Human Capital Affects the Innovativeness of Firms in Various Ways

10:23, December 17, 2021

This conclusion was reached by economists who studied the data of more than 1.5 thousand enterprises

The research team of the UrFU analyzed the innovative activity of firms. It was found that the key factor for the promotion of innovation is human capital. And its influence depends on the technological intensity of the firm, reflecting the value of expenditures on research and development (R&D). Thus, the skill level of employees at the R&D stage significantly affects firms from both low- and high-tech industries, while the training of firm personnel at the stage of innovation implementation is significant only for high-tech firms. In other words, high-tech firms have a greater need for the specialized knowledge and skills of employees to successfully implement innovations.

The authors also found that the regional innovation environment and cooperation of firms with different stakeholders have a positive effect on the sales of innovative products regardless of their level of technological sophistication. These and other results were obtained by the researchers based on the Business Environment and Enterprise Performance Survey of 1,564 Russian industrial enterprises from all federal regions of Russia. The data and conclusions were published in the journal Empirical Economics. The study was supported by the Russian Science Foundation (Project 19-18-00262, "Modeling of Balanced Technological and Socioeconomic Development of Russian Regions").

"Our results showed that in a challenging institutional environment, a company can improve its innovation activities and, therefore, increase its productivity through personnel training and the development of collaboration. This is especially important for Russia, as the business environment varies by region. Despite the intention to increase the level of innovative activity of business according to the country's development strategy, Russia still lags behind some leading countries in terms of innovative performance," says Karina Nagieva, research associate at the School of Management and Interdisciplinary Studies at Ural Federal University.

In the paper the authors identified stimulating and restraining factors of R&D and innovation of Russian companies, taking into account their belonging to a certain technological group of industries. In addition, they showed that small and medium businesses are very promising, but are not yet sufficiently resistant to rapidly changing market conditions. If we combine the capabilities of big business with creative ideas of small and medium-sized companies in all industries, it will help accelerate innovation growth in general and reduce the risks associated with R&D and innovation.

To summarize, the results of the analysis demonstrate the positively significant impact of R&D on innovation in high-tech companies, and innovation sales, in turn, are more significant for the performance of high-tech companies compared to low-tech companies. The statistics show that large firms lead all technology groups in average and maximum innovation sales, but the proportion of innovation sales in revenue is the highest for small and medium-sized companies.

"Big business prevails in Russia. However, there is no innovative breakthrough, despite the existing resource capabilities of large companies. We found that firms belonging to high-tech industries and being part of a large corporation spend more on R&D. At the same time, an increase in the number of competitors results in less R&D investment for high-tech firms. This result highlights the vulnerability of high-tech companies in Russia. Moreover, low- and medium-tech companies are more inert in terms of R&D and are more likely to acquire existing technologies rather than develop them. Negative effect of competition may also be a signal of low demand for innovations in the Russian market," says Oleg Mariev, Head of the Department of Economics of UrFU.

The results of the study will help identify practical measures to improve the innovation situation in the country. These include supporting companies in upgrading personnel skills and encouraging cooperation between companies and other organizations, including universities.

"The ability of companies to innovate is significantly affected by the business environment, which is necessary for business development and long-term planning. Therefore, first of all, it is necessary to improve business conditions, including those related to institutions. Along with this, state support of innovative activities of companies as well as cooperation of companies and universities is important," says Karina Nagieva.