productivity. industries, the barriers which (in the companies’ view) hinder innovation in Russia, and measures that One of the distinctive features of this survey is its focus government could take to stimulate innovation activity. on large companies. The importance for the innovation economy of small- and medium-sized companies The survey is based on a broad definition of innovation and start-ups is evident, but it is just as important that is not limited to “inventions” This is in line with . to understand to what extent large companies, which the broad definition of “innovation” used by the OECD5 make up the lion’s share of the Russian economy7, (Organisation for Economic Co-operation and implement new products, technologies and business Development). First, innovations can refer processes. The role of large companies in driving5 Oslo Manual – Guidelines for Collecting and Interpreting Innovation Data (OECD, Paris, 2005)6 Philippe Aghion and Peter Howitt, The Economics of Growth (Cambridge, MA: MIT Press, 2009)7 According to 2008 data of the Russian Statistical Agency (Rosstat), there are 3269 companies in Russia with annual turnover of more than USD 100 million. Their aggregate annual revenue exceeds USD 2 trillion. For comparison, revenue of the 120 largest companies amounts to USD 1 trillion.6 Innovation by Large Companies in Russia
  7. 7. innovation is especially significant in Russia, in view in innovation, and the share of companies that planof inadequate levels of innovation activity by national to cut R&D costs this year nearly halved against lastsmall business. Also, as we will see, innovation activity year (8% versus 14% in 2009)11.by Russian companies depends mainly on internalintellectual and financial resources of the companies Our main conclusions are quite consistent with trendsthemselves, and this further enhances the role of large captured in official statistical data (see, for example,business. The lack of mature markets for financial the Indicators of Innovative Activities12). However,capital, human capital and products, coupled with the the advantages of our survey are that it is focusedrole played by political connections, put large business on large businesses, whose performance, in manyat a major advantage in matters of innovation (including instances, is not sufficiently covered by official statisticalreplication and adaption). Russia is not unique in this reports, and that our findings reflect the current, ratherrespect: according to research into economic growth than the past situation.stages8, large companies are usually the driving forcebehind productivity growth in emerging markets (mainlythrough imitating and adapting advanced technologies).By contrast, small businesses are the engineof innovation in countries, which have already achievedhigh levels of productivity.Another feature that makes our study special is thatwe asked companies about their innovation activitiesin 2008-2010. Most of this period coincides with theglobal financial crisis, which pushed some of these firmsto the edge of bankruptcy. Interestingly, the survey foundthat innovation activity continued despite the crisis.Whether such activity was more intense comparedwith less turbulent times is a topic for further research.Businesses tend to cut their R&D budgets duringrecessions. OECD studies9 suggest that the latesteconomic crisis is no exception to this rule. However,a large number of foreign companies have continuedto invest in innovation10, and latest data indicatea growing number of companies that plan to increasesuch investments. Most companies surveyed by BCGsaid that they intend to increase investments 8 Daron Acemoglu, Philippe Aghion, and Fabrizio Zilibotti, “Distance to Frontier, Selection, and Economic Growth, Journal of the European ” Economic Association 4, 1 (2006): 37-74; Daron Acemoglu, Philippe Aghion, Claire Lelarge, John Van Reenen and Fabrizio Zilibotti F (2007) “Technology, Information, and the Decentralization of the Firm, Quarterly Journal of Economics 122, 4 (2007): 1759-1799 ” 9 OECD Science,Technology and Industry Scoreboard 2009.10 Innovation 2009. Making Hard Decisions in the Downturn. A BCG Senior Management Survey. BCG April 200911 Innovation 2010. A Return to Prominence – and the Emergence of a New World Order. BCG April 2010.12 Indikatori innovatsionnoi deiatelnosti: 2009. Statisticheskii Sbornik. Moscow 2009 Introduction 7
  8. 8. Data description This report is based on responses provided with revenues of more than USD 1 billion and another by representatives of 100 large companies operating 17 were from companies with revenues between USD in Russia to the questions of a specially designed 500 million and 1 billion. The majority of companies questionnaire (Attachment 6). The questionnaire was (67) which took part in the survey are 100% privately mailed to top managers at firms with an annual turnover owned, whereas the number of those fully controlled of at least USD 100 million (as of 2009). Each company by the government is 16. The government stake in is represented by a single respondent. The survey took another 8 companies exceeds 50%, and the government place in May 2010. holding in 5 of the companies is between 25% and 50%. The sample covers all key industries Our sample is to a large extent biased towards large of the Russian economy. companies: 49 of the respondents represented companies Figure 1. Sample structure by industry and size of companies USD 100-500 m USD 500 m - 1 bn USD > 1 bn Energy Telecommunications Transport Construction and building materials Engineering/Machine-building Consumer goods and food productuion Retail trade Finance and banking Metals Natural resources mining and processing 0 2 4 6 8 10 12 14 168 Innovation by Large Companies in Russia
  9. 9. The sample is not large enough and it is not representative The share of machine-building companies in our samplewith respect to company size and industry. If we is also greater than their share in the overall groupcompare our sample of a hundred companies with of companies of the relevant size.the population of all 3269 Russian companies generating We used a regression analysis in order to take accountat least USD 100 million annual revenue, we find that of effects of the sample bias with respect to size,our sample includes a greater share of large companies13 industry and (possibly) ownership structure, as welland companies specialized in mining, metals, energy as other characteristics.and financial services sectors than the population.Table 1. Breakdown of the sample and of the respective population by industrial sectors General population Sampling Mining and processing of natural resources 0.07 0.12 Metals 0.04 0.08 Finance and banking 0.07 0.11 Retail 0.43 0.13 Consumer and food products 0.10 0.15 Engineering industry 0.07 0.12 Construction and building materials 0.09 0.07 Transport and communications 0.07 0.09 Energy 0.05 0.13 Total 2840 10013 49% of companies in our sample have annual revenue in excess of USD 1 billion, whereas the overall corporate pool – the population – includes only 10% of such companies. Only 34% of our respondents have revenues less than USD 500 million per year, whereas the population includes 80% of such companies. Data description 9
  10. 10. Level of innovation activity Many of the survey participants carry out innovation said that their companies introduced innovative activity: 39% of respondents reported that their technologies and business processes (73% and 66% companies had launched completely new products of respondents, respectively). between 2008 and 2010, and twice more respondents Figure 2. Has your company started producing or implementing innovative products/ technologies/business processes in 2008-2010? 80% 73% 70% 66% 60% 50% 39% 40% 30% 20% 10% 0% Innovative products Innovative technologies Innovative business processes R&D spending at more than half of the companies while almost seventy percent plan to spend from in 2009 ranged between 3% and 10% of annual 3% to10%. These indicators are generally consistent turnover, while another 30% of the companies spent with international data. According to the latest OECD less than 3%. Most of the companies plan to raise R&D figures, companies on average invest 1-2% of turnover investment in 2010. Only ten percent of respondents in innovation, but the figure is higher for large intend to spend less than 3% of their annual turnover, companies at around 5%.10 Innovation by Large Companies in Russia
  11. 11. Figure 3. What percentage of revenues did your company invest in R&D in 2009 and what percentage does it intend to invest in R&D in 2010? 100% 2% 4% 90% 14% 19% 80% 70% 28% Dont know 60% 35% >10% 50% 6-10% 26% 40% 3-5% 30% <3% 32% 20% 30% 10% 10% 0% 2009 2010In response to the question on key types of innovation The same is true for innovative technologies: only oneactivities on which the company spent money over the respondent indicated that such technologies accountedpast two years, 64% of respondents indicated "R&D", for more than half of all technologies deployed by his52% named “procurement of machinery and equipment” , company, and half of the companies that implementand 40% named “staff training and development” . innovative technologies said that they account for less than 10% of operations.However, innovative products, even when they aresuccessfully introduced, usually play a limited role One-third of the respondents state that their companiesin generating profits. Only one respondent said that they “are ahead or far ahead” of their immediate competitorsaccount for more than 50% of his company’s revenues, in Russia in terms of innovation activity (another 50% feelwhereas half of the companies, which introduced that they are on a par with competitors). The largestinnovative products, said that they bring less than 10% of companies, those that are privately owned, and internationalrevenues, and one third said that they bring 10-25%. companies believe that they are more innovative. Level of innovation activity 11
  12. 12. Figure 4. How would you rate your company with respect to innovation activity against your direct competitors in Russia and global leaders in your industry? 100% 3% 5% 7% 90% 80% 28% Significantly 70% ahead 51% Ahead 60% 50% On a par with competitors 40% 49% Lags slightly behind 30% 28% Lags significantly 20% behind 10% 13% 11% 5% 0% With your direct competitors in Russia With global leaders in your industry Furthermore, some respondents claimed that between of the total number of survey participants) believe that 2008 and 2010, they had implemented not merely new, one or several of their products were innovative on but globally innovative products, technologies and a global scale, i.e. they were the first in the world business processes. One-third of companies that to launch these products. implemented innovative products (or approximately 14% Figure 5. If your company implemented new products, technologies and business processes between 2008 and 2010, were they innovative? 100% Only to your company 90% 26% 27% 80% 35% 70% 8% 5% On one of important 3% to your company regional 60% 13% markets in Russia 27% 21% 50% In Russia 18% 40% 16% 14% 30% In the post-Soviet space 20% 36% 23% 27% 10% Globally 0% Innovative products Innovative technologies Innovative business processes12 Innovation by Large Companies in Russia
  13. 13. This is in line with answers to another survey question: of companies) consider these technologies to be10% of respondents claim that they are ahead or far innovative on a global scale. Some 27% of respondentsahead of global industry leaders in terms of innovation, that implemented new business processesand 23% of the respondents that implemented new (approximately 18% of all respondents) claim to betechnologies (approximately 17% of the total number global leaders.Figure 6. How would you assess the level of innovation activity in your industry compared with the same industry in foreign countries, and in the Russian economy as a whole compared with global leaders? 100% 2% 0% 5% 7% 90% 80% 34% Significantly 70% 39% ahead Ahead 60% 50% On a par with competitors 40% 39% Lags slightly 30% 40% behind Lags significantly 20% behind 10% 22% 12% 0% In your industry in Russia as compared In the Russian economy as compared with foreign countries with global leaders?At the same time, a considerable share of respondents The shares of companies that responded positively toadmit that their products, technologies and business these five modifications of the innovation question were,processes were only new to their companies (26%, respectively, 18%, 31%, 49%, 53% and 80% of all27% and 35%, respectively, of all the companies that respondents. It is worth comparing these answers withimplemented such innovations). survey findings from other countries. A few years ago, mid-sized and large companies, which said that thatOur data do not enable us to judge whether the they had implemented innovative products andpurported global leadership in products, technologies technologies were more than 70% of all those surveyedand processes, claimed by the companies, is justified. in Sweden, Denmark, France and Germany, and theIt is however clear that the need for innovative activities share of such companies in Norway, Netherlandsand the desired focus on breakthroughs at global level and Switzerland ranged from 50-70%14.are now recognized by the management of Russiancompanies, at least in their rhetoric. We assume that these figures for OECD countries can be referred to both national and global markets.Respondents were asked about their innovation activity So innovation activity of Russian companies on thewith respect to different markets: the global market, CIS domestic market is comparable with levels elsewherecountries, Russia, and regional markets within Russia. in the world, but Russian businesses performRespondents were also asked whether their innovation approximately three times worse than companiesactivity (i.e. introduction of new products, new in developed countries in terms of globally innovativetechnologies or new business processes) can be technologies and products15.treated as innovative only within their company.14 See: Innovations in Firms. Microeconomic Perspective. OECD, 2009. Data on companies employing more than 250 people; country surveys were conducted in 2002-2004.15 It should be noted that our sampling has a strong focus on the largest companies; consequently, these results are most probably conservative. Level of innovation activity 13
  14. 14. Innovation factors The survey’s findings reveal that a company’s appetite factors into account, still shows that private companies for innovation activity is driven strongly by its profile. are at least one-and-a-half times more likely Companies in Russia that launched innovative products to implement innovative products than state-owned between 2008 and 2010 included four times as many and partly state-owned companies. private companies as state-owned or partly state-owned Other things being equal, the probability enterprises. This effect can be partly explained by of implementing a new technology is 1.7 times less differences in the size of government-owned and private for firms which are 100% state-owned than for partly companies as well as the industry they represent in our state-controlled companies. sampling. But econometric analysis, which takes these Table 2. New products, technologies and business-processes by type of ownership, % of respondents. Products Technologies Business Processes 100% privately-owned 52.2 73.1 64.2 State has up to 25% interest – 75.0 50.0 State has 25%-50% interest 20.0 80.0 80.0 State has over 50% interest 12.5 100.0 75.0 100% state-owned 12.5 56.3 68.8 Total number of firms 39 (100%) 73 (100%) 66 (100%) Table 3. Products, technologies and business-processes that are globally innovative, by type of ownership, % of respondents. Products Technologies Business Processes 100% privately-owned 20.9 19.4 23.9 State has up to 25% interest 0.0 0.0 0.0 State has 25%-50% interest 0.0 20.0 0.0 State has over 50% interest 0.0 25.0 12.5 100% state-owned 0.0 6.3 6.3 Total number of firms 14 (100%) 17 (100%) 18 (100%)14 Innovation by Large Companies in Russia
  15. 15. State-owned and partly state-owned companies, which approximately 1.5 times as many international companiesparticipated in the survey, did not implement innovative as there were local among the companies thatproducts that are new to global markets in 2008-2010. implemented new technologies and business processes. Russian companies operating on global marketsThe data suggest that the international companies implement new technologies and business processesoperating in Russia pursue much more intense as often as international companies. However, they laginnovation activity than local firms. There were twice significantly behind their international peers in termsas many international companies operating in Russia of innovative products. This is largely due to the fact thatamong all companies that implemented new products most Russian companies, which have entered global markets,as there were among local companies, and there were represent the mining industry and the energy sector.Figure 7 Innovative products, technologies and business products by type of company 77% International company, with part of its business being 92% in Russia 77% 79% Innovative business processes Russian company, with part of its business being on foreign 85% markets 31% Innovative technologies Innovative products 52% Russian company operating 58% only in Russia 35% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Innovation factors 15
  16. 16. The share of companies that have launched globally already entered global markets, these indicators are innovative products is 15 times higher among 2-3 times higher than for Russian companies that are international companies operating in Russia than limited to the domestic market. These distinctions among local companies. The shares of companies that remain valid under an econometric analysis, which takes implemented globally innovative technologies and account of impact of specific industries, company size globally innovative business processes are, respectively, and involvement of international capital (although 8.5 and 6.5 times higher for international companies absolute values of the differences are smaller). than for Russian. For Russian companies that have Figure 8. Globally innovative products, technologies and business products by type of company 54% International company, with part of its business being 54% in Russia 62% 18% Russian company, with part of its business being on foreign 18% Innovative business processes markets 10% Innovative technologies 8% Innovative products Russian company operating 6% only in Russia 4% 0% 10% 20% 30% 40% 50% 60% 70% A salient fact when examining industrial breakdown economic growth in Russia over the last decade. of innovation activities is that machine-building/ However, probability of implementing new business engineering companies are twice as likely to launch processes in resource industries is 42% higher than new products as mining companies, retailers and in the machine-building/engineering sector. financial institutions, i.e. the sectors which have driven16 Innovation by Large Companies in Russia
  17. 17. It is also notable that the largest companies are much What are the characteristics of foreign innovativemore likely to introduce new technologies and new companies? According to the latest OECD survey,16business processes. Other things being equal, based on data from different countries, innovativecompanies with annual sales of over USD 1 billion companies have similar features across borders. In allare more likely to introduce new technologies than countries, large companies and companies with accesscompanies with sales of USD 100-500 million. to global markets are more likely to pursue innovation.Probability that the largest companies (with sales In most countries (except Canada and Norway),of over USD 1 billion) would introduce new business probability of innovation is higher for companies thatprocesses is, ceteris paribus, 46% higher compared are part of a group.with companies that have sales of USD 100-500 million.Figure 9. Innovative products, technologies and business products by company size 82% USD > 1 bn 88% 45% 82% Innovative business processes USD 500 m - 1 bn 76% Innovative technologies 35% Innovative products 35% USD 100-500 m 50% 32% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%16 Innovations in Firms. Microeconomic Perspective. OECD, 2009 Innovation factors 17
  18. 18. Innovation mechanisms Survey data show that, as a rule, innovation is initiated an incentive system to encourage staff to engage by company owners, top managers or specialised in innovation activities. The survey found that 55% units/dedicated employees. Top management more of respondents have specialized R&D units. There is frequently initiates innovative products (50% of a correlation between the existence of these instances) rather than new technologies. The role mechanisms and probability of implementing innovative of external investors, external advisors, staff of produc- products, technologies and business processes. tion units, and external R&D organisations is negligible. The differences are statistically significant and quite This is not dissimilar to the situation in foreign compa- substantial. For example, the existence of a senior nies: in nearly 50% of companies surveyed by BCG, manager responsible for innovation increases the the driving force for innovation was a company CEO probability of innovative products and technologies or its president.17 by 15%, and the existence of a staff incentive system increases the probability of innovative technologies by 29%. The main incentive for implementing innovative products is to outpace competitors, while implementation of new Interestingly, these mechanisms work equally well both technologies is driven mainly by the need to cut costs. for global innovations and for local innovations. However, It is worth noting that 35% of the companies surveyed the existence of a senior manager responsible for have a top manager responsible for innovations, where- innovation increases the probability of globally innovative as only 17% of respondents reported that they have business processes, and existence of special processes special processes for gathering innovative ideas within for gathering innovative ideas within a company mainly their companies, and only 7% said that they have stimulates local innovation. Figure 10. What elements of a system for generating innovation are in place at your company? (Multiple answers are possible) 100% 90% 80% 70% 60% 55% 50% 40% 35% 30% 17% 20% 7% 10% 0% Speciliased R&D Top manager Special processes Incentive system units responsible for gathering innovative encouraging staff for this area ideas within company to be innovative 17 Innovation 2010. A Return to Prominence – and the Emergence of a New World Order. BCG April 2010.18 Innovation by Large Companies in Russia
  19. 19. The survey findings justify the important observation corporations. Companies with annual sales of USDthat new products and technologies are most commonly 1 billion implement innovative products and technologiesdeveloped within the companies that apply them: almost more often largely because they can afford to develop80% of respondents said that this was the case in their and finance innovation on their own.company. A minor share of companies (not more than The conclusion to be drawn, therefore, is not that large20%) engaged external Russian contractors for innovation Russian companies are more innovative by nature thandevelopment, and a handful of companies used foreign smaller companies, but that smaller companies simplycontractors. Our respondents said that they hardly ever do not have the necessary resources for innovation.use such instruments of innovation as acquisitionof licences for existing products and technologies, or It should be noted that such a gap is also presentacquisition of companies that own such intellectual property. in developed economies, despite government support for innovation by small and medium-sized business .Sample companies usually finance innovation from Surveying of companies in the OECD19 show thattheir own funds (87% of respondents). Only 18% innovation activity in companies with more than 250of respondents used funds provided by Russian Venture employees is 1.5-2 times greater than the average forCompany and ROSNANO and a mere 10% used foreign all companies. For example, in France, innovativeinvestments. So companies develop innovation by companies account for about 40% of all firms, whereasthemselves without recourse to external intellectual and the share of such companies among all large businessesfinancial resources.18 This observation is well correlated is about 70%. The share of innovative companieswith the fact (discussed above) that, in Russia, more among all small businesses is negligible in the surveyedintense innovation is the preserve of the largest OECD countries.Figure 11. What sources of financing did your company use to develop innovative products? (Multiple answers are possible) 100% 90% 87% 80% 70% 60% 50% 40% 30% 18% 20% 10% 10% 5% 3% 0% Companys own Funds provided Foreign Other Venture funds by state (RVK, investments investments RUSNANO, enc.)18 Prevalence of internal financing may also be associated with the period when the survey was carried out: during the crisis (autumn 2008 until the end of 2009), Russian companies had no access to external funding.19 Innovations in Firms. Microeconomic Perspective. OECD, 2009 Innovation mechanisms 19
  20. 20. Barriers to innovation Barriers facing companies Respondents were asked to rate the significance of various nies and in the country in general, using a 5-point scale. The barriers that hinder innovation both within their own compa- list of possible barriers facing their own companies included: • Lack of “innovation culture” in the company • Insufficient demand for innovative products • Shortage of innovation-minded employees • Excessive bureaucracy (difficulties in certifying new products, etc.) • Customs-related issues (high customs tariffs on imported components and technologies, complicated pro- cedure of customs clearance) • Inadequate protection of intellectual property • Shortage of management personnel capable of implementing innovation projects • Competitive pressure on the company • Difficulties raising finance to develop new products and implement new technologies • Under-development of procedures for assessing investment risks and expected returns • Issues of commercialisation (technology-to-product transition) Figure 12. What prevents your company from being more innovative? (Share of respondents awarding a rating of 4 or 5 points) Issues of commercialisation 38% Competitive pressure on the company 40% Lack of "innovation culture" within your company 43% Shortage of employees capable of being innovative 47% Insufficient demand for innovative products 48% Shortage of management personnel capable 53% of implementing innovation Insufficient protection of intellectual property 62% Lack of procedures for assessing risk 66% and return on investments Excessive bureaucracy (difficulties certifying 66% new products, etc.) Difficulties in raising finance to implement innovativation 66% Export and customs-related issues (high customs tariffs on imported components and technologies, 67% complicated customs clearance procedure) 0% 10% 20% 30% 40% 50% 60% 70% 80%20 Innovation by Large Companies in Russia
  21. 21. A score of 5 points was most frequently given to two seem to have solved this problem: this barrier is of lessbarriers: “difficulties in raising finance for innovation significance to them than to other respondents.projects” and “excessive bureaucracy” These two . Companies in other countries are also concerned bybarriers remain among the most frequently cited if we lack of innovation culture. According to the internationalconsider all of the barriers, which merited a score BCG survey,20 38% of surveyed companies worldwideof 5 or of 4 points. However, in this case such factors believed that they were making insufficient effortas “under-development of procedures for assessing to promote a culture of innovation. In a vast majorityinvestment risks and expected returns” “insufficient , of industries, companies mentioned risk-averseprotection of intellectual property” and “customs-related corporate culture as a major factor that impedes growthissues” match the first two barriers in significance. of returns from innovation.21Consideration of average scores assigned by allrespondents to each of the listed barriers gives Returning to companies in Russia, it is also worththe same result. considering differences in the ranking they assigned to innovation barriers associated with lack of suitableEconometric analysis identifies statistically significant personnel. Local companies operating only on thevariations in the answers given by companies of different domestic market are less concerned by shortagetypes. Difficulties in raising finance were rated as more of innovation-minded employees and of managerssignificant by companies with experience of implementing capable of implementing innovation projects thanglobally innovative products, while bureaucracy is international companies and than Russian companiesof equal concern for all the companies, irrespective which have entered global markets. This correlates withof their industry, presence of the government among the finding (see p. 22) that Russian companies, whichshareholders, and previous experience of innovation. operate only in the domestic market, rate the shortageLack of innovation culture is of more concern of ideas and professionals capable of developing themto companies that have already implemented innovative as the least significant barrier to innovation at thebusiness processes in the past. Companies in this national level. This seems to reflect a widespread beliefcategory are also more concerned by shortage that “there are plenty of good brains in Russia” and ,of management personnel. However, companies which that obstacles to innovation are to be sought elsewhere.have recently implemented innovative technologies20 Innovation 2009. Making Hard Decisions in the Downturn. A BCG Senior Management Survey. BCG April 200921 Innovation 2010. A Return to Prominence – and the Emergence of a New World Order. BCG April 2010. Barriers to innovation 21
  22. 22. Barriers facing the Russian economy in general The list of possible barriers to innovation facing the Russian economy in general included: • Shortage of “brains” in the country (i.e. of ideas and professionals capable of developing them) • Difficulties obtaining financing for start-ups and innovation projects • Excessive bureaucracy • Heavy dependence of the Russian economy on commodities export • Significant presence of the state in the economy • Living and working conditions in Russia are uncongenial for entrepreneurs and the “creative class” • Underdeveloped legal framework, including insufficient protection of investor rights. • Insufficient state support for innovation • Macroeconomic instability. Figure 13. What do you think hinders innovation in Russia? (Share of respondents awarding a rating of 4 or 5 points) Substantial state presence in the economy 59% Heavy dependence of the Russian economy on commodities export 63% Macroeconomic instability 68% Shortage of “brains” in the country (i.e. of ideas and professionals capable of developing them) 69% Insufficient state support to innovations 73% Living and working conditions in Russia are uncongenial for entrepreneurs and the “creative class” 73% Difficulties obtaining financing for start-ups and innovation projects 75% Underdeveloped legal framework, including , 77% insufficient protection of investor rights Excessive bureaucracy 86% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%22 Innovation by Large Companies in Russia
  23. 23. Respondents rated “difficulties in obtaining financing Looking at average scores assigned by all respondentsfor innovation projects” “excessive bureaucracy” and , to each of the listed barriers, the problem of bureaucracy“uncongenial living and working conditions” as the most is clearly in the lead, followed by under-developedsignificant factors in the list (scores of 5), followed by legal framework and uncongenial living and working“under-developed legal framework” and “poor access conditions for creative people and entrepreneursto financing for start-ups and innovative projects". (the last two barriers have the same average score).Excessive dependence of the Russian economy on export Econometric analysis showed that these three barriersof commodities and heavy presence of the state in the are rated equally highly by companies, irrespectiveeconomy are least frequently cited as principal barriers of their industry, presence of foreign capital,to innovation. or previous experience of innovation.Fostering innovation: proposed policy measuresRespondents were asked to rate policy measures that could be implemented by the government in order to fosterinnovation, using a 5-point scale. The list of possible measures included: • Providing tax incentives to innovators (tax exemptions for R&D-related costs, tax holidays for innovation projects, etc.) • Increasing state funding of R&D at universities and other research organisations • Attracting highly-skilled foreign professionals (relaxation of visa rules, special recruiting programmes) • Improving the quality of higher education • Investing in innovation infrastructure (industrial parks, business incubators) • Investing in venture funds • Political support for Russian products on global markets • Protecting Russian markets from foreign competitors • Improving legislation (corporate, tax, export & import, migration, etc.) • Joining the WTO. Fostering innovation: proposed policy measures 23
  24. 24. Figure 14. What measures by government would, in your opinion, help to foster innovation in your company? (Share of respondents awarding a rating of 4 or 5 points) Investments in venture funds 61% Political support for Russian products on global markets 61% Protecting Russian markets from foreign competitors 62% Joining the WTO 65% Attracting highly-skilled foreign professionals 69% Investments in development of infrastructure (industrial parks, business incubators) 75% Improving legislation 81% Providing tax incentives to innovators 81% Increasing state funding of R&D 82% Improving the quality of higher education 83% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% The most popular measure (rated at 5 points by 58% is ranked third. Regression analysis demonstrates that of respondents) is “providing tax incentives, closely ” the first of these measures was especially important followed by “improving legislation” and “attracting for companies that have started implementing new highly-skilled foreign professionals. ” business processes. Interestingly, if all respondents who gave ratings of 4 Protectionist measures – political and organisational and 5 are counted, “attracting highly-skilled foreign support for Russian products in global markets and professionals” drops out of most popular answers, and protection of Russian markets from foreign competitors – its place among the leaders is taken by “improving the are more important to the largest companies and quality of higher education” and “increasing state to those Russian companies that operate only on the funding of R&D at universities and research institutes” . domestic market. Joining the World T rade Organisation The least-mentioned measures are “investing in venture (WTO) is more important to those companies that have funds” “political support for Russian products on global , already introduced globally innovative products and markets” and “protecting Russian markets from foreign implemented new business processes. Increasing state competitors” . funding of R&D at universities and other research organisations is more important to those companies Looking at average scores assigned by all respondents that have already had some experience of implementing to each of the listed barriers, “providing tax incentives” innovative products. Investing in venture funds is more is again ranked first, “improving legislation” is ranked important to companies with annual sales of under second, and “improving the quality of higher education” USD 500 million.24 Innovation by Large Companies in Russia
  25. 25. Prospects for innovation in RussiaMany companies are critical of current levels of innovation However, looking to the future, 23% of respondentsboth in their own industries and in Russia as a whole. see it as “very likely” that the innovation componentOnly 9% of the surveyed companies believe that their of the Russian economy will increase significantlyindustries are “ahead” or “significantly ahead” of foreign by 2020, and 60% of respondents think that such anpeers, and just 5% of respondents think that the increase is “likely” to happen. So only 17% of theRussian economy is ahead of leading world economies respondents are sceptical in this respect. It is noteworthywith respect to innovation. Not a single respondent that companies which have already implementedclaimed that the Russian economy is “significantly globally innovative technologies tend to be moreahead” of leading economies with respect to innovation. optimistic when answering this question.Figure 15. How would you assess probability of significant growth of the innovation component in the Russian economy by 2020? 2% 23% 15% Very unlikely Unlikely Likely Very likely 60% Prospects for innovation in Russia 25
  26. 26. ANNEX 1. New products, technologies and business processes by industry, % of the total number of respondents in the industry. Products Technologies Business processes % % % Mining and processing of natural resources 25.0 83.3 91.7 Metals 87.5 87.5 62.5 Finance and banking 36.4 45.5 45.5 Retail trade 30.8 61.5 76.9 Consumer goods and food products 60.0 60.0 46.7 Engineering/machine-building 58.3 75.0 41.7 Construction and building materials 57.1 100.0 100.0 Transport 20.0 100.0 60.0 Telecommunications 0.0 75.0 100.0 Energy 0.0 76.9 69.2 Total number of firms 39 (100%) 73 (100%) 66 (100%) ANNEX 2. Globally innovative products, technologies and business processes by industry, % of the total number of respondents in the industry. Products Technologies Business processes % % % Mining and processing of natural resources 0.0 8.3 16.7 Metals 25.0 25.0 37.5 Finance and banking 9.1 9.1 18.2 Retail trade 15.4 15.4 23.1 Consumer goods and food products 33.3 20.0 20.0 Engineering/machine-building 25.0 25.0 8.3 Construction and building materials 14.3 42.9 42.9 Transport 0.0 0.0 20.0 Telecommunications 0.0 0.0 0.0 Energy 0.0 15.4 0.0 Total number of firms 14 (100%) 17 (100%) 18 (100%)26 Innovation by Large Companies in Russia
  27. 27. ANNEX 3. Barriers to innovation for surveyed companies.(Each barrier was evaluated by companies using a 5-point scale, where 1 point signifies that a barrier is not serious and5 points signifies that it is very serious. The table presents average points awarded for each barrier by each type of company). Russian company, with part International company, with operations being in Russia of its business operations being on foreign markets USD 500m - 1bn revenue operating only in Russia USD 100-500 m revenue The impact each of the Over USD 1bn revenue 100% privately-owned following barriers has part of its business on your companys innovation activity 100% state-owned Russian company State has up to 25% interest All Lack of "innovation culture" within your company Average 3.23 3.02 3.54 3.08 3.29 3.00 3.27 2.97 3.59 3.94 Standard-Error 0.11 0.16 0.17 0.28 0.18 0.34 0.14 0.12 0.25 0.26 Insufficient demand for innovative products Average 3.32 3.21 3.41 3.46 3.12 3.00 3.57 3.03 3.59 4.25 Standard-Error 0.12 0.19 0.19 0.33 0.23 0.33 0.15 0.15 0.22 0.31 Shortage of employees capable of being innovative Average 3.22 2.94 3.54 3.31 3.29 2.82 3.31 3.03 3.18 4.06 Standard-Error 0.12 0.18 0.17 0.27 0.23 0.32 0.14 0.14 0.24 0.24 Excessive bureaucracy (difficulties certifying new products, etc.) Average 3.81 3.88 3.69 3.92 3.76 4.18 3.71 3.73 3.82 4.13 Standard-Error 0.10 0.15 0.15 0.25 0.18 0.16 0.14 0.11 0.25 0.30 Export and customs-related issues (high customs tariffs on imported components and technologies, complicated customs clearance procedure) Average 3.59 3.38 3.67 4.15 3.41 3.59 3.71 3.54 3.53 3.88 Standard-Error 0.09 0.15 0.13 0.20 0.19 0.23 0.11 0.12 0.22 0.23 Insufficient protection of intellectual property Average 3.59 3.44 3.62 4.08 3.41 3.29 3.82 3.54 3.53 3.88 Standard-Error 0.09 0.14 0.13 0.18 0.17 0.25 0.10 0.10 0.24 0.26 Shortage of management personnel capable of implementing innovation projects Average 3.35 3.04 3.62 3.69 3.26 3.24 3.45 3.16 3.47 4.00 Standard-Error 0.12 0.18 0.17 0.25 0.23 0.30 0.15 0.14 0.25 0.33 Competitive pressure on your company Average 3.19 3.23 3.21 3.00 3.29 3.06 3.16 3.21 2.65 3.69 Standard-Error 0.13 0.18 0.22 0.41 0.19 0.37 0.20 0.16 0.28 0.37 Difficulties in raising finance to implement innovative products and technologie Average 3.82 3.81 3.97 3.38 4.06 3.53 3.76 3.67 3.71 4.56 Standard-Error 0.10 0.15 0.16 0.25 0.19 0.20 0.14 0.13 0.23 0.16 Lack of procedures for assessing risk and return on investments Average 3.45 3.27 3.64 3.54 3.26 3.47 3.57 3.27 3.65 4.00 Standard-Error 0.10 0.17 0.14 0.22 0.23 0.22 0.12 0.13 0.22 0.25 Issues of commercialisation (technology-to-product transition) Average 3.18 3.15 3.18 3.31 3.29 3.29 3.06 3.00 3.18 3.94 Standard-Error 0.12 0.19 0.17 0.32 0.20 0.33 0.16 0.14 0.28 0.31 Annexes 27
  28. 28. ANNEX 4. Barriers to growth of innovation in Russia. (Each barrier was evaluated by companies using a 5-point scale, where 1 point signifies that a barrier is not serious and 5 points signifies that it is very serious. The table presents average points awarded for each barrier by each type of company). Russian company, with part of its business operations USD 500m - 1bn revenue operating only in Russia with part of its business USD 100-500 m revenue on growth of innovation The impact each of the International company, Over USD 1bn revenue 100% privately-owned following aspects has operations in Russia on foreign markets 100% state-owned Russian company activity in Russia State has up to 25% interest All Shortage of expertise/skills in the country (ideas and professionals capable of developing them) Average 3.68 3.35 3.95 4.08 3.38 3.71 3.88 3.55 3.71 4.19 Standard-Error 0.12 0.20 0.14 0.32 0.21 0.34 0.16 0.16 0.23 0.10 Start-ups and innovation projects have no access to financing Average 3.90 3.98 3.90 3.62 3.91 3.94 3.88 3.93 3.65 4.06 Standard-Error 0.08 0.11 0.12 0.32 0.12 0.29 0.10 0.10 0.18 0.18 Excessive bureaucracy Average 4.14 4.23 4.00 4.23 4.26 4.35 3.98 4.15 3.88 4.38 Standard-Error 0.08 0.10 0.14 0.21 0.12 0.15 0.12 0.10 0.17 0.13 Commodity-based structure of the Russian economy Average 3.48 3.23 3.74 3.62 3.26 3.06 3.78 3.39 3.41 3.94 Standard-Error 0.10 0.17 0.12 0.30 0.20 0.26 0.12 0.14 0.22 0.06 Substantial state presence in the economy Average 3.60 3.29 3.87 3.92 3.41 3.47 3.78 3.48 3.47 4.25 Standard-Error 0.10 0.16 0.14 0.30 0.20 0.28 0.13 0.13 0.22 0.18 Living and work conditions are uncongenial to entrepreneurs and creative people Average 3.96 3.71 4.18 4.23 3.82 3.94 4.06 3.91 3.88 4.25 Standard-Error 0.09 0.14 0.12 0.21 0.18 0.19 0.12 0.11 0.20 0.20 Imperfect legislative environment, including insufficient protection of investor rights Average 3.96 3.85 4.03 4.15 3.82 4.00 4.04 4.01 3.65 4.06 Standard-Error 0.07 0.11 0.11 0.16 0.12 0.05 0.11 0.09 0.18 0.15 Insufficient state support for innovation Average 3.90 3.83 3.90 4.15 3.74 3.94 4.00 3.88 3.82 4.06 Standard-Error 0.09 0.13 0.14 0.23 0.16 0.21 0.13 0.11 0.18 0.26 Macroeconomic instability Average 3.85 3.69 3.95 4.15 3.91 3.41 3.96 3.87 3.65 4.00 Standard-Error 0.09 0.13 0.13 0.26 0.15 0.18 0.13 0.12 0.15 0.1928 Innovation by Large Companies in Russia

×