Evaluation of the Impact of Firm Level Competition on Russian Innovation

Abstract

Innovation is an essential component of a company’s survival in this competitive world of business. Firms in free and competitive marketplaces are compelled to adopt more efficient production techniques and provide customers with new and improved products. This research examines the impact of competition on innovation in free and competitive marketplaces. The study is motivated by the Russian government’s goal of increasing productivity of small and medium-sixed enterprises (SMEs) to 32% of gross domestic product. The study employed the Logit model to analyse the data from the World Bank Enterprise Survey. The findings reveal that fierce competition has a significant negative effect on innovation. Specifically, competition reduces product, process, and new product innovation by 5%, 3%, and 3.5% respectively. The step-by-step innovation model indicates that competition stimulates innovation in firms operating in contestable markets. Additionally, higher levels of competition negatively affect new product innovation. These results suggest that intense competition may impede firms’ ability to innovate, particularly in the areas of product development, process improvement, and introducing new products. However, competition acts as a driving force that compels firms to innovate in order to maintain their competitiveness in the market. Consequently, increased competition may lead to a diversion of resources towards research and development (R&D), potentially limiting firms’ capacity to introduce new products.