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Regular version of the site

The Power of Knowledge

Anna Fedunina—about how the presence of academics in Russian companies influences their export success on world markets.

© ISTOCK

Companies who have publishing academics integrated within their workforce learn and absorb external information more effectively. Such ability is called absorption capacity. Its dependence on the presence of academics in a company has been shown by the scientists from HSE University using the example of Russian exporters. IQ talked to one of the research authors, Anna Fedunina, about how publishing activity contributes to companies’ export success, and why business needs the absorption skills.

Anna Fedunina
leading researcher of the Centre for Structural Policy Research, HSE

— Absorption capacity, or alternatively absorptive skill, is usually assessed through the indicators of academic research activity. You believe there is a “human factor” at play. Why is that?

—The process of acquiring and exchanging knowledge depends not only on a company’s research budget or how many patent applications it makes. The role of employees is important, – in particular their professionalism and way of thinking. To gauge this, we looked at personnel. Specifically, we looked at the group of employees who publish their academic articles in scientific magazines. The particular specialisations of these academics within a company are not that important – the enhanced absorption capacity (and resulting boost to production capacity) is influenced by the mere presence of academics in a company’s project team.

— Why scientists in particular?

—External information is extremely useful for a company and can originate in several sources: from competitors and partners, from research centres and universities, and from a state. Since this external information, coupled with good staff management, can facilitate intersectoral interaction, not every company pays attention to other information.

Yes, a good manager should consider everything, but people with academic training have different backgrounds to their non-academic colleagues. They have keenly developed critical thinking skills and experience of combining different duties, affording them the ability to plan long-term projects (often incorporating uncertain conditions) more carefully. Having studied in an academic environment, they are constantly learning, absorb larger amounts of information and can build on their theoretical knowledge. These are the skills which managers typically use less. Overall, it leads to the observable fact that academics solve problems and perceive incoming information differently to others.

And what about interest towards exporters? Why only them, small- and medium-sized enterprises, which have a non-significant part of Russian export?   

— Large companies typically have a complicated organisational structure and, as a consequence, employees showing initiative are less likely to be noticed. In small teams, the management is simpler. In general, there is evidence that the more varied the teams are in terms of experience, age and cultural background, the more effective they are in making decisions.

The research carried out is based on the data acquired from small- and medium-sized enterprises (SMEs)—exporters of manufacturing industries—using data from 2016. The criteria for a company’s inclusion in the research are the amount of annual revenue (<RUB 2bn) and number of staff (<250 employees).

Absorption capacity is especially important in the aggressive and dynamic environment encountered in international markets. Learning about the players in this arena is an interesting discipline. There are many published papers, confirming that only the most productive and innovative companies become exporters. Absorption capacity plays a significant part in this: prior to engaging with international markets, a company possesses this capacity and then continues to learn, leading to much better outcomes.

The input of small and medium-sized enterprises into Russian gross export is not significant indeed – <7%. That said, this is very much a prospective segment. First, because of their relative agility and adaptability to change in the new environment; second, because of the state requirement to develop non-resource-based export activities. In this regard, they rely heavily on the flexibility of small- and medium-sized enterprises.

— Which sectors of industry have most companies with academics in them? Are such companies and industries correspondingly strong in export terms?

— Transport engineering, electronics, optics, video and audio—the segments which are, or at least should be, at the cutting edge of innovation. Although these are sectors where there are a lot of academics, many of the companies are far from being market leaders in export terms.

The problem is that Russian export is inertial. In the last 20 years, more than 80% of exports are represented by the growth of the trade in goods which have been recognised abroad since the mid-90s: mainly resources, metals and chemical industry. These have seen steady increases in sales over the years. The remaining 20% are unsuccessful attempts to export new goods abroad. After initial export sales, the export flows tend to dry up after a couple of years.

— What is the reason?

— Primarily because of a low level of innovative activity. We can’t produce knowledge-intensive products, which could compete in a wide range of sectors with developed countries. Such products are usually exported to CIS countries or EURASEC, because we have similar standards to them and the gap with developed countries is too large. To overcome such a gap in the short term would be impossible.

— Is everything that bad, and are there no leading companies?

— You can’t generalise, of course. There are companies which go to the export market gradually, starting at the regional level. There are those, who “shoot” straight away with some super idea. There is a phenomenon of fast-growing companies, which gain annually by 20-30% against the relatively slow dynamics of their sector, and without doubt this phenomenon is closely connected with their ability to learn and digest huge amounts of information.

And are the markets in which the companies work not important—absorption capacity is equally significant for everyone?

— Its existence (as measured through the assessment of publishing members of staff) happened to be critically significant for those who study the markets of developing and transitional economies and not that significant for those well-established companies with a complicated export structure, focused at developed countries.

It can possibly be explained by the fact that the effects from the generation and absorption of knowledge are at their most relevant at the start of the export activity, when a company is just beginning to establish its position. The more stable a company’s position, the less the relevance of learning factors is. On the other hand, the result can be viewed as a sign of lock-in, or the effect of closure, when SMEs stay in challenger markets, because of insufficient competitiveness, and not having the opportunity to engage with developed markets.

One of the key success factors of the companies is the use of digital technologies. How is this connected with the ability to absorb knowledge?

— The recent research by HSE called Russia in the Global Production showed that among domestic companies, the high export activity is within those which combine digital technologies with staff training and introduce innovation. In addition, absorption capacity also encapsulates the skill to foresee changes and quickly react to them, which is especially relevant today, in the current period of pandemic.

The first company to have assessed the magnitude of the approaching disaster, and which made the right decisions, happened to be more stable and has the potential to emerge as a market leader. Here we first discussed quite simple innovations, related to transferring the staff online. In more developed countries, where the absorption capacity was higher, it happened more easily and was larger in scale. It also happened mainly in sectors where staffing was of higher intellectual capacity, which again takes us back to absorption capacity.

There appears to be a strong correlation between more academic staff being employed (with associated higher performance expectations)—in management, consulting, science and arts, legislation, architecture, engineering, finances, computer science and Maths—and those staff being able to work effectively from home.

— What does the pandemic promise to researchers? What topics will be of special attention?

— It will indeed be interesting to analyse which types of company will lose out and which will win—or at least minimise their losses. We have already discussed a new research project to study the factors relating to the challenges and opportunities for companies. This is indeed to find out what they depend on and what determines the stability of businesses. There are many similar studies about the crisis of 2009, but these are now understandably less relevant, as the conditions that prevailed then are not comparable to the current ones.

And is the new reality likely to change the outcomes of your work?

— I’d very much like to say yes. The spread of COVID-19 speeded up the process of automated and robotic assistance, which among other things includes artificial intelligence (AI). One could say that this AI, which will ultimately replace academics, will radically improve the absorption capacity of companies. But I think it’s clear to the majority of people that, in the medium term, robots will not be able to beat a human being in terms of the ability to work without structured information, which means our outcomes will be up to date for a long time.

IQ

Author: Svetlana Saltanova, September 13