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Raspopova V., Kigel M.

 

Donetsk National University of Economy and Trade, Ukraine

 

Competing in the global economy:

 The innovation challenge for Ukraine

 


        One of the most fundamental trends in the world economy over the last decades has been the accelerating rate of innovation and change, driven by intensified global competition in many product and service markets. Global competition is increasing as a result of trade liberalization, technological change and reductions in transport and communication costs. All businesses will find it increasingly difficult to compete on low costs alone in labour intensive industries as well as in high-tech exposed to international competition. The challenge for businesses is to compete on the basis of unique value. Overall innovation performance appears to be, at best, average compared to major competitors of highly developed countries. This is reflected in the large productivity gap which exists between the developing and developed countries. Innovation performance accounts for a significant proportion of this gap. On the whole, firms face a challenge: how to raise their rate of innovation?

Innovation is a complex process so understanding why a country has a relatively modest innovation performance and why it is not straightforward is important. This report draws on a review of the international innovation literature. As a result seven critical success factors for innovation have been identified:

•        sources of new technological knowledge;

•        capacity to absorb and exploit new knowledge;

•        access to finance;

•        competition and entrepreneurship;

•        customers and suppliers;

•        the Regulatory environment;

•        networks and collaboration.

In this report we pursue the task to create a basic theoretical framework for Ukrainian innovation model. The main objective is to investigate preconditions formed and those spheres or economy sectors that are most inclined for introducing innovations.

For this purpose we have used experience of the United Kingdom (UK), the USA and Canada. Thus basing the researches on borrowing tried and tested experience excludes us from common hurdles.

Examination of Ukrainian Environment for Innovations: Is It Ready or Not?

In the prospect of development we should allude to "The strategy of Economic and Social Development of Ukraine for 2004 – 2015. On the way to European Integration" prepared and published in 2001.

Ukraine is not doing well in promoting innovations. Partially this evidence accounts for law budget expenditures on R&D. Table 1 examines this trend.

Name of a region

2004

2005

2006

2007

Finland

1.21

1.79

1.94

2.2

Germany

1.57

1.7

1.76

1.75

France

1.34

1.38

1.37

1.37

UK

1.17

1.19

1.23

1.24

EU average

1.14

1.19

1.22

1.24

Ukraine

0.53

0.6

0.6

0,79

Although systematic data is lacking, it appears Ukraine is lagging behind other countries in the level of expenditures and imbedding innovations as a consequence. Economic and social processes in 1991 – 2007 are noted for radical changes in all systems that had to correspond to intentions of the newly created state.

Economic development in 2000 – 2007 has been based mainly on extensive factors. Now most of them are exhausted. This means the current situation doesn't assure the primary objective – stable economic growth and decrease of the gap in GDP between Ukraine and western countries.

In the situation formed one has to take a catch-up strategy that would guarantee at least 6 – 7% growth of GDP. The world practice shows that such level of growth is possible only under a structural and innovation based model of economic growth, intensive technical and technological production upgrade.

Thus the basis of the strategic course has to become state policy aimed at providing innovation model of structural re-building. It is common knowledge Ukraine has a strong indigenous knowledge source available to business through the Science, Engineering and Technology (SET).

Ukraine can occupy a worthy seat in Europe under circumstances of mastering innovation driven-model of development. It is the only way to secure substantial competitiveness of Ukrainian economy, alter the resource orientated development factor which is being formed now. The development of innovation economic model is not a task of only economic policy. We should speak about organic takeover of political, humanitarian, social and psychological, macro and microeconomic factors by the very idea of innovation development.

Real success of transformation changes is possible only if reforms and consequences comply with interests of the majority of economic agents. This will give sensible public support. Therefore in order to implement the strategy for the next decade Ukraine is under the pressing need of strongly integrated political consensus, joint consolidation and agreement upon the main objectives of the strategy and its tools for carrying out the bases.

Innovation in this report is defined as the successful exploitation of new ideas. Ideas may be entirely new to the market or involve the application of existing ideas that are new to the innovating organization 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. It is this last – diffusion – phase from which the bulk of the economic benefits flow. 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 matters because it can deliver better products and services, new, cleaner and more efficient production processes and improved business models. For consumers, innovation means higher quality and better value goods, more efficient services (both private and public) and higher standards of living. For businesses, innovation means sustained or improved growth. The innovative company or organization delivers higher profits for its owners and investors. For employees, innovation means new and more interesting work, better skills and higher wages. Equally, 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.

So we need to find new ways to break the link between economic growth, resource depletion and environmental degradation. It is important to every sector of economy, in both manufacturing and services. To hold his own in modern manufacturing one will need to innovate strongly, creating new high-tech manufacturing industries such as biotechnology and upgrading traditional sectors such as steel and textiles. While manufacturing in highly industrialized countries faces threats from developing economies, advances in science and technology also offer many opportunities. In the last decade, the chemicals (including pharmaceuticals), computers and office equipment and communication sectors have all grown faster than the economy as a whole. And even within sectors that have suffered overall decline there are sub‑sectors where companies have grown and prospered by focusing on unique value and innovation.

References:

1. "Competing in the global economy: the innovation challenge", DECEMBER 2003, Department of Trade and Industry of the UK (DTI), economics paper.

2. "Investors must stay cautious about Ukraine" by Ian Bremmer - - http://news-ft.com/markets/123

3. State Statistics Committee of Ukraine www.ukrstat.gov.ua

4. "The Growing Gap Between Rich and Poor" By Tom Lewis, August 1, 2003: http://www.globalpolicy.or /socccon/inequal/2003/0801bap.htm