Innovation Strategies of Emerging Russian Multinational Companies Sergey Filippov

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Innovation Strategies of Emerging Russian Multinational Companies

Sergey Filippov

Delft University of Technology (The Netherlands)

Alexander Settles

Higher School of Economics (Moscow, Russia)

Prepared for an international conference

Re-Assessing Emerging Market Multinationals’ Evolving Competitive Advantage’

(Cambridge, UK, 25-27 March 2011)

Date: 14-03-2011


The paper explores innovation strategies and processes in emerging Russian multinational companies. Innovation is a major driver of corporate growth and determinant of competitiveness of western multinationals. Emerging Russian multinational companies have started to realise the value creating aspects of R&D and innovation. They devise various innovation strategies ranging often leading to acquisition of technology-intensive firms in advanced economies. Russian firms are unique since they operate in a society with a strong scientific tradition inherited from the Soviet system with limited success in translating these scientific inventions into innovative products. The paper provides an inventory of such strategies and provides empirical evidence to exemplify them. Finally, managerial and policy implications are formulated.

Key words: innovation, Russia, multinationals, acquisition, FDI

  1. Introduction

Innovation is universally recognised as a competitive advantage and a key driver of the growth of multinational companies. Presently, innovation is not limited to western multinationals, emerging multinational companies start realising the strategic value of innovation too. As a vivid indication of the importance of this topic, in April 2010, The Economist published a special report on innovation in emerging markets, titled ‘The world turned upside down’. The report states that the emerging markets are developing their own distinctive management ideas, not simply imitating the western. It urges to recognise that the emerging world, long a source of cheap labour, can be a source of disruptive innovation as well.

Among emerging multinationals, Russian companies represent an interesting case. Russia has inherited the Soviet science and technology (S&T) complex that enjoyed leadership in many technological domains. However, the institutional collapse after the break-up of the Soviet Union has had a profound effect on innovation, science and technology. Dependency of the contemporary Russian economy on the international commodity markets is often acknowledged. The exports of oil and natural resources make up to 80 per cent of all Russian exports. Likewise, many emerging Russian multinational companies operate in the natural resources sectors.

Diversification of the national economy remains a top priority for the Russian political leadership. Russian president Dmitry Medvedev has consistently called for the ‘modernisation’ of Russia’s economy and appealed to Russian companies to design and implement innovation strategies.

Despite the general interest to this topic and its relevance, the role and place of innovation in emerging Russian multinationals remain under-researched (with some exceptions, e.g. Podmetina et al, 2009). The objective of this paper is to fill this gap. We seek to explore the nexus between innovation and internationalisation of Russian companies. More globally, we aim to reflect whether innovation represent a firm specific advantage - competitive advantage for Russian emerging multinationals. As the conventional wisdom about EMEs especially those from Russian fail to innovate even with the extensive state support of state corporations, scientific institutes, and now technology parks. While there is a lack of innovative activity of Russian based firms there are firms that operate both in the Russia market and internationally that have attempted to acquire technology assets or create innovative capacity in Russia. For example in the telecommunications industry Russian firms have developed significant competitive advantage in their home market and have extended these advantages to other emerging markets especially in the area of the former Soviet Union.

Innovation capability is often measured by patenting activity (Acs and Audretsch, 1989); however in the Russian context patents do not always provide meaningful representations of innovation process, as the efficiency of R&D measured by patents is low. Other standatd measures of innovation are not always readily available in Russia. Therefore, the paper relies on secondary data and circumstantial evidences.

The paper is structured as follows. Section 2 provides a theoretical background by reviewing academic literature on a number of relevant topics, such as emerging multinational companies and firm-specific advantages, innovation and internationalisation of R&D and absorptive capacities. Section 3 sets the context by providing a macro-view on innovation in Russian, the strategic intentions of the government’s policies and innovation in Russian (domestic) companies. Section 4 examines the interplay between innovation and internationalisation. Section 5 provides critical reflections and conclusions.

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