How do companies best cope with an economic crisis? A new study by the AIT Austrian Institutes of Technology together with the ZEW - Leibniz Centre for European Economic Research shows that innovative companies are more resilient and suffer significantly less from the consequences of an economic crisis than companies without new products. The reason is simple: innovations help to compensate for declining sales of existing products. Non-innovative companies do not have this opportunity.
How can companies become more resilient to crises?
The global financial and economic crisis of 2008/09 and the Covid 19 crisis of 2020 have clearly demonstrated the importance of resilience, i.e. the ability of companies to withstand crises. The question remains: how can companies become more resilient? A new study by the Centre for European Economic Research (ZEW) together with the AIT Austrian Institute of Technology provides an answer. The study examines how product innovations create employment on the basis of companies from 26 European countries over the period 1998-2014.
The results show that both innovators and non-innovators create employment in all phases of the business cycle with the exception of a recession. In the recession, the differences between the two groups become apparent: while employment of non-innovators collapses, innovators only have to cope with a small decline. Prof. Bettina Peters: "So the difference between innovative and non-innovative companies is most evident when times get bad."
SMEs clearly in advantage
The study finds another important difference between small and medium-sized enterprises (SMEs) and large companies. SMEs create significantly more new jobs, not because they are more innovative, but because the productivity increases in large companies cancel out the employment effect of innovations to a large extent. AIT Senior Scientist Bernhard Dachs: "the employment effects of innovations in large companies are swallowed by rationalisation and restructuring".
Create incentives for innovation
For policymakers, the study has a clear message: they must do everything possible to prevent companies from stopping their innovation activities during the crisis. Innovation is a long-term activity that cannot be switched on and off in the short term. For many companies, especially SMEs, that stopped their innovation activities in the crisis of 2008/09, this decision was final. However, this also reduces the chance of employment gains in the subsequent upswing.