HOW TO MAKE PROGRESS

The Azerbaijani economy is currently experiencing rapid economic growth. This is proved by official statistical information for the first six months of this year, showing that the country's GDP increased by 15 per cent and reached 18.5 billion manats. This exceeds the figure for the same period last year by 16.5 per cent. At the same time, 74.8 per cent of GDP came from production, including 64.7 per cent from industry, 7 per cent from construction and 3.1 per cent from agriculture. It is clear that our republic still remains a global leader in GDP growth, which cannot but make us happy. Meanwhile, in order to secure economic development in the non-oil sector, it is necessary not just to create new enterprises, but also to improve the performance of those already operating to maximum level. This is a mandatory condition for economic stability in a market environment, making it possible to secure financial stability, competitiveness of products and technology and effectiveness of production and sale.

Quantity does not count

In the developed countries of the world, enterprises have been carrying out reactive and strategic innovation for many years, reacting to competitors' initiatives and to changes in the environment. Experience shows that reactive innovation has an aspect of timeserving, which is why today's agenda in Azerbaijan includes strategic innovation, the implementation of which leads to essential competitive advantages in the long-term. The foundations for the development, legal basis and regulation of entrepreneurship were laid when small and medium-sized businesses had only just found their feet in Azerbaijan. The evidence is in the state programme for the development of small and medium-sized businesses for 1997-2000. The state programme for 2002-2005 paid more attention to the development of the human resources of small and medium-sized businesses, improvements in information support, on the basis of wider use of modern information technology, support for the technological development of small and medium-sized enterprises, specifically the acceleration of technical-technological renewal in the industrial sector. It was also specified that assistance would be rendered in financing innovatory projects of small and medium-sized businesses, to support scientific-technical achievements, risky projects and new technology.

Over the recent period it has proved possible to achieve a great deal as a result of state aid to the privatization of state property and development of small and medium-sized businesses. The private sector took a leading role, taking account of its share in the country's economy. However, quantity does not mean quality. Experience shows that the opportunities created by political and macroeconomic stability in our country were not used fully to accelerate the development of small and medium-sized businesses. Even today, despite the clear dominance of the private sector, the numbers engaged in business activity are below full potential. Despite the increasing number of private businesses in the country's economy, enterprises of strategic importance, which have the potential to create a structure, are developing sluggishly in this sector of the country's economy, not to mention the fact that small and medium-sized businesses have limited influence on the country's export potential and the structure of exports. That is to say, not only the level, but also the quality, of business development does not come up to the country's potential. For this reason, it is no surprise that, recently, a seminar was held in Baku on the programme "Support for Innovatory Entrepreneurship in Azerbaijan", which was organized by the National Scientific Fund of Azerbaijan, the Azerbaijani Ministry of Economic Development and the Ministry of Communications and Information Technology.

The purpose of the enterprise is to create strong linkss between Azerbaijani scientists and local and foreign business entities. Following the seminar, it is difficult to draw conclusions about how clearly businessmen have perceived the initiatives of government agencies. Further, the National Scientific Fund (NSF) of Azerbaijan told R+ that this event, which was attended by representatives of companies and officials, was aimed at discovering businessmen's requirements for innovatory projects and their use in the process of manufacturing.

According to Deputy Minister of Communications and Information Technology Elmir Valizada, 70 per cent of revenues in the sector of information and communication technologies (ICT) today accrue to the private sector. Thus the organization of such events is extremely important in forming an innovatory economy.

"But despite the growth in business and the high scientific potential of the country, many businessmen are not thinking about innovation. Today, the growth in the number of companies in the ICT sector considerably exceeds the pace of the development of innovatory activity. This cannot last long in a market economy," said Valizada.

The best five projects examined at the conference will attract grants to the overall tune of 10,000 dollars, allocated by the business programme for science and technology of the US Civilian Research and Development Foundation.

There is contact!

However, some groundwork has already been done on the development of innovatory entrepreneurship and it is not only based on the results of the seminar. The Institute for Information Technology (IIT) of the National Academy of Sciences of Azerbaijan has long and successfully provided a sort of bridge between science and practice. The IIT takes orders from both state and commercial organizations.

"This task became especially important in market conditions when many institutes, having commercial proposals and the relevant progressive scientific ideas, had no opportunity to realize their potential. An economic component to our work was envisaged from the very beginning because the state only partially financed us," Institute Director, Rasim Alquliyev, said in an interview with R+.

According to Alquliyev, it has long been planned to create a technopark in Azerbaijan and the IIT already has elements of both technoparks and innovatory forms of economic management. Good professionals have been trained here - programmers and specialists who understand the essence of the problems related to the establishment of an information society. In this respect, the institute is no different from companies working in this sphere. For example, it recently received a proposal from Silicon Valley to carry out a joint project. At the same time, the range of scientific ideas at the IIT is quite broad - these include methods of storing computer data in business organizations and ideas for aircraft (for example, scientists have in development a system that processes and analyzes flight information from flight recorders) and a system that makes it possible to ensure the safe movement of trains in the metro and increase train drivers' level of responsibility. They are implementing various science-intensive projects together with the Azerbaijani Ministry of Communications and Information Technology, for example, a project for online control of the broadcasting space of Azerbaijan and online monitoring of TV and radio broadcasts.

But again, the IIT's cooperation with major enterprises in the country occupies a special place. The most important function of innovatory enterprises is to mediate between the scientific-technical and production sectors and to ensure an almost automatic and uninterrupted exchange between them in competitive conditions.

According to Alquliyev, the constant modernization of production during the realization of strategic innovations (high technology, machine systems and equipment that supports them, appropriate methods of organizing labour, production and marketing services) is a source of steady competitive advantage, not just for business entities and sectors, but also for countries themselves. That is, innovations should not just be produced, but also reproduced. At the same time, the pace of innovation maintains the competitiveness of business entities. Such a strategy was pursued by Japanese companies working in the key spheres of the national economy in the post-war period.

According to onestudy, in the CIS area Russia is famed for its innovatory ideas. In Russia, innovatory activity distinguishes enterprises that belong to the sphere of machinery and metals (about half of the active innovatory industrial enterprises). Enterprises involved in the food industry take second place. They are followed by enterprises in the chemical, petrochemical and light industries. Forms of innovation differ between the various sectors: the fuel and printing industries and metallurgy are dominated by technological innovation, while other spheres are led by product innovations that account for almost two thirds of all expenditure. They are also more science-intensive and attract one third of all investment. At the same time, more than 70 per cent of Russian enterprises carry out innovations in order to expand the variety of products to take control of a certain segment of the market. What is more, innovation is a way of searching, not just for new ideas, but also for the necessary resources and novelties to run an enterprise.

It is now time for small and medium-sized businesses to decide

"In market conditions, the development of innovatory entrepreneurship depends on consumers' demand for innovation, the presence of a developed scientific-technical potential in the national economy, the functioning of venture firms and investors who finance risky innovatory activity. For this reason, Azerbaijan is actively working to create scientific-technical parks (technoparks), technology towns and business incubators which are major organizational forms of innovatory entrepreneurship. Work is also under way to create a regional innovation zone (RIZ). It is just such major forms of innovatory entrepreneurship that promote the development of science-intensive production and transfer technology for swift introduction to the economic agents of the national economy. That is to say it is impossible to develop innovatory production without concentrating the aforesaid organizational forms in one place," said Alquliyev.

Unlike small enterprises, major corporate entities have the material and financial resources to use basic strategic innovations. By making effective use of their scale and capital, "business giants" are capable of painless use of strategic technology which is of prime importance to a national economy making scientific-technical progress. Thus our state aims to establish cooperation with major business entities and creates mixed private-state enterprises to carry out certain business projects and programmes.

But experience shows that small and medium-sized businesses are also capable of having their say in the development of innovatory entrepreneurship in any particular country. Small and medium-sized businesses are the first mass and dynamically developing structural component of the innovatory market potential of industrially developed countries. A basis for innovatory entrepreneurship is also formed by small innovatory firms which are technological leaders in emerging spheres of the economy. They open new segments of the market which develop new spheres of production, increase the scientific intensity and competitiveness of production and promote the formation of new technological relations. Someone may object, saying that small companies often have restricted financial capabilities, which affects investment in production. But it is exactly due to the scarcity of all types of resources that small businesses are interested in the swift development and use of new technology, in manufacturing new products and in securing the industrial production of inventions. Needless to say, these innovations are then handed over to major enterprises for use on a commercial basis. That is to say, by spending money on novelty in production, a businessman increases the quality and variety of products, conquers a certain niche in the market and then receives dividends from both the sale of products and the sale of his idea to his own competitor.

An Azerbaijani economist said in conversation with R+ that small innovatory enterprises have better chances than larger entities of making a business profit "provided they use a strategy oriented to small niche markets. It is also necessary to carry out marketing surveys on tough competition and difficult barriers on the market. Production should have low capital intensity, while scientific-technological ideas should be multifunctional, i.e. a businessman should ensure there are many options for the use of ideas," the expert said.

There are always problems and innovators should bear this in mind. First of all, there is instability in the cost of raw materials, spare parts, energy etc., which is not a big problem for major enterprises.

Of course, our businessmen cannot rush headlong into the "whirlpool" of science, especially as not everyone seeks a long-term profit. But the experience of the great powers shows the need for small and medium-sized businesses to enter an innovatory stage of activity. This means that this should be the case in Azerbaijan as well. We will soon have our first RIZ which provides for the creation of technoparks for the development of small and medium-sized innovatory entrepreneurship and for the creation of a regional base for the production and export of electronic equipment and software. Thanks to the RIZ, our country will become an effective transit data centre, which will train and develop human resources for the emerging information society and introduce information technology in various spheres.

According to Azerbaijani Minister of Communications and Information Technology Ali Abbasov, commercial projects will be implemented in the RIZ in order to produce and export science-intensive products. However, the minister could not specify the overall cost of all projects, but announced the predicted revenues from RIZ projects. By 2012, they will reach 4 billion dollars, and by 2018-2020 - 12 billion dollars.