Researchers reveal: international networks play the most important role in innovating companies in Central and Eastern Europe

Business | 2023-02-23

Technological learning within national innovation systems stands at the core of technological upgrading at the company and economy levels. The common understanding is that national innovation systems are the primary source of technological knowledge acquisition for innovating companies. However, the opening of economies, the globalization of innovation networks, and the rapid internationalization of innovative firms challenge this view – especially in small transitioning economies.

Researchers at the Kaunas University of Technology School of Economics and Business in the ERA Chair “Industry 4.0 Impact on Management Practices and Economics” (further – “IN4ACT”) project highlight that one of the most significant factors to upgrading national innovation system-based networks of Eastern and Central Europe today is the international networks.

Weak national innovation system performance

The concept of a national innovation system appeared in science, technology, and innovation studies in the late 1980s, suggesting that this research system’s goal is to facilitate innovation, acknowledging that it is merely a component of a broader system that encompasses government, academia, industry, and the environment.

Prof Monika Petraitė, KTU School of Economics and Business
Prof Monika Petraitė, KTU School of Economics and Business

For many years national innovation systems were considered the concept that largely determines the supply of external knowledge. From this point of view, this strong interdependence makes the national innovation system more important now than ever before. Open innovation is an emerging, collaborative, multi-actor, and multi-level process that involves business, government, research, and civil society.

“Most of the research on transition and emerging economies used to focus on large economies due to their global significance. However, those findings which can be applied to large countries, rarely suit the situation of small economies in transition. In this context, our research revealed that the national innovation system performance, which is considered of high importance in large economies, within well-performing transition economies seems to be relatively weak”, says Monika Petraite, a researcher at the Kaunas University of Technology School of Economics and Business in the “IN4ACT” project.

According to researchers, the principal question of how organizational capabilities associated with technology learning, knowledge exchanges, and trust for innovation impact the networking patterns within national innovation system environments remains open. Considering the relatively weak national innovation system performance within well-performing transition economies, in terms of general macroeconomic indicators, this issue becomes of critical importance.

Importance of international business and networks

Based on this formulation, researchers were willing to discuss the role of international networks in upgrading national innovation systems-based networks built on small Central and Eastern Europe economies. The results of the research highlight the importance of international business and innovation systems integration, especially in small transition economies.

This realization has significant implications for policymaking in small transition economies regarding opening their economy to foreign investment, allowing domestic actors to tap into global markets and resources, and long-term strategy development in domestic companies for technological and organizational upgrading.

“Analysing the results of a survey of 131 firms in the small transition economy of Lithuania, we find that the linkages of domestic companies with the international community in terms of access to international business networks, to global innovation systems based networks, and through domestic foreign competition and presence of foreign innovation actors are significantly more critical for the development of the national innovation system-based companies’ network than predicted by previous large economy transition research”, says M. Petraite.

Domestic organizational and technological knowledge is inconsequential for the improvement of the national innovation system-based network unless associated with international networks and competition. Researchers interpreted these findings as a technology learning and associated trust benefit granted to the international experience and international reputation.

Furthermore, the analysis revealed that innovation performance, productivity, and success were highly influenced by user networks: communities in which domestic and international actors pursue innovation within shared markets or platforms.

The modeling also showed that innovation development strategy leads companies towards different approaches in network formation to achieve innovation development goals resulting in different innovation networks’ constellations. In this interplay, the innovation development and internationalization strategy of firms combined with the strong internationalization focus directly influenced the pattern of technological learning network formation within the global innovation systems through international user networks, national research and development networks, global innovation system networks, and international business networks and alliances that mediate the engagement within the national innovation system at the final step.

Surprisingly, technological learning and trust only insignificantly impacted the global innovation system-based networks. However, it further mediated the engagement of technological learning and trust development within the national innovation system network at the highest level compared to other networks studied. It indicates the inherent ability of the global innovation system networks to improve domestic innovation systems.

Company behavior patterns

M. Petraite reveals that the key findings of the research also highlighted a few vital companies’ behavior patterns illustrating the technological and innovative capabilities of Central and Eastern European countries’ moving towards innovative economies.

First, technological learning and trust appeared to be critical organizational capabilities for executing innovation strategies within networks to succeed in national innovation systems. Trust is a capability that indirectly through the mediation of international networks improves innovation in national innovation networks.

Second, while technological learning and trust are critical factors in forming complex innovation networks, they impact national research, development, and innovation systems mostly in the context of global innovation systems, international user networks, national research and development networks, international competitors, and foreign lead users, international business networks and alliances.

Third, internationalization and innovation development strategies do not directly drive or improve the domestic innovation system. They achieve this objective through the mediation of technological learning, trust, and various innovation networks.

Furthermore, the effects of national innovation system-based networks must be fully mediated by either international business networks, global innovation systems-based networks, or international competitor and user networks, depending on the innovation strategy and organizational capability employed.

Finally, user-driven innovation network engagement is the only factor directly impacting and fully mediating innovation success. There is no direct impact on innovation success from any other innovation network analyzed. However, its effects need to be amplified via complex knowledge and learning interactions mediated via national innovation systems or international lead user and competitor networks.

The research was a part of the “IN4ACT” project, implemented by the Kaunas University of Technology School of Economics and Business researchers and financed by the European Union project “Horizon 2020”. More about “IN4ACT”: