Difference between innovations and imitations

Table 6 reports probit estimates of determinants of innovations and imitations. In this specification, the dependent variable is equal to 1 if the firm is involved in corresponding innovation activities, and equal to zero if it does not do innovations, or if it does innovations of another type. In Table 7 we report the results of multinominal logit estimation, where we divide all firms in three groups: those, which only innovate, those, which both innovate and imitate, and those, which only imitate. The qualitative results of both estimation techniques are quite similar. They demonstrate substantial differences in behavior of firms, involved in innovations and imitations. Both groups of firms innovate or imitate more often if they are larger. Other characteristics are correlated with imitations and innovations in a different way.

Introduction of absolutely new products or technologies (innovations) is insensitive to profitability of the enterprise. The stimulating positive effect of competition is positive in this case, unless we control for corporate governance or foreign education of managers. Another variable, which is correlated with innovations is good corporate governance, while managerial education is insignificant.

The factors, which determine imitations, are slightly different. Imitations strongly positively and significantly depend on profitability of firms. Stimulating effect of competition on imitations is very strong in all specifications, while negative effect of very high competition gets insignificant in some specifications. Imitations are insensitive to quality of corporate governance. At the same time, the probability to imitate is strongly and positively correlated with the probability to have managers, educated abroad.

Probability to do both innovations and imitations is less dependent on profitability than probability to only imitate, and depends on competition stronger than both probabilities to only innovate or only imitate. This probability is strongly correlated with both education of managers and good corporate governance.

Columns 6 and 7 of Table XXXXX report results of the estimations, which relate probabilities to innovate, imitate, or to do both with probability to train personnel or conduct market studies. All three groups of firms rely on these two other activities significantly more often, than firms, which do not do product or technological innovations, or did not mark the answer about the type of innovation. The size of the coefficients at both variables is somewhat larger in the case of firms, which do both innovation and imitations. This latter finding can simply reflect the fact that such firms do more innovations. Imitating firms seem to conduct marketing studies slightly less often. Since many of them simply copy projects, which face high demand on the market, such studies may be unnecessary.

The finding that profitability is much stronger correlated with imitations than with innovations is a bit at odds with the theory. Usually, firms, which introduce absolutely new products are considered as more liquidity constraint than firms, which implement existing technologies. There are two possible explanations why the situation is different in the Russian case. The group of firms, which innovate, may include two types of firms. The first type is “surviving” firms, which are not profitable. Such firms try to use their own resources to implement changes in technology and product range. Firms view these changes as introduction of absolutely new products or technologies, but the major goal of these innovations is simply to allow the firm to survive. These firms can’t afford sending their managers for training abroad or attract foreign educated managers, so this variable is insignificant in corresponding regressions. The second type is the enterprisers, which do innovations in the theoretical sense of the word. Since innovations require domestic human capital, which is cheaper than foreign human capital, this activity requires less investment than buying foreign technologies. Additionally, these are usually the firms with good corporate governance, which allows them to make credit constraint less strong, and to depend less on profitability. Interestingly, in Section 2, when we described firms’ answers to the question of obstacles to innovations, we noticed that firms, which introduced absolutely new products or technologies, complain about lack of external finance more often. In light of the regression results, this finding can be interpreted slightly differently. Firms, which introduce absolutely new products and technologies, pay more attention to relaxing credit constraints, and as a result care a lot about improvements in corporate governance. We suspect that a number of such firms conduct both innovations and imitations. This later group of firms also pays special attention to education of their managers and personnel. Presence of “surviving” firms in the group of firms, which only conduct innovations, makes coefficient at the managerial education variable less significant.

The group of firms, which are involved only in imitations, follows “westernization strategy”. They upgrade their technological level and introduce product range, which is common to other firms and other countries. At the same time they attempt to improve their management, and with higher managers with western education, or, more often, educate their managers abroad on various training programs. Such strategy requires more resources than upgrading of production using domestic human capital, and innovation activities of such firms depend heavily on profitability. Competition seems to be the major driving force behind this process, although the effect of competition seems to be even stronger in the case of firms, which do both innovations and imitations.