Innovation Strategies of Emerging Russian Multinational Companies Sergey Filippov

Innovation in private Russian companies

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Innovation in private Russian companies

Innovation in Russia tends to be concentrated in large companies, possessing sufficient financial, human, intellectual resources for it. The strategic value of innovation and R&D in large Russian companies has been realised only recently. This phenomenon has been of limited relevance in Russia in the period of economic transition in the 1990s, when the economy was characterised by low investments in R&D. The reason is that R&D and innovation were not among the priorities of Russian companies. The main goals of most companies at that period were acquisition of state assets in controversial deals, struggle for a market share, corporate restructuring and consolidation. Investment in R&D did not generate immediate profits and therefore were considered uneconomical. The focus was on reform the enterprises to bring immediate returns through efficiency, adoption of international management practices, and imitation of technology utilised by international competitors.

Russian companies started their internationalisation in the 2000s. While outward FDI were recorded since the early 1990s, it was rather a ‘capital flight’ than distinctively designed internationalisation strategies and establishment of a network of overseas subsidiaries. Roughly at the same time, many large Russian companies showed a growing interest in financing R&D and creation of in-house R&D departments.

International growth of some firms’ was strongly biased towards the former Soviet republics of the Commonwealth of Independent States (CIS) or Eastern European countries, yet other emerging Russian multinationals started investing in all regions (Asia, Africa and Latin America) and particularly advanced economies of Western Europe and North America. It is expected that access to western technologies and know-how has become a distinctive driver of this expansion.

Vahtra (2010) aims to depict the scope and potential impact of outward R&D-related FDI by Russian companies. The study concludes that the evidence of R&D investments by Russian companies remains notably scarce. One of the explanations is that many emerging Russian multinationals are concentrated in the low-tech and natural resource-based industries, and the share of high-tech sectors in Russian economy is marginal. Specifically, only few financial-industrial conglomerates account for significant R&D-related FDI. Moreover, even this small share of R&D-related FDI does not always prove to be successful. Skolkovo Research (2009) identifies ‘unsatisfactory knowledge transfer’ as one the six key operational challenges faced by Russian multinationals (along with inappropriate organisational structure, low brand recognition and so on).

In contrast to the EU’s Community Innovation Survey, Russian authorities do not systematically measure innovation activity of businesses. One of the latest private initiatives is a comprehensive report compiled by the New Economic School and PricewaterhouseCoopers Russia timed to the commencement of St Petersburg’s 2010 International Economic Forum. The survey provides a comprehensive account of innovation in 100 large companies, with annual turnover exceeding $ 100 million and mostly privately-owned. The survey results show that innovating companies are the largest ones, especially foreign subsidiaries and those present on the global market, i.e. Russian multinationals. Overall, in the period of 2008-2010, 39 per cent of companies introduced innovative products, 73 per cent – innovative technologies, 66 per cent – innovative business processes, as stated by the respondents. One-third of companies believe that they introduced globally innovative products, technologies and business processes (‘new to the global market’). In terms of expenditures on innovation, 64 per cent of respondents indicated ‘R&D’, 52 per cent – ‘procurement of machinery and equipment’, and 40 per cent – ‘staff training and development’. According to the survey, Russian multinational companies implement new technologies and business processes as often as international companies (subsidiaries of multinational companies operating in Russia).

While this survey is based on self-assessment and self-reflection of respondents, it is however evident that the need for innovation and breakthroughs at the global level are recognised by the leadership of Russian companies. In analysing data from Russian firms it should be noted that innovation has come to have a very broad meaning in Russia and to Russian businessmen and policy makers. Therefore it should be recognised that innovation in Russian may mean any management, operation, or production technology or technique adopted to improve efficiency of the firm.

These findings are broadly consistent with the survey among executives on the role of innovation in emerging economies of Brazil, China and India conducted by the Boston Consulting Group. Among the main conclusions are that innovation is becoming a priority in emerging economies, and companies’ willingness to spend on innovation and their satisfaction with the return on innovation spending are inching higher (BCG, 2010).

The actual numbers of R&D expenditures are in contrast with these intentions though. Russian multinational fall back on R&D expenditures in comparison to multinationals of other BRIC economies. In our analysis we rely on the R&D Scoreboard annually published by the UK’s Department for Business Innovation & Skills (Table 1).

Table 1 Investment in R&D by Russian companies: Global look











Number of global companies in the Scoreboard





Russian companies in the Scoreboard



Gazprom AvtoVAZ Sitronics

Gazprom Lukoil

Gazprom AvtoVAZ Lukoil

Total R&D investment, £m






as % of sales






as % of operating profit






R&D Investment per employee, £’000






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