Экономические науки/2. Внешнеэкономическая деятельность

Тахтарова Ю.О.

Донецький національний університет економіки і торгівлі імені

Михайла Туган-Барановського, Україна

Role of innovation in modern economy

Innovation has driven economic progress revolutioning business performance and the economic potential of nations. The main key drivers of an innovation economy are defined as talent, investment and entrepreneurship, and infrastructure [1].

Both American and European scientists pay much attention into the innovations and its influence on all aspects of life. It's important to mention such famous researchers as Joseph Schumpeter, Everett Rogers, Jane Henry and David Walker, Carl Zaininger, etc ( Table 1).  Michael Porter examined the innovations from the viewpoint of competitive advantages  and competitiveness in general.

 

Table 1 – Approaches to the definition of the term 'innovation'

Author

Definition

1

2

OECD, [2]

Product innovation involves a good or service that is new or significantly improved in technical specifications, components and materials, incorporated software, user friendliness or other functional characteristics.

Joseph Schumpeter, [3]

Innovation is:

- introduction to the market of a new product or service, which clients are not still familiarized with it;

- introduction of a new methodology of production or an organized methodology;

- creation of a new source of supply of row material or semi-elaborated products;

- opening of  a new market in a county;

- putting a new structure into market.

Everett Rogers, [4]

Innovation is an idea, practice, or object that is perceived as new by an individual or other unit of adoption. It matters little whether the idea is "objectively" new as measured by the lapse of time since its first use or discovery. The perceived newness of the idea for the individual determines his or her reaction to it. If the idea seems new to the individual, it is an innovation.

Jane Henry and David Walker, [5]

The term innovation covers all the activities of bringing a new product or process to market, i.e. of converting the invention into an innovation.

Thus, in two words innovation is defined as the successful exploitation of new ideas. These ideas may be entirely new to the market or involve the application of existing ideas that are new to the innovating organisation or often a combination of both. Innovation involves the creation of new designs, concepts and ways of doing things, their commercial exploitation, and subsequent diffusion through the rest of the economy and society. Most innovations are incremental – a succession of individually modest improvements to products or services over their life cycle. But a few will be dramatic, creating entirely new industries or markets.

Innovation involves experimentation and risk taking. Some attempts to innovate will fail, but across the economy the successes outweigh the failures. And the failures themselves generate new knowledge, which if evaluated correctly, can improve the chances for future success. The risk of failure justifies the potentially high returns from successes, which provide the incentive to innovate in the first place [1].

For business, innovation means sustained or improved growth. Today it requires:

1)              trade liberalisation and a rapid fall in communication and transport costs mean that each country must increasingly compete against countries with much lower labour costs and well-educated labour forces, such as China or Korea;

2)              technology and scientific understanding are changing our world faster than ever before. Development in information and communications technologies , new materials, biotechnology, new fuels and nanotechnology are unleashing new waves of innovation, and creating many opportunities for entrepreneurial businesses to gain competitive advantage;

3)             global communications mean that consumer tastes are also changing faster, as new fashions, ideas and products spread across the world almost instantaneously [1].

For consumers, innovation means higher quality and better value goods, more efficient services (both private and public) and higher standards of living.

For employees, innovation means new and more interesting work,better skills and higher wages. Equally, an absence of innovation can lead to business stagnation and a loss of jobs.

For the economy as a whole innovation is the key to higher productivity and greater prosperity for all.

Innovation will also be essential for meeting the environmental challenges of the future – including moving to a low carbon economy and reducing waste. It's important to find new ways to break the link between economic growth and resource depletion and environmental degradation in every sector of economy, in both manufacturing and services.

Innovation ultimately depends on the knowledge, skills and creativity of people at work, but government has an important role to play in creating the best possible conditions for innovation, and developing the significant range of public goods that are essential for a dynamic and innovative knowledge economy, including a strong science, engineering and technology base, incentives for knowledge transfer, and high educational standards [1].

Thus, innovation is necessary because it can deliver better products and services, new, cleaner and more efficient production processes and improved business models. Ukrainian companies around the world have recognised that success in the future will come from businesses increasing the added-value from their products, processes and services using different kind of innovations. Ukrainian  government must act to encourage businesses to develop and implement new products and services has become a high priority.

 

References:

1. Competing in the Global Economy: the Innovation Challenge. Innovation Report. December 2003 //http://www.berr.gov.uk/files/file12093.pdf

2.  http://www.oecd.org

3. Schumpeter, J.  The Theory of Economic Development, Cambridge, Mass: Harvard University Press, 1934.

4.  Everett Rogers. Diffusion of Innovations, The Free Press, 1983.

5. Jane Henry and David Walker. Managing Innovation, Sage Publications, 1991.