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7STATE REGULATION OF INNOVATIONS IN CONSTRUCTION AS A MECHANISM OF INCREASING THE COMPETITIVENESS OF THE NATIONAL ECONOMY
Vadim A. Koscheev
St. Petersburg State University of Architecture and Civil Engineering, Russia E-mail: [email protected]
Yuri A. Tsvetkov
St. Petersburg State University of Architecture and Civil Engineering, Russia E-mail: [email protected]
Alexandr V. Kryanev
St. Petersburg State University of Architecture and Civil Engineering, Russia E-mail: [email protected]
Abstract. The paper considers theoretical aspects of innovations, problems of introduction of innovations in construction, and the main reasons for low acceptance of innovations in construction. The authors discuss the role of the state in the regulation of innovations, as well as its directions and methods. The paper presents a model of state regulation of innovations in construction which consists of five stages: setting strategic goals of economic development; identifying the specific aspects, problems, and barriers of innovations in construction; eliminating problems and barriers; creating policies to regulate innovations of construction; implementing the state regulation of innovations in construction.
Keywords: innovation, innovation activity, innovation action, state regulation of innovations, innovations in construction. JEL codes: O38, O21, L32
For citation: Koscheev, V. A., & Tsvetkov, Y. A. . (2021). STATE REGULATION OF INNOVATIONS IN CONSTRUCTION AS A MECHANISM OF INCREASING THE COMPETITIVENESS OF THE NATIONAL ECONOMY. JOURNAL OF REGIONAL AND INTERNATIONAL COMPETITIVENESS, 2(1), 64-72. Retrieved from http://jraic.com/index.php/tor/article/view/20
Theoretical aspects of innovation
In the era of globalization, total digitalization of business processes, and population growth, innovations play a special role in the functioning and development of the modern socio-economic system. How advanced the economic agents are in their mastering and implementation of the latest achievements of science and technology has always had a direct impact on the level of their competitiveness (Asaul, Koshcheev, Tsvetkov, 2020). Today innovations act as one of the most important factors of corporate competitiveness, their ultimate goal is to increase the profits of organizations, strengthening the position in the market. The term "innovation" has a rather broad meaning and can be interpreted differently. Let us review the concepts related to innovation in one way or another.
First of all, it is necessary to distinguish such concepts as discovery and invention. Discovery is considered the unearthing of previously unknown data as well as various natural phenomena. The main difference between a discovery and an innovation is that the former is not aimed at generating profit as the main goal. Innovation, on the other hand, is pursuing some kind of commercial gain. Also, a discovery can happen entirely by accident, without systematic work and searching. If we look at an invention, it covers the specific new tools, mechanisms, objects created by man to solve a particular problem.
The terms novelty and innovation sound quite similarly. However, novelty only precedes innovation, being something new and unique, and implies further application. At the same time, innovation is a product
that has already been brought to market.
Innovation is the delivery of a new product to the market or introduction of new ideas that can solve an organization's problems. Ideas that are intended for the organization, i.e., reducing costs, improving organizational networks, developing new systems are considered innovation, as well as generation, adoption, and implementation of new ideas, processes, products, or services (Kaporskii, 2020).
JA. Schumpeter paid special attention to the development of the theory of innovation. Many interpretations of the term innovation are based on his research. J. Schumpeter notes that "to produce means to combine the things and forces within our reach, and to produce something else or otherwise means to combine the things and forces in other way" (Schumpeter, 1934).
In the Theory of Economic Development, J. Schumpeter distinguishes 5 cases of "new combinations":
1. The introduction of a new good or a new quality of a good;
2. The introduction of a new method of production;
3. The opening of a new market;
4. The conquest of a new source of supply or raw materials or half-manufactured goods;
5. The carrying out of the new organization of any industry, like the creation of a monopoly position, or the breaking up of a monopoly position (Baburina, 2020).
Let us consider the concept of innovation as an activity. As an activity, innovation is interpreted as work (certain occupation) aimed at creating innovation as a product, which is an integral part of the innovation process (Asaul, Faltinskii, 2010). At the same time, the innovation process is the development of innovation activity as a successive change of its states, i.e., repeated sequence of stages of implementation of an innovation as a product.
Innovation activity is also the result of interaction of professional and interdisciplinary knowledge, supported by innovation actions of staff, human resources of the organization, attitude of the staff to innovations. Innovation action in one way or another affects the innovation activity. Innovation action is one of components of the innovation activity and characterizes the intensity of innovations, the ability to transform the possibilities of the organization. V.V. Asaul provides an interesting interpretation of the innovation action: it is the implementation of all stages of a complex innovation cycle in one or more segments of the market (Asaul et al., 2004).
Innovation activity is possible thanks to a number of scientific, technical, organizational, and managerial activities done together, as well as all kinds of resources: financial, labor, intellectual. The development of many socially important economic phenomena is impossible without an active and systematic solution to emerging problems, which are of a strategic nature for all areas of economic activity.
Specific aspects of construction and problems of innovation in construction
At all times construction has been the most important element in the functioning of the economy, not only because it is aimed at meeting the priority needs of citizens in housing, but also because without the fixed assets (buildings, structures) the functioning and development of other important sectors of the economy (agriculture, engineering, transport, education, etc.) is impossible.
The following statistics show the importance of construction:
- About 7.5% of the employed population of Russia work in construction
- The works performed in construction in 2019 amounted to 9.132 trillion rubles, which is about 8.3% of Russian GDP
- There are about 278,000 of construction organizations in the Russian Federation (Labor force wages. Rosstat, 2019).
- Approximately 30% of all transported cargo is intended for direct consumption in construction (Baranovskaya et al., 2003).
Obviously, construction is a complex material and labor-intensive activity, with a large number of links between the interacting subjects, which distinguishes it from other activities. The life cycle of construction projects is usually long: from design, to construction of facilities and delivery-acceptance of works. The
process of construction is also significantly affected by natural and climatic conditions. For example, the same construction project would cost differently in St. Petersburg and in the Far North of Russia, at least because labor is more expensive in winter conditions. Due to its specific nature (labor-intensive, material-intensive, conservative, etc.), the introduction of innovations in construction is a problem (Koshcheev, Tsvetkov, 2018; Tsvetkov, 2019; Ablyazov, Vishnivetskaya, 2019).
Let us consider the state of innovation activity in Russia and in construction. According to various rankings of the level of innovative development of states, Russia is far from the top of the list. In the Global Innovation Index published in 2019 (Global Innovation Index, 2020), developed by INSEAD International Business School, Cornell University, and the World Intellectual Property Organization, Russia ranks 47th out of 129 presented in the report. The top three are Switzerland, Sweden, and the USA, respectively. According to the index compiled by the largest financial and economic news agency Bloomberg (These Are the World's Most Innovative Countries, 2019), Russia ranks 27th out of 60 possible by the level of innovative development. South Korea, Germany, and Finland top the ranking.
According to a study by the Higher School of Economics (HSE), as of 2018, Russia has the lowest aggregate index of innovation activity of organizations among the studied countries (Figure 1).
Figure 1. Aggregate level of innovation activity of countries
Source: https://www.hse.ru/primarydata/ii
As of 2018, the share of organizations implementing innovations was 12.8%. Among these organizations, 11.1% do the roofing, 7.5% do the specialized construction work, e.g., architecture and engineering design; 12.4% are engaged in technical testing, research and analysis (Rosstat, 2018).
Let us consider the level of development of innovation in construction by looking at the digital maturity in construction. The industry uses the digital technology more and more intensively but the level of digital transformation of an area varies. The Organization for Economic Cooperation and Development (OECD) (Measuring the Digital Transformation, 2019) provides data on the level of digital maturity of various areas of economic activity in European countries as of 2018 (Figure 2).
OECD experts argue that entrepreneurship in Europe has yet to unlock the full potential of digital transformation. On average, half of all businesses, excluding financial services, have no specific internal digital capabilities. In IT services and telecommunications, 40% to 80% of organizations have at least average capabilities. This aligns with an overall average of 20%, while in relatively low-tech areas such as textile and clothing, as well as transportation and warehousing, the figure is around 10%. Based on the data obtained, it is possible to identify the leading types of activities by the level of digital transformation (IT, tourism, wholesale trade) and relatively lagging behind (construction, food processing, textile and metallurgy).
Figure 2. Level of digital maturity of economic activities in Europe
Source:https://nangs.org/analytics/oecd-measuring-the-digital-transformation-a-roadmap-for-the-future-march-2019-eng-online-summary-in-pdf-rus-eng
innovative products, works, services: new to the organization new for the organization's sales market —new to the global market
Figure 3. Share of newly implemented innovations in the total volume of shipped goods, performed works,
services in 2018
Source: https://www.hse.ru/primarydata/niio
An important indicator of innovation activity is the share of newly implemented innovations in the total volume of shipped goods, performed works, and services. For example, the HSE researchers found that this indicator is 0.001% in construction (Figure 3).
What are the reasons for the low acceptance of innovation by construction businesses? The document entitled "Strategy for Innovative Development of the Construction Industry until 2030" highlights the following reasons to reduction of innovation activity in construction:
- low level of highly qualified staffing of the construction;
- insufficient level of investment (both domestic and foreign investment);
- insufficient completeness and transparency on the activities of construction entities;
- weak level of compliance of normative and technical documentation with modern innovation processes
in a number of cases;
- dependence on imported innovations;
- the mechanism of commercialization and transfer of innovations is underdeveloped;
- low level of implementation of innovations in construction.
The low level of interest from Russian organizations can be explained by the following theses:
- about 86% of all construction organizations are small businesses, these organizations do not have spare funds to spend on innovations.
- Russian construction businesses mostly borrow innovations rather than develop them;
- there is no system for assessing the effectiveness of innovative processes in construction;
- innovation activity is always a risk; if we are talking about construction, then it is not only commercial risks, but also the safety and operational risks (Strategy for Innovative Development of the Construction Industry until 2030, 2016).
Thus, we have highlighted quite objective reasons for the low level of innovation development of construction, which are related in one way or another to the specifics of construction, its aspects. It is certainly worth paying attention to this information when determining the direction and means of state regulation of innovations.
The role of the state in regulating innovation
Despite the fact that modern countries are mainly developing through the functioning of market and mixed economy, government regulation still exists in these countries and plays a significant role. The need for state regulation is driven by the need to level out the deficiencies of the market system, as well as the performance of a number of tasks for society by the state, such as:
- ensuring the country's security;
- support for socially vulnerable categories of citizens;
- fulfilment of social obligations to society;
- resource allocation;
- protection of the natural environment, etc.
There are several methods of state regulation:
- direct regulation such as direct participation of state structures in the economy, e.g. tariff policy, state investment, introduction of duties, etc.
- indirect regulation such the budgetary, tax, and monetary state policies.
Considering innovation activities, the state regulation of this sphere is directly related to the implementation of innovation policy through a number of measures for planning, management, adjustment, and stimulation of innovation processes.
State regulation of innovation activities is one of the directions of state regulation of the economy - a set of easures applied by the state to adjust and establish the main economic processes. The state regulation of innovation activity is based on innovation policy. The main task of innovation policy of the state is considered to be stimulation of innovation activity and its development through measures of state regulation of organizational and economic nature.
I.V. Zhuravleva in her study highlights a number of areas of state regulation of innovation activity (Zhuravleva, 2013):
• development and implementation of an effective model of state stimulation of innovation activity with the help of economic policy tools;
• development of the concept, strategy, principles, main directions of formation of the system of state regulation of innovation economy;
• institutional, fiscal, monetary, and administrative measures;
• development of innovation infrastructure;
• stimulation of innovation activity of existing organizations, promotion ofnew innovative organizations;
• formation of an innovative science and education sector;
• stimulating demand for innovative products;
• improvement of corporate, tax, export, and import legislation.
O.L. Kudryavenkova in her work identifies the following methods of innovation activity regulation (Kudryavenkova, 2013):
• formation of institutional and legislative conditions for implementation of innovations;
• state support and incentives for investors engaged in maintaining high-tech production facilities;
• organization and support of various forms of ownership;
• tax incentives, effective monetary policy, state guarantees to organizations practicing innovation activity;
• direct public investment;
• state innovation stimulation programs.
One of the main directions of support and stimulation of innovation activity is its financing. As a rule, innovative projects are highly costly and require significant funding, including from the government.
Figure 4 shows the structure of expenditures on technological innovation by sources of financing. By types of activity, there is 50.6% of own funds for the financing of innovations, 29.6% of federal budget funds, 0.7% of regional budgets, 0.1% of funds from innovation activity support funds, 1% of foreign investments, and 17.9% of other funds. In construction, the share of funds provided for the development of technological innovations from the federal budget is 65.9%, while the remaining 34.1% comes from the organizations' own funds. The situation is different in manufacturing. 65.9% are own funds, 13.1% comes from the federal budget, 0.3% comes from regional budgets, 0.1% comes from innovation support funds, 0.5% comes from foreign investments and the remaining 20% comes from other funds.
Figure 4. Expenditures on technological innovation by funding source in 2018
Source: https://www.hse.ru/primarydata/niio
According to the data shown in Figure 5, intensity of expenditures on technological innovations in construction is 0.03%. The leaders within this indicator are services and water suppliers, wastewater collection and disposal services with the values of 9.8% and 6.6%, respectively.
Thus, we can conclude that construction stands out from other activities in terms of financial support for innovation activities. The intensity of expenditures on innovation is extremely low; the structure of expenditures on technological innovation consists of own funds and federal budget funds as 34.1%/65.9%
accordingly; funds from the regional budgets, foreign investments, funding from funding institutions and other sources were not identified in the study (Science. Technology. Innovations. HSE, 2018).
Figure 5. Cost intensity of technological innovation in 2018
Source: https://www.hse.ru/primarydata/niio
The model of regulation of innovation activity in construction
As the analysis of the situation with innovative development of construction activities in this study showed, this type of activity is not actively adapting to the innovation environment, the introduction of innovation in construction due to a number of objective reasons is difficult. Construction lags far behind innovative development trends compared to other industries. However, the most important task of strategic planning and macroeconomic forecasting is the uniform technological development of all types of economic activity and their harmonious interaction with each other. It is this aspiration that can lead to the maximization of the positive result of the national economy functioning.
Based on the above, we summarize that the regulation of innovation activities in construction is an urgent task for the economy, which requires a special approach. Considering the problems of innovative development of construction, its specific aspects and methods of state regulation identified earlier in the work, let us form the mechanism of state regulation of innovative activity in construction (Fig. 6).
This mechanism is based on the need to achieve the strategic goals of the state, which, in turn, will allow the state to better ensure the performance of its functions to the society. The second step is to identify problems and barriers to innovative development in construction. Once the barriers have been identified and recorded, it is necessary to formulate specific measures to remove them, primarily improve the normative and technical regulation, ensure favorable conditions for the transfer and commercialization of innovations, etc. Taking into account the adaptation of normative regulators, it seems possible to work out the policy of innovative development in construction, based on the development of mechanisms of stimulation and support of subjects of innovative activity, formation of the corresponding budgets, development of criteria of evaluation of efficiency of measures on support. The final stage is the implementation of direct financing of innovative activities in construction, while it is necessary to develop a mechanism of monitoring, audit, control, and evaluation of the effectiveness of spent funds.
1. The need to achieve strategic goals
- improving the country's competitiveness;
- transition from a resource-based model to a knowledge-intensive, innovative economy;
- intensification of the development of the construction sector
2, Features, problems, barriers of innovative development of construction
- features of the construction sector;
- risks of introducing innovations in construction;
- lack of indicators for evaluating the effectiveness of measures related to innovation activities;
- dependence on technology imports.
-
3. The formation of measures to address the problems and barriers
- improvement of the regulatory legal and technical field in construction; ■ improving the regulation of construction products markets;
- ensuring an enabling environment for the dissemination of innovative technologies.
•:
4. Development of a policy for regulating the innovative development of construction
- development of mechanisms to stimulate and support the subjects of innovation activity;
- formation of budgets for the support of innovative projects in construction;
- development of criteria for evaluating the effectiveness of measures to support innovative development.
5. Implementation of state regulation of innovative activity In construction
- financing of subjects of innovative activity;
- monitoring, audit, control of the intended use of funds;
- evaluating the effectiveness of support measures; adjustment of strategic actions.
Figure 6. Mechanism of state regulation of innovation activity in construction
Source: composed by authors
It should be noted that construction is one of the most important components of the national economy. Further innovative development of construction requires a special approach due to the traditional and conservative nature of it. Intensive development of construction, more qualitative and timely construction of facilities will consequently affect the quality of life of the country's population. Favorable conditions for entities involved in the design, creation, and commercialization of innovations is essential to create and develop innovation.
References
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© Vadim A. Koscheev, Yuri A. Tsvetkov, Alexandr V. Kryanev, 2021
Received 18.02.2021
Accepted 19.03.2021
