Imitations and Innovations in a Transition Economy Konstantin Kozlov and Ksenia Yudaeva

It is widely believed that Russian firms do not innovate. This belief is based on the conjecture that Russian firms should conduct R&D and introduce absolutely new products with the same intensity as do firms from the developed countries. At the same time, “distance to frontier” theory suggests that firms from countries, located far from the technological frontier, can grow quite fast not by introducing absolutely new technologies, but by copying technologies and products, developed in other countries (Acemoglu et. al 2002a,b). In many cases such development by imitation strategy can produce faster growth rates than attempts to grow by doing innovations.

By using two different statistical sources, this paper shows that the overall innovation and imitation rate in Russia is not that low. Russian statistical office Goskomstat reports that about 9% of all enterprisers innovate every year. The small enterprise level survey, which we conducted together with the Institute of Economies in Transition, produces a slightly higher number: more than 40% of enterprisers report being involved in innovative activities in the last tree years. In line with distance to frontier theory, more than half of Russian enterprisers, which report doing innovations, in fact simply imitate foreign or other firms products, or introduce well-known technologies.

Competition with either domestic or foreign products is the main factor, which stimulates both innovations and imitations. At the same time, credit constraints are the major obstacles to innovations. Interestingly, those firms, which innovate, in comparison to those, which imitate, pay special attention to relaxing credit constraints. Such firms are usually better in terms of corporate governance. They also more often complain about unavailability of external financing, but these complains can rather be explained by the fact that such firms look for external finance more often than imitating firms.

When asked directly, firms rarely complain that quality of their personnel and management is an obstacle to innovations and imitations. At the same time the probability to imitate is positively correlated with presence of managers, which received some training abroad. It appears that imitating firms follow “westernization” strategy: they copy both western technologies and managerial techniques. Education of managers is less important in the case of firms, which report introducing only absolutely new products or technologies. This finding is a bit at odds with the theory, which claims that managing innovations is more complicated than managing imitations. At the beginning of transition, in countries such as Russia there was shortage of good management, while good personnel, which was able to conduct R&D, was available. It is possible that Russian management is better in managing innovations, produced by domestic human capital, than in managing imitations of products, developed by foreign human capital. Therefore, imitating firms pay special attention to education of managers.

We should notice that, as it often happens in transition economies, the quality of our data is far from perfect, and our fundings can be at best considered as suggestive. Nonetheless, they allow making several conclusions. There are two factors, which can help to increase innovation and imitation rates in Russia. These factors are: building better financial system, which require improvements in corporate governance, and improving education of managers. It is often believed that quality of management is more important for innovation-based strategy than for imitation-based strategy. In reality the situation is probably even more complicated. Quality of management is so poor in countries, located far from the technological frontier, that even imitation-based strategy requires substantial investment in education of management. Preserving relatively strong competition, particularly with imported products, is one more factor, which will help to stimulate innovations.

The paper is organized as follows. In the next section we provide some descriptive information on innovative activities of Russian firms. Section 3 describes theoretical basis for regression analysis and results, obtained in other studies. Section 4 briefly describes data sources, and construction of variables. Section 5 analyses the results of regression analysis, and Section 6 concludes.