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Development institute of the Russian Federation

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Business believes in Russia’s innovative future

17.06.2010

According to the findings from a survey entitled “Barriers to Modernisation and Innovation in Russia”, most of the companies polled believe that the Russian economy will be more innovative by 2020: 83% of the respondents think that such a forecast is “very likely” and “likely”. The companies see excessive red-tape and difficulties in attracting finance to introduce innovative products as being the major barriers to innovations.

The survey was completed by the New Economic School and PricewaterhouseCoopers Russia, in cooperation with the Russian Venture Company and ROSNANO Corporation, and was specifically timed to arrive before the start of St Petersburg's 2010 International Economic Forum. The objective of the survey is to assess the level of big business innovation activity, identify key drivers to innovative processes in companies (as well as hurdles to innovation in companies and the marketplace) and get the opinion of big business on the vital steps the government should take to stimulate these processes.

The survey findings show that it is the largest companies that undertake innovation efforts most actively. Large companies believe that the government should take a number of top-priority measures to stimulate innovation activities, including improving higher education, a higher level of government R&D financing, tax incentives and improved legislation to power innovation processes.

Peter Gerendasi, Managing Partner, PricewaterhouseCoopers Russia:

We conducted this survey to try and assess to what extent businesses are receptive to the government's efforts to place modernisation and the technical upgrade of production among the top priorities. These challenges are key for Russia to move to the next level and secure a leading global position. We also wanted to understand which players on the Russian innovation market have made it their mission to develop the market of ideas and inventions, nurture talented and critically-minded people, and what it is that is hindering them on this path.

Sergey Guriev, Rector of the New Economic School:

This survey is unique in that it gives an idea of the innovation activity being undertaken by the largest private- and state-owned companies in Russia. We sought to assess which new products, technologies and processes Russian companies had implemented both before and after the crisis and what lay behind their decisions to engage in innovations. The survey also indicates which barriers hinder innovations in Russia today and what joint efforts the government and big business can undertake to implement ambitious plans to build an innovative economy in Russia.

Igor Agamirzyan, Chief Executive Officer, Russian Venture Company:

The main challenge when it comes to launching a modern innovative economy in Russia is to create a mature ecosystem that will lower barriers and costs to innovative companies’ start-up and development. By creating incentives and a relevant business infrastructure, it is possible to stimulate activity not only in the sector of big innovative business but also in the sector of small and medium innovative businesses, which play an increasingly active role in developing the market. The overall success of any innovation breakthrough to a large extent hinges on how far large corporations and small innovative companies are prepared to interact.

Alexey Gan, Director of the Department for Innovation Policy, RUSNANO:

We are able to observe two important results in the survey: first, it supports the statement that Russian businesses are ready to engage in innovative processes, and second, companies are confident that these processes are viable. For RUSNANO, as an innovation development institute, this is a very positive signal.

Responses from a 100 companies generating USD100 million and above in annual revenues and representing practically all industries of the Russian economy show that a significant number of such corporations engage actively in innovation activity. Thirty-nine percent of respondents state that their companies have launched the production of new products in the last two years. However, innovative technology and business processes have been implemented twice as often (73% and 66%, respectively). Companies adapt existing innovative products, technologies and business processes twice as often as they implement anything that is new to the marketplace. Thus, the adaptation of existing innovative products, technologies and processes (i.e., modernisation) is a substantial segment of companies’ innovation activities in Russia.

It is important to note that almost 80% of new products and technologies are developed in-house by companies which implement such innovations. A mere 20% of the companies retained third-party Russian contractors for design and development purposes, and only a handful of companies used foreign contractors to the same end.

The use of own resources is the most common way for companies to finance the design of new products (87%). Every fifth company attracted resources from RVK or ROSNANO and every tenth corporation attracted foreign investment. The overwhelming majority of innovations are developed in-house, without a company having to tap third-party intellectual or financial resources.

In 2010, companies are largely planning to increase their R&D investments: only ten per cent intend to spend less than 3% of their turnover, and almost seventy per cent between 3% and 10% of the turnover.

The motivating force behind new product implementation is the drive to outstrip competition, while striving to cut costs is the motivating force behind new technology implementation. In terms of their innovation levels, one-third of respondents report that their companies “are ahead or far ahead” of their immediate competitors in Russia. Another fifty per cent feel that they are catching up with the competition.

One-third of the companies that introduced innovative products in 2008 – 2010 believe that one or more of their products were globally innovative, which is to say they pioneered the manufacture of such products. Twenty three percent of companies surveyed maintain they had launched globally innovative technologies, and 27% of respondents stated that they had introduced innovative business processes globally.

At the same time, a considerable percentage of respondents admit that the products, technologies and business processes they had implemented were new only to their companies (26%, 27% and 35%, respectively, of all the companies that introduced these types of innovations).

In 2008 – 2010, private companies were more likely to introduce new products than companies with a state interest, or 100% state-owned companies. This is as a result of a difference in size between state-owned and private companies, as well as the difference in the industry they represent in our sampling. Even with size and industry factors taken into account, private companies introduce new products more often than state-owned companies do.

International companies operating in Russia engage in innovation activity more actively than their Russian counterparts. Among companies that have introduced new products, there are twice as many international companies operating in Russia as there are local ones. Approximately 1.5 times as many international companies have implemented new technologies and business processes as local companies have. Russian companies operating globally implement new technologies and business processes as often as international companies do. However, Russian companies are lagging significantly behind their international counterparts when it comes to innovative products.

Many companies make a critical assessment of innovation activities, both in their own industries and in Russia in general. Only 9% of the companies polled believe that their industry “outpaces or significantly outpaces” their foreign counterparts, and a mere 5% of respondents believe that the Russian economy outpaces leading world economies in terms of innovation activity levels. Not a single respondent claimed that the Russian economy “significantly outpaces” global leaders.

As a rule, it is company owners, top managers or specialised units/dedicated employees responsible for innovations who initiate them. In 50% of cases, top management initiates the introduction of new products, and not new technologies. The role of external investors, external advisors, line unit staff and third-party R&D organisations is negligible.

Difficulties in raising finance to introduce new products and red-tape were ranked the most significant barriers to innovation activity. The former is more significant to those companies that have experience in introducing globally innovative products, while the latter is a concern for all the companies surveyed. The lack of an innovation culture represents a greater concern for companies that have implemented innovative business processes over the last few years. In addition, this group of companies is concerned more than others about the lack of management resources.

It should be noted that Russian companies which operate only in Russian markets do not believe that the country's lack of ideas, and professionals capable of developing them, is a critical issue. This may well reflect a widespread conviction that “Russia has got talent” and that the problems lie elsewhere.

Respondents believe that "difficulties in attracting finance to introduce innovative products", "excessive red-tape" and "unattractive living and working conditions" are the major barriers to innovation across the country. The commodities-based structure of the Russian economy, along with heavy involvement from the state, are mentioned as being among the least highly significant factors.

Notes for the Editor:
For more information, please contact:

  • PricewaterhouseCoopers Russia
Anna Aristova, PR Manager
Tel.: +7 (495) 287 1198, e-mail: anna.aristova@ru.pwc.com.
  • New Economic School
Natalia Fokina, Development Director
Tel.: +7 (495) 956 95 08, e-mail: nfokina@nes.ru
  • OJSC Russian venture company
Natalia Aristova, PR Chief Specialist
Tel.: (495) 777 0104, e-mail: aristova.ng@rusventure.ru



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