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Sergey Valdaytsev & Alexander Sergeyev
Technological innovations in Russia

Electronic Publications of Pan-European Institute 4/2011

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In Russia there is a clear awareness of the vital necessity to innovate and to do it radically. This regards both businesses and government. The problem is that financial conditions do not favor radical innovations in Russia. However, those Russian business owners who intend in the long run to compete with imports and products of foreign companies basing in Russia, even if only they assemble in Russia final products, still dare to undertake reconstruction and major product innovations. For them this often means a risk of their companies’ bankruptcy. The government helps but relevant opportunities are insufficient.


1. Russian business owners, if they are reasonable enough, understand that if they don’t introduce radical product and/or process technological innovations, they will very soon lose even the Russian domestic market. This is due to Russia’s opening its markets to foreign imports and foreign direct investments accompanied with massive technology transfer from new owners. That’s why they face a choice: either to innovate, or to sell their businesses while it is not too late.
2. Innovations in Russia are hampered by financial reasons. To them belong: high inflation rate, high opportunity cost of equity, and lack of self-finance and external equity finance. Technological backwardness also require lacking access to modern technologies. Administrative barriers and corruption together with property risks add to this.
3. Nevertheless, several Russian industries as a whole (large private corporations in metallurgy, chemicals, communications, aerospace, etc.) and several successful private start-ups (small and medium-sized firms in information technologies, pharmaceutics, biotechnologies, components for motor vehicles, high tech services, etc.) risked to start big innovation projects before the world 2008-2009 economic crisis basing on massive debt finance. This has nearly ended with their bankruptcy – although some of them managed to succeed in their projects and became more competitive.
4. Presently, the cost of both foreign and domestic debt finance increased, its supply diminished. Also political risks connected with future parliament and presidential elections in Russia have grown. At the same time the government induces technological innovations with making national technical and environmental standards more severe. One also should not forget that process
innovations are constantly needed and accomplished in order to continue and even increase extracting natural gas and oil under ever worsening conditions (from deeper horizons and more distant places or sea shelf).

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