INNOVATIONS AND SMALL BUSINESS CURRENT SITUATION AND MODELING

                INNOVATIONS
                AND SMALL BUSINESS




CURRENT SITUATION AND MODELING



VALERY YA. VILISOV ANNA V. VILISOVA





ACADEMUS
    Publishing

Academus Publishing
2015

ACADEMUS
    Publishing

Academus Publishing, Inc.


1999 S, Bascom Avenue, Suite 700 Campbell CA 95008
Website: www.academuspublishing.com
E-mail: info@academuspublishing.com


© Publisher, Academus Publishing, Inc., 2015

© Translator, Anna V. Vilisova, 2015

The right of Valery Ya. Vilisov, Anna V. Vilisova is identified as author of this work.

Translated and copyedited by Mandarin-K, Translator: Anna V. Vilisova

ISBN 10: 1 4946 0003 X
ISBN 13: 978 1 4946 0003 7
DOI 10.12737/12132

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of the publisher. This book may not be lent, resold, hired out or otherwise disposed of by way of trade in any form of binding or cover other than that in which it is published, without the prior consent of the Publisher.

All trademarks used herein are the property of their respective owners. The use of any trademark in this text does not vest in the author or publisher any trademark ownership rights in such trademarks, nor does the use of such trademarks imply any affiliation with or endorsement of this book by such owners.

            INTRODUCTION


   Economic growth in the markets’ volatility circumstances needs to use high-tech instruments for managing the economic processes and entities. The paper studies such key elements of this field as innovations, science and technology parks and small scale enterprises.
   Innovations have been the major factor of economic growth for the countries with different economic structure (from agricultural to high-tech ones) through all the times. The development of the economy, increasing of its flexibility, mobility and stability strongly depends on how fast is the process of turning innovations into real products, services and how fast they can get to the clients. The scale of the particular economic entity, no matter if it’s a country, a region, a local or a global corporation, is not important.
   Small scale enterprises in all the countries consider being a very important economic entity, which has a number of specific features. Most of the innovation products are “growing” out from the small scale enterprises and start-ups. In many developed economies small scale enterprises contribute a very significant share into GDP. And, finally, high mobility of the small scale enterprises makes them a unique economic instrument.
   The important role in the matter of developing innovations into the practical usage during the last decades is played by science and technology parks (hereinafter - S&T parks, this word also can be used for science parks, industrial parks, business-incubators and other structures with the similar functions).
   The S&T parks as an institution are the lever that can provide the growth of the innovation activity of the sectors, regions, economies. And this growth’s “guide” can be small scale enterprises, functioning inside the S&T parks.
   However, S&T parks are not the one and only “channel” of innovations’ materialization (commercialization). Innovations can “become apart of life” also through the modernization or habitual renovation of the technologies, procedures, product lines in the operating enterprises. This paper analyses these two considerations about the way of using innovations in the enterprises’ operating:
   1.     Developing, launching, adoption of innovational products by legal and natural persons in the field of special infrastructures (like S&T parks), made by government.
   2.     Using and adoption of the finished innovational products and technologies by operating enterprises.
   In Russia the questions of development on the basis of innovations becomes very actual, because till recent time the main component of the growth is due to forced exploitation of the production facilities remaining from the Soviet period and intensive mining of the natural resources. The problem of the new sources for the growth reached its critical stage when obsolescence and physical depreciation of the equipment started to menace by complete

3

suspension of production and total transformation of the Russian Federation into a source of raw materials for the other countries.
    Recently the Russian government has been repeatedly taking efforts to modernization of the Russian economy using different approaches, but most of them turned out to be low effective because of the absence of the necessary institutions. S&T parks being an institution, approved lately in different countries of the world and partly during the Soviet period in Russia, can be ranged with the high effective instruments of the development intensification.
    The efforts to create S&T parks in Russia started to take part from the “bottom” in the late 90’s, but the legal support in the form of the legislative acts appeared only in 2005-2006 [1]. The informal social organization Association of Russian S&T parks has been created to provide support for their establishment, functioning and development. But up till now there is no integrated targeted effective mechanism of the support for the functioning of the S&T parks’ system, targeted to the final result, i.e. the country’s economic growth, represented by the number of corresponding indices.
    The problem is, that such mechanism obviously must function on the level of the corresponding economic entity, i.e. government, region etc. Perhaps, this mechanism must be hierarchically arranged and integrated into the vertical organizational structure and consist of not only the instruments of the passive support, but also the mechanisms of managing the creation and developing the S&T parks in the most important industries and regions. In order of that there must be created the necessary functional systems, in particular, the S&T parks’ condition and indices monitoring system, modelling system for the S&T parks’ development variants and scenarios, the S&T parks’ human resources system etc. Some elements of these functional components, mainly about small scale enterprises, are analyzed in this paper.
    Novelty (innovation points) of the work:
1) Systematic analysis of macro- and micro-objects interacting within the single economic environment, including the influence of the macro-object on the development of science and technology parks, especially the influence of the country’s macro policy in the field of innovations on the development of the science and technology parks.
2)  Estimation of the contribution of the small enterprises into the country’s GDP and assessment of the development trends.
3)  The work proposed directions of the small enterprises’ development and trends for the changing of the institutional mechanisms and evolution of the country’s policy, also there have been created an algorithm for choosing the type of innovation.
    This paper undoubtedly does not claim to be exhaustive for the fields mentioned in the title. Each one of them is extensive, deep, changeable, has vague limits and usually it’s hard to say where one field ends and the other one begins. The paper represents only one of the points of view on the economic entities’ development problems, and there has been made an attempt

4

of analysis for the condition, contents and features of the essences of these ,ⁱelh ................................. .................................
    The research consists of introduction, 8 chapters, conclusion and the references.
    The first chapter gives the analysis of the researches which have already been made about innovations, dividing the resources into 4 groups: the definition of innovation, innovations on the global level (the theory of national innovation system), on the country level (analysis of the papers about the innovation development of particular countries) and the papers about Russian economy and its innovation system.
    The second chapter examines the national strategy of innovations driving economic growth, its concept, structure, participants, types of models of the national innovation systems in the world, analyzes the types of the innovation system using the term of innovation clusters.
    The third chapter takes a closer look at the one of the main instruments of the innovation policy, the science and technology parks (STP), their elements, the reasons for their creation, types of activities, classification and models, then it goes through the stages of development of STPs, the characteristic of their performance.
    The fourth chapter starts with the brief historic view on the economic and innovation development of Russia, then analyzes the current situation, examining the innovation policy and strategy of the government.
    The fifth chapter analyzes one of the core elements of Russia’s innovation policy, i.e. the science and technology parks, their main characteristics and examples and takes a closer look at the most ambitious project in this sphere - the Skolkovo project.
    The sixth chapter starts to discover the importance of the small enterprises, examining the situation in the different countries of the world and then compares it with the situation in Russia, analyzing indicators of innovative activity of the small enterprises on the Moscow region, assessing their potential in increasing the country’s GDP within the environment of the technoparks.
    The seventh chapter explores how innovation can help in rising the small enterprises’ survival rate, giving the tools of procedure management of survival and development of small enterprises on the basis of innovations, then showing the application of the methodology of innovative development of small enterprise on the basis of scenario analysis, naming the characteristics of business processes and then analyzing and evaluating the scenarios, using one particular company to choose the most profitable type of innovation suitable for achieving the goal of surviving and making calculations on the volume of the company’s expenditures decreasing due to the innovation chosen.
    The eighth chapter gives some estimation perspectives of innovational economic development in Russia.
    The methodology used in the research, includes:

5

1) analysis of the existing researches available in the libraries and online resources;
2)  analysis of the statistical data from the official Russian, foreign and international sources;
3)  model-making;
4)  scenario analysis.
    Huge amounts of statistical data from very different levels of economic structures nowadays (in Russian Statistics Bureau, in regions, in enterprises etc.) allow to build models of the mechanisms of particular economic entities, combine them into integrated complex and solve the research and management problems. fn this paper there are several models, complex usage of these models allow to make more scientifically grounded and effective managerial decisions.
    The instruments used in the research are analytical instruments will be used here are basic software tools (MS Excel, Project Expert, etc.) and economical-mathematical models.

6

REFERENCES REVIEW ON THE TECHNOLOGY DEVELOPMENT AND THE THEORY OF DRIVING INNOVATION


        1.1 DEFINITION: INNOVATION

   The definition of innovation was first introduced by Y. Schumpeter in the 30-ies of the 20th century, who introduced the concept of innovation, interpreting it as a change for the introduction and use of new kinds of consumer products, new production and transportation means, markets and forms of organization in the industry [119]. Sometimes innovation is seen as a process-based system, and this recognizes that innovation is evolving in time and has a distinct stages.
   The "Oslo Manual", which is a methodological document developed by the Organization for economic cooperation and development (OECD)jointly with the Statistical office of the European Communities (Eurostat) and contains recommendations in the area of statistics on innovation, adopted in 2005 [120], for example, gives the following definition: "Innovation is the introduction to the use of any new or significantly improved product (good or service) or process, a new marketing method, or a new organizational method in business practices, workplace organization or external relations" ([121], p. 55). Thus, this definition focuses on the fact that innovations are meaningless without their intensive distribution.

        1.2 GLOBAL LEVEL: NATIONAL INNOVATION SYSTEMS

   The basic elements of the concept of national innovation systems (hereafter - NIS) began to appear in the 80-ies of the last century. One of the first fundamental works in this direction was the monograph of the international group of authors "Technical change and economic theory" [4]. The study summarized the results obtained earlier by J. Schumpeter (theory of economic dynamics), F. Hayek (the concept of multiple knowledge), D. North (institutional theory), R. Solow (the role of the scientific and technological advance in economic growth), P. Romer and R. Lucas (new growth theory).
   According to K. the Freeman, NIS is "a network of private and state institutions and organizations, the activities and interactions which lead to appearance, import, modification and diffusion of new technologies".
   Lately there are more and more papers describing, discussing, analyzing NIS (or NSI, national system of innovations) being published. According to the topic of this work, we can divide them into several groups.
1) General research (including national and regional innovation system)
2) Analysis of the NIS of the particular countries
3) Russian innovation system
   We will analyze these groups of the researches made in the latest time.


7

    1.    In this group of researches authors analyze the term ofNIS, its development features and forecasts. Like, N. Sharif [122] analyzed the emergence and development on the concept ofNIS, examined how the formal body of codified NIS knowledge was produced, developed and spread, and how it is used. He examined genesis and development ofNIS concept.
    The main factors ofNIS development is analyzed by O. Golichenko [5] talks about the limits that inhibit the achievement of its greater operability and efficiency of application in practice. The most significant of them is the lack of a standard approach to logically organized research of NIS, which would allow to track and build a cause-effect chain of factors, locate system bottlenecks and determine the set of necessary political, institutional instruments aimed at eliminating these bottlenecks and increase of efficiency of functioning of the NIS. In his research he made attempt to neutralize the above mentioned shortcomings of the theory. This applies to a systemic structural-object and functional approaches to the analysis ofNIS and its effectiveness. The first is used for decomposition of objects of a higher level of aggregation. The second is to analyze the efficiency ofNIS and its factors.
    Following the trend for globalization, B. Carlsson [123] in his research examines the degree of internationalization of innovation systems, because there are a few studies show that national innovation systems are becoming internationalized, even if the institutions that support them remain countryspecific. To the extent that the far more numerous studies of internationalization of corporate R&D discuss innovation systems at all, they point to the continued importance of national institutions to support innovative activity, even though that activity is itselfbecoming increasingly internationalized.
    M.M. Matei, A. Aldea [125] measured and compared the performance of the National Innovation Systems using the information available in IUS 2011 database. In order to fulfill this purpose, the variables describing the innovation process included in this database are used to estimate the technical efficiency of the EU27 Member States as well as Croatia, Iceland, Norway, Switzerland and Turkey.
    Innovation systems and governance are found to be of particular importance for economic development in the study made by J. Fagerberg and M. Srholec [126], out of four different types of “capabilities” (the development of the “innovation system”, the quality of “governance”, the character of the “political system” and the degree of “openness” of the economy) on the basis of factor analysis on data for 25 indicators and 115 countries between 1992 and 2004.
    The problem of the efficiency of the national innovation systems has been a focus of the many research papers throughout the whole period of time of their existence. W. Nasierowski and F.J. Arcelus [127] used a non-parametric approach to the disentanglement of the related effects of efficiency and productivity of a country's technological effort and they identified the extent to which the alleged decrease in the productivity growth of many countries

8

can be explained by differences in efficiency and by differences in its components, namely scale and congestion.
   Jiancheng Guan and Kaihua Chen [128] proposed a relational network data envelopment analysis (DEA) model for measuring the innovation efficiency of the NIS by decomposing the innovation process into a network with a two-stage innovation production framework, an upstream knowledge production process (KPP) and a downstream knowledge commercialization process (KCP). The hybrid two-step analytical procedure is used to consider 22 OECD (Organisation for Economic Co-operation and Development) countries. They found out that the overall innovation efficiency of an NIS is mainly subject to downstream commercial efficiency performance and that improving commercial efficiency should thus be a primary consideration in future innovation policy-making in most OECD countries.
   The new direction of the development in the technologies is analyzed by A. Kazantseva, V. Kiselev, D. Rubvalter and O. Rudenskii [2] in the research paper about NBIC-technologies in the context of innovation civilization of the XXI century.
   Innovations in the times of economic crisis and the ways of its impact on the NIS has been examined by A. Filippettia, D. Archibugia [130], they used micro- and macro-data to investigate to what extent some structural characteristics of National Systems of Innovation, along with demand, affect firms’ persistency in terms of innovation investment. It emerges that the effects of the economic downturn in terms of firms’ innovation investment are not the same across European countries. The competences and quality of the human resources, the specialization in the high-technology sector, together with the development of the financial system seem to be the structural factors which are able to offset the effect of the economic downturn on innovation investments of firms across Europe.
   The economic crisis in the US is the subject of the research for A. Hausman and W. Johnston [133] in their paper that develops propositions based on this review and discusses implications for staving off future economic difficulties. They used theoretical literature and contemporary media accounts, building the argument for a significant impact of innovations on the economy and its potential role in pulling the US economy out of the financial crisis.
   The impact of the innovation policies on the performance of national innovation systems has been analyzed by E. Samara, P. Georgiadis and I. Bakouros [131]. They developed NIS model with the use of system dynamics (SD) methodological approach. In particular the SD model is used as an “experimental tool” to conduct extensive what-if analysis scenarios with regard to alternative innovation policies. The effectiveness of policies has been investigated through the dynamic behavior of product innovation and process innovation which are obtained by simulation results. By using data from a European Union country with innovation performance below that of the

9

EU27 average, the analysis of results reveals insights over a strategic time horizon.
   The regional level of innovation system is analyzed by J. Howells [129] in his paper about innovation policy within a regional context. He explores a number of contrasting perspectives in relation to innovation policy and the regions and seeks to highlight the implications of this both for policy, but also in the development of conceptual understanding about innovation and geography. The difference and complementarity of the approaches to the infrastructure and production as factors of innovation and technological changes are examined by C. Werker and S. Athreye [132] on the basis of the theories of Alfred Marshall and his disciples
   As we can see, the most of the research is analyzing the NIS of the European countries as the most developed ones. The more works will be mentioned in the main part of this book.

        1.3 ANALYSIS OF THE NIS OF THE PARTICULAR COUNTRIES

   The analysis of NIS of the particular countries takes the most part of the research materials examined.
   Although Switzerland is considered to be the most effective economy, including innovative development, but there are not so many researches analyzing its NIS. Among them the paper of C. Marxta and C. Brunnera [138] addresses the question, how the country can keep its leading position by enlarging and strengthening the national innovation system in a sustainable way. Using a systemic approach, in particular an adapted national innovation system framework, this study analyses the current innovation system of Switzerland and comes up with recommendations for improvement.
   Some of the previously mentioned researches analyze the general features on the basis ofthe groups of countries, but mostly European ones.
   But the success of Asian economies (first Japan, then Taiwan, South Korea, Singapore, Hong Kong and, more recently, China and India) has made it tempting to look for “an Asian model of development”. However, the strength of Asian development lays less in strategies that reproduce successful national systems of innovation and more in the capacity for institutional change to open up new development trajectories with greater emphasis on knowledge and learning. In the study Asia's Innovation Systems in Transition (New Horizons in the Economics of Innovation) [134] the analysis of the select group of contributors demonstrates that although there are important differences among Asian countries in terms of institutional set-ups supporting innovation, government policies and industrial structures, they share common transitional processes to cope with the globalizing learning economy.
   Taking into account such an important player in the global economy, presenting high growth rates of the economy throughout the resent years, as China, quite many researchers put their attention on the innovation system

10