Expanded Summary

It is generally recognized the urgency and importance of innovative factor in all spheres and directions of the development of a modern economy.

Both theoretical and empirical literature emphasizesthe key role and significance of innovations in economic growth and development.

Implementation of innovations is the best way to achieve and maintain competitive advantages of a firm.

At the same time, it is known that the increasing of firm’s productivity and efficiency may be achieved by using excess capacity or production reserves, reducing total expenses or prime cost of a product, improving management quality etc. However, it should be noted that innovative activity plays the special role within firms.

The solution of the problems concerning the elaboration and implementation of effective measures of innovation-oriented firmsis especially urgent and important for countries with transition economy, including Georgia.

The main goal of our research is to describe the existing state of innovative activity including technological (productive and process) and non-technological (organizational and marketing) innovations in Georgian firms and to draw up some ways of its improvement.

Conclusions and recommendations stemming from these research results may be used in innovative management at a firm level and in innovative national policy at a state level.

Recommendations concern  two directions:

1. availability of finance;
2. development of necessary knowledge.

The main source of the data for the research is the micro-level dataset from the fifth round of the Business Environment and Enterprise Performance Survey (BEEPS V).

The survey was conducted by the European Bank for Reconstruction and Development (EBRD) and the World Bank Group (the World Bank) for 15,523 firms in 29 countries in the European and Central Asian region (including for 360 firms in Georgia) in the period of 2012-2014.

The sample was selected using stratified random sampling techniques.

Three levels of stratification were used in all countries:

1. industry;
2. establishment size and
3. region.

Analyzing cross-tabulated BEEPS data we have found that:

1. in Georgian firms technological (productive and process) and non-technological (organizational and marketing) innovations are in statistically significant relationship with firm’s size;
2. in Georgian firms technological (productive and process) and non-technological (organizational and marketing) innovations are not in statistically significant relationship with share (%) of foreign ownership in firm’s capital;
3. in Georgian firms technological (productive and process) and non-technological (organizational and marketing) innovations are in statistically significant relationship with share (%) of full time employees who completed a university degree;
4. over the last 3 years Georgian firms which introduced technological (productive and process) and non-technological (organizational and marketing) innovations has not received any subsidies from the national, regional or local governments or European Union sources;
5. after “political instability” the biggest obstacle from elements of the business environment faced by Georgian firms is “access to finance”.

Based on the results of empirical analysis, it may be concluded that generally the level and intensity of innovative activities including technological (productive and process) and non-technological (organizational and marketing) innovations in Georgian firms is very low.

From our point of view, these circumstances are due to the problems which have been still facing the country since 2003.

In particular, Georgia does not have a science-based innovation national policy concept, there is no innovative-investment state program and no favorable climate for innovative activities.

Georgian government's main task should be to motivate firms for innovative activities.

This requires the availability of an appropriate business environment, which, on the one hand, will create incentives and, on the other hand, will remove the barriers to innovation activities for firms.

We think that main policy implication stemming from these study results is that providing easy access to financial resources is a crucial prerequisite necessary for promoting knowledge development activity in Georgia.

A number of policy options can be implemented for achieving this objective:

• development and liberalization of financial markets;
• liberalization of capital inflows and attracting Foreign Direct Investments (FDI);
• elaborating special industrial policy, which assumes providing government support to innovative companies in form of subsidies;
• introducing special tax regimes for large taxpayers who conduct innovative activity.

Besides, the government should develop and implement a special education policy including an undergraduate, master's and doctoral levels, which will help firms with highly qualified and competent personnel armed by corresponding modern knowledge and skills.

At the same time, according to the main recommendation for firms’ innovative management stemming from our research results, we believe that it is economically desirable and appropriate, if firms implement the learning process within organization or fund the adequate study elsewhere for employees' knowledge and skills improvement, training or retraining.