Strategic innovation in russia towards a sustainable and profitable national innovation system

1 The Challenge:​ Renewal of the Russian Innovation System 1.​1 Strategic Innovation Replaces Technology 1.​2 The Relevance of Strategic Innovation for Russia 1.​2.​1 Not Diversification

Taco C R van Someren and Shuhua van Someren-Wang

Strategic Innovation in Russia

Towards a Sustainable and Profitable National Innovation System

Taco C R van Someren

Ynnovate, Hilversum, The Netherlands

Shuhua van Someren-Wang

Ynnovate, Hilversum, The Netherlands

ISBN 978-3-319-41080-7 e-ISBN 978-3-319-41081-4

DOI 10.1007/978-3-319-41081-4

Library of Congress Control Number: 2016950914

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1 The Challenge:​ Renewal of the Russian Innovation System

1.​1 Strategic Innovation Replaces Technology

1.​2 The Relevance of Strategic Innovation for Russia

1.​2.​1 Not Diversification but Renewal of Domestic Industries Is Key

1.​2.​2 Future World Society

1.​2.​3 Sustainability

1.​2.​4 Geopolitical Power Shifts

1.​2.​5 Market Economy quo vadis?​!

1.​3 Russian Heroic but Unknown Innovation History

1.​4 Current Status of Innovation in the Russian Economy

1.​4.​1 Insufficient Innovation Performance

1.​4.​2 Insufficient Internationaliza​tion

1.​4.​3 Insufficient Entrepreneurial Activity

1.​4.​4 Insufficient Contribution of SMEs

1.​5 National Innovation System

1.​6 Milestones of Innovation

1.​7 The Strategy

1.​8 Bottlenecks

1.​9 Megatrends

1.​10 Russia Aims at the Technology Frontier

1.​11 Overview of This Book

Literature

2 The Solution:​ Strategic Innovation Money Maker Model Versus Technology Frontier Money

2 The Solution:​ Strategic Innovation Money Maker Model Versus Technology Frontier Money Taker Model

2.​1 The Need for a New Big Picture

2.​1.​1 Macro level and Massive Outlook

2.​1.​2 Meso level and Major Renewal

2.​1.​3 Micro level and Mega Impact

2.​2 Major Developments Requiring Strategic Innovation

2.​2.​1 Sustainable Economy

2.​2.​2 Internet of Things and Industry 5.​0

2.​2.​3 New Dominant Regions

2.​2.​4 World Economy Replaces Globalization

2.​2.​5 Big Unknown

2.​2.​6 Common Denominator of Sustainability, Internet of Things, New Dominant

Regions, World Economy and Big Unknown

2.​3 Consequences for Russia

2.​4 Growth Cycle Versus Technology Frontier:​ Money Maker Versus Money Taker

2.​5 Russia ’ s Position on the Growth Cycle

Literature

3 The Instrument:​ Strategic Innovation as a New Foundation for Russian Innovation System 3.​1 The Mind Shift from Technology to Future Earning Power Needs New Theory

3.​1.​1 Strategy Concepts Cannot Explain “What Happens Here?​”

3.​1.​2 Innovation Theories Cannot Explain “What Happens Here?​”

3.​1.​3 Strategy and Innovation Concepts Compared

3.​2 From Parrot-Economy to 24-Karat:​ From Technology Frontier Towards Strategic

Innovation

3.​3 The Innovation Matryoshka

3.​4 The Six Pillars of Strategic Innovation Theory

3.​5 Entrepreneurial Function

3.​6 Growth Cycle Is More Than Disruption

3.​7 Non-technical Innovations

3.​7.​1 Scope of Non-technical Innovation

3.​7.​2 Impact of Non-technological Innovation

3.​7.​3 Non-technological Innovations Are Hard to Imitate

3.​7.​4 Implicit and Tacit Innovation

3.​8 Ultimate Power of Time

3.​8.​1 Time Is the Master of the Universe

3.​8.​2 The Basic but Unnoticed Role of Time

3.​8.​3 Tacit Knowledge Does not Exist, It Is the Time Factor

3.​8.​4 The Seven Time Dimensions

3.​8.​5 Time Culture:​ A Profound Hidden Force of Societal Development and Progress 3.​8.​6 Time Arrow:​ Future or Backwards Oriented Society

3.​8.​7 Time Control:​ Who Controls Time Owns Power

3.​8.​8 Timing:​ Multiplier of Profits and Losses

3.​8.​9 Time Duration:​ Creator and Destroyer of Wealth

3.​8.​10 Time Consumption:​ From Ubiquity to Scarcity

3.​8.​11 Time Intensity:​ Evolutionary, Revolutionary, Speedy and Risky Times

3.​8.​12 Wrap Up Seven Time Dimensions

3.​8.​13 Dynamic Production Function

3.​9 Dynamic Value

3.​9.​1 From Profit to Dynamic Value

3.​9.​2 Multiplier Time Effect and Exponential Growth

3.​9.​3 Dynamic Value as Modus Operandi of Strategic Innovation

3.​9.​4 Relevance of Dynamic Value for Russia

3.​10 Emulation as Endless Race of Outperforming and not of Disruption

3.​10.​1 Emulation Is Core of Progress and Prosperity

3.​10.​2 The 4I Emulation Scheme for Russia needs Tailor Made Approach 3.​11 Strategic Innovation Theory Elevates Russia in World Innovation League Literature

4 The Management:​ Unleashing the Strategic Innovation Potential

4.​1 Growth Cycle and Strategic Innovation

4.​2 Growth Cycle Phases

4.​2.​1 Pre-seed and Seed:​ Lead or Bleed

4.​2.​2 Start-up Smart

4.​2.​3 Scale or Fail

4.​2.​4 Incumbents Defend or Expand

4.​2.​5 From Renewal to Future Crown Jewel

4.​3 Myth Busting the New Economy

4.​3.​7 Myth 7:​ Sharing Economy

4.​3.​8 Myth 8:​ Tacit Knowledge

4.​3.​9 Myth 9:​ Costless Information

4.​3.​10 Myth 10:​ Obsolete Production Function 4.​4 Back to Basics for Russian Innovation System 4.​5 The Management Basics of Strategic Innovation 4.​6 Future Earnings:​ Creating Company of the Future 4.​7 Growth Phase Management

4.​8.​6 Industrial Governance as Power

4.​8.​7 Cross Cultural Management

4.​8.​8 Dynamic Value

4.​9 Russian Volga Amur Model for Industrial Leadership

Literature

5 The Internationaliza​tion:​ Russian Cross-cultural Strategic Innovations

5.​1 Why Does Russia Have to Integrate Strategic Innovations Across the Border?​

5.​1.​1 From Creativity to Russian Strategic Innovations

5.​1.​2 From Culture Diversity to Russian Strategic Innovation Context

5.​1.​3 From Trade Partners to Triple E of Russian Strategic Innovations

5.​2 From Lose-Lose to Win-Win, How Can Russia and China Cooperate in International Strategic Innovations?​

5.​2.​1 The Lose-Lose History of Sino-Russia Relationship

5.​2.​2 The New Strategic Innovation Chances for China and Russia Looking for Win-Win 5.​2.​3 Huawei as an Example of the Chinese Strategic Innovations in Russia

5.​2.​4 How Should Russia Work with China?​

Literature

6 The Cases:​ Potentials and Opportunities of Russian Strategic Innovations “Urbi, Orbi et Universum”

6.​1 Introduction

6.​2 Agrofood:​ Grain, Food Chain and Brain

6.​3 Aerospace:​ Heroic Past and Heroic Future?​

6.​3.​1 Go-Around

6.​3.​2 Takeoff:​ Growing into the Sky

6.​3.​3 Beyond the Cloud:​ Space Race as Money Maker

6.​4 Far Eastern Federal University (FEFU):​ Vladivostok Valorization 6.​4.​1 Past Successes, Rankings and New Opportunities

6.​4.​2 Building Quadruple Helix

6.​4.​3 FEFU as Strategic Innovation

Literature

© Springer International Publishing Switzerland 2017

Taco C.R van Someren and Shuhua van Someren-Wang, Strategic Innovation in Russia, DOI 10.1007/978-3-319-41081-4_1

1 The Challenge: Renewal of the Russian Innovation System

Ynnovate, Hilversum, The Netherlands

1.1 Strategic Innovation Replaces Technology

Strategic innovation will replace technology competition in the worldwide race for growth and

development.1 In this book it is advocated that Russia should abandon the chase for technology

Instead Russia should focus on the creation of growth cycles by means of strategic innovation In thepast decade Russia, like many other countries, has been following the trend of technology creationoften inspired by successes like Silicon Valley, BMW, Toyota, Samsung, Alibaba, Google and

Apple But in our opinion the future of Russia is depending on strategic innovation and not merely ontechnical innovations Strategic innovation is the future of Russia

Russia has the potential to become one of the top players in the world innovation league In

history, Russian people have already proven to be great inventors, creative problem solvers,

perseverant and flexible leaders Among others, all these characteristics are needed to be successfulinnovators The great strength of Russia is its people And innovation is people’s business, not

technology Culturally, Russia is people oriented which is the greatest asset in future world economy.But a true revolutionary change in perspective is necessary to unleash Russia’s innovation potentialand to overcome current bottlenecks and grasp opportunities Innovation is not technology but humanbeing driven business which fits perfectly to Russia Hence, success needs more than invention andbreakthrough technology, it needs strategic innovation to create new enterprises, industries, create aprosperous Russia and change the world economy Russia needs a mind shift from pure technology toincluding human being and non-technological oriented strategic innovations

But what do we exactly mean by strategic innovation? Strategic innovation is about creating newbusiness based on technical and non-technical innovations followed by growth, development,

employment and prosperity (Someren, 2005, 2015b; Someren & Someren-Wang, 2012, 2013b)

Strategic innovation is not about following hypes on technology, management techniques or policies

To understand the relevance of strategic innovation in relation to the knowledge economy Table 1.1

shows the case of economic value of knowledge in relation to academic professors, politicians andfootball players in the United Kingdom.2

Table 1.1 Value of education, politics and football

Sources data: BBC News Magazine; English Football Wages: 1984 to 2010 by Ahmed Bilal on

publications lagged behind Secondly, it appears that average income was exactly opposite fromeducational level and cutting edge knowledge Before the 1980s most football players were amateursand had to earn money after their career on the pitch by opening a cigar store requiring no knowledge

at all Decades later they are top earners in very early life and multi-millionaire What has happened

in these three decades?

Strategic innovations explain the difference in value creation, growth, development and becomingunique Again the explanation does not come from technology In the world of football, some smartcreative people started to professionalize and commercialize the football game New markets werecreated by selling merchandise such as shirts More importantly, new alliances with business partiesfrom the entertainment industry were formed TV rights of national leagues were sold to public andprivate TV stations The success was dependent on the creativity of the individual player, the success

of a team and the attractiveness of a league or tournament Politicians also followed the principle ofstrategic innovation but not as successful as the football players The football players indeed created

a new industry and an extraordinary entertainment value Politicians did not create a new market oreven industry but they created a personal market by valorizing their experiences by selling memoires,becoming advisor or giving dinner speeches and high fees in return Politicians are not valorizinggood knowledge or good decisions, even bad decisions or wrong judgments are being paid as long asthe public gets excitement back or a view behind the scenes They are selling excitement and political

thriller situations and not excellent strategic insight or new knowledge Professors need large sums ofmoney to carry out laboratory experiments, they write difficult articles requiring a large time

investment for a very small audience which has no value for the big public Only excellent researchfor the happy few gets published Publishing your results costs money and the publisher earns the bigmoney by selling the reviewed journals Professors get famous but not rich Only those professorswho were able to transform their knowledge into new ventures had chances to valorize their newlycreated knowledge

Therefore, it is not the knowledge economy that will determine the next decades but entrepreneurswho are able to create strategic innovations An example of such hype is the Knowledge Economy.The knowledge economy states that the future key production factor is knowledge mostly embedded innew technologies McDonald’s hamburger case demonstrates that without technology or knowledge abillion dollar business can be built and which is hard to imitate The hamburger case is revealing.Everybody of us is able to cook a hamburger Even if you are not a very good cook, you can learn itwithin a half day There is no technology or specific knowledge involved But there is one Americanwho made a multibillion dollar business out of the hamburger The long time success and profitability

of the entrepreneur McKroc, who founded McDonald’s, could hardly be copied by its competitors.How to explain this success of an apparently easy to copy business case? The solution is definitelynot to be found in technology or special knowledge There is something more than technology

Strategic innovation is the continuous process of creating and developing growth cycles by usingthe interaction in time between technical and non-technical innovations (Someren, 1991, 2005;

Someren & Someren-Wang, 2012, 2013b) Examples of strategic innovations are the standardizedhamburger by McDonald’s, the supermarket, the Just-In-Time (JIT) manufacturing principle, the

IKEA reversed construction by customers, Star Wars movie and its battle between good against bad,Silicon Valley as a region and the bitcoin It is the secret of strategic innovation explains the successand potential for growth and development Strategic innovation is beyond technology, beyond newbusiness models and beyond smart policies Strategic innovation is at the core of the emergence ofnew firms, new industries, new regions and growth of development of nations worldwide

1.2 The Relevance of Strategic Innovation for Russia

The current starting position of Russia in the worldwide economy is not very favorable There aremany reasons why strategic innovation should be the core issue for Russia in the near future We onlygive a few reasons without having the pretention to be complete or comprehensive But already thesearguments are sufficient to adopt and apply strategic innovation approach in Russia

1.2.1 Not Diversification but Renewal of Domestic Industries Is Key

Contrary to mainstream analysis, opinions and media, Russia’s economy is not dependent on naturalresources In Table 1.2 the apparent dependency, also in comparison to other countries, becomesclear

Table 1.2 Contribution of natural resources to gross domestic product

Country Total natural resources

rents

% of GDP 2013

Oil rents

% of GDP 2013

Natural gas rents

% of GDP 2013

Coal rents

% of GDP 2013

Mineral rents

% of GDP 2013

Forest rents

% of GDP 2013

Source data: 2015 World Development Indicators, table 3.15

National resources in Russia contribute 18.2 % to GDP (2013) which is indeed relatively highcompared to other world countries In 2013 the share of oil and gas export (excluding other naturalresources) in GDP is 68 % (Metelitsa, 2014) This appears to confirm the picture in the media andeven some scientific publications presenting Russia as an economy dependent on natural resources.But this media picture and academic parrot behavior is not true because more than 80 % of RussianGDP comes from other sectors than natural resources such as manufacturing, retail, IT, telecom, realestate, construction, transport and finance The oil and gas industry delivers about half of Russia’sgovernmental total tax income The relative and absolute high portion of natural resources exports inGDP exports demonstrates a lack of internationalization of the non-resources industries Hence, atremendous potential for internationalization is present

But first innovation capability has to be increased resulting in higher competitiveness and

enhanced diversification as a prerequisite for internationalization In Russia all industries in the

economy are present but they need to be reinvented in order to take next steps towards innovationpowerhouses, world class competitiveness and ultimately global presence These other than

resources industries do have a large potential for strategic innovation

Strategic innovation revolutionizes the future of Russia towards growth and development In thisrespect, Russia could even increase the rents produced on e.g minerals and forestry by developingadded value activities on top of extracting natural resources A move upward the value chain would

be the result In Russia some steps into this direction have been made The past decade showed theemergence of incubators, Triple Helix structures, innovation centers and innovation policies Butdespite the huge amount of investments in the technology orientated and dominated programs did notyet show bottom line results The reason is, as we will demonstrate later on, that some critical

aspects of strategic innovation have not paid attention to

1.2.2 Future World Society

There are manifold developments changing the future economy and we only present some illustrations(e.g Someren, 2015b; Someren & Someren-Wang, 2012, 2013b) One of the most profound

developments is the growth of world population and its growing diversity Included developments aremigration, shifting mix between young and old, rich and poor, urbanization and city economies force

to rethink function and operation of (mega) cities, regions and nations as a whole Any organizationwill be confronted with these and other developments Possible consequences are for example, achanging client base with different needs or a work force featured by a larger diversity with

implications for leadership and ultimately innovation

Of course new technologies are another relevant reason for Russia to rethink their economy Wellknown general categories of technology are, among many others, digitalization, renewable energy,biotechnology and nanotechnology But most of these fields are still in their infancy and their impactsare at the moment hard to judge and to oversee An alternative view is to think in issues to be solved

like obesities and ageing requiring (technical) solutions.

The current globalized world is a Western dominated world Globalization is an economic systeminvented by large American and West-European multinationals Globalization is a cost saving systemoutsourcing functions like manufacturing, administration and after sales to low cost countries Thisshort term based system is focused on reducing costs and achieving economies of scale and scope.With the rise of other countries, globalization with Western enterprises at the core will dwindle

1.2.3 Sustainability

The current linear directed value chains are characterized by detrimental social and ecological

effects Consequently, issues like climate change, CO2 emissions, scarcity of some natural resourcesand biodiversity were largely neglected by the globalization movement of the past decades In Russiasustainability is not a hot issue yet Nevertheless, sustainability will be at the core of the future globallong growth till the twenty-second century (Someren, 1995; Someren & Someren-Wang, 2012)

Very long value chains supported by cheap modes of transport and distribution are a complexsystem of many different parties In this classical industrial organization, these parties are needed forthe primary process of production and the secondary service processes For example, long food

chains with global reach and numerous involved parties deliver the end product to the consumer.The linear production process does not take into account issues of recycling, emission and otherenvironmental or social effects This leads to another profound change of our economy being

sustainability in every aspect of our industrial organization

The linear mode of manufacturing will be substituted by the circular economy The circular

economy will be accompanied by new firms, new industries and new behavior on markets Examplesare the renewable energy market, new propulsion concepts for automotive and aerospace sector andrecycling industries Sustainability is characterized by long life cycles

The long term consequence of sustainability is in sharp contrast with the short life cycles of someservices of the Internet of Things industry Hence, in the future economy we have to deal with thisparadox of simultaneous existence of short term and long term time effects

1.2.4 Geopolitical Power Shifts

In the era of globalization, the Cold War showed the main players of that old time: the Atlantic

alliance and Russia and its allies In the coming decades new potential extreme powerful playersenter the world scene Already in the globalization era, the rise of the so-called BRICS (Brazil,

Russia, India, China and South Africa) countries was foreseen But after a promising start of thesecountries it appeared that getting into the highest league of economic high performers needed morethan a decade of double digit growth based on infrastructure investments and resource exploitation.The biggest challenge for these countries is innovation in every aspect of the economy which needsmuch more than R&D investments, technology programs and Silicon Valley copycat regions

(Someren, 2015a, b) They all need strategic innovation which requires much more than copycat

technology or improvements Moreover, other countries with high economic ambitions also enteredthe arena like Indonesia, several Arabic countries and Turkey Of all countries, China seems to be themost promising and best contender of existing world class players like USA and some countries fromthe EU

For Russia, the relationship with China is a special case with a long history Not only for theregions along borderline in the Russian Far East but for Russia as a whole, the relationship with

China will be pivotal in the future There are huge opportunities but also huge risks The sanctionsinitiated by US and EU against Russia awakened the Russian economic bear The logical and stillprofitable relation with the EU has been cut off, or at least has been put on ice, forcing Russia to turntheir head to the East The sanctions were in fact a wakeup call for Russia to invest in their own

production capacity instead of relying on imports For the Chinese, the timing could not be better.After decades of growth and development, the demand for land, energy and basic research is

enormous Closer relationships between Russia and China seem to have a win-win effect but onlyunder specific conditions dictated by strategic innovation As we will see later on, in most casesthese conditions are not yet fulfilled As long as this situation continues, the win for Russia is not verylikely

1.2.5 Market Economy quo vadis?!

The free market economy in the real sense of the notion as rational participants with free will anddecision power has only existed in economic text books In the capitalistic and market economy manydistortions diluted the free market economy such as monopolization of markets, power concentration,externalization of costs such as ecological detrimental effects, alliances between private enterprises,governments and financial crisis like in financial crisis and so on Oil and gas market power of OPECduring 1980s and Gazprom are well known and they used power to set prices and have power overenergy supplies Now Google, Facebook, governments, platforms, and banks own Big Data and havepower over demand and behavior of individuals and the user is left with empty hands

Furthermore, the text book market economy was based on Western Europe and US context andsituations The market governance in many other emerging countries does not fit to textbook

economics Russia, China and African countries have different market principles In Russia,

government is often identical with market, in the EU government is both a very large market

participant as well as shaper of market conditions and in China a market system with Chinese

characteristics is being created Now emerging regions and other countries gain economic power, themarket economy in its current form will disappear and be replaced by another system fitting to thefuture world growth curve dominated by emerging parties Strong linkages and other forms of

symbiosis between private enterprises and governments create a different ‘market economy’

On the macroeconomic level also long term potential changes will rock the fundaments of themarket economy For example, the US is able to exert market power because the dollar is the

dominant currency in international trade Dollar transactions and its clearing through American

banking system gives the US the possibility to sanction or fine certain transactions and defend

American interests How will the world look like when the Chinese Renminbi takes over the role ofthe dollar?

The answer to all of these examples of major developments, only strategic innovations and nottechnological innovation provide the right answer to these profound changes A new world order willemerge (Someren, 2015b; Someren & Someren-Wang, 2012, 2013b, c, d) Before we elaborate onthis central core issue we first have to understand Russian current situation and its historical path tothe present

1.3 Russian Heroic but Unknown Innovation History

Russia has a great history in innovation of which most are not aware But as everywhere, there are

ups and downs in the output and impact of the innovations In Fig 1.1 a few examples of great

inventions demonstrate the high capability of Russian innovators

In several industries from agro food sector to space technologies, some radical inventions such ascaterpillar, radio, television, airliner, firefighting foam and nuclear energy are of Russian origin Ofcourse, almost any country can produce such a list of inventions with high impact Most of the timethese lists are dominated by new technologies or some physical object Much more important from aneconomic point of view is however, the ability to establish and grow new enterprises and new

industries Then the list with famous inventions is not important anymore More relevant becomes theability to create a context to transform an invention into an innovation The innovation is the

commercialization of a (technical) invention As soon as this hurdle of first market introduction hasbeen taken the next challenge is to grow this venture All over the world this is still one of the keyissues of innovation management It is also a key issue of the current Russian economy but such acontext or environment fostering innovation is largely absent The examples of Russian inventions inFig 1.1 exactly demonstrate this omission There are no Russian world class TV manufacturers,

Russian airline manufacturers are not able to compete with top notch manufacturers, solar cell

technology is commercialized by German, American, Chinese and Japanese manufacturers and spaceindustry knowledge is not applied commercially

This failing ability to commercialize is not a sudden problem but the result of a historical processwith regard to innovation In the Russian communist era to achieve certain production quantities

levels determined by the state were at the core of the total system Agriculture, mining and heavyindustry were believed to be the main pillars of the economy For innovation was no place Thisperiod of state planning, production and distribution was followed by a glasnost period in whichregulation by the state and state planning was left over to a few players This development lead to(local) industrial concentration and wealth accumulation limited to an inner circle Again wealthaccumulation and distribution was far more important than innovation Soon after this bonanza, stateleaders came to the conclusion that technology should be at the core of future wealth and prosperity

Now innovation is on the radar of the governmental leaders However, it still largely misses abreeding ground because of history and everything has to be built up from scratch In recent times, theRussian economy is on the brink of trying to catch up with world leading companies and countries.Although wide spread innovation is absent in the past decades of Russian history, it does not meanRussian innovative activity was completely neglected On the contrary, some governmental programs,like conquering space, require a bunch of innovations Furthermore, education and basic researchwere on a quite high level But hampered by institutional structures, the basic research and high leveleducation did not get the opportunity to flow into commercial products and services for Russian

markets or exports For the remainder of this chapter we focus on the past decades of innovationdevelopment in Russia

1.4 Current Status of Innovation in the Russian Economy

Strategic innovation leads to world class innovation competence, global powerhouses and

international top competiveness The most eye-catching key characteristic of the recent Russian

economy is the relatively high dependency on natural resources in exports and the low innovation rate

in other industries But there are more typical factors explaining the current difficulties of the failinggrowth and development of the Russian economy These factors are insufficient innovation

performance, insufficient internationalization, insufficient entrepreneurial activity and insufficient

contribution of private SMEs.

1.4.1 Insufficient Innovation Performance

Governments are interested in the number and scope of their new policies but show low concernabout their implementation, effectiveness, results and impacts We are mainly interested in theirbottom line results Innovation without added value and impact is lost effort Therefore, we have tolook at the current status of innovation in Russia

Innovation cannot be caught in a single figure or measurement representing the state of innovationeconomy For this reason, we took in Table 1.3 some well-known and generally accepted indices toshow the position of Russia in the recent years

Table 1.3 A few key data Russian economy

2012/2013 67 2013/2014 64 2014/2015 53 Globalisation index (A T Kearney Foreign Policy Magazine) 2007 31

Sources data: RVC (2013, 2014, 2015); The Future of Russia’s Innovation Economy No 6,

September 2014 p 9; European Commission, http://​www.​gks.​ru/​wps/​wcm/​connect/​rosstat_​main/​rosstat/​ru/​statistics/​science_​and_​innovations/​science/​

In Table 1.3 a common index of innovation activity is the percentage of GDP spent on R&D ForRussia the R&D expenditure has risen from 1 % in 2009 to 1.5 % in 2013 This is a hopeful sign butR&D is not a measurement of innovation (the commercial product or service) but only of potentialinvention or prototype Moreover, R&D is not a measurement of non-technical innovation at all.Nevertheless, whatever restrictions can be made about this indicator the upward trend cannot be

denied However, the rankings should be considered critically because most innovation indices focus

on input factors, R&D, education or scientific papers as output (e.g Edquist & Zabala-Iturriagagoitia,

2015) From the perspective of strategic innovation, only dynamic value, growth and developmentwould be the real measure (Someren, 1991; Someren & Someren-Wang, 2013b)

What is more revealing about the state of the Russian economy with regard to innovation is thenumber of Russian firms involved in innovation For Russia about 10 % of all firms are involved ininnovation This fits to the share of governmental investments in R&D which is between 66 and 75 %

in the period 2010 till 2014 When measuring Russia along a few indexes, Table 1.3 shows a cleartrend According to the Globalisation Index, the role of Russia in the global economy is decreasing.Although the Global Competitiveness Index indicates a slight improvement in 2013/2014, other

indices seem to confirm the revolving up and downward trend of Russia In the ranking of the GlobalInnovation Quotient, Russia tumbled from rank 14 (2013) to 18 (2014) and back again in three years’time In the Global Innovation Index, a short improvement in ranking (2012) was followed by an evenlower position in 2013 compared to 2007 and a small comeback in 2014 The European InnovationScoreboard confirms this downtrend in ranking of innovation country performance

In Fig 1.2 the Russian position compared to other BRICS and some other countries is presentedmeasured by the global innovation performance index in the period 2010–2011 (EU, 2014, p 29).(Note: Average performance is measured using a composite indicator building on data for 12

indicators ranging from a lowest possible performance of 0 to a maximum possible performance of1)

Fig 1.2 Global innovation performance Source data: EU Scoreboard (2014 , fig 25, p 29, 2015 , fig 27, p 32)

In 2011, South Korea with an innovation index of 0.74 is the leader very closely followed by theUnited States (0.736) and of the other Asian countries Japan (0.711) is second The EU (0.63) isclose to this top three China (0.275) is ahead of all BRICS countries and Russia is lagging behindwith an innovation performance index of 0.191 In 2012, Russia maintained its position with a score

of 0.190 whereas South Korea, US, Australia, Brazil and China improved their performance

When comparing Russia and China on policy measures, some differences in choices are based onhistory of being a plan economy and different insights concerning measures With regard to Science,

Technology and Innovation policies, Li and Wang (2015) conclude that Russia favors infrastructuresupport whereas China adopts policy instruments for administrative support, financial support,

industry and R&D institution collaboration and tax incentives Furthermore, both Russia and Chinaimplemented Science and Technology policies to stimulate innovation generation Although the endgoal of becoming an innovative nation did not differ much, the operationalization showed severaldifferences

The degree of authority in Russia (‘top down’) was significantly higher than in China (Li & Wang,

2015) Russian policies were predominantly issued by Ministries and bureaus In Russia about 70 %

of all policies were issued by Ministries Both countries were keen on commercializing militarytechnology But China put more effort in promoting technical transformation of knowledge into

commercial products and generating earnings Compared to Russia, China implemented twice thenumber of policies to stimulate technical transformation Russia put more effort to absorb new

technologies

Formally, Russia put more effort in the implementation of innovation into laws by the Duma thanChina To our opinion, this formal implementation rate is not very relevant More important is theimplementation in economic reality by enterprises and entrepreneurs Here, the entrepreneurial spirit

of China is far ahead of Russia and contributes to the explanation of the higher innovation

performance

But being and staying a frontrunner or becoming a serious contender and take over top positionsdepends also on the growth rate of innovation over a longer period of time This innovation growthrate is shown in Fig 1.3

Fig 1.3 Global innovation growth rates Source data: EU Scoreboard (2014 , fig 26, p 29, 2015 , fig 28, p 32)

Over the time period of 2006 till 2013 the growth rate of South Korea (6.0 %) and China (5.8 %)

is relatively big compared to other countries Therefore, in the period 2006–2013, South Korea wasable to improve its position against many rival countries Russia has as the only country in this

benchmark a negative growth of −1.8 % Due to its higher growth rate, the EU was able to close the

gap with the US and Japan South Korea, US and Japan do perform well because of indicators

capturing business activity as measured by R&D expenditures in the business sector, public-privateco-publications and PCT patents (EU, 2014, p 29) However, in the period 2007–2014, Canada andSouth Africa joined Russia in the negative growth league but Russia managed to slow down its

negative growth rate Between 2007 and 2014, only Brazil and India improved their positive

innovation growth rate

The negative growth rate of Russia is not a single year with an extreme bad performance but anoverall declining situation as Fig 1.4 reveals

Fig 1.4 Innovation performance Russia Source: EU Scoreboard (2014 , p 39, 2015 , p 40)

Between 2006 and 2013 the average innovation performance of Russia benchmarked against the

EU has dropped gradually each year Except in 2014, it improved from 30 in 2013 to 31 in 2014.According to the EU on innovation performance: “The strong decline in 2012 is due to a sharp

decline in new doctorate graduates from 1.4 to 0.4 per 1000 population aged 25–34”…and… “Russia

is performing worse than the EU on 10 indicators, in particular on Public-private copublications,License and patent revenues from abroad, Patent applications, International copublications and Most-cited publication and Doctorate graduates” (EU, 2014, p 28)

With regard to innovation growth performance, Russia is “…Russia’s growth performance isworse than that of the EU with growth in 10 indicators being below that of the EU, especially forDoctorate graduates, International copublications, R&D expenditures in the business sector, Patentapplications and License and patent revenues from abroad Growth was above that of the EU in R&Dexpenditures in the public sector and Exports of knowledge-intensive services.” (EU, 2014, p 39) In

2015 the same conclusion was drawn (EU, 2015, p 40)

Despite this downward trend on innovation there are certainly some positive signals In the ITsector several start-ups in high tech demonstrate the willingness and entrepreneurial sparks in Russiasociety Because of sanctions, in the agro food sector the strive for self-sufficiency replaces the

import of food stuff like tomatoes However, in this stage the main priority is to install productioncapacity and innovation is not yet a core issue

1.4.2 Insufficient Internationalization

1.4.2 Insufficient Internationalization

For Russia not diversification is the key issue but, firstly, renewal of existing private and public

enterprises, secondly, creation of new industries, and thirdly, internationalization From Table 1.1 wehave learned that the share of natural resources in GDP is above average but that still more than 80 %

of GDP is earned in other than natural resources sector Contrary to mainstream economic analysis,from the perspective of strategic innovation there is no real big diversification problem but an

innovation and internationalization issue The only way out is, firstly, to renew existing industries,secondly, to create new industries and new enterprises, and thirdly, to internationalize all industries.The first two steps are necessary conditions for a successful conquering of world markets and a

diversification of the export portfolio Strategic innovation leads to a broadening and diversification

of industries and not the other way around Existing enterprises need to be reinvented, entrepreneursshould not only start new ventures but also formulate a growth path

Russia possesses large quantities of natural resources ranging from fresh water, land, minerals,oil and gas Contrary to most other resources, particularly oil and gas have been successfully

commercialized and the Russian oil and gas exports fed the treasury in the Kremlin to a very highextent However, even for oil and gas the main activity is exploration, mining and selling the crude oiland gas resources Knowledge for exploration is often supplied by foreign partners like BP and Shell.Internationalization of Russian enterprises requires a lower dependency on foreign partners and areinvention of exploration activities and a global presence Moreover, except from extraction oftenhigher added value activities based on natural resources are rather underdeveloped Hence, the valuechain potential is not developed very well The recent plunging crude oil prices due to Americanshale gas, the reentering of Iran on the market and the flexible high production levels of Saudi Arabia

in particular confronted Russia with the downside of the oil and gas bonanza For all the other naturalresources the value chain has the potential to be explored and exploited to a much greater extent Forexample, the fishing and forest industries offer huge opportunities waiting for exploration,

exploitation and internationalization

Innovating and diversifying the economy is everyone’s advice But how? It is easy to write a

White Paper or a Policy to create new industries but these kinds of papers never say how to do it oronly in very general terms with no practical value It is an extremely difficult challenge and there are

no standard recipes What works in country A is not necessarily a solution for country B What we doknow is that innovation is inevitable and should be somehow part of the solution But here again theawkward question “How?” is at the table As we will see, in the past decades Russia has issuedseveral policies, programs and invested huge sums of money into innovation

1.4.3 Insufficient Entrepreneurial Activity

It does not always require innovation to earn money But creation of value needs entrepreneurial

activity In the past decades, the Chinese showed how to make huge amounts of money with paste’ and ‘imitate-improve-emulate approaches’ combined with low cost labor manufacturing,

‘copy-export and increasingly large home market In Table 1.4 the entrepreneurial activity in different stages

in Russia compared with some other different countries in 2014 are compared

Table 1.4 Phases of entrepreneurial activity in the GEM economies in 2014 (% of population aged 18–64)

Early-stage Entrepreneurial activity (TEA)

Established business ownership rate

Discontinuation of businesses (% of TEA)

Source data: GEM (2014, Table 2.4, pp 35–37)

In Table 1.4 the entrepreneurial activity along the growth cycle (from start to discontinuation) ispresented Compared to the US, Brazil and China, the entrepreneurial activity is relatively low Thelow indicator for entrepreneurial activity is result of capability, situation and (perceived)

opportunity But it is also result of Russian policies to favor imitation strategy carried out by largeincumbent firms and national champions knowing their way in Russian sources for financing (EBRD,

2012, p 68)

Hence, value creation based on a non-technical basis can be very rewarding in an emergingcountry situation But then also other elements of competition besides innovative capacity becomerelevant

One of these issues of non-technical innovation is branding and creating world brand names InTable 1.5 the top world brand names are listed including all Russian brand names and values in thetop 500 ranking positions

Table 1.5 Global top 500 Brands 2015

Brand name Rank 2015 Rank 2014 Industry Country Brand value ($M) 2015 Brand value ($M) 2014

Source data: Global 500, 2015, The annual report on the world’s most valuable global brands,

February 2015

Brand names and trademarks are an expression of the ability to commercialize new or existingideas, products or services They are not necessarily a measure of innovation but innovation can bethe major content of the brand or trade mark From Table 1.5 it becomes clear that for consumer

technologies a great brand name is linked to success But also retailers with a famous brand name likeWalmart are able to belong to the top 10 ranked brand names Even China Mobile achieved rank 9based on a large home market The top six Russian brand names are far below on the brand value andposition rankings Most of the top Russian brands lose value from 2014 to 2015 The rather poorperformance of Russia on brand value is caused by the underdeveloped integration into the worldeconomy, the low innovation capabilities and low commercialization and valorization competencesacross industries

The trend in brand value is confirmed by the general trend on trademark creation In Fig 1.5 thenumber of trademarks are compared between Russia, US, China and Benelux

Fig 1.5 Trends in number of trademarks in Russia, Benelux, US and China Source: based on Someren and Someren-Wang (2013 , Fig 4.9, p 128)

The US is able to constantly create and add new trademarks into the domestic and world

economy After a slow start in the 1990s, China has emulated the US by creating even more

trademarks after 2005 In sharp contrast to these two contenders, Russia is lagging behind with arelatively very low increase of number of trademarks It reflects the low entrepreneurial activity inRussian economy

In a market economy, for stock companies, the market capitalization, the value on the stock

market, is the ultimate measure of successful business Or not? Table 1.6 presents the market cap as

of on 2 February 2016

Table 1.6 Stock value world top 10

Rank Company Industry Market cap in billion $ (02.02.2016) 12 months change on 02.02.16 (%)

7 Johnson & Johnson Medical, Pharma,

Consumer

Source data: http://​www.​dogsofthedow.​com/​largest-companies-by-market-cap.​htm

The first impression from Table 1.5 is the dominance of well-known IT enterprises like Alphabet(the mother company of Google) However, from the perspective of strategic innovation, market caprankings should be taken with care for several reasons Firstly, the market caps are daily values andvulnerable for unexpected external and internal events For example, VW plummeted after the dieselgate Only because of oil price decrease, the former leading market caps such as Shell and Exxondisappeared from the top ten Secondly, although market value is based on net present value of

expected profits, the long term value creation capability could look differently Apple dropped downthe list due to doubts on future innovative products Thirdly, what’s behind the figures? Alphabet isGoogle plus new ventures Google’s revenues are for about 90 % dependent on advertisements

(Vijayan, 2015) Most of Google’s other ventures are future investments in other sectors without

value contribution Fourthly, other industries like natural resources are dependent on commoditymarkets and world economic outlook But still, these industries do have good prospects for valuechain activities and cross over industries Fifthly, the top ten does not reflect the entire economy Onthe contrary, even the lower regions of the top 2000, there are many other industries and smaller

market cap enterprises, the hidden champions, which can form the true solid backbone of an economy.Therefore, for Russia there are still opportunities in IT but other sectors as well which fit to thecountry’s profile and strengths

1.4.4 Insufficient Contribution of SMEs

In most countries like US, EU and China the SME sector plays a significant role in market dynamicsand particularly innovation The Russian definition of SME is comparable to criteria used in EU Thefederal law #209-FZ “On small and medium business development in the Russian Federation”

defines SMES as, firstly, the ownership structure, the SME’s stake held by one or several legal

entities, which are not small or medium businesses, should not exceed 25 %; secondly, workforce, thenumber of employees should not exceed 250 people, and thirdly, volume of revenue, the annual

turnover should not exceed 25 million euros (Federal web portal for small and medium sized

enterprises in Russia, 2015) In the period between 2008 and 2012, Russia’s private sector lost

300,000 jobs while the state added 1.1 million workers to public companies

The contribution of SMEs in the EU is on average of 40 % of GDP in Russia SMEs contribute just

15 % Nevertheless, since 2005 the role of SMEs in Russia, in number and turnover, has steadilygrown by almost 30 % from 3.4 million to 4.4 million in 2012 (EIB, 2013, p 9) The number of

active SMEs per 1000 of population in 2011 is in Russia 17 and on average in Europe 42 (Safonov,

2014, p 6) In 2015, the projected share of SMEs in Russian GDP is 25 %, in the US 50 %, in

Germany 79 % and in China 60 % But some sectors are underdeveloped: trade sector takes care of

57 % of turnover, manufacturing accounts for 11.5 %, construction 11 % and real estate 9.7 % Thesefour sectors add up to 90 % of total turnover With regard to regional distribution, 80 % of turnover isgenerated in the European part of Russia Moscow and St Petersburg take care of 18 % respectively

7 % and the Russian Far East a modest 4.8 % (EIB, 2013, p 13)

The share of industrial production firms that introduce technological, marketing or organizationalinnovation is in Russia 10 %, in Germany 80 %, in Belgium 61 % and in EU 53 % (Barinova,

Zemtsov, & Sorokina, 2015) Therefore, Russia has high potential to increase the share of SME ineconomy and the contribution of SME to innovation

Russia has a proven track record in good education and delivering highly educated people

Especially, technical and natural science belong to highest and best performing areas in the world.Because of underfinancing due to crisis and sanctions, this historic heritage is eroding (Chesnev,undated) But despite the number of high educated people, the reinvention and internationalization ofthe Russian economy is lagging behind The main explanation is that (innovative) entrepreneurialism

is underdeveloped Grant seeking has become a greater virtue than innovating industries

From the overall picture of Russian economy, it can be concluded that Russia’s innovation outputand performance in recent years is worsening compared to global peers Moreover, the governmentalstake in innovation is relatively high compared to European and American numbers But one should

be careful with these kind of conclusions because in China the governmental stake in innovation isalso relatively high But the Chinese managed to improve the innovation output because of

governmental involvement like in solar energy and fast train infrastructure So it depends how

effective and efficient governmental role in innovation is and how it fits to the greater institutionalcontext of a country or region The Chinese are developing their own Chinese System of Innovation asthey did with their Chinese Manufacturing System What about the Russian Innovation System?

1.5 National Innovation System

During the past decades, the Russian government has taken various policies and measures to fosterinnovation In this regard, countries and international organizations like the OECD, mention the notion

of National Innovation System (NIS) to describe the ‘machinery’ of innovation The aim of a NationalInnovation System is to pursue, stimulate and support innovation

Also Russia is trying to establish a National Innovation System The aim of the Russian

government is to “…create an NIS made up of structures and institutions aimed at supporting

domestic innovation The strategic objective of the NIS is to harness the achievements of the globaltechnological revolution.” (Russia Direct, 2014, p 9) Therefore, we have to pay attention to theRussian National Innovation System and its possible achievements But what are the elements of aNIS and can it be defined?

Generally, a National Innovation System includes the industrial, academic and education systems, legal and institutional framework, the financial systems and other spheres which generate adiffuse knowledge Edquist (2006, p 183) presents a definition of national innovation systems as “allimportant economic, social, political, organizational, institutional and other factors that influence thedevelopment, diffusion and use of innovation” Gupta, Shipp, Nash, Herrera, and Healey (2014, p 3)define the National Innovation System as: “The core of a nation’s innovation system, then, are its

sub-endowments and how government and industry leverage these sub-endowments—the nation’s governmentthrough policy investments, incentives, and, regulations and industrial firms through strategies,

investments, and training.”

There are many variations on the National Innovation System but it boils down to strategies, stock

of knowledge, behavior, organizations and institutions fostering innovation In every country

depending on history, legal system institutional framework, organization principles and national

culture the National Innovation System will have different characteristics and core issues For Russiathis also applies In the EU exists an uncoordinated mix of national systems and initiatives of the

European Commission, like Horizon 2020 But the EU innovation system is only supplementary tot thenational plans often with different aims and core issues In China, the central government has,

compared to the European Commission, a leading strategic national plan to stimulate innovation FiveYear Plans and dedicated Technology plans give more direction to innovation than the EU plans

But there is another point to be considered when discussing the National Innovation System Thenotion of a National Innovation System gives the impression that this system really works as a

machine and that all sub-systems and spheres are effectively and efficiently coordinated In practicethis is hardly the case Very often elements of the National Innovation System are created separatelyfrom each other and it ends up in cascading policies, programs, institutes over years without any link

to each other Duplication of measures and loss of sight who is responsible for which action is theresult Hardly anybody is asking for bottom line results and evaluations usually end up with inputrelated issues like number of actions taken but not output related real innovations Important is toshow action by creating the next program Therefore, often, in general, the National Innovation System

is an academic and policy maker reality on paper which has less connection with the innovation

actors in the field than documents suggests In practice, National Innovation Systems are more looselylinked elements or not coordinated at all Actually, most of the time, National Innovation Systems are

no System at all but only an uncoordinated accumulation of organizations, programs, networks,

subsidies and (supra)structures This reality should be kept in mind when discussing the NationalInnovation System The real National Innovation System is much more represented by innovativeindividual entrepreneurs, creative SMEs or MNEs, hidden champions and academic institutions

Despite these warnings and experiences from the field, it is useful to give insight into a few majorinnovation policies and measures in Russia In the following section we do not pretend to be

comprehensive but we only want to show some milestones on Russian thinking and planning

1.6 Milestones of Innovation

In the past decades several Russian governments have issued policies and programs to stimulate theeconomy by technology and innovation These several initiatives have been taken under completedifferent circumstances with regard to the world economy and the internal situation in Russia itself Ashort overview of a few milestones related to the buildup of a Russian National Innovation Systemsince 1990s is presented in Fig 1.6

Fig 1.6 Russian innovation policies follow techno-economic paradigm

This Fig 1.6 indicates that there is indeed a succession of different programs with different aimsand instruments The measures undertaken include the establishment of strategic research centers,technoparks later transformed in innovation centers, tech transfer centers, regional R&D followed byregional clusters Landmark new established institutes are Skolkovo and Rusnano More recently, it istried to identify priority areas and to focus on critical technologies including foreign technologies.Furthermore, the creation of technology platforms is aimed at connecting parties active in developinghigh tech

Kutsenko and Meissner (2014) sum up some measures taken by Russian government to stimulateinnovation since 2005 To these measures belong increased funding for basic research, innovationactivities in universities, establishment of federal development institutions aiming at a ‘innovationlift’ (Russian Venture Company, JSC RUSNANO, the Russian Foundation for Technological

Development (RFTD), State Corporation ‘Bank for Development and Foreign Economic Affairs’(Vnesheconombank) (VEB) and Skolkovo innovation center), innovation programs within state

owned enterprises, infrastructural support for SMEs, and a new inter-ministerial commission chaired

by the President and Prime Minister of the Russian Federation was established (The GovernmentalCommission for High Technology Development and Innovations) Kutsenko and Meissner (2014, p.5) conclude that the level of innovation is not satisfactory yet and that a cluster policy is necessary toimprove the efficiency of the measures taken by Russian government A cluster policy would createspecific profiles of regions, take care of coordination of innovation policies and improve interaction

The Russian Innovation System is in conformity with worldwide mainstream developments butoften with a time lag These concepts and approaches are often based from ideas developed

somewhere else which explains the time lag This applies for example to the creation of RussianSilicon Valleys (initially in the US), Special Zones (initially in China) and the identification of

critical technologies (initially the key enabling technologies program (KET) by the European

Commission) It is not a surprise that all these concepts are lookalikes because there exists a

mainstream of innovation experts who develop theories and instruments The core ideas taken

together of this mainstream focused on technology is known as the ‘technological-economic

paradigm’ The technological economic paradigm puts technology at the center as the main driver ofthe road to progress and prosperity and the necessary organizations are derived from the nature of thetechnology (Someren, 1991, 2014)

This overview shows that the content of the Russian Innovation System differs not much fromother places in the world A few more detailed Russian measures and their aims are shown in

Table 1.7

Table 1.7 A few milestones Russian National Innovation System

Year Policy/measure/program Main aim is to

2005 Federal Law 116 on Special Economic

Zones (SEZs)

Facilitate development of the high-tech sectors

2005 The Primary Directions of the Russian

Federation Innovation System

Development Policy 2010

Build of National System of Innovation

2006 Strategy for Development of Science

and Innovation in the Russian

Federation till 2015

Build innovative infrastructure, develop the S&T sector and modernize of the economy; world-class technologies that being produced by the Russian R&D sector do not find any applications

2008 The Concept for Long-term Social and

Economic Development of the Russian

Federation 2020

Move away from resource based to innovative oriented economy Creating a national system for supporting innovation and technological progress

2011 The Strategy for Innovative

Development of the Russian Federation

2020 “Innovative Russia-2020” (The

Strategy)

Reestablish the leadership of Russia’s basic science on the global arena and to form a balanced R&D sector for re-directing Russian economy towards an innovative way of development by 2020

2012 On Approving the State Programme of

the Russian Federation “Development

of Science and Technology 2013–2020

Define priorities S&T and critical technologies

2013 Federal Target Programme ‘Research

and Development in the Priority Areas

of Development of the

Scientific-Technological Complex of Russia for

2014–2020’

Form an integrated science and education space across the country, giving a direction for science and technology development till 2020

2013 State Program Economic Development

and Innovation Economy

Establish favorable business climate and business environment, intensifying the innovation activity of businesses, as well as at ensuring higher efficiency of state administration

2013 Federal Agency for Scientific

Organisation (FASO) in the frame of

the reform of the Russian Academy of

Sciences (RAS)

Manage the institutes and of the vast property of the Academy

2013 Updates 2013 of Federal Law 1996

“On Science and State Science and

Technology Policy”

Form a competitive and effective R&D sector and ensure its leading role in the process

of technological modernization of the Russian economy

2014 Science and Technology Foresight of

the Russian Federation 2030

Highlight six science and technology priority areas that Russia needs to develop in order

to boost the competitiveness of its economy: information and communication technologies, life sciences (biotechnology, medicine, and public health), new materials and

nanotechnology, rational use of natural resources, transport and space systems, and energy efficiency

Sources data: based upon Erawatch 2005–2015, HSE, March 2014

The Table 1.7 does not reflect the huge amount of policies and initiatives undertaken by Russiancentral government in the past decades But the illustrations are representative for most actions

undertaken by Russian government Many other technology policies, programs, coordination

mechanisms, platforms, technology centers have been formulated Therefore, taken together, they form

a cascade or pyramid of measures to stimulate and organize innovation and technology in particular

on a national and local level

The core of the federal laws and state programs is to stimulate the development of technologies

On the one hand, it is tried to involve and establish research centers and their coordination, to buildtechnology infrastructure, to stimulate science and technology and to reorganize the academia On theother hand, it is tried to focus on certain promising areas among others information and

communication technologies, life sciences (biotechnology, medicine, and public health), new

materials and nanotechnology, rational use of natural resources, transport and space systems, andenergy efficiency This approach is in conformity with the technological-economic paradigm In thetechnological-economic paradigm R&D and new technologies are the main drivers of innovation

Of all policies the most important one at the moment of writing is “The Strategy for InnovativeDevelopment of the Russian Federation 2020 “Innovative Russia—2020” also known as “The

Strategy” In the next section, the main aims are presented and discussed

1.7 The Strategy

The federal innovation policy “The Strategy for Innovative Development of the Russian Federation

2020 “Innovative Russia—2020” meanwhile called “The Strategy” is the recent most relevant policy

to foster innovation or maybe even establish a Russian Innovation System The downward trends inseveral indicators as shown in Table 1.7 were one of the triggers to renew the innovation policy Ofcourse the content of The Strategy is a culmination of earlier policies and measures discussed in

previous section In particular, two previous policies are relevant here Firstly, the Concept of term Socio-economic Development of the Russian Federation 2020 approved on November 17, 2008,

Long-by Directive of the Government of the Russian Federation No 1662-r, and secondly, the Federal Law

No 127-FZ, dated August 23, 1996, On Science and National Research and Development Policy.The main goal of the Strategy briefly formulated is: “The Strategy aims at setting the Russianeconomy on an innovations-based development track by 2020” Its further aims are to shape demandfor domestic high technologies and to modernize technology (RVC, 2013, p 13) In fact it boils down

to catch up with worldwide developed technologies The main elements and its qualitative as well asquantitative aims are presented in Tables 1.8 and 1.9

Table 1.8 Strategy 2020 key goals

Elements ‘The Strategy 2020’ Exemplary measures

Main strategy: Fostering and stimulating innovation • Aims are to set the Russian economy on an innovations-based

development track by 2020; to shape demand for domestic high technologies and to modernize technology

• Leadership Strategy: In areas like aerospace, nanotech and composites, nuclear power, ICT Russia takes role of one of the global leaders, providing world-class innovative solutions and technologies

• Catch up strategy: In other areas the country will take the route of developed Asian countries importing and adopting the most advanced technologies available)

• Leadership strategy is secondary to catchup strategy

Individual level: Create conditions for shaping innovative activity

competences in individual

• Education, training, professional mobility

• Critical thinking capability

• Risk creativity and entrepreneurial spirit

Business level: Innovative model of business conduct to improve

performance and occupy leading market positions as well as in

technology modernization of the key economic sectors

• Highest technology platforms

• Innovation development programs (IDP) of the Russian state owned enterprises Implementing world class technologies.

• Open innovations

Academic level: Regaining leadership in theoretical and applied

research

• Increase of funding in science

• Establishment of Technology Transfer Centers (TTC)

• Establishment of national research university (NRU)

• The government program for Science and Technology Development

• Reorganization of the Russian Foundation for Technological Development (RFTD)

• Cooperation between science and business

State level: State-supported development of the innovative

product and technology database, containing information about the

consumer properties of products

• Establishment of the Presidential Council for Economic Modernization and Innovative Development of the Russian Federation

• Technology roadmaps for the development of new industries

• Development of key production technologies and their localization

Infrastructure level: infrastructure development by promotion of

market models; Support of technical and implementation special

economic zones and science towns, establishment of Skolkovo

• Development of an “innovations lift”—system of state-created development institutions that support innovative projects at various stages: from pre-seed and seed stages to extension and restructuring

• Stock infrastructure for attracting investments into high-tech companies and companies of low and medium capitalization

• Stimulating venture market

• Broad network of innovative infrastructure facilities e.g access to scientific equipment (MAC)

multi-Regional level: implementation and adoption of innovative policies

in constituencies, science towns and regions

• Establishment of Triple Helix structures

• Establishment of science cities (naukograds), technology parks, special economic zones, clusters

Global level: involvement of Russian firms on global level with

high tech products and technologies and cooperation with key

countries

• Program for foreign technology transfer

• Attraction of research centers of large companies to Russia

Source: based upon Russia Focus on Innovation (2013, 2014 p 13; 1) P Cheshev, Finland Team,Russian innovation strategy 2020 in brief (undated)

Table 1.9 Strategy 2020 qualitative and quantitative aims

Increasing the share of the industrial enterprises carrying out technological innovation in total

number of industrial enterprises

9.4 % in 2009 40–50 %

Increasing Russia’s share in the international markets of high-tech goods and services (nuclear

power, aviation equipment, space equipment and services, special shipbuilding, etc.)

more branches Increasing the share of Russian high-tech product exports in total global high-tech product

exports

0.25 % in 2008 2 %

Increasing the share of innovative products in total industrial output 4.9 % in 2010 25–35 %

2010

2.5–3 % of GDP 50 

% by private sector

Increasing the share of publications by the Russian researchers in total number of publications

in the international science magazines

2.08 % in 2010) 3 %

Increasing the quantity of quotations per publication of the Russian researchers in the science

magazines indexed in Web of Science database

2.4 references per article in 2010

4 references

Increasing the quantity of Russian higher education institutions ranked among the top 200

international universities in Quacquarelli Symonds World University Rankings

1 in 2010 4 institutions

Increasing the quantity of patents registered annually by the Russian individuals and corporate

entities with the patent agencies of the European Union, the United States and Japan

63 patents in 2009

2.5–3000 patents

Increasing the share of proceeds from R&D in the leading Russian universities’ proceeds from

all sources of financing

Source data: based upon Russia Focus on Innovation (2014, p 13)

The Strategy makes a difference between the levels of global world, the state, the region, thebusiness, the academia and the entrepreneur On every level, the assumptions underlying the Strategyare very strongly technology related The world view is dominated by the idea that the innovativetechnological factor is playing an increasing role in global competition between leading nations Theworsening ranking in several indicators is caused by a mismatch in technology development betweenRussia and other nations And technology is believed to be the key solution to catching up or evensurpassing others

The aim of better and more high technology is on all levels supported by all kind of infrastructuralmeasures Examples are technology platforms, technology transfer centers, technological parks,

naukograds, special economic zones, clusters, national research universities and coordination

mechanisms between all these organizations including Triple Helix Moreover, all these

infrastructural entities and organizations are not new and not all have to be built from scratch but willhave to be implemented on top of existing infrastructure It will be a tremendous task to reorganizeand create effective and efficient working organizations

Russia aims at playing both a leadership as well as a follower role in the development of

technology A leadership strategy is aimed in areas like aerospace, nanotech and composites, nuclearpower and ICT In these sectors, Russia takes the role of becoming one of the global leaders,

providing world-class innovative solutions and technologies In other areas the country will take theroute of developed Asian countries and import and adopt the most advanced technologies available.This is the follower or catch up strategy

All the aims of The Strategy mentioned in Table 1.9 somehow include technology in any kind ofway and whatever form and content Both domestically and internationally the share of technology ingoods, services, enterprises, markets, scientific ranking and publications should increase Of course,the increase of R&D expenditure as a percentage of GDP should increase from 1.3 % in 2010 to 2.5–

3 % in 2020 On top of that, the share of R&D hold by private enterprises should be on a level of 50 

% in 2020 This 3 % norm is identical to for example EU aims and of other nations Nobody knowswhy 3 % is the ideal level but meanwhile it is engraved in the minds of policy makers Another

characteristic which is in line with the 3 % R&D norm is the number of publications, proceeds,

references and patents hold by Russian individuals and entities These categories are all more or lesslinked to basic research This fits to the history of Russian fundamental research as being one of

Russia’s strengths

The Strategy tries to be a clear focused program combined with a selection of strategies For

example, the Gaidar Institute for Economic Policy (2015, p 317): shows that spending for R&D isunder influence of a shift of priorities: “…the top five sectors in terms of budgetary allocations forapplied research under the heading ‘National Economy’ will be as follows (in descending order ofthe funding volumes): (1) the aviation industry; (2) the medical and pharmaceutical sector; (3) thespace industry; (4) the electronics industry and radio-frequency engineering; (5) shipbuilding.

In this respect also clustering is a major approach to stimulate innovation Clusters or top sectorapproaches as solutions to foster innovation have become a popular approach but the creation of itsdynamics has been hugely underestimated In most cases the copy paste by other regions of SiliconValley cluster ended in disappointing results Top sectors policies such as in the Netherlands oftenended up in subsidy machines and network meetings Also opportunities were missed when initiativesfor example do not fit in predefined top sectors

From our perspective it is interesting to see how international alliances are interfering with

strengthening domestic industries Even the largest industry of Russia, the oil and gas sector, is

dependent on foreign technologies and knowledge in for example geophysical exploring technologies

In most other sectors this situation on dependency on foreign technologies is also present In the

development of the aviation industry, in 2014 and 2015 alliances with Chinese aviation industry wereannounced In this case the aims of The Strategy can only be achieved when Russian managers of theRussian-Chinese alliance are able to create a win-win relation with Chinese counterparts This is atleast a tremendous difficult job But managing international technology alliances is only one of themany obstacles Russia has to deal with In the next section the major bottlenecks are presented

The Strategy also pays attention to implementation and for this purpose a catalogue of principleshas been released Among them are for example (RVC, 2013, p 14, 16) enforced cooperation

between business, government and science, financial and fiscal stimulation of innovation, competitionfor R&D and knowledge, modernization of companies and coordination of policies Two stages ofimplementation are foreseen (RVC, 2013, pp 17–18) In the first stage from 2011 till 2013 the focuswas on making business more receptive for innovation This period was provisioned to improvemanagement, install infrastructure, implement cooperation and remove barriers These measures,summarized as ‘innovation lift’, represent (RVC, 2014, p 58) “…a system of state-created

development institutions that support innovative projects at various stages: from pre-seed and seedstages” In the second stage from 2013 till 2020 the focus will be on the spending of R&D and

innovation A massive technological modernization and the completion of the infrastructure are at thecore of the second phase In the third release of ‘Russia: Focus on Innovation’ (RVC, 2015, p 7), theupdated draft of The Strategy 2020 in November 2015 is expected to focus “…on the integration of itsobjectives, tasks and tools with the technology initiative proposed by President Putin in the AnnualAddress to the Federal Assembly in December 2014: based on long-term forecasting, it is needed todetermine the tasks that Russia will be facing in 10–15 years and advanced solutions required toensure national security, high living standards and development of the industries with a new

technology focus The National Technology Initiative is to accomplish these tasks as it combines theeffort of design teams and dynamic companies, leading universities and research centers, RussianAcademy of Sciences, business associations and fellow-countrymen engaged in professional

activities in high-tech industries abroad.” The National Technology Initiative (NTI) aims at

breakthrough technologies In other words, the state of the art technology is priority Number One

In general the creation and implementation of any National Innovation System is motivated by thecarrot and the stick The stick is the bottlenecks a country or organization has to cope with to

overcome current restrictions or limitations The carrot is the worldwide megatrends which hide

future opportunities for strategic innovation In the next sections the carrot and the stick of the RussianInnovation System will be discussed.

different aspects of the Russian Innovation System reveals its major bottlenecks In Table 1.10 themost relevant bottlenecks are mentioned

Table 1.10 Examples of major bottlenecks in Russian innovation system

Examples of major bottlenecks in Russian Innovation System

Strategy • Absence of long term strategy till 2012

• Top down approach dominates

Policies • State dominated R&D

• Different methods of clustering

People • Entrepreneurship is lagging behind

• Initial relatively low trust level between potential partners

Finance • Limited availability financial resources

• Low efficiency of public R&D spending

• Low level of investment (1 % or less from GDP) in companies

Organization • Poor economic institutions

• R&D organizations separated from companies

• Weak links between R&D spending and application of research

Legal • Innovation hindered by bankruptcy law due to personal liability/risk

• Poor protection IP rights

Economics • Low incentives for private R&D spending

• Limited spill over to other sectors

• Weak market institutions including weak markets (supply and demand) for innovation

• Weak valorization of R&D, commercialization is weak

Education • Strong in basic research, science and technology but lagging behind world standards in other

Markets • Technology is bought on (international) markets

• Monopolization of various sectors

• State as solution and/or mega buyer of technology

Time • Short term focus

• Absence of accumulation mechanisms

• Slow acceleration

…

Sources data: EBRD (2012, ch 7), Russia Direct Report (2014), Someren (2014, 2015a, b) andYnnovate Team Research and Analysis

Till the emergence of The Strategy, there was no long term strategy focused on innovation The

“Long-term Social and Economic Development” and similar policies focused on technology itself

without any implementation measures within markets However, the policies and measures have ahigh top down characteristic not far away from high level decrees Sometimes a top down approachcan be successful when circumstances are right For example, the Chinese had a successful top downapproach in high speed train technology to imitate and surpass their German, Japanese and Frenchcompetitors The more or less identical approach for electrical vehicle developments is not yet assuccessful as the fast train technology But dynamic innovation requires a bottom up stream of ideasand innovative initiatives independent of governmental innovation system This aspect is still largelyabsent in the Russian Innovation System.

With regard to R&D, the influence of the state through organizations and coordination is still verydominant Although the aim is to increase the participation of private sector, the decision makers andcurrent structures will not make it easier to involve private parties This is even further enhanced bythe rather limited amount of money available for R&D itself Additionally, the low level of efficiency

in public spending and the low level of investment within companies demonstrate the rather low

priority by management

The large number of policies and their cascading in time require excellent organizational

capabilities to make the system work The organizational competence, despite some efforts to

improve, is a weak area in the Russian Innovation System Not only bureaucracy but also poor

economic institutions prohibit an effective and efficient innovation system Moreover, R&D entitiesare in many cases separated from companies This is a heritage from earlier days of innovation

organization in Russia On top of that, between spending on R&D and its application only weak linksexist Again a heritage from the past as the list of inventions from the past indicated

At the moment as soon as some R&D results are in the valorization phase, existing bankruptcylaws hinder the large scale interest in commercialization Entrepreneurs who commercialize R&D arepersonally liable when the venture fails Moreover, the IP rights system is weakly developed anddoes not give optimal protection for inventors and investors But also very important, the low demandfor innovative developments from real sector is considered to be for 60 % responsible for hamperingcommercialization (RVC, 2014, p 46)

Even when an entrepreneur or company is commercially active, market institutions are ratherweak The demand and supply of innovations does not work as a free market but requires for examplegovernmental relations and contacts But also buying and applying innovation represents high risktaking in Russian market context This situation is negatively influences the incentives for spending onR&D and risk taking Industries are more organized as vertical ‘silos’ and consequently cross overinnovations are rare This further enhances the negative spiral of unfavorable economic conditions forinnovation

As a result domestic innovations are not very common and Russian leaders did not or do not havetrust in homemade innovations Often only a few Russian managers, often from state companies, areresponsible for the procurement process They are mega buyers Foreign suppliers of technology areusing this situation and offer their reliable and high status premium products Russian buyers do

appreciate their offerings which combine both lower procurement risk and high prestige Research byGokhberg and Roud (2015, p 15) demonstrated that 43.3 % of all Russian firms, supplier driveninnovation is the most favored form of innovation compared to internal sources, market, knowledgeproviders or a combination (Gokhberg & Roud, 2015, Fig 6)

Now the knife cuts on two sides but for Russia at the wrong ends Existing supplier-buyer

relations are often based on long term relations and trusted parties, procurement is in the hands ofonly a few people, R&D budgets are allocated between same parties, new domestic suppliers cannot

enter market and a monopoly situation is the result.

Another underestimated but extremely important aspect for success in innovation is the time

factor The time factor consists for example of short term or long term focus, accumulation,

acceleration and timing All of these aspects have played a crucial role in the development of theRussian Innovation System In Russia, one of the characteristics of the whole economic system

including innovation is the short term focus Again history is part of the explanation The unexpectedchanging conditions in Russian society and its economic system favor a short term focus In suchcircumstances, flexibility on the short term offers much more chance on survival than long term

strategies Long term strategies are more or less useless For the same reasons, also accumulation ofknowledge over time is underdeveloped During the plan economy period, Russian organizations arefocused on the fulfilment of central government goals They know on beforehand that in a few years’time the circumstances can be complete different and a mechanism for accumulation of knowledge isuseless In this respect, timing is dependent on governmental planning and not on market or

entrepreneurial spirit Furthermore, the needed flexibility, the low accumulation rate and the missingmarket mechanisms do not stimulate fast acceleration of innovation development Accumulation ismore dependent on trust, cooperation and competition than on state of the art infrastructure

Therefore, the combination of top down planning, failing accumulation, absence of accelerationand governmental timing do have an all determining effect of the National Innovation System Thesemutual reinforcing effects of the time factor explain the low innovation output of the Russian

Innovation System The Strategy until 2020 still is characterized by many of above mentioned timeaspects Central government still plays a decisive role in choosing relevant innovation areas, topdown decision making and implementing infrastructure and organizations on all levels The Strategyunderestimated to a great extent the time factors for creation and implementation of a National

Innovation System Innovation cannot be installed by decree or top down planning but needs timebetween relevant players, trust, freedom and informal organizational structures Only then

accumulation and radical innovation can flourish

The manifold bottlenecks show that the Russian National Innovation System is far away from aworking system In fact, many aspects of a true and successful National Innovation System are notpresent yet The Russian government has paid a lot of attention to the overall policies and blueprints

of innovation But strategic innovation need much more than official and formal structures Especiallythe secret and more or less hidden structures of strategic innovation are not yet implemented Amongthese hidden treasures belong non-technical innovations, the informal relations between relevantplayers working on innovation, accumulation mechanisms within and between organizations, bottom

up innovation processes, and private initiatives and entrepreneurial activity as main driver of

innovation

1.9 Megatrends

The future direction of the worldwide economy is for a great deal determined by megatrends Anycountry or organization is dependent on its entrepreneurial creativity how, when and to which extentthe hidden opportunities of megatrends are transformed into concrete profit generating economicactivity There are several summaries and categorizations of megatrends as Table 1.11 reveals

Table 1.11 Megatrends overview

Copenhagen institute for future Roland Berger Dutch fire department

2 Globalization Globalization and future markets From natural risk perception to total safety control

3 Technological development Scarcity of resources From hierarchy to networks

risk

The individual in the center

5 Nanotechnology Dynamic technology and innovation From life time relations to more complex (labor)

relations

responsibility

Faster technological development

10 Acceleration

11 Networking organization

12 Urbanization

Source: data based on Someren & Someren-Wang (2012, table 2.1, p 43) and Roland Berger (2011)

Ask anyone about future megatrends and the answers will undoubtedly include renewable energy,nano- and biotechnologies, climate change, ageing and ICT related topics The different approaches

in Table 1.11 show that it is relatively easy to identify the megatrends However, much more

interesting and relevant is how to exploit these megatrends This ability is dependent on human

creativity, innovation competence and entrepreneurial spirit

Each of these megatrends, combined or not, represents future business opportunities New energysolutions have the potential to replace the current fossil fuel economy But these economic revolutionstake long periods of time It is easy to formulate a radical change from fossil fuel to renewable energyeconomy But because it is not only the exchange of the core technology that has to be changed, it isalso the economic-financial-institutional framework that has to be changed as well that takes mosttime Renewables like solar and wind need for example storage facilities, network for transportation,administrative-financial system, cross country supply-demand market and a change in fiscal regimes

The same holds for renewing the health care system Robots can already take over simple surgeryactivities but require complete different capabilities of the surgeon The surgeon has now to learn tosteer the robot instead of using the knife Nano bots can be implanted into the human body and gatherinformation and take care of simple medical actions Besides technology, the organization of the

health care system will be radically different form current structures Most health care systems arepublicly organized but private industry is showing increasingly interest to participate The reasonbehind is to offer cost-efficiently future health care and to exploit new expensive technology

efficiently Hence, the health care of the future requires strategic innovation which requires

entrepreneurs introducing new services and organizing it differently

Almost any of the megatrends mentioned in Table 1.11 is also identified by relevant players inRussia The foundation of Rusnano with the aim to foster in particular nanotechnologies is such anexample For the Russian manufacturing sector the megatrend of Industry 4.0 or smart industry will be

a great challenge In Russia there are numerous ICT related new businesses and ventures and theyform one of the few highlights of Russian entrepreneurship But Industry 4.0 also requires state of theart manufacturing which is the difficult part State of the art manufacturing is not only the use of

modern technology but much more modern management principles and world class organization

leading to top quality and economic efficiency Here Russia has still a long way to go in many

industries Without this catch up, the next phase of industry 4.0 is almost impossible

With the emergence of IT, the classical mode of production and services was increasingly

connected with all kind of IT functions For example, in car manufacturing, robots took over manyactivities and in the service sector Internet offered new ways of shopping and banking But this firstwave of IT predominantly only digitalized the exiting value chain without really replacing it With thefuture development of Internet of Things and Industry 4.0 (or ‘smart industry’) the changes in

economic system and industry are far more revolutionary Production, service and IT will be

integrated as a result of the future cyber economy Robots will take over some surgery handling in thehealth sector Tailor made production for individual customers based on Big Data profiles from

different sources will be no science fiction anymore With 3D and 4D printing the global value chainswill be partly substituted by local value chains

The same holds for the emergence of urban food solutions around megacities Nowadays agrofood chains are very long value chain circumventing the whole world Supermarkets in EU and USare filled with food from around the world requiring mass production and mass distribution

Triggered by the sustainability debate, this modern industrial organization gets increasingly criticizedbecause of extensive exploitation of small farmers without fair compensation and CO2 emissions due

to long and intensive transport routes Instead it is advocated that local production should be revived

to produce local food for local people The emergence of mega cities is an opportunity to create localfood production with much shorter food chains In Russia, also because of the sanctions, local foodproduction is hot again Foreign companies like glass house producers install their technology inRussia But installing the top of the bill glasshouse technology is something different than running it at

a state of the art level Apart from relatively high investments, it requires accumulated experience toreach world class level yields and economic efficiency This cannot be bought but needs time

With regard to megatrends, the fast emergence and growth of Asian and other countries in theworld economy will change the global economy profoundly These countries have a different view onthe world economy than the dominant countries of the past and act accordingly Japan, Taiwan, SouthKorea and Singapore demonstrated to be able to transform their economy from an imitating low costproducing country into high tech high value creating countries China is following their footsteps and

is now on the brink of surpassing these countries All these countries are very active in creating theirown National Innovation System The Chinese already had their Asian Mode of Production a fewcenturies ago and are now searching and building a Chinese Model of Innovation

As the Chinese discovered, they are only at the beginning of an own Innovation System Copyingproducts and production processes is something different than creating an innovation system whichfits to their culture and serves the world economy Their strategy is to gather information, experiencesand knowledge worldwide and then decide which can be used in the Chinese future system (Someren

& Someren-Wang, 2013b) This approach in many industries and key technologies such as high speedtrain, solar energy, electrical vehicle, biotechnology and agro food systems For this purpose,

cooperation with countries and individual companies are sought for to maximize the knowledge level.Countries of their interest are the US, several EU member states but also Russia The Chinese have aninterest in Russia because of some general knowledge and specific technologies The general

knowledge and capabilities area of Russia which got the interest of the Chinese is basic research.Russian basic research is on many fields far ahead of Chinese basic research But Chinese are able totransform the basic research knowledge base into concrete products and to earn money An example

of specific technology of interest for the Chinese is aerospace and space technology The Chinesehave the aim to develop their own commercial aircraft industry instead of being dependent on

airplanes from Boeing and Airbus For this reason they cooperate with any country that can deliverthe failing knowledge Russia is only one of them

Like China, Russia is searching for independency of foreign technologies which fits to the aim ofcreating a Russian Innovation System Furthermore, the increasing relevance of the Pacific region inthe future world economy is one of the megatrends From a geopolitical point of view, the Pacificregion will become increasingly relevant for Russia Increasingly contacts, cooperation and

integration of the local economies in the Pacific regions seem to be logical and profitable The logicratio needs smart strategies and excellent management to maintain a win-win relation on the long termwith Asian countries and China in particular The strength of Russia is the basic research of differentfields of airplane technology The difficulty of Russia is to apply this knowledge into prototypes

ready for commercial markets For this reason, cooperation with China, especially after the sanctions,seems to be a smart strategy to create win-win relations However, cross border innovation is

already very difficult but cooperating with Chinese is even more difficult This non-technologicalaspect of exploiting megatrends will prove to be more difficult than creating technology itself

1.10 Russia Aims at the Technology Frontier

The static summary of the current situation of the Russian National Innovation System is presented inTable 1.12 In Table 1.12 the classic SWOT analysis (Strengths, Weaknesses, Opportunities, andThreats) gives a snapshot of the current status of the Russian National Innovation System

Table 1.12 SWOT analysis Russian innovation system

Strengths Weaknesses

History and heritage of brilliant scientists and

inventions

Strong myopic focus on technology

Russian scientists are excellent problems solvers Absence of entrepreneurship: Russian scientists are not business creators and

non-commercial; prototypes no products Large project initiatives Grant seekers instead of innovators and business developers

Strong sectors space, oil and gas, IT Absence of innovation culture, competences

Basic research potential Absence of SMEs and dominance of SOEs and MNEs

Extensive infrastructure State dependency and state dominated R&D

Strong education in engineering and technologies IP rights

Potential large home market Lack of interconnectivity infrastructure; it is not alive

People orientation, perseverance, resilience,

humor

Lack of continuation in state programs and absence of learning

Awareness of relevance of innovation Organization of National Innovation System

Sense of urgency for radical change at

governmental level

Economic basis and cross industry innovation underdeveloped

Value chain development e.g oil and gas, space,

ICT, food, recycling

Brain drain researchers

Cooperation with Asian partners in Russian Far

East

Alliance with China without strategy

Absence of accumulation mechanism Small domestic market demand, monopolism and no competition Non-innovative and risk averse mentality; mind shift necessary Short term orientation, time lag

Fast growers being relevant than start ups are absent Bureaucracy consumes valuable scarce time

Lack of global integration, world orientation

Table 1.12 reveals that Russia despite its heritage in creating R&D, basic research, inventions,prototypes and some innovations has a long road ahead However, the classical SWOT analysis doesnot reveal in which direction the National Innovation System should be developed It does also notshow what is missing and what should be at the core of future measurers to improve the NationalInnovation System Removing barriers and bottlenecks is not sufficient because it does not say forwhat reason and where to go to The only general aim is technology innovation

The analysis thus far leads to the conclusion that Russia’s Innovation Strategy boils down tocatching up with the worldwide Technology Frontier (TF) A Technology Frontier describes the state

of the art technologies available at a certain moment in time It is the current benchmark of best

available technologies as presented in Fig 1.7

Fig 1.7 Technology frontier

The first curve in the left below corner shows the current position of a company or country Thesecond curve is the Technology Frontier and the third curve (dot line) is the desired future

Technology Frontier The first curve represents the current Russian position In Fig 1.7 the two basicstrategies mentioned in Russia’s ‘The Strategy’ are presented: the catch up strategy and the leaderstrategy The catch up strategy is basically imitating best available technology and the ability to

produce it yourself The leader strategy is aiming at pushing the Technology Frontier envelop furtherahead and trying to emulate others Already a catch up strategy can be tremendous difficult and timeconsuming as the Chinese demonstrate A leader strategy requires additional qualities, resources,