IMPACT ON INNOVATION PERFORMANCE OF INDUSTRIAL ENTERPRISES AND THEIR FINANCING DURING THE ECONOMIC CRISIS

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1 IMPACT ON INNOVATION PERFORMANCE OF INDUSTRIAL ENTERPRISES AND THEIR FINANCING DURING THE ECONOMIC CRISIS Michal Stričík, Martina Sabolová ABSTRACT The aim of the contribution is to evaluate the impact of innovation in industrial enterprises during the economic crisis and propose solutions to financing innovations in industrial enterprises through the available resources. Specifically, we focused on small and medium-sized industries in Slovakia, in which we examined whether firms and innovation and if so on what innovation is. Based on the questionnaire survey, in which the different types of questions, we developed an analysis and subsequent proposals to address the problem. KEY WORDS Innovation. Supporting Innovative Activities. Small And Medium-Sized Enterprises. JEL classification: O39. INTRODUCTION Innovative activities here in Slovakia as well as in the European Union as a driving force of economic development in the form of new knowledge, develop options for future competitiveness, ensure economic growth and efficiency through its ability to act in particular small and mediumsized enterprises. Economically developed countries respectively, states that have high economic level of the states, which in the past have invested significant funds into innovation activities and now by changing the multiplier effect of investment in science and technology. Innovations are mainly in the business area in which these businesses seek to maintain their competitiveness and thus turned into a driving force for innovation. They have here a number of factors supported or regulated by the State especially in terms of targeted support to create conditions favorable innovation environment. Economic crisis has implications inherent in the implementation of innovation in businesses. Businesses become modest the economic crisis and the implementation of investment in innovation. After 2007, the visibly reduce the volume of funds directed to innovative business activities. 189

2 MATERIALS AND METHOD Questionnaire survey entitled "The impact on innovation performance of industrial enterprises and their financing during the economic crisis" took part in small and medium-sized enterprises from Košice and Prešov. The questionnaire was placed on the website and was also sent out each industrial enterprises. In the questionnaire survey, we used the following form of questions: multiple choice question with (one answer allowed), the question of the multiple choice (multiple answers possible) and open-response question. The primary and fundamental objective of this paper is to evaluate the impact of innovation in industrial enterprises during the economic crisis and propose solutions to the financing of innovation in industrial enterprises through available resources. Analysis of companies involved in the survey questionnaire consisted of questions relating to the evaluation of the number of employees, business, innovation before and after 2007, the type of innovation, sources of spending, the amount spent on innovation in times of economic crisis and the amount spent on innovation before the period of crisis. Next, we analyze a questionnaire survey and try to fulfill the main objective of the questionnaire survey, so find out how the economic crisis has affected the impact of innovation on the performance of industrial enterprises. Analysis of the questionnaire survey was divided into two parts. The first part of the questionnaire focuses on the issues of innovative activities and the financing of innovation in enterprises before 2007 and the second part of the questionnaire items is focused on innovation activities and the financing of innovation in enterprises after In the questionnaire, we analyze issues that are specifically focused on business innovation and innovation funding. The question we investigated whether respondents held until 2007 or product innovation. services. The results are in the chart below. Graph 1 Innovation in products / services by

3 New product respectively service introduced 14 respondents before 2007, that is 41%. A little more i.e. 15 respondents (44%) stated that the company renewed an existing product respectively service by At least nine of the respondents (26%) did not take place innovation product / service. In the next question we asked whether respondents conducted by 2007, innovation in technology. The results are shown in the following graph. Graph 2 Innovation in technology by 2007 New technology introduced 13 respondents before 2007 which represents 38% share. Similarly, 13 respondents indicated that business technology innovation did not realize. Slightly less i.e. 11 respondents (32%) said that the company has renewed the existing technology by The question if respondents realize product innovation or innovation of services since 2007, we found the following. Graph 3 Innovation in products / services by 2007 New product respectively service introduced 11 respondents after 2007, i.e. 32% share. A little over 13 respondents (38%) stated that the company renewed an existing product respectively. 191

4 service after At least nine of the respondents (26%) did not realize innovation of product / service. The question, which was: "Did you realize innovation in technology since 2007?" We got the following results. Graph 4 Innovation in technology after 2007 New technology introduced 9 respondents by the 2007 i.e. 26% share. Most of the 13 respondents (38%) stated that the company made innovation in existing technology. A little less 12 respondents (35%) said they did not realize innovation in the enterprise technology after The other two questions, respondets were asked: "What impact did the introduction of innovation for their business?" before 2007 and after From the research we have found, whether it is before or after 2007, benefits were similar. Most respondents indicated that the greatest benefit for them was to increase profit (turnover), followed by improving the competitiveness of business, increase productivity, increased sales volumes, lower costs for production, increase energy savings, speed up the production process itself, to enter new markets and the associated expansion of the portfolio (range) products, improve the quality of products and services offered. In our survey, there were also companies that did not realize innovation. Factors that limit innovation activities were for example fact that innovations were required or more precisely considering previous innovations not need to realize These include the: market factors (uncertain demand for innovative goods or services), economic factors (lack of funds in the company, too high innovation costs, lack of financing from sources outside the company), knowledge (lack of skilled workers, difficulties in finding cooperating partners, the lack of information about markets and technology). 192

5 We examined how was the financial costingness introduced innovation of product / service or technology by The results are in the following graph: Graph 5 The financial costingness of innovation introduced by 2007 More than 12 respondents, i.e. 35% said that spent on innovation by 2007 to 3300 Eur. Respondents which did not realize innovation was 9. In the range from Eur to Eur was recorded 4 respondents i.e. 12% and same 12% of them were also in investment financial resources in the range from Eur to Eur. 6 respondents invested more than Eur in innovation by 2007 i.e. 18%. Among others, we asked respondents what was the financial costingness introduced innovation of product / service or technology after The results are in the following graph: Graph 6 The financial costingness of innovation introduced after respondents said that they did not invest any finance for innovation after Respondents who were 8 i.e. 24% spent on innovation after the 2007 to 3300 Eur. In the range from EUR to EUR was recorded six respondents and slightly more they were also in 193

6 investing financial resources in the range of Eur. Least respondents i.e. 2 invested in innovation in the range from EUR to Eur. In the next question we have investigated, from which financial resources were financed innovation. The results are in the graph below: Graph 7 Sources of financing innovation by 2007 More than 23 respondents, i.e. 72% said they used for financing innovation own resources. 11 respondents used credit i.e. 34%. The financing of innovation (6 respondents) used resources from EU structural funds. Financial resources from the state budget used 3 respondents. Financing innovation realized through leasing 2 respondents and 4 respondents said that innovation financed by other resources as proposed by us. Venture capital did not use any of the respondents. Statistical evaluation of the questionnaire consists of three parts. In the first part, we compared the realization of innovation product or service before and after 2007, in the second we focused on the implementation of innovation technologies before and after 2007, and the third part of the difficulty of evaluating the financial innovations introduced in / after After calculating the p - value in comparison with the implementation of innovation product or service before and after 2007, we published value of p = This value is less than a value of 0.05, which means that the probability of innovation of a product or service before and after 2007 is equally likely and the null hypothesis against the alternative hypothesis rejected. This means that the difference measured in the sample is too big for it to be an incidental. Among the variables relationship therefore exists. That upgrade product or service prior to 2007 and upgrade the product or service is equally likely after The year 2007 plays a crucial role here and is therefore important. In the case of technology innovation (p = ) before and after 2007, as well as financial cost introduced innovation (p = ), we came p value greater than 0.05, which means that the difference between the frequencies of the sample and expected frequencies may be due to random 194

7 sampling, thus not statistically significant. In these situations, we do not have sufficient evidence to reject the null hypothesis we have. So there is not enough evidence to have claimed that there is a relationship between variables. The year 2007 in these cases is not important. The question in the questionnaire, we investigated whether respondents think to realize innovation in the next 5 years. The results are in the graph below: Graph 8 Introducing innovations in the next 5 years To this question was the most positive responses and exactly 27 respondents i.e. 79% said that in the next five years they are looking to make innovation in the enterprise. Respondents who do not plan to innovate in the next 5 years was 7, which means 21%. Next we asked respondents from which sources they want to finance future innovation. The results are in the graph below: Graph 9 Sources of financing innovations in the future Most respondents 15, which means 47% responded that for financing innovations would use its own resources. The loan would be used in the future, 12 respondents 38%. For financing Innovations would 12 respondents used the money from the EU structural funds. Financial resources from the state budget would take 2 respondents. Financing innovation via leasing will 195

8 realize 1 respondent and 4 respondents said that innovation would be financed by other resources as suggested by us. Venture capital would not use either one of the respondents. RESULTS AND DISCUSSION The government supports a variety of foreign investors by advantages such as tax holidays, tax credits, co-innovation projects, the benefits of new jobs, and the like. But in terms of promoting a similar form of domestic small and medium-sized enterprises, this government is lagging behind. The government approved the document, while the Innovation Strategy of the Slovak Republic for the years 2007 to 2013, aiming to promote innovative activities in Slovakia, but we believe that the current legislation is not sufficiently favorable to the introduction of innovation in small and medium-sized enterprises. For many entrepreneurs lurking problems such as frequent legislative changes, the complexity of the laws, and levy high tax burden, clientelism, weak law enforcement in the application of its debts, corruption, lack of information and knowledge in this area, difficult access to credit and so on. In managing these barriers is extremely strenuous for most small and medium enterprises in Slovakia, if not impossible to innovate. We propose that the Government of the Slovak Republic in the promotion of innovation activities in companies focused on the problems and removing barriers that prevent businesses in driving innovation and to the appropriate legislation. It would not only create the conditions for foreign investors, but also for home-based businesses, which would motivate them to innovate. First it is necessary to improve the conditions for business and increase its stability by providing a sufficient period between the adoption and entry into force of the Regulation, submit bills in an easy to read and clearly defined form to create the conditions for a fair resolution of conflicts without undue delay, to identify alternatives to decrease the contribution load, increased law enforcement, raising awareness of entrepreneurs about legislative changes to simplify administrative procedures for the entry into the business and all the necessary security requirements for starting entrepreneurs, including providing basic business advice. Secondly, it is necessary to facilitate access to capital, especially if the program supporting innovative start-up businesses through the provision of soft loans to expand support for start-ups and small businesses through micro-credit associated with the provision of advice and education, to develop programs to improve the readiness of SMEs to use venture capital and improve its accessibility. Identification and removal of legislative barriers to capital market and ensure its functioning, improve conditions for starting small and medium-sized enterprises to gain space for business in business incubators and industrial parks, providing specialized consulting firms in innovative technology incubators, the introduction of a program to encourage the participation of 196

9 SMEs in Framework Programme of the European Community for research and technological development, which would help Slovak companies in the use of cutting-edge European research results, promote activities aimed at promoting the products and services businesses in domestic and foreign markets, shortening and simplifying the procedures for obtaining and use of support for businesses ensure wider availability of counseling services through support programs financed from the state budget. In the questionnaire survey, we found that companies are interested in using funds for innovation from the EU Structural Funds. The quality of this project, which the company wants to introduce innovation and its adoption does not mean that innovation in place the business. Conditions for obtaining funds from the EU structural funds, but has tightened financing conditions. Small businesses can get a grant of up to only 50% of the project (phase-innovation in the enterprise), and these funds are disbursed to the project. SMEs have difficulty in obtaining a loan, which can be a problem not only get additional sources of financing, as well as funds that are required to implement the innovation of financial contribution from the EU structural funds, since the funds are paid to the project. We therefore propose that the state and local governments to help in such cases to obtain funds and guarantee programs through public contributions. Effects banking legislation to SMEs under favorable conditions to provide a loan to finance innovation. In this case, we mean a lower interest rate than others in providing business loans or they would be given a contribution to the reduction of interest rates in banks. Another way they help businesses that do not have sufficient funds to implement the project by the State respectively NADSME create a fund that would finance the project at least to the amount approved by the contribution from the Structural Funds. On payment of funds from the EU structural funds, these funds did not go to enterprises, but into that fund from which to draw new projects. CONCLUSION Aim of this paper was to evaluate the impact of innovation in industrial enterprises during the economic crisis and propose solutions to the financing of innovation in industrial enterprises by the available data. Long-term priorities of the Slovak government has become the issue of innovation. The government approved the 14th March 2007, resolution no. 265/2007 for the Innovation Strategy for the years 2007 to The aim is to ensure innovation as a key tool for the development of the knowledge economy and provide them the high economic growth of the Slovak Republic in order to reach the level of advanced European economies. Priority innovative strategies to respond to major deficiencies that result from a lack of innovation activities, especially for small and medium-sized 197

10 enterprises while respecting key strategic documents at the national level, in particular the National Strategic Reference Framework. Apart from the fact that the majority of respondents at our questionnaire survey is interested in innovation and the very support of innovation activities in Slovakia is very large, the share of innovative enterprises in the total number of enterprises is still low. There are many reasons such as lack of information management, lack of innovation culture in enterprise neglect measurement and evaluation of the benefits of innovation, lack of financial resources for the implementation of innovation barriers in legislation and in the development of various other companies. In this paper, we have focused in particular on comparing the situation before and after 2007, respectively we compared the impact of innovation on the performance of industrial enterprises during the economic crisis. Similarly, we have also focused on financing innovative activities, the possibility of spending, as well as to support institutions that assist businesses in driving innovation. Even though the number of such institutions is large, the share of innovative enterprises in Slovakia is low. Support of innovation activities by state and local governments is not as satisfactory as is support from the EU. Regarding the use of statistical methods used in the thesis when comparing data before 2007 and after 2007, the respondents appeared to us that the information regarding the financial performance of established innovation and implementation of innovation technologies may be the result of random and therefore it is not statistically significant. I mean, how many businesses give money to introduce innovation and the introduction of innovation technologies alone does not affect the year We also attempted to assess the impact of innovation in industrial enterprises during the economic crisis, to recommend how to improve the business environment and the development of small and medium-sized enterprises and suggest forms of support funding for business innovation. BIBLIOGRAPHY [1] BOBÁKOVÁ, V. KARCHOVÁ, M. Neformálny investičný rizikový kapitál. Národohospodářský obzor roč. VI. č. 3. s ISSN [2] JAČ, I. RYDLOVA, P: - ŽIŽKA, M. Inovace v malem a středním podnikaní, Brno: Computer Press a.s., 2005, s.174. ISBN [3] SCOTCHMER, S. Innovation and Incentives. Cambridge-Massachusetts : Vydal MIT Press, 2004, s.357. ISBN [4] STRIČÍK, M Inovačné aktivity malých a stredných podnikov na Slovensku a možnosti ich podpory. In Financovanie inovačného rozvoja a aplikácia medzinárodných účtovných 198

11 štandardov [CD-ROM]. Košice : Podnikovohospodárska fakulta so sídlom v Košiciach, 2010, s.2. ISBN [5] VAVRINČÍK, P. a kol. Inovačný proces a reinžiniering v SR, Bratislava: EKONÓM 2008, s.142. ISBN [6] Agentúra na podporu výskumu a vývoja: Definícia malých a stredných podnikov. [online] [cit ] Dostupné na internete: [7] Agentúra na podporu výskumu a vývoja: Definícia malých a stredných podnikov. [online] [cit ] Dostupné na internete: [8] Ekonomika a management: Možnosti financovania malých a stredných podnikov. [online] [cit ] Dostupné na internete: < potrieb-malych-a-strednych-podnikov.html> *The scientific paper was presented at International Scientific Correspondence Conference EAEP 2012, which took place in the period from 26th to 30th November 2012 (Prešov, Slovak Republic). CONTACT ADDRESS Ing. Michal Stričík, PhD., Ekonomická univerzita v Bratislave, Podnikovohospodárska fakulta so sídlom v Košiciach, Katedra ekonómie, Tajovského č.13, Košice michal.stricik@euke.sk Ing. Martina Sabolová, Ekonomická univerzita v Bratislave, Podnikovohospodárska fakulta so sídlom v Košiciach, Katedra financií a účtovníctva, Tajovského č.13, Košice martinasabolova@hotmail.sk 199